GNSS 10-K
Genasys Inc. (GNSS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the fiscal year ended
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the voting common stock held by nonaffiliates of the registrant as of March 31, 2023 (the last business day of the registrant’s most recently completed second fiscal quarter) was $
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement filed with the Commission pursuant to Regulation 14A in connection with the registrant’s 2024 Annual Meeting of Stockholders, to be filed subsequent to the date of this report, are incorporated by reference into Part III of this report. The definitive proxy statement will be filed with the Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended September 30, 2023.
TABLE OF CONTENTS
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PART I |
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ITEM 1. |
Business |
1 |
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ITEM 1A. |
Risk Factors |
12 |
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ITEM 1B. |
Unresolved Staff Comments |
21 |
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ITEM 2. |
Properties |
22 |
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ITEM 3. |
Legal Proceedings |
22 |
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ITEM 4. |
Mine Safety Disclosures |
22 |
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PART II |
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ITEM 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
23 |
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ITEM 6. |
Reserved |
23 |
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ITEM 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
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ITEM 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
35 |
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ITEM 8. |
Financial Statements and Supplementary Data |
35 |
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ITEM 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
36 |
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ITEM 9A. |
Controls and Procedures |
36 |
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ITEM 9B. |
Other Information |
36 |
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ITEM 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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PART III |
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ITEM 10. |
Directors, Executive Officers and Corporate Governance |
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ITEM 11. |
Executive Compensation |
37 |
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ITEM 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
37 |
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ITEM 13. |
Certain Relationships and Related Transactions, and Director Independence |
37 |
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ITEM 14. |
Principal Accounting Fees and Services |
37 |
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PART IV |
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ITEM 15. |
Exhibits and Financial Statement Schedules |
38 |
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Consolidated Financial Statements |
F-1 |
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Signatures |
S-1 |
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PART I
Forward Looking Statements
This Annual Report on Form 10-K contains forward-looking statements relating to future events or the future performance of our company. 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. Such statements are predictions; actual events or results may differ materially. In evaluating such statements, you should specifically consider various factors identified in this report, including the matters set forth below in “Item 1A. Risk Factors” of this 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 Annual Report, the terms “we,” “us,” “our” “Genasys” and the “Company” refer to Genasys Inc. and its consolidated subsidiaries.
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Item 1. |
Business. |
Overview
We are a global provider of Protective Communications™ solutions, including our Genasys Protect™ software platform and Genasys Long Range Acoustic Devices® (“LRAD®”). Our unified software platform receives information from a wide variety of sensors and Internet-of-Things (“IoT”) inputs to collect real-time information on developing and active emergency situations. Genasys uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
Genasys Protect provides a comprehensive portfolio of Protective Communications software and hardware systems serving federal governments and agencies; state and local governmental agencies, and education (“SLED”); and enterprise organizations in sectors including but not limited to oil and gas, utilities, manufacturing, automotive, and healthcare. Genasys Protect solutions have a diverse range of applications, including emergency warning and mass notification for public safety; critical event management for enterprise companies; de-escalation for defense and law enforcement; critical infrastructure protection; and automated detection of real-time threats such as active shooters and severe weather.
Genasys LRAD systems provide directed audible voice messages with exceptional, intelligible vocal clarity from close range out to 5,500 meters. We have a history of successfully delivering innovative systems and solutions in mission critical situations, pioneering the acoustic hailing device (“AHD”) market with the introduction of our first LRAD AHD in 2002 and creating the first multidirectional voice-based public safety mass notification systems in 2012. Building on our proven, best in class and reliable solutions and systems, we are launching the first and only unified, end-to-end Protective Communications platform.
Background
Genasys entered the Protective Communications market following the October 2000 attack on the USS Cole, which led to the development of the LRAD, an AHD capable of communicating to and determining the intent of potential threats from a safe distance. Genasys LRAD systems broadcast audible alert tones and exceptionally intelligible voice messages in a focused 30° beam over long distances to specific targets. LRADs were quickly embraced by the U.S. Navy and then other domestic military branches, federal agencies, and police departments, and then throughout the world. By using long-range communication to better manage the escalation of force, LRAD continues to provide a non-kinetic, non-lethal solution for resolving potentially dangerous or hostile situations.
With a device capable of broadcasting audible alerts and notifications with exceptional vocal clarity over long distances, Genasys engineers enhanced the Company's Protective Communications technology to innovate a new generation of mass notification speaker systems. Most legacy mass notification systems use sound sirens, but have limited, if any, voice broadcast capability. 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 are designed to enable the systems to continue operating when power and telecommunications infrastructure goes down.
Realizing that integrating software with the mass notification speakers would provide further technology options and additional functionality, Company engineers developed the Genasys Emergency Management (“GEM”) command-and-control software. In addition to remotely activating and controlling Genasys advanced speaker systems, which feature satellite connectivity and solar power options, GEM facilitates the dissemination of alerts, warnings, notifications, information and instructions through multiple channels, including location-based Short Message Service (“SMS”), Cell Broadcast Center (“CBC”) mobile push, text, email, social media, TV, radio, and digital displays. These systems are used by government emergency services, schools, universities, and businesses to send emergency information and instructions to people at risk before, during, and after public safety and enterprise threats.
Today, the fastest most direct way to share vital information is often through cell phones and computers. In response to a world where communication methods are becoming increasingly digital and mobile, Genasys expanded its platform to include multiple software-as-a-service (“SaaS”) solutions. These solutions include Zonehaven® evacuation resources, Integrated Mass Notification System (“IMNS”) networks that feature advanced mass notification powered by Genasys’ command-and-control software, and the Company's National Emergency Warning System (“NEWS”) solution that works with mobile carriers to send emergency communications to the public with no opt-in required. These SaaS solutions are capable of disseminating critical alerts and information through text message, email, voice call, push notification, social media, and other delivery methods. In 2023, Genasys integrated and rebranded each of these solutions into what is now known as Genasys Protect.
Genasys hardware systems and software solutions are designed to provide operators the ability to deliver critical information rapidly and effectively through multiple channels.
Genasys’ Principal Characteristics
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Scalable: Genasys hardware products and software systems have been deployed throughout the world and can be scaled to meet the needs of government and enterprise customers. |
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Dynamic and Real-time: Emergencies and effective emergency responses are not static, and neither are effective emergency responses. Genasys emergency management systems are designed to constantly receive and analyze new information as a crisis unfolds, leveraging sensor data, dynamic maps, and first responder feedback to deliver notifications that reflect the most up-to-date information. Our evacuation software tracks wildfires and other natural or man-made disasters and models how a disaster is expected to move and develop in the critical minutes, hours or days that follow. |
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Customized and Focused: Genasys can send specific alerts, pertinent information and instructions to at-risk individuals or populations based on geographic location, group status, and other classifications. |
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Multiplatform Redundancy: Alerts can be distributed using text messages, emails, voice calls, push notifications, social media, speaker systems, and other delivery channels, allowing critical communications to reach the greatest number of people possible. |
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Reach and Clarity: Alerts and notifications transmitted through Genasys speaker systems have unprecedented reach and clarity. Genasys speakers attained an STI score of 0.95 out of 1.0, considered excellent by the International Electrotechnical Commission. |
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Reliable and Resilient: Genasys’ hardware products are made with military-grade materials and undergo extensive laboratory testing seeking to ensure reliability and durability in most any environment, regardless of the conditions. |
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Extensive Catalog: Genasys offers multiple acoustic device and mass notification speaker options of varying ranges, sizes, weights, and colors. Similarly, we offer a variety of software notification suites, each with unique capabilities. This extensive catalog enables us to provide customized solutions designed to meet our clients' specific needs. |
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Global Presence: Genasys has physical offices in North America, Europe, and the Middle East. Sales and support teams at each office have cultural familiarity and a deep understanding of business practices in their region. A regional presence enables Genasys' sales and support teams to develop close relationships with customers to best meet their needs while conducting business professionally and efficiently. |
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Proven Quality and Support: All Genasys products are rigorously tested to meet our exacting standards. This commitment to providing the highest quality products earned Genasys ISO 9001 and 27001 certifications, universal indications of excellence and consistency. All Genasys products come with a one year warranty and our customer service team is available 24/7 for personalized technical support. |
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Pioneering Philosophy: Genasys created the AHD market with the invention of LRAD in 2002. LRAD systems have since become the de facto standard of the AHD industry. Genasys continues to develop life safety communication solutions by innovating and enhancing the emergency warning and mass notification industry's only unified Protective Communications platform. |
Looking Forward: Growth Company
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Acquisitions: In October 2023, we completed the acquisition of Evertel Technologies (“Evertel”), a fully compliant cross agency collaboration software solution designed specifically for Emergency managers and first responders. In fiscal 2021, we completed acquisitions of Zonehaven, a software-based evacuation and repopulation management platform, and the assets of Amika Mobile (subsequently renamed “Genasys Communications Canada ULC”), a Physical Security Information Management (PSIM) company. These acquisitions, along with the January 2018 addition of Genasys Spain, expanded Genasys’ strong suite of software solutions. We intend to continue making strategic acquisitions, particularly in the SaaS industry. |
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Team Expansion: Along with new businesses, we intend to invest in new engineering, sales, marketing, production, and quality assurance talent to support Genasys’ expected growth. |
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Market Expansion: By acquiring Evertel, Zonehaven and Amika Mobile and adding new sales and marketing personnel with connections to previously untapped markets and locations, we expect our critical communications suite to experience significant sales growth. |
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Facilities: Genasys’ research and development offices, located in North America and Europe, feature state-of-the art equipment and facilities that help fuel innovation. Notable features include hardware and software development laboratories, an acoustic testing chamber, and mechanical design and manufacturing facilities. |
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Continued Software Development: Increased software development and new acquisitions have expanded Genasys’ SaaS portfolio. In fiscal year 2024 and beyond, we are focused on the expansion and proliferation of our unified software and hardware platform. |
Software Products
Genasys Protect
The Complete Protective Communications Platform
Genasys Protect combines the most comprehensive suite of solutions enabling preparedness, responsiveness, and analytics to keep people, assets, and operations protected against the impacts of natural disasters, terrorism, violent civil unrest, and other dangerous situations, as well as power failures, facility shutdowns, and other non-emergency operational disruptions.
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Proven Technology: Genasys solutions have been on the front lines for more than 40 years, providing targeted communications designed to ensure the right people get the right message - right away. |
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Modular Suite: Built on open standards, Genasys software and hardware systems are designed to easily integrate, whether using the full Genasys suite or complementing the notification platforms customers already have in place. |
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Predictive Simulation: Genasys Protect is designed to permit customers to test response plans preemptively with advanced simulation of evacuation-level events, including fires and floods, and their impact on infrastructure, including traffic patterns and perimeter establishment. |
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Unified Viewpoint: One common safety operating picture provides real-time visibility into our customers’ people, assets, and environment by combining first-party data from asset / people-management platforms and IoT sensors with third-party data sources, including the Federal Emergency Management Agency (“FEMA”), National Oceanic and Atmospheric Administration (“NOAA”), Department of Homeland Security (“DHS”), and more. |
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Unmatched Precision: Customized zone mapping enables targeting of mass notifications at the street level, making it easier to sequence response areas from most to least critical. |
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Multi-channel: Genasys Protect is designed to allow customers to saturate their notification area by simultaneously alerting people across SMS, voice calls, social media, TV, radio, digital signage, and outdoor acoustic devices. |
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Network Effect: Implementation in neighboring municipalities as well as across public- and private-sector organizations within the same municipality extends coverage and enables greater precision when notifying people of threats. |
Genasys Protect ALERT
Genasys Protect ALERT (“ALERT”) - formerly Genasys Emergency Management or GEM - is an interactive, cloud-based SaaS solution that is designed to enable SLED and enterprise customers to send critical information to at-risk individuals or groups when an emergency occurs. ALERT acts as both a communications input and output, receiving information from state-of-the-art sensors and emergency services, and quickly relaying notifications, alerts, and instructions to at-risk populations and first responders. ALERT communications to the public can be enhanced via Genasys Protect ACOUSTICS, while ALERT communications among first responders and emergency personnel can be augmented and accelerated with Genasys Protect CONNECT (formerly Evertel). ALERT customers can create and send critical, verified, and secure notifications and messages that are geographically specific and targeted using emails, voice calls, text messages, panic buttons, desktop alerts, TV, social media, and more. Additionally, Genasys is a certified provider of Integrated Public Alert and Warning System (“IPAWS”) notifications. IPAWS is the federal public notification platform for the United States, which ALERT customers can use to deliver critical communications in multiple languages to specific populations.
Similarly, enterprise customers are able to send critical communications to at-risk employees, contractors, visitors, or groups based on geographic location or team status. Operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins and recipient locations, ALERT integrates with various data sources, including sensors, emergency services, active directories, human resources, visitor management, and building control systems to find and deliver safety alerts and notifications to residents, employees, staff, contractors, temporary workers, and visitors.
ALERT sends targeted messages based on geographic location, permitting relevant information and instructions to be sent to the appropriate populations. Emergency managers can prepare for natural or man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using ALERT’s extensive public safety resources and mapped zones. This information is easily shared with the public and reduces the time it takes to execute emergency evacuations and conduct orderly repopulations. Auto-Discovery, an innovative feature of the platform, locates and connects with anyone on a wired or wireless network in a fixed area with no opt-in required. When discovered, ALERT anonymizes all recipient information and data. When an emergency occurs, these tools allow at-risk groups or individuals to be notified as quickly as possible without sacrificing their privacy.
In addition to disseminating alerts and notifications, ALERT uses two-way communication tools, including polls and check-ins to receive feedback from targeted populations and first responders. With direct feedback, operators can survey the safety and status of at-risk individuals, learn of developments, update notifications and/or instructions in response to new information, and more.
ALERT Public Safety Case Study
In fiscal 2023, cities and counties in Arizona, Arkansas, California, Colorado, Indiana, Mississippi, Missouri, Oklahoma, Pennsylvania, South Carolina, and Texas selected GEM to help safeguard millions of residents during severe storms, tornadoes, wildfires, flooding, debris flows, tsunamis, active shooter incidents, epidemics, civil unrest, and other disasters and life safety threats. By the end of fiscal 2023, Genasys Protect was utilized by agencies covering more than 20 million people in the United States.
ALERT Enterprise Case Study
Two global auto manufacturers and Aramco, the world’s largest oil and gas company, rely on ALERT to create, manage and deliver geo-targeted, multichannel notifications to thousands of employees in North America and the Middle East, respectively.
ALERT integrates with active directories, Human Resources, visitor management, and building control systems to empower enterprise customers to protect workers, traveling employees, contractors, and visitors. By adding a powerful and intuitive orchestration and management layer on top of existing physical and digital infrastructure, ALERT extends the clarity, reach and range of Protective Communications.
Genasys Protect EVAC
Genasys Protect EVAC (“EVAC”) - formerly Zonehaven - enables responding agencies to react swiftly, make collaborative decisions, and communicate event status in real-time to other agencies, businesses, and the public. EVAC determines and communicates the proper scope of a response or evacuation by replacing guesswork with data-driven intelligence. EVAC enhances safety levels for first responders, communities, and large campuses by providing:
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intelligent zones to improve evacuation planning and communication. EVAC users can build, edit, and act upon geographical location data, including shelters, facilities, and traffic; |
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modeling behaviors to plan for effective responses and/or evacuation scenarios covering emergencies that include wildfires, floods, active shooters, hurricanes, and more; |
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actionable communication through the Genasys Protect mobile app to keep people informed before, during, and after a critical event; |
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a common operating picture across agencies to reduce response times; and |
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targeted alerting across multiple channels, including intelligible, outdoor speakers for timely, efficient evacuation and public safety notifications. |
EVAC Public Safety Case Study
During December 2022 and January 2023, counties across California experienced multiple flooding and storm-surge events related to atmospheric river conditions. These atmospheric river storms created unprecedented rainfall, which had been preceded by wildfire scar damage that exacerbated debris flows, mudslides, and avalanches. First responders and emergency managers were dealing with multiple events happening simultaneously.
More than ten counties, including Los Angeles, Humboldt, and Santa Cruz, used EVAC for multi-agency coordination and to manage and deliver evacuation alerts, warnings and orders. EVAC was also used to communicate other critical information to the public, including road closures, power outages, storm warnings, and more.
Genasys Protect CONNECT
Genasys Protect CONNECT (“CONNECT”) - formerly Evertel Technologies - is a leading cross-agency collaboration platform that streamlines and secures team and one-on-one communications for first responders and public safety agencies. With real-time intelligence sharing that exceeds regulatory privacy requirements for public agencies, CONNECT’s instant communication platform empowers first responders and public safety personnel to collaborate and share information in a single space with text, videos, images, and audio from any location. CONNECT provides a secure space where professionals can exchange information, make decisions, and collaborate with trust in data security. Record retention policies drive compliance that allows agencies and personnel to communicate in confidence.
Enabling public safety professionals to collaborate with other agencies throughout their region, state and country, CONNECT provides real-time interoperability to address critical events and crisis situations more quickly through coordinated efforts. Compliant with all federal and state-level legal requirements for public safety communications, CONNECT data is protected and secured through high-level data encryption within a secure, U.S. based, government-only cloud environment.
Hardware Products
Genasys Protect ACOUSTICS
The Genasys Protect ACOUSTICS (“ACOUSTICS”) – formerly Integrated Mass Notification Systems or IMNS – unites Genasys’ next generation of mass notification speaker systems with Genasys Protect command-and-control software. Most legacy mass notification systems are sirens with limited, if any, voice broadcast capability. ACOUSTICS systems feature the industry's highest STI, large directional and omni-directional broadcast coverage areas, and an array of options including solar power, battery backup, and satellite connectivity that enable the systems to continue to operate when power and telecommunications infrastructure goes down.
ACOUSTICS gives operators the ability to send critical alerts and notifications from emergency operations centers, and authorized computers or smart phones. Emergency alerts and information can be sent via individual, grouped or networked ACOUSTICS installations, text messages, emails, IPAWS, desktop alerts, TV, voice calls, and social media. Genasys Protect’s layered redundancy helps to ensure the maximum number of people receive Protective Communications and critical notifications.
Genasys LRAD
LRAD is the world’s leading AHD, with the ability to project alert tones and audible voice messages with exceptional vocal clarity in a 30° beam from close range to 5,500 meters. LRADs are 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. LRADs have been deployed on military vehicles, at corporate headquarters, critical infrastructure, in hostage negotiations, aboard private yachts, and in numerous installations and applications where clear and intelligible voice communications are essential.
Several LRAD models are available in varying audio outputs, communication coverage areas, sizes, and functionalities. Several options and accessories (cameras, searchlights, mounts, and more) are also available to enhance LRAD capabilities.
All LRAD systems are defined by their unparalleled audio output and clarity. LRADs use Genasys' proprietary XL driver technology, which generates higher audio output in a smaller, lighter form factor. The technology also helps ensure voice messages and alert tones cut through background noise and are clearly heard and understood. These competitive advantages, and constant innovation, have made LRAD the de facto standard of the global AHD industry.
ACOUSTICS Case Study
Faced with wildfires, flooding, debris flows, earthquakes, tsunamis, severe weather and other public safety threats, the city of Laguna Beach, California, selected ACOUSTICS to deliver emergency alerts and notifications to its 23,000 residents and 6 million annual visitors. More than 20 ACOUSTICS installations are in place throughout the city with more installations planned. The installations can be activated individually, in groups, or simultaneously to provide area specific or citywide emergency warning coverage. The ACOUSTICS outdoor speaker installations are equipped with solar power, battery backup, and satellite connectivity in the event power and telecommunications infrastructure failure.
LRAD Case Study
SWAT teams respond to dangerous situations where communication is vital. Previously, SWAT teams used bullhorns and vehicle public address (“PA”) systems to communicate with violent suspects. Because of the poor intelligibility and limited broadcast range of bullhorns and vehicle PA systems, SWAT team members often had to closely engage with suspects, putting themselves, suspects, and bystanders in harm's way.
Many SWAT teams now use LRAD for serving high risk warrants, and during hostage and barricaded suspect negotiations, active shooter situations, and other SWAT operations. LRAD systems are portable and adaptable in most any situation to provide clear voice broadcasts over long distances. By effectively communicating from safe standoff distances, LRAD helps resolve uncertain situations, safeguards operators, and protects the public.
End Markets
Government
Genasys Protect provides state, local, and federal agencies with a feature-rich system that combines physical security integrations with multichannel emergency alerting. Automated integrations include fire system, access control, IPAWS, and mobile and desktop panic buttons. Output channels include 2-way SMS, email, pop-ups, callouts, PA speakers, and land mobile radio outputs.
ALERT can be used by state, local, or national agencies to deliver emergency alerts and life safety information to residents in certain areas, regionally, or countrywide.
Partnering with national governments and mobile telecom networks, Genasys Protect delivers CBC alerts and geo-targeted SMS notifications that can be sent to anyone, anywhere, with no recipient opt-in, registration, or download required.
LRAD systems enhance the safety and security of government-owned critical infrastructure including dams, power plants, water treatment plants, and government facilities. Unlike traditional monitoring and surveillance networks, LRAD systems provide a vital first response capability missing from observe-only integrated security installations. LRAD turns passive monitoring systems into first responders by broadcasting attention-commanding alerts, warnings, and critical notifications with industry-leading audibility and clarity.
Enterprise
Genasys Protect provides full redundancy and high resilience in workforce safety and messaging during everyday duties and critical business events. Genasys Protect’s accountability and real-time situational awareness translates to effective communications that can be delivered via voice calls, SMS messages, emails, desktop alerts, WhatsApp, and other corporate communication channels to reach workers, on-premises visitors, and contractors with no opt-in required.
Genasys Protect can be operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins and recipient locations. Genasys Protect enterprise solutions integrate with data sources, including active directories, human resources, visitor management and building control systems to find and reach employees, staff, contractors, temporary workers and visitors.
LRAD systems are being used for commercial security applications at large data centers, manufacturing plants, and other enterprise facilities.
Gas, Oil, Utilities
Genasys Protect integrates with a variety of industrial technologies, including gas leak sensors, 'man down' alarms, access control systems, and badge scanners for workforce safety and accountability. Genasys Protect delivers notifications to employees, contractors, visitors, and guests in corporate offices and at field sites. When integrated with human resources systems, Genasys Protect provides employee notifications, guest management systems for contractors and visitors, auto discovery alerts to anyone present on-site, and SMS opt-in for temporary enrollment to receive alerts and notifications.
In addition to providing real-time safety alerts and notifications through multiple channels, Genasys Protect provides service outage, system maintenance, and other utility customer communications.
ACOUSTICS is being used for emergency warning, industrial safety notification, and facility public address. ACOUSTICS can be integrated with gas detection and other sensors to provide automated alerts that protect workers and minimize infrastructure damage. ACOUSTICS alert tones and voice messages cut though mechanical and ambient background noise to be clearly heard and understood, before, during, and in the aftermath of emergency events.
LRAD systems enhance perimeter security by providing a vital first response capability missing from observe-only integrated security installations. LRAD turns passive monitoring systems into first responders by broadcasting attention-commanding alerts, warnings, and commands to direct fishing boats away from offshore platforms and trespassers from critical infrastructure .
Campuses
ACOUSTICS unifies software emergency alerting and highly intelligible indoor/outdoor speaker systems to provide multiple channels to deliver notifications, instructions and information to students, staff, faculty, and employees. Using ALERT command-and- control software, safety warnings can be delivered campus-wide across several channels, or to specific areas and student populations using select channels.
Towns, Cities, Counties
Genasys Protect’s scalable ALERT notification software is used by communities of all sizes to issue emergency warnings, provide important instructions, and receive community feedback quickly and directly.
Genasys Protect serves communities by providing digital communications through SMS, email, social media, and other channels, and broadcasting audible messages through Genasys ACOUSTICS installations. During wildfires, flooding, tornadoes, hurricanes and other emergencies, power and telecom outages frequently disrupt legacy emergency warning systems. Genasys’ ACOUSTICS systems are made with rugged, military-grade materials that can withstand the elements, and feature solar power, satellite connectivity, and battery backup options that enable emergency services personnel to disseminate critical information even when power and telecommunications infrastructure goes down.
EVAC is used by communities and counties to create disaster response plans, track emergency events, and execute timely emergency evacuations and orderly repopulations. CONNECT and EVAC allow emergency services to effectively collaborate across jurisdictions to respond quickly and efficiently to disasters. Genasys Protect emergency services include notifications, alerts, and instructions sent directly to community members through several channels, including SMS, email, Waze, and more.
Industrial Facilities
When integrated with software and/or hardware sensors, ACOUSTICS provide facility managers actionable data and information to either remotely or automatically initiate critical safety notifications. These notifications can be delivered throughout a facility or only to areas affected by industrial accidents, hazmat incidents, unauthorized entries, and other worker safety threats.
Defense
LRADs broadcast audible warning tones and voice messages with exceptional clarity from close range to 5,500 meters. This allows LRAD operators on the ground, in vehicles, on ships, or in helicopters, to increase the decision time and distance to differentiate between security threats and non-combatants, resolve uncertain situations, respond safely, and limit the escalation of force.
First Response
Police and fire departments are using LRAD systems in everyday duties and elevated risk operations to issue warnings, commands, and notifications that are clearly heard and understood above crowd, engine and background noise. Rugged, reliable, and easy to operate, LRAD systems resolve uncertain situations, safeguard the public, and protect first responders.
Wildlife & Assets
Certain facilities and infrastructure face wildlife challenges that can threaten assets or pose health risks to employees and/or local populations. LRADs are easily programmed to broadcast a near infinite variety of tones and predator calls to help prevent habituation, safely deter and protect wildlife from potential hazards, and humanely move wildlife away from critical assets and people. When integrated with cameras, motion sensors, night vision, and radar, LRAD systems can be automated and remotely operated across an IP network to provide critical asset operators a completely unmanned perimeter protection solution capable of safely deterring wildlife and human trespassing.
Strategy
Our products, systems and solutions continue to gain worldwide awareness and recognition through increased marketing efforts, 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, enterprise safety, and law enforcement sectors as a result of increasing threats to government, commerce, law enforcement, homeland security and critical infrastructure. Our products, systems and solutions also have many applications within the fire rescue, maritime, asset protection, and wildlife control and preservation business segments.
Genasys has developed a global market and an increasing demand for LRAD communications systems. We have a reputation for producing quality products that feature industry-leading broadcast area coverage, vocal intelligibility and product reliability. We plan to continue building on our AHD market leadership position by offering enhanced voice broadcast systems and accessories for an expanding range of applications. In executing our strategy, we use direct sales to governments, militaries, large end-users, system integrators, and prime vendors. We have built a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communication solutions into our various target markets. As our primary AHD sales opportunities are with domestic and international governments, military branches, and law enforcement agencies, we are subject to each customer’s unique budget cycle, which leads to long selling cycles and uneven revenue flow, complicating our product planning.
The proliferation of natural and man-made disasters, emergency events and civil unrest require technologically advanced, multichannel solutions to deliver clear and timely critical communications to help keep people safe during crisis situations. Businesses are also incorporating 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 geographically-specific multichannel, multiagency alerting and notifications, Genasys seeks to deliver reliable, fast, and intuitive solutions for creating and disseminating warnings, information and instructions before, during, and after public safety and enterprise threats.
While the software and hardware mass notification markets are more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified platform provides opportunities to succeed in the large and growing public safety, emergency warning, and Protective Communications markets.
In fiscal 2024, we intend to continue pursuing domestic and international business opportunities with the support of business development consultants, key representatives, and resellers. We plan to grow our revenues through increased direct sales to governments and agencies that desire to integrate our communication technologies into their homeland security and public safety systems. This includes building on fiscal 2023 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue both domestic and international emergency warning, enterprise and critical event management, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife preservation and control business opportunities.
Our research and development strategy includes incorporating further innovations and capabilities into our Genasys Protect and LRAD products, systems, and solutions to meet the needs of our target markets.
Our Genasys Protect software solutions are more complex offerings. We are pursuing certain certifications, which are often required when bidding on government and mass notification opportunities. We intend to invest engineering resources to enhance our Genasys 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.
We intend to continue operating with financial discipline in order to create value for our shareholders.
Manufacturing and Suppliers
Manufacturing
As an ISO 9001:2015 manufacturer, we believe maintaining quality manufacturing capacity is essential to the performance of our products and the growth of our business. Our technologies are different from mass-produced designs, and our manufacturing and assembly involves unique processes and materials. We contract with third-party suppliers to produce various components and sub-assemblies. In our facility, we complete the final assembly, test, and ship our products. We have refined our internal processes to improve how we design, test, and qualify products. We continue to implement rigorous manufacturing and quality processes to track production and field failures. We also perform third-party testing and certification of our products to ensure that they meet rigorous military and commercial specifications. We implement design and component changes periodically to reduce our product costs and improve product reliability and manufacturability.
Suppliers
We minimize inventories and maximize the efficiency of our supply chain by having a large number of components and sub-assemblies produced by outside suppliers mainly located within 50 miles of our facility. The Company relies on one supplier for compression drivers for its LRAD products and is working to obtain alternative suppliers to reduce such reliance. The Company’s ability to manufacture its products could be adversely affected if it were to lose this sole source supplier and was unable to find an alternative supplier. We also purchase several key components and sub-assemblies from foreign suppliers. Consequently, we are subject to the impact that supply chain issues and economic conditions can have on such suppliers. The fluctuations of foreign currency exchange rates could also impact our lead times and product costs. We have developed strong relationships with a number of our key suppliers. If these suppliers experience supply chain issues, quality problems or part shortages, our production schedules could be significantly delayed, or our costs could significantly increase.
Sales and Marketing
We market and sell products and services through our salesforce based in Alabama, California, Colorado, Florida, Nevada, North Carolina, Oregon, Wisconsin, Spain, United Kingdom, and the U.A.E., as well as through a full-time business consultant in Germany. Our corporate and administrative offices are located in San Diego, California.
We sell directly to governments, militaries, large end-users, and commercial companies. We use independent representatives on a commission basis to assist in our direct sales efforts. We also use a channel distribution model, in which we sell our products directly to independent resellers and system integrators around the world, who then sell (or integrate products with other systems and then sell) to end-user customers. We are focusing our internal business development resources on building relationships with governments and other large direct customers. In addition, we utilize part-time consultants with expertise in various government and defense sectors to advise us on procedures and budgetary policies in an effort to be successful in these areas.
We have a global reputation for providing high quality, innovative voice broadcast systems and mobile alert solutions that have made Genasys and LRAD internationally recognized product brands. We actively promote our brands and products through our website, trade shows, and advertising. We intend to increase the use of our trademarks throughout our product distribution chain and believe growing brand awareness will assist in expanding our business. We believe our reputation for technological expertise, quality products, and strong service and support provide us competitive advantages.
Customer Concentration
For the fiscal year ended September 30, 2023, one customer accounted for 54% of revenues, with no other single customer accounting for more than 10% of revenues. For the fiscal year ended September 30, 2022, one customer accounted for 68% of revenues, with no other single customer accounting for more than 10% of revenues.
Our revenues to date have relied on a few major customers. The loss of any customer could have a materially adverse effect on our financial condition, results of operations, and cash flows. We have made progress diversifying our revenues and expect to continue to do so in future periods.
Backlog
Our order backlog for products that are deliverable in the next 12 months was approximately $7.0 million as of September 30, 2023, compared with $21.7 million as of September 30, 2022. The amount of backlog at any point in time is dependent upon scheduled delivery dates to our customers and product lead times. Our backlog orders are supported by firm purchase orders.
Warranties
We generally warrant our products to be free from material and workmanship defects for a period up to one year from the date of purchase. The warranty is generally a limited warranty, and in some instances imposes certain shipping costs on the customer. We generally provide direct warranty service, but at times we may establish warranty service through third parties.
We also provide repair and maintenance agreements and extended warranty contracts at market rates, with terms ranging from one year to several years, as an additional source of revenue and to provide increased customer satisfaction.
Competition
Our technologies and products compete with those of other companies. Our LRAD AHDs and ACOUSTICS systems are part of the commercial and government audio industry and mass notification markets that are fragmented and include numerous manufacturers with products that vary widely in price, quality, and distribution channels. Present and potential competitors have, or may have, substantially greater resources to devote to product development. We believe we compete primarily on the originality of our products, the uniqueness of our technology and designs, and our responsiveness to customers and the ability to meet their needs. We believe the quality, reliability and superior performance of our products, which have been developed by incorporating feedback from our customers and our desire to provide the highest quality products, also provide us competitive advantages.
Our LRAD product line includes the leading long-range voice broadcast systems for military and other applications. Our AHD competitors include Ultra Electronics/USSI, IML Sound Commander and others. We do not believe these competitors have achieved significant global market penetration in the AHD market to date. We believe our LRAD product line has demonstrated acceptance, has performed extremely well in harsh environments, and can continue to compete on the basis of technical features, performance, ease of use, quality and cost. As we continue to grow this market, future competitors may enter, which could impact our competitiveness.
Our advanced ACOUSTICS mass notification systems compete against several domestic and international companies, including Federal Signal, Whelen Engineering Company, Hoermann, and others. We believe our industry-leading voice intelligibility and area coverage, as well as our satellite connectivity and solar power options, provide key advantages that distinguish us from our competitors. When integrated with our Genasys Protect command-and-control software to provide multiple remote activation and control options, we believe our mass notification speakers are among the most technologically advanced and easiest to operate in the world.
In the more mature and established critical communications and event management software markets, we compete against several competitors, including Everbridge, OnSolve, Rave Mobile Safety, and others. We believe our ability to unify sensors and IoT inputs with the multichannel, multiagency dissemination of geolocation-targeted alerts, notifications and instructions before, during, and after public safety and enterprise threats, critical events, and other crisis situations, gives us significant competitive advantages against these established organizations. Our reliable, fast, and intuitive solution for sending warnings and information via location-based SMS, CBC, mobile push, text, email, social media, TV, radio, digital displays, sirens and speaker arrays, and our platform’s compatibility with major emergency warning protocols, including IPAWS, Wireless Emergency Alerts (“WEA”), and others, provide additional competitive advantages. We believe the domestic and international markets for public safety, emergency warning, and critical communications are substantial and growing.
Seasonality
Because our sales are primarily to domestic and international government departments or agencies, our selling cycles tend to be long and difficult to forecast. We have not experienced any significant seasonality trends to date, but we may experience increased seasonality in the future.
Government Regulation
We are subject to a variety of government laws and regulations that apply to companies engaged in international operations, including, among others, the Foreign Corrupt Practices Act, U.S. Department of Commerce export controls, local government regulations and procurement policies and practices (including regulations relating to import-export control, investments, exchange controls, and repatriation of earnings). We maintain controls and procedures to comply with laws and regulations associated with our international operations. If we are unable to remain compliant with such laws and regulations, our business may be adversely affected.
Our products are produced to comply with standard product safety requirements for sale in the U.S. and similar requirements for sale in Europe and Canada. We expect to meet the electrical and other regulatory requirements for electronic systems or components we sell throughout the world.
Financial Information about Segments and Geographic Areas
Financial information regarding our segments and the geographic areas in which we operate is contained in Note 18, Segment Information, and Note 19, Major Customers, Suppliers and Related Information to our consolidated financial statements.
Intellectual Property Rights and Proprietary Information
We operate in an industry where innovation, investment in new ideas, and protection of resulting intellectual property rights are important drivers of success. We rely on a variety of intellectual property protections for our products and technologies, including patent, trademark and trade secret laws, and contractual obligations. We pursue a policy of vigorously enforcing our intellectual property rights.
In addition to such factors as innovation, technological expertise, and experienced personnel, we believe strong product offerings that are continually upgraded and enhanced will keep us competitive, and we seek patent protection on important technological improvements that we make. We have an ongoing policy of filing patent applications to seek protection for novel features of our products and technologies. Prior to the filing and granting of patents, our policy is to disclose key features to patent counsel and maintain these features as trade secrets prior to product introduction. Patent applications may not result in issued patents covering all-important claims and could be denied in their entirety. We also file for trade name and trademark protection when appropriate. We are the owner of several registered trademarks, many of which have earned worldwide brand recognition.
Our policy is to enter into nondisclosure agreements with each employee and consultant or third party to whom any of our proprietary information is disclosed. These agreements prohibit the disclosure of confidential information to others, both during and subsequent to employment, or the duration of the working relationship. These agreements may not prevent disclosure of confidential information or provide adequate remedies for any breach.
Research and Development
The software and sound reproduction markets are subject to rapid changes in technology and design with frequent improvements and new product introductions, as well as customized solutions for specific customer applications. We believe our future success will depend on our ability to enhance and improve existing technologies and to introduce new technologies and products on a competitive basis that meet the needs of our customers. Accordingly, we are continuing to invest in significant research and new product development activities.
For the fiscal years ended September 30, 2023 and 2022, we spent approximately $8.1 million and $7.0 million, respectively, on company-sponsored research and development. Future levels of research and development expenditures will vary depending on the timing of further new product development and the availability of funds to carry on additional research and development on currently owned technologies or in other areas.
Executive Officers and Board of Directors
The current executive officers and members of the Board of Directors of Genasys Inc. and their ages and business experience are set forth below.
Richard S. Danforth, age 64, was appointed Chief Executive Officer in August 2016. Mr. Danforth formed the strategic business consulting firm, RsD Aero, Ltd., in 2014, which provided consulting services for the Defense, Aerospace, Space and Transportation sectors, with an emphasis on M&A and Transatlantic trade. He served at DRS Technologies as Group President of DRS Integrated Defense Systems & Service (2013 – 2014); Chief Executive Officer, President and Board Member of DRS Defense Solutions (2008 – 2012); President, Command Control & Communication (2005 – 2008); President, Navy Electronics & Intelligence Systems (2004 – 2005); and Executive Vice President, Electronics Systems Group (2002 – 2004). He began his career at Raytheon in 1982 and held various manufacturing, quality assurance and program manager positions until 1996. Mr. Danforth was then appointed Vice President of Operations for Raytheon Aircraft Company (1996 – 2000). In 2000, he was named Senior Vice President of Raytheon Aircraft Company’s Commercial Aircraft Business division, where he led a staff of 370 sales, marketing and customer service personnel. Mr. Danforth holds a Bachelor of Science in Industrial Technology from the University of Massachusetts Lowell and a Masters in Engineering Management from Western New England College.
Dennis D. Klahn, age 65, was appointed Chief Financial Officer in September 2017. Mr. Klahn has more than 30 years of accounting, finance and operations experience, which includes serving as Controller or CFO at publicly traded companies. He was most recently a Group Controller at Teledyne RD Instruments, a subsidiary of Teledyne Technologies Incorporated, between 2011 and August 2017. Prior to that role, he served as Controller or CFO at several companies including, ISE Corporation, Overland Storage, Inc., Anacomp, Inc., and International Lottery & Totalizator Systems, Inc. Mr. Klahn is a certified public accountant in Illinois and began his career as a Staff Accountant at Coopers & Lybrand after receiving his B.A. in Accounting from St. Ambrose University.
Richard H. Osgood III, age 68, has been a member of the Board since July 2013 and was appointed Chairman of our Board in November 2021. Mr. Osgood retired in 2012 after serving as Head of Equity Capital Markets for Wedbush Securities since January 2009. Mr. Osgood joined Wedbush Securities when it acquired Pacific Growth Equities, which Mr. Osgood founded in 1991. Mr. Osgood served in various capacities with Pacific Growth Equities prior to its acquisition, including President, Chief Executive Officer, Chief Operating Officer, Chairman and Executive Chairman. Prior to founding Pacific Growth Equities, Mr. Osgood was the Head of Capital Markets, Sales and Trading at Volpe, Welty and Company, a company he also co-founded in 1986. Previously, Mr. Osgood held senior positions in institutional sales at Montgomery Securities, Rotan Mosely and Smith Barney. Mr. Osgood holds a B.A. in Psychology and a B.S. in Biology from the University of the South. Mr. Osgood’s capital markets and securities industry expertise, as well as his management and strategic experience qualify him to serve on our Board.
Scott L. Anchin, age 48, has been a member of the Board since March 2016. Mr. Anchin has served as the Chief Financial Officer of PF Franchisee Holdings, LLC since May 2022. From October 2018 to May 2022, Mr. Anchin was a partner at Meadow Hill Place, LLC, which provides management advisory services to growth stage companies. He also served as a Managing Director with Opportune LLP from March 2016 to October 2018, where he provided restructuring advisory services to companies and stakeholders in distressed situations. From 2009 to February 2016, Mr. Anchin was employed by Alvarez & Marsal North America, LLC, a global professional services firm specializing in turnaround and interim management and performance improvement. Mr. Anchin currently serves as a director of Kopin Corporation (Nasdaq: KOPN). He is a non-practicing Certified Public Accountant in the State of New York and holds a B.S. in Accounting from the Wharton School of Business at the University of Pennsylvania and an M.B.A. with a concentration in Management from Columbia Business School. Mr. Anchin’s accounting, management and restructuring experience and background, and his expertise in advising companies and stakeholders in difficult circumstances qualify him to serve on our Board.
Susan Lee Schmeiser, age 46, has been a member of the Board since September 2021. Ms. Lee has over 20 years of experience in digital marketing software, media, data analytics, and strategic partnerships. Ms. Lee has served as Group President of Digital Marketing & Technology Solutions at Vericast, a MacAndrews & Forbes company, since November 2020. Prior to her current position, from April 2020 to November 2020, Ms. Lee served as Chief Product Officer and Senior Executive Vice President at Vericast. From 2017 to 2020, Ms. Lee was Senior Vice President of Business Development and Strategy at Valassis, a leader in marketing technology and consumer engagement. From 2011 to 2017, Ms. Lee served as the Vice President of Corporate Development and Strategy of MaxPoint Interactive, Inc., which was acquired by Valassis after going public in 2017. Ms. Lee served as Vice President, Ad Sales Strategy at Univision from 2007 to 2011. She also held the role of Vice President at MTV Networks from 2004 to 2007. She began her career as a Financial Analyst in the Financial Sponsors Group of Morgan Stanley’s Investment Banking Division. Ms. Lee earned a B.A. in Economics from New York University and an M.B.A. in General Management from Harvard Business School. Ms. Lee’s leadership experience, and expertise in corporate development and strategy qualify her to serve on our Board.
Caltha Seymour, age 45, has been a member of the Board since September 2021. Ms. Seymour serves as Director of Global Business Development and Strategic Planning, Mission Systems Division, of Eaton Corporation, a diversified, multinational power management solutions company since 2016. From 2018 to 2021, Ms. Seymour was also the National Channel Manager for Eaton’s Industrial Control Division, where she was responsible for developing and executing $262M distribution channel partner sales and marketing strategic initiatives, as well as other programs to help cultivate sales growth and increase profitability. From 2016 to 2018, Ms. Seymour managed new product development, including a cross-functional role for Eaton’s $2.5B commercial vehicle product line. Prior to joining Eaton, Ms. Seymour leveraged her leadership and management skills in operations and consulting positions for the National Football League and the United States Military Academy at West Point. Ms. Seymour has earned a B.A. in Education Management from the University of Delaware, an M.S. in Sports Administration from Delaware State University, and a Global M.B.A. in International Business & Finance from Tulane University. Ms. Seymour’s extensive management experience, as well as her expertise in marketing, diverse business operations, and strategic initiatives qualify her to serve on our Board.
Human Capital
As of September 30, 2023, we employed a total of 187 full-time employees, of which 105 were located in the United States and 82 were located internationally. Our full-time employees include; 90 in engineering, 27 in production, quality assurance and materials control, 20 in general and administrative and 50 in sales and marketing. We contract technical and production personnel from time to time on an as needed basis and use outside consultants for various services. In addition, we have an extensive worldwide network of independent representatives and resellers who actively market and sell our products. We have not experienced any work stoppages and are not a party to a collective bargaining agreement.
We are dedicated to preserving operational excellence and remaining an employer of choice. We provide and maintain a work environment that is designed to attract, develop, and retain top talent through offering our employees an engaging work experience that contributes to their career development. We recognize that our success is based on the collective talents and dedication of those we employ, and we are highly invested in their success.
Available Information
Our shares of common stock trade on the NASDAQ Capital Market under the symbol “GNSS”. Our address is 16262 West Bernardo Drive, San Diego, California, 92127, our telephone number is 858-676-1112, and our website is located at www.genasys.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, reports filed by our directors, executive officers and certain significant shareholders pursuant to Section 16 of the Securities Exchange Act, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as soon as reasonably practical after the reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated by reference into this report nor is it part of this report.
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Item 1A. |
Risk Factors |
An investment in our company involves a high degree of risk. In addition to the other information included in this report, you should carefully consider the following risk factors in evaluating an investment in our company. You should consider these matters in conjunction with the other information included or incorporated by reference in this report. Our results of operations or financial condition could be seriously harmed, and the trading price of our common stock may decline due to any of these or other risks.
Risks Related to Our Business and Industry
General economic and political conditions may adversely affect our business, operating results and financial condition
Our operations and performance depend significantly on worldwide economic and political conditions and their impact on levels of capital investment and government spending. Global economic and political uncertainties and foreign currency rate fluctuations could adversely influence demand for our products leading to reduced levels of investments, reductions in government spending and budgets and changes in spending priorities and behavior.
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.
The 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. 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.
We may need additional capital for growth.
We may need additional capital to support our growth. While we expect to generate these funds from operations, we may not be able to do so. Principal factors that could affect the availability of our internally generated funds include:
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failure of sales to government, military and commercial markets to meet planned projections; |
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government spending levels impacting sales of our products; |
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political uncertainty; |
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foreign currency fluctuations; |
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working capital requirements to support business growth; |
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our ability to control spending; |
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our ability to integrate future acquisitions; |
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management of new business opportunities; |
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introduction of new competing technologies; |
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product mix and effect on margins; and |
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acceptance of our existing and future products in existing and new markets. |
Should we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions and any such financing may require advance approval of our stockholders under the rules of the NASDAQ Stock Market. Our ability to obtain financing may be further constrained by prevailing economic conditions. We may be required to reduce costs, including the scaling back of research and development into new products, which could have a negative impact on our ability to compete and to innovate. If we raise additional funds by selling additional shares of our capital stock or securities convertible into or exercisable for common stock (assuming we are able to obtain additional financing), the ownership interest of our stockholders will be diluted, which could have a material negative impact on the market value of our common stock.
We have historically had a high concentration of revenues from a limited number of customers. We expect to continue to be dependent on a limited number of customers.
In fiscal year 2023, one customer accounted for 54% of revenues and no other customers accounted for more than 10% of revenues. Historically, our revenues have been dependent upon a limited number of customers, and we expect that we will continue to have some significant customers in future years. We do not have long-term purchase commitments with these or other significant customers, and our customers have the right to cease doing business with us at any time. Military contracts that we have been awarded have terms of indefinite delivery/indefinite quantity during the term of the contract, so there are no guaranteed purchases under these contracts. No assurance can be given that these or other customers will continue to do business with us or that they will maintain their historical levels of business. If our relationship with any material customer were to cease, then our revenues would decline and negatively impact our results of operations. Any such decline could result in us increasing our accumulated deficit and a need to raise additional capital to fund our operations. If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.
Disruption and fluctuations in financial and currency markets could have a negative effect on our business.
Financial markets in the U.S., Europe, and Asia have experienced extreme volatility and uncertainty in recent years. Governments have taken unprecedented actions intended to address these market conditions. It is difficult to assess the extent to which these conditions have impacted our business, and the affect this has had on certain of our customers and suppliers. These economic developments affect businesses such as ours in a number of ways. Any tightening of credit in financial markets may adversely affect the ability of commercial customers to finance purchases and operations and could result in a decrease in orders and spending for our products as well as create supplier disruptions. Reductions in tax revenues, rating downgrades and other economic developments could also reduce future government spending on our products. There can be no assurance that there will not be further volatility and uncertainty in financial markets, which can then lead to challenges in the operation of our business. We are unable to predict the likely effects that negative economic conditions will have on our business and financial condition.
We purchase a number of key components and sub-assemblies from foreign suppliers. Consequently, we are subject to the impact economic conditions can have on such suppliers and fluctuations in foreign currency exchange rates. Increases in our cost of purchasing these items could negatively impact our financial results if we are not able to pass these increased costs on to our customers.
We have current government contracts, and our future growth is dependent, in large part, on continued sales to U.S. and international governments and businesses that sell to governments.
In fiscal year 2023, direct and indirect sales to the U.S. government accounted for approximately 59% of our total net sales, compared with 71% of our total net sales in fiscal year 2022, and 68% in fiscal year 2021. Changes in defense spending could have an adverse effect on our current and future revenues. Sales of our products to U.S. government agencies and organizations are subject to the overall U.S. government budget and congressional appropriation decisions and processes which are driven by numerous factors, including geo-political events and macroeconomic conditions, and are beyond our control. Even awards granted may not result in orders due to spending constraints. Similar issues apply to sales to international governments. We have no assurance that military interest in communication devices to minimize unnecessary use of force will continue or will provide future growth opportunities for our business.
Worldwide armed conflicts and the related implications may negatively impact our operations.
Current conflicts around the world, including Ukraine and Israel, and related sanctions could damage or disrupt international commerce and the global economy. It is not possible to predict the broader or longer-term consequences of these conflicts 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. Given the evolving nature of these conflicts, the related sanctions, potential governmental actions and economic impact, such potential impacts remain uncertain. While we expect the impacts of these conflicts 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.
Our future success depends on our ability to execute our business strategy, and to continue to innovate and improve our existing products as well as design and produce new products to provide protective communications solutions.
Our future success significantly depends on our ability to execute our business strategy, continue to innovate, improve our existing products, and design, develop, and produce innovative new products and solutions, including those that may incorporate, or are based upon artificial intelligence technology. Product design, development, innovation and enhancement is often a complex, time-consuming and costly process involving significant investment in research and development with no assurance of return on investment. There can be no assurance that we will be able to develop and introduce new and improved products in a timely or efficient manner or that new and improved products, if developed, will achieve market acceptance. Our products generally must conform to various evolving and sometimes competing industry standards, which may adversely affect our ability to compete in certain markets or require us to incur significant costs. In addition, our customers generally impose very high quality and reliability standards on our products, which often change and may be difficult or costly to satisfy. Any inability to satisfy customer quality and reliability standards or comply with industry standards and technical requirements may adversely affect demand for our products and our results of operations.
We must expand our customer base in order to grow our business.
To grow our business, in addition to continuing to obtain additional orders from our existing customers, we must develop relationships with new customers and obtain and fulfill orders from new customers. We are competing against a number of large competitors in the mass notification market, and we need to establish our product offerings as competitive to win awards against these competitors, increase our customer base and gain market share. We cannot guarantee that we will be able to increase our customer base. Further, even if we do obtain new customers, we cannot guarantee that those customers will purchase from us in sufficient quantities or at product prices that will enable us to recover our costs in acquiring those customers and fulfilling those orders. Whether we will be able to sell more of our products will depend on a number of factors, including:
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our ability to design and manufacture reliable products that have the features that are required by our customers; |
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the global economy; |
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our ability to expand relationships with existing customers and to develop relationships with new customers that will lead to additional orders for our products; |
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our ability to develop and expand new markets for directed sound products, mobile mass messaging services, and integrated solutions; and |
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our ability to develop international product distribution directly or through strategic partners. |
We may not be able to successfully integrate acquisitions in the future, and we may not be able to realize anticipated cost savings, revenue enhancements, or other synergies from such acquisitions.
On January 18, 2018, we acquired all of the issued and outstanding shares of capital stock of Genasys Holding S.L. (“Genasys Spain”), on October 2, 2020, we acquired substantially all of the assets and business of Amika Mobile Corporation (“Amika Mobile”), on June 7, 2021, we completed the acquisition of Zonehaven Inc. (“Zonehaven”) and on October 4, 2023, we completed the acquisition of Evertel Technologies (“Evertel”). Our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions, including Genasys Spain, Amika Mobile, Zonehaven and Evertel, as well as other businesses we may acquire in the future. We may not realize the intended benefits of the Genasys Spain, Amika Mobile, Zonehaven or Evertel acquisitions, or the acquisition of other businesses in the future as rapidly as, or to the extent, anticipated by our management. There can be no assurance that we will be able to successfully integrate the Genasys Spain, Amika Mobile, Zonehaven or Evertel businesses or any other acquired businesses, products or technologies without substantial expenses, delays or other operational or financial problems. Acquisitions, including our acquisition of Genasys Spain, Amika Mobile, Zonehaven and Evertel, involve a number of risks, some or all which could have a material adverse effect on our acquired businesses, products or technologies. Furthermore, there can be no assurance that the Genasys Spain, Amika Mobile, Zonehaven and Evertel businesses or any other acquired business, product, or technology will be profitable or achieve anticipated revenues and income. Our failure to manage our acquisition and integration strategy successfully could have a material adverse effect on our business, results of operations, and financial condition. The process of integrating an acquired business involves risks, including but not limited to:
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demands on management related to changes in the size and possible locations of our businesses and employees; |
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diversion of management's attention from the management of daily operations; |
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difficulties in the assimilation of different corporate cultures, employees and business practices; |
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difficulties in conforming the acquired businesses’ accounting policies to ours; |
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retaining the loyalty and business of the employees or customers of acquired businesses; |
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retaining employees that may be vital to the integration of acquired businesses or to the future prospects of the combined businesses; |
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difficulties and unanticipated expenses related to the integration of departments and information technology systems, including accounting systems, technologies, books and records, procedures, and maintaining uniform standards, such as internal accounting controls, procedures, and policies; |
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costs and expenses associated with any undisclosed or potential liabilities; |
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the use of more cash or other financial resources on integration and implementation activities than we expect; and |
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our ability to avoid labor disruptions in connection with any integration, particularly in connection with any headcount reduction. |
Failure to successfully integrate Genasys Spain, Amika Mobile, Zonehaven, Evertel, or any other acquired business in the future may result in reduced levels of anticipated revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such businesses.
In addition, the acquisition of Genasys Spain, Amika Mobile, Zonehaven, Evertel and any future businesses could result in the incurrence of additional debt and related interest expense, contingent liabilities, and amortization expenses related to intangible assets, as well as the issuance of our common stock, which could have a material adverse effect on our financial condition, operating results, and cash flow.
Perceptions that long-range hailing devices are unsafe or may be used in an abusive manner may hurt sales of our products, which could cause our revenues to decline.
Potential customers for our products, including government, military, and emergency response agencies, may be influenced by claims or perceptions that long-range hailing devices are unsafe or may be used in an abusive manner. These claims or perceptions, which we believe are unsubstantiated, could reduce our product sales.
A significant portion of our revenue is derived from our core product category.
We are dependent on our core directional product category to generate our revenues. While we have expanded our product offering to include omnidirectional products and SaaS systems and solutions, no assurance can be given that our core directional products will continue to have market acceptance or that they will maintain their historical levels of sales. The loss or reduction of sales of this product category could have a material adverse effect on our business, results of operations, financial condition, and liquidity.
We may not successfully penetrate the mass notification market.
The mass notification market is substantial in size and projected to grow globally over the next five years. While there are a number of large companies already established in this market, we believe our unique SaaS systems and solutions, the clear, intelligible voice capability of our Genasys speaker products, and our unified software/hardware platform provide us with competitive advantages. Based on the increase in global public safety and enterprise threats, we continue to invest in marketing, selling, and software development resources to become successful in this growing market. However, we are competing against established competitors that have greater resources and have successfully penetrated the market.
Our margins could be impacted as we expand into the emergency response and mass notification market.
Our sales strategy for fiscal year 2024 and beyond is to increase our share of the growing emergency response and mass notification market with our Protective Communications solutions. A number of large companies currently have a substantial share of the market. While we believe we have a strong product platform that can successfully compete against these larger players, given the highly competitive environment, we expect to confront pricing pressures, which may negatively impact our overall margins.
We may incur significant and unpredictable warranty costs.
Our products are substantially different from proven, mass produced sound transducer designs and are often employed in harsh environments. We may incur substantial and unpredictable warranty costs from post-production product or component failures. We generally warrant our products to be free from defects in materials and workmanship for a period up to one year from the date of purchase. We also sell extended repair and maintenance contracts with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original limited warranty. As of September 30, 2023, we had a warranty reserve of $0.1 million. While our warranty experience with our product line has been favorable, as we build more complexity into the product, and as we expand our supplier base, issues could arise that could affect future warranty costs, which could adversely affect our financial position, results of operations and business prospects.
System disruptions and security threats to our computer networks, including breach of our or our customers’ confidential information, could have a material adverse effect on our business and our reputation.
Our computer systems as well as those of our service providers are vulnerable to interruption, malfunction or damage due to events beyond our control, including malicious human acts committed by foreign or domestic persons, natural disasters, and network and communications failures. We periodically perform vulnerability self-assessments and engage service providers to perform independent vulnerability assessments and penetration tests. However, despite network security measures, our servers and the servers at our service providers are potentially vulnerable to physical or electronic unauthorized access, computer hackers, computer viruses, malicious code, organized cyberattacks, and other security problems and system disruptions. Increasing socioeconomic and political instability in some countries has heightened these risks. Despite the precautions we and our service providers have taken, our systems may still be vulnerable to these threats. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations.
Additionally, the confidential information that we collect subjects us to additional risks and costs that could harm our business and our reputation. We collect, retain and use personal information of our employees, including personally identifiable information, tax return information, financial data, bank account information, and other data. Although we employ various network and business security measures to limit access to and use of such personal information, we cannot guarantee that a third party will not circumvent such security measures, resulting in the breach, loss or theft of the personal information of our employees. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could restrict our use of personal information and require notification of data breaches. A violation of any laws or regulations relating to the collection, retention or use of personal information could also result in the imposition of fines or lawsuits against us.
Sustained or repeated system failures or security breaches that interrupt our ability to process information in a timely manner or that result in a breach of proprietary or personal information could have a material adverse effect on our operations and our reputation. Although we maintain insurance in respect of these types of events, available insurance proceeds may not be adequate to compensate us for damages sustained due to these events.
We could incur additional charges for excess and obsolete inventory.
While we strive to effectively manage our inventory, rapidly changing technology and uneven customer demand may result in short product cycles. The value of our inventory may be adversely affected by changes in technology that affect our ability to sell the products in our inventory. If we do not effectively forecast and manage our inventory, we may need to write off inventory as excess or obsolete, which in turn can adversely affect cost of sales and gross profit.
We have previously experienced, and may in the future experience, reductions in sales of older generation products as customers delay or defer purchases in anticipation of new product introductions. We have established reserves for slow moving or obsolete inventory of $0.8 million as of September 30, 2023. The reserves we have established for potential losses due to obsolete inventory may, however, prove to be inadequate and may give rise to additional charges for obsolete or excess inventory.
Many potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or inferior.
Technological competition from larger, more established electronic and loudspeaker manufacturers and software providers is expected to increase. Most of the companies with which we expect to compete have substantially greater capital resources, research and development staffs, marketing and distribution programs, and facilities, and many of them have substantially greater experience in the production and marketing of products. In addition, one or more of our competitors may have developed, or may succeed in developing, technologies and products that are more effective than ours, rendering our technology and products obsolete or noncompetitive.
Adverse resolution of disputes, litigation and claims may harm our business, operating results or financial condition.
We may become a party to litigation, disputes, and claims in the normal course of our business. Litigation is by its nature uncertain and unpredictable and there can be no assurance that the ultimate resolution of such claims will not exceed the amounts accrued for such claims, if any. Litigation can be expensive, lengthy, and disruptive to normal business operations. An unfavorable resolution of a legal matter could have a material adverse effect on our business, operating results or financial condition.
Our competitive position will be seriously damaged if we cannot protect intellectual property rights and trade secrets in our technology.
We rely on a combination of contracts, trademarks, and trade secret laws to establish and protect our proprietary rights in our technology. However, we may not be able to prevent misappropriation of our intellectual property, and our competitors may be able to independently develop competing technologies, or the agreements we enter into may not be enforceable. A competitor may independently develop or patent technologies that are substantially equivalent to, or superior to, our technology. If this happens, our competitive position could be significantly harmed.
We may face personal injury and other liability claims that harm our reputation and adversely affect our operating results and financial condition.
While our products have been engineered to reduce the risk of damage to human hearing or human health, we could be exposed to claims of hearing damage if the product is not properly operated. A person injured in connection with the use of our products may bring legal action against us to recover damages on the basis of theories, including personal injury, negligent design, dangerous product or inadequate warning. We may also be subject to lawsuits involving allegations of misuse of our products. Our product liability insurance coverage may be insufficient to pay all such claims. Product liability insurance may also become too costly for us or may become unavailable to us in the future. We may not have sufficient resources to satisfy any product liability claims not covered by insurance, which would materially and adversely affect our operating results and financial condition. Significant litigation could also result in negative publicity and a diversion of management’s attention and resources.
Our international operations could be harmed by factors including political instability, natural disasters, fluctuations in currency exchange rates, and changes in regulations that govern international transactions.
We sell our products worldwide. In fiscal years 2023 and 2022, revenues outside of the U.S. accounted for approximately 22% and 15% of net revenues, respectively. The risks inherent in international trade may reduce our international sales and harm our business and the businesses of our customers and our suppliers. These risks include:
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changes in tariff regulations; |
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political instability, war, terrorism, and other political risks; |
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foreign currency exchange rate fluctuations; |
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establishing and maintaining relationships with local distributors and dealers; |
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lengthy shipping times and accounts receivable payment cycles; |
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import and export control and licensing requirements, particularly in connection with sales and licensing to foreign governments and other customers; |
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compliance with a variety of U.S. laws, including the Foreign Corrupt Practices Act, by us or key subcontractors; |
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compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements; |
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greater difficulty in safeguarding our technology, proprietary data, and intellectual property in international jurisdictions than in the U.S.; and |
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difficulty in staffing and managing geographically diverse operations. |
These and other risks may preclude or curtail international sales or increase the relative price of our products compared to those manufactured in other countries, reducing the demand for our products. Failure to comply with U.S. and foreign governmental laws and regulations applicable to international business, such as the Foreign Corrupt Practices Act or U.S. export control regulations, could have an adverse impact on our business with the U.S. and foreign governments.
Current environmental laws, or laws enacted in the future, may harm our business.
Our operations are subject to environmental regulation in areas in which we conduct business. Our product design and procurement operations must comply with new and future requirements relating to the materials composition of our products, including restrictions on lead, cadmium, and other substances. We do not expect that the impact of these environmental laws and other similar legislation adopted in the U.S. and other countries will have a substantial unfavorable impact on our business. However, the costs and timing of costs under environmental laws are difficult to predict.
Errors or defects contained in our products, failure to comply with applicable safety standards or a product recall could result in delayed shipments or rejection of our products, damage to our reputation, and expose us to regulatory or other legal action.
Any defects or errors in the operation of our products may result in delays in their introduction. In addition, errors or defects may be uncovered after commercial shipments have begun, which could result in the rejection of our products by our customers, damage to our reputation, lost sales, diverted development resources, and increased customer service and support costs and warranty claims, any of which could harm our business. Third parties could sustain injuries from our products, and we may be subject to claims or lawsuits resulting from such injuries. There is a risk that these claims or liabilities may exceed, or fall outside the scope of, our insurance coverage. We may also be unable to obtain adequate liability insurance in the future. Because we are a smaller company, a product recall would be particularly harmful to us because we have limited financial and administrative resources to effectively manage a product recall and it would detract management’s attention from implementing our core business strategies. A significant product defect or product recall could materially and adversely affect our brand image, causing a decline in our sales, and could reduce or deplete our financial resources.
Costs associated with our multi-year maintenance contract with a foreign military customer could be higher than expected.
We are obligated under a five-year repair and maintenance agreement with a foreign military. We have contracted with a third party service provider to administer the required services under the terms of the maintenance agreement. The revenue from the maintenance agreement with our customer is fixed and paid annually upon completion of each year through May 2024. It is possible that the cost to repair and maintain the products and the cost to contract with our third party service provider could exceed the revenue generated by the maintenance agreement.
We rely on outside manufacturers and suppliers to provide a large number of components and sub-assemblies incorporated in our products, and the ability of these manufacturers and suppliers to deliver components to our manufacturing facilities, and our ability to manufacture without disruption, could affect our results of operations.
Our products are made from a wide range of materials and have a large number of components and sub-assemblies (including semiconductors and other electronic components) produced by numerous outside suppliers around the world. Because not all of our supply arrangements provide for guaranteed supply and some key parts may be available only from a single supplier or a limited group of suppliers, we are subject to supply and pricing risk. Our operations and those of our suppliers are subject to disruption for a variety of reasons, including pandemic related supplier plant shutdowns or slowdowns, transportation delays, work stoppages, labor relations, labor shortages, price inflation, governmental regulatory and enforcement actions, intellectual property claims against suppliers, financial issues such as supplier bankruptcy, information technology failures, and hazards such as fire, earthquakes, flooding, or other natural disasters. For example, we expect to continue to be impacted by the following supply chain issues, due to economic, political and other factors largely beyond our control: increased input material costs and component shortages; supply chain disruptions and delays and cost inflation, all of which could continue or escalate in the future. The effects of climate change, including extreme weather events, long-term changes in temperature levels, water availability, increased cost for decarbonizing process heating, supply costs impacted by increasing energy costs, or energy costs impacted by carbon prices or offsets may exacerbate these risks. If these disruptions occur, or if we experience quality problems with suppliers, then our production schedules could be significantly delayed or costs significantly increased, which would have a material adverse effect on our business, liquidity, results of operations, and financial position.
Although we assemble our products internally, we have some sub-assemblies and components produced by third party manufacturers. We may be required to outsource manufacturing if sales of our products increase significantly. We may be unable to obtain acceptable manufacturing sources on a timely basis. In addition, from time to time we may change manufacturers and any new manufacturer engaged by us may not perform as expected. An extended interruption in the supply of our products could result in a substantial loss of sales. Furthermore, any actual or perceived degradation of product quality as a result of our reliance on third party manufacturers may have an adverse effect on sales or result in increased warranty costs, product returns, and buybacks. Failure to maintain quality manufacturing could reduce future revenues, adversely affecting our financial condition and results of operations.
Material supply disruptions and delays in deliveries, along with other factors such as price inflation, can also result in increased pricing. While many of our customers permit quarterly or other periodic adjustments to pricing based on changes in component prices and other factors, we may bear the risk of price increases that occur between any such repricing or, if such repricing is not permitted, during the balance of the term of the particular customer contract.
We derive revenue from government contracts and subcontracts, which are often non-standard, may involve competitive bidding, may be subject to cancellation with or without penalty, and may produce volatility in earnings and revenue.
Our sales to government customers have involved, and are expected in the future to involve, providing products and services under contracts or subcontracts with U.S. federal, state, local, and foreign government agencies. Obtaining contracts and subcontracts from government agencies is challenging, and contracts often include provisions that are not standard in private commercial transactions. For example, government contracts may:
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include provisions that allow the government agency to terminate the contract without penalty under some circumstances; |
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be subject to purchasing decisions of agencies that are subject to political influence; |
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contain onerous procurement procedures; and |
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be subject to cancellation if government funding becomes unavailable. |
Securing government contracts can be a protracted process involving competitive bidding. In many cases, unsuccessful bidders may challenge contract awards, which can lead to increased costs, delays, and possible loss of the contract for the winning bidder.
Our success is dependent on the performance of our executive team, and the cooperation, performance, and retention of our executive officers and key employees.
Our business and operations are substantially dependent on the performance of our current executive team including our Chief Executive Officer and our Chief Financial Officer. We do not maintain “key person” life insurance on any of our executive officers. The loss of one or several key employees could seriously harm our business. We cannot assure that employees will not leave and subsequently compete against us.
We are also dependent on our ability to retain and motivate high quality personnel, especially sales and skilled engineering personnel. Competition for such personnel is intense, and we may not be able to attract, assimilate or retain other highly qualified managerial, sales, and technical personnel in the future. The inability to attract and retain the necessary managerial, sales and technical personnel could cause our business, operating results or financial condition to suffer.
Risks Related to Our Financial Statements and Operating Results
We do not have the ability to accurately predict future operating results. Our quarterly and annual revenues are likely to fluctuate significantly due to many factors, most of which are beyond our control and could result in our failure to achieve our revenue expectations.
We expect our proprietary acoustic products, software products, and integrated solutions will be the source of substantially all our revenues for at least the near future. Revenues from these products and solutions are expected to vary significantly due to a number of factors, many of which are beyond our control. Any one or more of the factors listed below or other factors could cause us to fail to achieve our revenue expectations. These factors include:
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our ability to develop and supply sound reproduction components to customers, distributors or original equipment manufacturers (“OEMs”) or to license our technologies; |
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market acceptance of and changes in demand for our products or products of our customers; |
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gains or losses of significant customers, distributors or strategic relationships; |
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unpredictable volume and timing of customer orders; |
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delays in funding approval by U.S. and foreign government and military customers; |
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the availability, pricing, and timeliness of delivery of components for our products and OEM products; |
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fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs; |
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the timing of new technological advances, product announcements or introductions by us, by OEMs or licensees, and by our competitors; |
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production delays by customers, distributors, OEMs, or by us or our suppliers; |
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increased competition in this market; |
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the conditions of other industries, such as military and commercial industries, into which our technologies may be sold; |
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general electronics industry conditions, including changes in demand and associated effects on inventory and inventory practices; |
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general economic conditions that could affect the timing of customer orders and capital spending and result in order cancellations or rescheduling; and |
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general political conditions in this country and in various other parts of the world that could affect spending for the products that we offer. |
Some or all of these factors could adversely affect demand for our products or technologies, and therefore adversely affect our future operating results.
Most of our operating expenses are relatively fixed in the short term. We may be unable to rapidly adjust spending to compensate for any unexpected sales shortfalls, which could harm our quarterly operating results. We do not have the ability to predict future operating results with any certainty.
Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
New laws, regulations and standards, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. This includes, among other things, compliance costs and enforcement under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank Act”), XBRL interactive SEC filings, new SEC regulations, and NASDAQ Stock Market rules. For example, under Section 1502 of the Dodd-Frank Act, the SEC has adopted additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer. The metals covered by the rules include tin, tantalum, tungsten, and gold, commonly referred to as “3TG.” Our suppliers may use some or all of these materials in their production processes. The rules require us to conduct a reasonable country of origin inquiry to determine if we know or have reason to believe any of the minerals used in the production process may have originated from the Democratic Republic of the Congo or an adjoining country. If we are not able to determine the minerals did not originate from a covered country or conclude that there is no reason to believe that the minerals used in the production process may have originated in a covered country, we would be required to perform supply chain due diligence on members of our supply chain. Global supply chains can have multiple layers, thus the costs of complying with these new requirements could be substantial. These new requirements may also reduce the number of suppliers who provide conflict free metals and may affect our ability to obtain products in sufficient quantities or at competitive prices. Compliance costs and the unavailability of raw materials could have a material adverse effect on our results of operations.
We continually evaluate and monitor developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs. These new or changed laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Our disclosure controls and procedures may not prevent or detect all acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to management and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our management expects that our disclosure controls and procedures and internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within our company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and we cannot assure that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
Failure to maintain an effective system of internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our ability to obtain financing, and other aspects of our business.
Maintaining an effective system of internal control over financial reporting is necessary for us to provide reliable financial reports. Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by the SEC require us to include in our Form 10-K a report by management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of the respective fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While our management has concluded that our internal control over financial reporting was effective as of September 30, 2023, it is possible that material weaknesses will be identified in the future. In addition, components of our internal control over financial reporting may require improvement from time to time. If management is unable to assert that our internal control over financial reporting is effective in any future period, investors may lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the Company’s stock price.
Risks Related to Our Capital Stock
Sales of common stock issuable on the exercise of outstanding options, may depress the price of our common stock.
As of September 30, 2023, we had outstanding options granted to our employees, consultants, advisors, and directors to purchase 2,904,522 shares of our common stock and we had 379,597 restricted stock units outstanding. As of September 30, 2023, the exercise prices for the options ranged from $1.51 to $8.03 per share. The issuance of shares of common stock upon the exercise of outstanding options and the release of outstanding restricted stock units could cause substantial dilution to holders of our common stock, and the sale of those shares in the market could cause the market price of our common stock to decline. The potential dilution from these shares could negatively affect the terms on which we could obtain equity financing.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of your common stock.
We are authorized to issue up to 5,000,000 shares of preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect the rights or reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions.
Our stock price is volatile and may continue to be volatile in the future.
The market price of our common stock has fluctuated significantly to date. In the future, the market price of our common stock could be subject to significant fluctuations due to general market conditions and in response to quarter-to-quarter variations in:
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our anticipated or actual operating results; |
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developments concerning our software and sound reproduction technologies; |
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technological innovations or setbacks by us or our competitors; |
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announcements of merger or acquisition transactions; |
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changes in personnel within our company; and |
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other events or factors and general economic and market conditions. |
The stock market in recent years has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, and that have often been unrelated or disproportionate to the operating performance of companies.
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Item 1B. |
Unresolved Staff Comments. |
None.
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Item 2. |
Properties |
Our executive offices, sales, research and development and production facilities are located at 16262 West Bernardo Drive, San Diego, California. The lease of 55,766 square feet commenced July 1, 2018 and expires August 31, 2028. The aggregate monthly payments, with abatements, are $84 thousand, $86 thousand, $89 thousand, $92 thousand and $94 thousand per month for the sixth through tenth years of the lease, respectively, plus other certain costs and charges as specified in the lease agreement, including the Company’s proportionate share of the building operating expenses and real estate taxes.
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Item 3. |
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 financial statements for pending litigation.
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Item 4. |
Mine Safety Disclosure |
Not applicable.
PART II
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Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Information
Our common stock is traded and quoted on the NASDAQ Capital Market under the symbol “GNSS.” The market for our common stock has often been sporadic and limited.
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Sales Prices |
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High |
Low |
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Fiscal Year Ending September 30, 2022 |
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First Quarter |
$ | 5.43 | $ | 3.30 | ||||
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Second Quarter |
$ | 4.17 | $ | 2.67 | ||||
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Third Quarter |
$ | 4.07 | $ | 2.40 | ||||
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Fourth Quarter |
$ | 3.62 | $ | 2.63 | ||||
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Fiscal Year Ending September 30, 2023 |
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First Quarter |
$ | 3.70 | $ | 2.54 | ||||
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Second Quarter |
$ | 4.11 | $ | 2.91 | ||||
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Third Quarter |
$ | 3.09 | $ | 2.35 | ||||
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Fourth Quarter |
$ | 3.59 | $ | 2.01 | ||||
Holders
We had 44,027,121 shares issued and outstanding held by 908 holders of record of our common stock as of December 4, 2023.
Dividends
There were no dividends declared and paid during the years ended September 30, 2023 and 2022. The declaration of future cash dividends, if any, will be at the discretion of the Board of Directors and will depend on the Company’s earnings, if any, capital requirements and financial position, general economic conditions and other pertinent conditions. It is our present intention not to pay any cash dividends in the near future.
Equity Compensation Plan Information
The information required by this item is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
No securities were sold within the past three years that were not registered under the Securities Act and not previously reported.
Issuer Purchases of Equity Securities
In December 2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024. Under the program, the Company was authorized to repurchase up to $5 million of its outstanding common shares.
There were no shares repurchased during the year ended September 30, 2023. During the year ended September 30, 2022, 259,310 shares were repurchased for $1.0 million. As of September 30, 2023, all repurchased shares were retired. As of September 30, 2023, $3.0 million was available for share repurchase under this program.
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Item 6. |
Reserved |
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Item 7. |
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 information presented in other sections of this Annual Report on Form 10-K, including “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 8. Financial Statements and Supplementary Data.” This discussion contains forward-looking statements which are based on our current expectations and industry experience, as well as our perception of historical trends, current market conditions, current economic data, expected future developments and other factors that we believe are appropriate under the circumstances. These statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements.
Overview
We are a global provider of Protective Communications solutions including our Genasys Protect software platform and Genasys LRAD. Our unified software platform receives information from a wide variety of sensors and IoT inputs to collect real-time information on developing and active emergency situations. Genasys uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
Genasys Protect provides a comprehensive portfolio of Protective Communications software and hardware systems serving federal governmental and agencies, SLED and enterprise organizations in sectors including but not limited to oil and gas, utilities, manufacturing, automotive, and healthcare. Genasys Protect solutions have a diverse range of applications, including emergency warning and mass notification for public safety; critical event management for enterprise companies; de-escalation for defense and law enforcement; and automated detection of real-time threats such as active shooters and severe weather.
Genasys LRAD systems provide directed audible voice messages with exceptional, intelligible vocal clarity from close range out to 5,500 meters. We have a history of successfully delivering innovative systems and solutions in mission critical situations, pioneering the AHD market with the introduction of our first LRAD AHD in 2002 and creating the first multidirectional voice-based public safety mass notification systems in 2012. Building on our proven, best in class and reliable solutions and systems, we are launching the first and only unified, end-to-end Protective Communications platform.
Our unified Protective Communications platform includes:
Software
Genasys Protect
The Complete Protective Communications Platform
Genasys Protect combines the most comprehensive suite of solutions enabling preparedness, responsiveness, and analytics to keep people, assets, and operations protected against the impacts of natural disasters, terrorism, violent civil unrest, and other dangerous situations, as well as power failures, facility shutdowns, and other non-emergency operational disruptions.
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1. |
Proven Technology: Genasys solutions have been on the front lines for more than 40 years, providing precision-targeted communications designed to ensure the right people get the right message - right away. |
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2. |
Modular Suite: Built on open standards, Genasys software and hardware systems are designed to easily integrate, whether using the full Genasys suite or complementing the notification platforms customers already have in place. |
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3. |
Predictive Simulation: Genasys Protect is designed to permit customers to test response plans preemptively with advanced simulation of evacuation-level events, including fires and floods, and their impact on infrastructure, including traffic patterns and perimeter establishment. |
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4. |
Unified Viewpoint: One common safety operating picture provides real-time visibility into our customers’ people, assets, and environment by combining first-party data from asset / people-management platforms and IoT sensors with vetted third-party data sources, including the FEMA, NOAA, DHS, and more. |
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5. |
Unmatched Precision: Customized zone mapping enables targeting of mass notifications at the street level, making it easier to sequence response areas from most to least critical. |
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6. |
Multi-channel: Genasys Protect is designed to allow customers to saturate their notification area by simultaneously alerting people across SMS, voice calls, social media, TV, radio, digital signage, and outdoor acoustic devices. |
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7. |
Network Effect: Implementation in neighboring municipalities as well as across public- and private-sector organizations within the same municipality extends coverage and enables greater precision when notifying people of threats. |
Genasys Protect ALERT
ALERT is an interactive, cloud-based SaaS solution that enables SLED and enterprise customers to send critical information to at-risk individuals or groups when an emergency occurs. ALERT acts as both a communications input and output, receiving information from state-of-the-art sensors and emergency services, and quickly relaying notifications, alerts, and instructions to at-risk populations and first responders. ALERT communications with the public can be enhanced via Genasys Protect ACOUSTICS, while ALERT communications among first responders and emergency personnel can be augmented and accelerated with Genasys Protect CONNECT (formerly Evertel). ALERT customers can create and send critical, verified, and secure notifications and messages that are geographically specific and targeted using emails, voice calls, text messages, panic buttons, desktop alerts, TV, social media, and more. Additionally, Genasys is a certified provider of IPAWS notifications. IPAWS is the federal public notification platform for the United States, which ALERT customers can use to deliver critical communications in multiple languages to specific populations.
Similarly, enterprise customers are able to send critical communications to at-risk employees, contractors, visitors, or groups based on geographic location or team status. Operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins and recipient locations, ALERT integrates with various data sources, including sensors, emergency services, active directories, human resources, visitor management, and building control systems to find and deliver safety alerts and notifications to residents, employees, staff, contractors, temporary workers, and visitors.
ALERT sends targeted messages based on geographic location, permitting relevant information and instructions to be sent to the appropriate populations. Emergency managers can prepare for natural or man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using ALERT’s extensive public safety resources and mapped zones. This information is easily shared with the public and reduces the time it takes to execute emergency evacuations and conduct orderly repopulations. Auto-Discovery, an innovative feature of the platform, locates and connects with anyone on a wired or wireless network in a fixed area with no opt-in required. When discovered, ALERT anonymizes all recipient information and data. When an emergency occurs, these tools allow at-risk groups or individuals to be notified as quickly as possible without sacrificing their privacy.
In addition to disseminating alerts and notifications, ALERT uses two-way communication tools, including polls and check-ins to receive feedback from targeted populations and first responders. With direct feedback, operators can survey the safety and status of at-risk individuals, learn of developments, update notifications and/or instructions in response to new information, and more.
Genasys Protect EVAC
EVAC enables responding agencies to react swiftly, make collaborative decisions, and communicate event status in real-time to other agencies, businesses, and the public. EVAC determines and communicates the proper scope of a response or evacuation by replacing guesswork with data-driven intelligence. EVAC enhances safety levels for first responders, communities, and large campuses by providing:
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intelligent zones to improve evacuation planning and communication. EVAC users can build, edit, and act upon geographical location data, including shelters, facilities, and traffic; |
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modeling behaviors to plan for effective responses and/or evacuation scenarios covering emergencies that include wildfires, floods, active shooters, hurricanes, and more; |
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actionable communication through the Genasys Protect mobile app to keep people informed before, during, and after a critical event; |
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a common operating picture across agencies to reduce response times by 90%; and |
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targeted alerting across multiple channels, including intelligible, outdoor speakers for timely, efficient evacuation and public safety notifications. |
Genasys Protect CONNECT
CONNECT is a leading cross-agency collaboration platform that streamlines and secures team and one-on-one communications for first responders and public safety agencies. With real-time intelligence sharing that exceeds regulatory privacy requirements for public agencies, CONNECT’s instant communication platform empowers first responders and public safety personnel to collaborate and share information in a single space with text, videos, images, and audio from any location. CONNECT provides a secure space where professionals can exchange information, make decisions, and collaborate with trust in data security. Record retention policies drive compliance that allows agencies and personnel to communicate in confidence.
Enabling public safety professionals to collaborate with other agencies throughout their region, state and country, CONNECT provides real-time interoperability to address critical events and crisis situations more quickly through coordinated efforts. Compliant with all federal and state-level legal requirements for public safety communications, CONNECT data is protected and secured through high-level data encryption within a secure, U.S. based, government-only cloud environment.
Hardware
Genasys Protect ACOUSTICS
ACOUSTICS unites Genasys’ next generation of mass notification speaker systems with Genasys Protect command-and-control software. Most legacy mass notification systems are sirens with limited, if any, voice broadcast capability. ACOUSTICS systems feature the industry's highest STI, large directional and omni-directional broadcast coverage areas, and an array of options including solar power, battery backup, and satellite connectivity that enable the systems to continue to operate when power and telecommunications infrastructure goes down.
ACOUSTICS gives operators the ability to send critical alerts and notifications from emergency operations centers, and authorized computers or smart phones. Emergency alerts and information can be sent via individual, grouped or networked ACOUSTICS installations, text messages, emails, IPAWS, desktop alerts, TV, voice calls, and social media. Genasys Protect’s layered redundancy helps to ensure the maximum number of people receive Protective Communications and critical notifications.
Genasys LRAD
LRAD is the world’s leading AHD, with the ability to project alert tones and audible voice messages with exceptional vocal clarity in a 30° beam from close range to 5,500 meters. LRADs are 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. LRADs have been deployed on military vehicles, at corporate headquarters, in hostage negotiations, aboard private yachts, and in numerous installations and applications where clear and intelligible voice communications are essential.
Several LRAD models are available in varying audio outputs, communication coverage areas, sizes, and functionalities. Several options and accessories (cameras, searchlights, mounts, and more) are also available to enhance LRAD capabilities.
All LRAD systems are defined by their unparalleled audio output and clarity. LRADs use Genasys' proprietary XL driver technology, which generates higher audio output in a smaller, lighter form factor. The technology also helps ensure voice messages and alert tones cut through background noise and are clearly heard and understood. These competitive advantages, and constant innovation, have made LRAD the de facto standard of the global AHD industry.
Recent Developments
In the fiscal year ended September 30, 2023, we accomplished the following:
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Completed the integration of legacy GEM, Zonehaven, NEWS, and IMNS solutions into our unified Genasys Protect platform. |
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Executed branding relaunch with new website, go-to-market and product User Interface (“UI”). |
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Expanded coverage to 16% of Colorado with Genasys Protect in Boulder County. |
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Won first statewide contract for Genasys Protect in New Hampshire. |
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Displaced a key competitor in Boston, MA with Genasys Protect ALERT. |
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Expanded relationship with San Diego County, CA to encompass entire Genasys Protect platform. San Diego County joins Riverside County, CA, Marin County, CA, Alameda County, CA, and other jurisdictions in adopting the complete Genasys Protect platform. |
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Announced a Genasys Protect ACOUSTICS implementation with a large outdoor tourist destination. |
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Received $10.7 million LRAD order from the U.S. Army under AHD Program of Record. |
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Assisted first responders to protect more than 17 million California residents with Genasys Protect EVAC during atmospheric river events. |
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● |
Expanded Genasys Protect coverage of California to 37 of 58 counties. |
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Awarded and installed Genasys Protect for Aramco, one of the world’s largest industrial companies. At the time of booking, this was the largest Genasys Protect multi-year order in the Company’s history. |
Business Outlook
Our products, systems, and solutions continue to gain worldwide awareness and recognition through increased marketing efforts, 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, enterprise safety, and law enforcement sectors as a result of increasing threats to government, commerce, law enforcement, homeland security, and critical infrastructure. Our products, systems, and solutions also have many applications within the fire rescue, maritime, asset protection, and wildlife control and preservation business segments.
Genasys has developed a global market and an increased demand for LRADs and advanced mass notification speakers. We have a reputation for producing quality products that feature industry-leading broadcast area coverage, vocal intelligibility, and product reliability. We intend to continue building on our AHD market leadership position by offering enhanced voice broadcast systems and accessories for an expanding range of applications. In executing our strategy, we use direct sales to governments, militaries, large end-users, system integrators, and prime vendors. We have built a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communication solutions into our various target markets. As our primary AHD sales opportunities are with domestic and international governments, military branches, and law enforcement agencies, we are subject to each customer’s unique budget cycle, which leads to long selling cycles and uneven revenue flow, complicating our product planning.
The proliferation of natural and man-made disasters, crisis situations, and civil unrest require technologically advanced, multi-channel solutions to deliver clear and timely protective communications to help keep people safe during critical events. Businesses are also incorporating protective communication and emergency management systems that locate and help safeguard employees and infrastructure when crises occur.
By providing the only SaaS platform that unifies sensors and IoT inputs with multichannel, multiagency alerting and notifications, Genasys seeks to deliver reliable, fast, and intuitive solutions for creating and disseminating geolocation-targeted warnings, information, and instructions before, during, and after public safety and enterprise threats.
While the software and hardware mass notification markets are more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified platform provides opportunities to succeed in the large and growing public safety, emergency warning and critical communications markets.
In fiscal 2024, we intend to continue pursuing domestic and international business opportunities with the support of business development consultants, key representatives, and resellers. We plan to grow our revenues through increased direct sales to governments and agencies that desire to integrate our communication technologies into their homeland security and public safety systems. This includes building on fiscal 2023 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue domestic and international emergency warning, enterprise and critical event management, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife preservation and control 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 Genasys Protect platform to meet the needs of our target markets.
Our Genasys Protect software solutions are more complex offerings. We are pursuing certain certifications, which are often required when bidding on government and mass notification opportunities. We intend to invest engineering resources to enhance our ALERT, EVAC, and CONNECT software solutions to compete for larger emergency warning and critical communications business opportunities. We are also configuring alternative solutions to achieve lower price points to meet the needs of certain customers or applications. We also engage in ongoing value engineering to reduce the cost and simplify the manufacturing of our products.
A large number of LRAD and ACOUSTICS components and sub-assemblies manufactured by outside suppliers within our supply chain are produced within 50 miles of our facility. We do not source component parts from suppliers in China. It is likely that some of our suppliers source parts in China. Negative impacts on our supply chain could have a material adverse effect on our business. We communicate with our suppliers regarding measures to alleviate 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 September 30, 2023, sustained or increased inflation in the future may have a negative effect on our ability to achieve certain expectations in gross margin and operating expenses. If we are unable to offset the negative impacts of inflation with increased prices, our future results could be materially affected.
Critical Accounting Policies and Estimates
We have identified the policies below as critical to our business operations and to understanding our results of operations. Our accounting policies are more fully described in our consolidated financial statements and related notes located in “Item 8. Financial Statements and Supplementary Data.” The impact and any associated risks related to these policies on our business operations are discussed in “Item 1A. Risk Factors” and throughout “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” when such policies affect our reported and expected financial results.
The methods, estimates, and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the U.S., have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized:
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1. |
Identify the contract(s) with customers |
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2. |
Identify the performance obligations |
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3. |
Determine the transaction price |
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4. |
Allocate the transaction price to the performance obligations |
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5. |
Recognize revenue when the performance obligations have been satisfied |
ASC 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.
We derive our revenue from the sale of products and services to customers, contracts, license fees, other services, and freight. The Company sells its products and services through its direct sales force and through authorized resellers and system integrators. The Company recognizes revenue for goods, including software, when all the significant risks and rewards have been transferred to the customer, no continuing managerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement or may be sold separately.
Product Revenue
Product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that our customer obtains control of the products. A smaller portion of product revenue is recognized when the customer receives delivery of the products. A portion of products are sold through resellers and system integrators based on firm commitments from an end user, and as a result, resellers and system integrators carry little or no inventory. Our customers do not have a right to return product unless the product is found defective and therefore our estimate for returns has historically been insignificant.
Perpetual licensed software
The sale and/or license of software products is deemed to have occurred when a customer either has taken possession of, or has the ability to take immediate possession of, the software and the software key. Perpetual software licenses can include one-year maintenance and support services. In addition, the Company sells maintenance services on a stand-alone basis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for the perpetual license and is recognized on a straight-line basis over the period to which the maintenance relates.
Time-based licensed software
The time-based license agreements include the use of a software license for a fixed term, generally one-year, and maintenance and support services during the same period. The Company does not sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognized on a straight-line basis over the term.
Warranty, maintenance, and services
We offer extended warranty, maintenance and other services. Extended warranty and maintenance contracts are offered with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original one-year warranty term. Revenues from separately priced extended warranty contracts are recognized on a straight-line basis over the warranty period and maintenance contracts are recognized based on time elapsed over the service period. Revenue from other services such as training or installation is recognized when the service is completed. Warranty, maintenance and services are classified as contract and other revenues.
Multiple element arrangements
The Company has entered into a number of multiple element arrangements, such as when selling a product or perpetual licenses that may include maintenance and support (included in the price of the perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost-plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.
Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses, which are not unbundled. When software development services are performed to customize the functionality of the software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.
We currently disaggregate revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings. Refer to Note 18, Segment Information and Note 19, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.
Share-Based Compensation. We account for share-based compensation in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Compensation—Stock Compensation” (“ASC 718”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors based on estimated fair values. ASC 718 requires the use of subjective assumptions, including expected stock price volatility and the estimated term of each award. We estimate the fair value of stock options granted using the Black-Scholes option-pricing model, which is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. This model also utilizes the fair value of our common stock and requires that, at the date of grant, we use the expected term of the share-based award, the expected volatility of the price of our common stock over the expected term, the risk-free interest rate and the expected dividend yield of our common stock to determine the estimated fair value. We determine the amount of share-based compensation expense based on awards that we ultimately expect to vest, reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Allowance for doubtful accounts. Our products are sold to customers in many different markets and geographic locations. We estimate our bad debt reserve on a case-by-case basis due to a limited number of customers. We base these estimates on many factors, including customer credit worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our judgments and estimates regarding collectability of accounts receivable have an impact on our financial statements.
Valuation of Inventory. Our inventory is comprised of raw materials, assemblies and finished products. We must periodically make judgments and estimates regarding the future utility and carrying value of our inventory. The carrying value of our inventory is periodically reviewed and impairments, if any, are recognized when the expected future benefit from our inventory is less than its carrying value.
Valuation of Intangible Assets. Intangible assets consist of technology, customer relationships, trade name portfolio, and non-compete agreements acquired in the acquisitions of Genasys Spain and Zonehaven and the Amika Mobile asset purchase and patents and trademarks that are amortized over their estimated useful lives. We must make judgments and estimates regarding the future utility and carrying value of intangible assets. The carrying values of such assets are periodically reviewed and impairments, if any, are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value. This generally occurs when certain assets are no longer consistent with our business strategy and whose expected future value has decreased.
Valuation of Goodwill. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets acquired. We evaluate goodwill for impairment on an annual basis in our fiscal fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a single reporting unit below the carrying amount. We assess qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The qualitative factors evaluated by management include: macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than the carrying amount, a two-step impairment test is performed. For reporting units where we perform the quantitative goodwill impairment test, an impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit.
Accrued Expenses. We establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. This reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs, and anticipated rates of warranty claims. Warranty expense is recorded in cost of revenues. We evaluate the adequacy of this reserve each reporting period.
We use the recognition criteria of ASC 450-20, “Loss Contingencies” to estimate the bonus amount when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period. We accrue bonus expense each quarter based on estimated year-end results, and then adjust the actual in the fourth quarter based on our final results compared to targets.
Deferred Tax Asset. We evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance. We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. As of September 30, 2023, the Company does not believe that it is more likely than not that its deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying balance sheet. Utilization of the net operating loss (“NOL”) carryforwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control. In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the ability to recover deferred tax assets. The Company will continue to evaluate the ability to realize its net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets and will adjust the valuation accordingly.
Recent Accounting Pronouncements
New pronouncements issued for future implementation are discussed in Note 3, Recent Accounting Pronouncements, to our consolidated financial statements.
Segment and Related Information
We are engaged in the design, development, and commercialization of critical communications hardware and software solutions designed to alert, inform and protect people. The Company operates in two business segments: Hardware and Software and its principal markets are North and South America, Europe, Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill, and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are eliminated in consolidation. Refer to Note 18, Segment Information, in our consolidated financial statements for further discussion.
Comparison of Results of Operations for Fiscal Years Ended September 30, 2023 and 2022
The following table provides for the periods indicated certain items of our consolidated statements of operations expressed in thousands of dollars and as a percentage of net sales. The financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this Annual Report.
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Years Ended |
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September 30, 2023 |
September 30, 2022 |
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% of |
% of |
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Total |
Total |
Fav(Unfav) |
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Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
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Revenues: |
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|
Product revenue |
$ | 40,128 | 86.0 | % | $ | 48,637 | 90.0 | % | $ | (8,509 | ) | (17.5 | %) | |||||||||||
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Contract and other |
6,535 | 14.0 | % | 5,398 | 10.0 | % | 1,137 | 21.1 | % | |||||||||||||||
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Total revenues |
46,663 | 100.0 | % | 54,035 | 100.0 | % | (7,372 | ) | (13.6 | %) | ||||||||||||||
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Cost of revenues |
24,901 | 53.4 | % | 26,759 | 49.5 | % | 1,858 | 6.9 | % | |||||||||||||||
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Gross Profit |
21,762 | 46.6 | % | 27,276 | 50.5 | % | (5,514 | ) | (20.2 | %) | ||||||||||||||
|
Operating expenses |
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|
Selling, general and administrative |
24,621 | 52.8 | % | 22,635 | 41.9 | % | (1,986 | ) | (8.8 | %) | ||||||||||||||
|
Impairment of goodwill |
- | 0.0 | % | 13,162 | 24.4 | % | 13,162 | 100.0 | % | |||||||||||||||
|
Research and development |
8,127 | 17.4 | % | 7,010 | 13.0 | % | (1,117 | ) | (15.9 | %) | ||||||||||||||
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Total operating expenses |
32,748 | 70.2 | % | 42,807 | 79.2 | % | 10,059 | 23.5 | % | |||||||||||||||
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Loss from operations |
(10,986 | ) | (23.5 | %) | (15,531 | ) | (28.7 | %) | 4,545 | (29.3 | %) | |||||||||||||
|
Other(expense) income, net |
(10 | ) | (0.0 | %) | 60 | 0.1 | % | (70 | ) | (116.7 | %) | |||||||||||||
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Loss before income taxes |
(10,996 | ) | (23.6 | %) | (15,471 | ) | (28.6 | %) | 4,475 | (28.9 | %) | |||||||||||||
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Income tax expense |
7,400 | 15.9 | % | 741 | 1.4 | % | (6,659 | ) | (898.7 | %) | ||||||||||||||
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Net loss |
$ | (18,396 | ) | (39.4 | %) | $ | (16,212 | ) | (30.0 | %) | $ | (2,184 | ) | 13.5 | % | |||||||||
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Net revenue |
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Hardware |
$ | 42,864 | 91.9 | % | $ | 50,938 | 94.3 | % | (8,074 | ) | (15.9 | %) | ||||||||||||
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Software |
3,799 | 8.1 | % | 3,097 | 5.7 | % | 702 | 22.7 | % | |||||||||||||||
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Total net revenue |
$ | 46,663 | 100.0 | % | $ | 54,035 | 100.0 | % | $ | (7,372 | ) | (13.6 | %) | |||||||||||
Revenues
Revenues decreased $7,372 in the fiscal year ended September 30, 2023, compared with the prior year. Hardware revenue decreased $8,074, partially offset by a $702 increase in software revenue compared with the prior fiscal year. Lower hardware revenue was largely due to low backlog at the start of the fiscal year and lower fiscal year 2023 hardware orders. The receipt of orders is often uneven due to the timing of government budgets or approvals. The increase in software revenue in this fiscal year is due to growth in SaaS revenue, partially offset by lower professional services revenue on software contracts. As of September 30, 2023, we had aggregate deferred revenue and prepayments from customers in advance of product shipment of $4,020. The receipt of orders will often be uneven due to the timing of customers’ approval or budget cycles.
Gross Profit
Gross profit for the year ended September 30, 2023, decreased $5,514 compared with fiscal year 2022, primarily due to lower sales volume and higher product costs in fiscal year 2023. Gross margin as a percentage of sales was 46.6% in fiscal year 2023, compared with 50.5% in the prior year.
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 by $1,986, or 8.8%. The increase was due to $940 of additional employee-related costs, largely associated with our 18% increase in sales and administration personnel over the prior year to support software revenue growth opportunities. In addition, professional services, including rebranding and recruitment costs, increased $878 and commission expense increased $288 over the prior year.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses for fiscal 2023 and 2022 of $1,428 and $2,080, respectively.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential business opportunities. Commission expense will fluctuate based on the nature of our sales.
Goodwill Impairment
As a result of the annual goodwill impairment analysis, we recognized a $13,162 non-cash goodwill impairment charge in our Software segment for the year ended September 30, 2022. There was no impairment charge recorded for the year ended September 30, 2023. For more information, refer to Note 2, Basis of Presentation and Significant Accounting Policies and Note 8, Goodwill and Intangible Assets.
Research and Development Expenses
R&D expenses increased by $1,117 primarily due to increased employee-related costs associated with our 7% growth in engineering personnel.
Included in R&D expenses for the year ended September 30, 2023 was $103 of non-cash share-based compensation expenses, compared to $70 for the year ended September 30, 2022.
Other (Expense) Income, net
Other expense, net, decreased by $70 due to changes in interest income and realized gains and losses on foreign currency translation.
Net Loss
The net loss of $18,396 for fiscal 2023 was an increase of $2,184 compared with the net loss of $16,212 in fiscal year 2022. This was largely due to lower revenue combined with increased costs. Additionally, income tax expense increased $6,659 primarily due to a non-cash $7,373 full valuation allowance taken against the deferred tax asset. Pretax loss in fiscal year 2023 was $4,475 less than the prior year primarily due to the $13,162 goodwill impairment charge in fiscal year 2022 offset by a $5,514 decrease in gross profit and increased operating expense of $3,103. Refer to Note 13, Income Taxes, in our consolidated financial statements for additional information on changes to the deferred tax asset.
Other Metrics
We monitor a number of financial and operating metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions, including the following key metrics. Our other business metrics may be calculated in a manner different than similar other business metrics used by other companies (in thousands):
Adjusted EBITDA
Adjusted EBITDA represents our net income before other income, net, income tax expense (benefit), depreciation and amortization expense, stock-based compensation and goodwill impairment. 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 that are 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):
|
Years ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Net loss |
(18,396 | ) | (16,212 | ) | ||||
|
Other income (expense), net |
10 | (60 | ) | |||||
|
Income tax expense (benefit) |
7,400 | 741 | ||||||
|
Depreciation and amortization |
2,558 | 2,556 | ||||||
|
Impairment of goodwill |
- | 13,162 | ||||||
|
Stock-based compensation |
1,642 | 2,227 | ||||||
|
Adjusted EBITDA |
$ | (6,786 | ) | $ | 2,414 | |||
Segment Results
Segment results include net sales and operating income by segment. Corporate expense including various administrative expenses and costs of a publicly traded company are included in the Hardware segment as per historical financial reporting.
|
Software |
Hardware |
|||||||||||||||||||||||||||||||
|
Years ended |
Years ended |
|||||||||||||||||||||||||||||||
|
September 30, |
Fav (Unfav) |
September 30, |
Fav (Unfav) |
|||||||||||||||||||||||||||||
|
2023 |
2022 |
$ |
% |
2023 |
2022 |
$ |
% |
|||||||||||||||||||||||||
|
Revenue |
$ | 3,799 | $ | 3,097 | $ | 702 | 22.7 | % | $ | 42,864 | $ | 50,938 | $ | (8,074 | ) | (15.9 | %) | |||||||||||||||
|
Operating (loss) income |
(14,226 | ) | (24,791 | ) | 10,565 | (42.6 | %) | 3,240 | 9,260 | (6,020 | ) | (65.0 | %) | |||||||||||||||||||
|
Reconciliation of GAAP to Non-GAAP |
||||||||||||||||||||||||||||||||
|
Goodwill impairment |
- | 13,162 | (13,162 | ) | (100.0 | %) | - | - | - | 0.0 | % | |||||||||||||||||||||
|
Depreciation and amortization |
2,160 | 2,176 | (16 | ) | (0.7 | %) | 398 | 380 | 18 | 4.7 | % | |||||||||||||||||||||
|
Stock-based compensation |
333 | 244 | 89 | 36.5 | % | 1,309 | 1,983 | (674 | ) | (34.0 | %) | |||||||||||||||||||||
|
Adjusted EBITDA |
$ | (11,733 | ) | $ | (9,209 | ) | $ | (2,524 | ) | 27.4 | % | $ | 4,947 | $ | 11,623 | $ | (6,676 | ) | (57.4 | %) | ||||||||||||
Software Segment
Software segment revenue increased 22.7% over the prior fiscal year. This reflects a 43.8% increase in recurring revenue offset by a 32.9% decrease in professional services and licensing revenue compared to the prior fiscal year.
Operating loss decreased $10,565 in the current fiscal year due to a $13,162 goodwill impairment charge in fiscal 2022, and higher gross profit this year, offset by higher operating expenses including increases in payroll and benefit costs due to increased hiring to support software development and sales.
Hardware Segment
Hardware segment revenue decreased $8,074, or 15.9%, over the prior year. The decrease was largely due to low backlog at the start of the fiscal year and lower hardware orders received compared to the prior year.
Operating income decreased $6,020 in the current fiscal year due to the decreased revenue and lower gross profit.
Liquidity and Capital Resources
Cash and cash equivalents as of September 30, 2023, were $8,665, compared with $12,736 as of September 30, 2022. In addition, we had $1,481 in short-term marketable securities as of September 30, 2023, compared with $6,397 as of September 30, 2022. There were no long-term marketable securities as of September 30, 2023, and $781 as of September 30, 2022. We also had restricted cash of $854 as of September 30, 2023 and $923 as of September 30, 2022. On October 4, 2023, the Company completed an underwritten public offering of 5,750,000 shares of its common stock at a public offering price of $2.00 per share. The Company received gross proceeds of approximately $11,500 from the offering, before underwriting discounts and commissions and offering expenses of $915. Other than cash, proceeds from the underwritten public offering, and expected future cash flows from operating activities in subsequent periods, we have no other unused sources of liquidity at this time.
Principal factors that could affect the availability of our internally generated funds include:
|
● |
ability to meet sales projections; |
|
● |
government spending levels; |
|
● |
introduction of competing technologies; |
|
● |
product mix and effect on margins; |
|
● |
ability to reduce and manage inventory levels; and |
|
● |
product acceptance in new markets. |
Principal factors that could affect our ability to obtain cash from external sources include:
|
● |
volatility in the capital markets; and |
|
● |
market price and trading volume of our common stock. |
In December 2018, the Board of Directors approved a share buyback program beginning January 1, 2019, under which the Company is authorized to repurchase up to $5,000 of its outstanding common shares. In December 2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024. Based on our current cash position, our order backlog, and assuming the accuracy of our currently planned expenditures, we believe we have sufficient capital to fund planned levels of operations for at least the next twelve months. However, we operate in a rapidly evolving and often 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, if at all.
Cash Flows
Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the table below (in thousands):
|
Years ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Cash provided by (used in): |
||||||||
|
Operating activities |
$ | (9,593 | ) | $ | 468 | |||
|
Investing activities |
5,538 | (89 | ) | |||||
|
Financing activities |
(114 | ) | (1,063 | ) | ||||
Operating Activities
Net loss of $18,396 for the fiscal year ended September 30, 2023, included $12,732 of other non-cash items including deferred income taxes, share-based compensation expense, operating right of use lease amortization, depreciation and amortization, inventory obsolescence, and a provision for warranty. Cash used in operating activities reflected a $425 increase in accounts payable and a $6,064 decrease in accrued and other liabilities, which included customer deposits, accrued payroll, deferred revenue, and operating lease liabilities. This was partially offset by a $1,671 decrease in prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent and prepaid insurance, and an $827 decrease in accounts receivable.
Net loss of $16,212 for the fiscal year ended September 30, 2022, included a $13,162 goodwill impairment charge and $6,736 of other non-cash items including share-based compensation expense, deferred income taxes, operating right of use lease amortization, depreciation and amortization, inventory obsolescence, and a provision for warranty. Cash provided by operating activities reflected a $199 increase in accounts payable and a $4,570 decrease in accrued and other liabilities, which included customer deposits, accrued payroll, deferred revenue, and operating lease liabilities. This was partially offset by a $242 decrease in prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent and prepaid insurance, and a $836 decrease in accounts receivable.
We had accounts receivable of $5,952 and $6,744 as of September 30, 2023 and 2022, respectively. Terms with individual customers vary greatly. We often offer net thirty-day terms to our customers. Our receivables can vary dramatically due to overall sales volume and quarterly variations in sales and timing of shipments to and receipts from large customers.
As of September 30, 2023 and 2022, our working capital was $13,949 and $20,197, respectively. The decrease in working capital was largely the result of a decrease in marketable securities of $4,916 and increased operating expenses funded through cash on hand.
Investing Activities
In the fiscal year ended September 30, 2023, we used $3,641 of cash to purchase short and long-term marketable securities, compared with using $6,830 to purchase short and long-term marketable securities in the fiscal year ended September 30, 2022. In the fiscal year ended September 30, 2023, we had proceeds from maturities of available for sale marketable securities of $9,418, compared with $7,122 in fiscal year 2022.
We also used cash in investing activities for the purchase of product tooling, computer equipment, and leasehold improvements for our operating facilities. Cash used for capital expenditures was $239 and $381 in the fiscal years ended September 30, 2023 and 2022, respectively. We anticipate additional expenditures for capital expenditures in fiscal year 2024 as we continue to invest in new products and technologies.
Financing Activities
In the years ended September 30, 2023 and 2022, we received proceeds from the exercise of stock options of $138 and $282, respectively.
In December 2018, the Board of Directors approved a share buyback program beginning January 1, 2019 and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $5,000 of its outstanding common shares. In December 2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024. The previous program expired on December 31, 2018.
During the year ended September 30, 2023, there were no shares repurchased. During the year ended September 30, 2022, 259,310 shares were repurchased for $1,000. There were no shares repurchased during the year ended September 30, 2023. As of September 30, 2023, all repurchased shares were retired. As of September 30, 2023, $3,000 was available for share repurchase under this program.
Commitments
We are committed for our facility lease through August 30, 2028, as more fully described in Note 12, Leases, in our consolidated financial statements.
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. All of the Company’s key employees are entitled to participate in the bonus plan. During the years ended September 30, 2023 and 2022, the Company recorded $194 and $1,733, respectively, in bonus expense, and related payroll tax expense in connection with the bonus plans. Bonus related expense is included in “Accrued liabilities” on the Consolidated Balance Sheet.
The Company is party to an employment agreement with our chief executive officer that provides for severance benefits, including twelve months’ salary and health benefits, a pro-rata share of his annual cash bonus for the fiscal year in which the termination occurs to which he would have become entitled had he remained employed through the end of the fiscal year, and vesting of a portion of stock options held by the employee at the time of termination. The agreement also has a change in control clause whereby the chief executive officer would be entitled to receive specific severance and equity vesting benefits if specified termination events occur.
There were no other employment agreements with executive officers or other employees providing future benefits or severance arrangements.
|
Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk. |
Information requested by this Item is not included as we are electing scaled disclosure requirements available to Smaller Reporting Companies.
|
Item 8. |
Financial Statements and Supplementary Data. |
The financial statements required by this item begin on page F-1 with the index to financial statements followed by the consolidated financial statements.
|
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
There have been no disagreements or any reportable events requiring disclosure under Item 304(b) of Regulation S-K.
|
Item 9A. |
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.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our Exchange Act Reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in our Exchange Act Reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023 and, based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2023, based on the guidelines established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles in the U.S. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of September 30, 2023.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Pursuant to rules of the SEC, such attestation is not required for smaller reporting companies, which permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting since September 30, 2022, in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15, 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.
|
Item 9B. |
Other Information. |
Rule 10b5-1 Trading Plans
During the three months ended September 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.
|
Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. |
Not Applicable
PART III
Certain information required by this Part III is omitted from this report and is incorporated by reference to our Definitive Proxy Statement to be filed with the SEC in connection with the Annual Meeting of Stockholders to be held in 2024 (the “Proxy Statement”).
|
Item 10. |
Directors, Executive Officers and Corporate Governance. |
The information with respect to our executive officers is set forth in the section entitled “Executive Officers” in Part I of this Annual Report on Form 10-K. The information required by this item with respect to our directors and corporate governance matters is incorporated by reference to the information under the captions “Election of Directors”, “Board and Committee Matters and Corporate Governance Matters” and “Delinquent Section 16(a) Reports” contained in Proxy Statement.
|
Item 11. |
Executive Compensation. |
The information required by this item is incorporated by reference to the information in the Proxy Statement under the caption “Executive Compensation.”
|
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this item is incorporated by reference to the information in the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”
|
Item 13. |
Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item is incorporated by reference to the information in the Proxy Statement under the captions “Certain Transactions” and “Independence of the Board of Directors.”
|
Item 14. |
Principal Accounting Fees and Services. |
The information required by this item is incorporated by reference to the Proxy Statement, under the heading “Principal Accountant Fees and Services.”
PART IV
|
Item 15. |
Exhibits and Financial Statement Schedules. |
Index to Consolidated Financial Statements
The financial statements required by this item are submitted in a separate section beginning on page F-1 of this annual report.
Financial Statement Schedules:
None.
Exhibits:
The following exhibits are incorporated by reference or filed as part of this report.
|
2. |
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession |
|
2.1 |
|
|
3. |
Articles of Incorporation and Bylaws |
|
3.1 |
Certificate of Incorporation dated March 1, 1992. Incorporated by reference to Exhibit 2.1 on Form 10-SB effective August 1, 1994. |
|
3.1.1 |
|
|
3.1.2 |
|
|
3.1.3 |
|
|
3.1.4 |
|
|
3.1.5 |
|
|
3.2 |
|
|
4. |
Instruments Defining the Rights of Securities Holders, |
|
4.1 |
|
|
10. |
Material Contracts |
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
10.6 |
|
|
10.7 |
|
|
10.8 |
|
|
10.9 |
|
|
10.10 |
|
|
10.11 |
|
|
19. |
Insider Trading Policies and Procedures |
|
19.1 |
|
|
21. |
Subsidiaries of the Registrant |
|
21.1 |
|
|
23. |
Consents of Experts and Counsel |
|
23.1 |
|
|
24. |
Power of Attorney |
|
24.1 |
|
|
31. |
Certifications |
|
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
97 |
Clawback Policies |
|
97.1 |
|
|
99. |
Additional Exhibits |
|
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 Document and included in Exhibit 101) |
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
Genasys Inc.
Index to Consolidated Financial Statements
|
Report of Independent Registered Public Accounting Firm (PCAOB ID |
F-1 |
|
Consolidated Balance Sheets as of September 30, 2023 and 2022 |
F-2 |
|
Consolidated Statements of Operations for the Years Ended September 30, 2023 and 2022 |
F-3 |
|
Consolidated Statements of Comprehensive Loss for the Years Ended September 30, 2023 and 2022 |
F-3 |
|
Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2023 and 2022 |
F-4 |
|
Consolidated Statements of Cash Flows for the Years Ended September 30, 2023 and 2022 |
F-5 |
|
Notes to the Consolidated Financial Statements |
F-7 – F-30 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Genasys Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Genasys Inc. (the Company) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period ended September 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company's auditor since 2007.
December 7, 2023
Genasys Inc.
Consolidated Balance Sheets
(in thousands, except par value and share amounts)
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
ASSETS |
||||||||
|
Current assets: |
||||||||
|
Cash and cash equivalents |
$ | $ | ||||||
|
Short-term marketable securities |
||||||||
|
Restricted cash |
||||||||
|
Accounts receivable, net of allowance for doubtful accounts of $ |
||||||||
|
Inventories, net |
||||||||
|
Prepaid expenses and other |
||||||||
|
Total current assets |
||||||||
|
Long-term marketable securities |
||||||||
|
Long-term restricted cash |
||||||||
|
Deferred tax assets, net |
||||||||
|
Property and equipment, net |
||||||||
|
Goodwill |
||||||||
|
Intangible assets, net |
||||||||
|
Operating lease right of use assets |
||||||||
|
Other assets |
||||||||
|
Total assets |
$ | $ | ||||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
|
Current liabilities: |
||||||||
|
Accounts payable |
$ | $ | ||||||
|
Accrued liabilities |
||||||||
|
Operating lease liabilities, current portion |
||||||||
|
Total current liabilities |
||||||||
|
Other liabilities, noncurrent |
||||||||
|
Operating lease liabilities, noncurrent |
||||||||
|
Total liabilities |
||||||||
|
Stockholders' equity: |
||||||||
|
Preferred stock, $ |
||||||||
| Common stock, $ |
||||||||
|
|
||||||||
|
Additional paid-in capital |
||||||||
|
Accumulated deficit |
( |
) | ( |
) | ||||
|
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
|
Total stockholders' equity |
||||||||
|
Total liabilities and stockholders' equity |
$ | $ | ||||||
See accompanying notes
Genasys Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
|
Years ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Revenues: |
||||||||
|
Product sales |
$ | $ | ||||||
|
Contract and other |
||||||||
|
Total revenues |
||||||||
|
Cost of revenues |
||||||||
|
Gross profit |
||||||||
|
Operating expenses |
||||||||
|
Selling, general and administrative |
||||||||
|
Impairment of goodwill |
||||||||
|
Research and development |
||||||||
|
Total operating expenses |
||||||||
|
Loss from operations |
( |
) | ( |
) | ||||
|
Other (expense) income, net |
( |
) | ||||||
|
Loss before income taxes |
( |
) | ( |
) | ||||
|
Income tax expense |
||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Net loss per common share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
|
Weighted average common shares outstanding: |
||||||||
|
Basic and diluted |
||||||||
Genasys Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
|
Years ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Unrealized gain (loss) on marketable securities |
( |
) | ||||||
|
Unrealized foreign currency gain (loss) |
( |
) | ||||||
|
Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
See accompanying notes
Genasys Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except par value and share amounts)
|
Accumulated |
||||||||||||||||||||||||
|
Additional |
Other |
Total |
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|
Common Stock |
Paid-in |
Accumulated |
Comprehensive |
Stockholders' |
||||||||||||||||||||
|
Shares |
Par Value |
Capital |
Deficit |
Income (Loss) |
Equity |
|||||||||||||||||||
|
Balance as of September 30, 2021 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
|
Share-based compensation expense |
- | - | - | - | ||||||||||||||||||||
|
Issuance of common stock upon exercise of stock options, net |
- | - | ||||||||||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
- | - | - | - | ||||||||||||||||||||
|
Shares retained for payment of taxes in connection with net share settlement of restricted stock units |
( |
) | - | ( |
) | - | - | ( |
) | |||||||||||||||
|
Stock buyback |
( |
) | ( |
) | ( |
) | - | - | ( |
) | ||||||||||||||
|
Release of obligation to issue common stock |
69,564 | - | - | - | ||||||||||||||||||||
|
Accumulated other comprehensive loss |
- | - | - | - | ( |
) | ( |
) | ||||||||||||||||
|
Net loss |
- | - | - | ( |
) | - | ( |
) | ||||||||||||||||
|
Balance as of September 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Share-based compensation expense |
- | - | - | - | ||||||||||||||||||||
|
Issuance of common stock upon exercise of stock options, net |
- | - | ||||||||||||||||||||||
|
Issuance of common stock upon cashless exercise of stock options, net |
( |
) | - | - | ||||||||||||||||||||
|
Shares retained for payment of taxes in connection with cashless exercise of stock options |
( |
) | ( |
) | ( |
) | - | - | ( |
) | ||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
- | - | - | - | ||||||||||||||||||||
|
Shares retained for payment of taxes in connection with net share settlement of restricted stock units |
( |
) | - | ( |
) | - | - | ( |
) | |||||||||||||||
|
Release of obligation to issue commons stock |
1 | - | - | - | - | |||||||||||||||||||
|
Accumulated other comprehensive income |
- | - | - | - | ||||||||||||||||||||
|
Net loss |
- | - | - | ( |
) | - | ( |
) | ||||||||||||||||
|
Balance as of September 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See accompanying notes
Genasys Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
Years ended |
||||||||
|
` |
September 30, |
|||||||
|
2023 |
2022 |
|||||||
|
Operating Activities: |
||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
|
Impairment of goodwill |
||||||||
|
Depreciation and amortization |
||||||||
|
Amortization of debt issuance costs |
||||||||
|
Provision for doubtful accounts |
||||||||
|
Warranty provision |
||||||||
|
Inventory obsolescence |
||||||||
|
Stock-based compensation |
||||||||
|
Deferred income taxes |
||||||||
|
Loss on disposal of fixed asset |
||||||||
|
Amortization of operating lease right of use asset |
||||||||
|
Accretion of acquisition holdback liability |
||||||||
|
Changes in operating assets and liabilities: |
||||||||
|
Accounts receivable, net |
||||||||
|
Inventories, net |
( |
) | ||||||
|
Prepaid expenses and other |
||||||||
|
Accounts payable |
||||||||
|
Accrued and other liabilities |
( |
) | ( |
) | ||||
|
Net cash (used in) provided by operating activities |
( |
) | ||||||
|
Investing Activities: |
||||||||
|
Purchases of marketable securities |
( |
) | ( |
) | ||||
|
Proceeds from maturities of marketable securities |
||||||||
|
Capital expenditures |
( |
) | ( |
) | ||||
|
Net cash provided by (used in) investing activities |
( |
) | ||||||
|
Financing Activities: |
||||||||
|
Proceeds from exercise of stock options |
||||||||
|
Repurchase of common stock |
( |
) | ||||||
|
Shares retained for payment of taxes in connection with settlement of restricted stock units |
( |
) | ( |
) | ||||
|
Shares retained for payment of taxes in connection with the exercise of stock options |
( |
) | ||||||
|
Payments on promissory notes |
( |
) | ||||||
|
Net cash used in financing activities |
( |
) | ( |
) | ||||
|
Effect of foreign exchange rate on cash |
( |
) | ||||||
|
Net decrease in cash, cash equivalents, and restricted cash |
( |
) | ( |
) | ||||
|
Cash, cash equivalents and restricted cash, beginning of period |
||||||||
|
Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash to the consolidated | ||||||||
|
balance sheets: |
||||||||
|
Cash and cash equivalents |
$ | $ | ||||||
|
Restricted cash, current portion |
||||||||
|
Long-term restricted cash |
||||||||
|
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows |
$ | $ | ||||||
See accompanying notes
Genasys Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
Years ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Noncash investing and financing activities: |
||||||||
|
Change in unrealized loss on marketable securities |
$ | $ | ( |
) | ||||
|
Obligation to issue common stock in connection with the Amika Mobile asset purchase |
$ | ( |
) | $ | ( |
) | ||
|
Initial measurement of operating lease right of use assets |
$ | $ | ||||||
|
Initial measurement of operating lease liabilities |
$ | $ | ||||||
|
Shares surrendered from stock option exercises |
$ | $ | ||||||
Genasys Inc.
Notes to the Consolidated Financial Statements
(in thousands, except per share and share amounts)
1. OPERATIONS
Genasys Inc. is a global provider of Protective Communications solutions including its Genasys Protect software platform and Genasys Long Range Acoustical Devices (“LRAD”). The Company's unified platform receives information from a wide variety of sensors and Internet-of-Things (IoT) inputs to collect real-time information on developing and active emergency situations. The Company uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Company has wholly owned subsidiaries, Genasys II Spain, S.A.U. (“Genasys Spain”), Genasys Communications Canada ULC (“Genasys Canada”), Genasys Singapore PTE Ltd, Genasys Puerto Rico, LLC, Zonehaven LLC, and Genasys Inc. (branch) in the United Arab Emirates and currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions (e.g., share-based compensation valuation, allowance for doubtful accounts, valuation of inventory, goodwill and intangible assets, warranty reserve, valuation of operating lease right of use assets and operating lease liabilities, accrued bonus and valuation allowance related to deferred tax assets) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company sells its products to a large number of geographically diverse customers. The Company routinely assesses the financial strength of its customers. It is customary for the Company to require a deposit as collateral. As of September 30, 2023, accounts receivable from customers accounted for
The Company maintains cash and cash equivalent bank deposit accounts which, at times, may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses in such accounts. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions. The Company also invests cash in instruments that meet high credit quality standards, as specified in the Company’s policy guidelines such as money market funds, corporate bonds, municipal bonds and Certificates of Deposit. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. It is generally the Company’s policy to invest in instruments that have a final maturity of no longer than years, with a portfolio weighted average maturity of no longer than
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. As of September 30, 2023 and 2022, the amount of cash and cash equivalents was $
The Company considers any amounts pledged as collateral or otherwise restricted for use in current operations to be restricted cash. In addition, the Company excludes from cash and cash equivalents cash required to fund specific future contractual obligations related to business combinations. Restricted cash is classified as a current asset unless amounts are not expected to be released and available for use in operations within one year. As of September 30, 2023 and 2022, the amount of restricted cash was $
MARKETABLE SECURITIES
The Company’s investments in debt instruments are classified as available-for-sale. Management determines the appropriate classification of such securities at the time of purchase and re-evaluates such classification as of each balance sheet date. Marketable securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income. The realized gains and losses on marketable securities are determined using the specific identification method.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company carries accounts receivable at historical cost, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates accounts receivable and establishes an allowance for doubtful accounts for estimated losses considering the following factors when determining if collection of a receivable is probable: customer creditworthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. If the Company has no previous experience with the customer, the Company may obtain reports from various credit organizations to ensure that the customer has a history of paying creditors. The Company may also request financial information to ensure that the customer has the means of making payment. If these factors do not indicate collection is probable, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash. There was deferred revenue as of September 30, 2023 or 2022 as a result of collection issues. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The Company determines allowances on a customer specific basis. As of September 30, 2023 and 2022, the Company had an allowance for doubtful accounts of $
CONTRACT MANUFACTURERS
The Company employs contract manufacturers for production of certain components and sub-assemblies. The Company may provide parts and components to such parties from time to time but recognizes no revenue or markup on such transactions. During fiscal years 2023 and 2022, the Company performed assembly of products in-house using components and sub-assemblies from a variety of contract manufacturers and suppliers.
INVENTORIES
Inventories are valued at the lower of cost or net realizable value. Cost is determined using a standard cost system whereby differences between the standard cost and purchase price are recorded as a purchase price variance in cost of revenues. Inventory is comprised of raw materials, assemblies and finished products intended for sale. The Company periodically makes judgments and estimates regarding the future utility and carrying value of inventory. The carrying value of inventory is periodically reviewed and impairments, if any, are recognized when the expected net realizable value is less than carrying value. The Company has inventory reserves for estimated obsolescence or unmarketable inventory, which is equal to the difference between the cost of inventory and the estimated market value, based upon assumptions about future demand and market conditions. During the year ended September 30, 2023, the Company disposed of $
EQUIPMENT AND DEPRECIATION
Equipment is stated at cost. Depreciation on machinery and equipment and office furniture and equipment is computed over the estimated useful lives of to years using the straight-line method. Leasehold improvements are amortized over the life of the lease. Upon retirement or disposition of equipment, the related cost and accumulated depreciation is removed, and a gain or loss is recorded.
BUSINESS COMBINATIONS
The acquisition method of accounting for business combinations requires the Company to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which the Company may adjust the provisional amounts recognized for a business combination).
Under the acquisition method of accounting the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed generally at the acquisition date fair value. The Company measures goodwill as of the acquisition date as the excess of consideration transferred, which the Company also measures at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that the Company incurs to complete the business combination such as investment banking, legal and other professional fees are not considered part of consideration and the Company charges them to general and administrative expense as they are incurred.
Under the acquisition method of accounting for business combinations, if the Company identifies changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and the Company records the offset to goodwill. The Company records all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.
GOODWILL AND INTANGIBLE ASSETS
Identifiable intangible assets, which consist of technology, customer relationships, non-compete agreements, patents, tradenames and trademarks, are carried at cost less accumulated amortization. Intangible assets are amortized over their estimated useful lives, based on a number of assumptions including estimated periodic economic benefit and utilization. The estimated useful lives of identifiable intangible assets have been estimated to be between and years. The carrying value of intangibles is periodically reviewed and impairments, if any, are recognized when the carrying value exceeds fair value.
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets acquired. The Company evaluates goodwill for impairment on an annual basis in our fiscal fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a single reporting unit below the carrying amount. The Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The qualitative factors evaluated by the Company include: macro-economic conditions of the business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a two-step impairment test is performed. For reporting units where the Company performs the quantitative goodwill impairment test, an impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit. In the fourth quarter of fiscal 2022, in conjunction with the annual impairment assessment, the Company recorded a $13,162 goodwill impairment charge associated with the software reporting unit. The Company did not record a goodwill impairment charge for the year ended September 30, 2023. Refer to Note 8, Goodwill and Intangible Assets for more information.
LEASES
The Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”) in the fiscal year beginning October 1, 2019. In accordance with the guidance in ASC 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of ASC 842. Refer to Note 12, Leases for more information.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of revenues. Shipping and handling costs invoiced to customers are included in revenue. Actual shipping and handling costs were $289 and $640 for the fiscal years ended September 30, 2023 and 2022, respectively. Actual revenues from shipping and handling were $
ADVERTISING
Advertising costs are charged to expense as incurred and were $
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
WARRANTY RESERVES
The Company warrants its products to be free from defects in materials and workmanship for a period of one year from the date of purchase. The warranty is generally limited. The Company currently provides direct warranty service. Some agreements with OEM customers, from time to time, may require that certain quantities of product be made available for use as warranty replacements. International market warranties are generally similar to the U.S. market. The Company also sells extended warranty contracts and maintenance agreements.
The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenues are recognized. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the adequacy of the provision for warranty costs each reporting period. The warranty reserve was $
INCOME TAXES
The Company determines its income tax provision using the asset and liability method. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. A valuation allowance is recorded by the Company to the extent it is more likely than not that some portion or all of the deferred tax asset will not be realized. Significant management judgment is required in assessing the ability to realize the Company’s deferred tax assets. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income and the tax rates in effect at that time. Additional information regarding income taxes appears in Note 13, Income Taxes.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and finite-lived intangibles held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value of an intangible asset exceeds the fair value, or if changes in facts and circumstances indicate impairment, an impairment loss is measured and recognized using the asset’s fair value. There was no impairment of long-lived assets for the years ended September 30, 2023 and September 30, 2022. Refer to Note 5, Fair Value Measurements and Note 8, Goodwill and Intangible Assets for additional information.
SEGMENT INFORMATION
The Company is a global provider of critical communications hardware and software solutions designed to alert, inform, and protect people. The Company operates in business segments: Hardware and Software and its principal markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are eliminated in consolidation. Refer to Note 18, Segment Information, for additional information.
NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution of securities that could occur if outstanding securities convertible into common stock were exercised or converted. Refer to Note 17, Net Loss Per Share, for additional information.
FOREIGN CURRENCY TRANSLATION
The Company’s reporting currency is U.S. dollars. The functional currency of the Company is the U.S. dollar. The functional currency of Genasys Spain is the Euro and the function currency of Genasys Canada is the Canadian dollar. The Company translates the assets and liabilities of Genasys Spain and Genasys Canada at the exchange rates in effect on the balance sheet date. The Company translates the revenue, costs and expenses of Genasys Spain and Genasys Canada at the average rates of exchange in effect during the period. The Company includes translation gains and losses in the stockholders’ equity section of the Company’s consolidated balance sheets in accumulated other comprehensive income or loss. Transactions undertaken in other currencies are translated using the exchange rate in effect as of the transaction date and any exchange gains and losses resulting from these transactions, are included in the consolidated statements of operations. The translation gain for the period was $
SHARE-BASED COMPENSATION
The Company recognized share-based compensation expense related to qualified and non-qualified stock options issued to employees, directors and consultants over the expected vesting term of the stock-based instrument based on the grant date fair value. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates or if the Company updates its estimated forfeiture rate. Refer to Note 15, Share-based Compensation, for additional information.
RECLASSIFICATIONS
Where necessary, the prior year’s information has been reclassified to conform to the fiscal year 2023 statement presentation. These reclassifications had no effect on previously reported results of operations or accumulated deficit.
SUBSEQUENT EVENTS
Management evaluated events subsequent to September 30, 2023, through the date the accompanying consolidated financial statements are filed with the Securities and Exchange Commission. Refer to Note 20, Subsequent Events for further information.
3. RECENT ACCOUNTING PRONOUNCEMENTS
New pronouncements pending adoption
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of fiscal year beginning October 1, 2023. The Company has completed its review of the impact of this standard on its consolidated financial statements and the adoption of this standard will not have a material effect on the Company’s consolidated financial statements.
4. REVENUE RECOGNITION
ASC 606, Revenue from Contracts with Customers (“ASC 606”), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized:
|
1. |
Identify the contract(s) with customers |
|
2. |
Identify the performance obligations |
|
3. |
Determine the transaction price |
|
4. |
Allocate the transaction price to the performance obligations |
|
5. |
Recognize revenue when the performance obligations have been satisfied |
ASC 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.
The Company derives its revenue from the sale of products to customers, contracts, software license fees, other services and freight. The Company sells its products through its direct sales force and through authorized resellers and system integrators. The Company recognizes revenue for goods including software when all the significant risks and rewards have been transferred to the customer, no continuing managerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement or may be sold separately.
Product revenue
Product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that the Company’s customer obtains control of the products. A smaller portion of product revenue is recognized when the customer receives delivery of the products. A portion of products are sold through resellers and system integrators based on firm commitments from an end user, and as a result, resellers and system integrators carry little or no inventory. The Company’s customers do not have a right to return product unless the product is found defective and therefore the Company’s estimate for returns has historically been insignificant.
Perpetual licensed software
The sale and/or license of software products is deemed to have occurred when a customer either has taken possession of, or has the ability to take immediate possession of, the software and the software key. Perpetual software licenses can include one-year maintenance and support services. In addition, the Company sells maintenance services on a stand-alone basis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for the perpetual license and is recognized on a straight-line basis over the period to which the maintenance relates.
Time-based licensed software
The time-based license agreements include the use of a software license for a fixed term, generally one-year, and maintenance and support services during the same period. The Company does not sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognized on a straight-line basis over the term.
Warranty, maintenance and services
The Company offers extended warranty, maintenance and other services. Extended warranty and maintenance contracts are offered with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original one-year warranty term. Revenues from separately priced extended warranty and maintenance contracts are recognized based on time elapsed over the service period and classified as contract and other revenues. Revenue from other services such as training or installation is recognized when the service is completed.
Multiple element arrangements
The Company has entered into a number of multiple element arrangements, such as the sale of a product or perpetual licenses that may include maintenance and support (included in price of perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.
Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses which are not unbundled. When software development services are performed and are considered essential to the functionality of the software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.
The Company disaggregates revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with its business operations and to be consistent with other communications and public filings. Refer to Note 18, Segment Information and Note 19, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.
Contract assets and liabilities
The Company enters into contracts to sell products and provide services and recognizes contract assets and liabilities that arise from these transactions. The Company recognizes revenue and corresponding accounts receivable according to ASC 606 and, at times, recognizes revenue in advance of the time when contracts give the Company the right to invoice a customer. Sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Subscription related commission costs are deferred and then amortized on a straight-line basis over the period of benefit. The Company may also receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below reflects the balances of contract liabilities as of September 30, 2023 and September 30, 2022, including the change between the periods. There were contract assets as of September 30, 2023 and September 30, 2022. The current portion of contract liabilities and the noncurrent portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying condensed consolidated balance sheets. Refer to Note 10, Accrued and Other Liabilities for additional details.
The Company’s contract liabilities were as follows:
|
Customer deposits |
Deferred revenue |
Total contract liabilities |
||||||||||
|
Balance as of September 30, 2022 |
$ | $ | $ | |||||||||
|
New performance obligations |
||||||||||||
|
Recognition of revenue as a result of satisfying performance obligations |
( |
) | ( |
) | ( |
) | ||||||
|
Effect of exchange rate on deferred revenue |
||||||||||||
|
Balance as of September 30, 2023 |
$ | $ | $ | |||||||||
|
Less: non-current portion |
( |
) | ( |
) | ||||||||
|
Current portion as of September 30, 2023 |
$ | $ | $ | |||||||||
Remaining Performance Obligations
Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period.
As of September 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $
Practical Expedients
In cases where the Company is responsible for shipping after the customer has obtained control of the goods, the Company has elected to treat these activities as fulfillment activities rather than as a separate performance obligation. Additionally, the Company has elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value provided to the customer.
5. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist principally of cash equivalents, short and long-term marketable securities, accounts receivable, and accounts payable. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:
|
Level 1: |
Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date. |
|
Level 2: |
Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date. |
|
Level 3: |
Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. |
The fair value of the Company’s cash equivalents and marketable securities were determined based on Level 1 and Level 2 inputs. The valuation techniques used to measure the fair value of the “Level 2” instruments were valued based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data. The Company believes that the recorded values of its other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations. The Company did have any marketable securities in the Level 3 category as of September 30, 2023 or September 30, 2022. There have been no changes in Level 1, Level 2, and Level 3 and no changes in valuation techniques for financial instruments measured at fair value on a recurring basis for the years ended September 30, 2023 and 2022.
Instruments Measured at Fair Value on a Recurring Basis
Cash equivalents and marketable securities: The following tables present the Company’s cash equivalents and marketable securities’ costs, gross unrealized gains and losses, and fair value by major security type recorded as cash equivalents or short-term or long-term marketable securities as of September 30, 2023 and 2022. Unrealized gains and losses from the remeasurement of marketable securities are recorded in accumulated other comprehensive (loss) income until recognized in earnings upon the sale or maturity of the security.
|
September 30, 2023 |
||||||||||||||||||||||||
|
Cost Basis |
Unrealized Loss |
Fair Value |
Cash Equivalents |
Short-term Securities |
Long-term Securities |
|||||||||||||||||||
|
Level 1: |
||||||||||||||||||||||||
|
Money market funds |
$ | $ | $ | $ | $ | - | $ | - | ||||||||||||||||
|
Level 2: |
||||||||||||||||||||||||
|
Certificates of deposit |
||||||||||||||||||||||||
|
Municipal securities |
( |
) | ||||||||||||||||||||||
|
Corporate bonds |
( |
) | ||||||||||||||||||||||
|
Subtotal |
( |
) | ||||||||||||||||||||||
|
Total |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
|
September 30, 2022 |
||||||||||||||||||||||||
|
Cost Basis |
Unrealized Loss |
Fair Value |
Cash Equivalents |
Short-term Securities |
Long-term Securities |
|||||||||||||||||||
|
Level 1: |
||||||||||||||||||||||||
|
Money market funds |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
Level 2: |
||||||||||||||||||||||||
|
Certificates of deposit |
||||||||||||||||||||||||
|
Municipal securities |
( |
) | ||||||||||||||||||||||
|
Corporate bonds |
( |
) | ||||||||||||||||||||||
|
Subtotal |
( |
) | ||||||||||||||||||||||
|
Total |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Instruments measured at Fair Value on a Non-Recurring Basis
Nonfinancial assets: Nonfinancial assets such as goodwill, other intangible assets, long-lived assets held and used, and right-of-use assets (“ROU assets”) are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination.
Goodwill and intangible assets are recognized at fair value during the period in which an acquisition is completed, from updated estimates during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for goodwill and intangible assets acquired, were based on Level 3 inputs. The Company estimates the fair value of long-lived assets on a non-recurring basis based on a market valuation approach, engaging independent valuation experts to assist in the determination of fair value. In the fourth quarter of fiscal 2022, in conjunction with the annual impairment assessment, the Company determined that the fair value of the software reporting unit was less than the carrying value. In addition to increased costs and continued losses in the software reporting unit, the Company considered macroeconomic conditions including a deterioration in the equity markets evidenced by sustained declines in the Company’s stock price, peer companies, and major market indices since September 30, 2021. The Company engaged independent valuation experts to assist in determining the fair value of the software reporting unit. As a result of this analysis, the Company recorded a $13,162 goodwill impairment charge associated with the software reporting unit. There was no goodwill impairment charge for the year ended September 30, 2023.
The following table presents nonfinancial assets that were subject to fair value measurement during the twelve months ended September 30, 2023. There were no business combinations during the twelve months ended September 30, 2023. Certain intangible assets, operating lease ROU assets and goodwill are subject to foreign currency translation adjustments.
|
Carrying |
Active Markets for Identifiable Assets |
Observable Inputs |
Unobservable Inputs |
Non-Cash Impairment |
||||||||||||||||
|
Carrying Value |
Value |
(Level 1) |
(Level 2) |
(Level 3) |
Loss |
|||||||||||||||
|
Operating Lease ROU Asset |
$ | $ | $ | $ | ||||||||||||||||
The following table presents nonfinancial assets that were subject to fair value measurement during the twelve months ended September 30, 2022. Certain intangible assets, operating lease ROU assets and goodwill are subject to foreign currency translation adjustments.
|
Carrying |
Active Markets for Identifiable Assets |
Observable Inputs |
Unobservable Inputs |
Non-Cash Impairment |
||||||||||||||||
|
Carrying Value |
Value |
(Level 1) |
(Level 2) |
(Level 3) |
Loss |
|||||||||||||||
|
Goodwill from software reporting unit |
$ | $ | $ | $ | $ | ( |
) | |||||||||||||
|
Operating Lease ROU Asset |
$ | $ | $ | $ | $ | |||||||||||||||
Holdback Liability: In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to CAD$ (USD$) will be deducted from the asset purchase holdback liability for up to years from the closing date. The holdback liability was recorded at the present value which was the fair value at the acquisition date. The Company engaged independent valuation experts to assist in determining the present value of the holdback liability. The expected future payment was discounted using a rate representative of the Company’s payment risk and credit rating. Accretion was recorded in each subsequent reporting period based on the discount factor used to arrive at the original fair value. This change in fair value is recorded in the accompanying consolidated statement of operations. The changes in the carrying amount of the holdback liability is as follows:
|
Balance as of September 30, 2022 |
$ | |||
|
Accretion |
||||
|
Currency translation |
||||
|
Balance as of September 30, 2023 |
$ |
6. INVENTORIES
Inventories consisted of the following:
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Raw materials |
$ | $ | ||||||
|
Finished goods |
||||||||
|
Work in process |
||||||||
|
Inventories, gross |
||||||||
|
Reserve for obsolescence |
( |
) | ( |
) | ||||
|
Inventories, net |
$ | $ | ||||||
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Office furniture and equipment |
$ | $ | ||||||
|
Machinery and equipment |
||||||||
|
Leasehold improvements |
||||||||
|
Construction in progress |
||||||||
|
Property and equipment, gross |
||||||||
|
Accumulated depreciation |
( |
) | ( |
) | ||||
|
Property and equipment, net |
$ | $ | ||||||
|
Years Ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Depreciation expense |
$ | $ | ||||||
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill is attributable to the acquisitions of Genasys Spain and Zonehaven, and the Amika Mobile asset purchase and is due to combining the integrated emergency critical communications, mass messaging solutions and software development capabilities with existing hardware products for enhanced offerings and the skill level of the acquired workforces. The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. In the fourth quarter of fiscal 2022, in conjunction with the annual impairment assessment, the Company determined that the fair value of the software reporting unit was less than the carrying value. The Company engaged independent valuation experts to assist in determining the fair value of the software reporting unit and recorded a $
Intangible assets and goodwill related to Genasys Spain are translated from Euro to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was an increase of $
The changes in the carrying amount of goodwill by segment for the year ended September 30, 2023, are as follows:
|
Hardware |
Software |
Total |
||||||||||
|
Balance as of September 30, 2022 |
$ | $ | $ | |||||||||
|
Currency translation |
||||||||||||
|
Balance as of September 30, 2023 |
$ | $ | $ | |||||||||
The Company’s intangible assets consisted of the following:
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Technology |
$ | $ | ||||||
|
Customer relationships |
||||||||
|
Trade name portfolio |
||||||||
|
Non-compete agreements |
||||||||
|
Patents |
||||||||
|
Accumulated amortization |
( |
) | ( |
) | ||||
| $ | $ | |||||||
The changes in the carrying amount of intangible assets by segment for the year ended September 30, 2023, are as follows:
|
Hardware |
Software |
Total |
||||||||||
|
Balance as of September 30, 2022 |
$ | $ | $ | |||||||||
|
Amortization |
( |
) | ( |
) | ( |
) | ||||||
|
Currency translation |
||||||||||||
|
Balance as of September 30, 2023 |
$ | $ | $ | |||||||||
|
Years ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Amortization expense |
$ | $ | ||||||
Estimated amortization expense for the fiscal year ending September 30,
|
Fiscal year ending September 30, |
||||
|
2024 |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Thereafter |
||||
|
Total estimated amortization expense |
$ |
9. PREPAID EXPENSES AND OTHER
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Deposits for inventory |
$ | $ | ||||||
|
Prepaid insurance |
||||||||
|
Dues and subscriptions |
||||||||
|
Prepaid professional services |
||||||||
|
Prepaid commissions |
||||||||
|
Trade shows and travel |
||||||||
|
Canadian goods and services and harmonized sales tax receivable |
||||||||
|
Other |
||||||||
| $ | $ | |||||||
Deposits for inventory
Deposits for inventory consisted of cash payments to vendors for inventory to be delivered in the future.
Prepaid insurance
Prepaid insurance consisted of premiums paid for health, commercial and corporate insurance. These premiums are amortized on a straight-line basis over the term of the agreements.
Dues and subscriptions
Dues and subscriptions consist of payments made in advance for software subscriptions and trade and professional organizations. These payments are amortized on a straight-line basis over the term of the agreements.
Prepaid professional services
Prepaid professional services consist of payments made in advance for services such as accounting and legal services.
Prepaid commissions
Prepaid commissions represent the current portion of sales commissions paid in connection with obtaining a contract with a customer. These costs are deferred and are amortized on a straight-line basis over the period of benefit, which is to years. Amortization of prepaid commissions is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
Trade shows and travel
Trade shows and travel consists of payments made in advance for trade show events.
Canadian goods and services and harmonized sales tax receivable
The goods and services tax and harmonized sales tax (“GST/HST”) is a Canadian value-added tax that applies to many goods and services. Registrants may claim refundable tax credits for GST/HST incurred through filing periodic tax returns. This GST/HST receivable is a receivable from the Canadian Revenue Agency.
10. ACCRUED AND OTHER LIABILITIES
Accrued liabilities consisted of the following:
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Payroll and related |
$ | $ | ||||||
|
Deferred revenue |
||||||||
|
Customer deposits |
||||||||
|
Accrued contract costs |
||||||||
|
Warranty reserve |
||||||||
|
Canadian goods and services and harmonized sales tax payable |
||||||||
|
Asset purchase holdback liability |
||||||||
|
Other |
||||||||
|
Total |
$ | $ | ||||||
Other liabilities - noncurrent consisted of the following:
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Deferred revenue |
$ | $ | ||||||
|
Asset purchase holdback liability |
||||||||
|
Total |
$ | $ | ||||||
Payroll and related
Accrued payroll and related consisted primarily of accrued bonus, accrued vacation, accrued sales commissions and benefits.
Deferred revenue
Deferred revenue as of September 30, 2023, included prepayments from customers for services, including extended warranty, scheduled to be performed in the year ending September 30, 2024.
Customer deposits
Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered during the year ending September 30, 2024.
Accrued contract costs
Accrued contract costs consist of accrued expenses for contracting a third-party service provider to fulfill repair and maintenance obligations required under a contract with a foreign military for units sold in the year ended September 30, 2011. Payments to the service provider will be made annually upon completion of each year of service. A new contract was signed with the customer in May 2019 to continue repair and maintenance services through May 2024. These services are being recorded in cost of revenues to correspond with the revenues for these services.
Warranty reserve
Details of the estimated warranty reserve were as follows:
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Beginning balance |
$ | $ | ||||||
|
Warranty provision |
||||||||
|
Warranty settlements |
( |
) | ( |
) | ||||
|
Ending balance |
$ | $ | ||||||
The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the adequacy of the provision for warranty costs each reporting period and adjusts the accrued warranty liability to an amount equal to estimated warranty expense for products currently under warranty.
Canadian goods and services and harmonized sales tax payable
The GST/HST is a Canadian value-added tax that applies to many goods and services. This represents amounts owed to the Canadian Revenue Agency by the Company’s Canadian subsidiary.
Deferred extended warranty revenue
Deferred extended warranty revenue consists of warranties purchased in excess of the Company’s standard warranty. Extended warranties typically range from to years.
Asset purchase holdback liability
In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to CAD$ (USD$) will be deducted from the asset purchase holdback liability for up to years from the closing date. The liability is recorded at fair value in the consolidated balance sheet.
11. DEBT
Revolving line of credit
On March 8, 2021, the Company entered into an agreement with MUFG Union Bank, N.A. for a $
12. LEASES
The Company determines if an arrangement is a lease at inception. The guidance in ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to present value lease payments. The ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred.
The Company is party to operating leases for office and production facilities and equipment under agreements that expire at various dates through 2028. The Company elected the package of practical expedients permitted under the new lease standard. In electing the practical expedient package, the Company is not required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of ASC 842. The Company also elected the short-term lease exemption such that the new lease standard was applied to leases greater than one year in duration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
For leases beginning on or after October 1, 2019, lease components are accounted for separately from non-lease components for all asset classes. Certain of the Company’s leases contain renewal provisions and escalating rental clauses and generally require the Company to pay utilities, insurance, taxes and other operating expenses. The renewal provisions of existing lease agreements were not included in the determination of the operating lease liabilities and the ROU assets. Variable payments such as excess usage fees on existing equipment leases were not included in the determination of the lease liabilities and the ROU assets as the achievement of the specified target that triggers the variable lease payment is not considered probable. In addition, the Company’s facility lease in Spain has an escalating lease clause based on a consumer price index which is considered a variable lease payment and is not included in the determination of the lease liability and ROU asset. A 10% increase in the index would increase the total lease liability approximately $
During the year ended September 30, 2023, the Company added an additional operating ROU asset of $
|
Operating lease ROU assets |
||||
|
Operating lease ROU assets as of September 30, 2022 |
$ | |||
|
Additional operating lease ROU assets |
||||
|
Less amortization of operating lease ROU assets |
( |
) | ||
|
Effect of exchange rate on operating lease ROU assets |
||||
|
Operating lease ROU assets as of September 30, 2023 |
$ | |||
|
Operating lease liabilities |
||||
|
Operating lease liabilities as of September 30, 2022 |
$ | |||
|
Additional operating lease liabilities |
||||
|
Less lease principal payments on operating lease liabilities |
( |
) | ||
|
Effect of exchange rate on operating lease liabilities |
||||
|
Operating lease liabilities as of September 30, 2023 |
||||
|
Less non-current portion |
( |
) | ||
|
Current portion as of September 30, 2023 |
$ | |||
As of September 30, 2023, the Company’s operating leases have a weighted-average remaining lease term of
|
Fiscal year ending September 30, |
||||
|
2024 |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Thereafter |
||||
|
Total undiscounted operating lease payments |
||||
|
Less imputed interest |
( |
) | ||
|
Present value of operating lease liabilities |
$ |
For the years ended September 30, 2023 and 2022, total lease expense under operating leases was approximately $
13. INCOME TAXES
Income taxes consisted of the following:
|
Years ended September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Current tax provision |
||||||||
|
Federal |
$ | $ | ||||||
|
State |
||||||||
|
Foreign |
||||||||
|
Total current tax provision |
||||||||
|
Deferred provision |
||||||||
|
Federal |
||||||||
|
State |
||||||||
|
Total deferred provision |
||||||||
|
Provision for income taxes |
$ | $ | ||||||
A reconciliation of income taxes at the federal statutory rate of
|
Years ended September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Income taxes computed at the federal statutory rate |
$ | ( |
) | $ | ( |
) | ||
|
Change in valuation allowance |
||||||||
|
Nondeductible compensation, interest expense and other |
||||||||
|
State income taxes, net of federal tax benefit |
( |
) | ( |
) | ||||
|
Change in R&D credit carryover |
( |
) | ( |
) | ||||
|
Stock options and other prior year true-ups |
||||||||
|
Foreign rate differential & foreign taxes |
( |
) | ||||||
|
State business credit utilization |
( |
) | ||||||
| $ | $ | |||||||
The types of temporary differences between the tax basis of assets and liabilities and their approximate tax effects that give rise to a significant portion of the net deferred tax asset as of September 30, 2023 and 2022 were as follows:
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
| Deferred tax assets | ||||||||
|
Net operating loss carryforwards |
$ | $ | ||||||
|
Research and development credit |
||||||||
|
Share-based compensation |
||||||||
|
Patents |
||||||||
|
Accruals and other |
||||||||
|
Capitalized R&E expenses |
||||||||
|
Allowances |
||||||||
|
Gross deferred tax assets |
||||||||
| Deferred tax liabilities | ||||||||
|
Equipment |
( |
) | ( |
) | ||||
|
Operating ROU assets |
( |
) | ( |
) | ||||
|
Acquired intangible assets |
( |
) | ( |
) | ||||
|
Gross deferred tax liabilities |
( |
) | ( |
) | ||||
|
Less valuation allowance |
( |
) | ( |
) | ||||
|
Net deferred tax assets and liabilities |
$ | $ | ||||||
As of September 30, 2023, the Company had net deferred tax assets and liabilities of approximately $
The Company reviews its ability to realize its deferred tax assets on a quarterly basis. In doing so, management considers historical and projected taxable income of the Company, along with any tax planning strategies and any other positive or negative evidence. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards and other deferred assets. As of September 30, 2023, the Company does not believe that it is more likely than not that its deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying balance sheet.
As of September 30, 2023, the Company had no unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, the annual use of the Company’s net operating loss and R&D tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Due to the existence of the valuation allowance, any permanent limitations on the use of the Company’s net operating loss and research and development credit carryforwards will not impact the Company’s effective tax rate.
The Company is subject to taxation in the U.S. and various foreign jurisdictions. The Company's U.S. federal tax returns since September 30, 2004 are subject to examination by the Internal Revenue Service due to the generation of U.S. federal NOL and credit carryforwards. The Company's U.S. state returns are generally subject to examination for four years after the filing date.
The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research & experimental ("R&E") costs under IRC Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&E costs that are paid or incurred in connection with their trade or business which represent costs in the experimental or laboratory sense. Specifically, costs for U.S. based R&E activities must be amortized over five years and costs for foreign R&E activities must be amortized over 15 years; both using a mid-year convention. The Company has incorporated the impact of this new tax legislation into its 2022 consolidated financial statements and established a $
14. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office equipment and operating facilities. During the year ended September 30, 2019, these leases were categorized as operating leases. On October 1, 2019, the Company adopted ASC 842 which required lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. Refer to Note 12, Leases for further detail on lease commitments.
Employment Agreements
The Company entered into an employment agreement with our chief executive officer that provides for severance benefits including twelve months’ salary and health benefits, a pro-rata share of his annual cash bonus for the fiscal year in which the termination occurs to which he would have become entitled had he remained employed through the end of the fiscal year and vesting of a share of stock options held by him that are subject to performance-based vesting. The agreement also has a change in control clause whereby the chief executive officer would be entitled to receive specific severance and equity vesting benefits if specified termination events occur.
There were no other employment agreements with executive officers or other employees providing future benefits or severance arrangements.
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. For the year ended September 30, 2023, the Company recorded $
Employee Benefit—401K Plan
The Company has a defined contribution plan (401(k)) covering its employees. Matching contributions are made on behalf of all participants at the discretion of the board of directors. During the years ended September 30, 2023 and 2022, the Company made matching contributions of $
Litigation
The Company may at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in management’s estimation, record adequate reserves in the Company’s financial statements for pending litigation.
Amika Mobile asset purchase
In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to CAD$ (USD$
The Company also agreed to issue
Guarantees and Indemnifications
The Company enters into indemnification provisions under (i) its agreements with other companies in its ordinary course of business, typically with business partners, contractors, customers and landlords and (ii) its agreements with investors. Under these arrangements, the Company may indemnify other parties such as business partners, customers, underwriters, and investors for certain losses suffered, claims of intellectual property infringement, negligence and intentional acts in the performance of services, and violations of laws including certain violations of securities laws. The Company’s obligation to provide such indemnification in such circumstances would arise if, for example, a third party sued a customer for intellectual property infringement and the Company agreed to indemnify the customer against such claims. The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to such indemnification obligations. Some of the factors that would affect this assessment include, but are not limited to, the nature of the claim asserted, the relative merits of the claim, the financial ability of the parties, the nature and amount of damages claimed, insurance coverage that the Company may have to cover such claims, and the willingness of the parties to reach settlement, if any. Because of the uncertainty surrounding these circumstances, the Company’s indemnification obligations could range from immaterial to having a material adverse impact on its financial position and its ability to continue in the ordinary course of business. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements in the past, and the Company had no liabilities recorded for these agreements as of September 30, 2023 and 2022.
Under its bylaws, the Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. All directors and officers have executed indemnification agreements. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company has a director and officers’ liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company does not believe that a material loss exposure related to these agreements is either probable or can be reasonably estimated. Accordingly, the Company has no liability recorded for these agreements as of September 30, 2023 and 2022.
15. SHARE-BASED COMPENSATION
Stock Option Plans
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
Share-Based Compensation
The Company’s 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.
There were
|
Years ended |
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|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Volatility |
% | % | ||||||
|
Risk-free interest rate |
% | % | ||||||
|
Dividend yield |
% | % | ||||||
|
Expected term in years |
||||||||
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 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 did pay a dividend in fiscal 2023 or fiscal 2022.
For stock options that contain market-based vesting conditions, the fair value of these options was determined using a Monte Carlo valuation approach and calculated by an independent valuation specialist.
As of September 30, 2023, there was approximately $
Performance-Based Stock Options
On October 4, 2019, the Company awarded a performance-based stock option (PVO) to purchase
On August 10, 2022, the Company granted PVOs to purchase up to
On October 8, 2022, the Company awarded additional performance-based stock options to purchase
On March 20, 2023, the Company granted PVOs to purchase up to
Restricted Stock Units
In fiscal 2020,
During fiscal 2021,
On March 15, 2022, each non-employee member of the Board of Directors received a grant of
On March 14, 2023, each non-employee member of the Board of Directors received a grant of
Compensation expense for RSUs was $
Restricted Stock Unit Summary Information
A summary of restricted stock units of the Company as of September 30, 2023, is presented below:
|
` |
Number of Shares |
Weighted Average Grant Date Fair Value |
||||||
|
Outstanding September 30, 2022 |
$ | |||||||
|
Granted |
$ | |||||||
|
Released |
( |
) | $ | |||||
|
Forfeited/cancelled |
( |
) | $ | |||||
|
Outstanding September 30, 2023 |
$ | |||||||
Stock Option Summary Information
A summary of the activity in options to purchase the capital stock of the Company as of September 30, 2023, is presented below:
|
Number of Shares |
Weighted Average Exercise Price |
|||||||
|
Outstanding September 30, 2022 |
$ | |||||||
|
Granted |
$ | |||||||
|
Forfeited/expired |
( |
) | $ | |||||
|
Exercised |
( |
) | $ | |||||
|
Outstanding September 30, 2023 |
$ | |||||||
|
Exercisable September 30, 2023 |
$ | |||||||
The aggregate intrinsic value for options outstanding and options exercisable as of September 30, 2023 was $
The following table summarizes information about stock options outstanding as of September 30, 2023:
|
Range of Exercise Prices |
Number Outstanding |
Weighted Average Remaining Contractual Term |
Weighted Average Exercise Price |
Number Exercisable |
Weighted Average Exercise Price |
|||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
| $ | $ | |||||||||||||||||||||
The Company recorded $
The amounts of share-based compensation expense for restricted stock units and stock options are classified in the Consolidated Statements of Operations as follows:
|
Years ended |
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|
September 30, |
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|
2023 |
2022 |
|||||||
|
Cost of revenues |
$ | $ | ||||||
|
Selling, general and administrative |
||||||||
|
Research and development |
||||||||
| $ | $ | |||||||
16. STOCKHOLDERS’ EQUITY
Common Stock Activity
On March 18, 2021, the Company filed an amendment to its Certificate of Incorporation, as amended, with the Secretary of State of Delaware to increase the authorized number of shares of common stock of the Company from
During the year ended September 30, 2023, the Company issued
In connection with the Amika Mobile asset purchase, the Company also agreed to issue
Preferred Stock
The Company is authorized under its certificate of incorporation and bylaws to issue
shares of preferred stock were outstanding during the fiscal years ended September 30, 2023 or 2022.
Share Buyback Program
In December 2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024. Under the program, the Company was authorized to repurchase up to $
During the year ended September 30, 2022,
17. NET LOSS PER SHARE
Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period increased to include the number of dilutive potential common shares outstanding during the period. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method, which assumes that the proceeds from the exercise of the outstanding options are used to repurchase common stock at market value. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. If the Company has losses for the period, the inclusion of potential common stock instruments outstanding would be anti-dilutive. In addition, under the treasury stock method, the inclusion of stock options with an exercise price greater than the per-share market value would be antidilutive. Potential common shares that would be antidilutive are excluded from the calculation of diluted income per share.
The following table sets forth the computation of basic and diluted earnings per share:
|
Years ended |
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|
September 30, |
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|
2023 |
2022 |
|||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Basic and diluted loss per share |
$ | ( |
) | $ | ( |
) | ||
|
Weighted average shares outstanding - basic |
||||||||
|
Assumed exercise of dilutive options |
||||||||
|
Weighted average shares outstanding - diluted |
||||||||
|
Potentially dilutive securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive: |
||||||||
|
Options |
||||||||
|
RSU |
||||||||
|
Obligation to issue common stock |
||||||||
|
Total |
||||||||
18. SEGMENT INFORMATION
The Company is engaged in the design, development and commercialization of critical communications hardware and software solutions designed to alert, inform, and protect. The Company operates in business segments: Hardware and Software and its principal markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are not material.
The following table presents the Company’s segment disclosures:
|
Years ended |
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|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Revenue from external customers |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
||||||||
| $ | $ | |||||||
|
Intersegment revenues |
||||||||
|
Hardware |
$ | |||||||
|
Software |
||||||||
| $ | $ | |||||||
|
Segment operating (loss) income |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
( |
) | ( |
) | ||||
| $ | ( |
) | $ | ( |
) | |||
|
Other expenses: |
||||||||
|
Depreciation and amortization expense |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
||||||||
| $ | $ | |||||||
|
Goodwill impairment |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
13,162 | |||||||
| $ | $ | |||||||
|
Income tax expense (benefit) |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
( |
) | ( |
) | ||||
| $ | $ | |||||||
|
Years ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Long-lived assets |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
||||||||
| $ | $ | |||||||
|
Total assets |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
||||||||
| $ | $ | |||||||
19. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION
Major Customers
For the fiscal year ended September 30, 2023, revenues from customer accounted for
Revenue from customers in the United States was $
|
Years ended September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Americas |
$ | $ | ||||||
|
Asia Pacific |
||||||||
|
Europe, Middle East and Africa |
||||||||
|
Total Revenues |
$ | $ | ||||||
The following table summarized long lived assets by geographic region.
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
United States |
$ | $ | ||||||
|
Americas (excluding the United States) |
||||||||
|
Europe, Middle East and Africa |
||||||||
| Total long lived assets | $ | $ | ||||||
Suppliers
The Company has a large number of components and sub-assemblies produced by outside suppliers, some of which are sourced from a single supplier, which can magnify the risk of shortages and decrease the Company’s ability to negotiate with suppliers on the basis of price. In particular, the Company depends on one supplier of compression drivers for its LRAD products. If supplier shortages occur, or quality problems arise, then production schedules could be significantly delayed or costs significantly increased, which could in turn have a material adverse effect on the Company’s financial condition, results of operation and cash flows.
20. SUBSEQUENT EVENTS
On October 4, 2023, the Company completed the acquisition of all of the membership interests in Evertel Technologies, LLC., pursuant to a Membership Interest Purchase Agreement (“Purchase Agreement”) with Word Systems Operations, LLC (“Seller”) and Evertel Technologies, LLC (“Evertel”). Evertel offers a secure and compliant mission-critical collaboration platform for the public safety market that connects public safety personnel, information, and tools in one space. Pursuant to the terms of the Purchase Agreement, the Company issued to Seller
On October 4, 2023, the Company completed an underwritten public offering of
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. |
||
|
December 7, 2023 |
||
|
By: |
/s/ Richard S. Danforth | |
|
Richard S. Danforth |
||
|
Chief Executive Officer |
||
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Richard S. Danforth, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of registrant in the capacities and on the dates indicated.
|
Date: December 7, 2023 |
By |
/s/ Richard S. Danforth |
|
Richard S. Danforth Chief Executive Officer (Principal Executive Officer) |
||
|
Date: December 7, 2023 |
By | /s/ Dennis D. Klahn |
|
Dennis D. Klahn, Chief Financial Officer (Principal Financial and Accounting Officer) |
||
|
Date: December 7, 2023 |
By | /s/ Scott L. Anchin |
|
Scott L. Anchin Director |
||
|
Date: December 7, 2023 |
By | /s/ Richard H. Osgood III |
|
Richard H. Osgood III Director |
||
|
Date: December 7, 2023 |
By | /s/ Susan Lee Schmeiser |
|
Susan Lee Schmeiser Director |
||
|
Date: December 7, 2023 |
By | /s/ Caltha Seymour |
|
Caltha Seymour Director |