Genasys (GNSS) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and accompanying notes for the period ended June 30, 2020 Condensed Consolidated Balance Sheets The balance sheets show a significant increase in total assets and liabilities year-over-year, driven by growth in receivables and lease obligations Total Assets (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $47,119,983 | $59,024,044 | +25.26% | | Total Current Assets | $34,038,637 | $39,757,936 | +16.80% | | Cash and cash equivalents | $18,819,078 | $20,667,934 | +9.83% | | Accounts receivable, net | $3,644,059 | $6,378,357 | +75.04% | | Inventories, net | $5,835,163 | $7,334,165 | +25.69% | | Operating lease right of use asset | - | $5,428,168 | N/A | Total Liabilities (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Total Liabilities | $11,738,634 | $19,816,613 | +68.82% | | Total Current Liabilities | $9,273,459 | $12,830,085 | +38.35% | | Accounts payable | $859,530 | $2,907,077 | +238.22% | | Operating lease liabilities, current portion | - | $752,371 | N/A | | Operating lease liabilities, noncurrent | - | $6,586,196 | N/A | Stockholders' Equity (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $35,381,349 | $39,207,431 | +10.82% | | Accumulated deficit | $(53,731,903) | $(51,305,924) | +4.51% | Condensed Consolidated Statements of Operations The statements of operations detail a substantial increase in quarterly net income alongside a slight decrease for the nine-month period Three Months Ended June 30 (YoY) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $11,971,096 | $8,863,726 | +35.1% | | Product sales | $10,932,719 | $8,037,460 | +36.0% | | Gross Profit | $6,471,182 | $4,601,993 | +40.6% | | Income from operations | $1,941,182 | $686,461 | +182.8% | | Net income | $1,504,077 | $638,041 | +135.7% | | Basic EPS | $0.05 | $0.02 | +150.0% | | Diluted EPS | $0.04 | $0.02 | +100.0% | Nine Months Ended June 30 (YoY) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $29,029,571 | $29,232,976 | -0.7% | | Product sales | $26,494,138 | $26,726,151 | -0.9% | | Gross Profit | $15,083,179 | $14,881,759 | +1.4% | | Income from operations | $2,966,580 | $3,411,722 | -13.0% | | Net income | $2,425,979 | $2,862,831 | -15.3% | | Basic EPS | $0.07 | $0.09 | -22.2% | | Diluted EPS | $0.07 | $0.09 | -22.2% | Condensed Consolidated Statements of Comprehensive Income Comprehensive income grew significantly for the quarter but declined for the nine-month period, influenced by currency and security gains/losses Comprehensive Income (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net income | $1,504,077 | $638,041 | +135.7% | | Unrealized gain (loss) on marketable securities | $8,114 | $9,483 | -14.4% | | Unrealized foreign currency gain (loss) | $43,160 | $47,055 | -8.3% | | Comprehensive income | $1,555,351 | $694,579 | +123.9% | Comprehensive Income (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net income | $2,425,979 | $2,862,831 | -15.3% | | Unrealized gain (loss) on marketable securities | $(3,064) | $19,102 | -116.0% | | Unrealized foreign currency gain (loss) | $70,300 | $(85,990) | +181.7% | | Comprehensive income | $2,493,215 | $2,795,943 | -10.9% | Condensed Consolidated Statements of Cash Flows Cash flow statements indicate a strong increase in cash from operations and a significant rise in the end-of-period cash balance Cash Flow Summary (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $3,710,590 | $2,413,334 | +53.76% | | Net cash (used in) provided by investing activities | $(2,425,264) | $29,759 | -8242.0% | | Net cash provided by (used in) financing activities | $540,525 | $(2,133,445) | +125.34% | | Net increase in cash, cash equivalents, and restricted cash | $1,816,941 | $288,205 | +530.0% | | Cash, cash equivalents and restricted cash, end of period | $21,333,859 | $12,094,279 | +76.40% | Noncash Investing and Financing Activities (Nine Months Ended June 30) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Initial measurement of operating lease ROU assets | $5,823,972 | - | | Initial measurement of operating lease liabilities | $7,814,701 | - | 1. OPERATIONS The company specializes in directed sound technologies and mass messaging solutions for global emergency and workforce management markets - Genasys Inc (formerly LRAD Corporation) specializes in directed and multidirectional sound technologies, voice broadcast products, and location-based mass messaging solutions[16] - The company rebranded from LRAD Corporation to Genasys Inc. on October 23, 2019[16] - Principal markets include North and South America, Europe, Middle East, and Asia, focusing on emergency warning and workforce management[16] 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The unaudited interim financial statements are prepared according to Form 10-Q and consolidate all wholly-owned subsidiaries - Interim financial statements are unaudited and prepared according to Form 10-Q and Regulation S-X, with condensed disclosures[17] - The company consolidates three wholly-owned subsidiaries: Genasys II Spain, S.A.U., Genasys America de CV, and LRAD International Corporation, eliminating intercompany transactions[18] - Prior year information has been reclassified to conform to the current year's presentation where necessary[19] 3. RECENT ACCOUNTING PRONOUNCEMENTS This section details the adoption of new accounting standards, notably for leases (Topic 842), and the pending adoption of credit loss standards - ASU No 2016-13 (Credit Losses) is pending adoption for fiscal years beginning after December 15, 2022 (Company's FY2023) and is not expected to have a material effect[20] - ASU No 2014-09 (Revenue from Contracts with Customers, Topic 606) adopted October 1, 2018, had no material impact[21][22] - ASU No 2016-02 (Leases, Topic 842) adopted October 1, 2019, resulted in the recognition of $7,814,701 in operating lease liabilities and $5,823,972 in operating ROU assets[24][25] 4. REVENUE RECOGNITION Revenue is recognized based on the five-step model of Topic 606, with performance obligations primarily recognized over the next 12 months - The company adopted Topic 606 on October 1, 2018, using a five-step model to recognize revenue when promised goods or services are transferred to customers[26][28] - Product revenue is recognized when products are tendered to a carrier for delivery, or upon customer receipt for a smaller portion[30] - As of June 30, 2020, remaining performance obligations totaled $6,681,891, with approximately 94% expected to be recognized over the next 12 months[41] Contract Liabilities (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | | :--- | :--- | :--- | | Customer deposits | $5,063,091 | $5,766,808 | | Deferred revenue | $1,059,407 | $915,083 | | Total contract liabilities | $6,122,498 | $6,681,891 | 5. FAIR VALUE MEASUREMENTS Financial instruments are categorized into Level 1 and Level 2 for fair value measurement, with no securities in the Level 3 category - Financial instruments are categorized into Level 1 (quoted prices in active markets) and Level 2 (quoted prices for similar assets or in inactive markets)[43][44] - No marketable securities were in the Level 3 category as of June 30, 2020, or September 30, 2019[45] Marketable Securities Fair Value (June 30, 2020) | Category | Cost Basis | Unrealized Gain | Fair Value | Cash Equivalents | Short-term Securities | Long-term Securities | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Money Market Funds (L1) | $1,037,567 | - | $1,037,567 | $1,037,567 | - | - | | Certificates of deposit (L2) | $1,943,206 | - | $1,943,206 | - | $499,000 | $1,444,206 | | Municipal securities (L2) | $2,109,268 | $4,048 | $2,113,316 | - | $1,603,982 | $509,334 | | Corporate bonds (L2) | $3,330,008 | $4,250 | $3,334,258 | - | $1,951,144 | $1,383,114 | | Total | $8,420,049 | $8,298 | $8,428,347 | $1,037,567 | $4,054,126 | $3,336,654 | 6. INVENTORIES Net inventories increased by over 25% year-over-year, primarily driven by a rise in raw materials and work in process Inventories, Net (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Raw materials | $5,060,331 | $6,454,321 | +27.54% | | Finished goods | $998,607 | $1,115,923 | +11.75% | | Work in process | $306,809 | $462,767 | +50.89% | | Inventories, gross | $6,365,747 | $8,033,011 | +26.19% | | Reserve for obsolescence | $(530,584) | $(698,846) | +31.71% | | Inventories, net | $5,835,163 | $7,334,165 | +25.69% | 7. PROPERTY AND EQUIPMENT Net property and equipment decreased due to accumulated depreciation outpacing new acquisitions - Depreciation expense for the nine months ended June 30, 2020, was $397,018, compared to $394,524 in 2019[49] Property and Equipment, Net (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Property and equipment, gross | $4,749,480 | $4,841,102 | +1.93% | | Accumulated depreciation | $(2,479,974) | $(2,856,435) | +15.18% | | Property and equipment, net | $2,269,506 | $1,984,667 | -12.55% | 8. GOODWILL AND INTANGIBLE ASSETS Goodwill increased slightly due to currency fluctuations, while net intangible assets decreased from amortization - Goodwill increased by $65,440 due to foreign currency exchange differences during the nine-month period, with no additions or impairments[8][50][51] Intangible Assets, Net (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Intangible assets, gross | $1,710,431 | $1,756,928 | +2.72% | | Accumulated amortization | $(534,797) | $(775,742) | +45.05% | | Intangible assets, net | $1,175,634 | $981,186 | -16.54% | Future Amortization Expense (as of June 30, 2020) | Fiscal year ending September 30, | Amount | | :--- | :--- | | 2020 (remaining three months) | $75,592 | | 2021 | $246,275 | | 2022 | $223,126 | | 2023 | $191,882 | | 2024 | $178,581 | | Thereafter | $65,730 | | Total estimated amortization expense | $981,186 | 9. PREPAID EXPENSES AND OTHER Total prepaid expenses decreased significantly, mainly due to a reduction in inventory deposits and the reclassification of prepaid rent - Prepaid rent was reclassified to operating lease ROU asset upon adoption of Topic 842[56][65] Prepaid Expenses and Other Current Assets (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Deposits for inventory | $1,064,640 | $173,607 | -83.66% | | Prepaid insurance | $194,285 | $350,173 | +80.24% | | Prepaid rent | $87,782 | - | -100.00% | | Dues and subscriptions | $88,031 | $198,951 | +126.00% | | Total | $1,781,837 | $1,052,750 | -40.92% | 10. ACCRUED LIABILITIES AND OTHER LIABILITIES - NONCURRENT Accrued liabilities grew due to increased customer deposits, while noncurrent liabilities fell sharply after reclassifying deferred rent - Deferred rent was reclassified upon adoption of Topic 842[65] Accrued Liabilities (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Payroll and related | $2,050,324 | $1,872,141 | -8.69% | | Deferred revenue | $508,522 | $531,670 | +4.55% | | Customer deposits | $5,063,091 | $5,766,808 | +13.91% | | Accrued contract costs | $252,833 | $580,173 | +129.47% | | Warranty reserve | $150,229 | $132,322 | -11.92% | | Deferred rent | $109,342 | - | -100.00% | | Total | $8,134,341 | $8,883,114 | +9.21% | Other Liabilities - Noncurrent (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Deferred rent | $1,881,387 | - | -100.00% | | Deferred extended warranty revenue | $550,885 | $383,413 | -30.39% | | Total | $2,432,272 | $383,413 | -84.23% | 11. DEBT Total debt consists primarily of interest-free loans from Spanish governmental agencies, with the majority due in fiscal year 2021 - Total debt was $304,442 as of June 30, 2020, primarily from interest-free loans with Spanish governmental agencies[67] - A $270,604 loan is secured by restricted cash and is expected to be paid in full within the next twelve months[67] Debt Maturity Schedule (as of June 30, 2020) | Fiscal Year | Amount | | :--- | :--- | | 2021 | $287,523 | | 2022 | $16,919 | | Total | $304,442 | 12. LEASES The adoption of Topic 842 resulted in the recognition of significant operating lease liabilities and right-of-use assets on the balance sheet - Upon adopting Topic 842 on October 1, 2019, the company recognized $7,814,701 in operating lease liabilities and $5,823,972 in operating ROU assets (net of allowances)[73][75][76] - The weighted-average remaining lease term is 7.9 years, and the weighted-average discount rate is 4.13%[76] - Total lease expense for the nine months ended June 30, 2020, was approximately $674,108[76] Operating Lease Liabilities (June 30, 2020) | Metric | Amount | | :--- | :--- | | Total operating lease liabilities | $7,338,567 | | Current portion | $752,371 | | Non-current portion | $6,586,196 | 13. INCOME TAXES The company's effective tax rate increased year-over-year for the nine-month period, with a partial valuation allowance maintained against deferred tax assets - The company maintains a partial valuation allowance against its deferred tax assets[77] - No income tax expense or benefit has been recorded for uncertain tax positions[78] Income Tax Expense (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Income tax expense | $742,490 | $675,457 | +9.93% | | Effective tax rate | 22.8% | 20.0% | +2.8 pp | 14. COMMITMENTS AND CONTINGENCIES The company has no pending material legal proceedings and recorded an increase in bonus expense for the nine-month period - There are no pending material legal proceedings to which the Company is a party[79] Bonus Expense (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Bonus expense | $1,143,267 | $902,274 | +26.71% | 15. SHARE-BASED COMPENSATION Share-based compensation expense increased significantly, with substantial grants of stock options and unrecognized costs to be expensed in future periods - As of June 30, 2020, 3,637,674 shares of common stock were available for grant under the 2005 and 2015 Equity Plans[81] - 1,133,727 stock options were granted during the nine months ended June 30, 2020[83] - Unrecognized compensation costs for stock options were $378,436 (2.02 years weighted average) and for RSUs were $675,622 (1.31 years weighted average) as of June 30, 2020[84][93] Total Share-Based Compensation Expense (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total share-based compensation expense | $775,642 | $563,388 | +37.69% | Stock Option Activity (Nine Months Ended June 30, 2020) | Metric | Number of Shares | Weighted Average Exercise Price | | :--- | :--- | :--- | | Outstanding Sep 30, 2019 | 2,219,268 | $1.94 | | Granted | 1,133,727 | $3.39 | | Forfeited/expired | (110,546) | $2.11 | | Exercised | (512,019) | $1.95 | | Outstanding Jun 30, 2020 | 2,730,430 | $2.54 | | Exercisable Jun 30, 2020 | 1,153,024 | $2.00 | 16. STOCKHOLDERS' EQUITY Total stockholders' equity grew by over 10%, supported by proceeds from stock option exercises, while the company continued its share repurchase program - During the nine months ended June 30, 2020, the company issued 512,019 shares from stock option exercises, generating $996,891 gross proceeds, and 185,043 shares from RSU vesting[101] - The company repurchased 156,505 shares for $398,256 during the nine months ended June 30, 2020, under a $5 million buyback program, with $4.1 million remaining available[103][168] - No dividends were declared in the nine months ended June 30, 2020 and 2019[104] Total Stockholders' Equity (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $35,381,349 | $39,207,431 | +10.82% | 17. NET INCOME PER SHARE Earnings per share more than doubled for the quarter but decreased for the nine-month period, reflecting fluctuations in net income Net Income Per Common Share (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Basic EPS | $0.05 | $0.02 | +150.0% | | Diluted EPS | $0.04 | $0.02 | +100.0% | | Weighted average shares outstanding - basic | 33,289,426 | 32,575,118 | +2.19% | | Weighted average shares outstanding - diluted | 34,280,915 | 33,372,777 | +2.72% | Net Income Per Common Share (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Basic EPS | $0.07 | $0.09 | -22.2% | | Diluted EPS | $0.07 | $0.09 | -22.2% | | Weighted average shares outstanding - basic | 33,122,042 | 32,684,311 | +1.34% | | Weighted average shares outstanding - diluted | 33,878,243 | 33,341,057 | +1.61% | 18. SEGMENT INFORMATION The hardware segment drove strong quarterly revenue growth and operating income, while the software segment experienced declines Revenue from External Customers (Three Months Ended June 30) | Segment | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Hardware | $11,604,345 | $8,302,811 | +39.8% | | Software | $366,751 | $560,915 | -34.6% | | Total | $11,971,096 | $8,863,726 | +35.1% | Segment Operating Income (Loss) (Three Months Ended June 30) | Segment | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Hardware | $1,971,174 | $660,106 | +198.6% | | Software | $(29,992) | $26,355 | -213.8% | | Total | $1,941,182 | $686,461 | +182.8% | Revenue from External Customers (Nine Months Ended June 30) | Segment | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Hardware | $27,832,550 | $27,606,026 | +0.8% | | Software | $1,197,021 | $1,626,950 | -26.4% | | Total | $29,029,571 | $29,232,976 | -0.7% | Segment Operating Income (Loss) (Nine Months Ended June 30) | Segment | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Hardware | $3,047,418 | $3,245,060 | -6.09% | | Software | $(80,838) | $166,662 | -148.5% | | Total | $2,966,580 | $3,411,722 | -13.0% | 19. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION The company exhibits significant customer concentration, with one customer accounting for over 60% of revenues in recent periods - For the three and nine months ended June 30, 2020, one customer accounted for 64% and 63% of total revenues, respectively[108] - As of June 30, 2020, two customers accounted for 60% and 17% of total accounts receivable[108] Revenues by Geographic Region (Three Months Ended June 30) | Region | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Americas | $9,961,591 | $5,661,496 | +75.95% | | Asia Pacific | $947,759 | $2,681,229 | -64.65% | | Europe, Middle East and Africa | $1,061,746 | $521,001 | +103.79% | | Total Revenues | $11,971,096 | $8,863,726 | +35.06% | Revenues by Geographic Region (Nine Months Ended June 30) | Region | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Americas | $23,871,805 | $23,430,521 | +1.88% | | Asia Pacific | $3,128,822 | $3,827,716 | -18.26% | | Europe, Middle East and Africa | $2,028,944 | $1,974,739 | +2.74% | | Total Revenues | $29,029,571 | $29,232,976 | -0.69% | 20. SUBSEQUENT EVENT The company entered into an agreement to acquire Amika Mobile Corporation to enhance its emergency critical communications offerings - On August 9, 2020, Genasys Inc entered into an Asset Purchase Agreement to acquire Amika Mobile Corporation, a provider of integrated emergency critical communications[112] - The acquisition will be funded with available cash on hand and common stock, issued ratably on the first, second, and third anniversary of the closing date[112] - The closing of the transaction is subject to satisfaction of customary closing conditions, including regulatory review[112] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance, highlighting business developments, operational results, liquidity, and the potential impact of the COVID-19 pandemic - Genasys Inc (formerly LRAD Corporation) provides critical communications solutions through a unified mass notification platform[116] - The platform includes LRAD® systems for long-range acoustic communication, CCaaS (Critical Communications as a Service) software for mobile notifications, and integrated solutions[121] - On August 9, 2020, the company entered an agreement to acquire Amika Mobile Corporation, a provider of integrated emergency critical communications[124] - The COVID-19 pandemic has not had a material adverse effect on Q3 2020 financial results but poses potential risks to sales, supply chain, and liquidity[131] - The company had $20.7 million in cash and cash equivalents as of June 30, 2020, believing it has sufficient capital for the next twelve months[131] Overview Genasys Inc provides a unified mass notification platform combining long-range acoustic devices and cloud-based software for global critical communications - Genasys Inc (formerly LRAD Corporation) rebranded on October 23, 2019, focusing on critical communications solutions[116] - The company offers a unified mass notification platform with a multi-channel approach[116] - Key offerings include LRAD® systems, CCaaS cloud-based mobile notification platform, and integrated solutions compatible with FEMA's IPAWS[118][120][121] - Systems are deployed in 72 countries for diverse applications like public safety, emergency warning, defense, and law enforcement[117] Business developments in the fiscal quarter ended June 30, 2020 The company secured significant military contracts, enhanced its emergency warning system offerings, and agreed to acquire Amika Mobile Corporation - Announced $14.5 million in U.S. Army follow-on orders and received a $4.3 million U.S. Navy IDIQ contract[129] - Secured $3.9 million in international naval, border, port, and homeland security orders[129] - Became an official IPAWS-OPEN software service provider and hosted a webinar on its National Emergency Warning System (NEWS) solution[129] - Entered into an Asset Purchase Agreement to acquire Amika Mobile Corporation on August 9, 2020[124] Overall Business Outlook The company anticipates continued global adoption of its products and plans to expand sales channels and enhance its unified communications platform - The company expects continued worldwide awareness and acceptance of its products, with strong market opportunities in defense, public safety, and emergency warning[125] - Plans include expanding and strengthening domestic and international sales channels by adding key partners, distributors, and dealers[128] - Strategy involves building on AHD leadership, offering enhanced voice broadcast systems, and pursuing U.S. military and international business opportunities[129][130] - The company aims to deliver a reliable, fast, and intuitive solution for location-based audible voice communications and geo-targeted mobile messages[127] Comparison of Results of Operations for the Three Months Ended June 30, 2020 and 2019 Quarterly revenue and profitability increased significantly, driven by strong growth in the LRAD AHD product line - Increased selling, general and administrative expenses were primarily due to higher compensation ($552,611) and professional services ($271,947), partially offset by lower travel related expenses ($129,849)[140] Revenue Performance (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $11,971,096 | $8,863,726 | +35.1% | | Product sales | $10,932,719 | $8,037,460 | +36.0% | | LRAD AHD product line revenue | $10,464,308 | $4,877,580 | +114.5% | | PSMN systems product line revenue | $1,506,788 | $3,986,146 | -62.2% | Profitability (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Gross Profit | $6,471,182 | $4,601,993 | +40.6% | | Gross Profit % | 54.1% | 51.9% | +2.2 pp | | Income from operations | $1,941,182 | $686,461 | +182.8% | | Net income | $1,504,077 | $638,041 | +135.7% | Operating Expenses (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Selling, general and administrative | $3,330,365 | $2,712,846 | +22.8% | | Research and development | $1,199,635 | $1,202,686 | -0.3% | | Total operating expenses | $4,530,000 | $3,915,532 | +15.7% | Comparison of Results of Operations for the Nine Months Ended June 30, 2020 and 2019 For the nine-month period, revenues remained flat while net income decreased due to higher operating expenses - Increased selling, general and administrative expenses were primarily due to higher compensation ($606,681), professional services ($348,163), and sales and marketing activities ($203,349)[151] Revenue Performance (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $29,029,571 | $29,232,976 | -0.7% | | Product sales | $26,494,138 | $26,726,151 | -0.9% | | LRAD AHD product line revenues | $25,511,247 | $22,633,707 | +12.7% | | PSMN revenues | $3,518,324 | $6,599,269 | -46.7% | Profitability (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Gross Profit | $15,083,179 | $14,881,759 | +1.4% | | Gross Profit % | 52.0% | 50.9% | +1.1 pp | | Income from operations | $2,966,580 | $3,411,722 | -13.0% | | Net income | $2,425,979 | $2,862,831 | -15.3% | Operating Expenses (Nine Months Ended June 30) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Selling, general and administrative | $8,884,230 | $7,939,232 | +11.9% | | Research and development | $3,232,369 | $3,530,805 | -8.5% | | Total operating expenses | $12,116,599 | $11,470,037 | +5.6% | Liquidity and Capital Resources The company maintains a strong cash position and working capital, believing it has sufficient funds for operations over the next twelve months - The company believes its current cash position and efficient business model provide sufficient capital to fund operations for at least the next twelve months, despite COVID-19 uncertainties[157][159] - Principal factors affecting liquidity include sales projections, government spending levels, product mix, inventory levels, and the impact of COVID-19[158] Cash and Cash Equivalents (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $18,819,078 | $20,667,934 | +9.83% | Working Capital (YoY) | Metric | Sep 30, 2019 | Jun 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Working capital | $24,765,178 | $26,927,851 | +8.73% | Recent Accounting Pronouncements This section refers to the financial statement notes for details on newly issued accounting standards for future implementation - This section refers to Note 3, 'Recent Accounting Pronouncements,' for details on new pronouncements issued for future implementation[169] Item 3. Quantitative and Qualitative Disclosures about Market Risk. The company's direct exposure to foreign exchange risk is minimal due to U.S. dollar-denominated transactions and a natural hedge in its Spanish subsidiary - Direct exposure to foreign exchange rate fluctuations is considered minimal[170] - Transactions of the Spanish subsidiary are primarily in Euros, acting as a natural hedge against foreign currency fluctuations[170] - Fluctuations in the value of the U.S. dollar could make products more expensive or cause suppliers to raise prices[170] Item 4. Controls and Procedures. Management concluded that disclosure controls and procedures were effective as of the quarter-end, with no material changes to internal controls - Disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020[172] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[173] - The company acknowledges the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override[174] PART II. OTHER INFORMATION Item 1. Legal Proceedings. The company is not currently a party to any pending material legal proceedings - No pending material legal proceedings to which the Company is a party or to which any of its property is subject[175] Item 1A. Risk Factors. This section updates risk factors to include the potential negative impact of the COVID-19 pandemic on global economic conditions and company operations - An additional risk factor addresses the potential negative impact of global economic conditions related to the COVID-19 pandemic on the company's financial conditions and results of operations[177][178] - COVID-19 related factors that may negatively impact sales and gross margin include limitations on suppliers, employee work, product delivery, customer business, and timely payments[179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. There were no unregistered sales of equity securities or use of proceeds to report - None[180] Item 3. Defaults Upon Senior Securities. There were no defaults upon senior securities to report - None[180] Item 4. Mine Safety Disclosures. This item is not applicable to the company - Not Applicable[180] Item 5. Other Information. There is no other information to report under this item - None[181] Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - Includes certifications from the Principal Executive Officer (Richard S Danforth) and Principal Financial Officer (Dennis D Klahn) pursuant to the Sarbanes-Oxley Act[182][184] - XBRL Instance Document and Taxonomy Extension Documents are filed[184]