lrad20210331

10-Q 1 lrad20210331_10q.htm FORM 10-Q lrad20210331_10q.htm

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, 2021

☐ 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

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

(Registrant’s 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 11, 2021 was 33,849,566.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Genasys Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share amounts)

	March 31,
	2021			September 30,
	(Unaudited)			2020
ASSETS
Current assets:
Cash and cash equivalents	$	18,455		$	23,319
Short-term marketable securities		5,474			4,265
Restricted cash		282			282
Accounts receivable, net		5,445			5,442
Inventories, net		6,451			5,949
Prepaid expenses and other		1,082			860
Total current assets		37,189			40,117

Long-term marketable securities		2,450			3,805
Long-term restricted cash		1,190			395
Deferred tax assets, net		10,817			11,095
Property and equipment, net		1,901			1,930
Goodwill		8,380			2,472
Intangible assets, net		3,570			943
Operating lease right of use asset		5,216			5,285
Other assets		195			125
Total assets	$	70,908		$	66,167

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,555		$	1,370
Accrued liabilities		6,994			7,880
Notes payable, current portion		300			300
Operating lease liabilities, current portion		859			771
Total current liabilities		10,708			10,321

Notes payable, less current portion		-			18
Other liabilities, noncurrent		884			293
Operating lease liabilities, noncurrent		6,172			6,395
Total liabilities		17,764			17,027

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; 33,849,566 and 33,561,544 shares issued and outstanding, respectively		-			-
Additional paid-in capital		95,218			91,248
Accumulated deficit		(42,215	)		(41,858	)
Accumulated other comprehensive income (loss)		141			(250	)
Total stockholders' equity		53,144			49,140
Total liabilities and stockholders' equity	$	70,908		$	66,167

See accompanying notes

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	Three months ended					Six months ended
	March 31,					March 31,
	2021			2020		2021			2020
Revenues:
Product sales	$	10,131		$	7,553	$	17,081		$	15,561
Contract and other		1,170			723		2,248			1,497
Total revenues		11,301			8,276		19,329			17,058
Cost of revenues		5,964			4,266		10,288			8,446

Gross Profit		5,337			4,010		9,041			8,612

Operating expenses
Selling, general and administrative		3,824			2,732		7,155			5,554
Research and development		960			949		2,026			2,033
Total operating expenses		4,784			3,681		9,181			7,587

Income (loss) from operations		553			329		(140	)		1,025

Other income (expense), net		(8	)		70		61			166

Income (loss) before income taxes		545			399		(79	)		1,191
Income tax expense		283			97		278			269
Net income (loss)	$	262		$	302	$	(357	)	$	922

Net income (loss) per common share - basic and diluted	$	0.01		$	0.01	$	(0.01	)	$	0.03
Weighted average common shares outstanding:
Basic		33,683,240			33,094,596		33,629,479			33,036,786
Diluted		34,779,266			33,732,619		33,629,479			33,708,832

See accompanying notes

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(Unaudited)

	Three months ended						Six months ended
	March 31,						March 31,
	2021			2020			2021			2020
Net income (loss)	$	262		$	302		$	(357	)	$	922
Other comprehensive income
Unrealized (loss) on marketable securities		(3	)		(8	)		(6	)		(11	)
Unrealized foreign currency gain (loss)		(75	)		(62	)		397			27
Comprehensive income	$	184		$	232		$	34		$	938

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six months ended
	March 31,
	2021			2020
Operating Activities:
Net (loss) income	$	(357	)	$	922

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		552			415
Amortization of debt issuance costs		2			-
Warranty provision		37			(11	)
Inventory obsolescence		196			128
Share-based compensation		510			454
Realized loss on foreign currency forward contract		(48	)		-
Unrealized loss on foreign currency forward contract		(28	)		-
Deferred income taxes		278			269
Amortization of operating lease right of use asset		343			292
Accretion of acquisition holdback liability		22			-

Changes in operating assets and liabilities:
Accounts receivable, net		(14	)		(2,205	)
Inventories, net		(698	)		(1,214	)
Prepaid expenses and other		(253	)		787
Accounts payable		1,184			1,072
Accrued and other liabilities		(1,363	)		(3,036	)
Net cash provided by (used in) operating activities		363			(2,127	)

Investing Activities:
Purchases of marketable securities		(2,799	)		(2,013	)
Proceeds from maturities of marketable securities		2,939			1,971
Cash paid for Amika Mobile		(4,367	)		-
Capital expenditures		(148	)		(102	)
Net cash used in investing activities		(4,375	)		(144	)

Financing Activities:
Proceeds from exercise of stock options		170			258
Repurchase of common stock		-			(398	)
Shares retained for payment of taxes in connection with settlement of restricted stock units		(141	)		(41	)
Payments on promissory notes		(18	)		(17	)
Cash paid for debt issuance costs		(38	)		-
Net cash used in financing activities		(27	)		(198	)
Effect of foreign exchange rate on cash		(30	)		11
Net decrease in cash, cash equivalents, and restricted cash		(4,069	)		(2,458	)
Cash, cash equivalents and restricted cash, beginning of period		23,996			19,517
Cash, cash equivalents and restricted cash, end of period	$	19,927		$	17,059

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents	$	18,455		$	16,399
Restricted cash, current portion		282			265
Long-term restricted cash		1,190			395
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	19,927		$	17,059

See accompanying notes

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

(Unaudited)

	Six months ended March 31,
	2021			2020
Noncash investing and financing activities:
Change in unrealized gain (loss) on marketable securities	$	(6	)	$	(11	)
Obligation to issue common stock in connection with the purchase of Amika Mobile	$	(3,431	)	$	-
Initial measurement of operating lease right of use assets	$	259		$	5,824
Initial measurement of operating lease liabilities	$	259		$	7,815

Business combination accounted for as a purchase
Fair value of asset purchase holdback liability	$	613		$	-

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

1. OPERATIONS

Genasys Inc. (formerly LRAD® Corporation), a Delaware corporation (the “Company”), is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products, and location-based mass messaging solutions for emergency warning and workforce management. The principal markets for the Company’s proprietary sound reproduction technologies, voice broadcast products and mass messaging solutions are in North and South America, Europe, the Middle East and Asia. On October 23, 2019, the Company announced its rebranding and began doing business as Genasys Inc.

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, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on December 10, 2020. The accompanying condensed consolidated balance sheet at September 30, 2020 has been derived from the audited consolidated balance sheet at September 30, 2020 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 seven wholly owned subsidiaries, Genasys II Spain, S.A.U (“Genasys Spain”), Genasys Communications Canada ULC, Genasys Singapore PTE Ltd, Genasys Puerto Rico, 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, 2021, the amount of cash and cash equivalents was $18,455. As of September 30, 2020, the amount of cash and cash equivalents was $23,319.

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, 2021, the current portion of restricted cash was $282 and the noncurrent portion was $1,190. As of September 30, 2020, the current portion of restricted cash was $282 and the noncurrent portion was $395.

Immaterial Correction of Prior Period Financial Statements

During the quarter ended December 31, 2020, Company management identified an immaterial error in the previously issued September 30, 2020 consolidated balance sheet. This error resulted in an overstatement of prepaid expenses and accrued liabilities of $5,205 related to a foreign currency forward contract which was presented on a gross basis rather than on a net basis. There was no impact to the consolidated statement of operations or the consolidated statement of cash flows as of September 30, 2020, as a result of this misstatement. Further, there was no impact to the condensed consolidated financial statements as of, and for the six months ended March 31, 2021, as the forward contract was settled during the first quarter of fiscal 2021. SEC Staff Accounting Bulletin: No. 99 – Materiality and No. 108 – Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements were used by management to evaluate the impact of the misstatement. Management concluded that this misstatement had no material impact on either the accompanying condensed consolidated balance sheet as of March 31, 2021 or the previously issued consolidated balance sheet as of September 30, 2020, and therefore the misstatement was corrected in the accompanying condensed consolidated balance sheet as of September 30, 2020. All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error.

Reclassifications

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

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

3. RECENT ACCOUNTING PRONOUNCEMENTS

New pronouncements pending adoption

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of its 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, management does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU No. 2020-04 provides optional guidance, expedients and exceptions for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update apply to all entities, subject to meeting the criteria, which participate in contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 was subsequently amended by ASU No. 2021-01, Reference Rate Reform (Topic 848), Scope, which refines the scope of Topic 848 and permits optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships. The amendments of these updates are available to all entities as of March 12, 2020 through December 31, 2022. The Company has not yet adopted these amendments. The Company’s management does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.

New pronouncements adopted

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which improves fair value disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU No. 2018-13 on October 1, 2020, with no impact to the condensed consolidated financial statements.

4.	BUSINESS COMBINATION

On October 2, 2020, the Company completed the purchase of the assets of Amika Mobile Corporation (“Amika Mobile”) pursuant to an Asset Purchase Agreement. Amika Mobile is a leading provider of integrated emergency critical communications based in Ottawa, Canada. The Company believes the Amika Mobile asset purchase will expand the Company’s enterprise software solutions and enhance the Company’s unified multi-channel critical communications platform.

The Amika Mobile asset purchase was accounted for as a business combination using the acquisition method pursuant to 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.

The consideration consisted of the following:

Cash paid	$	4,367
Asset purchase holdback liability		613
Common stock to be issued		3,431
	$	8,411

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

Under the terms of the Asset Purchase Agreement, the Company is required to deposit a holdback liability in the amount of CAD$1,000 into an interest-bearing account as security for potential indemnification claims against the seller. The holdback amount will be released three years from the closing date subject to amounts withheld for actual, pending or potential claims. The Company also agreed to issue 191,267 shares of the Company’s common stock to the seller of the Amika Mobile assets on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in an addition of $3,431 to additional paid-in-capital. The cash portion of the purchase price was funded from cash on hand.

The Company incurred $264 in expenses related to this transaction through March 31, 2021. These expenses were recorded in selling, general and administrative expenses in the condensed consolidated statement of operations as follows: $22 in the second quarter of fiscal 2021, $10 in the first quarter of fiscal 2021, $132 in the fourth quarter of fiscal 2020 and $100 in the third quarter of fiscal 2020.

Purchase Price Allocation

Assets Acquired
Prepaid expenses	$	2
Fixed assets		22
Operating lease right of use asset		248
Intangible Assets		2,820
Goodwill		5,590
Total assets acquired	$	8,682

Liabilities assumed
Accrued liabilities	$	23
Operating lease liability		248
Total liabilities assumed		271
Net Assets acquired	$	8,411

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

	Fair Value		Useful Lives (in years)
Developed technology	$	2,500		7
Customer relationships		320		7
	$	2,820

Identifiable intangible assets consist of certain technology and customer relationships purchased from Amika Mobile. Identifiable intangible assets are amortized over their useful lives based upon a number of assumptions, including the estimated period of economic benefit and utilization. The weighted average amortization period for identifiable intangible assets acquired is 7 years. These intangible assets are classified as Level 3 in the ASC topic 820 three-tier fair value hierarchy.

The goodwill for Amika Mobile is attributable to combining the Company’s existing emergency communications solutions with the software and software development capabilities of Amika Mobile 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 Amika Mobile asset purchase will not be deductible for tax purposes.

REVENUE RECOGNITON

The Company adopted the guidance in Topic 606 on October 1, 2018. The Company adopted the new standard using the full retrospective approach.

Topic 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:

Identify the contract(s) with customers

Identify the performance obligations

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

Determine the transaction price

Allocate the transaction price to the performance obligations

Recognize revenue when the performance obligations have been satisfied

Topic 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, 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 relative stand-alone selling price 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.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

The Company disaggregates revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with the Company’s business operations and to be consistent with other communications and public filings. Refer to Note 19, Segment Information and Note 20, 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 Topic 606 and, at times, recognizes revenue in advance of the time when contracts give the Company the right to invoice a customer. 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 shows the balance of contract assets and liabilities as of March 31, 2021 and September 30, 2020, including the change between the periods. The current portion of contract liabilities and the non-current portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying Condensed Consolidated Balance Sheets. Refer to Note 11, Accrued Liabilities for additional details.

The Company’s contract liabilities were as follows:

	Customer deposits			Deferred revenue			Total contract liabilities
Balance at September 30, 2020	$	3,683		$	1,024		$	4,707
New performance obligations		5,065			584			5,649
Recognition of revenue as a result of satisfying performance obligations		(5,579	)		(785	)		(6,364	)
Effect of exchange rate on deferred revenue		-			11			11
Balance at March 31, 2021	$	3,169		$	834		$	4,003
Less: non-current portion		-			(214	)		(214	)
Current portion at March 31, 2021	$	3,169		$	620		$	3,789

Remaining Performance Obligations

Remaining performance obligations related to Topic 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, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4,003. The Company expects to recognize revenue on approximately $3,789 or 95% 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 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.

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.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

	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 was determined based on Level 1 and Level 2 inputs. The Company did not have any marketable securities in the Level 3 category as of March 31, 2021 or September 30, 2020. 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.

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, 2021 and September 30, 2020. 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, 2021
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	538	$	-	$	538	$	538	$	-	$	-

Level 2:
Certificates of deposit		1,193		-		1,193		-		251		942
Municipal securities		5,223		1		5,224		-		4,161		1,063
Corporate bonds		1,507		-		1,507		-		1,062		445
Subtotal		7,923		1		7,924		-		5,474		2,450

Total	$	8,461	$	1	$	8,462	$	538	$	5,474	$	2,450

	September 30, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	365	$	-	$	365	$	365	$	-	$	-

Level 2:
Certificates of deposit		1,195		-		1,195		-		-		1,195
Municipal securities		3,777		4		3,781		-		2,432		1,350
Corporate bonds		3,091		3		3,094		-		1,833		1,260
Subtotal		8,063		7		8,070		-		4,265		3,805

Total	$	8,428	$	7	$	8,435	$	365	$	4,265	$	3,805

Foreign currency forward contract: In August 2020, the Company entered into a foreign currency forward contract as an economic hedge against exposure to changes in the Canadian dollar in connection with the Amika Mobile asset purchase. At September 30, 2020, the notional value of the foreign currency forward contract was CAD$6,955 with a maturity date in October 2020. The foreign currency forward contract was classified under Level 2 of the fair value hierarchy. The valuation techniques used to measure the fair value were based on quoted market prices. On October 1, 2020, the foreign currency forward contract was settled for CAD$6,955 (USD$5,281), resulting in a realized loss of $48 on the contract that was recorded in earnings as other income (expense). The foreign currency forward contract liability was recorded in accrued liabilities in the consolidated balance sheet as of September 30, 2020.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

7. INVENTORIES, NET

Inventories, net consisted of the following:

	March 31,		September 30,
	2021		2020
Raw materials	$	5,385	$	5,220
Finished goods		718		841
Work in process

SEC Form 10-Q filed by Genasys Inc.