10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

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: 001-11703

GENCOR INDUSTRIES, INC.

Delaware	59-0933147
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

5201 North Orange Blossom Trail, Orlando, Florida 32810

(Address of principal executive offices) (Zip Code)

(407) 290-6000

(Registrant’s telephone number, including area code)

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

Title of Each Class	Trading Symbol(s)	Name of Exchange on which registered
Common Stock ($.10 Par Value)	GENC	NASDAQ Global 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  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 31, 2020
Common stock, $.10 par value	12,287,337 shares
Class B stock, $.10 par value	2,318,857 shares

GENCOR INDUSTRIES, INC.

Index			Page
Part I.	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets – June 30, 2020 (Unaudited) and September 30, 2019		4
		Condensed Consolidated Statements of Income – Quarters and Nine Months Ended June 30, 2020 and 2019 (Unaudited)		5
		Condensed Consolidated Statements of Shareholders’ Equity – Quarters and Nine Months Ended June 30, 2020 and 2019 (Unaudited)		6
		Condensed Consolidated Statements of Cash Flows – Quarters and Nine Months Ended June 30, 2020 and 2019 (Unaudited)		7
		Notes to Condensed Consolidated Financial Statements (Unaudited)		8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		20
	Item 4.	Controls and Procedures		20
Part II.	Other Information
	Item 1.	Legal Proceedings		21
	Item 1A.	Risk Factors		21
	Item 6.	Exhibits		21
Signatures				22

2

Caution Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”) and the Company’s other communications and statements may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the Company’s beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. These statements are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, demand for the Company’s products, the duration and scope of the coronavirus (“COVID-19”) pandemic, actions governments, and businesses take in response to the COVID-19 pandemic, including mandatory business closures; the impact of the pandemic and actions taken on regional economies; the pace of recovery when the COVID-19 pandemic subsides. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

For information concerning these factors and related matters, see Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report, Part II, Item 1A, “Risk Factors” in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and the following sections of the Company’s Annual Report on Form 10-K for the year ended September 30, 2019: (a) Part I, Item 1A, “Risk Factors” and (b) Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Quarterly Report. The Company does not undertake to update any forward-looking statements, except as required by law.

Unless the context otherwise indicates, all references in this Quarterly Report to the “Company,” “Gencor,” “we,” “us,” or “our,” or similar words are to Gencor Industries, Inc. and its subsidiaries.

3

Part I. Financial Information

GENCOR INDUSTRIES, INC.

Condensed Consolidated Balance Sheets

	June 30, 2020		September 30, 2019
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	18,564,000	$	10,302,000
Marketable securities at fair value (cost $105,388,000 at June 30, 2020 and $104,176,000 at September 30, 2019)		105,675,000		105,322,000
Accounts receivable, less allowance for doubtful accounts of $419,000 at June 30, 2020 and $459,000 at September 30, 2019		1,609,000		1,603,000
Costs and estimated earnings in excess of billings		10,064,000		13,838,000
Inventories, net		24,562,000		25,366,000
Prepaid expenses and other current assets		1,649,000		499,000
Total Current Assets		162,123,000		156,930,000
Property and equipment, net		8,391,000		8,389,000
Other assets		53,000		53,000
Total Assets	$	170,567,000	$	165,372,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,089,000	$	1,907,000
Customer deposits		2,651,000		1,918,000
Accrued expenses and other current liabilities		2,694,000		2,660,000
Total Current Liabilities		7,434,000		6,485,000
Deferred and other income taxes		1,306,000		3,372,000
Total Liabilities		8,740,000		9,857,000
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $.10 per share; 300,000 shares authorized; none issued		—		—
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,287,337 shares issued and outstanding at June 30, 2020 and 12,277,337 shares issued and outstanding at September 30, 2019		1,229,000		1,228,000
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares issued and outstanding at June 30, 2020 and 2,308,857 shares issued and outstanding at September 30, 2019		232,000		231,000
Capital in excess of par value		12,313,000		12,159,000
Retained earnings		148,053,000		141,897,000
Total Shareholders’ Equity		161,827,000		155,515,000
Total Liabilities and Shareholders’ Equity	$	170,567,000	$	165,372,000

See accompanying Notes to Condensed Consolidated Financial Statements

4

GENCOR INDUSTRIES, INC.

Condensed Consolidated Statements of Income

(Unaudited)

	For the Quarters Ended June 30,					For the Nine Months Ended June 30,
	2020			2019		2020			2019
Net revenue	$	22,940,000		$	18,848,000	$	66,963,000		$	66,845,000
Costs and expenses:
Production costs		17,555,000			14,098,000		49,920,000			47,267,000
Product engineering and development		849,000			881,000		2,304,000			2,427,000
Selling, general and administrative		2,522,000			2,471,000		7,465,000			7,135,000
		20,926,000			17,450,000		59,689,000			56,829,000
Operating income		2,014,000			1,398,000		7,274,000			10,016,000
Other income (expense), net:
Interest and dividend income, net of fees		512,000			567,000		1,907,000			1,608,000
Net realized and unrealized gains (losses) on marketable securities		2,888,000			1,090,000		(1,465,000	)		1,147,000
Other		(10,000	)		—		(20,000	)		—
		3,390,000			1,657,000		422,000			2,755,000
Income before income tax expense		5,404,000			3,055,000		7,696,000			12,771,000
Income tax expense		1,082,000			611,000		1,540,000			2,554,000
Net income	$	4,322,000		$	2,444,000	$	6,156,000		$	10,217,000
Basic Income per Common Share:
Net income per share	$	0.30		$	0.17	$	0.42		$	0.70
Diluted Income per Common Share:
Net income per share	$	0.29		$	0.17	$	0.42		$	0.69

See accompanying Notes to Condensed Consolidated Financial Statements

5

GENCOR INDUSTRIES, INC.

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

For the Nine Months Ended June 30, 2020

	Common Stock				Class B Stock				Capital in Excess of		Retained Earnings			Total Shareholders’ Equity
	Shares		Amount		Shares		Amount		Par Value
September 30, 2019		12,277,337	$	1,228,000		2,308,857	$	231,000	$	12,159,000	$	141,897,000		$	155,515,000
Net income		—		—		—		—		—		2,489,000			2,489,000
Stock-based compensation		—		—		—		—		18,000		—			18,000
December 31, 2019		12,277,337		1,228,000		2,308,857		231,000		12,177,000		144,386,000			158,022,000
Net loss		—		—		—		—		—		(655,000	)		(655,000	)
Stock-based compensation		—		—		—		—		17,000		—			17,000
March 31, 2020		12,277,337		1,228,000		2,308,857		231,000		12,194,000		143,731,000			157,384,000
Net income		—		—		—		—		—		4,322,000			4,322,000
Stock-based compensation		—		—		—		—		18,000		—			18,000
Stock options exercised		10,000		1,000		10,000		1,000		101,000		—			103,000
June 30, 2020		12,287,337	$	1,229,000		2,318,857	$	232,000	$	12,313,000	$	148,053,000		$	161,827,000

See accompanying Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended June 30, 2019

	Common Stock				Class B Stock				Capital in Excess of		Retained Earnings *		Total Shareholders’ Equity *
	Shares		Amount		Shares		Amount		Par Value
September 30, 2018		12,252,337	$	1,225,000		2,288,857	$	229,000	$	11,862,000	$	131,701,000	$	145,017,000
Net income		—		—		—		—		—		313,000		313,000
Stock-based compensation		—		—		—		—		17,000		—		17,000
December 31, 2018		12,252,337		1,225,000		2,288,857		229,000		11,879,000		132,014,000		145,347,000
Net income		—		—		—		—		—		7,460,000		7,460,000
Stock-based compensation		—		—		—		—		18,000		—		18,000
March 31, 2019		12,252,337		1,225,000		2,288,857		229,000		11,897,000		139,474,000		152,825,000
Net income		—		—		—		—		—		2,444,000		2,444,000
Stock-based compensation		—		—		—		—		18,000		—		18,000
June 30, 2019		12,252,337	$	1,225,000		2,288,857	$	229,000	$	11,915,000	$	141,918,000	$	155,287,000

See accompanying Notes to Condensed Consolidated Financial Statements 

* The balances as of September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, and the amounts for the quarter and nine months ended June 30, 2019, have been adjusted to reflect the change in inventory accounting method, as described in Note 3 to the Condensed Consolidated Financial Statements.

6

GENCOR INDUSTRIES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended June 30,
	2020			2019
Cash flows from operations:
Net income	$	6,156,000		$	10,217,000
Adjustments to reconcile net income to cash flows provided by operating activities:
Purchases of marketable securities		(112,668,000	)		(152,063,000	)
Proceeds from sale and maturity of marketable securities		110,805,000			152,678,000
Change in fair value of marketable securities		1,510,000			(1,324,000	)
Deferred income taxes		(2,066,000	)		(25,000	)
Depreciation and amortization		1,244,000			1,188,000
Provision for doubtful accounts		50,000			100,000
Stock-based compensation		53,000			53,000
Changes in assets and liabilities:
Accounts receivable		(56,000	)		(589,000	)
Costs and estimated earnings in excess of billings		3,774,000			(8,622,000	)
Inventories		804,000			(1,781,000	)
Prepaid expenses and other current assets		(1,150,000	)		959,000
Accounts payable		182,000			756,000
Customer deposits		733,000			(2,101,000	)
Accrued expenses and other current liabilities		34,000			577,000
Total adjustments		3,249,000			(10,194,000	)
Cash flows provided by operating activities		9,405,000			23,000
Cash flows used in investing activities:
Capital expenditures		(1,246,000	)		(1,600,000	)
Cash flows used in investing activities		(1,246,000	)		(1,600,000	)
Cash flows from financing activities:
Proceeds from stock option exercises		103,000			—
Cash flows provided by financing activities		103,000			—
Net increase (decrease) in cash		8,262,000			(1,577,000	)
Cash at:
Beginning of period		10,302,000			8,012,000
End of period	$	18,564,000		$	6,435,000

See accompanying Notes to Condensed Consolidated Financial Statements

7

GENCOR INDUSTRIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter and nine months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020.

The accompanying Condensed Consolidated Balance Sheet at September 30, 2019 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and notes thereto included in the Gencor Industries, Inc. Annual Report on Form 10-K for the year ended September 30, 2019.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU 2014-09 in the first quarter of fiscal 2019. The Company elected to adopt the standard using the modified retrospective method. The adoption of ASU 2014-09 did not have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). With adoption of this standard, lessees must recognize most leases as a right-of-use asset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification is based on criteria that are similar to those applied in prior lease accounting. ASU 2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-02 in the first quarter of fiscal 2020. The adoption of ASU 2016-02 did not have a significant impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The new guidance clarifies when a change to the terms or conditions of a share based payment award must be accounted for as a modification. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption of ASU 2017-09 did not have a significant impact on its consolidated financial statements.

No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s consolidated financial statements.

8

COVID-19 Pandemic

The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the COVID-19 pandemic, including impacts on our employees, customers, suppliers and financial results. As of the date of issuance of these unaudited Condensed Consolidated Financial Statements, our operations have not been significantly impacted. However, the full impact of the COVID-19 pandemic continues to evolve subsequent to the quarter and nine months ended June 30, 2020 and as of the date these unaudited Condensed Consolidated Financial Statements are issued. As such, the full magnitude that the COVID-19 pandemic will have on our financial condition and future results of operations is uncertain. Management is actively monitoring the situation on our financial condition, operations, suppliers, industry, customers, and workforce. As the spread of COVID-19 continues, our ability to meet customer demands for products may be impacted or our customers may experience adverse business consequences due to COVID-19. Reduced demand for products or ability to meet customer demand (including as a result of disruptions at our suppliers and vendors) could have a material adverse effect on our business operations and financial performance.

Note 2 - Marketable Securities and Fair Value Measurements

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Changes in net unrealized gains and losses are reported in the condensed consolidated statements of income in the current period and represent the change in the fair value of investment holdings during the period.

Fair Value Measurements

The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The fair value of marketable equity securities, mutual funds, exchange-traded funds, government securities, and cash and money funds are substantially based on quoted market prices (Level 1). Corporate and municipal bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments, if any, are provided by the Company’s professional investment management firm.

The following table sets forth, by level, within the fair value hierarchy, the Company’s marketable securities measured at fair value as of June 30, 2020:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	12,089,000	$	—	$	—	$	12,089,000
Mutual Funds		3,983,000		—		—		3,983,000
Exchange-Traded Funds		7,140,000		—		—		7,140,000
Corporate Bonds		—		38,058,000		—		38,058,000
Government Securities		33,789,000		—		—		33,789,000
Cash and Money Funds		10,616,000		—		—		10,616,000
Total	$	67,617,000	$	38,058,000	$	—	$	105,675,000

9

Changes in net unrealized gains and (losses) included in the condensed consolidated statements of income for the quarter and nine months ended June 30, 2020, were $(857,000) and $3,979,000, respectively. There were no transfers of investments between Level 1 and Level 2 during the nine months ended June 30, 2020.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2019:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	10,412,000	$	—	$	—	$	10,412,000
Mutual Funds		3,987,000		—		—		3,987,000
Exchange-Traded Funds		5,163,000		—		—		5,163,000
Corporate Bonds		—		38,690,000		—		38,690,000
Government Securities		45,171,000		—		—		45,171,000
Cash and Money Funds		1,899,000		—		—		1,899,000
Total	$	66,632,000	$	38,690,000	$	—	$	105,322,000

Changes in net unrealized gains and (losses) included in the condensed consolidated statements of income for the quarter and nine months ended June 30, 2019, were $3,979,000 and $(857,000), respectively. There were no transfers of investments between Level 1 and Level 2 during the nine months ended June 30, 2019.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these items.

Note 3 – Inventories

Inventories are valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. As required by accounting principles generally accepted in the United States of America (“GAAP”), the Company reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented. The Company believes the FIFO method improves financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and expenses.

The fiscal 2018 consolidated financial statements were retrospectively adjusted to apply the new method of FIFO cost accounting for inventories. The cumulative effect of this change on periods prior to those presented herein resulted in an increase in retained earnings of $2,708,000. There was no material impact to the previously reported unaudited interim fiscal 2018 quarterly condensed consolidated results of operations or statements of income as a result of the retrospective application of the change in inventory accounting principle.

Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

10

Net inventories at June 30, 2020 and September 30, 2019 consist of the following:

	June 30, 2020		September 30, 2019
Raw materials	$	15,090,000	$	14,158,000
Work in process		580,000		1,397,000
Finished goods		8,852,000		9,811,000
Used equipment		40,000		—
	$	24,562,000	$	25,366,000

Slow-moving and obsolete inventory allowances were $4,569,000 and $4,700,000 at June 30, 2020 and September 30, 2019, respectively.

Note 4 – Costs and Estimated Earnings in Excess of Billings

Costs and estimated earnings in excess of billings on uncompleted contracts as of June 30, 2020 and September 30, 2019 consist of the following:

	June 30, 2020		September 30, 2019
Costs incurred on uncompleted contracts	$	13,792,000	$	18,707,000
Estimated earnings		5,555,000		9,063,000
		19,347,000		27,770,000
Billings to date		9,283,000		13,932,000
Costs and estimated earnings in excess of billings	$	10,064,000	$	13,838,000

Note 5 – Earnings per Share Data

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Net Income	$	4,322,000	$	2,444,000	$	6,156,000	$	10,217,000
Common Shares:
Weighted average common shares outstanding		14,601,000		14,541,000		14,592,000		14,541,000
Effect of dilutive stock options		118,000		164,000		125,000		163,000
Diluted shares outstanding		14,719,000		14,705,000		14,717,000		14,704,000
Basic:
Net earnings per share	$	0.30	$	0.17	$	0.42	$	0.70
Diluted:
Net earnings per share	$	0.29	$	0.17	$	0.42	$	0.69

Basic earnings per share are based on the weighted-average number of shares outstanding. Diluted earnings per share are based on the sum of the weighted average number of shares outstanding plus common stock equivalents.

The weighted-average shares issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and nine months ended June 30, 2020 were 250,000 and 257,000, respectively, which equates to 118,000 and 125,000 dilutive common stock equivalents, respectively. There were 7,000 weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted earnings per share calculation for the quarter ended June 30, 2020 because they were anti-dilutive. The weighted-average shares

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issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and nine months ended June 30, 2019 were 317,000 and 317,000, respectively, which equates to 164,000 and 163,000 dilutive common stock equivalents, respectively. There were no anti-dilutive shares for the quarter ended June 30, 2019, and for the nine months ended June 30, 2020 and June 30, 2019.

Note 6 – Customers with 10% (or greater) of Net Revenues

During the quarter ended June 30, 2020, three customers accounted for 16.5%, 13.3% and 12.6% of net revenues. During the nine months ended June 30, 2020, no customers accounted for 10% or more of net revenues.

During the quarter ended June 30, 2019, one customer accounted for 20.3% of net revenues. Two other customers accounted for 10.5% and 10.1% of net revenues, respectively, for the nine months ended June 30, 2019.

Note 7 – Income Taxes

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities for tax years beginning after December 31, 2017, implementing a territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

On the condensed consolidated balance sheet as of June 30, 2020, deferred income taxes decreased $2.1 million as compared to September 30, 2019, reflecting payment of taxes due of $1.9 million on the filing of the Company’s Form 3115 with the Internal Revenue Service to reflect the revenue recognition method change to the percentage of completion method for tax purposes pursuant to Internal Revenue Code Sections 460 and 451(b).

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by pre-tax book income) from period to period. The Company’s effective tax rates for the first nine months of fiscal 2020 and 2019 reflect the impact of the reduced rates under the Tax Reform Act.

Note 8 – Revenue Recognition and Related Costs

As discussed in Note 1, the Company adopted the provisions of ASU No. 2014-09 and related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard.

The following table disaggregates the Company’s net revenue by major source for the quarter and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Equipment sales recognized over time	$	10,350,000	$	7,844,000	$	32,269,000	$	36,203,000
Equipment sales recognized at a point in time		8,995,000		6,747,000		20,946,000		17,190,000
Parts and component sales		2,671,000		2,870,000		10,492,000		10,387,000
Freight revenue		822,000		1,312,000		2,926,000		2,744,000
Other		102,000		75,000		330,000		321,000
Net revenue	$	22,940,000	$	18,848,000	$	66,963,000	$	66,845,000

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset

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with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $10,064,000 at June 30, 2020 and $13,838,000 at September 30, 2019 and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively. The Company anticipates that all these contract assets at June 30, 2020, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as certain milestones are completed. Accounts receivable related to contracts with customers for equipment sales was $281,000 at June 30, 2020 and $301,000 at September 30, 2019.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized. Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at June 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $2,651,000 at June 30, 2020 and $1,918,000 at September 30, 2019, and are included in current liabilities on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costs concurrently with the revenue recognition.

Note 9 – Subsequent Events

On July 31, 2020 Gencor announced that it has signed an agreement to acquire the Blaw-Knox paver business and associated assets from Volvo CE. The Blaw-Knox business, name, and associated assets will transfer to Gencor, including the manufacturing production line currently located at Shippensburg Pennsylvania.

The proposed deal, which is expected to be finalized in Gencor’s first quarter of fiscal 2021, will allow Gencor to manufacture and develop Volvo CE’s current North American paver product line under the Blaw-Knox brand. Gencor is expected to continue marketing and servicing the Blaw-Knox paver line through selected Volvo CE dealers.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This Quarterly Report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which represent the Company’s expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company’s products and future financing plans. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, demand for the Company’s products, the duration and scope of the coronavirus (“COVID-19”) pandemic, actions governments, businesses, and individuals take in response to the COVID-19 pandemic, including mandatory business closures and restrictions on onsite commercial interactions; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; and general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth.

For information concerning these factors and related matters, see the Caution Regarding Forward-Looking Statements, and this Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Quarterly Report, Part II, Item 1A, “Risk Factors,” in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and the following sections of the Company’s Annual Report on Form 10-K for the year ended September 30, 2019: (a) Part I, Item 1A, “Risk Factors” and (b) Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Quarterly Report. The Company does not undertake to update any forward-looking statements, except as required by law.

Overview

Gencor Industries, Inc. (the “Company”), is a leading manufacturer of heavy machinery used in the production of highway construction materials and environmental control equipment. The Company’s core products include asphalt plants, combustion systems and fluid heat transfer systems. The Company’s products are manufactured in two facilities in the United States.

Because the Company’s products are sold primarily to the highway construction industry, the business is seasonal in nature. Traditionally, the Company’s customers reduce their purchases of new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and related repair work. The majority of orders for the Company’s products are thus received between October and February, with a significant volume of shipments occurring in the late winter and spring. The principal factors driving demand for the Company’s products are the overall economic conditions, the level of government funding for domestic highway construction and repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of crude oil (liquid asphalt as well as fuel costs), and a trend towards larger more efficient asphalt plants.

On December 4, 2015, President Obama signed into law a five-year, $305 billion transportation bill, Fixing America’s Surface Transportation Act (the “FAST Act”). The FAST Act reauthorized the collection of the 18.4 cents per gallon gas tax that is typically used to pay for transportation projects. It also included $70 billion from other areas of the federal budget to close a $16 billion annual funding deficit. The bill included spending of more than $205 billion on roads and highways over five years. The 2016 funding levels were approximately 5% above 2015 projected funding, with annual increases between 2.0% and 2.5% from 2016 through 2020. The FAST Act is scheduled to expire in September 2020.

California’s Senate Bill 1 (“SB1”), the Road Repair and Accountability Act of 2017, was signed into law on April 28, 2017. The legislative package invests $54 billion over the next decade to fix roads, freeways and bridges in communities across California and puts more dollars towards transit and safety. These funds will be allocated to state and local projects. Additionally, at least twenty-five other states have taken steps to increase their gas tax revenues in recent years.

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Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the Company’s equipment, may affect the Company’s financial performance. The Company is subject to fluctuations in market prices for raw materials, such as steel. If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, its business results of operations and financial condition may be adversely affected.

Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the Company’s financial performance.

The Company believes its strategy of continuing to invest in product engineering and development and its focus on delivering the highest quality products and superior service will strengthen the Company’s market position. The Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. The Company will continue to scrutinize its relationships with suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.

Results of Operations

Quarter Ended June 30, 2020 versus June 30, 2019

Net revenue for the quarter ended June 30, 2020 was $22,940,000, as compared to $18,848,000 for the quarter ended June 30, 2019, an increase of $4,092,000, or 21.7%. The increase in net revenue was due to the timing of and shipment of orders for equipment sales.

As a percent of net revenue, gross profit margins were 23.5% in the quarter ended June 30, 2020 compared to 25.2% in the quarter ended June 30, 2019. The gross profit margins achieved in the current quarter were impacted by a higher percentage of revenues generated from plant and equipment sales compared with parts sales, which have a higher gross margin.

Product engineering and development expenses were $849,000 in the quarter ended June 30, 2020, compared to $881,000 for the quarter ended June 30, 2019, as a result of reduced travel expense. Selling, general and administrative (“SG&A”) expenses increased by $51,000 to $2,522,000 in the quarter ended June 30, 2020, compared to $2,471,000 in the quarter ended June 30, 2019 as a result of increased sales headcount.

The Company had operating income of $2,014,000 for the quarter ended June 30, 2020 versus operating income of $1,398,000 for the quarter ended June 30, 2019. Operating margins were 8.8% for the quarter ended June 30, 2020, compared to 7.4% in the prior year. The increase in operating margins was due to higher revenues and production volumes.

For the quarter ended June 30, 2020, interest and dividend income, net of fees, from the investment portfolio was $512,000, as compared to $567,000 in the quarter ended June 30, 2019. Net realized and unrealized gains on marketable securities were $2,888,000 for the quarter ended June 30, 2020 versus net unrealized and realized gains of $1,090,000 for the quarter ended June 30, 2019. The current quarter investment gains reflect a recovery in the domestic equity markets after the initial declines from the impact of the COVID-19 pandemic in the quarter ended March 31, 2020

The effective income tax rate for the quarters ended June 30, 2020 and 2019 was 20.0%.

Net income for the quarter ended June 30, 2020 was $4,322,000, or $0.29 per diluted share, versus $2,444,000, or $0.17 per diluted share, for the quarter ended June 30, 2019.

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Nine Months Ended June 30, 2020 versus June 30, 2019

Net revenue for the nine months ended June 30, 2020 and 2019 were $66,963,000 and $66,845,000, respectively, an increase of $118,000.

Gross profit margins decreased to 25.5% in the nine months ended June 30, 2020 from 29.3% in the nine months ended June 30, 2019. The gross profit margins achieved in the prior year benefitted from an unusually strong pricing environment for plant and equipment sales.

Product engineering and development expenses decreased by $123,000 in the nine months ended June 30, 2020, compared to the nine months ended June 30, 2019. SG&A expenses increased $330,000 in the nine months ended June 30, 2020, compared to the nine months ended June 30, 2019. As a percentage of net revenues, SG&A expenses were 11.1% for the nine months ended June 30, 2020, compared to 10.7% for the nine months ended June 30, 2019. The higher SG&A expenses in 2020 were due to increased headcount, travel and trade show expenses during the first nine months of fiscal 2020.

The Company had operating income of $7,274,000 for the nine months ended June 30, 2020 versus operating income of $10,016,000 for the nine months ended June 30, 2019, on lower gross profit margins and higher SG&A expenses. Operating margins were 10.9% for the nine months ended June 30, 2020, compared to 15.0% for the nine months ended June 30, 2019.

For the nine months ended June 30, 2020, interest and dividend income, net of fees, from the investment portfolio was $1,907,000, as compared to $1,608,000 for the prior period. The increase was due to additional interest income from a larger investment in corporate bonds and higher average yield to maturities. The net realized and unrealized losses on marketable securities were $(1,465,000) for the nine months ended June 30, 2020 versus net realized and unrealized gains of $1,147,000 for the nine months ended June 30, 2019. The current year investment losses reflect the decline in the domestic equity markets from the impact of the COVID-19 pandemic.

The effective income tax rate for the nine months ended June 30, 2020 and June 30, 2019 was 20.0%. Net income for the nine months ended June 30, 2020 was $6,156,000, or $0.42 per diluted share, versus $10,217,000, or $0.69 per diluted share, for the nine months ended June 30, 2019.

COVID-19 pandemic

In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout world, including the United States. The COVID-19 pandemic continues to impact economic conditions, which could impact the short-term and long-term demand from our customers and, therefore, has the potential to negatively impact our results of operations, cash flows, and financial position in the future. Management continues to monitor the situation and any impact on our financial condition and results of operations.

Liquidity and Capital Resources

The Company generates capital resources through operations and returns on its investments.

The Company had no long-term or short-term debt outstanding at June 30, 2020 or September 30, 2019. As of June 30, 2020, the Company has funded $85,000 in cash deposits at insurance companies to cover related collateral needs. In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2021, unless terminated earlier, and can be extended, as provided by the agreement. The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.

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As of June 30, 2020, the Company had $18,564,000 in cash and cash equivalents, and $105,675,000 in marketable securities, including $38,058,000 in corporate bonds, $12,089,000 in equities, $3,983,000 in mutual funds, $7,140,000 in exchange-traded funds, $33,789,000 in government securities, and $10,616,000 in cash and money funds. The marketable securities are invested through professional investment management firms. These securities may be liquidated at any time into cash and cash equivalents.

The Company’s backlog was $11.7 million at June 30, 2020, compared to $11.9 million at June 30, 2019. The Company’s working capital (defined as current assets less current liabilities) was $154.7 million at June 30, 2020 and $150.4 million at September 30, 2019. Cash provided by operations during the nine months ended June 30, 2020 was $9,405,000. The significant purchases, sales and maturities of marketable securities shown on the condensed consolidated statements of cash flows reflect the recurring purchases and sales of United States treasury bills. Deferred income taxes decreased by $2.1 million reflecting payments of taxes due of $1.9 million on the filing of the Company’s Form 3115 with the Internal Revenue Service to reflect the revenue recognition method change to the percentage of completion method for tax purposes pursuant to Internal Revenue Code Sections 460 and 451(b). Costs and estimated earnings in excess of billings decreased $3,774,000 and customer deposits increased $733,000, reflecting the timing of revenue recognition and payments on customer contracts recognized over time, at June 30, 2020. Final payment on one plant remained open at June 30, 2020 as this customer has experienced delays in permitting and thus has not taken possession of their equipment. We anticipate payment and shipment of this plant when the customer’s permit is issued. Inventories decreased $804,000 reflecting final shipments on equipment sales recognized at a point in time prior to June 30, 2020.

Cash flows used in investing activities for the nine months ended June 30, 2020 of $1,246,000 were related to capital expenditures, primarily for new manufacturing machinery used for cutting raw materials and systems’ software. Cash provided by financing activities of $103,000 for the nine months ended June 30, 2020 related to proceeds from the exercise of stock options.

Seasonality

The Company’s primary business is the manufacture of asphalt plants and related components and typically experiences a seasonal slowdown during the third and fourth quarters of the calendar year. This slowdown often results in lower reported sales and operating results during the first and fourth quarters of the fiscal year ended September 30.

Critical Accounting Policies, Estimates and Assumptions

The Company believes the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Accounting policies, in addition to the critical accounting policies referenced below, are presented in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019, “Accounting Policies.”

Estimates and Assumptions

In preparing the condensed consolidated financial statements, the Company uses certain estimates and assumptions that may affect reported amounts and disclosures. Estimates and assumptions are used, among other places, when accounting for certain revenue (e.g., contract accounting), expense, and asset and liability valuations. The Company believes that the estimates and assumptions made in preparing the condensed consolidated financial statements are reasonable, but are inherently uncertain. Assumptions may be incomplete or inaccurate and unanticipated events may occur. The Company is subject to risks and uncertainties that may cause actual results to differ from estimated results.

Revenues & Expenses

As discussed in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019, under the heading “Accounting Pronouncements and

17

Policies.”, the Company adopted the provisions of ASU No. 2014-09 and its related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard.

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $10,064,000 at June 30, 2020 and $13,838,000 at September 30, 2019 and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively. The Company anticipates that all these contract assets at June 30, 2020, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as certain milestones are completed. Accounts receivable related to contracts with customers for equipment sales was $281,000 at June 30, 2020 and $301,000 at September 30, 2019.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at June 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $2,651,000 at June 30, 2020 and $1,918,000 at September 30, 2019, and are included in current liabilities on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently.

Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.

All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging buckets. Account balances

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are charged off against the allowance for doubtful accounts when they are determined to be uncollectable. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts.

Inventories

Inventories are valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the LIFO method to the FIFO method. The Company believes the FIFO method improves financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and expenses. The change in accounting method will also require the Company to make a conforming change for U.S. income tax purposes.

As required by GAAP, the Company has reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented. The retrospective application of the change resulted in an increase in the Company’s September 30, 2018 and September 30, 2017 retained earnings of $2,838,000 (net of $838,000 in taxes) and $2,708,000 (net of $792,000 in taxes) respectively, and an increase to the Company’s net income of $130,000 (net of $45,000 in taxes) for the year ended September 30, 2018. This change did not affect our previously reported cash flows from operating, investing or financing activities nor did it have a significant impact on the previously reported quarterly operating results for fiscal 2019.

All inventories are valued at the lower of cost or net realizable value, with cost being determined under the FIFO method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery (see Note 3 to Condensed Consolidated Financial Statements). Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw materials, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Investments

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and (losses) on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Net unrealized gains and (losses) are reported in the condensed consolidated statements of income in the current period and represent the change in the fair value of investment holdings during the period.

Long-Lived Asset Impairment

Property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset’s carrying value. Fair value is generally determined using a discounted cash flow analysis.

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Off-Balance Sheet Arrangements

None

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Principal Financial and Accounting Officer evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and the Principal Financial and Accounting Officer concluded that, as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures are effective.

Because of inherent limitations, the Company’s disclosure controls and procedures, no matter how well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of such disclosure controls and procedures are met, and no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Principal Financial and Accounting Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the quarter and nine months ended June 30, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

From time to time the Company is engaged in legal proceedings in the ordinary course of business. We do not believe any current legal proceedings are material to our business.

Item 1A. Risk Factors

Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10K for the year ended September 30, 2019, as filed with the SEC on December 11, 2019, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings filed with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. During the quarter ended June 30, 2020, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K, for the year ended September 30, 2019, and Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q, for the quarter end March 31, 2020.

Item 6. Exhibits

Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended
Exhibit 32	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U. S. C. Section 1350
Exhibit 101.1	Interactive Data File
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	XBRL Definition Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL (included in Exhibit 101)

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

GENCOR INDUSTRIES, INC.

/s/ John E. Elliott

John E. Elliott

Chief Executive Officer

August 6, 2020

/s/ Eric E. Mellen

Eric E. Mellen

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 6, 2020

22

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Mr. John E. Elliott, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gencor Industries, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 6, 2020	/s/ John E. Elliott
		John E. Elliott
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Mr. Eric E. Mellen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gencor Industries, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 6, 2020	/s/ Eric E. Mellen
		Eric E. Mellen
		Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Gencor Industries, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John E. Elliott

John E. Elliott

Chief Executive Officer

August 6, 2020

/s/ Eric E. Mellen

Eric E. Mellen

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 6, 2020

XML

Cover Page - shares	9 Months Ended
	Jun. 30, 2020	Jul. 31, 2020
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Registrant Name	GENCOR INDUSTRIES INC
Entity File Number	001-11703
Entity Tax Identification Number	59-0933147
Trading Symbol	GENC
Entity Central Index Key	0000064472
Current Fiscal Year End Date	--09-30
Document Quarterly Report	true
Document Transition Report	false
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Interactive Data Current	Yes
City Area Code	407
Local Phone Number	290-6000
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Address, Address Line One	5201 North Orange Blossom Trail
Entity Shell Company	false
Title of 12(b) Security	Common Stock
Security Exchange Name	NASDAQ
Entity Address, State or Province	FL
Entity Address, City or Town	Orlando
Entity Address, Postal Zip Code	32810
Entity Incorporation, State or Country Code	DE
Common Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		12,287,337
Class B Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		2,318,857

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Current Assets:
Cash and cash equivalents	$ 18,564,000	$ 10,302,000
Marketable securities at fair value (cost $105,388,000 at June 30, 2020 and $104,176,000 at September 30, 2019)	105,675,000	105,322,000
Accounts receivable, less allowance for doubtful accounts of $419,000 at June 30, 2020 and $459,000 at September 30, 2019	1,609,000	1,603,000
Costs and estimated earnings in excess of billings	10,064,000	13,838,000
Inventories, net	24,562,000	25,366,000
Prepaid expenses and other current assets	1,649,000	499,000
Total current assets	162,123,000	156,930,000
Property and equipment, net	8,391,000	8,389,000
Other assets	53,000	53,000
Total Assets	170,567,000	165,372,000
Current liabilities:
Accounts payable	2,089,000	1,907,000
Customer deposits	2,651,000	1,918,000
Accrued expenses and other current liabilities	2,694,000	2,660,000
Total current liabilities	7,434,000	6,485,000
Deferred and other income taxes	1,306,000	3,372,000
Total liabilities	8,740,000	9,857,000
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.10 per share; 300,000 shares authorized; none issued	0	0
Capital in excess of par value	12,313,000	12,159,000
Retained earnings	148,053,000	141,897,000
Total shareholders' equity	161,827,000	155,515,000
Total Liabilities and Shareholders' Equity	170,567,000	165,372,000
Common Stock [Member]
Shareholders' equity:
Common stock	1,229,000	1,228,000
Total shareholders' equity	1,229,000	1,228,000
Class B Stock [Member]
Shareholders' equity:
Common stock	232,000	231,000
Total shareholders' equity	$ 232,000	$ 231,000

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Marketable securities, cost	$ 105,388,000	$ 104,176,000
Accounts receivable, allowance for doubtful accounts	$ 419,000	$ 459,000
Preferred stock, par value	$ 0.10	$ 0.10
Preferred stock, shares authorized	300,000	300,000
Preferred stock, shares issued	0	0
Common Stock [Member]
Common stock, par value	$ 0.10	$ 0.10
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	12,287,337	12,277,337
Common stock, shares outstanding	12,287,337	12,277,337
Class B Stock [Member]
Common stock, par value	$ 0.10	$ 0.10
Common stock, shares authorized	6,000,000	6,000,000
Common stock, shares issued	2,318,857	2,308,857
Common stock, shares outstanding	2,318,857	2,308,857

XML

Condensed Consolidated Statements of Operations - USD ($)	3 Months Ended			9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019		Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Net revenue	$ 22,940,000	$ 18,848,000		$ 66,963,000	$ 66,845,000
Costs and expenses:
Production costs	17,555,000	14,098,000		49,920,000	47,267,000
Product engineering and development	849,000	881,000		2,304,000	2,427,000
Selling, general and administrative	2,522,000	2,471,000		7,465,000	7,135,000
Total operating expenses	20,926,000	17,450,000		59,689,000	56,829,000
Operating income	2,014,000	1,398,000		7,274,000	10,016,000
Other income (expense), net:
Interest and dividend income, net of fees	512,000	567,000		1,907,000	1,608,000
Net realized and unrealized gains (losses) on marketable securities	2,888,000	1,090,000		(1,465,000)	1,147,000
Other	(10,000)	0		(20,000)	0
Other income (expense),net	3,390,000	1,657,000		422,000	2,755,000
Income before income tax expense	5,404,000	3,055,000		7,696,000	12,771,000
Income tax expense	1,082,000	611,000		1,540,000	2,554,000
Net income	$ 4,322,000	$ 2,444,000	[1]	$ 6,156,000	$ 10,217,000
Basic Income per Common Share:
Net income per share	$ 0.30	$ 0.17		$ 0.42	$ 0.70
Diluted Income per Common Share:
Net income per share	$ 0.29	$ 0.17		$ 0.42	$ 0.69

[1] The balances as of September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, and the amounts for the quarter and nine months ended June 30, 2019, have been adjusted to reflect the change in inventory accounting method, as described in Note 3 to the Condensed Consolidated Financial Statements.

XML

Condensed Consolidated Statements of Shareholders' Equity - USD ($)		Total		Capital in Excess of Par Value [Member]	Retained Earnings [Member]		Common Stock [Member]	Class B Stock [Member]
Beginning balance at Sep. 30, 2018		$ 145,017,000	[1]	$ 11,862,000	$ 131,701,000	[1]	$ 1,225,000	$ 229,000
Beginning balance, shares at Sep. 30, 2018							12,252,337	2,288,857
Net income	[1]	313,000			313,000
Stock-based compensation		17,000	[1]	17,000
Ending balance at Dec. 31, 2018		145,347,000	[1]	11,879,000	132,014,000	[1]	$ 1,225,000	$ 229,000
Ending balance, shares at Dec. 31, 2018							12,252,337	2,288,857
Beginning balance at Sep. 30, 2018		145,017,000	[1]	11,862,000	131,701,000	[1]	$ 1,225,000	$ 229,000
Beginning balance, shares at Sep. 30, 2018							12,252,337	2,288,857
Net income		10,217,000
Ending balance at Jun. 30, 2019		155,287,000	[1]	11,915,000	141,918,000	[1]	$ 1,225,000	$ 229,000
Ending balance, shares at Jun. 30, 2019							12,252,337	2,288,857
Beginning balance at Dec. 31, 2018		145,347,000	[1]	11,879,000	132,014,000	[1]	$ 1,225,000	$ 229,000
Beginning balance, shares at Dec. 31, 2018							12,252,337	2,288,857
Net income	[1]	7,460,000			7,460,000
Stock-based compensation		18,000	[1]	18,000
Ending balance at Mar. 31, 2019		152,825,000	[1]	11,897,000	139,474,000	[1]	$ 1,225,000	$ 229,000
Ending balance, shares at Mar. 31, 2019							12,252,337	2,288,857
Net income	[1]	2,444,000			2,444,000
Stock-based compensation		18,000	[1]	18,000
Ending balance at Jun. 30, 2019		155,287,000	[1]	11,915,000	141,918,000	[1]	$ 1,225,000	$ 229,000
Ending balance, shares at Jun. 30, 2019							12,252,337	2,288,857
Beginning balance at Sep. 30, 2019		155,515,000		12,159,000	141,897,000		$ 1,228,000	$ 231,000
Beginning balance, shares at Sep. 30, 2019							12,277,337	2,308,857
Net income		2,489,000			2,489,000
Stock-based compensation		18,000		18,000
Ending balance at Dec. 31, 2019		158,022,000		12,177,000	144,386,000		$ 1,228,000	$ 231,000
Ending balance, shares at Dec. 31, 2019							12,277,337	2,308,857
Beginning balance at Sep. 30, 2019		155,515,000		12,159,000	141,897,000		$ 1,228,000	$ 231,000
Beginning balance, shares at Sep. 30, 2019							12,277,337	2,308,857
Net income		6,156,000
Ending balance at Jun. 30, 2020		161,827,000		12,313,000	148,053,000		$ 1,229,000	$ 232,000
Ending balance, shares at Jun. 30, 2020							12,287,337	2,318,857
Beginning balance at Dec. 31, 2019		158,022,000		12,177,000	144,386,000		$ 1,228,000	$ 231,000
Beginning balance, shares at Dec. 31, 2019							12,277,337	2,308,857
Net income		(655,000)			(655,000)
Stock-based compensation		17,000		17,000
Ending balance at Mar. 31, 2020		157,384,000		12,194,000	143,731,000		$ 1,228,000	$ 231,000
Ending balance, shares at Mar. 31, 2020							12,277,337	2,308,857
Net income		4,322,000		0	4,322,000		$ 0	$ 0
Stock-based compensation		18,000		18,000	0		0	0
Stock options exercised		103,000		101,000	0		$ 1,000	$ 1,000
Stock options exercised, shares							10,000	10,000
Ending balance at Jun. 30, 2020		$ 161,827,000		$ 12,313,000	$ 148,053,000		$ 1,229,000	$ 232,000
Ending balance, shares at Jun. 30, 2020							12,287,337	2,318,857

[1] The balances as of September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, and the amounts for the quarter and nine months ended June 30, 2019, have been adjusted to reflect the change in inventory accounting method, as described in Note 3 to the Condensed Consolidated Financial Statements.

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Condensed Consolidated Statements of Cash Flows - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operations:
Net income	$ 6,156,000	$ 10,217,000
Adjustments to reconcile net income to cash flows provided by operating activities:
Purchases of marketable securities	(112,668,000)	(152,063,000)
Proceeds from sale and maturity of marketable securities	110,805,000	152,678,000
Change in fair value of marketable securities	1,510,000	(1,324,000)
Deferred income taxes	(2,066,000)	(25,000)
Depreciation and amortization	1,244,000	1,188,000
Provision for doubtful accounts	50,000	100,000
Stock-based compensation	53,000	53,000
Changes in assets and liabilities:
Accounts receivable	(56,000)	(589,000)
Costs and estimated earnings in excess of billings	3,774,000	(8,622,000)
Inventories	804,000	(1,781,000)
Prepaid expenses and other current assets	(1,150,000)	959,000
Accounts payable	182,000	756,000
Customer deposits	733,000	(2,101,000)
Accrued expenses and other current liabilities	34,000	577,000
Total adjustments	3,249,000	(10,194,000)
Cash flows provided by operating activities	9,405,000	23,000
Cash flows used in investing activities:
Capital expenditures	(1,246,000)	(1,600,000)
Cash flows used in investing activities	(1,246,000)	(1,600,000)
Cash flows from financing activities:
Proceeds from stock option exercises	103,000
Cash flows provided by financing activities	103,000
Net increase (decrease) in cash	8,262,000	(1,577,000)
Cash at:
Beginning of period	10,302,000	8,012,000
End of period	$ 18,564,000	$ 6,435,000

XML

Basis of Presentation

9 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Note 1 - Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter and nine months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020.

The accompanying Condensed Consolidated Balance Sheet at September 30, 2019 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and notes thereto included in the Gencor Industries, Inc. Annual Report on Form 10-K for the year ended September 30, 2019.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU 2014-09 in the first quarter of fiscal 2019. The Company elected to adopt the standard using the modified retrospective method. The adoption of ASU 2014-09 did not have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). With adoption of this standard, lessees must recognize most leases as a right-of-use asset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification is based on criteria that are similar to those applied in prior lease accounting. ASU 2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-02 in the first quarter of fiscal 2020. The adoption of ASU 2016-02 did not have a significant impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The new guidance clarifies when a change to the terms or conditions of a share based payment award must be accounted for as a modification. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption of ASU 2017-09 did not have a significant impact on its consolidated financial statements.

No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s consolidated financial statements.

COVID-19 Pandemic

The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the COVID-19 pandemic, including impacts on our employees, customers, suppliers and financial results. As of the date of issuance of these unaudited Condensed Consolidated Financial Statements, our operations have not been significantly impacted. However, the full impact of the COVID-19 pandemic continues to evolve subsequent to the quarter and nine months ended June 30, 2020 and as of the date these unaudited Condensed Consolidated Financial Statements are issued. As such, the full magnitude that the COVID-19 pandemic will have on our financial condition and future results of operations is uncertain. Management is actively monitoring the situation on our financial condition, operations, suppliers, industry, customers, and workforce. As the spread of COVID-19 continues, our ability to meet customer demands for products may be impacted or our customers may experience adverse business consequences due to COVID-19. Reduced demand for products or ability to meet customer demand (including as a result of disruptions at our suppliers and vendors) could have a material adverse effect on our business operations and financial performance.

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Marketable Securities and Fair Value Measurements

9 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

Note 2 - Marketable Securities and Fair Value Measurements

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Changes in net unrealized gains and losses are reported in the condensed consolidated statements of income in the current period and represent the change in the fair value of investment holdings during the period.

Fair Value Measurements

The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The fair value of marketable equity securities, mutual funds, exchange-traded funds, government securities, and cash and money funds are substantially based on quoted market prices (Level 1). Corporate and municipal bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments, if any, are provided by the Company’s professional investment management firm.

The following table sets forth, by level, within the fair value hierarchy, the Company’s marketable securities measured at fair value as of June 30, 2020:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	12,089,000	$	—	$	—	$	12,089,000
Mutual Funds		3,983,000		—		—		3,983,000
Exchange-Traded Funds		7,140,000		—		—		7,140,000
Corporate Bonds		—		38,058,000		—		38,058,000
Government Securities		33,789,000		—		—		33,789,000
Cash and Money Funds		10,616,000		—		—		10,616,000
Total	$	67,617,000	$	38,058,000	$	—	$	105,675,000

Changes in net unrealized gains and (losses) included in the condensed consolidated statements of income for the quarter and nine months ended June 30, 2020, were $(857,000) and $3,979,000, respectively. There were no transfers of investments between Level 1 and Level 2 during the nine months ended June 30, 2020.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2019:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	10,412,000	$	—	$	—	$	10,412,000
Mutual Funds		3,987,000		—		—		3,987,000
Exchange-Traded Funds		5,163,000		—		—		5,163,000
Corporate Bonds		—		38,690,000		—		38,690,000
Government Securities		45,171,000		—		—		45,171,000
Cash and Money Funds		1,899,000		—		—		1,899,000
Total	$	66,632,000	$	38,690,000	$	—	$	105,322,000

Changes in net unrealized gains and (losses) included in the condensed consolidated statements of income for the quarter and nine months ended June 30, 2019, were $3,979,000 and $(857,000), respectively. There were no transfers of investments between Level 1 and Level 2 during the nine months ended June 30, 2019.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these items.

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Inventories

9 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

Inventories

Note 3 – Inventories

Inventories are valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. As required by accounting principles generally accepted in the United States of America (“GAAP”), the Company reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented. The Company believes the FIFO method improves financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and expenses.

The fiscal 2018 consolidated financial statements were retrospectively adjusted to apply the new method of FIFO cost accounting for inventories. The cumulative effect of this change on periods prior to those presented herein resulted in an increase in retained earnings of $2,708,000. There was no material impact to the previously reported unaudited interim fiscal 2018 quarterly condensed consolidated results of operations or statements of income as a result of the retrospective application of the change in inventory accounting principle.

Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Net inventories at June 30, 2020 and September 30, 2019 consist of the following:

	June 30, 2020		September 30, 2019
Raw materials	$	15,090,000	$	14,158,000
Work in process		580,000		1,397,000
Finished goods		8,852,000		9,811,000
Used equipment		40,000		—
	$	24,562,000	$	25,366,000

Slow-moving and obsolete inventory allowances were $4,569,000 and $4,700,000 at June 30, 2020 and September 30, 2019, respectively.

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Costs and Estimated Earnings in Excess of Billings

9 Months Ended

Jun. 30, 2020

Text Block [Abstract]

Costs and Estimated Earnings in Excess of Billings

Note 4 – Costs and Estimated Earnings in Excess of Billings

Costs and estimated earnings in excess of billings on uncompleted contracts as of June 30, 2020 and September 30, 2019 consist of the following:

	June 30, 2020		September 30, 2019
Costs incurred on uncompleted contracts	$	13,792,000	$	18,707,000
Estimated earnings		5,555,000		9,063,000
		19,347,000		27,770,000
Billings to date		9,283,000		13,932,000
Costs and estimated earnings in excess of billings	$	10,064,000	$	13,838,000

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Earnings per Share Data

9 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings per Share Data

Note 5 – Earnings per Share Data

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Net Income	$	4,322,000	$	2,444,000	$	6,156,000	$	10,217,000
Common Shares:
Weighted average common shares outstanding		14,601,000		14,541,000		14,592,000		14,541,000
Effect of dilutive stock options		118,000		164,000		125,000		163,000
Diluted shares outstanding		14,719,000		14,705,000		14,717,000		14,704,000
Basic:
Net earnings per share	$	0.30	$	0.17	$	0.42	$	0.70
Diluted:
Net earnings per share	$	0.29	$	0.17	$	0.42	$	0.69

Basic earnings per share are based on the weighted-average number of shares outstanding. Diluted earnings per share are based on the sum of the weighted average number of shares outstanding plus common stock equivalents.

The weighted-average shares issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and nine months ended June 30, 2020 were 250,000 and 257,000, respectively, which equates to 118,000 and 125,000 dilutive common stock equivalents, respectively. There were 7,000 weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted earnings per share calculation for the quarter ended June 30, 2020 because they were anti-dilutive. The weighted-average shares

issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and nine months ended June 30, 2019 were 317,000 and 317,000, respectively, which equates to 164,000 and 163,000 dilutive common stock equivalents, respectively. There were no anti-dilutive shares for the quarter ended June 30, 2019, and for the nine months ended June 30, 2020 and June 30, 2019.

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Customers with 10% (or greater) of Net Revenues

9 Months Ended

Jun. 30, 2020

Risks and Uncertainties [Abstract]

Customers with 10% (or greater) of Net Revenues

Note 6 – Customers with 10% (or greater) of Net Revenues

During the quarter ended June 30, 2020, three customers accounted for 16.5%, 13.3% and 12.6% of net revenues. During the nine months ended June 30, 2020, no customers accounted for 10% or more of net revenues.

During the quarter ended June 30, 2019, one customer accounted for 20.3% of net revenues. Two other customers accounted for 10.5% and 10.1% of net revenues, respectively, for the nine months ended June 30, 2019.

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Income Taxes

9 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Note 7 – Income Taxes

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities for tax years beginning after December 31, 2017, implementing a territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

On the condensed consolidated balance sheet as of June 30, 2020, deferred income taxes decreased $2.1 million as compared to September 30, 2019, reflecting payment of taxes due of $1.9 million on the filing of the Company’s Form 3115 with the Internal Revenue Service to reflect the revenue recognition method change to the percentage of completion method for tax purposes pursuant to Internal Revenue Code Sections 460 and 451(b).

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by pre-tax book income) from period to period. The Company’s effective tax rates for the first nine months of fiscal 2020 and 2019 reflect the impact of the reduced rates under the Tax Reform Act.

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Revenue Recognition and Related Costs

9 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue Recognition and Related Costs

Note 8 – Revenue Recognition and Related Costs

As discussed in Note 1, the Company adopted the provisions of ASU No. 2014-09 and related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard.

The following table disaggregates the Company’s net revenue by major source for the quarter and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Equipment sales recognized over time	$	10,350,000	$	7,844,000	$	32,269,000	$	36,203,000
Equipment sales recognized at a point in time		8,995,000		6,747,000		20,946,000		17,190,000
Parts and component sales		2,671,000		2,870,000		10,492,000		10,387,000
Freight revenue		822,000		1,312,000		2,926,000		2,744,000
Other		102,000		75,000		330,000		321,000
Net revenue	$	22,940,000	$	18,848,000	$	66,963,000	$	66,845,000

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset

with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $10,064,000 at June 30, 2020 and $13,838,000 at September 30, 2019 and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively. The Company anticipates that all these contract assets at June 30, 2020, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as certain milestones are completed. Accounts receivable related to contracts with customers for equipment sales was $281,000 at June 30, 2020 and $301,000 at September 30, 2019.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized. Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at June 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $2,651,000 at June 30, 2020 and $1,918,000 at September 30, 2019, and are included in current liabilities on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costs concurrently with the revenue recognition.

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Subsequent Events

9 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

Note 9 – Subsequent Events

On July 31, 2020 Gencor announced that it has signed an agreement to acquire the Blaw-Knox paver business and associated assets from Volvo CE. The Blaw-Knox business, name, and associated assets will transfer to Gencor, including the manufacturing production line currently located at Shippensburg Pennsylvania.

The proposed deal, which is expected to be finalized in Gencor’s first quarter of fiscal 2021, will allow Gencor to manufacture and develop Volvo CE’s current North American paver product line under the Blaw-Knox brand. Gencor is expected to continue marketing and servicing the Blaw-Knox paver line through selected Volvo CE dealers.

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Basis of Presentation (Policies)

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Accounting Pronouncements and Policies

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU 2014-09 in the first quarter of fiscal 2019. The Company elected to adopt the standard using the modified retrospective method. The adoption of ASU 2014-09 did not have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). With adoption of this standard, lessees must recognize most leases as a right-of-use asset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification is based on criteria that are similar to those applied in prior lease accounting. ASU 2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-02 in the first quarter of fiscal 2020. The adoption of ASU 2016-02 did not have a significant impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The new guidance clarifies when a change to the terms or conditions of a share based payment award must be accounted for as a modification. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption of ASU 2017-09 did not have a significant impact on its consolidated financial statements.

No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s consolidated financial statements.

Marketable Securities

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Changes in net unrealized gains and losses are reported in the condensed consolidated statements of income in the current period and represent the change in the fair value of investment holdings during the period.

Fair Value Measurements

Fair Value Measurements

The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The fair value of marketable equity securities, mutual funds, exchange-traded funds, government securities, and cash and money funds are substantially based on quoted market prices (Level 1). Corporate and municipal bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments, if any, are provided by the Company’s professional investment management firm.

The following table sets forth, by level, within the fair value hierarchy, the Company’s marketable securities measured at fair value as of June 30, 2020:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	12,089,000	$	—	$	—	$	12,089,000
Mutual Funds		3,983,000		—		—		3,983,000
Exchange-Traded Funds		7,140,000		—		—		7,140,000
Corporate Bonds		—		38,058,000		—		38,058,000
Government Securities		33,789,000		—		—		33,789,000
Cash and Money Funds		10,616,000		—		—		10,616,000
Total	$	67,617,000	$	38,058,000	$	—	$	105,675,000

Changes in net unrealized gains and (losses) included in the condensed consolidated statements of income for the quarter and nine months ended June 30, 2020, were $(857,000) and $3,979,000, respectively. There were no transfers of investments between Level 1 and Level 2 during the nine months ended June 30, 2020.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2019:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	10,412,000	$	—	$	—	$	10,412,000
Mutual Funds		3,987,000		—		—		3,987,000
Exchange-Traded Funds		5,163,000		—		—		5,163,000
Corporate Bonds		—		38,690,000		—		38,690,000
Government Securities		45,171,000		—		—		45,171,000
Cash and Money Funds		1,899,000		—		—		1,899,000
Total	$	66,632,000	$	38,690,000	$	—	$	105,322,000

Changes in net unrealized gains and (losses) included in the condensed consolidated statements of income for the quarter and nine months ended June 30, 2019, were $3,979,000 and $(857,000), respectively. There were no transfers of investments between Level 1 and Level 2 during the nine months ended June 30, 2019.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these items.

Inventories

Inventories are valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. As required by accounting principles generally accepted in the United States of America (“GAAP”), the Company reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented. The Company believes the FIFO method improves financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and expenses.

The fiscal 2018 consolidated financial statements were retrospectively adjusted to apply the new method of FIFO cost accounting for inventories. The cumulative effect of this change on periods prior to those presented herein resulted in an increase in retained earnings of $2,708,000. There was no material impact to the previously reported unaudited interim fiscal 2018 quarterly condensed consolidated results of operations or statements of income as a result of the retrospective application of the change in inventory accounting principle.

Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Earnings per Share

Earnings per Share Data

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Net Income	$	4,322,000	$	2,444,000	$	6,156,000	$	10,217,000
Common Shares:
Weighted average common shares outstanding		14,601,000		14,541,000		14,592,000		14,541,000
Effect of dilutive stock options		118,000		164,000		125,000		163,000
Diluted shares outstanding		14,719,000		14,705,000		14,717,000		14,704,000
Basic:
Net earnings per share	$	0.30	$	0.17	$	0.42	$	0.70
Diluted:
Net earnings per share	$	0.29	$	0.17	$	0.42	$	0.69

Basic earnings per share are based on the weighted-average number of shares outstanding. Diluted earnings per share are based on the sum of the weighted average number of shares outstanding plus common stock equivalents.

The weighted-average shares issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and nine months ended June 30, 2020 were 250,000 and 257,000, respectively, which equates to 118,000 and 125,000 dilutive common stock equivalents, respectively. There were 7,000 weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted earnings per share calculation for the quarter ended June 30, 2020 because they were anti-dilutive. The weighted-average shares

issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and nine months ended June 30, 2019 were 317,000 and 317,000, respectively, which equates to 164,000 and 163,000 dilutive common stock equivalents, respectively. There were no anti-dilutive shares for the quarter ended June 30, 2019, and for the nine months ended June 30, 2020 and June 30, 2019.

Income Taxes

Income Taxes

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities for tax years beginning after December 31, 2017, implementing a territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

On the condensed consolidated balance sheet as of June 30, 2020, deferred income taxes decreased $2.1 million as compared to September 30, 2019, reflecting payment of taxes due of $1.9 million on the filing of the Company’s Form 3115 with the Internal Revenue Service to reflect the revenue recognition method change to the percentage of completion method for tax purposes pursuant to Internal Revenue Code Sections 460 and 451(b).

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by pre-tax book income) from period to period. The Company’s effective tax rates for the first nine months of fiscal 2020 and 2019 reflect the impact of the reduced rates under the Tax Reform Act.

Revenue Recognition and Related Costs

Revenue Recognition and Related Costs

As discussed in Note 1, the Company adopted the provisions of ASU No. 2014-09 and related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard.

The following table disaggregates the Company’s net revenue by major source for the quarter and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Equipment sales recognized over time	$	10,350,000	$	7,844,000	$	32,269,000	$	36,203,000
Equipment sales recognized at a point in time		8,995,000		6,747,000		20,946,000		17,190,000
Parts and component sales		2,671,000		2,870,000		10,492,000		10,387,000
Freight revenue		822,000		1,312,000		2,926,000		2,744,000
Other		102,000		75,000		330,000		321,000
Net revenue	$	22,940,000	$	18,848,000	$	66,963,000	$	66,845,000

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset

with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $10,064,000 at June 30, 2020 and $13,838,000 at September 30, 2019 and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively. The Company anticipates that all these contract assets at June 30, 2020, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as certain milestones are completed. Accounts receivable related to contracts with customers for equipment sales was $281,000 at June 30, 2020 and $301,000 at September 30, 2019.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized. Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at June 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $2,651,000 at June 30, 2020 and $1,918,000 at September 30, 2019, and are included in current liabilities on the Company’s condensed consolidated balance sheets at June 30, 2020 and September 30, 2019, respectively.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costs concurrently with the revenue recognition.

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Inventories (Tables)

9 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

Net Inventories

Net inventories at June 30, 2020 and September 30, 2019 consist of the following:

	June 30, 2020		September 30, 2019
Raw materials	$	15,090,000	$	14,158,000
Work in process		580,000		1,397,000
Finished goods		8,852,000		9,811,000
Used equipment		40,000		—
	$	24,562,000	$	25,366,000

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Costs and Estimated Earnings in Excess of Billings (Tables)

9 Months Ended

Jun. 30, 2020

Text Block [Abstract]

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts

Costs and estimated earnings in excess of billings on uncompleted contracts as of June 30, 2020 and September 30, 2019 consist of the following:

	June 30, 2020		September 30, 2019
Costs incurred on uncompleted contracts	$	13,792,000	$	18,707,000
Estimated earnings		5,555,000		9,063,000
		19,347,000		27,770,000
Billings to date		9,283,000		13,932,000
Costs and estimated earnings in excess of billings	$	10,064,000	$	13,838,000

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Marketable Securities and Fair Value Measurements (Tables)

9 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Company's Marketable Securities Measured at Fair Value

The following table sets forth, by level, within the fair value hierarchy, the Company’s marketable securities measured at fair value as of June 30, 2020:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	12,089,000	$	—	$	—	$	12,089,000
Mutual Funds		3,983,000		—		—		3,983,000
Exchange-Traded Funds		7,140,000		—		—		7,140,000
Corporate Bonds		—		38,058,000		—		38,058,000
Government Securities		33,789,000		—		—		33,789,000
Cash and Money Funds		10,616,000		—		—		10,616,000
Total	$	67,617,000	$	38,058,000	$	—	$	105,675,000

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2019:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	10,412,000	$	—	$	—	$	10,412,000
Mutual Funds		3,987,000		—		—		3,987,000
Exchange-Traded Funds		5,163,000		—		—		5,163,000
Corporate Bonds		—		38,690,000		—		38,690,000
Government Securities		45,171,000		—		—		45,171,000
Cash and Money Funds		1,899,000		—		—		1,899,000
Total	$	66,632,000	$	38,690,000	$	—	$	105,322,000

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Earnings per Share Data (Tables)

9 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Net Income	$	4,322,000	$	2,444,000	$	6,156,000	$	10,217,000
Common Shares:
Weighted average common shares outstanding		14,601,000		14,541,000		14,592,000		14,541,000
Effect of dilutive stock options		118,000		164,000		125,000		163,000
Diluted shares outstanding		14,719,000		14,705,000		14,717,000		14,704,000
Basic:
Net earnings per share	$	0.30	$	0.17	$	0.42	$	0.70
Diluted:
Net earnings per share	$	0.29	$	0.17	$	0.42	$	0.69

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Revenue Recognition and Related Costs (Tables)

9 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Disaggregation of Company's Net Revenue by Major Source

The following table disaggregates the Company’s net revenue by major source for the quarter and nine months ended June 30, 2020 and 2019:

	Quarter Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Equipment sales recognized over time	$	10,350,000	$	7,844,000	$	32,269,000	$	36,203,000
Equipment sales recognized at a point in time		8,995,000		6,747,000		20,946,000		17,190,000
Parts and component sales		2,671,000		2,870,000		10,492,000		10,387,000
Freight revenue		822,000		1,312,000		2,926,000		2,744,000
Other		102,000		75,000		330,000		321,000
Net revenue	$	22,940,000	$	18,848,000	$	66,963,000	$	66,845,000

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Marketable Securities and Fair Value Measurements - Company's Assets Measured at Fair Value (Detail) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Investment Holdings [Line Items]
Total	$ 105,675,000	$ 105,322,000
Equities [Member]
Investment Holdings [Line Items]
Total	12,089,000	10,412,000
Mutual Funds [Member]
Investment Holdings [Line Items]
Total	3,983,000	3,987,000
Exchange Traded Funds [Member]
Investment Holdings [Line Items]
Total	7,140,000	5,163,000
Corporate Bonds [Member]
Investment Holdings [Line Items]
Total	38,058,000	38,690,000
Government Securities [Member]
Investment Holdings [Line Items]
Total	33,789,000	45,171,000
Cash and Money Funds [Member]
Investment Holdings [Line Items]
Total	10,616,000	1,899,000
Level 1 [Member]
Investment Holdings [Line Items]
Total	67,617,000	66,632,000
Level 1 [Member] | Equities [Member]
Investment Holdings [Line Items]
Total	12,089,000	10,412,000
Level 1 [Member] | Mutual Funds [Member]
Investment Holdings [Line Items]
Total	3,983,000	3,987,000
Level 1 [Member] | Exchange Traded Funds [Member]
Investment Holdings [Line Items]
Total	7,140,000	5,163,000
Level 1 [Member] | Government Securities [Member]
Investment Holdings [Line Items]
Total	33,789,000	45,171,000
Level 1 [Member] | Cash and Money Funds [Member]
Investment Holdings [Line Items]
Total	10,616,000	1,899,000
Level 2 [Member]
Investment Holdings [Line Items]
Total	38,058,000	38,690,000
Level 2 [Member] | Corporate Bonds [Member]
Investment Holdings [Line Items]
Total	38,058,000	$ 38,690,000
Level 3 [Member]
Investment Holdings [Line Items]
Total	$ 0

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Marketable Securities and Fair Value Measurements - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Marketable Securities [Line Items]
Changes in net unrealized gains and (losses)	$ 857,000	$ 3,979,000	$ 3,979,000	$ 857,000
Transfers of investments between Level 1 and Level 2	$ 0	$ 0	$ 0	$ 0

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Inventories - Net Inventories (Detail) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Inventory, Net [Abstract]
Raw materials	$ 15,090,000	$ 14,158,000
Work in process	580,000	1,397,000
Finished goods	8,852,000	9,811,000
Used equipment	40,000
Inventories, net	$ 24,562,000	$ 25,366,000

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Inventories - Additional Information (Detail) - USD ($)	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019	Sep. 30, 2018
Inventory [Line Items]
Slow moving and obsolete inventory reserve	$ 4,569,000	$ 4,700,000
Cumulative impact of change in accounting method inventory	$ 148,053,000	$ 141,897,000
Three to Four Years Old Inventory [Member]
Inventory [Line Items]
Cost basis reduction in inventory, percentage	50.00%
Inventory, minimum time period on the shelf, years	3 years
Inventory, maximum time period on the shelf, years	4 years
Four to Five Years Old Inventory [Member]
Inventory [Line Items]
Cost basis reduction in inventory, percentage	75.00%
Inventory, minimum time period on the shelf, years	4 years
Inventory, maximum time period on the shelf, years	5 years
Greater Than Five Years Old Inventory [Member]
Inventory [Line Items]
Inventory, minimum time period on the shelf, years	5 years
Inventory valuation estimate	$ 0
Provisions on obsolescence	$ 0
Inventory Valuation Adjustment [Member]
Inventory [Line Items]
Cumulative impact of change in accounting method inventory			$ 2,708,000

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Costs and Estimated Earnings in Excess of Billings - Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts (Detail) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Costs in Excess of Billings on Uncompleted Contracts or Programs [Abstract]
Costs incurred on uncompleted contracts	$ 13,792,000	$ 18,707,000
Estimated earnings	5,555,000	9,063,000
Costs and estimated earnings on uncompleted contracts	19,347,000	27,770,000
Billings to date	9,283,000	13,932,000
Costs and estimated earnings in excess of billings	$ 10,064,000	$ 13,838,000

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Earnings per Share Data - Basic and Diluted Earnings Per Share (Detail) - USD ($)	3 Months Ended									9 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019		Mar. 31, 2019	[1]	Dec. 31, 2018	[1]	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share [Abstract]
Net Income	$ 4,322,000	$ (655,000)	$ 2,489,000	$ 2,444,000	[1]	$ 7,460,000		$ 313,000		$ 6,156,000	$ 10,217,000
Common Shares:
Weighted average common shares outstanding	14,601,000			14,541,000						14,592,000	14,541,000
Effect of dilutive stock options	118,000			164,000						125,000	163,000
Diluted shares outstanding	14,719,000			14,705,000						14,717,000	14,704,000
Basic:
Net earnings per share	$ 0.30			$ 0.17						$ 0.42	$ 0.70
Diluted:
Net earnings per share	$ 0.29			$ 0.17						$ 0.42	$ 0.69

[1] The balances as of September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, and the amounts for the quarter and nine months ended June 30, 2019, have been adjusted to reflect the change in inventory accounting method, as described in Note 3 to the Condensed Consolidated Financial Statements.

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Earnings Per Share Data - Additional Information (Detail) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Exercisable stock options, included in the diluted earnings per share calculation	250,000	317,000	257,000	317,000
Effect of dilutive stock options	118,000	164,000	125,000	163,000
Inclusive Of Diluted Earning [Member]
Exercisable stock options, included in the diluted earnings per share calculation			7,000
Effect of dilutive stock options	7,000
Anti-dilutive shares	0	0	0	0

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Customers with 10% (or greater) of Net Revenues - Additional information (Detail) - Revenue [Member]	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Percentage of concentration			10.00%
Customer One [Member]
Percentage of concentration	16.50%	20.30%
Customer Two [Member]
Percentage of concentration	13.30%			10.50%
Customer Three [Member]
Percentage of concentration	12.60%			10.10%

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Income Taxes - Additional Information (Detail) - USD ($)			3 Months Ended	9 Months Ended
	Jan. 01, 2018	Dec. 31, 2017	Dec. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
IncomeTaxes [Line Items]
U.S. corporate income tax rate	21.00%	35.00%
Adjustments to deferred income taxes				$ 2,066,000	$ 25,000
Increase decrease in accounts payable and accrued expenses			$ 1,900,000
Internal Revenue Service (IRS) [Member]
IncomeTaxes [Line Items]
Adjustments to deferred income taxes				$ 2,100,000

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Revenue Recognition and Related Costs - Disaggregation of Company's Net Revenue by Major Source (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of Revenue [Line Items]
Net revenue	$ 22,940,000	$ 18,848,000	$ 66,963,000	$ 66,845,000
Equipment Sales [Member] | Transferred over Time [Member]
Disaggregation of Revenue [Line Items]
Net revenue	10,350,000	7,844,000	32,269,000	36,203,000
Equipment Sales [Member] | Transferred at Point in Time [Member]
Disaggregation of Revenue [Line Items]
Net revenue	8,995,000	6,747,000	20,946,000	17,190,000
Parts and Component Sales [Member]
Disaggregation of Revenue [Line Items]
Net revenue	2,671,000	2,870,000	10,492,000	10,387,000
Freight Revenue [Member]
Disaggregation of Revenue [Line Items]
Net revenue	822,000	1,312,000	2,926,000	2,744,000
Other [Member]
Disaggregation of Revenue [Line Items]
Net revenue	$ 102,000	$ 75,000	$ 330,000	$ 321,000

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Revenue Recognition and Related Costs - Additional Information (Detail) - USD ($)	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019
Disaggregation of Revenue [Line Items]
Amortization period for incremental costs	1 year
Costs and estimated earnings in excess of billings	$ 10,064,000	$ 13,838,000
Accounts receivable related to contracts with customers	281,000	301,000
Current Liabilities [Member]
Disaggregation of Revenue [Line Items]
Customer deposits related to contracts with customers	$ 2,651,000	$ 1,918,000
Maximum [Member]
Disaggregation of Revenue [Line Items]
Contract assets collection period	1 year