UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
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(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which securities are registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of Common Stock, $0.00001 par value, outstanding on August 7, 2023 was
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Genasys Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
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June 30, |
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2023 |
September 30, |
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(Unaudited) |
2022 |
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| ASSETS | ||||||||
| Current assets: | ||||||||
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Cash and cash equivalents |
$ | $ | ||||||
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Short-term marketable securities |
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Restricted cash |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventories, net |
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Prepaid expenses and other |
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Total current assets |
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Long-term marketable securities |
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Long-term restricted cash |
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Deferred tax assets, net |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Operating lease right of use assets |
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Other assets |
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Total assets |
$ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
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Accounts payable |
$ | $ | ||||||
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Accrued liabilities |
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Operating lease liabilities, current portion |
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Total current liabilities |
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Other liabilities, noncurrent |
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Operating lease liabilities, noncurrent |
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Total liabilities |
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| Stockholders' equity: | ||||||||
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Preferred stock, $ |
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| Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
$ | $ | ||||||
See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share amounts)
(Unaudited)
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Three months ended |
Nine months ended |
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June 30, |
June 30, |
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2023 |
2022 |
2023 |
2022 |
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Product sales |
$ | $ | $ | $ | ||||||||||||
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Contract and other |
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Total revenues |
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Cost of revenues |
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Gross profit |
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Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Loss from operations |
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Other income (expense), net |
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Loss before income taxes |
( |
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Income tax benefit |
( |
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Net loss |
$ | ( |
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Net loss per common share - basic and diluted |
$ | ( |
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| Weighted average common shares outstanding: | ||||||||||||||||
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Basic and diluted |
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See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
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Three months ended |
Nine months ended |
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June 30, |
June 30, |
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2023 |
2022 |
2023 |
2022 |
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Net loss |
$ | ( |
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Unrealized gain (loss) on marketable securities |
( |
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Unrealized foreign currency (loss) gain |
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Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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Nine Months Ended |
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June 30, |
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2023 |
2022 |
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Operating Activities: |
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Net loss |
$ | ( |
) | $ | ( |
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| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
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Depreciation and amortization |
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| Amortization of debt issuance costs | ||||||||
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Warranty provision |
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Inventory obsolescence |
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Stock-based compensation |
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Deferred income taxes |
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Amortization of operating lease right of use asset |
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Accretion of acquisition holdback liability |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other |
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Accounts payable |
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Accrued and other liabilities |
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Net cash used in operating activities |
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| Investing Activities: | ||||||||
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Purchases of marketable securities |
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Proceeds from maturities of marketable securities |
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Capital expenditures |
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Net cash provided by investing activities |
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| Financing Activities: | ||||||||
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Proceeds from exercise of stock options |
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Repurchase of common stock |
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Shares retained for payment of taxes in connection with settlement of restricted stock units |
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Shares retained for payment of taxes in connection with the exercise of stock options |
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Payments on promissory notes |
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Net cash used in financing activities |
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Effect of foreign exchange rate on cash |
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Net decrease in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
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Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: |
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Cash and cash equivalents |
$ | $ | ||||||
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Restricted cash, current portion |
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Long-term restricted cash |
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Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows |
$ | $ |
See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(Unaudited)
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Nine Months Ended |
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June 30, |
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2023 |
2022 |
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| Noncash investing and financing activities: | ||||||||
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Change in unrealized loss on marketable securities |
$ | $ | ( |
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Obligation to issue common stock in connection with the Amika Mobile asset purchase |
$ | ( |
) | $ | ( |
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Initial measurement of operating lease right of use assets |
$ | $ | ||||||
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Initial measurement of operating lease liabilities |
$ | $ | ||||||
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Shares surrendered from stock option exercises |
$ | $ | ||||||
1. OPERATIONS
Genasys Inc. (the “Company”) is a global provider of critical communications software solutions and hardware systems designed to alert, inform, and protect communities and organizations. The Genasys Protect™ unified platform collects information on developing and active emergency situations from a wide variety of sensors and inputs and empowers governments, businesses, and organizations to deliver real-time, geo-targeted notifications and information to people in harm’s way before, during, and after public safety and enterprise threats.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
General
The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, 2022, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on December 16, 2022. The accompanying condensed consolidated balance sheet as of September 30, 2022, has been derived from the audited consolidated balance sheet as of September 30, 2022, contained in the above referenced Form 10-K. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.
Principles of consolidation
The Company has 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.
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 June 30, 2023, 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 June 30, 2023, the current portion of restricted cash was $
Reclassifications
Where necessary, certain prior year’s information has been reclassified to conform to the current year presentation.
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 (ASC 326), Derivatives and Hedging (ASC 815) and Leases (ASC 842), which extends the effective date of ASC 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, and early adoption is permitted. The Company has not completed its review of the impact of this standard on its consolidated financial statements. However, based on the Company’s history of immaterial credit losses from trade receivables, the Company does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
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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:
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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.
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 the 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 June 30, 2023, and September 30, 2022, including the change between the periods. There were contract assets as of June 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:
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Customer deposits |
Deferred revenue |
Total contract liabilities |
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Balance as of September 30, 2022 |
$ | $ | $ | |||||||||
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New performance obligations |
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Recognition of revenue as a result of satisfying performance obligations |
( |
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Effect of exchange rate on deferred revenue |
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Balance as of June 30, 2023 |
$ | $ | $ | |||||||||
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Less: non-current portion |
( |
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Current portion as of June 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 June 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 the Company is providing to the customer.
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5. |
FAIR VALUE MEASUREMENTS |
The Company’s financial instruments consist principally of cash equivalents, restricted cash, 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:
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Level 1: |
Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date. |
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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. |
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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 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 June 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 periods ended June 30, 2023, and September 30, 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 June 30, 2023, and September 30, 2022. Unrealized gains and losses from the remeasurement of marketable securities are recorded in accumulated other comprehensive income (loss) until recognized in earnings upon the sale or maturity of the security.
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June 30, 2023 |
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Cost Basis |
Unrealized Loss |
Fair Value |
Cash Equivalents |
Short-term Securities |
Long-term Securities |
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| Level 1: | ||||||||||||||||||||||||
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Money market funds |
$ | $ | $ | $ | $ | - | $ | - | ||||||||||||||||
| Level 2: | ||||||||||||||||||||||||
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Certificates of deposit |
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Municipal securities |
( |
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Corporate bonds |
( |
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Subtotal |
( |
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Total |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
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September 30, 2022 |
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Cost Basis |
Unrealized Loss |
Fair Value |
Cash Equivalents |
Short-term Securities |
Long-term Securities |
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| Level 1: | ||||||||||||||||||||||||
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Money market funds |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Level 2: | ||||||||||||||||||||||||
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Certificates of deposit |
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Municipal securities |
( |
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Corporate bonds |
( |
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Subtotal |
( |
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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 (“ROU”) assets are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination.
Goodwill and intangible assets are recognized at fair value during the period in which an acquisition is completed, from updated estimates during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for intangible assets acquired, were based on Level 3 inputs. The Company estimates the fair value of these long-lived assets on a non-recurring basis based on a market valuation approach, engaging independent valuation experts to assist in the determination of fair value.
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$
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Balance as of September 30, 2022 |
$ | |||
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Accretion |
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Currency translation |
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Balance as of June 30, 2023 |
$ |
6. INVENTORIES, NET
Inventories, net consisted of the following:
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June 30, |
September 30, |
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2023 |
2022 |
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Raw materials |
$ | $ | ||||||
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Finished goods |
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Work in process |
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Inventories, gross |
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Reserve for obsolescence |
( |
) | ( |
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Inventories, net |
$ | $ | ||||||
7. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
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June 30, |
September 30, |
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2023 |
2022 |
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Office furniture and equipment |
$ | $ | ||||||
|
Machinery and equipment |
||||||||
|
Leasehold improvements |
||||||||
|
Construction in progress |
||||||||
|
Property and equipment, gross |
||||||||
|
Accumulated depreciation |
( |
) | ( |
) | ||||
|
Property and equipment, net |
$ | $ | ||||||
Depreciation and amortization expense for property and equipment was $
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 $
The changes in the carrying amount of goodwill by segment for the nine months ended June 30, 2023, were as follows:
|
Hardware |
Software |
Total |
||||||||||
|
Balance as of September 30, 2022 |
$ | $ | $ | |||||||||
|
Currency translation |
||||||||||||
|
Balance as of June 30, 2023 |
$ | $ | $ | |||||||||
The changes in the carrying amount of intangible assets by segment for the nine months ended June 30, 2023, were as follows:
|
Hardware |
Software |
Total |
||||||||||
|
Balance as of September 30, 2022 |
$ | $ | $ | |||||||||
|
Amortization |
( |
) | ( |
) | ( |
) | ||||||
|
Currency translation |
||||||||||||
|
Balance as of June 30, 2023 |
$ | $ | $ | |||||||||
Intangible assets and goodwill related to Genasys Spain are translated from Euros to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was an increase of $
The Company’s consolidated intangible assets consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2023 |
2022 |
|||||||
|
Technology |
$ | $ | ||||||
|
Customer relationships |
||||||||
|
Trade name portfolio |
||||||||
|
Non-compete agreements |
229 | |||||||
|
Patents |
||||||||
|
Accumulated amortization |
( |
) | ( |
) | ||||
| $ | $ | |||||||
As of June 30, 2023, future amortization expense is as follows:
|
Fiscal year ending September 30, |
||||
|
2023 (remaining three months) |
$ | |||
|
2024 |
||||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
Thereafter |
||||
|
Total estimated amortization expense |
$ |
Amortization expense was $
9. PREPAID EXPENSES AND OTHER
Prepaid expenses and other current assets consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2023 |
2022 |
|||||||
|
Deposits for inventory |
$ | $ | ||||||
|
Prepaid insurance |
||||||||
|
Dues and subscriptions |
||||||||
|
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 consisted of payments made in advance for software subscriptions and trade and professional organizations. These payments are amortized on a straight-line basis over the term of the agreements.
Prepaid commissions
Prepaid commissions represented the current portion of sales commissions paid in connection with obtaining a contract with a customer. These costs are deferred and are amortized on a straight-line basis over the period of benefit, which is typically between and years. Amortization of prepaid commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.
Trade shows and travel
Trade shows and travel consisted of payments made in advance for trade show events.
Canadian goods and services and harmonized sales tax receivable
The goods and services tax and harmonized sales tax (“GST/HST”) is a Canadian value-added tax that applies to many goods and services. Registrants may claim refundable tax credits for GST/HST incurred through filing periodic tax returns. This GST/HST receivable is a receivable from the Canadian Revenue Agency.
10. ACCRUED AND OTHER LIABILITIES
Accrued liabilities consisted of the following:
|
June 30, |
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:
|
June 30, |
September 30, |
|||||||
|
2023 |
2022 |
|||||||
|
Deferred revenue |
$ | $ | ||||||
|
Asset purchase holdback liability |
||||||||
|
Total |
$ | $ | ||||||
Payroll and related
Payroll and related consisted primarily of accrued vacation, bonus, sales commissions and benefits.
Deferred revenue
Deferred revenue as of June 30, 2023, included prepayments from customers for services, including extended warranty, scheduled to be performed in the twelve months ending June 30, 2024.
Customer deposits
Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered in the twelve months ending June 30, 2024.
Accrued contract costs
Accrued contract costs consisted 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.
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$1,000 (USD$755) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.
Warranty reserve
Changes in the warranty reserve and extended warranty were as follows:
|
June 30, |
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.
Deferred extended warranty revenue
Deferred extended warranty revenue consisted of warranties purchased in excess of the Company’s standard warranty. Extended warranties typically range from to years.
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 lease standard. In electing the practical expedient package, the Company is not required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of ASC 842. The Company also elected the short-term lease exemption such that the lease standard was applied to leases greater than one year in duration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The tables below show the operating lease ROU assets and liabilities as of September 30, 2022, and the balances as of June 30, 2023, including the changes during the periods.
|
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 June 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 June 30, 2023 |
||||
|
Less non-current portion |
( |
) | ||
|
Current portion as of June 30, 2023 |
$ | |||
As of June 30, 2023, the Company’s operating leases have a weighted-average remaining lease term of 5.0 years and a weighted-average discount rate of 4.15%. The maturities of the operating lease liabilities are as follows:
| Fiscal year ending September 30, | ||||
|
2023 (remaining three months) |
$ | |||
|
2024 |
||||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
Thereafter |
||||
|
Total undiscounted operating lease payments |
||||
|
Less: imputed interest |
( |
) | ||
|
Present value of operating lease liabilities |
$ |
For the three months ended June 30, 2023 and 2022, total lease expense under operating leases was approximately $
13. INCOME TAXES
For the nine months ended June 30, 2023, the Company recorded an income tax benefit of $
The Company expects to utilize its deferred tax asset in the future, except for those related to federal R&D tax credit carryforwards and net operating loss carryforwards, R&D credits, and foreign tax credits related to Genasys Spain and Genasys Canada, and continues to maintain a partial allowance.
ASC 740, Income Taxes, requires the Company to recognize in its consolidated financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities. If interest or penalties are assessed, the Company would recognize these charges as income tax expense. The Company has not recorded any income tax expense or benefit for uncertain tax positions.
14. COMMITMENTS AND CONTINGENCIES
Litigation
The Company may at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in the Company’s estimation, record adequate reserves in the Company’s consolidated financial statements for pending litigation. Currently, there are no pending material legal proceedings to which the Company is a party or to which any of its property is subject.
Bonus plan
The Company has a bonus plan for employees, in accordance with their terms of employment, whereby they can earn a percentage of their salary based on meeting targeted objectives for orders received, revenue, operating income and operating cash flow. In the nine months ended June 30, 2023, the Company recorded $
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$
The Company also agreed to issue
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 employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.
Share-based compensation is accounted for in accordance with ASC Topic 718: Compensation - Stock Compensation. Total compensation expense for all share-based awards is based on the estimated fair market value of the equity instrument issued on the grant date. For share-based awards that vest based solely on a service condition, compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award. For share-based awards that vest based on a market condition, compensation expense is recognized on a straight-line basis over the requisite service period of each separately vesting tranche. For share-based awards that vest based on a performance condition, compensation expense is recognized for the number of awards that are expected to vest based on the probable outcome of the performance condition. Compensation cost for these awards will be adjusted to reflect the number of awards that ultimately vest.
There were
Stock options that do not contain market-based vesting conditions are valued using the Black-Scholes option pricing model. The weighted average estimated fair value of employee stock options granted, that vest without a market condition, during the nine months ended June 30, 2023 and 2022, was calculated with the following weighted average assumptions (annualized percentages):
|
Nine months ended |
||||||||
|
June 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 has not paid a dividend in fiscal 2023 and did not pay a dividend in 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 June 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 October 8, 2022, the Company awarded additional performance-based stock options to purchase
On August 10, 2022, the Company granted PVOs to purchase up to
On March 20, 2023, the Company granted PVOs to purchase up to
The Company did not grant any PVOs during the nine months ended June 30, 2022.
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 $
A summary of the Company’s RSUs as of June 30, 2023, is presented below:
|
|
Number of Shares |
Weighted Average Grant Date Fair Value |
||||||
|
Outstanding September 30, 2022 |
$ | |||||||
|
Granted |
$ | |||||||
|
Released |
( |
) | $ | |||||
|
Forfeited/cancelled |
$ | |||||||
|
Outstanding June 30, 2023 |
$ | |||||||
Stock option summary information
A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2023, is presented below:
|
Number of Shares |
Weighted Average Exercise Price |
|||||||
|
Outstanding September 30, 2022 |
$ | |||||||
|
Granted |
$ | |||||||
| Forfeited/expired | ( |
) | $ | |||||
|
Exercised |
( |
) | $ | |||||
|
Outstanding June 30, 2023 |
$ | |||||||
|
Exerciseable June 30, 2023 |
$ | |||||||
Options outstanding are exercisable at prices ranging from $
The following table summarized information about stock options outstanding as of June 30, 2023:
|
Range of |
Number |
Weighted Average Remaining Contractual |
Weighted Average Exercise |
Number |
Weighted Average Exercise |
|||||||||||||||||
|
Exercise Prices |
Outstanding |
Term |
Price |
Exercisable |
Price |
|||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
| $ | $ | |||||||||||||||||||||
The Company recorded $
Share-based compensation
The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
June 30, |
June 30, |
|||||||||||||||
|
2023 |
2022 |
2023 |
2022 |
|||||||||||||
|
Cost of revenues |
$ | $ | $ | $ | ||||||||||||
|
Selling, general and administrative |
||||||||||||||||
|
Research and development |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
16. STOCKHOLDERS’ EQUITY
Summary
The following table summarizes changes in the components of stockholders’ equity during the nine months ended June 30, 2023, and the nine months ended June 30, 2022 (amounts in thousands, except par value and share amounts):
|
Accumulated |
||||||||||||||||||||||||
|
Common Stock |
Additional |
Other |
Total |
|||||||||||||||||||||
|
Shares |
Par Value Amount |
Paid-in Capital |
Accumulated Deficit |
Comprehensive Loss |
Stockholders' Equity |
|||||||||||||||||||
|
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 vesting of restricted stock units |
- | - | - | |||||||||||||||||||||
|
Release of obligation to issue commons stock |
||||||||||||||||||||||||
|
Accumulated other comprehensive income |
- | |||||||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of December 31, 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 |
- | - | - | - | - | |||||||||||||||||||
|
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 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Accumulated other comprehensive income |
- | |||||||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
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 |
- | - | - | - | ||||||||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||||||
|
Retirement of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Shares retained for payment of taxes in connection with net share settlement upon exercise of stock options |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
|
Accumulated other comprehensive income |
- | |||||||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Accumulated |
||||||||||||||||||||||||
|
Common Stock |
Additional |
Other |
Total |
|||||||||||||||||||||
|
Shares |
Par Value Amount |
Paid-in Capital |
Accumulated Deficit |
Comprehensive Loss |
Stockholders' Equity |
|||||||||||||||||||
|
Balance as of September 30, 2021 |
$ | |||||||||||||||||||||||