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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

or

 

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: 000-24248

 


logo01.jpg

 

GENASYS INC.

(Exact name of registrant as specified in its charter)


 

Delaware

87-0361799

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

   

16262 West Bernardo Drive, San Diego,

California

92127

(Address of principal executive offices)

(Zip Code)

 

(858) 676-1112

(Registrants telephone number, including area code)


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which securities are registered

 

Common stock, $0.00001 par value per share

GNSS

NASDAQ Capital Market

 

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.     ☒   Yes     ☐  No

 

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).    ☒  Yes    ☐  No

 

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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company 

   

 

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).      Yes  ☒    No

 

The number of shares of Common Stock, $0.00001 par value, outstanding on May 10, 2024 was 44,594,562.

 



 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

Genasys Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share amounts)

 

   

March 31,

         
   

2024

   

September 30,

 
   

(Unaudited)

   

2023

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 3,544     $ 8,665  

Short-term marketable securities

    3,011       1,481  

Restricted cash

    -       758  

Accounts receivable, net of allowance for credit losses of $65

    2,820       5,952  

Inventories, net

    6,564       6,501  

Prepaid expenses and other

    6,324       1,851  

Total current assets

    22,263       25,208  
                 

Long-term restricted cash

    346       96  

Property and equipment, net

    1,483       1,551  

Goodwill

    13,251       10,282  

Intangible assets, net

    9,743       8,427  

Operating lease right of use assets

    3,507       3,886  

Other assets

    439       455  

Total assets

  $ 51,032     $ 49,905  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Accounts payable

  $ 2,597     $ 2,785  

Accrued liabilities

    8,308       7,466  

Operating lease liabilities, current portion

    1,027       1,008  

Total current liabilities

    11,932       11,259  
                 

Other liabilities, noncurrent

    445       551  

Operating lease liabilities, noncurrent

    3,773       4,283  

Total liabilities

    16,150       16,093  
                 

Stockholders' equity:

               

Preferred stock, $0.00001 par value; 5,000,000 shares authorized; none issued and outstanding

    -       -  

Common stock, $0.00001 par value; 100,000,000 shares authorized; 44,485,851 and 37,211,071 shares issued and outstanding, respectively

    -       -  

Additional paid-in capital

    125,051       110,379  

Accumulated deficit

    (89,724 )     (76,062 )

Accumulated other comprehensive loss

    (445 )     (505 )

Total stockholders' equity

    34,882       33,812  

Total liabilities and stockholders' equity

  $ 51,032     $ 49,905  

 

See accompanying notes

 

 

1

 

 

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share and share amounts)

(Unaudited)

 

   

Three months ended

   

Six months ended

 
   

March 31,

   

March 31,

 
   

2024

   

2023

   

2024

   

2023

 

Revenues:

                               

Product sales

  $ 3,209     $ 9,940     $ 5,375     $ 19,058  

Contract and other

    2,530       1,273       4,725       2,642  

Total revenues

    5,739       11,213       10,100       21,700  

Cost of revenues

    3,562       6,288       6,444       11,943  
                                 

Gross profit

    2,177       4,925       3,656       9,757  
                                 

Operating expenses

                               

Selling, general and administrative

    6,640       6,054       13,158       12,439  

Research and development

    2,531       2,281       4,722       4,216  

Total operating expenses

    9,171       8,335       17,880       16,655  
                                 

Loss from operations

    (6,994 )     (3,410 )     (14,224 )     (6,898 )
                                 

Other income (expense), net

    51       15       128       (4 )
                                 

Loss before income taxes

    (6,943 )     (3,395 )     (14,096 )     (6,902 )

Income tax (benefit) expense

    (5 )     8       (434 )   $ 8  

Net loss

  $ (6,938 )   $ (3,403 )   $ (13,662 )   $ (6,910 )
                                 
                                 

Net loss per common share - basic and diluted

  $ (0.16 )   $ (0.09 )   $ (0.31 )   $ (0.19 )

Weighted average common shares outstanding:

                               

Basic and diluted

    44,247,858       36,817,026       44,026,750       36,755,920  

 

See accompanying notes

 

2

 

 

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

   

Three months ended

   

Six months ended

 
   

March 31,

   

March 31,

 
   

2024

   

2023

   

2024

   

2023

 

Net loss

  $ (6,938 )   $ (3,403 )   $ (13,662 )     (6,910 )

Unrealized (loss) gain on marketable securities

    (3 )     29       7       50  

Unrealized foreign currency (loss) gain

    (56 )     52       53     $ 297  

Comprehensive loss

  $ (6,997 )   $ (3,322 )   $ (13,602 )   $ (6,563 )

 

See accompanying notes

 

3

 

 

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

   

Six Months Ended

 

 

 

March 31,

 
   

2024

   

2023

 

Operating Activities:

               

Net loss

  $ (13,662 )   $ (6,910 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:                

Depreciation and amortization

    1,460       1,282  

Amortization of debt issuance costs

    -       8  

Warranty provision

    (46 )     52  

Inventory obsolescence

    65       90  

Loss on disposition of fixed assets

    2       -  

Stock-based compensation

    970       933  

Partial release of valuation allowance

    (525 )     -  

Amortization of operating lease right of use asset

    387       385  

Accretion of acquisition holdback liability

    10       24  

Remeasurement of acquisition contingent consideration

    44       -  
                 

Changes in operating assets and liabilities:

               

Accounts receivable, net

    3,277       3,158  

Inventories, net

    (128 )     (3,469 )

Prepaid expenses and other

    (4,425 )     1,840  

Accounts payable

    (196 )     1,145  

Accrued and other liabilities

    271       (6,004 )

Net cash used in operating activities

    (12,496 )     (7,466 )
                 

Investing Activities:

               

Purchases of marketable securities

    (8,210 )     (3,641 )

Proceeds from maturities of marketable securities

    6,688       4,716  

Cash paid for acquisitions net of cash acquired

    (908 )     -  

Cash paid for asset purchase holdback liability

    (764 )     -  

Capital expenditures

    (153 )     (157 )

Net cash (used in) provided by investing activities

    (3,347 )     918  
                 

Financing Activities:

               

Proceeds from exercise of stock options

    -       86  

Proceeds from offering of common stock, net of issuance costs

    10,449       -  

Payment of contingent consideration

    (219 )     -  

Shares retained for payment of taxes in connection with settlement of restricted stock units

    (12 )     (45 )

Net cash provided by financing activities

    10,218       41  

Effect of foreign exchange rate on cash

    (4 )     54  

Net decrease in cash, cash equivalents, and restricted cash

    (5,629 )     (6,453 )

Cash, cash equivalents and restricted cash, beginning of period

    9,519       13,659  

Cash, cash equivalents and restricted cash, end of period

  $ 3,890     $ 7,206  
                 

Reconciliation of cash, cash equivalents and restricted cash to the consolidated

               

balance sheets:

               

Cash and cash equivalents

  $ 3,544     $ 6,371  

Restricted cash, current portion

    -       739  

Long-term restricted cash

    346       96  

Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows

  $ 3,890     $ 7,206  

 

See accompanying notes

 

4

 

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

(Unaudited)

 

   

Six Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Noncash investing and financing activities:

               

Change in unrealized loss on marketable securities

  $ 7     $ 50  

Obligation to issue common stock in connection with the Amika Mobile asset purchase

  $ -     $ (416 )

Initial measurement of operating lease right of use assets

  $ -     $ 79  

Initial measurement of operating lease liabilities

  $ -     $ 79  
Obligation to issue common stock in connection with the Evertel acquisition   $ (685 )   $ -  
Shares issued in connection with the Evertel acquisition   $ (1,924 )   $ -  

Settlement of contingent consideration in shares of common stock

  $ (656 )   $ -  
Contingent consideration payable in connection with the Evertel acquisition   $ (60 )   $ -  

Holdback liability payable in connection with the Evertel acquisition

  $ (240 )   $ -  
 

 

5

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

 

1.

OPERATIONS

 

Genasys Inc. (“Genasys” or the “Company”) is a global provider of Protective Communications™ solutions including its Genasys Protect™ software platform and Genasys Long Range Acoustic Devices (“LRAD”). Genasys’ 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’s customers can use 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

 

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, 2023, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on December 7, 2023. The accompanying condensed consolidated balance sheet as of September 30, 2023, has been derived from the audited consolidated balance sheet as of September 30, 2023, 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 nine 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, Evertel Technologies LLC, and Genasys Inc. (branch) in the United Arab Emirates and two currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The condensed 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 March 31, 2024, the amount of cash and cash equivalents was $3,544. As of September 30, 2023, the amount of cash and cash equivalents was $8,665.

 

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 March 31, 2024, restricted cash was $346. As of September 30, 2023, restricted cash was $854.

 

Accounts receivable and allowance for credit losses

 

The Company adopted Accounting Standards Update (“ASU”) No. 2019-10, Financial Instruments Credit Losses (ASC 326), as of October 1, 2023. This new standard adds to U.S. GAAP an impairment model, known as the current expected credit loss ("CECL") model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the timelier recognition of losses. Under the CECL model, entities estimate credit losses over the entire contractual term from the date of initial recognition of the financial instrument. The standard only impacts the Company’s trade receivables. The Company adopted the accounting standard as of October 1, 2023. There was no cumulative effect adjustment and the adoption of this standard did not have a material impact on the consolidated financial statements or existing internal controls.

 

The Company maintains an allowance for credit losses primarily for estimated losses resulting from the inability or failure of individual customers to make required payments. The Company maintains an allowance under ASC 326, based on historical losses, changes in payment history, customer-specific information, current economic conditions, and reasonable and supportable forecasts of future economic conditions. The allowance under ASC 326 is updated as additional losses are incurred or information becomes available related to the customer or economic conditions.

 

6

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

The Company’s allowance for credit losses was $65 as of March 31, 2024 and September 30, 2023.

 

The Company writes-off accounts receivable based on the age of the receivable and the facts and circumstances surrounding the customer and reasons for non-payment. Actual write-offs might differ from the recorded allowance.

 

Reclassifications

 

Where necessary, certain prior year’s information has been reclassified to conform to the current year presentation.

 

 

3.

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recently adopted pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued 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 extended the effective date of ASC 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard was effective for the Company beginning October 1, 2023. The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements. Refer to Note 2, Basis of Presentation and Significant Accounting Policies, for additional information.

 

Accounting pronouncements not yet adopted

 

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, which means that it will be effective for the Company’s annual periods beginning October 1, 2024, and interim periods beginning October 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on disclosures within the consolidated financial statements.

 

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as disaggregated information on income tax paid. The standard is effective for fiscal years beginning after December 15, 2024, which means that it will be effective for the Company’s fiscal years beginning October 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on the consolidated financial statements.

 

 

4.

BUSINESS COMBINATIONS

 

On October 4, 2023, the Company completed the acquisition of all of the membership interests in Evertel Technologies, LLC. (“Evertel”), pursuant to a Membership Interest Purchase Agreement (“Purchase Agreement”) with Word Systems Operations, LLC (“Seller”) and 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.

 

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

 

7

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

The consideration consisted of the following:

 

Cash paid

 

$

923  

Common stock issued

    1,924  

Contingent consideration

    890  

Acquisition holdback liability

    230  

Common stock to be issued

    685  

Working capital adjustment

    (15 )
    $ 4,637  

 

The Company funded the cash portion of the total consideration with available cash on hand. The Company also issued 986,486 shares of the Company’s common stock to the former owners of Evertel. The fair value of the Company’s stock on the closing date was $1.95, resulting in the addition of $1,924 to additional-paid-in-capital. The contingent consideration liability is a current liability and recorded in the current portion of accrued liabilities. Under the terms of the Purchase Agreement, the Company recorded an obligation to issue common stock to the former owners of Evertel and three key employees subsequent to March 31, 2024. This was recorded during the three months ended March 31, 2024, as a $158 credit to additional-paid-in-capital and an addition to goodwill as this is consideration transferred to the former owners of Evertel. The Company also recorded a holdback liability and an obligation to issue common stock as security for potential indemnification claims against the seller. The holdback liability and the common stock will be released twelve months from the closing date, subject to amounts withheld for actual, pending or potential claims. The holdback liability was recorded as a current liability at $230, which represented the fair value of the holdback liability as of the acquisition date. The fair value of the holdback liability has and will be adjusted each reporting period with the change in fair value recorded in the condensed consolidated statement of operations. The obligation to issue common stock was recorded as a credit to additional paid in capital for $527 on the acquisition date. During the three months ended March 31, 2024, the Company and the former owners of Evertel, agreed on a working capital adjustment that resulted in a payment of $15 to the Company.

 

The Company incurred $113 in expenses related to this transaction. $39 of the expenses were incurred in the fourth quarter of fiscal year 2023, $12 in the first fiscal quarter of 2024 and $62 in the second fiscal quarter of 2024. The expense was recorded in selling, general and administrative expenses in the consolidated statement of operations.

 

The preliminary allocation of the purchase price as of the acquisition date is as follows:

 

Assets acquired

       

Accounts receivable

  $ 142  

Prepaid expenses

    27  

Intangible assets

    2,550  

Goodwill

    2,923  

Total Assets

  $ 5,642  
         

Liabilities assumed

       

Accrued commissions

  $ 10  

Deferred revenue

    470  

Deferred tax liability

    525  

Total liabilities

    1,005  
         

Net assets acquired

  $ 4,637  

 

The estimated fair value of identifiable intangible assets acquired and their estimated useful lives are as follows:

 

   

Fair Value

   

Est.Useful

Life (in years)

 

Developed technology

  $ 2,290       7  

Customer relationships

    260       5  
    $ 2,550          

 

Identifiable intangible assets consist of certain technology and customer relationships purchased from Evertel. Identifiable intangible assets are amortized over their estimated useful lives based upon several assumptions, including the estimated period of economic benefit and utilization. The weighted average amortization period for identifiable intangible assets acquired is 6.8 years. These intangible assets are classified as Level 3 in the ASC Topic 820 three-tier fair value hierarchy.

 

8

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

The goodwill for Evertel is attributable to combining the Company’s existing emergency communications solutions with the software and software development capabilities of Evertel to enhance product offerings. Goodwill is also attributable to the skill level of the acquired workforce. The Company will continue to analyze the transaction and refine its calculations, as appropriate during the measurement period, which could affect the value of goodwill. Goodwill from the Evertel acquisition will not be deductible for tax purposes.

 

As of March 31, 2024, $874 of the contingent consideration was issued to the former owners of Evertel. The Company paid $219 in cash and issued 236,343 shares of common stock. During the period since acquisition, the contingent consideration increased $44 due to remeasurement adjustments. As of March 31, 2024, the contingent consideration liability was $60 and will be settled during the third quarter of fiscal year 2024.

 

The Company has included the operating results of Evertel in continuing operations in its unaudited condensed consolidated financial statements since the acquisition date. $205 in net revenues and $220 in net loss of Evertel were included in the unaudited condensed consolidated financial statements for the three months ending March 31, 2024 and $414 in net revenues and $432 in net loss of Evertel were included in the unaudited condensed consolidated financial statements for the six months ended March 31, 2024.

 

 

5.

REVENUE RECOGNITON

 

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.

 

9

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

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 performance obligation arrangements

 

The Company has entered into a number of multiple performance obligation 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 performance obligation arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each performance obligation within the arrangement, including software and software-related services such as maintenance and support. In general, performance obligations in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.

 

Revenue is allocated to each performance obligation based on the fair value of each individual performance obligation 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 March 31, 2024 and September 30, 2023, including the change between the periods. There were no contract assets as of March 31, 2024 and September 30, 2023. The current portion of contract liabilities and the noncurrent portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying condensed consolidated balance sheets. Refer to Note 11, Accrued and Other Liabilities for additional details.

 

10

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

The Company’s contract liabilities were as follows:

 

   

Customer

deposits

   

Deferred

revenue

   

Total

contract

liabilities

 

Balance as of September 30, 2023

  $ 766     $ 3,254     $ 4,020  

New performance obligations

    2,272       3,927       6,199  

Recognition of revenue as a result of satisfying performance obligations

    (2,116 )     (3,018 )     (5,134 )

Effect of exchange rate on deferred revenue

    -       (2 )     (2 )

Balance as of March 31, 2024

  $ 922     $ 4,161     $ 5,083  

Less: non-current portion

    -       (445 )     (445 )

Current portion as of March 31, 2024

  $ 922     $ 3,716     $ 4,638  

 

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 March 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $5,083. The Company expects to recognize revenue on approximately $4,638 or 91% of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter.

 

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 is longer than one year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.

 

 

6.

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 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 not have any marketable securities in the Level 3 category as of March 31, 2024 or September 30, 2023. 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 March 31, 2024 and September 30, 2023.

 

11

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

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 March 31, 2024, and September 30, 2023. 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.

 

   

March 31, 2024

 
   

Cost Basis

   

Gross

Unrealized

Gain

   

Gross

Unrealized

Loss

   

Fair Value

   

Cash

Equivalents

   

Short-term

Securities

   

Long-term

Securities

 

Level 1:

                                                       

Money market funds

  $ 1,437     $ -     $ -     $ 1,437     $ 1,437     $ -     $ -  
                                                         

Level 2:

                                                       

Certificates of deposit

    552       -       -       552       -       552       -  

Municipal securities

    1,105       -       (1 )     1,104       -       1,104       -  

Corporate bonds

    1,357       -       (2 )     1,355       -       1,355       -  

Subtotal

    3,014       -       (3 )     3,011       -       3,011       -  
                                                         

Total

  $ 4,451     $ -     $ (3 )   $ 4,448     $ 1,437     $ 3,011     $ -  

 

 

   

September 30, 2023

 
   

Cost Basis

   

Gross

Unrealized

Gain

   

Gross

Unrealized

Loss

   

Fair Value

   

Cash

Equivalents

   

Short-term

Securities

   

Long-term

Securities

 

Level 1:

                                                       

Money market funds

  $ 2,307     $ -     $ -     $ 2,307     $ 2,307     $ -     $ -  
                                                         

Level 2:

                                                       

Certificates of deposit

    301       -       -       301       -       301       -  

Municipal securities

    926       -       (7 )     919       -       919       -  

Corporate bonds

    264       -       (3 )     261       -       261       -  

Subtotal

    1,491       -       (10 )     1,481       -       1,481       -  
                                                         

Total

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

 

The Company manages debt investments as a single portfolio of highly marketable securities that is intended to be available to meet current cash requirements. Historically, the gross unrealized losses related to the Company’s portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns. Gross unrealized losses on available-for-sale debt securities was $3 as of March 31, 2024, and historically, such gross unrealized losses have been temporary in nature. The Company believes that it is probable the principal and interest will be collected in accordance with the contractual terms. The debt investment portfolio is reviewed at least quarterly, or when there are changes in credit risks or other potential valuation concerns, to identify and evaluate whether an allowance for credit losses or impairment would be necessary. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and the Company’s ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

 

12

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2024 and September 30, 2023:

 

   

As of March 31, 2024

 
   

In loss position < 12 months

   

In loss position > 12 months

   

Total in loss position

 
   

Fair Value

   

Gross

Unrealized

Loss

   

Fair Value

   

Gross

Unrealized

Loss

   

Fair Value

   

Gross

Unrealized

Loss

 

Certificates of deposit

  $ -     $ -     $ -     $ -     $ -     $ -  

U.S. government agency bonds

    -       -       -       -       -       -  

Municipal securities

    243       (1 )     -       -       243       (1 )

Corporate bonds

    993       (1 )     362       (1 )     1,355       (2 )
    $ 1,236     $ (2 )   $ 362     $ (1 )   $ 1,598     $ (3 )

 

   

As of September 30, 2023

 
   

In loss position < 12 months

   

In loss position > 12 months

   

Total in loss position

 
   

Fair Value

   

Gross

Unrealized

Loss

   

Fair Value

   

Gross

Unrealized

Loss

   

Fair Value

   

Gross

Unrealized

Loss

 

Certificates of deposit

  $ -     $ -     $ -     $ -     $ -     $ -  

U.S. government agency bonds

    -       -       -       -       -       -  

Municipal securities

    684       (2 )     235       (5 )     919       (7 )

Corporate bonds

    -       -       261       (3 )     261       (3 )
    $ 684     $ (2 )   $ 496     $ (8 )   $ 1,180     $ (10 )

 

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.

 

The following table presents nonfinancial assets that were subject to fair value measurement during the six months ended March 31, 2024. There were no business combinations or indicators of impairment during the twelve months ended September 30, 2023.

 

           

Fair Value Measurements at March 31, 2024

         
   

Carrying Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

   

Gain/(Loss)

 

Intangible assets from Evertel acquisition

  $ 2,550     $ -     $ -     $ 2,550     $ -  

Goodwill from Evertel acquisition

  $ 2,923     $ -     $ -     $ 2,923     $ -  

 

Contingent consideration liability: In connection with the Evertel acquisition, the Company recorded a liability related to future performance criteria, A payment of up to $1,050 is payable based on future performance. The contingent consideration liability was recorded at the fair value of $890 as of the acquisition date. The Company engaged independent valuation experts to assist in determining the fair value of the contingent consideration. During each reporting period, the Company will adjust the contingent consideration liability as performance criteria are achieved. The change in fair value is recorded in the accompanying consolidated statement of operations.

 

As of March 31, 2024, $874 of the contingent consideration was issued to the former owners of Evertel. The Company paid $219 in cash and issued 236,343 shares of common stock. During the period since acquisition, the contingent consideration increased $44 due to remeasurement adjustments. As of March 31, 2024, the remaining contingent consideration liability was $60 and will be settled during the third quarter of fiscal year 2024.

 

13

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

The changes in the carrying amount of the contingent consideration liability were as follows:

 

Value as of acquisition date

  $ 890  

Remeasurement estimate

    44  

Settlement of contingent consideration liability

    (874 )

Balance as of March 31, 2024

  $ 60  

 

Acquisition holdback liability: In connection with the Evertel acquisition, the Company recorded a holdback liability related to potential future misrepresentations and indemnifications against third-party claims. The holdback liability will be released twelve months from the closing date, subject to amounts withheld for actual, pending or potential claims. The holdback liability was recorded at the present value which was the fair value at the acquisition date. 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 is 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 acquisition date

  $ 230  

Accretion

    10  

Balance as of March 31, 2024

  $ 240  

 

 

7.

INVENTORIES, NET

 

Inventories, net consisted of the following:

 

   

March 31,

   

September 30,

 
   

2024

   

2023

 

Raw materials

  $ 4,619     $ 5,086  

Finished goods

    1,380       1,029  

Work in process

    1,459       1,218  

Inventories, gross

    7,458       7,333  

Reserve for obsolescence

    (894 )     (832 )

Inventories, net

  $ 6,564     $ 6,501  

 

 

8.

PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following:

 

   

March 31,

   

September 30,

 
   

2024

   

2023

 

Office furniture and equipment

  $ 1,622     $ 1,582  

Machinery and equipment

    1,480       1,441  

Leasehold improvements

    2,294       2,302  

Construction in progress

    71       -  

Property and equipment, gross

    5,467       5,325  

Accumulated depreciation

    (3,984 )     (3,774 )

Property and equipment, net

  $ 1,483     $ 1,551  

 

Depreciation and amortization expense for property and equipment was $112 and $113 for the three months ended March 31, 2024 and 2023, respectively. Depreciation and amortization expense for property and equipment was $221 and $224 for the six months ended March 31, 2024 and 2023, respectively.

 

14

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

 

9.

GOODWILL AND INTANGIBLE ASSETS

 

Goodwill is attributable to the acquisitions of Genasys Spain, Zonehaven, Evertel, and the Amika Mobile asset purchase and is due to combining the integrated critical communications, mass messaging solutions and software development capabilities with existing hardware products for enhanced offerings and the skill level of the acquired workforces. The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. As of March 31, 2024 and September 30, 2023, goodwill was $13,251 and $10,282, respectively. During the six months ended March 31, 2024, $2,923 was added to goodwill as a result of the Evertel acquisition. There were no additions or impairments to goodwill during the twelve months ended September 30, 2023.

 

The changes in the carrying amount of goodwill by segment as of March 31, 2024, were as follows:

 

   

Hardware

   

Software

   

Total

 

Balance as of September 30, 2023

  $ -     $ 10,282     $ 10,282  

Acquisitions

    -       2,923       2,923  

Currency translation

    -       46       46  

Balance as of March 31, 2024

  $ -     $ 13,251     $ 13,251  

 

The changes in the carrying amount of intangible assets by segment as of March 31, 2024, were as follows:

 

   

Hardware

   

Software

   

Total

 

Balance as of September 30, 2023

  $ 17     $ 8,410     $ 8,427  

Acquisitions

    -       2,550       2,550  

Amortization

    (1 )     (1,238 )     (1,239 )

Currency translation

    -       5       5  

Balance as of March 31, 2024

  $ 16     $ 9,727     $ 9,743  

 

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 $51.

 

The Company’s consolidated intangible assets consisted of the following:

 

   

March 31,

   

September 30,

 
   

2024

   

2023

 

Technology

  $ 14,232     $ 11,930  

Customer relationships

    2,062       1,790  

Trade name portfolio

    610       605  

Non-compete agreements

    227       223  

Patents

    72       72  
      17,203       14,620  

Accumulated amortization

    (7,460 )     (6,193 )
    $ 9,743     $ 8,427  

 

As of March 31, 2024, future amortization expense is as follows:

 

Fiscal year ending September 30,

       

2024 (remaining six months)

    1,238  

2025

    2,357  

2026

    2,222  

2027

    2,048  

2028

    1,220  

Thereafter

    658  

Total estimated amortization expense

  $ 9,743  

 

Amortization expense was $619 and $526 for the three months ended March 31, 2024 and 2023, respectively. Amortization expense was $1,239 and $1,058 for the six months ended March 31, 2024 and 2023, respectively.

 

15

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

 

10.

PREPAID EXPENSES AND OTHER

 

Prepaid expenses and other current assets consisted of the following:

 

   

March 31,

   

September 30,

 
   

2024

   

2023

 

Deposits for inventory

  $ 123     $ 301  

Prepaid insurance

    477       264  

Dues and subscriptions

    661       261  

Prepaid professional services

    541       136  

Prepaid commissions

    544       417  

Bid guarantee deposit

    3,500       -  

Trade shows and travel

    156       150  

Canadian goods and services and harmonized sales tax receivable

    71       123  

Other

    251       199  
    $ 6,324     $ 1,851  

 

Deposits for inventory

 

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

 

Prepaid insurance

 

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

 

Dues and subscriptions

 

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

 

Prepaid professional services

 

Prepaid professional services consist of payments made in advance for services such as accounting, consulting and legal services.

 

Prepaid commissions

 

Prepaid commissions represented the current portion of sales commissions paid in connection with obtaining a contract with a customer. These costs are deferred and are amortized on a straight-line basis over the period of benefit, which is typically between three and five years. Amortization of prepaid commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

 

Bid guarantee deposit

 

The bid guarantee deposit is a contractually required security deposit to ensure the execution of contractual documents and construction commencement within the agreed upon timeline. The deposit is held by the Puerto Rico Electric Power Authority and will be returned to the Company when the final contract is signed.

 

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.

 

16

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

 

11.

ACCRUED AND OTHER LIABILITIES

 

Accrued liabilities consisted of the following:

 

   

March 31,

   

September 30,

 
   

2024

   

2023

 

Payroll and related

  $ 2,410     $ 2,237  

Deferred revenue

    3,716       2,703  

Customer deposits

    922       766  

Accrued contract costs

    844       825  

Warranty reserve

    86       132  

Asset purchase holdback liability

    -       736  

Acquisition holdback liability

    240       -  

Acquisition contingent consideration liability

    60       -  

Other

    30       67  

Total

  $ 8,308     $ 7,466  

 

Other liabilities-noncurrent consisted of the following: 

 

   

March 31,

   

September 30,

 
   

2024

   

2023

 

Deferred revenue

  $ 445     $ 551  

 

Payroll and related

 

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

 

Deferred revenue

 

Deferred revenue as of March 31, 2024, included prepayments from customers for services, including extended warranty, scheduled to be performed in the twelve months ending March 31, 2025.

 

Customer deposits

 

Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered in the twelve months ending March 31, 2025.

 

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.

 

Warranty reserve

 

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

 

   

March 31,

   

September 30,

 
   

2024

   

2023

 

Balnce as of September 30, 2023

  $ 132     $ 159  

Warranty provision

    (46 )     40  

Warranty settlements

    -       (67 )

Balance as of March 31, 2024

  $ 86     $ 132  

 

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

 

17

Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

 

Asset purchase holdback liability

 

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

 

Acquisition holdback liability

 

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

 

Contingent consideration liability

 

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

 

Deferred extended warranty revenue

 

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

 

 

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, 2023, and the balances as of March 31, 2024, including the changes during the periods.

 

   

Operating lease

ROU assets

 

Operating lease ROU assets as of September 30, 2023

  $ 3,886  

Less amortization of operating lease ROU assets

    (387 )

Effect of exchange rate on operating lease ROU assets

    8  

Operating lease ROU assets as of March 31, 2024

  $ 3,507  

 

   

Operating lease

liabilities

 

Operating lease liabilities as of September 30, 2023

  $ 5,291  

Less lease principal payments on operating lease liabilities

    (499 )

Effect of exchange rate on operating lease liabilities

    8  

Operating lease liabilities as of March 31, 2024

    4,800  

Less non-current portion