10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended December 31, 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: 000-24248

GENASYS INC.

(Exact name of registrant as specified in its charter)

Delaware	87-0361799
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
16262 West Bernardo Drive, San Diego, California	92127
(Address of principal executive offices)	(Zip Code)

(858) 676-1112

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which securities are registered
Common stock, $0.00001 par value per share	GNSS	NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒   Yes     ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes  ☒    No

The number of shares of Common Stock, $0.00001 par value, outstanding on February 8, 2021 was 33,641,235.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Genasys Inc. 

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share amounts)

	December 31,
	2020			September 30,
	(Unaudited)			2020
ASSETS
Current assets:
Cash and cash equivalents	$	19,584		$	23,319
Short-term marketable securities		5,517			4,265
Restricted cash		295			282
Accounts receivable, net		3,159			5,442
Inventories, net		6,963			5,949
Prepaid expenses and other		713			860
Total current assets		36,231			40,117
Long-term marketable securities		2,419			3,805
Long-term restricted cash		1,180			395
Deferred tax assets, net		11,100			11,095
Property and equipment, net		1,885			1,930
Goodwill		8,500			2,472
Intangible assets, net		3,743			943
Operating lease right of use asset		5,384			5,285
Other assets		161			125
Total assets	$	70,603		$	66,167
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,618		$	1,370
Accrued liabilities		7,848			7,880
Notes payable, current portion		314			300
Operating lease liabilities, current portion		848			771
Total current liabilities		10,628			10,321
Notes payable, less current portion		18			18
Other liabilities, noncurrent		915			293
Operating lease liabilities, noncurrent		6,385			6,395
Total liabilities		17,946			17,027
Stockholders' equity:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; none issued and outstanding		-			-
Common stock, $0.00001 par value; 50,000,000 shares authorized; 33,587,443 and 33,561,544 shares issued and outstanding, respectively		-			-
Additional paid-in capital		94,915			91,248
Accumulated deficit		(42,477	)		(41,858	)
Accumulated other comprehensive income (loss)		219			(250	)
Total stockholders' equity		52,657			49,140
Total liabilities and stockholders' equity	$	70,603		$	66,167

See accompanying notes

1

Genasys Inc. 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	Three months ended
	December 31,
	2020			2019
Revenues:
Product sales	$	6,950		$	8,008
Contract and other		1,078			774
Total revenues		8,028			8,782
Cost of revenues		4,324			4,180
Gross Profit		3,704			4,602
Operating expenses
Selling, general and administrative		3,331			2,822
Research and development		1,066			1,084
Total operating expenses		4,397			3,906
(Loss) income from operations		(693	)		696
Other income		69			96
(Loss) income before income taxes		(624	)		792
Income tax (benefit) expense		(5	)		172
Net (loss) income	$	(619	)	$	620
Net (loss) income per common share - basic and diluted	$	(0.02	)	$	0.02
Weighted average common shares outstanding:
Basic		33,574			32,978
Diluted		33,574			33,711

See accompanying notes

2

Genasys Inc. 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(Unaudited)

	Three months ended
	December 31,
	2020			2019
Net (loss) income	$	(619	)	$	620
Other comprehensive income
Unrealized loss on marketable securities		(3	)		(3	)
Unrealized foreign currency translation gain		472			88
Comprehensive (loss) income	$	(150	)	$	705

3

Genasys Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three months ended
	December 31,
	2020			2019
Operating Activities:
Net (loss) income	$	(619	)	$	620
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		281			209
Warranty provision		15			(19	)
Inventory obsolescence		100			94
Share-based compensation		182			158
Realized loss on foreign currency forward contract		(48	)		-
Unrealized loss on foreign currency forward contract		(28	)		-
Deferred income taxes		(5	)		172
Amortization of operating lease right of use assets		170			145
Changes in operating assets and liabilities:
Accounts receivable, net		2,300			(2,286	)
Inventories, net		(1,114	)		(321	)
Prepaid expenses and other		120			761
Accounts payable		232			604
Accrued and other liabilities		(314	)		(1,918	)
Net cash provided by (used in) operating activities		1,272			(1,781	)
Investing Activities:
Purchases of marketable securities		(1,793	)		(640	)
Proceeds from maturities of marketable securities		1,925			589
Purchase of Amika Mobile		(4,367	)		-
Capital expenditures		(29	)		(86	)
Net cash used in investing activities		(4,264	)		(137	)
Financing Activities:
Proceeds from exercise of stock options		54			144
Net cash provided by financing activities		54			144
Effect of foreign exchange rate on cash		1			14
Net decrease in cash, cash equivalents, and restricted cash		(2,937	)		(1,760	)
Cash, cash equivalents and restricted cash, beginning of period		23,996			19,517
Cash, cash equivalents and restricted cash, end of period	$	21,059		$	17,757
		-			-
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents	$	19,584		$	17,092
Restricted cash, current portion		295			270
Long-term restricted cash		1,180			395
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	21,059		$	17,757

See accompanying notes

4

Genasys Inc. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

(Unaudited)

Supplemental disclosures of cash flow information:

	Three months ended December 31,
	2020			2019
Noncash investing and financing activities:
Change in unrealized loss on marketable securities	$	(3	)	$	(3	)
Obligation to issue common stock in connection with the purchase of Amika Mobile	$	(3,431	)	$	-
Initial measurement of operating lease right of use assets	$	248		$	5,824
Initial measurement of operating lease liabilities	$	248		$	7,815
Business combination accounted for as a purchase
Fair value of net assets acquired	$	8,411		$	-

5

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

1. OPERATIONS

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

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

General

The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on December 10, 2020. The accompanying condensed consolidated balance sheet at September 30, 2020 has been derived from the audited consolidated balance sheet at September 30, 2020 contained in the above referenced Form 10-K. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

Principles of Consolidation

The Company has seven wholly owned subsidiaries, Genasys II Spain, S.A.U (“Genasys Spain”), Genasys Communications Canada ULC, Genasys Singapore PTE Ltd, Genasys Puerto Rico, LLC and Genasys Inc. (branch) in the United Arab Emirates and two currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The condensed consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. At December 31, 2020 the amount of cash and cash equivalents was $19,584. At September 30, 2020 the amount of cash and cash equivalents was $23,319.

The Company considers any amounts pledged as collateral or otherwise restricted for use in current operations to be restricted cash. In addition, the Company considers cash and cash equivalents designated to fund specific future contractual obligations related to business combinations to be restricted cash. Restricted cash is classified as a current asset unless amounts are not expected to be released and available for use in operations within one year. At December 31, 2020 the current portion of restricted cash was $295 and the noncurrent portion was $1,180. At September 30, 2020 the current portion of restricted cash was $270 and the noncurrent portion was $395.

Immaterial Correction of Prior Period Financial Statements 

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

Reclassifications

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

3. RECENT ACCOUNTING PRONOUNCEMENTS

New pronouncements pending adoption

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of fiscal year beginning October 1, 2023, and early adoption is permitted. The Company has not completed its review of the impact of this standard on its consolidated financial statements. However, based on the Company’s history of immaterial credit losses from trade receivables, management does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.

6

New pronouncements adopted

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

4. BUSINESS COMBINATION

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

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

The consideration consisted of the following:

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

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

The Company incurred $242 in expenses related to this transaction, through December 31, 2020. These expenses were recorded in selling, general and administrative expenses in the condensed consolidated statement of operations as follows: $10 in the first quarter of fiscal 2021, $132 in the fourth quarter of fiscal 2020 and $100 in the third quarter of fiscal 2020.

7

Purchase Price Allocation

Assets Acquired
Prepaid expenses	$	2
Fixed assets		22
Operating lease right of use asset		248
Intangible Assets		2,820
Goodwill		5,663
Total assets acquired	$	8,755
Liabilities assumed
Accrued liabilities	$	96
Operating lease liability		248
Total liabilities assumed		344
Net Assets acquired	$	8,411

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

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

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

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

5. REVENUE RECOGNITION

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

Topic 606 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized:

1. Identify the contract(s) with customers

2. Identify the performance obligations

3. Determine the transaction price

4. Allocate the transaction price to the performance obligations

5. Recognize revenue when the performance obligations have been satisfied

   Topic 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.

The Company derives its revenue from the sale of products to customers, contracts, license fees, other services and freight. The Company sells its products through its direct sales force and through authorized resellers and system integrators. The Company recognizes revenue for goods including software when all the significant risks and rewards have been transferred to the customer, no continuing managerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement or may be sold separately.

8

Product Revenue

Product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that the Company’s customer obtains control of the products. A smaller portion of product revenue is recognized when the customer receives delivery of the products. A portion of products are sold through resellers and system integrators based on firm commitments from an end user, and as a result, resellers and system integrators carry little or no inventory. The Company’s customers do not have a right to return product unless the product is found defective and therefore the Company’s estimate for returns has historically been insignificant

Perpetual licensed software

The sale and/or license of software products is deemed to have occurred when a customer either has taken possession of or has the ability to take immediate possession of the software and the software key. Perpetual software licenses can include one-year maintenance and support services. In addition, the Company sells maintenance services on a stand-alone basis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for the perpetual license and is recognized on a straight-line basis over the period to which the maintenance relates.

Time-based licensed software

The time-based license agreements include the use of a software license for a fixed term, generally one-year, and maintenance and support services during the same period. The Company does not sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognized on a straight-line basis over the term.

Warranty, maintenance and services

The Company offers extended warranty, maintenance and other services. Extended warranty and maintenance contracts are offered with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original one-year warranty term. Revenues from separately priced extended warranty and maintenance contracts are recognized based on time elapsed over the service period, and classified as contract and other revenues. Revenue from other services such as training or installation is recognized when the service is completed.

Multiple element arrangements

The Company has entered into a number of multiple element arrangements, such as the sale of a product or perpetual licenses that may include maintenance and support (included in price of perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.

Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses which are not unbundled. When software development services are performed and are considered essential to the functionality of the software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.

The Company disaggregates revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with the Company’s business operations and to be consistent with other communications and public filings. Refer to Note 19, Segment Information and Note 20, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.

 Contract Assets and Liabilities

The Company enters into contracts to sell products and provide services and recognizes contract assets and liabilities that arise from these transactions. The Company recognizes revenue and corresponding accounts receivable according to Topic 606 and, at times, recognizes revenue in advance of the time when contracts give the Company the right to invoice a customer. The Company may also receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below shows the balance of contract assets and liabilities as of December 31, 2020 and September 30, 2020, including the change between the periods. The current portion of contract liabilities and the non-current portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying Condensed Consolidated Balance Sheets. Refer to Note 11, Accrued Liabilities for additional details.

9

The Company’s contract liabilities were as follows:

	Customer deposits			Deferred revenue			Total contract liabilities
Balance at September 30, 2020	$	3,683		$	1,024		$	4,707
New performance obligations		3,476			245			3,721
Recognition of revenue as a result of satisfying performance obligations		(2,221	)		(439	)		(2,660	)
Effect of exchange rate on deferred revenue		-			21			21
Balance at December 31, 2020	$	4,938		$	851		$	5,789
Less: non-current portion		-			(275	)		(275	)
Current portion at December 31, 2020	$	4,938		$	576		$	5,514

Remaining Performance Obligations

Remaining performance obligations related to Topic 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year, which are fully or partially unsatisfied at the end of the period.

As of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $5,789. The Company expects to recognize revenue on approximately $5,514 or 95% of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter.

 Practical Expedients 

In cases where the Company is responsible for shipping after the customer has obtained control of the goods, the Company has elected to treat these activities as fulfillment activities rather than as a separate performance obligation. Additionally, the Company has elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.

6. FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist principally of cash equivalents, short and long-term marketable securities, accounts receivable and accounts payable. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1:     Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2:     Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3:     Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The fair value of the Company’s cash equivalents and marketable securities was determined based on Level 1 and Level 2 inputs. The Company did not have any marketable securities in the Level 3 category as of December 31, 2020 or September 30, 2020. The Company believes that the recorded values of its other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

10

Instruments Measured at Fair Value on a Recurring Basis

Cash equivalents and marketable securities: The following tables present the Company’s cash equivalents and marketable securities’ costs, gross unrealized gains and losses, and fair value by major security type recorded as cash equivalents or short-term or long-term marketable securities as of December 31, 2020 and September 30, 2020. Unrealized gains and losses from the remeasurement of marketable securities are recorded in accumulated other comprehensive income (loss) until recognized in earnings upon the sale or maturity of the security.

	December 31, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	528	$	-	$	528	$	528	$	-	$	-
Level 2:
Certificates of deposit		1,194		-		1,194		-		-		1,194
Municipal securities		4,411		2		4,413		-		3,638		775
Corporate bonds		2,327		2		2,329		-		1,879		450
Subtotal		7,932		4		7,936		-		5,517		2,419
Total	$	8,460	$	4	$	8,464	$	528	$	5,517	$	2,419

	September 30, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	365	$	-	$	365	$	365	$	-	$	-
Level 2:
Certificates of deposit		1,195		-		1,195		-		-		1,195
Municipal securities		3,777		4		3,781		-		2,432		1,350
Corporate bonds		3,091		3		3,094		-		1,833		1,260
Subtotal		8,063		7		8,070		-		4,265		3,805
Total	$	8,428	$	7	$	8,435	$	365	$	4,265	$	3,805

Foreign currency forward contract: In August 2020, the Company entered into a foreign currency forward contract as an economic hedge against exposure to changes in the Canadian dollar in connection with the Amika Mobile asset purchase. At September 30, 2020, the notional value of the foreign currency forward contract was CAD$6,955 with a maturity date in October 2020. The foreign currency forward contract was fair valued at $76 and classified under Level 2 of the fair value hierarchy. The valuation techniques used to measure the fair value were based on quoted market prices. On October 1, 2020, the foreign currency forward contract was settled for CAD$6,955 (USD$5,281), resulting in a realized loss of $48 on the contract that was recorded in earnings as other income (expense). The estimated foreign currency forward contract liability was recorded in accrued liabilities in the consolidated balance sheet as of September 30, 2020.

7. INVENTORIES, NET

Inventories, net consisted of the following:

	December 31,			September 30,
	2020			2020
Raw materials	$	5,859		$	5,220
Finished goods		763			841
Work in process		927			456
Inventories, gross		7,549			6,517
Reserve for obsolescence		(586	)		(568	)
Inventories, net	$	6,963		$	5,949

11

8. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	December 31,			September 30,
	2020			2020
Office furniture and equipment	$	1,244		$	1,181
Machinery and equipment		1,193			1,184
Leasehold improvements		2,056			2,056
Construction in progress		28			8
Property and equipment, gross		4,521			4,429
Accumulated depreciation		(2,636	)		(2,499	)
Property and equipment, net	$	1,885		$	1,930

	Three months ended December 31,
	2020		2019
Depreciation expense	$	99	$	134

9. GOODWILL AND INTANGIBLE ASSETS

Goodwill is attributable to the acquisition of Genasys Spain and Amika Mobile asset purchase and is due to combining the integrated emergency critical communications, mass messaging solutions and software development capabilities with existing LRAD products for enhanced offerings and the skill level of the acquired workforces. The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. During the three months ended December 31, 2020, the Company added $5,663 in goodwill related to the Amika Mobile asset purchase. There were no impairments to goodwill during the three months ended December 31, 2020.

Intangible assets and goodwill related to Genasys Spain are translated from Euros to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was an increase of $156. Intangible assets and goodwill related to Amika Mobile are translated from Canadian dollars to U.S. dollars at the balance sheet date. During the three months ended December 31, 2020, the Company added $2,820 in intangible assets related to the Amika Mobile asset purchase. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was an increase of $375. The Company’s intangible assets consisted of the following:

	December 31,			September 30,
	2020			2020
Developed technology	$	3,297		$	655
Customer relationships		990			627
Trade name portfolio		238			228
Non-compete agreements		258			247
Patents		72			72
		4,855			1,829
Accumulated amortization		(1,112	)		(886	)
	$	3,743		$	943

As of December 31, 2020, future amortization expense is as follows:

Fiscal year ending September 30,
2021 (remaining nine months)	$	501
2022		664
2023		630
2024		615
2025		480
Thereafter		853
Total estimated amortization expense	$	3,743

Amortization expense was $182 for the three months ended December 31, 2020. Amortization expense was $75 for the three months ended December 31, 2019.

12

10. PREPAID EXPENSES AND OTHER

Prepaid expenses and other current assets consisted of the following:

	December 31,		September 30,
	2020		2020
Deposits for inventory	$	90	$	54
Prepaid insurance		185		264
Dues and subscriptions		106		151
Trade shows and travel		104		103
Other		228		288
	$	713	$	860

Deposits for inventory

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

Prepaid insurance

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

Dues and subscriptions

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

Trade shows and travel

Trade shows and travel consists of payments made in advance for trade show events.

11. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

	December 31,		September 30,
	2020		2020
Payroll and related	$	1,343	$	2,545
Deferred revenue		576		731
Customer deposits		4,938		3,683
Accrued contract costs		857		719
Warranty reserve		134		126
Other		-		76
Total	$	7,848	$	7,880

Other liabilities-noncurrent consisted of the following: 

	December 31,		September 30,
	2020		2020
Deferred extended warranty revenue	$	275	$	293
Asset purchase holdback liability		640		-
Total	$	915	$	293

Payroll and related

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

Deferred Revenue

Deferred revenue as of December 31, 2020 included prepayments from customers for services, including extended warranty, scheduled to be performed in the twelve months ended December 31, 2021.

Customer Deposits

Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered during the next twelve months.

13

Accrued contract costs

Accrued contract costs consist of accrued expenses for contracting a third-party service provider to fulfill repair and maintenance obligations required under a contract with a foreign military for units sold in the year ended September 30, 2011. Payments to the service provider will be made annually upon completion of each year of service. A new contract was signed with the customer in May 2019 to continue repair and maintenance services through May 2024. These services are being recorded in cost of revenues to correspond with the revenues for these services.

Warranty Reserve

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

	December 31,			September 30,
	2020			2020
Beginning balance	$	126		$	150
Warranty provision		15			16
Warranty settlements		(7	)		(40	)
Ending balance	$	134		$	126

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

Deferred Extended Warranty Revenue

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

Asset purchase holdback liability

In connection with the Amika Mobile asset purchase, the Company recorded a holdabck liability related to future adjustments to assets and liabilities and as security for potential indemnification claims. Adjustments and indemnification claims of up to CAD$1,000 (USD$785) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.

12. DEBT

In connection with the acquisition of Genasys Spain the Company acquired certain debts of Genasys Spain. The carrying value of the acquired debt approximates fair value. The balances of the acquired debt consist of loans with governmental agencies as of December 31, 2020. Loans with governmental agencies represent interest free debt granted by ministries within Spain for the purpose of stimulating economic development and promoting research and development. Loans with governmental agencies as of December 31, 2020 are as follows:

Agency	Due Date	Principal
Ministry of Economy and Competitiveness	February 2, 2022	$	37
Ministry of Economy and Competitiveness	February 2, 2024		295	(a)
		$	332

(a) This loan is secured by $295 of cash pledged as collateral by Genasys Spain, which is the current balance of the loan. This amount is included in restricted cash at December 31, 2020. The Company expects the Ministry of Economy and Competitiveness to declare the terms of the loan satisfied within fiscal 2021 and that the outstanding balance of the loan will be paid in full during fiscal 2021. Accordingly, this has been included in the current portion of notes payable as of December 31, 2020.

The following is a schedule of future annual payments as of December 31, 2020:

2021	$	314
2022		18
Total	$	332

The current portion of debt is $314 and the noncurrent portion of debt is $18.

14

13. LEASES

The Company determines if an arrangement is a lease at inception. The guidance in Topic 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to present value lease payments. The operating ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred.

The Company entered into operating leases for office and production facilities and equipment under agreements that expire at various dates through 2028. The Company elected the package of practical expedients permitted under the new lease standard. In electing the practical expedient package, the Company is not required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of Topic 842. The Company also elected the short-term lease exemption such that the new lease standard was applied to leases greater than one year in duration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For leases beginning on or after October 1, 2019, lease components are accounted for separately from non-lease components for all asset classes. Certain of the Company’s leases contain renewal provisions and escalating rental clauses and generally require the Company to pay utilities, insurance, taxes and other operating expenses. The renewal provisions of existing lease agreements were not included in the determination of the operating lease liabilities and the operating ROU assets. Variable payments such as excess usage fees on existing equipment leases were not included in the determination of the lease liabilities and the operating ROU assets as the achievement of the specified target that triggers the variable lease payment is not considered probable. In addition, the Company’s facility lease in Spain has an escalating lease clause based on a consumer price index which is considered a variable lease payment and is not included in the determination of the lease liability and operating ROU asset. A 10% increase in the index would increase the total lease liability approximately $19. The Company’s leases do not contain any residual value guarantees or material restrictive covenants.

Upon adoption of Topic 842 as of October 1, 2019, the Company recognized on its consolidated balance sheet an initial measurement of approximately $7,815 of operating lease liabilities, and approximately $5,824 of corresponding operating ROU assets, net of tenant improvement allowances. There was no cumulative effect adjustment to retained earnings as a result of the transition to Topic 842. The adoption of Topic 842 did not have a material impact on the Company’s consolidated statement of operations.

During the three months ended December 31, 2020, the Company added an additional operating ROU asset of $248 and operating lease liability of $248 for office space in connection with the Amika Mobile asset purchase. The tables below show the operating ROU assets and liabilities as of September 30, 2020 and the balances as of December 31, 2020, including the changes during the periods.

	Operating ROU assets
Operating lease ROU asset at September 30, 2020	$	5,285
Additional operating lease ROU assets		248
Less amortization of operating lease ROU assets		(170	)
Effect of exchange rate on operating lease ROU assets		21
Operating lease ROU asset at December 31, 2020	$	5,384

	Operating lease liabilities
Operating lease liabilities at September 30, 2020	$	7,166
Additional operating lease liabilities		248
Less lease principal payments on operating lease liabilities		(202	)
Effect of exchange rate on operating lease liabilities		21
Operating lease liabilities at December 31, 2020		7,233
Less non-current portion		(6,385	)
Current portion at December 31, 2020	$	848

15

As of December 31, 2020, the Company’s operating leases have a weighted-average remaining lease term of 7.34 years and a weighted-average discount rate of 4.13%. The maturities of the operating lease liabilities are as follows:

Fiscal year ending September 30,
2021 (remaining nine months)	$	840
2022		1,146
2023		1,090
2024		1,085
2025		1,162
Thereafter		3,104
Total undiscounted operating lease payments		8,427
Less imputed interest		(1,194	)
Present value of operating lease liabilities		7,233
Less lease liability, noncurrent		(6,385	)
Lease liability, current portion	$	848

For the three months ended December 31, 2020 and 2019, total lease expense under operating leases was approximately $236 and $225 respectively. The Company did not have any short-term lease expense during the three months ended December 31, 2020 and December 31, 2019.

14. INCOME TAXES

For the three months ended December 31, 2020, the Company recorded income tax benefit of $5 reflecting an effective tax rate of 31.2%. For the three months ended December 31, 2019, the Company recorded an income tax expense of $172 reflecting an effective tax rate of 21.8%. The Company continues to maintain a partial valuation allowance against its deferred tax assets as the Company believes that the negative evidence that it will be able to recover these net deferred tax assets outweighs the positive evidence.

Accounting Standards Codification Topic 740, Accounting for Uncertainty in Income Taxes, requires the Company to recognize in its consolidated financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities. If interest or penalties are assessed, the Company would recognize these charges as income tax expense. The Company has not recorded any income tax expense or benefit for uncertain tax positions.

15. COMMITMENTS AND CONTINGENCIES

Litigation

The Company may at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in management’s estimation, record adequate reserves in the Company’s consolidated financial statements for pending litigation. Currently, there are no pending material legal proceedings to which the Company is a party or to which any of its property is subject.

Bonus Plan

The Company has a bonus plan for employees, in accordance with their terms of employment, whereby they can earn a percentage of their salary based on meeting targeted objectives for orders received, revenue, operating income and operating cash flow. In the three months ended December 31, 2020, the Company recorded $459 of bonus expense. In the three months ended December 31, 2019, the Company recorded $408 of bonus expense.

Amika Mobile Asset Purchase

In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to future adjustments to assets and liabilities and as security for potential indemnification claims. Adjustments and indemnification claims of up to CAD$1,000 (USD$785) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.

The Company also agreed to issue 191,267 shares of the Company’s common stock to the former owners of Amika Mobile on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital.

16

16. SHARE-BASED COMPENSATION

Stock Option Plans

At December 31, 2020, the Company had two equity incentive plans. The 2005 Equity Incentive Plan (“2005 Equity Plan”) was terminated with respect to new grants in March 2015, but remains in effect for grants issued prior to that time. The Amended and Restated 2015 Equity Incentive Plan (“2015 Equity Plan”) was approved by the Company’s Board of Directors on December 6, 2016 and by the Company’s stockholders on March 14, 2017. The 2015 Plan authorizes the issuance stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, to an aggregate of 5,000,000 new shares of common stock to employees, directors, advisors or consultants. At December 31, 2020, there were options and restricted stock units outstanding covering 115,000 and 2,942,018 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively and 483,480 shares of common stock available for grant for a total of 3,540,498 currently available under the two equity plans.

Share-Based Compensation

The Company’s employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.

There were 215,000 stock options granted during the three months ended December 31, 2020. There were 1,133,727 stock options granted during fiscal 2020. The weighted average estimated fair value of employee stock options granted during the three months ended December 31, 2020 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	Three months ended
	December 31,
	2020			2019
Volatility		48.6	%		40.2	%
Risk-free interest rate		0.6	%		1.5	%
Forfeiture rate		3.8	%		10.0	%
Dividend yield		0.0	%		0.0	%
Expected term		6.9			5.0

Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected term of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The contractual term of the options was seven years. The expected term is based on observed and expected time to post-vesting exercise. The expected forfeiture rate is based on past experience and employee retention data. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed. The Company did not pay a dividend in fiscal 2021 or in fiscal 2020.

As of December 31, 2020, there was approximately $1,067 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 2.6 years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company’s expectations.

Performance-Based Stock Options

On August 1, 2016, the Company awarded a performance-based stock option (PVO) to purchase 750,000 shares of the Company’s common stock to a key executive, with a contractual term of seven years. At the grant date, there were 375,000 performance-based stock options assigned to performance criteria within each of fiscal 2019 and 2020. Vesting is based upon the achievement of certain performance criteria for each of fiscal 2019 and 2020 including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets.  

The Company determined that certain performance conditions related to the 2019 and 2020 performance criteria were achieved. 187,500 options related to the 2019 performance criteria vested and 375,000 options related to the 2020 performance criteria vested. The Company recorded a total of $459 in stock-based compensation expense for these options through September 30, 2020, in selling, general and administrative expenses in the consolidated statement of operations.

On October 4, 2019, the Company awarded a performance-based stock option (PVO) to purchase 800,000 shares of the Company’s common stock to a key executive, with a contractual term of seven years. Vesting is based upon the achievement of certain performance criteria for each of fiscal 2022 and 2023 including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets. The Company has not recorded stock-based compensation expense related to these options.

The Company did not grant any PVO’s during the three months ended December 31, 2020.

17

Restricted Stock Units

During fiscal 2018, the Board of Directors granted 93,330 restricted stock units (“RSUs”) to employees that will vest equally over three years on each of the first three anniversary dates of the grant. These were issued at a market value of $210, which will be expensed on a straight-line basis over the three-year life of the grants. 

On February 7, 2019, the Board of Directors approved non-employee director compensation to include an annual grant of 30,000 RSUs to each of the Company’s five non-employee directors that will vest on the first anniversary of the grant date. These were issued at a market value of $413, were expensed on a straight-line basis through the March 12, 2020 vest date. Also, during fiscal 2019, 99,300 RSUs were granted to employees that will vest equally over three years on each of the first three anniversary dates of the grant. These were issued at a market value of $248, which have and will be expensed on a straight-line basis over the three-year life of the grants. There were no RSUs granted during the three months ended December 31, 2020.

Compensation expense for RSUs was $138 for the three months ended December 31, 2020. Compensation expense for RSUs was $126 for the three months ended December 31, 2019.

A summary of the restricted stock units of the Company as of December 31, 2020 is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		-		$	-
Released		-		$	-
Forfeited/cancelled		(277	)	$	2.26
Outstanding December 31, 2020		302,737		$	2.82

Stock Option Summary Information

A summary of the activity in options to purchase the capital stock of the Company as of December 31, 2020 is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		215,000		$	6.87
Forfeited/expired		(94,125	)	$	1.99
Exercised		(25,899	)	$	2.06
Outstanding December 31, 2020		2,754,281		$	2.92
Exerciseable December 31, 2020		1,500,749		$	2.08

Options outstanding are exercisable at prices ranging from $1.31 to $6.87 per share and expire over the period from 2020 to 2027 with an average life of 4.42 years. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2020 was $9,993 and $6,670, respectively. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of trading for the quarter, which was $6.52 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the three months ended December 31, 2020 was $113 and proceeds from these exercises was $54. The total intrinsic value of stock options exercised during the three months ended December 31, 2019 was $128 and proceeds from these exercises was $144.

18

The following table summarized information about stock options outstanding at December 31, 2020:

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Life		Price		Exercisable		Price
$1.31	-	$1.86		373,054		2.64	$	1.66		351,460	$	1.66
$1.99	-	$1.99		937,500		3.18	$	1.99		937,500	$	1.99
$2.02	-	$3.17		95,000		0.91	$	2.42		95,000	$	2.42
$3.39	-	$3.40		1,133,727		5.83	$	3.39		104,289	$	3.40
$6.87	-	$6.87		215,000		6.94	$	6.87		12,500	$	6.87
				2,754,281		4.42	$	2.92		1,500,749	$	2.08

The Company recorded $44 and $32 of stock option compensation expense for employees, directors and consultants for the three months ended December 31, 2020, and 2019, respectively.

Share-Based Compensation

The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:

	Three Months Ended
	December 31,
	2020		2019
Cost of revenues	$	5	$	4
Selling, general and administrative		171		143
Research and development		6		11
	$	182	$	158

17. STOCKHOLDERS’ EQUITY

Summary

The following table summarizes changes in the components of stockholders’ equity during the three months ended December 31, 2020 and the three months ended December 31, 2019 (amounts in thousands, except par value and share amounts):

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at September 30, 2020		33,561,544	$	336	$	91,248	$	(41,858	)	$	(250	)	$	49,140
Share-based compensation expense		-		-		182		-			-			182
Issuance of common stock upon exercise of stock options, net		25,899		-		54		-			-			54
Obligation to issue common stock		-		-		3,431		-			-			3,431
Other comprehensive loss		-		-		-		-			469			469
Net loss		-		-		-		(619	)		-			(619	)
Balance at December 31, 2020		33,587,443	$	336	$	94,915	$	(42,477	)	$	219		$	52,657

19

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at September 30, 2019		32,949,987	$	330	$	89,572	$	(53,732	)	$	(459	)	$	35,381
Share-based compensation expense		-		-		158		-			-			158
Issuance of common stock upon exercise of stock options, net		83,343		1		144		-			-			144
Other comprehensive loss		-		-		-		-			85			85
Net income		-		-		-		620			-			620
Balance at December 31, 2019		33,033,330	$	331	$	89,874	$	(53,112	)	$	(374	)	$	36,388

Common Stock Activity

During the three months ended December 31, 2020, the Company issued 25,899 shares of common stock and received gross proceeds of $54 in connection with the exercise of stock options. During the three months ended December 31, 2019, the Company issued 83,343 shares of common stock and received gross proceeds of $144 in connection with the exercise of stock options.

In connection with the Amika Mobile asset purchase, the Company agreed to issue 191,267 shares of the Company’s common stock to the former owners of Amika Mobile on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital.

Share Buyback Program

In December 2018, the Board of Directors approved a new share buyback program beginning January 1, 2019 and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $5 million of its outstanding common shares. In December 2020, the Board of Directors extended the buyback program until December 31, 2022. The previous program expired on December 31, 2018.

During the three months ended December 31, 2020 and 2019, no shares were repurchased by the Company.

Dividends

There were no dividends declared in the three months ended December 31, 2020 and 2019.

18. NET (LOSS) INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share:

	Three months Ended
	December 31,
	2020			2019
Net (loss) income	$	(619	)	$	620
Basic (loss) income per share	$	(0.02	)	$	0.02
Diluted (loss) income per share	$	(0.02	)	$	0.02
Weighted average shares outstanding - basic		33,573,755			32,977,765
Assumed exercise of dilutive options		-			732,855
Weighted average shares outstanding - diluted		33,573,755			33,710,620
Potentially diluted securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive:
Options		2,754,281			708,727
RSU		302,737			-
Total		3,057,018			708,727

20

19. SEGMENT INFORMATION

The Company is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products and location-based mass messaging solutions for emergency warning and workforce management. The Company operates in two business segments: Hardware and Software and its principle markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are not material.

The following table presents the Company’s segment disclosures:

For the three months ended December 31, 2020:

	Revenue from External Customers		Intersegment Revenues		Operating Income			Depreciation and amortization expense		Income Tax Benefit
Hardware	$	7,389			$	160		$	90	$	(5	)
Software		639		351		(853	)		191
	$	8,028	$	351	$	(693	)	$	281	$	(5	)

As of December 31, 2020:

	Long-lived assets		Total Assets
Hardware	$	1,863	$	56,021
Software		12,265		14,582
	$	14,128	$	70,603

For the three months ended December 31, 2019:

	Revenue from External Customers		Intersegment Revenues		Operating Income			Depreciation and amortization expense		Income Tax Expense
Hardware	$	8,362	$	-	$	861		$	131	$	172
Software		420		385		(165	)		78		-
	$	8,782	$	385	$	696		$	209	$	172

As of September 30, 2020:

	Long-lived assets		Total Assets
Hardware	$	1,924	$	61,152
Software		3,421		5,015
	$	5,345	$	66,167

20. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION

For the three months ended December 31, 2020, revenues from one customer accounted for 52% of total revenues with no other single customer accounting for more than 10% of revenues. At December 31, 2020, accounts receivable from three customers accounted for 48%, 14% and 10% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

For the three months ended December 31, 2019, revenues from two customers accounted for 62% and 13% of total revenues with no other single customer accounting for more than 10% of revenues. At December 31, 2019, accounts receivable from two customers accounted for 66% and 10% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

Revenue from customers in the United States was $5,712 for the three months ended December 31, 2020. Revenue from customers in the United States was $6,512 for the three months ended December 31, 2019. The following table summarizes revenues by geographic region. Revenues are attributed to countries based on customer’s delivery location.

	Three months ended December 31,
	2020		2019
Americas	$	6,014	$	6,804
Asia Pacific		1,011		1,548
Europe, Middle East and Africa		1,003		430
Total Revenues	$	8,028	$	8,782

21

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

The discussion and analysis set forth below should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included under Item 1 of this Quarterly Report on Form 10-Q, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended September 30, 2020.

Forward Looking Statements

This report contains certain statements of a forward-looking nature relating to future events or future performance. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the only means of identifying forward-looking statements. Prospective investors are cautioned that such statements are only predictions and actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this report and any matters set forth under Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K, which could cause actual results to differ materially from those indicated by such forward-looking statements.

Overview

Genasys Inc. is a global provider of critical communications hardware and software solutions designed to help keep people safe.  Our unified platform encompasses a multi-channel approach to deliver alerts, notifications, instructions and information before, during and after public safety and enterprise threats, critical events and other crisis situations.

Our multi-channel approach includes:

• LRAD^® (Long Range Acoustic Device^®), the world’s leading Acoustic Hailing Device (“AHD”), projects sirens and audible voice messages with exceptional vocal clarity in a 30° beam from close range to 5,500 meters.

• GEM™ (Genasys Emergency Management) is our unified software platform for cloud, on-premise or hybrid operations that supports 2-way communications and seamlessly integrates with physical systems to initiate life-safety actions in defined geographic areas. GEM receives and manages simultaneous inputs from panic buttons, government agency or weather alert feeds, sensor events from digital thermometers, access control, fire panels, camera systems, and more. Using the information derived from the inputs, GEM delivers alerts and notifications on multiple channels, including SMS, MMS, desktop, laptop, tablet and smartphone pop-ups, social media, VoIP, callouts, public address, overhead displays, digital signs, tickers, RSS feeds and email on any platform.

• Integrated Mass Notification Solutions span multiple hardware and software notification channels to reach at risk individuals and populations. These solutions include Genasys voice arrays, which project sirens and audible voice messages 60° - 360° with industry-leading vocal clarity from close range to more than 14 square kilometers, and GEM software designed to deliver SMS, text, email and social media alerts to people at risk in defined geographic areas. Our integrated solutions are compatible with the Federal Emergency Management Agency (“FEMA”) Integrated Public Alert & Warning System (“IPAWS”) and other major emergency warning protocols.

The Company’s critical communication systems are being used in 72 countries throughout the world in a range of diverse applications, including public safety, emergency warning, mass notification, defense, law enforcement, critical event management, and many more. We continue to develop new communication innovations and believe we have significant competitive advantages in our principal markets.

LRAD systems represent a technological breakthrough in broadcasting audible, highly intelligible voice messages and tones over long distances and high ambient noise using minimal power. By broadcasting audible voice messages with exceptional vocal clarity and only where needed, we offer novel sound applications that conventional bullhorns, loudspeakers, public address and emergency warning systems cannot achieve. Our LRAD systems are designed to enable users to safely hail and warn, inform and direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations and save lives. The LRAD product line is comprised of a full range of AHDs and communication solutions - from portable devices to permanently installed, remotely operated systems. We continue to expand into new markets and add new models and features to meet customer requirements.

Building on the success of our LRAD systems, we designed and developed our multidirectional Genasys mass notification product line. Unlike siren-only installations, our public safety mass notification (“PSMN”) hardware systems broadcast both emergency warning sirens and highly intelligible voice messages with uniform 60° - 360° coverage over local and wide areas. We believe our ability to shape the broadcast coverage area, our industry-leading speech intelligibility, and our multiple system activation and control options enable us to successfully compete in the large and growing mass notification market.

22

GEM is our cloud, on-premise or hybrid based software notification platform that enables emergency personnel, first responders, municipalities, companies, educational institutions and government agencies to send public safety warnings and notifications to the mobile devices and desktop computers of individuals or populations in specific geographic areas with reliability, speed and ease. Alerts and notifications can be sent from a desktop or our mobile applications.

Genasys offers the only unified critical communications platform that provides multi-modal, geo-targeted mobile device alerts and speaker arrays that deliver audible messages with industry-leading vocal clarity and area coverage. Our user-friendly software interface and mobile application manages and delivers notifications and information to people at risk, before, during and after crisis situations.

Business developments in the fiscal quarter ended December 31, 2020:

• Closed Amika Mobile asset purchase and rebranded its business as Genasys Communications Canada

• Announced $7.7 million in U.S. defense orders

• Awarded U.S. Navy SBIR program research and development project

• Received $1.6 million in international law enforcement, homeland security and mass notifications orders

• Recognized in Gartner 2020 Market Guide for Emergency/Mass Notification Services Solutions

Revenues for the Company’s first quarter of fiscal 2020, were $8.0 million, a decrease from $8.8 million in the first quarter of fiscal 2019. LRAD AHD revenues decreased $680 thousand and integrated mass notification solutions decreased $293 thousand, while software revenue increased $219 thousand, compared to the first quarter of the prior year. The timing of budget cycles, government financial issues and military conflict in certain areas of the world, often delay contract awards, resulting in uneven quarterly revenues. Gross profit decreased compared to the same quarter in the prior year as a result of lower sales, higher software engineering expenses and additional engineering charges resulting from a more precise process to allocate engineering expenses to cost of sales. Operating expenses increased 12.6% from $3.9 million to $4.4 million in the quarter ended December 31, 2020, as compared to the same period a year ago. We reported a net loss of $619 thousand for the first quarter of fiscal 2021, or a loss of $0.02 per share, compared to net income of $620 thousand, or income of $0.02 per share, for the same quarter in the prior year.

Overall Business Outlook

Our product line-up continues to gain worldwide awareness and recognition through media exposure, product demonstrations, and word of mouth as a result of positive responses and increased acceptance of our products. We believe we have a solid global brand, technology, and product foundation with our LRAD systems and integrated solutions, which we have expanded over the years to serve new markets and customers for greater business growth.  We believe that we have strong market opportunities for our product offerings throughout the world in the homeland security and defense sectors as a result of increasing threats to government, commerce, law enforcement, borders, and critical infrastructure. Our directional and multidirectional product offerings also have many applications within the fire rescue, public safety, maritime, asset protection, and wildlife control and preservation business segments.

The proliferation of natural disasters, crisis situations and civil unrest require technologically advanced, multi-channel solutions to deliver clear and timely critical communications to help make and keep the public safe during emergencies. Businesses are also incorporating communication systems that locate and help safeguard employees when critical events occur.

 By providing the only unified platform that combines audible, highly intelligible voice broadcast systems and mass messaging software, Genasys seeks to deliver reliable, fast and intuitive solutions for sending location-based audible voice communications and geolocation-targeted messages and texts to mobile devices to help keep the public and employees safe.

 Genasys has developed a global market for LRAD systems and advanced emergency warning notification solutions. We have a reputation for producing quality products that feature industry-leading vocal intelligibility and geo-targeted mass messaging. While the mass notification market is more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified multi-channel platform provides opportunities to succeed in the large and growing public safety, emergency warning and mass notification markets. We also plan to expand and strengthen domestic and international sales by opening sales offices in key regions and adding strategic mass notification partners, distributors, and dealers.

 We plan to continue building on our AHD leadership position by offering enhanced directional and multidirectional voice broadcast systems and accessories for an expanding range of applications. In executing our strategy, we use direct sales to governments, militaries, large end-users and system integrators. We have built a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communication solutions into our various target markets. As our primary AHD sales opportunities are with domestic and international government, military and law enforcement agencies, we are subject to each customer’s unique budget cycle, which leads to long selling cycles and uneven revenue flow, complicating our product planning. 

23

In fiscal 2021, we intend to continue to pursue domestic and international business opportunities with the support of business development consultants, key representatives and resellers. We plan to grow our revenues through increased direct sales to militaries and large commercial and defense-related companies that desire to integrate our communication technologies into their product offerings. This includes building on fiscal 2020 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue mass notification, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife preservation and control business opportunities. In addition to the matters above, we are authorized for the performance of services and provision of goods pursuant to the Delaware General Corporation Law.  

In March 2020, the World Health Organization ("WHO") classified the COVID-19 outbreak as a pandemic. While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the three months ended December 31, 2020, we have been monitoring the developments and assessing areas where there is potential for our business to be impacted. A significant portion of our sales force is working remotely, which could, among other things, negatively impact our ability to engage in sales-related initiatives, or efficiently conduct day-to-day operations. Other businesses and governments with which we engage are likely operating under similar restrictions and experiencing disruptions, which may create obstacles in the coordination of business activities, including the negotiation and fulfillment of orders. Disruptions in the supply chain could negatively impact our ability to source materials or manufacture and distribute products. While we do not currently anticipate a material reduction in demand for our commercialized products, we could experience a decrease in new orders, which could negatively impact our revenues and reduce our liquidity and cash flows. Growth in revenue could also be impeded by these factors. The financial markets have been subject to significant volatility that could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities. We have $19.6 million in cash and cash equivalents as of December 31, 2020, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the potential near-term consequences of the pandemic, although liquidity constraints and access to capital markets could adversely impact our liquidity and warrant changes to our investment strategy. While we have not yet experienced a material impact, the full magnitude of the pandemic cannot be measured at this time, and therefore, any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter.

Based on various standards published to date, we believe the work our associates perform is critical, essential and life sustaining. We are taking a variety of measures to promote the safety and security of our employees while ensuring the availability and functionality of our critical infrastructure. We are following Center for Disease Control guidelines to reduce the transmission of COVID-19, such as the imposition of travel restrictions, cancellation of events, the promotion of social distancing, the adoption of work-from-home arrangements, and limiting access to our facilities. Some or all of these policies and initiatives could impact our operations. In addition, the following events related to the COVID-19 pandemic could result in lost or delayed revenue to the Company: limitations on the ability of our suppliers to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic, or local, state or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products to customers; unforeseen deviations from customers or foreign governments restricting the ability to do business; and, limitations on the ability of our customers to pay us on a timely basis, if at all.

A large number of components and sub-assemblies produced by outside suppliers within our supply chain are produced within 50 miles of our facility. We source a small amount of component parts from suppliers in China. It is also likely that some of our suppliers source parts in China. We are in contact with those suppliers and evaluating what impact, if any, may result from COVID-19.

Critical Accounting Policies

We have identified a number of accounting policies as critical to our business operations and the understanding of our results of operations. These are described in our consolidated financial statements located in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2020. The impact and any associated risks related to these policies on our business operations is discussed below and throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.

The methods, estimates and judgments we use in applying our accounting policies, in conformity with U.S. generally accepted accounting principles, have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

24

Comparison of Results of Operations for the Three Months Ended December 31, 2020 and 2019 (in thousands)

	Three Months Ended
	December 31, 2020						December 31, 2019
				% of					% of
				Total					Total			Fav(Unfav)
	Amount			Revenue			Amount		Revenue			Amount			%
Revenues:
Product sales	$	6,950			86.6	%	$	8,008		91.2	%	$	(1,058	)		(13.2%	)
Contract and other		1,078			13.4	%		774		8.8	%		304			39.3	%
Total revenues		8,028			100.0	%		8,782		100.0	%		(754	)		(8.6%	)
Cost of revenues		4,324			53.9	%		4,180		47.6	%		(144	)		(3.4%	)
Gross Profit		3,704			46.1	%		4,602		52.4	%		(898	)		(19.5%	)
Operating expenses
Selling, general and administrative		3,331			41.5	%		2,822		32.1	%		(509	)		(18.0%	)
Research and development		1,066			13.3	%		1,084		12.3	%		18			1.7	%
Total operating expenses		4,397			54.8	%		3,906		44.5	%		(491	)		(12.6%	)
(Loss) income from operations		(693	)		(8.6%	)		696		7.9	%		(1,389	)		(199.6%	)
Other income		69			0.9	%		96		1.1	%		(27	)		(28.1%	)
(Loss) income before income taxes		(624	)		(7.8%	)		792		9.0	%		(1,416	)		(178.8%	)
Income tax (benefit) expense		(5	)		(0.1%	)		172		2.0	%		177			102.9	%
Net (loss) income	$	(619	)		(7.7%	)	$	620		7.1	%	$	(1,239	)		(199.8%	)
Net revenue
Hardware	$	7,389			92.0	%	$	8,362		95.2	%		(973	)		(11.6%	)
Software		639			8.0	%		420		4.8	%		219			52.1	%
Total net revenue	$	8,028			100.0	%	$	8,782		100.0	%	$	(754	)		(8.6%	)

The tables above set forth for the periods indicated certain items of our condensed consolidated statements of operations expressed in dollars and as a percentage of net revenues. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes contained in this report.

Revenues

Revenues decreased $754 or 8.6%, compared to the same quarter in the prior year. LRAD AHD revenues decreased $680 and integrated mass notification solutions decreased $293, while software revenue increased $219, compared to the prior year quarter. Lower revenue in the first quarter of fiscal 2021 was largely due to the delay of a ready-to-ship order because the customer-required payment was not received prior to the quarter end. This shipment subsequently was shipped early in the fiscal second quarter. Software revenue was higher primarily due to increased professional services performed on recent orders. The receipt of orders is often uneven due to the timing of government budgets or approvals. At December 31, 2020, we had aggregate deferred revenue of $851 for extended warranty obligations and software support agreements.

Gross Profit

The decrease in gross profit compared to the same period in the prior year was primarily due to lower hardware revenue, an 86% increase in software engineering personnel over last year and additional engineering charges resulting from a more precise process to charge engineering expenses to cost of sales in the current fiscal year. Higher software expenses were due primarily to the recent addition of Amika Mobile (through our Canadian subsidiary Genasys Communications Canada), and additional employees to support the Australia, EU and enterprise software initiatives.      

As our products have varying gross margins, product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes, that may impact product costs. We have limited warranty cost experience with product updates and changes and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.

25

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $509, or 18.0%, over the prior year quarter. The increase was largely due to a 50% increase in sales and marketing personnel over the prior year to support future revenue growth opportunities.

We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three-months ended December 31, 2020 and 2019 of $171 and $143, respectively.

We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities, including the June 2022 European Union Mandate for Public Warning Systems and the new enterprise software services from our recent business combination. Commission expenses will fluctuate based on the nature of our sales.

Research and Development Expenses

Research and development expenses increased $18, essentially unchanged compared to the same quarter in the prior year.

Included in research and development expenses for the three months ended December 31, 2020 and 2019, was $6 and $11, respectively, of non-cash share-based compensation costs.

Research and development costs vary period to period due to the timing of projects, and the timing and extent of using outside consulting, design and development firms. We continually improve our product offerings, and we expect to continue to expand our product line with new products, customizations and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.

Net Loss/Income

Net loss in the first quarter of fiscal year 2021 was $619, a decrease of $1,239, compared to net income in the first quarter of fiscal year 2020. The decrease was primarily due to the lower revenue and increased operating expenses resulting from additional engineering, sales and marketing employees.

Liquidity and Capital Resources

Cash and cash equivalents at December 31, 2020 was $19,584, down $3,735 compared to $23,319 at September 30, 2020, primarily due to the Amika Mobile asset purchase. We had short-term marketable securities of $5,517 at December 31, 2020, compared to $4,265 at September 30, 2020. We had long-term marketable securities of $2,419 at December 31, 2020, compared to $3,805 at September 30, 2020. Other than cash and cash equivalents, short and long-term marketable securities, other working capital and expected future cash flows from operating activities in subsequent periods, we have no unused sources of liquidity at this time.

Principal factors that could affect our liquidity include:

• ability to meet sales projections;

• government spending levels;

• introduction of competing technologies;

• product mix and effect on margins;

• ability to reduce current inventory levels;

• product acceptance in new markets;

• value of shares repurchased; and

• value of dividends declared.

Principal factors that could affect our ability to obtain cash from external sources include:

• volatility in the capital markets; and

• market price and trading volume of our common stock.

Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the twelve-month period subsequent to the issuance of the interim financial information. However, we operate in a rapidly evolving and unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, or at all.

26

Cash Flows

Our cash flows from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows, are summarized in the table below:

	Three months ended
	December 31, 2020			December 31, 2019
Cash provided by (used in):
Operating activities	$	1,272		$	(1,781	)
Investing activities		(4,264	)		(137	)
Financing activities		54			144

Operating Activities

Net loss of $619 for the three months ended December 31, 2020 was increased by $667 of net non-cash items that included depreciation and amortization, share-based compensation, operating ROU asset amortization, warranty provision, inventory obsolescence, and both realized and unrealized loss on a foreign currency forward contract. Cash used by operating activities in the quarter reflected an increase in inventory of $1,114 due to a fiscal first quarter customer order that was not shipped until the fiscal second quarter, and a net decrease of $314 in accrued and other liabilities primarily for payment of incentive compensation earned in fiscal year 2020, offset by increased customer deposits. Cash provided by operating activities included a decrease in accounts receivable of $2,300 due to lower fiscal first quarter revenue compared to shipments in the fourth quarter of fiscal year 2020, lower prepaid expenses and other of $120, and an increase in accounts payable of $232.

Net income of $620 for the three months ended December 31, 2019 was increased by $759 of non-cash items that included a reduction to deferred income taxes, share-based compensation, depreciation and amortization, warranty provision and inventory obsolescence. Cash used by operating activities in the quarter reflected an increase in accounts receivable of $2,286 due to higher sales with net credit terms in the quarter compared to the fourth quarter of fiscal 2019, a decrease in payroll and related of $1,008, primarily for payment of incentive compensation earned in fiscal 2019, and lower accrued and other liabilities of $907, largely due to a decrease in customer deposits resulting from shipments in the quarter and an increase of $321 in inventory to support the backlog. Cash provided by operating activities included a decrease in prepaid expenses and other of $761, and an increase in accounts payable of $604.    

We had accounts receivable of $3,159 at December 31, 2020, compared to $5,442 at September 30, 2020. Terms with individual customers vary greatly. We regularly provide thirty-day terms to our customers if credit is approved. Our receivables can vary dramatically due to overall sales volume, quarterly variations in sales, timing of shipments to and receipts from large customers, payment terms, and the timing of contract payments.

At December 31, 2020 and September 30, 2020, our working capital was $25,603 and $29,796 respectively. The decrease in working capital was primarily due to the use of cash to complete the Amika Mobile asset purchase in the first quarter of fiscal year 2021.

Investing Activities

Our net cash used in investing activities was $4,264 for the three months ended December 31, 2020, compared to cash used in investing activities of $137 for the three months ended December 31, 2019. In the first quarter of fiscal 2021, $4,367 was used for the Amika Mobile asset purchase. In addition, we decreased our holdings of short and long-term marketable securities by $132, compared to an increase of $51 in the three months ended December 31, 2019. Cash used in investing activities for the purchase of property and equipment was $29 and $86 for the three months ended December 31, 2020 and 2019, respectively. We anticipate some additional expenditures for tooling and equipment during the balance of fiscal year 2021.

Financing Activities

In the three months ended December 31, 2020, proceeds from the exercise of stock options provided $54 of cash, compared to proceeds from stock options of $144 for the three months ended December 31, 2019.

In December 2018, the Board of Directors approved a share buyback program beginning January 1, 2019, under which the Company was authorized to repurchase up to $5 million of its outstanding common shares. During the quarters ended December 31, 2020 and 2019 no shares were repurchased. At December 31, 2020, all repurchased shares were retired and $4.1 million was available for share repurchase under this program. In December 2020, the board extended this program’s expiration date to December 31, 2022.

Recent Accounting Pronouncements

New pronouncements issued for future implementation are discussed in Note 3, Recent Accounting Pronouncements, to our condensed consolidated financial statements.

27

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Foreign Currency Risk

We consider our direct exposure to foreign exchange rate fluctuations to be minimal. The transactions of our Spanish subsidiary are denominated primarily in Euros and the transactions of our Canadian subsidiary are denominated primarily in Canadian dollars, which is a natural hedge against foreign currency fluctuations. All other sales to customers and all arrangements with third-party manufacturers, with one exception, provide for pricing and payment in U.S. dollars, and, therefore, are not subject to exchange rate fluctuations. Increases in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us. Fluctuations in currency exchange rates could affect our business in the future.

Item 4. Controls and Procedures.

We are required to maintain disclosure controls and procedures designed to ensure that material information related to us, including our consolidated subsidiaries, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our fiscal quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We may at times be involved in litigation in the ordinary course of business. We will also, from time to time, when appropriate in management’s estimation, record adequate reserves in our consolidated financial statements for pending litigation. Currently, there are no pending material legal proceedings to which the Company is a party or to which any of its property is subject.

Item 1A. Risk Factors.

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.     Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

28

Item 5. Other Information.

None.

Item 6. Exhibits.  

10.1	Asset Purchase Agreement dated as of August 9, 2020, by and among Genasys Inc, Genasys Communications Canada ULC, Amika Mobile Corporation, 12232618 Canada Ltd. And each of the other signatories set forth on the signature pages thereto.*
31.1	Certification of Richard S. Danforth, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Dennis D. Klahn, Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Richard S. Danforth, Principal Executive Officer and Dennis D. Klahn, Principal Financial Officer.*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed concurrently herewith.

29

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.

	GENASYS INC.
Date: February 10, 2021	By:	/s/    Dennis D. Klahn
		Dennis D. Klahn, Chief Financial Officer
		(Principal Financial Officer)

EX-10.1

Exhibit 10.1

ASSET PURCHASE AGREEMENT

among

Genasys Inc.,

GEnasys COMMUNICATIONS canada ULC,

amika mobile corporation

and

THE OWNERS named herein

August 9, 2020

TABLE OF CONTENTS

ARTICLE I DEFINITIONS		1
ARTICLE II PURCHASE AND SALE		11
2.1	Purchase and Sale of Assets	11
2.2	Excluded Assets	12
2.3	Assumed Liabilities	12
2.4	Excluded Liabilities	13
2.5	Purchase Price	14
2.6	Purchase Price Adjustment	15
2.7	Allocation of Purchase Price	16
2.8	Withholding Tax	16
2.9	Third Party Consents	16
ARTICLE III CLOSING		17
3.1	Closing	17
3.2	Closing Deliverables	17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER		18
4.1	Organization and Qualification of Seller	18
4.2	Authority of Seller	18
4.3	No Conflicts; Consents	19
4.4	Financial Statements	19
4.5	Undisclosed Liabilities	19
4.6	Absence of Certain Changes, Events and Conditions	19
4.7	Material Contracts	21
4.8	Title to Purchased Assets	22
4.9	Condition and Sufficiency of Assets	22
4.10	Real Property	23
4.11	Intellectual Property	23
4.12	Inventory	26
4.13	Customers and Suppliers	26
4.14	Product/Service Warranties	27
4.15	Insurance	27
4.16	Legal Proceedings; Governmental Orders	27
4.17	Compliance With Laws; Permits	27
4.18	Environmental Matters	28
4.19	Employee Benefit Matters	28
4.20	Employment Matters	29

i

4.21	Taxes	30
4.22	Affiliate Transactions	31
4.23	Anti-Corruption, Anti-Money Laundering, and Trade Compliance	31
4.24	Brokers	32
4.25	Electronic Data Room	32
4.26	Full Disclosure	32
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER AND GENASYS		32
5.1	Organization	32
5.2	Authority	32
5.3	No Conflicts; Consents	33
5.4	Brokers	33
5.5	Legal Proceedings	33
5.6	Tax Registration	33
5.7	Sufficiency and Availability of Funds	33
5.8	Issuance of Stock Purchase Price by Genasys	33
5.9	Securities Filings	33
5.10	Absence of Certain Changes or Events	34
ARTICLE VI COVENANTS		34
6.1	Conduct of Business Prior to the Closing	34
6.2	Access to Information	35
6.3	No Solicitation of Other Bids	35
6.4	Notice of Certain Events	35
6.5	Employees and Employee Benefits	36
6.6	Independent Contractors	37
6.7	Confidentiality	37
6.8	Restricted Activities	37
6.9	Governmental Approvals and Consents	39
6.10	Books and Records	40
6.11	Closing Conditions	41
6.12	Public Announcements	41
6.13	Bulk Sales Laws	41
6.14	Taxes	41
6.15	Further Assurances	42
6.16	Change of Corporate Name Use of Name	42
ARTICLE VII CONDITIONS TO CLOSING		42
7.1	Conditions to Obligations of All Parties	42

ii

7.2	Conditions to Obligations of Buyer	42
7.3	Conditions to Obligations of Seller	44
ARTICLE VIII INDEMNIFICATION		45
8.1	Survival	45
8.2	Indemnification By Seller Parties	45
8.3	Indemnification By Buyer and Genasys	46
8.4	Certain Limitations	46
8.5	Indemnification Procedures	48
8.6	Payments; Holdback Amount	49
8.7	Tax Treatment of Indemnification Payments	50
8.8	Effect of Investigation	50
8.9	Exclusive Remedies	50
ARTICLE IX TERMINATION		50
9.1	Termination	50
9.2	Effect of Termination	51
ARTICLE X MISCELLANEOUS		51
10.1	Interpretation	51
10.2	Expenses	52
10.3	Notices	52
10.4	Headings	52
10.5	Severability	52
10.6	Entire Agreement	52
10.7	Successors and Assigns	53
10.8	No Third-party Beneficiaries	53
10.9	Amendment and Modification; Waiver	53
10.10	Governing Law; Submission to Jurisdiction	53
10.11	Arbitration	53
10.12	Specific Performance	54
10.13	Counterparts	54

iii

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “Agreement”), dated as of August 9, 2020, is entered into by and among Genasys Inc., a corporation organized under the laws of Delaware (“Genasys”), Genasys Communications Canada ULC, an unlimited liability corporation company organized under the laws of British Columbia (“Buyer”), and Amika Mobile Corporation, a corporation organized under the laws of Canada (“Seller”), 12232618 Canada Ltd. (“12232618”), and each of the other signatories set forth on the signature pages hereto under the heading Owners (each, an “Owner” and, collectively, the “Owners”), on the other hand.

RECITALS

WHEREAS, Seller is engaged in the business of creating and licensing software for the delivery of alerts and / or responses in emergency situations (the “Business”);

WHEREAS, Seller desires to sell and assign to Buyer, and Buyer desires to purchase and assume from Seller, certain assets, properties and rights, and certain specified liabilities and obligations, related to the Business, upon the terms and subject to the conditions of this Agreement;

WHEREAS, Owners indirectly own of record and beneficially 81.94% of the ownership interests in Seller as of the date hereof and desire to cause Seller to sell such assets to Buyer upon the terms and subject to the conditions of this Agreement; and

WHEREAS, on or prior to the Closing Date, the Owners and / or 12232618 will take certain steps to purchase the remaining 18.06% ownership interests in Seller from the remaining minority shareholders of Seller, as further detailed on Exhibit A hereto (the “Pre-Closing Reorganization”);

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

The following terms have the meanings specified or referred to in this ARTICLE I:

“Acquisition Proposal” has the meaning set forth in Section 6.3(a).

“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Allocation Schedule” has the meaning set forth in Section 2.7.

1

“Ancillary Documents” means the Bill of Sale, the Assignment and Assumption Agreement, Assignment and Assumption of Lease, Employment Agreements, Intellectual Property Assignments, and the other agreements, instruments and documents required to be delivered at the Closing.

“Annual Financial Statements” has the meaning set forth in Section 4.4.

“Anti-Corruption Laws” mean the FCPA, the U.S. Travel Act, the U.S. domestic bribery statute contained in 18 U.S. Code § 201, the UK Bribery Act 2010 (to the extent applicable), the CFPOA (to the extent applicable) and all other applicable local, municipal, state, federal, or national Laws in the United States or any other country regarding corruption, bribery, kickbacks, revolving doors, ethical business conduct, fraud, racketeering, political contributions, gifts, hospitalities, expense reimbursements, representative relationships, commissions, lobbying, books and records, and financial controls to the extent that such Laws or regulations are not inconsistent with or impose a standard lower than the FCPA or any other applicable U.S. Law.

“Assigned Contracts” has the meaning set forth in Section 2.1(a).

“Assignment and Assumption Agreement” has the meaning set forth in Section 3.2(a)(ii).

“Assignment and Assumption of Lease” has the meaning set forth in Section 3.2(a)(iv).

“Assumed Liabilities” has the meaning set forth in Section 2.3.

“Balance Sheet” has the meaning set forth in Section 4.4.

“Balance Sheet Date” has the meaning set forth in Section 4.4.

“Basket” has the meaning set forth in Section 8.4(a).

“Benefit Plan” has the meaning set forth in Section 4.19(a).

“Bill of Sale” has the meaning set forth in Section 3.2(a)(i).

“Books and Records” has the meaning set forth in Section 2.1(k).

“Business” has the meaning set forth in the recitals.

“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in Ottawa, Ontario or San Diego, California are authorized or required by Law to be closed for business.

“Business IT Systems” means all Software, computer hardware, servers, networks, platforms, peripherals, and similar or related items of automated, computerized, or other information technology (IT) networks and systems (including telecommunications networks and systems for voice, data, and video) owned, leased, licensed, or used (including through cloud-based or other third-party service providers) in the conduct of the Business.

“Buyer” has the meaning set forth in the preamble.

“Buyer Closing Certificate” has the meaning set forth in Section 7.3(e).

“Buyer Indemnitees” has the meaning set forth in Section 8.2.

2

“Canadian Trade Laws” mean the Export and Import Permits Act, Special Economic Measures Act, Special Import Measures Act, the United Nations Act, the Freezing Assets of Corrupt Foreign Officials Act, Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law), Defence Production Act, Foreign Extraterritorial Measures Act, Customs Act and, in each case, any regulations or orders issued thereunder (all as amended from time to time).

“Cap” has the meaning set forth in Section 8.4(a).

“Cause” has the meaning set forth in the applicable Owner’s Employment Agreement.

“CFPOA” means the Corruption of Foreign Public Officials Act, S.C. 1998, c.34, as amended from time to time.

“Change in Control” means (a) any transaction in which any “person” or “group” within the meaning of Sections 13(d) and 14(d) of the United States Securities Exchange Act of 1934 (as amended), directly or indirectly becomes the “beneficial owner” as defined in Rule 13d-3 under the United States Securities Exchange Act of 1934 (as amended), of more than 50% of the outstanding voting securities of Genasys and / or Buyer, (b) any reorganization or merger of Genasys and / or Buyer in which the holders (in total) of the voting securities of Genasys and / or Buyer immediately prior to such event retain less than 50% of the total voting power in Genasys and / or Buyer or resulting entity immediately after the event, or (iii) a sale, lease, or other disposition of more than 50% of the assets of Genasys and / or Buyer. Notwithstanding for forgoing, the parties agree that an internal reorganization among Genasys’ subsidiaries in which Buyer continues to be wholly-owned, directly or indirectly, by Genasys shall not constitute a Change in Control unless there is a contemporaneous change in the majority of the Board of Directors and executive officers of Genasys.

“Closing” has the meaning set forth in Section 3.1.

“Closing Cash Amount” means an amount equal to $6,955,000 plus the Estimated Prepaids, less the Holdback Amount and less the Estimated Deferred Revenue.

“Closing Date” has the meaning set forth in Section 3.1.

“Closing Deferred Revenue” has the meaning set forth in Section 2.6(b).

“Closing Prepaids” has the meaning set forth in Section 2.6(b).

“Closing Statement” has the meaning set forth in Section 2.6(b).

“Common Stock” means shares of Genasys’ Common Stock, par value $0.00001 per share.

“Commercial-Off-the-Shelf Software” means any Software (including software-as-a-service) that is generally and widely available to any purchaser or licensee upon acceptance of the publisher’s, manufacturer’s, distributor’s, service provider’s or reseller’s standard Contract, license, terms of use or similar contractual provisions for the applicable Software (including software-as-a-service) and is licensed to the Business on a non-exclusive basis under standard terms and conditions for a one-time license fee of less than $10,000 per license, or an ongoing licensee fee of less than $2,500 per year.

“Company Product” has the meaning set forth in Section 4.11(a).

3

“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

“Contributor IP Assignments” has the meaning set forth in Section 4.11(c).

“Copyrights” has the meaning set forth in the definition of Intellectual Property.

“Corporate Records” has the meaning set forth in Section 2.2(e).

“Covered Entity” has the meaning set forth in Section 6.8.

“Data Breach” means any breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, access to, use or processing of Personal Information.

“Deferred Revenue” means all payments in whatever form received by Seller prior to the Closing for products or services that are to be delivered or performed at any time following the Closing.

“Direct Claim” has the meaning set forth in Section 8.5(c).

“Disability” has the meaning set forth in the applicable Owner’s Employment Agreement.

“Disclosure Schedules” means the Disclosure Schedules delivered by Seller and Buyer concurrently with the execution and delivery of this Agreement.

“Dispute Notice” has the meaning set forth in Section 2.6(c).

“Dollars” or “$” means the lawful currency of Canada.

“Electronic Data Room” has the meaning set forth in Section 4.25.

“Employment Agreement” has the meaning set forth in Section 3.2(a)(v).

“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.

4

“Estimated Deferred Revenue” has the meaning set forth in Section 2.6(a).

“Estimated Prepaids” has the meaning set forth in Section 2.6(a).

“Excluded Assets” has the meaning set forth in Section 2.2.

“Excluded Contracts” has the meaning set forth in Section 2.2(c).

“Excluded Liabilities” has the meaning set forth in Section 2.4.

“FCPA” means the U.S. Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1, et seq.) as amended.

“Financial Statements” has the meaning set forth in Section 4.4.

“GAAP” means generally accepted accounting principles in Canada in effect from time to time.

“Genasys” has the meaning set forth in the preamble.

“Genasys Filings” has the meaning set forth in Section 5.9.

“Good Reason” has the meaning set forth in the applicable Owner’s Employment Agreement.

“Government Contracts” has the meaning set forth in Section 4.7(a)(ix).

“Government Official” means any official, employee, or agent of any Governmental Authority, military, public international organization (such as the United Nations or the World Bank), federal government, state or provincially owned or affiliated entity or organization (including, but not limited to, public universities, state hospitals, state research laboratories, or sovereign wealth funds), political party, or any instrumentality of the foregoing.

“Governmental Authority” means any federal, state, provincial, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

“Hazardous Materials” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation and polychlorinated biphenyls.

5

“Holdback Amount” means $1,000,000, subject to reduction as provided herein and payment to Seller as provided in Sections 8.6(b) and 8.6(c) plus interest accrued thereon.

“HST/GST” means all goods and services tax imposed under Part IX of the Excise Tax Act (Canada).

“Income Tax Act” means the Income Tax Act (Canada), as amended from time to time and the regulations thereunder;

“Indemnified Party” has the meaning set forth in Section 8.5.

“Indemnifying Party” has the meaning set forth in Section 8.5.

“Insurance Policies” has the meaning set forth in Section 4.15.

“Intellectual Property” means any and all rights in, arising out of, or associated with any of the following in any jurisdiction throughout the world: (a) issued patents and patent applications (whether provisional or non-provisional), including divisionals, continuations, continuations-in-part, substitutions, reissues, reexaminations, extensions, or restorations of any of the foregoing, and other Governmental Authority-issued indicia of invention ownership (including certificates of invention, petty patents, and patent utility models) (“Patents”); (b) trademarks, service marks, brands, certification marks, logos, trade dress, trade names, and other similar indicia of source or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications for registration, and renewals of, any of the foregoing (“Trademarks”); (c) copyrights and copyrightable works of authorship, and all registrations, applications for registration, and renewals of any of the foregoing (“Copyrights”); (d) Internet domain names and social media accounts or user names (including “handles”), whether or not Trademarks, and all associated web addresses and URLs; (e) mask works, and all registrations, applications for registration, and renewals thereof; (f) industrial designs, and all registrations, applications for registration, and renewals thereof; (g) trade secrets, know-how, inventions (whether or not patentable), discoveries, improvements, technology, business and technical information, databases, data compilations and collections, tools, methods, processes, techniques, and other confidential and proprietary information and all rights therein, in each case in this subsection (g) that: (i) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (“Trade Secrets”); (h) Software; (i) rights of publicity; and (j) all other intellectual property rights or industrial property rights and proprietary rights.

“Intellectual Property Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions and other Contracts, whether written or oral, relating to any Intellectual Property that is used or held for use in the conduct of the Business and to which Seller is a party, beneficiary or otherwise bound.

“Intellectual Property Assets” means all Intellectual Property that is owned by Seller and used or held for use in the conduct of the Business, together with all (a) royalties, fees, income, payments, and other proceeds due or payable to Seller after the Closing Date with respect to such Intellectual Property; and (b) claims and causes of action with respect to such Intellectual Property, whether accruing before, on, or after the Closing Date, including all rights to and claims for damages, restitution, and injunctive and other legal or equitable relief for past, present, or future infringement, misappropriation, or other violation thereof.

“Intellectual Property Assignments” has the meaning set forth in Section 3.2(a)(iii).

6

“Intellectual Property Cap” has the meaning set forth in Section 8.4(c).

“Intellectual Property Losses” has the meaning set forth in Section 8.4(c).

“Intellectual Property Registrations” means all Intellectual Property Assets that are subject to any issuance, registration, or application by or with any Governmental Authority or authorized private registrar in any jurisdiction, including issued Patents, registered Trademarks, domain names and registered Copyrights, and pending applications for any of the foregoing.

“Interim Balance Sheet” has the meaning set forth in Section 4.4.

“Interim Balance Sheet Date” has the meaning set forth in Section 4.4.

“Interim Financial Statements” has the meaning set forth in Section 4.4.

“Inventory” has the meaning set forth in Section 2.1(d).

“Investment Canada Act” means the Investment Canada Act (Canada) and the regulations promulgated thereunder.

“Investment Canada Act Clearance” means the responsible minister under the Investment Canada Act either: (a) has not issued a notice to Buyer under Section 25.2(1) or 25.3(2) of the Investment Canada Act; or (b) if the responsible minister issues a notice to Buyer under Section 25.2(1) or 25.3(2) of the Investment Canada Act, Buyer has received confirmation in writing from the responsible minister that no order will be made under Section 25.3(a) of that act or that no further action will be taken or that the transactions contemplated by this Agreement are authorized subject to conditions satisfactory to Buyer in its reasonable discretion under Section 25.4(1)(b) of the Investment Canada Act.

“Seller’s Knowledge” or any other similar knowledge qualification, means the actual or constructive knowledge of any director or officer of Seller, after due and reasonable inquiry of the books and records of Seller and other employees of Seller.

“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

“Leased Real Property” has the meaning set forth in Section 4.10(a).

“Leasehold Estates” means all of Seller’s rights and obligations as lessee under the Leases.

“Leasehold Improvements” means all leasehold improvements situated in or on the Leased Real Property and owned by Seller.

“Leases” has the meaning set forth in Section 4.10(a).

“Liabilities” means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

“Licensed Intellectual Property” means all Intellectual Property in which Seller holds any rights or interests granted by other Persons, including any of Seller’s Affiliates, that is used or held for use in the conduct of the Business.

7

“Losses” means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that “Losses” shall not include punitive damages, except to the extent actually awarded to a Governmental Authority or other third party.

“Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Business, (b) the value of the Purchased Assets, or (c) the ability of Seller to consummate the transactions contemplated hereby on a timely basis; excluding any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the Business operates; (iii) any changes in financial or securities markets in general; (iv) national or international political or social conditions, including, without limitation, acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any changes in applicable Laws or accounting rules; (vi) acts of God or general outbreaks of illness (including, but not limited to COVID-19 or other pandemics); or (vii) the public announcement, pendency or completion of the transactions contemplated by this Agreement; provided further, however, that any event, occurrence, fact, condition or change referred to in clauses (i) through (vii) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Business compared to other participants in the industries in which the Business operates.

“Material Contracts” has the meaning set forth in Section 4.7(a).

“Material Customers” has the meaning set forth in Section 4.13(a).

“Material Suppliers” has the meaning set forth in Section 4.13(b).

“Neutral Accountant” has the meaning set forth in Section 2.6(c).

“Non-Practicing Entity Claim” has the meaning set forth in Section 8.3(e).

“Offer Letters” has the meaning set forth in Section 3.2(a)(vi).

“Open Source Software” means any software that is distributed (a) as “free software” (as defined by the Free Software Foundation), (b) as “open source software” or pursuant to any license identified as an “open source license” by the Open Source Initiative (www.opensource.org/licenses) or other license that substantially conforms to the Open Source Definition (opensource.org/osd), (c) is distributed under any similar licensing or distribution model, or (d) requires source code disclosure, is freely re-licensable, and allows creation of derivative works.

“Outbound License” means any Contract pursuant to which any Person has rights to access or exploit any Company Product(s) or pursuant to which Seller authorizes or otherwise permits any other Person to access or exploit any Company Product(s).

“Outside Date” means the close of business on October 9, 2020.

“Owner/Owners” has the meaning set forth in the preamble.

“Patents” has the meaning set forth in the definition of Intellectual Property.

8

“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, in each case from Governmental Authorities.

“Permitted Encumbrances” means (a) those items set forth in Section 4.8 of the Disclosure Schedules; (b) mechanics’, carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the ordinary course of business consistent with past practice or amounts that are not delinquent and which are not, individually or in the aggregate, material to the Business or the Purchased Assets; (c) easements, rights of way, zoning ordinances and other similar encumbrances affecting Leased Real Property which are not, individually or in the aggregate, material to the Business or the Purchased Assets, which do not prohibit or interfere with the current operation of any Leased Real Property and which do not render title to any Leased Real Property unmarketable; (d) liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business consistent with past practice which are not, individually or in the aggregate, material to the Business or the Purchased Assets; and (e) the Outbound Licenses.

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

“Personal Information” means any information about an identified or identifiable individual.

“Platform Agreements” has the meaning set forth in Section 4.11(i).

“Post-Closing Tax Period” means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.

“Pre-Closing Reorganization” has the meaning set forth in the preamble.

“Pre-Closing Statement” has the meaning set forth in Section 2.6(a).

“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.

“Prepaids” has the meaning set forth in Section 2.1(h).

“Pro Rata Portion” means the following percentages for each Owner: (i) with respect to Suhayya Abu-Hakima, 63.63% and (ii) with respect to Ken Grigg, 20.58%.

“Purchase Price” has the meaning set forth in Section 2.5.

“Purchased Assets” has the meaning set forth in Section 2.1.

“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

“Restricted Benefits” has the meaning set forth in Section 4.23.

“Restricted Period” has the meaning set forth in Section 6.8(a).

“Restrictive Covenants” has the meaning set forth in Section 6.8.

9

“Seller” has the meaning set forth in the preamble.

“Seller Closing Certificate” has the meaning set forth in Section 7.2(j).

“Seller Indemnitees” has the meaning set forth in Section 8.3.

“Seller Parties” means Seller and each of the Owners, collectively.

“Seller Party” means Seller and each of the Owners, individually.

“Single Employer Plan” has the meaning set forth in Section 4.19(c).

“Software” means computer programs, operating systems, applications, firmware and other code, including all source code, object code, application programming interfaces, data files, databases, specifications, and documentation thereof.

“Stock Purchase Price” has the meaning set forth in Section 2.5.

“Tangible Personal Property” has the meaning set forth in Section 2.1(c).

“Tax Return” means any return, declaration, report, election, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Taxes” means all federal, provincial, state, local, foreign and other income, gross receipts, sales, use, value added, goods and services or harmonized sales, provincial sales, production, ad valorem, transfer, documentary, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment insurance premiums, Canada pension plan contributions, workers compensation premiums, employer health taxes, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), land transfer, real property gains, windfall profits, customs, duties, minimum or alternative, or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

“Territory” has the meaning set forth in Section 6.8(a).

“Third Party Claim” has the meaning set forth in Section 8.5(a).

“Trade Secrets” has the meaning set forth in the definition of Intellectual Property.

“Trademarks” has the meaning set forth in the definition of Intellectual Property.

“Transferred Employees” has the meaning set forth in Section 6.6.

“U.S. Trade Laws” mean the United States Export Administration Act of 1979, the United States Export Administration Regulations, the United States International Emergency Economic Powers Act, the United States Trading with the Enemy Act, the United States Arms Export Control Act, the United States Foreign Asset Control Regulations, the United States International Traffic in Arms Regulations, the International Boycott Provisions of Section 999 of the U.S. Internal Revenue Code of 1986, U.S. customs Laws and, in each case, any regulations or orders issued thereunder (all as amended from time to time).

“Union” has the meaning set forth in Section 4.20(b).

10

ARTICLE II

PURCHASE AND SALE

2.1     Purchase and Sale of Assets. Upon the terms and subject to the conditions set forth in this Agreement, on and with effect as of the Closing Date, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, free and clear of any Encumbrances, other than Permitted Encumbrances, all of Seller’s right, title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether now existing or hereafter acquired as a result of work performed by Seller prior to the Closing (other than the Excluded Assets), which relate to, or are used or held for use in connection with, the Business (collectively, the “Purchased Assets”), including, without limitation (other than the Excluded Assets), the following:

(a)     all Contracts, including Intellectual Property Agreements, set forth on Exhibit B (the “Assigned Contracts”);

(b)     all Intellectual Property Assets;

(c)     all furniture, fixtures, equipment, machinery, tools, vehicles, office equipment, supplies, computers, telephones and other tangible personal property (the “Tangible Personal Property”);

(d)     all inventory, finished goods, raw materials, work in progress, packaging, supplies, parts and other inventories (“Inventory”);

(e)     all Leased Real Property; Leasehold Estates; Leasehold Improvements and Leases;

(f)     all Permits that are held by Seller and required for the conduct of the Business as currently conducted or for the ownership and use of the Purchased Assets, including, without limitation, those listed on Section 4.17 of the Disclosure Schedules;

(g)     all rights to any Actions of any nature available to or being pursued by Seller to the extent related to the Business, the Purchased Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise;

(h)     all prepaid expenses, credits, advance payments, prepayments, claims, security, refunds, rights of recovery, rights of set-off, rights of recoupment, deposits, charges, sums and fees (excluding any such item relating to the payment of Taxes for periods ending prior to the Closing) to the fullest extent assignable (the “Prepaids”);

(i)     all of Seller’s rights under warranties, indemnities and all similar rights against third parties to the extent related to any Purchased Assets;

(j)     all insurance policies (to the extent assignable), insurance benefits, including rights and proceeds, arising from or relating to the Business, the Purchased Assets or the Assumed Liabilities;

(k)     all claims, causes of action, causes in action, rights of recovery and rights of set-off of any kind, against any Person, including without limitation any liens, security interests, pledges or other rights to payment or to enforce payment in connection with service performed or products delivered by Seller on or prior to the Closing Date;

11

(l)     originals, or where not available, copies, of all books and records, including, but not limited to, books of account, ledgers and general, financial and accounting records, machinery and equipment maintenance files, customer lists, customer purchasing histories, price lists, distribution lists, supplier lists, production data, quality control records and procedures, customer complaints and inquiry files, research and development files, records and data (including all correspondence with any Governmental Authority), sales material and records (including pricing history, total sales, terms and conditions of sale, sales and pricing policies and practices), strategic plans, internal financial statements, marketing and promotional surveys, material and research and files relating to the Intellectual Property Assets and the Intellectual Property Agreements (“Books and Records”) excluding, for certainty, the Corporate Records;

(m)     equity interests in other entities; and

(n)     all goodwill and the going concern value of the Business.

2.2       Excluded Assets. Notwithstanding the foregoing, the Purchased Assets shall not include the following assets (collectively, the “Excluded Assets”):

(a)     cash and cash equivalents;

(b)     all accounts or notes receivable held by Seller, and any security, claim, remedy or other right related to any of the foregoing including, but not limited to all claims of Seller for any prepaid Taxes, any and all Tax returns or refunds or credits accruing prior to the Closing relating to the Business, and any accounts receivable on account of the Purchased Assets;

(c)     Contracts that are not Assigned Contracts (the “Excluded Contracts”);

(d)     all prepaid expenses, credits, advance payments, prepayments, claims, security, refunds, rights of recovery, rights of set-off, rights of recoupment, deposits, charges, sums and fees which are not assignable;

(e)     the corporate seals, organizational documents, minute books, stock books, Tax Returns, books of account or other records having to do with the corporate organization of Seller (the “Corporate Records”);

(f)     all Benefit Plans and assets attributable thereto;

(g)     the assets, properties and rights specifically set forth on Exhibit C; and

(h)     the rights that accrue or will accrue to Seller under this Agreement.

2.3       Assumed Liabilities. Subject to the terms and conditions set forth herein, Buyer shall assume and agree to pay, perform and discharge only the following Liabilities of Seller (collectively, the “Assumed Liabilities”), and no other Liabilities:

(a)     the accrued vacation expressly set forth in the Offer Letters;

(b)     up to $100,000 of trade accounts payable of Seller to third parties in connection with the Business that were incurred in the ordinary course of business, that remain unpaid and are not delinquent as of the Closing Date and that either are reflected on the Interim Balance Sheet Date or arose in the ordinary course of business consistent with past practice since the Interim Balance Sheet Date;

12

(c)     all Liabilities in respect of the Assigned Contracts but only to the extent that such Liabilities thereunder are required to be performed after the Closing Date, were incurred in the ordinary course of business and do not relate to any failure to perform, improper performance, warranty or other breach, default or violation by Seller on or prior to the Closing;

(d)     all Liabilities in respect of the Transferred Employees as a successor employer under applicable Law, including without limitation, any severance and / or termination entitlements in accordance with and limited to the provisions of the Employment Standards Act, 2000 (Ontario) (as amended from time to time);

(e)     all Liabilities for Intellectual Property Losses, including any Non-Practicing Entity Claim, over and above the Intellectual Property Cap; and

(f)     all Liabilities in respect of a Non-Practicing Entity Claim.

2.4       Excluded Liabilities. Notwithstanding any other provision in this Agreement to the contrary (other than Section 2.3), Buyer shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of Seller or any of its Affiliates of any kind or nature whatsoever other than the Assumed Liabilities (the “Excluded Liabilities”). Seller shall, and shall cause each of its Affiliates to, pay and satisfy in due course all Excluded Liabilities that they are obligated to pay and satisfy. Without limiting the generality of the foregoing, but subject to Section 2.3, the Excluded Liabilities shall include, but not be limited to, the following:

(a)     any Liabilities of Seller arising or incurred in connection with the negotiation, preparation, investigation and performance of this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby, including, without limitation, fees and expenses of counsel, accountants, consultants, advisers and others;

(b)     subject to Section 6.14, any Liability for (i) Taxes (A) of Seller (or any stockholder or Affiliate of Seller) or (B) relating to the Business, the Purchased Assets or the Assumed Liabilities for any Pre-Closing Tax Period; (ii) Taxes that arise out of the consummation of the transactions contemplated hereby or that are the responsibility of Seller pursuant to Section 6.14; or (iii) other Taxes of Seller (or any stockholder or Affiliate of Seller) of any kind or description (including any Liability for Taxes of Seller (or any stockholder or Affiliate of Seller) that becomes a Liability of Buyer under any common Law doctrine of de facto merger or transferee or successor Liability or otherwise by operation of contract or Law);

(c)     any Liabilities relating to or arising out of the Excluded Assets;

(d)     any Liabilities of Seller relating to a period prior to the Closing Date other than (A) a Non-Practicing Entity Claim; and / or (B) Liabilities for Intellectual Property Losses over and above the Intellectual Property Cap;

(e)     any Liabilities in respect of any pending or threatened Action arising out of, relating to or otherwise in respect of the operation of the Business or the Purchased Assets to the extent such Action relates to such operation on or prior to the Closing Date other than (A) a Non-Practicing Entity Claim; and / or (B) Liabilities for Intellectual Property Losses over and above the Intellectual Property Cap;

(f)     any product Liability or similar claim for injury to a Person or property which arises out of or is based upon any express or implied representation, warranty, agreement or guaranty made by Seller, or by reason of the improper performance or malfunctioning of a product, improper design or manufacture, failure to adequately package, label or warn of hazards or other related product defects of any products at any time manufactured or sold or any service performed by Seller;

13

(g)     any recall, design defect or similar claims of any products manufactured or sold or any service performed by Seller;

(h)     any Liabilities of Seller arising under or in connection with any Benefit Plan providing benefits to any present or former employee of Seller;

(i)     any Liabilities of Seller for any present or former employees, officers, directors, retirees, independent contractors or consultants of Seller, including, without limitation, any Liabilities associated with any claims for wages or other benefits, bonuses, accrued vacation, overtime, workers’ compensation, notice of termination or pay in lieu of notice, severance, retention, termination or other payments other than as expressly assumed by Buyer under Section 2.3(d) herein;

(j)     any Liabilities under Environmental Laws, to the extent arising out of or relating to facts, circumstances or conditions existing on or prior to the Closing or otherwise to the extent arising out of any actions or omissions of Seller;

(k)     any trade accounts payable of Seller (i) in excess of $100,000 in the aggregate, (ii) to the extent not accounted for on the Interim Balance Sheet; (iii) which constitute intercompany payables owing to Affiliates of Seller; (iv) which constitute debt, loans or credit facilities to financial institutions; or (v) which did not arise in the ordinary course of business;

(l)     any Liabilities of the Business relating or arising from unfulfilled commitments, quotations, purchase orders, customer orders or work orders that (i) do not constitute part of the Purchased Assets issued by the Business’ customers to Seller on or before the Closing; (ii) did not arise in the ordinary course of business; or (iii) are not validly and effectively assigned to Buyer pursuant to this Agreement;

(m)     any Liabilities to indemnify, reimburse or advance amounts to any present or former officer, director, employee or agent of Seller (including with respect to any breach of fiduciary obligations by same), except for indemnification of same pursuant to Section 7.3 as Seller Indemnitees;

(n)     any Liabilities under the Excluded Contracts or any other Contracts, including Intellectual Property Agreements, (i) that are not validly and effectively assigned to Buyer pursuant to this Agreement; (ii) that do not conform to the representations and warranties with respect thereto contained in this Agreement; or (iii) to the extent such Liabilities arise out of or relate to a breach by Seller of such Contracts prior to Closing; in each case, other than Liabilities arising from: (A) a Non-Practicing Entity Claim; and / or (B) Liabilities for Intellectual Property Losses over and above the Intellectual Property Cap;

(o)     any Liabilities associated with debt, loans or credit facilities of Seller and/or the Business owing to financial institutions;

(p)     the Liabilities specifically set forth on Exhibit D; and

(q)     any Liabilities arising out of, in respect of or in connection with the failure by Seller or any of its Affiliates to comply with any Law or Governmental Order.

2.5      Purchase Price. The aggregate purchase price for the Purchased Assets shall be equal to $10,355,000, subject to adjustment pursuant to Section 2.6 (the “Purchase Price”), plus the assumption of the Assumed Liabilities. The Purchase Price shall be paid to Seller by Buyer delivering to Seller the Closing Cash Amount in cash at the Closing as provided in Section 3.2 and by Buyer delivering 191,267 shares of Common Stock on each of the first, second and third anniversary of the Closing Date (the “Stock Purchase Price”). Notwithstanding the foregoing, the parties agree that (a) if any Owner’s employment is terminated by Buyer without Cause or for death or Disability or by such Owner for Good Reason, Buyer shall deliver to Seller such Owner’s Pro Rata Portion of the remaining Stock Purchase Price on the date of such termination, and (b) Buyer shall deliver all remaining unissued Stock Purchase Price to Seller on the effective date of any Change in Control. The Holdback Amount will be invested in an interest bearing account and all interest shall be paid proportionally to the party receiving the principal amount of the Holdback Amount.

14

2.6       Purchase Price Adjustment. The Purchase Price is premised upon the Business having no Prepaids or Deferred Revenue at the Closing Date and will be adjusted as follows: (i) upward to the extent of any Prepaids as of the Closing Date, and (ii) downward to the extent of any Deferred Revenue as of the Closing Date, in each case as outlined below.

(a)     Not later than three Business Days before the Closing Date, Seller shall prepare and deliver to Buyer a statement (the “Pre-Closing Statement”) of Seller’s good faith estimate of the Prepaids as of the close of business on the Business Day immediately preceding the Closing Date (the “Estimated Prepaids”) and Deferred Revenue as of the close of business on the Business Day immediately preceding the Closing Date (the “Estimated Deferred Revenue”), together with a consolidated balance sheet of the Business estimated in good faith as of the close of business on the Business Day immediately preceding the Closing Date and all relevant backup materials, in detail reasonably acceptable to Buyer. The Pre-Closing Statement and such consolidated balance sheet shall be prepared consistent in nature, scope and magnitude with Seller’s past practices. From the delivery of the Pre-Closing Statement until the Closing Date, Buyer shall be provided complete and accurate copies of, and have reasonable access upon reasonable notice at reasonable times during business hours to the work papers and supporting records of Seller and its accountants to verify the accuracy of the Pre-Closing Statement. Prior to the Closing Date, the parties will mutually agree on the Estimated Deferred Revenue and Estimated Prepaids at the Closing.

(b)     Not later than 120 days after the Closing Date, Buyer shall deliver to Seller a statement (the “Closing Statement”) of the Business’ Deferred Revenue as of the Closing Date (the “Closing Deferred Revenue”) and the Business’ Prepaids as of the Closing Date (the “Closing Prepaids”), together with a consolidated balance sheet of the Business as of the Closing and all relevant backup materials, in detail reasonably acceptable to Seller. From the delivery of the Closing Statement until such time as the Closing Deferred Revenue and the Closing Prepaids have been finally determined pursuant to this Section 2.6, Seller shall, upon reasonable notice and during normal business hours, be permitted to discuss with Buyer the Closing Statement and shall be provided complete and accurate copies of, and have reasonable access (including electronic access, to the extent reasonably available) upon reasonable notice at reasonable times during normal business hours to the work papers and supporting records of Buyer so as to allow Seller to verify the accuracy of the Closing Statement.

(c)     If Seller disputes the Closing Statement, Seller shall notify Buyer in writing (the “Dispute Notice”) of the amount, nature and basis of such dispute, within 30 days after Seller’s receipt of the Closing Statement. Such Dispute Notice must specify those items or amounts as to which Seller disagrees. If Seller does not timely deliver a Dispute Notice, the Closing Statement shall be deemed to be final, conclusive and binding on the parties. Seller shall be deemed to have agreed with all items not raised in a Dispute Notice. If a Dispute Notice is timely delivered, Buyer and Seller shall first negotiate in good faith to reach agreement on the disputed items or amounts. If Buyer and Seller are unable to resolve the dispute within 60 days after delivery of the Dispute Notice, then any remaining items that are still in dispute shall be submitted to an independent nationally recognized accounting firm selected in writing by Buyer and Seller or, if Buyer and Seller fail or refuse to select a firm within 10 days after written request therefor by Buyer or Seller, such an independent nationally recognized accounting firm shall be selected in accordance with the National Arbitration Rules of the ADR Institute of Canada, Inc., as applicable in the Province of Ontario (the “Neutral Accountant”). All determinations pursuant to this Section 2.6(c) shall consider only those items set forth in the Dispute Notice, shall be in writing and shall be delivered to Buyer and Seller as promptly as practicable. The final written determination and award of the Neutral Accountant shall not be outside the range of disputed amounts for each item in dispute, as each such range existed immediately prior to the submission of each such disputed item to the Neutral Accountant. The determination of the Neutral Accountant shall be binding and conclusive on Buyer and Seller. A judgment on the determination made by the Neutral Accountant pursuant to this Section 2.6(c) may be entered in and enforced by any court of competent jurisdiction. The fees and expenses of the Neutral Accountant in connection with the resolution of disputes pursuant to this Section 2.6(c) shall be borne by Seller and Buyer in such amount(s) as shall be determined by the Neutral Accountant based on the proportion that the aggregate amount of disputed items submitted to the Neutral Accountant that is unsuccessfully disputed by Buyer and Seller, as determined by the Neutral Accountant, bears to the total amount of such disputed items so referred to the Neutral Accountant for resolution.

15

(d)     If the amount of the Closing Deferred Revenue exceeds the Estimated Deferred Revenue finally determined under this Section 2.6, then Buyer shall be entitled to recover such excess from the Holdback Amount. If the amount of the Estimated Deferred Revenue exceeds the Closing Deferred Revenue finally determined under this Section 2.6, then Buyer shall pay to Seller such excess by wire transfer of immediately available funds within ten days following the resolution thereof. If the amount of the Estimated Prepaids exceeds the Closing Prepaids finally determined under this Section 2.6, then Buyer shall be entitled to recover such excess from the Holdback Amount. If the amount of the Closing Prepaids exceeds the Estimated Prepaids finally determined under this Section 2.6, then Buyer shall pay to Seller such excess by wire transfer of immediately available funds within ten days following the resolution thereof. The payment obligations in this Section 2.6(d) will be netted against each other before any payments are made from the Holdback Amount or by Buyer to Seller.

2.7       Allocation of Purchase Price. Seller and Buyer agree that the Purchase Price and the Assumed Liabilities (plus other relevant items) shall be allocated among the Purchased Assets for all purposes (including Tax and financial accounting) as shown on the allocation schedule (the “Allocation Schedule”) which shall be agreed upon by Seller and Buyer on or prior to the Closing Date. Buyer and Seller shall file all Tax Returns (including amended returns and claims for refund) and information reports in a manner consistent with the Allocation Schedule. Any adjustments to the Purchase Price pursuant to Section 2.6 herein shall be allocated in a manner consistent with the Allocation Schedule.

2.8      Withholding Tax. Buyer shall be entitled to deduct and withhold from the Purchase Price all Taxes that Buyer may be required to deduct and withhold under any provision of Tax Law. All such withheld amounts shall be treated as delivered to Seller hereunder. Buyer shall provide Seller with at least five (5) Business Days’ prior written notice of any withholding proposed to be made by Buyer in accordance with the terms and conditions of this Section 2.8.

2.9       Third Party Consents. To the extent that Seller’s rights under any Contract or Permit constituting a Purchased Asset, or any other Purchased Asset, may not be assigned to Buyer without the consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller, at its expense, shall use commercially reasonable efforts to obtain any such required consent(s) as promptly as possible. If any such consent shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer’s rights under the Purchased Asset in question so that Buyer would not in effect acquire the benefit of all such rights, Seller, to the maximum extent permitted by law and the Purchased Asset, shall act after the Closing as Buyer’s agent in order to obtain for it the benefits thereunder and shall cooperate, to the maximum extent permitted by Law and the Purchased Asset, with Buyer in any other reasonable arrangement designed to provide such benefits to Buyer. Notwithstanding any provision in this Section 2.9 to the contrary, Buyer shall not be deemed to have waived its rights under Section 7.2(d) hereof unless and until Buyer either provides written waivers thereof or elects to proceed to consummate the transactions contemplated by this Agreement at Closing.

16

ARTICLE III

CLOSING

3.1      Closing. Subject to the terms and conditions of this Agreement, the consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place remotely by exchange of documents and signatures (or their electronic counterparts), at such time, date and place as Seller and Buyer may mutually agree upon in writing. The date on which the Closing is to occur is herein referred to as the “Closing Date”.

3.2       Closing Deliverables.

(a)     At the Closing, Seller shall deliver to Buyer the following:

(i)     a bill of sale in form and substance satisfactory to Buyer (the “Bill of Sale”) and duly executed by Seller, transferring the Tangible Personal Property;

(ii)     an assignment and assumption agreement in form and substance satisfactory to Buyer (the “Assignment and Assumption Agreement”) and duly executed by Seller, effecting the assignment to and assumption by Buyer of the Purchased Assets and the Assumed Liabilities;

(iii)     assignments in form and substance agreed by Buyer and Seller and set forth in Exhibit E (the “Intellectual Property Assignments”) and duly executed by Seller, transferring all of Seller’s right, title and interest in and to the Intellectual Property Assets to Buyer, which, for further clarity, shall include valid assignments of all Patents to Seller prior to Closing; such Patents to then be assigned to Buyer on Closing;

(iv)     with respect to each Lease, an Assignment and Assumption of Lease in form and substance satisfactory to Buyer (each, an “Assignment and Assumption of Lease”) and duly executed by Seller;

(v)     employment agreements executed by each of the two key employees identified on Exhibit F hereto, in the form of Exhibits F-1 and F-2, respectively, hereto (the “Employment Agreements”);

(vi)     offer letters executed by each of the employees identified on Exhibit G hereto, in the form of Genasys’ standard employee offer letter (the “Offer Letters”);

(vii)     the Seller Closing Certificate;

(viii)     the certificates of the Secretary of Seller required by Section 7.2(k) and Section 7.2(l); and

(ix)     such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Buyer, as may be required to give effect to this Agreement.

17

(b)     At the Closing, Buyer shall deliver to Seller the following:

(i)     the Closing Cash Amount by wire transfer of immediately available funds to an account designated in writing by Seller to Buyer;

(ii)     the Assignment and Assumption Agreement duly executed by Buyer;

(iii)     with respect to each Lease, an Assignment and Assumption of Lease duly executed by Buyer;

(iv)     the Employment Agreements;

(v)     the Offer Letters;

(vi)     the Buyer Closing Certificate; and

(vii)     the certificates of the Secretary of Buyer required by Section 7.3(f) and Section 7.3(g).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, Seller represents and warrants to Buyer that the statements contained in this ARTICLE IV are true and correct as of the date hereof. The Disclosure Schedules shall be arranged in numbered and lettered sections contained in this ARTICLE IV. For the purposes of this Agreement, a document or information shall be deemed to have been provided to Buyer if such document or information was delivered to Buyer by Seller in physical or electronic form or if such information was made available to Buyer by Seller in the Electronic Data Room at least three Business Days prior to the date of this Agreement.

4.1      Organization and Qualification of Seller. Seller is a corporation duly organized, validly existing and in good standing in each jurisdiction where it is formed, licensed or qualified to do business as set forth in Section 4.1 of the Disclosure Schedules, and has full corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on the Business as currently conducted. Seller is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the ownership of the Purchased Assets or the operation of the Business as currently conducted makes such licensing or qualification necessary.

4.2       Authority of Seller. Seller has full corporate power and authority to enter into this Agreement and the Ancillary Documents to which Seller is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and any Ancillary Document to which Seller is a party, the performance by Seller of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller, and (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms. When each Ancillary Document to which Seller is or will be a party has been duly executed and delivered by Seller (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Seller enforceable against it in accordance with its terms.

18

4.3       No Conflicts; Consents. The execution, delivery and performance by Seller of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of Seller; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Seller, the Business or the Purchased Assets; (c) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract or Permit to which Seller is a party and forms part of the Purchased Assets, or by which Seller or the Business is bound or to which any of the Purchased Assets are subject (including any Assigned Contract); or (d) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on the Purchased Assets. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Seller in connection with the execution and delivery of this Agreement or any of the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby.

4.4      Financial Statements. Complete copies of the unaudited financial statements consisting of the balance sheet of the Business as at December 31, 2019, 2018 and 2017 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended (the “Annual Financial Statements”), and unaudited financial statements consisting of the balance sheet of the Business as at June 30, 2020 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the six-month period then ended (the “Interim Financial Statements” and together with the Annual Financial Statements, the “Financial Statements”) are set forth in Section 4.4 of the Disclosure Schedules. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially from those presented in the Annual Financial Statements). The Financial Statements are based on the books and records of the Business, and fairly present in all material respects the financial condition of the Business as of the respective dates they were prepared and the results of the operations of the Business for the periods indicated. The balance sheet of the Business as of December 31, 2019 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Business as of June 30, 2020 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date”. Seller maintains a standard system of accounting for the Business established and administered in accordance with GAAP.

4.5      Undisclosed Liabilities. Seller has no Liabilities with respect to the Business, except (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount. Seller has no Liabilities in respect of indebtedness for borrowed money or guarantee of any Liability of any other Person.

4.6       Absence of Certain Changes, Events and Conditions. Since the Balance Sheet Date, and other than in the ordinary course of business consistent with past practice, there has not been any:

(a)     event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(b)     material change in any method of accounting or accounting practice for the Business, except as required by GAAP or as disclosed in the notes to the Financial Statements;

19

(c)     material change in cash management practices and policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts receivable, accrual of accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

(d)     entry into any Contract that would constitute a Material Contract;

(e)     incurrence, assumption or guarantee of any indebtedness for borrowed money in connection with the Business except unsecured current obligations and Liabilities incurred in the ordinary course of business consistent with past practice;

(f)     transfer, assignment, sale or other disposition of any of the Purchased Assets shown or reflected in the Balance Sheet, except for the sale of Inventory in the ordinary course of business;

(g)     cancellation of any debts or claims or amendment, termination or waiver of any rights constituting Purchased Assets;

(h)     transfer or assignment of or grant of any license or sublicense under or with respect to any Intellectual Property Assets or Intellectual Property Agreements (except non-exclusive licenses or sublicenses granted in the ordinary course of business consistent with past practice);

(i)     abandonment or lapse of or failure to maintain in full force and effect any Intellectual Property Registration, or failure to take or maintain reasonable measures to protect the confidentiality or value of any Trade Secrets included in the Intellectual Property Assets;

(j)     material damage, destruction or loss, or any material interruption in use, of any Purchased Assets, whether or not covered by insurance;

(k)     acceleration, termination, material modification to or cancellation of any Assigned Contract or Permit;

(l)     material capital expenditures which would constitute an Assumed Liability;

(m)     imposition of any Encumbrance upon any of the Purchased Assets other than Permitted Encumbrances;

(n)     (i) grant of any bonuses whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of any current or former employees, officers, directors, independent contractors or consultants of the Business, other than as provided for in any written agreements or required by applicable Law, (ii) change in the terms of employment for any employee of the Business or any termination of any employees for which the aggregate costs and expenses exceed $25,000, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, director, consultant or independent contractor of the Business;

(o)     hiring or promoting any person as or to (as the case may be) an officer or hiring or promoting any employee below officer except to fill a vacancy in the ordinary course of business;

(p)     adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant of the Business, (ii) Benefit Plan, or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;

20

(q)     any loan to (or forgiveness of any loan to), or entry into any other transaction with, any current or former directors, officers or employees of the Business;

(r)     adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of any bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;

(s)     purchase, lease or other acquisition of the right to own, use or lease any property or assets in connection with the Business for an amount in excess of $25,000, individually (in the case of a lease, per annum) or $50,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of Inventory or supplies in the ordinary course of business consistent with past practice; or

(t)     any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.

4.7      Material Contracts.

(a)     Section 4.7 of the Disclosure Schedules lists each of the following Contracts (x) by which any of the Purchased Assets are bound or affected or (y) to which Seller is a party or by which it is bound in connection with the Business or the Purchased Assets (such Contracts, together with all Leases and Intellectual Property Agreements, being “Material Contracts”):

(i)     all Contracts involving aggregate consideration in excess of $25,000 and which, in each case, cannot be cancelled without penalty or without more than 90 days’ notice;

(ii)     all Contracts that require Seller to purchase or sell a stated portion of the requirements or outputs of the Business or that contain “take or pay” provisions;

(iii)     all Outbound Licenses;

(iv)     all Contracts that provide for the indemnification of any Person or the assumption of any Tax, environmental or other Liability of any Person;

(v)     all Contracts that relate to the acquisition or disposition of any business, a material amount of stock or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);

(vi)     all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts;

(vii)     all employment agreements and Contracts with independent contractors or consultants (or similar arrangements) and which are not cancellable without material penalty or without more than 90 days’ notice;

(viii)     except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including, without limitation, guarantees);

21

(ix)     all Contracts with any Governmental Authority (“Government Contracts”);

(x)     all Contracts that limit or purport to limit the ability of Seller to compete in any line of business or with any Person or in any geographic area or during any period of time;

(xi)     all joint venture, partnership or similar Contracts;

(xii)     all Contracts for the sale of any of the Purchased Assets or for the grant to any Person of any option, right of first refusal or preferential or similar right to purchase any of the Purchased Assets;

(xiii)     all powers of attorney with respect to the Business or any Purchased Asset;

(xiv)     all collective bargaining agreements or Contracts with any Union; and

(xv)     all other Contracts that are material to the Purchased Assets or the operation of the Business and not previously disclosed pursuant to this Section 4.7.

(b)     Each Material Contract is valid and binding on Seller in accordance with its terms and is in full force and effect. None of Seller or, to Seller’s Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract by Seller or, to Seller’s Knowledge, any other party thereto, or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Buyer. There are no material disputes pending or threatened under any Contract included in the Purchased Assets.

4.8       Title to Purchased Assets. Seller has good and valid title to, or a valid leasehold interest in, all of the Purchased Assets. All such Purchased Assets (including leasehold interests) are free and clear of Encumbrances except for the Permitted Encumbrances. For greater certainty, the provisions of this Section 4.8 do not apply to Intellectual Property-related matters and the only representations and warranties in respect to Intellectual Property-related matters are those contained in Section 4.11.

4.9       Condition and Sufficiency of Assets. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property included in the Purchased Assets are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The Purchased Assets are sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the rights, property and assets necessary to conduct the Business as currently conducted. None of the Excluded Assets are material to the Business. For greater certainty, the provisions of this Section 4.9 do not apply to Intellectual Property-related matters and the only representations and warranties in respect to Intellectual Property-related matters are those contained Section 4.11.

22

4.10     Real Property.

(a)     Seller owns no real property. Section 4.10(a) of the Disclosure Schedules sets forth each parcel of real property leased by Seller and used in or necessary for the conduct of the Business as currently conducted (together with all rights, title and interest of Seller in and to leasehold improvements relating thereto, including, but not limited to, security deposits, reserves or prepaid rents paid in connection therewith, collectively, the “Leased Real Property”), and a true and complete list of all leases, subleases, licenses, concessions and other agreements (whether written or oral), including all amendments, extensions renewals, guaranties and other agreements with respect thereto, pursuant to which Seller holds any Leased Real Property (collectively, the “Leases”). Seller has delivered to Buyer a true and complete copy of each Lease. With respect to each Lease:

(i)     such Lease is valid, binding, enforceable and in full force and effect, and Seller enjoys peaceful and undisturbed possession of the Leased Real Property;

(ii)     Seller is not in breach or default under such Lease, and no event has occurred or circumstance exists which, with the delivery of notice, passage of time or both, would constitute such a breach or default, and Seller has paid all rent due and payable under such Lease;

(iii)     Seller has not received nor given any notice of any default or event that with notice or lapse of time, or both, would constitute a default by Seller under any of the Leases and, to Seller’s Knowledge, no other party is in default thereof, and no party to any Lease has exercised any termination rights with respect thereto;

(iv)     Seller has not subleased, assigned or otherwise granted to any Person the right to use or occupy such Leased Real Property or any portion thereof; and

(v)     Seller has not pledged, mortgaged or otherwise granted an Encumbrance on its leasehold interest in any Leased Real Property.

(b)     Seller has not received any written notice of (i) violations of building codes and/or zoning ordinances or other governmental or regulatory Laws affecting the Leased Real Property, (ii) existing, pending or threatened condemnation proceedings affecting the Leased Real Property, or (iii) existing, pending or threatened zoning, building code or other moratorium proceedings, or similar matters which could reasonably be expected to adversely affect the ability to operate the Leased Real Property as currently operated. Neither the whole nor any material portion of any Leased Real Property has been damaged or destroyed by fire or other casualty.

(c)     The Leased Real Property is sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior to the Closing and constitutes all of the real property necessary to conduct the Business as currently conducted.

4.11    Intellectual Property.

(a)     Section 4.11(a) of the Disclosure Schedules contains a correct, current and complete list of: (i) all Intellectual Property Registrations, specifying as to each, as applicable: the title, mark, or design; the jurisdiction by or in which it has been issued, registered or filed; the patent, registration or application serial number; the issue, registration or filing date; and the current status; (ii) all material unregistered Trademarks included in the Intellectual Property Assets; and (iii) all products that have been developed and that have been commercialized by Seller (the “Company Products”) and list of the Software projects maintained by Seller in respect to such Company Products and a high-level description of the functions provided by such Software projects.

23

(b)     Section 4.11(b) of the Disclosure Schedules contains a correct, current and complete list of all Intellectual Property Agreements: (i) under which Seller is a licensor or otherwise grants to any Person any right or interest relating to any Intellectual Property Asset; (ii) under which Seller is a licensee or otherwise granted any right or interest relating to the Intellectual Property of any Person (other than Contracts for Commercial-Off-the-Shelf Software); and (iii) which otherwise relate to Seller’s ownership or use of any Intellectual Property in the conduct of the Business (other than Contracts for Commercial-Off-the-Shelf Software), in each case identifying the Intellectual Property covered by such Intellectual Property Agreement, and specifying the date, title, parties thereto, and which of (i), (ii) and/or (iii) are applicable to each such Intellectual Property Agreement. Seller has provided Buyer with true and complete copies (or in the case of any oral agreements, a complete and correct written description) of all Intellectual Property Agreements required to be disclosed pursuant to this Section 4.11(b), including all modifications, amendments and supplements thereto and waivers thereunder. Each Intellectual Property Agreement is valid and binding on Seller in accordance with its terms and to Seller’s Knowledge is in full force and effect. Except as set forth in Section 4.11(b) of the Disclosure Schedules, neither Seller nor, to Seller’s Knowledge, any other party thereto is, or is alleged to be, in breach of or default under, and has not provided or received any notice of breach of or default under, or intention to terminate (including by non-renewal), any Intellectual Property Agreement.

(c)     Seller is the sole and exclusive legal and beneficial, and with respect to the Intellectual Property Registrations, record, owner of all right, title and interest in and to the Intellectual Property Assets free and clear of Encumbrances other than Permitted Encumbrances, and has the valid and enforceable right to use all other Intellectual Property used or held for use in or necessary for the conduct of the Business as conducted as of the Closing Date. The Intellectual Property Assets and Licensed Intellectual Property are all of the Intellectual Property necessary to operate the Business as presently conducted as of the Closing Date. Seller has entered into binding, valid and enforceable written Contracts with each current and former employee and independent contractor who is or was involved in or has contributed to the invention, creation, or development of any Intellectual Property during the course of employment or engagement with Seller whereby such employee or independent contractor (i) acknowledges Seller’s exclusive ownership of all Intellectual Property Assets invented, created or developed by such employee or independent contractor within the scope of his or her employment or engagement with Seller; (ii) grants to Seller a present, irrevocable assignment of any ownership interest such employee or independent contractor may have in or to such Intellectual Property; and (iii) irrevocably waives any right or interest, including any moral rights, in respect to such Intellectual Property, to the extent permitted by applicable Law (collectively, the “Contributor IP Assignments”). All Contributor IP Assignments were entered into with each current and former employee and independent contractor prior to such employee or independent contractor beginning the engagement with Seller. Seller has provided Buyer with true and complete copies of all such Contributor IP Assignments. All assignments and other instruments necessary to establish, record, and perfect Seller’s ownership interest in the Intellectual Property Registrations have been validly executed, delivered, and filed with the relevant Governmental Authorities and authorized registrars.

(d)     Except as set forth in Section 4.11(d) of the Disclosure Schedules, neither the execution, delivery, or performance of this Agreement, nor the consummation of the transactions contemplated hereunder, will result in the loss or impairment of or payment of any additional amounts with respect to, or require the consent of any other Person in respect of, Buyer’s right to own or use any Intellectual Property Assets or Licensed Intellectual Property (other than Commercial-Off-the-Shelf Software) in the conduct of the Business as currently conducted. Immediately following the Closing, all Intellectual Property Assets will be owned or available for use by Buyer on the same terms as they were owned or available for use by Seller immediately prior to the Closing.

24

(e)     Except as set forth in Section 4.11(e) of the Disclosure Schedules, (i) all of the Intellectual Property Assets are valid and enforceable, (ii) to Seller’s Knowledge all Licensed Intellectual Property is valid and enforceable, and (iii) all Intellectual Property Registrations are subsisting and in full force and effect. Seller has taken commercially reasonable steps to maintain and enforce the Intellectual Property Assets and to preserve the confidentiality of all Trade Secrets included in the Intellectual Property Assets, including by requiring all Persons having access thereto to execute written non-disclosure agreements. Except as set forth in Section 4.11(e) of the Disclosure Schedules, all required filings and fees that are related to the Intellectual Property Registrations have been timely submitted with and paid to the relevant Governmental Authorities and authorized registrars. True and complete copies of all file histories, documents, certificates, office actions, correspondence, assignments, and other instruments relating to the Intellectual Property Registrations are available to Buyer electronically from the applicable Governmental Authority for such Intellectual Property Registrations.

(f)     The conduct of the Business as currently and formerly conducted, including the use of the Intellectual Property Assets and Licensed Intellectual Property in connection therewith, and the products, processes, and services of the Business have not infringed, misappropriated, or otherwise violated and will not infringe, misappropriate, or otherwise violate the Intellectual Property or other rights of any Person. To Seller’s Knowledge no Person has infringed, misappropriated, or otherwise violated any Intellectual Property Assets or Licensed Intellectual Property.

(g)     Section 4.11(g) of the Disclosure Schedules lists all Open Source Software contained in or used in the current version of each of the Company Products (including each Company Product currently in use by customers of the Business) and describes (i) the applicable software name, (ii) the license under which such software was obtained (iii) whether (and if so, how) such software was modified by or for Seller, (iv) whether such software was distributed by or for Seller, and (v) how such software is integrated with or interacts with the Company Products. Seller is in compliance with all obligations relating to Open Source Software, including attribution and notice obligations. Seller has not used any Open Source Software in a manner that would (i) require any Intellectual Property Assets to be disclosed, delivered, distributed, licensed or otherwise made available in source code form, (ii) limit Seller’s freedom to seek full compensation in connection with the marketing, licensing or distribution of any Company Products, (iii) allows a third party to decompile, disassemble or otherwise reverse engineer any Intellectual Property Assets, or (iv) grant any patent license, non-assertion covenant, or other rights under any Intellectual Property Assets.

(h)     There are no Actions (including any opposition, cancellation, revocation, review, or other proceeding), whether settled or pending, or to Seller’s Knowledge after additional inquiry of its legal counsel, threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, or other violation of the Intellectual Property of any Person by Seller in the conduct of the Business; (ii) challenging the validity, enforceability, registrability, patentability, or ownership of any Intellectual Property Assets; or (iii) by Seller or, to Seller’s Knowledge, any other Person alleging any infringement, misappropriation, or other violation by any Person of any Intellectual Property Assets. Seller is not aware of any facts or circumstances that could reasonably be expected to give rise to any such Action. Seller is not subject to any outstanding or to Seller’s Knowledge prospective Governmental Order (including any motion or petition therefor) that does or could reasonably be expected to restrict or impair the use by Buyer of any Intellectual Property Assets or Licensed Intellectual Property.

(i)     Section 4.11(i) of Disclosure Schedules contains a correct, current, and complete list of all social media accounts used by Seller in the conduct of the Business. Seller has materially complied with all terms of use, terms of service, and other Contracts and all associated policies and guidelines relating to its use of any social media platforms, sites, or services in the conduct of the Business (collectively, “Platform Agreements”). There are no Actions settled or pending, or to Seller’s Knowledge after additional inquiry of its legal counsel, threatened against Seller alleging (A) any breach or other violation of any Platform Agreement by Seller; or (B) defamation by Seller, any violation of publicity rights of any Person by Seller, or any other violation by Seller in connection with its use of social media in the conduct of the Business.

25

(j)     All Business IT Systems are in good working condition and are sufficient for the operation of the Business as currently conducted. In the past three years, there has been no (i) malfunction, failure, continued substandard performance, or other impairment of the Business IT Systems that has not be remedied in the ordinary course, or (ii) denial-of-service, cyberattack, or other cyber incident in respect to the Business IT Systems. Seller has taken commercially reasonable steps to safeguard the confidentiality, availability, security, and integrity of the Business IT Systems, including implementing and maintaining commercially reasonable backup, disaster recovery, and Software and hardware support arrangements. To the extent any of the representations and warranties in this Section 4.11(j) apply to any Licensed Intellectual Property or to any other third-party technology that is leased, licensed or otherwise used by Seller, such representations and warranties are only provided to Seller’s Knowledge for such Licensed Intellectual Property or such other third-party technology.

(k)     Seller has complied with all applicable Laws and all policies, notices, and statements made by Seller or by which Seller is otherwise bound concerning the collection, use, processing, storage, transfer, retention and security of Personal Information in the conduct of the Business. In the past three years, Seller has not (i) experienced any actual, alleged, or suspected Data Breach or other security incident involving Personal Information in its possession or control or (ii) been subject to or received any notice of any audit, investigation, complaint, or other Action by any Governmental Authority or other Person concerning Seller’s collection, use, processing, storage, transfer, or protection of Personal Information or actual, alleged, or suspected violation of any applicable Law concerning privacy, data security, or data breach notification, in each case in connection with the conduct of the Business, and to Seller’s Knowledge there are no facts or circumstances that could reasonably be expected to give rise to any such Action.

4.12      Inventory. All Inventory, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. All Inventory is owned by Seller free and clear of all Encumbrances other than Permitted Encumbrances, or is validly held pursuant to a distribution, sublicensing or reselling agreement and no Inventory is held on a consignment basis. The quantities of each item of Inventory (whether raw materials, work-in-process or finished goods) are not excessive, but are reasonable in the present circumstances of Seller. Seller has no work in progress.

4.13    Customers and Suppliers.

(a)     Section 4.13(a) of the Disclosure Schedules sets forth with respect to the Business (i) each customer who has paid aggregate consideration to Seller for goods or services rendered in an amount greater than or equal to $50,000 for each of the two most recent fiscal years (collectively, the “Material Customers”); and (ii) the amount of consideration paid by each Material Customer during such periods. Seller has not received any notice, and has no reason to believe, that any of the Material Customers has ceased, or intends to cease after the Closing, to use the goods or services of the Business or to otherwise terminate or materially reduce its relationship with the Business.

(b)     Section 4.13(b) of the Disclosure Schedules sets forth with respect to the Business (i) each supplier to whom Seller has paid consideration for goods or services rendered in an amount greater than or equal to $10,000 for each of the two most recent fiscal years (collectively, the “Material Suppliers”); and (ii) the amount of purchases from each Material Supplier during such periods. Seller has not received any notice, or has no reason to believe, that any of the Material Suppliers has ceased, or intends to cease, to supply goods or services to the Business or to otherwise terminate or materially reduce its relationship with the Business.

26

4.14     Product/Service Warranties(a)     . Other than as set forth in Section 4.14 of the Disclosure Schedules and other than as provided in Seller’s standard form agreements for the Company Products, copies of which are included in Section 4.14 of the Disclosure Schedules, no Company Product delivered by Seller is subject to any guarantee, warranty or other indemnity. During the past five years, Seller has not suffered any Liability or had to reimburse any of its customers, and there have been no claims made against any Seller, in respect of the Company Products.

4.15     Insurance. Section 4.15 of the Disclosure Schedules sets forth (a) a true and complete list of all current policies or binders of fire, Liability, product Liability, umbrella Liability, real and personal property, workers’ compensation, vehicular, fiduciary Liability and other casualty and property insurance maintained by Seller or its Affiliates and relating to the Business, the Purchased Assets or the Assumed Liabilities (collectively, the “Insurance Policies”); and (b) with respect to the Business, the Purchased Assets or the Assumed Liabilities, a list of all pending claims and the claims history for Seller since January 1, 2017. There are no claims related to the Business, the Purchased Assets or the Assumed Liabilities pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. Neither Seller nor any of its Affiliates has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if not yet due, accrued. All such Insurance Policies (a) are in full force and effect and enforceable in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. None of Seller or any of its Affiliates is in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any such Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Business and are sufficient for compliance with all applicable Laws and Contracts to which Seller is a party or by which it is bound. True and complete copies of the Insurance Policies have been made available to Buyer.

4.16     Legal Proceedings; Governmental Orders. Neither Seller nor its personnel (in relation to their role as such) is or has in the past three (3) years been (a) subject to any outstanding settlement, injunction, judgment, order, decree, ruling, or charge, or (b) a party, or, to Seller’s Knowledge after additional inquiry of its legal counsel, threatened to be made a party, to any Action. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action. Seller does not presently intend to initiate any Action

4.17     Compliance With Laws; Permits. Seller has complied, and is now complying, with all Laws applicable to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets. All Permits required for Seller to conduct the Business as currently conducted or for the ownership and use of the Purchased Assets have been obtained by Seller and are valid and in full force and effect. All fees and charges with respect to such Permits as of the date hereof have been paid in full. Section 4.17 of the Disclosure Schedules lists all current Permits issued to Seller that are related to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets, including the names of the Permits and their respective dates of issuance and expiration. No event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Section 4.17 of the Disclosure Schedules.

27

4.18     Environmental Matters. Seller is and has been in compliance with all applicable Environmental Laws, and Seller holds and is in compliance with all permits, licenses and other authorizations required pursuant to applicable Environmental Laws for its operations as currently conducted. Seller has not received any currently unresolved requests for information or written notice of any alleged violation of, or Liability (including any potential investigatory, corrective or remedial obligations) under, any Environmental Laws, and there are no pending, or to Seller’s Knowledge after additional inquiry of its legal counsel, threatened Actions asserting or resolving alleged violations of or Liability under applicable Environmental Laws with respect to Seller. There has been no release of any Hazardous Materials (i) from, upon, or into any real property currently owned or operated by Seller, or (ii) to Seller’s Knowledge, any site formerly owned, leased or operated by Seller or any of its predecessors for which Seller could reasonably be expected to have Liability under any Environmental Law.

4.19    Employee Benefit Matters.

(a)     Section 4.19(a) of the Disclosure Schedules contains a true and complete list of each pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off (PTO), medical, vision, dental, disability, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, which is or has been maintained, sponsored, contributed to, or required to be contributed to by Seller for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Business or any spouse or dependent of such individual, or under which Seller has or may have any Liability, or with respect to which Buyer or any of its Affiliates would reasonably be expected to have any Liability, contingent or otherwise (as listed on Section 4.19(a) of the Disclosure Schedules, each, a “Benefit Plan”). Section 4.19(a) of the Disclosure Schedules contains a true and complete list of all accrued vacation set forth in the current employment offers for any employees with respect to any period of service with Seller at any time on or prior to the Closing Date.

(b)     With respect to each Benefit Plan, Seller has made available to Buyer accurate, current and complete copies of each of the following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of any summary plan descriptions, summaries of material modifications, summaries of benefits and coverage, employee handbooks and any other written communications (or a description of any oral communications) relating to any Benefit Plan; and (v) copies of material notices, letters or other correspondence from any Governmental Authority relating to the Benefit Plan.

(c)     Each Benefit Plan and any related trust has been established, administered and maintained in accordance with its terms and in compliance with all applicable Laws in all material respects.

(d)     No pension plan which is subject to minimum funding requirements, including any multiple employer plan, (each a “Single Employer Plan”) in which employees of the Business participate or have participated has an “accumulated funding deficiency,” whether or not waived, or is subject to a lien for unpaid contributions. All benefits, contributions and premiums relating to each Benefit Plan have been timely paid in accordance with the terms of such Benefit Plan and all applicable Laws and accounting principles, and all benefits accrued under any unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with GAAP.

28

(e)     Seller has not (i) incurred nor reasonably expects to incur, either directly or indirectly, any material Liability under applicable local Law relating to employee benefit plans; (ii) failed to timely pay premiums; (iii) withdrawn from any Benefit Plan; (iv) engaged in any transaction which would give rise to Liability; or (v) incurred taxes with respect to any Single Employer Plan.

(f)     Other than as required under applicable Law, no Benefit Plan or other arrangement or agreement provides post-termination or retiree health benefits to any individual for any reason.

(g)     There is no pending or, to Seller’s Knowledge after additional inquiry of its legal counsel, threatened Action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the three years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under, or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.

(h)     There has been no amendment to, announcement by Seller or any of its Affiliates relating to, or change in employee participation or coverage under, any Benefit Plan or collective bargaining agreement that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year (other than on a de minimis basis) with respect to any director, officer, employee, consultant or independent contractor of the Business, as applicable. Neither Seller nor any of its Affiliates has any commitment or obligation or has made any representations to any director, officer, employee, consultant or independent contractor of the Business, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement.

(i)     Neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor or consultant of the Business to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation (including stock-based compensation) due to any such individual; (iii) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (iv) result in parachute or change of control payments to any current or former director, officer, employee, independent contractor or consultant of the Business.

4.20    Employment Matters.

(a)     Section 4.20(a) of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants of the Business as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full-time or part-time); (iii) hire or retention date; (iv) current annual base compensation rate or contract fee; (v) commission, bonus or other incentive-based compensation; and (vi) a description of the fringe benefits provided to each such individual as of the date hereof. All compensation, including wages, commissions, bonuses, fees and other compensation, payable to all employees, independent contractors or consultants of the Business for services performed on or prior to the date hereof have been or will have been paid in full prior to the Closing Date.

(b)     Seller is not, and has not been for the past three years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “Union”), and, to Seller’s Knowledge, there is not, and has not been for the past three years, any Union representing or purporting to represent any employee of Seller, and no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. There has never been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting Seller or any employees of the Business. Seller has no duty to bargain with any Union.

29

(c)     Seller is and has been in compliance in all respects with all applicable Laws pertaining to employment and employment practices to the extent they relate to employees, volunteers, interns, consultants and independent contractors of the Business, including all Laws relating to employment standards, labor relations, equal employment opportunities, fair employment practices, employment discrimination, workplace harassment and workplace violence, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours of work, vacation, record keeping, human rights, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, occupational health and safety, workers’ compensation, pay equity, accessibility, leaves of absence, paid sick leave and unemployment insurance. All individuals characterized and treated by Seller as consultants or independent contractors of the Business are properly treated as independent contractors under all applicable Laws. There are no Actions against Seller pending, or to Seller’s Knowledge after additional inquiry of its legal counsel, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Business, including, without limitation, any charge, investigation or claim relating to employment standards, unfair labor practices, equal employment opportunities, fair employment practices, employment discrimination, workplace harassment, workplace violence, retaliation, reasonable accommodation, accessibility, disability rights or benefits, immigration, wages, hours of work, overtime compensation, vacation pay, record keeping, human rights, employee classification, child labor, hiring, promotion and termination of employees, pay equity, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence, paid sick leave, unemployment insurance or any other employment related matter arising under applicable Laws.

4.21    Taxes

(a)     All Tax Returns required to be filed by Seller for any Pre-Closing Tax Period have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all respects. All Taxes due and owing by Seller (whether or not shown on any Tax Return) have been, or will be, timely paid. Seller has made full and adequate provision in its Books and Records for all Taxes which are not yet due and payable and which relate to any Pre-Closing Tax Period. Seller has not claimed or received any refund of Taxes to which it is not entitled.

(b)     Seller has withheld, charged and collected all amounts required by applicable Law on account of Taxes and has remitted all such amounts to the appropriate Governmental Authority within the time prescribed by applicable Law, including sales Taxes and including any Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder or other party, and has complied with all information reporting and backup withholding provisions of applicable Law.

(c)     There are no assessments, reassessments, claims, proceedings, audits, investigations or any other action outstanding or threatened against Seller in respect of Taxes and to the knowledge of Seller, there is no reason to expect any such assessment, reassessment, claim, proceeding, audit, investigation or any other action may be asserted against Seller for any Pre-Closing Tax Period. Seller has no knowledge of any contingent liabilities of Seller for Taxes or any grounds for assessment or reassessment of Taxes, including, without limitation, the treatment of income expenses, credits or other claims for deductions under any Tax Return.

30

(d)     For purposes of, and within the meaning of, section 167 of the Excise Tax Act (Canada), pursuant to this Agreement Seller is making a supply of a business that was carried on by Seller and Seller is transferring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as being necessary for Buyer to be capable of carrying on such business.

(e)     Seller is duly registered for GST and HST under Part IX of the Excise Tax Act (Canada) and its registration number is 87116 4133 RT0001. All input tax credits claimed by Seller for GST and HST purposes was calculated in accordance with applicable Laws. Seller has complied in all respects with all registration, reporting, payment, collection and remittance requirements in respect of HST, GST, provincial sales tax and all other sales taxes.

(f)     There are no Encumbrances for Taxes upon any of the Purchased Assets nor is any taxing authority in the process of imposing any Encumbrances for Taxes on any of the Purchased Assets (other than for current Taxes not yet due and payable).

(g)     Seller is not a non-resident within the meaning of the Income Tax Act.

4.22    Affiliate Transactions. No Seller Party, nor any officer, director, manager, employee, shareholder, equityholder, partner, member or Affiliate of any Seller Party, or, to Seller’s Knowledge, any individual related by blood, marriage or adoption to any of the foregoing Persons or any Person in which any of the foregoing Persons owns any beneficial interest in, is a consultant, competitor, creditor, debtor, customer, distributor, service provider, supplier or vendor of, or is a party to any Contract with, Seller or has any interest in any of the assets used in, or necessary to, the Business. Section 4.22 of the Disclosure Schedules contains a description of all services provided to or on behalf of Seller by any Owner (other than in such Person’s ordinary course capacity as a director, officer or employee of Seller) or its Affiliates (other than Seller) and the payments and other costs, if any, associated therewith.

4.23    Anti-Corruption, Anti-Money Laundering, and Trade Compliance. None of Seller, the Owners, any of Seller’s directors, officers, employees, or, to their knowledge, Seller’s Representatives has with respect to the Business or any Purchased Asset (a) violated any Anti-Corruption Law or Seller policies and procedures pertaining to Anti-Corruption Laws; (b) directly or indirectly (through third parties) with a corrupt, improper, or illegal intent authorized, promised, offered, paid, or provided money or anything else of value to (i) a Government Official, (ii) a political party or candidate for political office, (iii) any person while “knowing” (as that term is defined and interpreted by the U.S. government for purposes of the FCPA) that all or a portion of that money or thing of value has or will be directly or indirectly promised, offered, paid, or provided to a Government Official, political party, or candidate for political office, or (iv) any other individual, entity, or organization, for purposes of obtaining, retaining, or directing licenses, permits, approvals, tax or duty assessments, land or other registrations, inspections, judgments, sales, business, or any other financial or other advantage; (c) otherwise directly or indirectly offered, promised, authorized, provided, or incurred any bribe, kickback, or other improper, corrupt, or unlawful payment, expense, rebate, discount, commission, influence or other contribution, gift, favor, entertainment, travel or other benefit, emolument, or advantage (collectively, “Restricted Benefits”) to or for the benefit of any Government Official, political party, or candidate for political office, or any other individual, entity, or organization; (d) solicited, accepted, or received any Restricted Benefits from any person; (e) established or maintained a slush fund or any other off-the-books account or engaged in unrecorded transactions; (f) falsified any Seller financial or other document; (g) violated any applicable fraud, embezzlement, or anti-money laundering Law, including, but not limited to, the USA PATRIOT Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act; (h) engaged in business directly or indirectly in Iran, Cuba, North Korea, Sudan, Syria or any other country in violation of comprehensive or selective U.S. or Canadian sanctions or embargoes; (i) established or maintained any unlawful or unrecorded fund or corporate moneys or other assets; (j) made any false or fictitious entries on the books or records of Seller; (k) otherwise violated or has caused other parties to be in violation of any applicable Laws relating to the export, deemed export, or re-export of commodities, technologies, or services, including, but not limited to, U.S. Trade Laws and Canadian Trade Laws; (l) been the subject of any claim, allegation, voluntary or other disclosure, internal or external investigation, prosecution, settlement or other enforcement action or civil litigation related to any Anti-Corruption Law, U.S. Trade Law, Canadian Trade Law or other applicable Law. None of Seller, the Owners, or, to Seller’s Knowledge, any of Seller’s directors, officers, employees, or Representatives, or their immediate family members is a Government Official. Seller and the Owners will not share all or any portion of the Purchase Price or any other payment covered by this Agreement with any Government Official or other person in violation of any Anti-Corruption Law, U.S. Trade Law, Canadian Trade Law or any other applicable Law or otherwise cause Buyer to be in violation of such Laws. Seller and the Owners have in good faith provided to Buyer all due diligence information and materials requested by Buyer in relation to its FCPA and CFPOA review of the Business.

31

4.24     Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of Seller.

4.25     Electronic Data Room. Attached hereto as Section 4.25 of the Disclosure Schedules is a true and complete index of the contents of the in the virtual data room established by Seller (the “Electronic Data Room”). The Electronic Data Room contains no other documents or information except such documents and items of information as are listed on Section 4.25 of the Disclosure Schedules. Any document or other item of information in the Electronic Data Room which is not so listed on Section 4.25 of the Disclosure Schedules, and not otherwise disclosed pursuant to the Disclosure Schedules, shall not deemed to be disclosed, provided or made available to Buyer for purposes of this Agreement.

4.26     Full Disclosure. No representation or warranty by Seller in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER AND GENASYS

Each of Buyer and Genasys jointly and severally represents and warrants to Seller that the statements contained in this ARTICLE V are true and correct as of the date hereof.

5.1      Organization . Buyer is an unlimited liability company duly organized, validly existing and in good standing under the Laws of British Columbia. Buyer has the corporate power to purchase the Purchased Assets to be acquired by it from Seller. Genasys is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. Genasys directly or indirectly owns all of the issued and outstanding shares in the capital of Buyer.

5.2       Authority. Each of Buyer and Genasys has full corporate power and authority to enter into this Agreement and the Ancillary Documents to which either Buyer and / or Genasys is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer and Genasys of this Agreement and any Ancillary Document to which either Buyer and / or Genasys is a party, the performance by Buyer and Genasys of their respective obligations hereunder and thereunder and the consummation by Buyer and / or Genasys of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Buyer and Genasys, as applicable. This Agreement has been duly executed and delivered by Buyer and Genasys, and (assuming due authorization, execution and delivery by Seller) this Agreement constitutes a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. When each Ancillary Document to which Buyer and / or Genasys is or will be a party has been duly executed and delivered by Buyer and / or Genasys (assuming due authorization, execution and delivery by each other party thereto) as applicable, such Ancillary Document will constitute a legal and binding obligation of Buyer and / or Genasys, as applicable, enforceable against Buyer and / or Genasys in accordance with its terms.

32

5.3       No Conflicts; Consents. The execution, delivery and performance by Buyer and Genasys of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of Buyer and / or Genasys; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Buyer and / or Genasys; or (c) require the consent, notice or other action by any Person under any Contract to which Buyer and /or Genasys is a party. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Buyer in connection with the execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby.

5.4       Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of Buyer and / or Genasys.

5.5     Legal Proceedings. There are no Actions pending or, to Buyer’s or Genasys’ knowledge, threatened against or by Buyer, Genasys or any Affiliate of Buyer or Genasys that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise or serve as a basis for any such Action. There are no outstanding Governmental Orders and no unsatisfied judgements, penalties or awards against, relating to or affecting Buyer or Genasys that would have a material adverse effect on the transactions contemplated by this Agreement.

5.6       Tax Registration. Buyer is duly registered for GST and HST under Part IX of the Excise Tax Act (Canada) and its registration number is 871164133RT0001.

5.7       Sufficiency and Availability of Funds. Buyer has available, or will have available on the Closing Date, sufficient immediately available funds to enable it to pay the Closing Cash Amount.

5.8       Issuance of Stock Purchase Price by Genasys. Genasys has all requisite corporate power and authority to issue the Common Stock representing the Stock Purchase Price that will be delivered to Seller pursuant to Section 2.5, and all necessary action for the issuance of such Common Stock has been, or will be, duly taken as of the Closing Date. The Common Stock delivered to Seller hereunder, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable, and will be free of restrictions on transfer other than restrictions on transfer under applicable securities laws. The offer, sale and issuance of the Common Stock as contemplated by this Agreement are exempt from the prospectus and registration requirements of applicable securities Laws and will not result in a violation of the qualification or registration requirements of applicable securities Laws.

5.9       Securities Filings. Genasys has filed all material forms, reports, schedules, statements and other documents required to be filed by Genasys with applicable securities authorities (the “Genasys Filings”). The documents comprising the Genasys Filings did not at the time filed with securities authorities contain any misrepresentation of any material fact and complied in all material respects with the requirements of applicable Laws. As of the date hereof, there are no outstanding or unresolved comments in comment letters from the securities authorities with respect to any Genasys Filings. To the knowledge of Genasys, none of the Genasys Filings is the subject of an ongoing review by the securities authorities, outstanding comment by the securities authorities or outstanding investigation by the securities authorities.

33

5.10     Absence of Certain Changes or Events. Since June 30, 2020, other than the transactions contemplated in this Agreement and as disclosed in the Genasys Filings, there has not been a material adverse effect on Genasys and no event has occurred or circumstance has arisen that, in combination with any other events or circumstances, will or could reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on Genasys.

ARTICLE VI

COVENANTS

6.1      Conduct of Business Prior to the Closing. From the date hereof until the Closing or earlier termination of this Agreement in accordance with ARTICLE IX, except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld or delayed), Seller shall (x) conduct the Business in the ordinary course of business consistent with past practice; and (y) use commercially reasonable efforts to maintain and preserve intact its current Business organization, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having relationships with the Business. Without limiting the foregoing, from the date hereof until the Closing Date, Seller shall:

(a)     preserve and maintain all Permits required for the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets;

(b)     pay the debts, Taxes and other obligations of the Business when due;

(c)     continue to collect accounts receivable in a manner consistent with past practice, without discounting such accounts receivable;

(d)     maintain the properties and assets included in the Purchased Assets in the same condition as they were on the date of this Agreement, subject to reasonable wear and tear;

(e)     continue in full force and effect without modification all Insurance Policies, except as required by applicable Law;

(f)     defend and protect the properties and assets included in the Purchased Assets from infringement or usurpation;

(g)     perform all of its obligations under all Assigned Contracts;

(h)     maintain the Books and Records in accordance with past practice;

(i)     comply in all material respects with all Laws applicable to the conduct of the Business or the ownership and use of the Purchased Assets; and

(j)     not take or permit any action that would cause any of the changes, events or conditions described in Section 4.6 to occur.

34

Notwithstanding the foregoing, Seller shall be entitled to complete the Pre-Closing Reorganization and the transactions contemplated thereby prior to the Closing.

6.2       Access to Information. From the date hereof until the Closing, Seller shall (a) afford Buyer and its Representatives full and free access to and the right to inspect all of the Leased Real Property, properties, assets, premises, Books and Records, Contracts and other documents and data related to the Business; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Business as Buyer or any of its Representatives may reasonably request; and (c) instruct the Representatives of Seller to cooperate with Buyer in its investigation of the Business; in each case, during regular business hours of Seller. Any investigation pursuant to this Section 6.2 shall be conducted in such manner as not to interfere unreasonably with the conduct of the Business or any other businesses of Seller. No investigation by Buyer or other information received by Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement.

6.3       No Solicitation of Other Bids.

(a)     From the date hereof until the Closing, Seller shall not, and shall not authorize or permit any of its Affiliates or any of its or their Representatives to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. Seller shall immediately cease and cause to be terminated, and shall cause its Affiliates and all of its and their Representatives to immediately cease and cause to be terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could lead to, an Acquisition Proposal. For purposes hereof, “Acquisition Proposal” means any inquiry, proposal or offer from any Person (other than Buyer or any of its Affiliates) relating to the direct or indirect disposition, whether by sale, merger or otherwise, of all or any portion of the Business or the Purchased Assets.

(b)     In addition to the other obligations under this Section 6.3, from the date hereof until the Closing Seller shall promptly (and in any event within three Business Days after receipt thereof by Seller or its Representatives) advise Buyer orally and in writing of any Acquisition Proposal, any request for information with respect to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an Acquisition Proposal, the material terms and conditions of such request, Acquisition Proposal or inquiry, and the identity of the Person making the same.

(c)     Seller agrees that the rights and remedies for noncompliance with this Section 6.3 shall include having such provision specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer.

6.4       Notice of Certain Events.

(a)     From the date hereof until the Closing, Seller shall promptly notify Buyer in writing of:

(i)     any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by Seller hereunder not being true and correct or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 7.2 to be satisfied;

35

(ii)     any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(iii)     any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

(iv)     any Actions commenced or, to Seller’s Knowledge, threatened against, relating to or involving or otherwise affecting the Business, the Purchased Assets or the Assumed Liabilities that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.16 or that relates to the consummation of the transactions contemplated by this Agreement.

(b)     Buyer’s receipt of information pursuant to this Section 6.4 shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement (including Section 8.2 and Section 9.1(b)) and shall not be deemed to amend or supplement the Disclosure Schedules.

6.5      Employees and Employee Benefits.

(a)     On or before the Closing Date, Seller shall take all means necessary in accordance with applicable Law to cause the employment relationship with all employees of the Business who are actively at work on or prior to the Closing Date to be ended as of Closing. To the extent that any termination and / or severance entitlements are owing pursuant to applicable Law as of the Closing as a result of the foregoing, Seller hereby agrees to provide such employees with all such required termination and / or severance entitlements. Effective upon the Closing Date and subject to the consummation of the Closing, Buyer shall offer employment to those employees listed on Exhibit H and may, at Buyer’s sole discretion, offer employment to any other employee of Seller. Such offers of employment to such personnel will be contingent upon their agreement to Employment Agreements, offer letters, confidentiality and proprietary rights assignments and restrictive covenants, including with respect to non-solicitation, non-hire and confidentiality, that are consistent with such covenants as are generally applicable to Buyer’s similarly situated personnel. The personnel who accept such offer, execute all required documents and begin employment with Buyer or one of its Affiliates are referred to hereunder as “Transferred Employees.” Each Transferred Employee shall enter into an Employment Agreement or Offer Letter that is acceptable to Buyer.

(b)     Seller shall be solely responsible, and Buyer shall have no obligations whatsoever for, any compensation or other amounts payable to any current or former employee, officer, director, independent contractor or consultant of the Business that is required by applicable Law, including, without limitation, hourly pay, wages, commission, bonus, salary, accrued vacation, overtime, fringe, pension or profit sharing benefits, pay in lieu of notice and/or severance pay for any period relating to the service with Seller at any time on or prior to the Closing Date and Seller shall pay all such amounts to all entitled persons on or prior to the Closing Date.

(c)     Buyer shall be solely responsible, and Sellers shall have no obligations whatsoever for: (i) any accrued vacation set forth in the current employment offers for any Transferred Employees with respect to any period of service with Seller at any time on or prior to the Closing Date for the current calendar year; and (ii) any compensation or other amounts payable to any current or former employee, officer, director, independent contractor or consultant of the Business, including, without limitation, hourly pay, wages, commission, bonus, salary, accrued vacation, overtime, fringe, pension or profit sharing benefits, pay in lieu of notice and/or severance pay for any period relating to the service with Buyer at any time after the Closing Date; and Buyer shall pay all such amounts to all entitled persons.

36

(d)     Seller shall remain solely responsible for the satisfaction of all claims for medical, dental, life insurance, health accident or disability benefits brought by or in respect of current or former employees, officers, directors, independent contractors or consultants of the Business or the spouses, dependents or beneficiaries thereof, which claims relate to events occurring on or prior to the Closing Date. Seller also shall remain solely responsible for all occupational health and safety and/or worker’s compensation claims of any current or former employees, officers, directors, independent contractors or consultants of the Business which relate to events occurring on or prior to the Closing Date. Seller shall pay, or cause to be paid, all such amounts to the appropriate persons as and when due.

(e)     Effective as soon as practicable following the Closing Date, Seller, or any applicable Affiliate, shall effect a transfer of assets and Liabilities (including outstanding loans) from the defined contribution retirement plan that it maintains, to any defined contribution retirement plan maintained by Buyer, with respect to those employees of the Business who become employed by Buyer, or an Affiliate of Buyer, in connection with the transactions contemplated by this Agreement. Upon the transfer of assets and Liabilities into Buyer’s plan, all transferred account balances from Seller’s plan shall become fully vested.

(f)     To the extent eligible under applicable Law and benefits plans, each Transferred Employee shall be given service credit for the purpose of eligibility under the group health plan and eligibility and vesting only under the defined contribution retirement plan for his or her period of service with Seller prior to the Closing Date, which shall be inclusive of vacation entitlements; provided, however, that (i) such credit shall be given pursuant to payroll or plan records, at the election of Buyer, in its sole and absolute discretion; and (ii) such service crediting shall be permitted and consistent with Buyer’s defined contribution retirement plan.

6.6     Independent Contractors. Effective upon the Closing Date and subject to the consummation of the Closing, Buyer shall engage the contractors listed on Exhibit I as independent contractors, on terms acceptable to Buyer, but for no less than three month periods. Buyer may, at Buyer’s sole discretion, offer consulting engagements to any other independent contractors of Seller.

6.7       Confidentiality. From and after the Closing, Seller shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning the Business, except to the extent that Seller can show that such information (a) is generally available to and known by the public through no fault of Seller, any of its Affiliates or their respective Representatives; or (b) is lawfully acquired by Seller, any of its Affiliates or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If Seller or any of its Affiliates or their respective Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, Seller shall promptly notify Buyer in writing and shall disclose only that portion of such information which Seller is advised by its counsel in writing is legally required to be disclosed, provided that Seller shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information. Notwithstanding anything else to the contrary in this Agreement, Genasys, Buyer and Seller further acknowledge and agree that the terms of the Mutual Non-Disclosure Agreement dated January 16, 2020 by and between Seller and Genasys shall continue to apply from and after the date hereof until the Closing, and Buyer hereby expressly acknowledges receipt of, and agrees to be bound by the terms of, such Mutual Non-Disclosure Agreement.

6.8       Restricted Activities. Each Seller Party agrees that the following restrictions on his, her or its activities following the Closing are necessary to protect the goodwill, confidential information, trade secrets and other legitimate interests of Seller, Buyer and their respective Affiliates, in each case, as they exist on the date hereof (each a “Covered Entity”). The obligations imposed on the Seller Parties pursuant to this Section 6.8 are collectively referred to as the “Restrictive Covenants”.

37

(a)     Until the later of (i) the fifth anniversary of the Closing and (ii) the first anniversary of the termination of employment of any Owner with Buyer or its Affiliates (the “Restricted Period”), each Seller Party shall not, and shall cause his, her or its respective Affiliates not to, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, engage in or compete with, or undertake any planning to engage in or compete with, the Business, in Canada or any other region of the world in which Seller conducts the Business at the time of the Closing (the “Territory”); provided, however, that nothing contained herein shall prohibit any Seller Party from (x) owning or disposing of the Common Stock (or any securities exchanged for such shares at any time) or (y) owning directly or indirectly, solely as an investment, securities of any Person traded on any national securities exchange if such Seller Party is not a controlling person of, or a member of a group which controls, such Person, and does not, directly or indirectly, own five percent (5%) or more of any class of securities of such other Person.

(b)     During the Restricted Period, each Seller Party shall not, and shall cause his, her or its respective Affiliates not to, directly or indirectly, (i) solicit or encourage any customer, vendor, supplier or other business partner of a Covered Entity to terminate or diminish his, her or its relationship with a Covered Entity or (ii) seek to persuade any such customer, vendor, supplier or other business partner, or any prospective customer, vendor, supplier, or other business partner of a Covered Entity to conduct with anyone else any business or activity which such business partner or prospective business partner conducts with a Covered Entity, in each case, as such customer, vendor, supplier or other business partner exists on the date hereof.

(c)     During the Restricted Period, each Seller Party shall not, and shall cause his, her or its respective Affiliates not to, directly or indirectly, (i) hire or engage, or solicit for hiring or engagement, any employee of a Covered Entity or seek to persuade any such employee to discontinue employment or (ii) solicit or encourage any independent contractor providing services to a Covered Entity to terminate or diminish his, her or its relationship with any of them; provided, that, nothing in this Section 6.8(c) shall prevent any Seller Party or their respective Affiliates from (x) soliciting or hiring any employee (A) whose employment has been terminated by Buyer without cause; (B) who is not offered employment with Buyer following the Closing; or (C) who is no longer employed in the business at the time of Closing and has not been employed in the business for six (6) months; or (y) general solicitation for employment through general advertisement not directed at Buyer so long as such Seller Party does not hire any employee of a Covered Entity that responds to such general solicitation; and such Seller Party acknowledges that no employee of a Covered Entity may otherwise provide services to such Seller Party or its Affiliates following the Closing without the prior written consent of the Covered Entity.

(d)     Each Seller Party acknowledges that the success of the Business after the Closing depends upon the continued preservation of the confidentiality of certain information possessed by Seller or such Seller Party involving or relating to the Business, that the preservation of the confidentiality of such information by such Seller Party is an essential premise of the bargain between Seller, such Seller Party and Buyer, and that Buyer would be unwilling to enter into this Agreement in the absence of this Section 6.8(d). Accordingly, each Seller Party agrees with Buyer that such Seller Party shall not, and that such Seller Party shall cause its Representatives and Affiliates not to, from and after the date hereof, directly or indirectly, without the prior written consent of Buyer, disclose or use, any confidential or proprietary information involving or relating to the Business; provided, however, that the information subject to the foregoing provisions of this sentence shall not include any information generally available to, or known by, the public (other than as a result of disclosure in violation hereof); and provided, further, that the provisions of this Section 6.8(d) shall not prohibit any retention of copies of records or disclosure (i) required by any applicable Law so long as reasonable prior notice is given of such disclosure and a reasonable opportunity is afforded to contest such disclosure or (ii) made in connection with the enforcement of any right or remedy relating to this Agreement or the transactions contemplated hereby. Notwithstanding anything to the contrary contained in this Section 6.8(d), each Seller Party and his, her or its Representatives shall be permitted to disclose any confidential information to the extent such disclosure is required by applicable Law or other request by a Governmental Authority (including with respect to any audit or examination conducted by any Governmental Authority exercising examination or regulatory authority); provided, that the disclosing Seller Party shall, except as may be prohibited by applicable Law, (x) provide Buyer with reasonably prompt written notice of such requirement to enable Buyer to seek an appropriate protective order or other remedy with respect thereto, (y) consult and cooperate with Buyer with respect to taking reasonable steps requested in writing by Buyer to resist or narrow the scope of such request or requirement and (z) use commercially reasonable efforts to ensure that all confidential information that is so disclosed will be afforded confidential treatment, in each case of clauses (x) – (z) of this Section 6.8(d).

38

(e)     Each party hereto agrees with that he, she or it shall not at any time, unless compelled by Law, disparage or defame Buyer or Seller or any of their respective Affiliates, the members of their respective governing boards, managers, or their respective officers, employees or agents. No party hereto shall otherwise do or say anything that could disrupt the good morale of the employees of Buyer, Seller or any of their respective Affiliates or harm the business interests, reputation or goodwill of Buyer, Seller or any of their respective Affiliates.

(f)     In signing this Agreement, each Seller Party gives Buyer assurance that he, she or it has carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed on such Seller Party under this Section 6.8. Such Seller Party agrees without reservation that these restraints are necessary for the reasonable and proper protection of the Covered Entities, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. Such Seller Party further agrees that, were he, she or it to breach any of the covenants contained in this Section 6.8, the damage to the applicable Covered Entity would be irreparable, and therefore agrees that the applicable Covered Entity, in addition and not in the alternative to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by such Seller Party of any such covenants, without having to post bond, together with an award of its reasonable attorneys’ fees incurred in enforcing its rights hereunder. Such Seller Party further agrees that the Restricted Period shall be tolled, and shall not run, during the period of any breach by such Seller Party of any of the covenants contained in this Section 6.8. Such Seller Party and the Covered Entities further agree that, in the event that any provision of this Section 6.8 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by Law. It is also agreed that each Covered Entity is a third-party beneficiary of this Section 6.8 shall have the right to enforce all of such Seller Party’s obligations to that Covered Entity under this Agreement, including without limitation pursuant to this Section 6.8. No claimed breach of this Agreement or other violation of Law attributed to Buyer or any of his, her or its Affiliates shall operate to excuse such Seller Party from the performance of its obligations under this Section 6.8.

6.9      Governmental Approvals and Consents.

(a)     Each party hereto shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions required under any Law applicable to such party or any of its Affiliates; and (ii) use commercially reasonable efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant to this Agreement and the Ancillary Documents. Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals.

39

(b)     Seller shall use commercially reasonable efforts to give all notices to, and obtain all consents from, all third parties that are described in Section 4.3 of the Disclosure Schedules.

(c)     Without limiting the generality of the obligations set forth in subsections (a) and (b) above, each of the parties hereto shall use commercially reasonable efforts to:

(i)     respond to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactions contemplated by this Agreement or any Ancillary Document;

(ii)     avoid the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by this Agreement or any Ancillary Document; and

(iii)     in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement or any Ancillary Document has been issued, to have such Governmental Order vacated or lifted.

(d)     All analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals made by or on behalf of either party before any Governmental Authority or the staff or regulators of any Governmental Authority, in connection with the transactions contemplated hereunder (but, for the avoidance of doubt, not including any interactions between Seller or Buyer with Governmental Authorities in the ordinary course of business, any disclosure which is not permitted by Law or any disclosure containing confidential information) shall be disclosed to the other party hereunder in advance of any filing, submission or attendance, it being the intent that the parties will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals. Each party shall give notice to the other party with respect to any meeting, discussion, appearance or contact with any Governmental Authority or the staff or regulators of any Governmental Authority, with such notice being sufficient to provide the other party with the opportunity to attend and participate in such meeting, discussion, appearance or contact.

(e)     Notwithstanding the foregoing, nothing in this Section 6.9 shall require, or be construed to require, Buyer or any of its Affiliates to agree to (i) sell, hold, divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of Buyer or any of its Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets, businesses or interests which, in either case, could reasonably be expected to result in a Material Adverse Effect or materially and adversely impact the economic or business benefits to Buyer of the transactions contemplated by this Agreement and the Ancillary Documents; or (iii) any material modification or waiver of the terms and conditions of this Agreement.

6.10    Books and Records. In order to facilitate the resolution of any claims made against or incurred by Seller prior to the Closing, or for any other reasonable purpose, for a period of seven years after the Closing, Buyer shall retain the Books and Records (including personnel files) relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of Seller, and upon reasonable notice, afford the Seller’s Representatives reasonable access (including the right to make, at Seller’s expense, photocopies), during normal business hours, to such Books and Records. In order to facilitate the resolution of any claims made by or against or incurred by Buyer after the Closing, or for any other reasonable purpose, for a period of three years following the Closing, Seller shall retain the books and records (including personnel files) of Seller which relate to the Business and its operations for periods prior to the Closing, and upon reasonable notice, afford Buyer’s Representatives reasonable access (including the right to make, at Buyer’s expense, photocopies), during normal business hours, to such books and records. Neither Buyer nor Seller shall be obligated to provide the other party with access to any books or records (including personnel files) pursuant to this Section 6.10 where such access would violate any Law.

40

6.11     Closing Conditions. From the date hereof until the Closing, each party hereto shall use commercially reasonable efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in ARTICLE VII hereof.

6.12     Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements (based upon the reasonable advice of counsel), no party to this Agreement shall make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed), and the parties shall cooperate as to the timing and contents of any such announcement.

6.13     Bulk Sales Laws. The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer; it being understood that any Liabilities arising out of the failure of Seller to comply with the requirements and provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction which would not otherwise constitute Assumed Liabilities shall be treated as Excluded Liabilities.

6.14    Taxes.

(a)     Buyer and Seller acknowledge that the Purchase Price does not include any HST/GST or any Tax imposed under any provision of any applicable provincial legislation imposing a similar sales, value-added or multi-staged Tax.

(b)     Buyer and Seller acknowledge and agree that Buyer is acquiring ownership, possession and use of substantially all of assets reasonably necessary for Buyer to carry on the Business.

(c)     Buyer and Seller shall elect jointly under s. 167(1) of the Excise Tax Act (Canada), in the form prescribed for the purpose of that subsection, in respect of the sale and transfer of the Purchased Assets hereunder, and Buyer shall file such election not later than the deadline for filing its HST/GST return for its reporting period that includes the Closing Date.

(d)     In the event that any HST/GST or any tax imposed under any provision of any applicable provincial legislation imposing a similar sales, value-added or multi-staged Tax is payable in respect of the purchase and sale of the Purchased Assets, Buyer shall be solely responsible for payment of such Taxes, and shall remit on a timely basis such payment to the Canada Revenue Agency (and to any applicable provincial taxation authority) and provide to Seller evidence in writing of such remittance, and shall be liable for and shall pay for any applicable interest or penalties payable as a result of any late payment of such Taxes.

(e)     Seller and Buyer shall execute and file their respective Tax Returns in a manner consistent with the aforesaid allocations and elections. If either Seller or Buyer fails to file its Tax Returns as aforesaid, such party shall indemnify and save harmless the other party in respect of any additional tax, legal and/or accounting costs paid or incurred by the other party as a result of the failure to file as aforesaid.

41

(f)     To the extent allowable by applicable Law, all personal property taxes and similar ad valorem obligations levied with respect to the Purchased Assets for a taxable period that includes (but does not end on) the Closing Date shall be apportioned between Seller and Buyer as of the Closing Date based on the number of days of such taxable period included in the Pre-Closing Tax Period and the number of days of such taxable period included in the Post-Closing Tax Period. Seller shall be liable for the proportionate amount of such Taxes that is attributable to the Pre-Closing Tax Period, and Buyer shall be liable for the proportionate amount of such Taxes that is attributable to the Post-Closing Tax Period.

6.15     Further Assurances. Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the Ancillary Documents.

6.16     Change of Corporate Name Use of Name. Within 30 days following the Closing, Seller take all action that is necessary to amend its articles of incorporation (or equivalent organizational document) to change its corporate name to one that does not include the words “Amika,” “Amika Mobile” or any other name that is the same as or similar to such words or any other trademarks or service marks now used by Seller and shall discontinue use of the name “Amika” and “Amika Mobile” and any similar names. At the request of Buyer, Seller shall take reasonable action requested by Buyer to enable Buyer to use, reserve or register any such name for the exclusive use of Buyer; provided, that Seller will not be required to pay any fees, commence any litigation or make any other concessions to any person in connection with providing such assistance.

6.17     Reservation of Common Stock. Genasys shall reserve and maintain such reservation within its authorized but unissued shares of Common Stock such number of shares of Common Stock as is necessary for Buyer to comply with its obligations under Section 2.5.

ARTICLE VII

CONDITIONS TO CLOSING

7.1       Conditions to Obligations of All Parties. The obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

(a)     No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect and has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.

(b)     All consents, authorizations, orders and approvals from the Governmental Authorities, in form and substance reasonably satisfactory to Buyer and Seller, shall have been received and no such consent, authorization, order and approval shall have been revoked.

7.2       Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Buyer’s waiver, at or prior to the Closing, of each of the following conditions:

42

(a)     Other than the representations and warranties of Seller contained in Section 4.1, Section 4.2, Section 4.4 and Section 4.24, the representations and warranties of Seller contained in this Agreement, the Ancillary Documents to which it is a party and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects). The representations and warranties of Seller contained in Section 4.1, Section 4.2, Section 4.4 and Section 4.21 shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

(b)     Seller shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date.

(c)     No Action shall have been commenced against Buyer, Genasys or Seller, which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.

(d)     All approvals, consents and waivers that are listed on Section 4.3 of the Disclosure Schedules shall have been received, and executed counterparts thereof shall have been delivered to Buyer at or prior to the Closing.

(e)     From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Material Adverse Effect.

(f)     Seller shall have delivered to Buyer duly executed counterparts to the Ancillary Documents and such other documents and deliveries set forth in Section 3.2(a).

(g)     Buyer shall have received reasonably sufficient evidence of the assignment by the Owners to Seller of all of the Owners right, title and interest to the Patents listed on Section 4.11(c) of the Disclosure Schedules.

(h)     Buyer shall have received all Permits that are necessary for it to conduct the Business as conducted by Seller as of the Closing Date.

(i)     All Encumbrances relating to the Purchased Assets shall have been released in full, other than Permitted Encumbrances, and Seller shall have delivered to Buyer written evidence, in form satisfactory to Buyer in its sole discretion, of the release of such Encumbrances.

(j)     Buyer shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Seller, that each of the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied (the “Seller Closing Certificate”).

(k)     Buyer shall have received a certificate of the Secretary of Seller certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Seller authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.

43

(l)     Buyer shall have received a certificate of the Secretary of Seller certifying the names and signatures of the officers of Seller authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder.

(m)     Seller shall have delivered to Buyer such other documents or instruments as Buyer reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

(n)     Buyer shall have determined in its reasonable discretion that the Pre-Closing Reorganization shall not have adverse consequences on the Buyer, including adverse Tax consequences.

(o)     Investment Canada Act Clearance shall have been obtained.

7.3       Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Seller’s waiver, at or prior to the Closing, of each of the following conditions:

(a)     Other than the representations and warranties of Buyer contained in Section 5.1, Section 5.2 and Section 5.4, the representations and warranties of Buyer contained in this Agreement, the Ancillary Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects). The representations and warranties of Buyer contained in Section 5.1, Section 5.2 and Section 5.4 shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date.

(b)     Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date.

(c)     No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any material transaction contemplated hereby.

(d)     Buyer shall have delivered to Seller duly executed counterparts to the Ancillary Documents and such other documents and deliveries set forth in Section 3.2(b).

(e)     Seller shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in Section 7.3(a) and Section 7.3(b) have been satisfied (the “Buyer Closing Certificate”).

(f)     Seller shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents, the reservation for issuance of the Common Stock to the Seller in respect of the Stock Purchase Price and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.

44

(g)     Seller shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying the names and signatures of the officers of Buyer authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder.

(h)     Buyer shall have delivered to Seller such other documents or instruments as Seller reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

ARTICLE VIII

INDEMNIFICATION

8.1       Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen months from the Closing Date; provided, that the representations and warranties in Section 4.1, Section 4.2, Section 4.8, Section 4.9, Section 4.24, Section 5.1, Section 5.2, Section 5.4, Section 5.7 and Section 5.8 shall survive indefinitely and Section 4.19 and Section 4.21 shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 60 days. All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

8.2       Indemnification By Seller Parties. Subject to the other terms and conditions of this ARTICLE VIII, each of the Seller Parties, jointly and severally, shall indemnify and defend each of Buyer and its Affiliates and their respective Representatives (collectively, the “Buyer Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, Buyer Indemnitees based upon, arising out of, with respect to or by reason of:

(a)     any inaccuracy in or breach of any of the representations or warranties of Seller contained in this Agreement, the Ancillary Documents to which it is a party or in any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

(b)     any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement, the Ancillary Documents to which it is a party or any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement;

(c)     any Excluded Asset or any Excluded Liability; or

45

(d)     any Third Party Claim based upon, resulting from or arising out of the business, operations, properties, assets or obligations of Seller or any of its Affiliates, other than in respect of the Purchased Assets or Assumed Liabilities, conducted, existing or arising on or prior to the Closing Date.

8.3       Indemnification By Buyer and Genasys. Subject to the other terms and conditions of this ARTICLE VIII, Buyer and Genasys, jointly and severally, shall indemnify and defend each of Seller and its Affiliates and their respective Representatives (collectively, the “Seller Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnitees based upon, arising out of, with respect to or by reason of:

(a)     any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or in any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

(b)     any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement, the Ancillary Documents to which it is a party or any certificate or instrument delivered by or on behalf of Buyer or Genasys pursuant to this Agreement;

(c)     any Purchased Asset or Assumed Liability;

(d)     the issuance of the Stock Purchase Price by Genasys; and

(e)     any Losses arising from a Third Party Claim on or after the date hereof that the Intellectual Property Assets infringe on any Patent owned or that can otherwise be asserted by any non-practicing entity, where a “non-practicing entity” means an entity that does not make or sell any product or service (other than services related to the assertion, licensing or other similar exploitation of Intellectual Property) and derives substantially all of its revenue from asserting Intellectual Property against or licensing (including providing covenants not to sue) or selling Intellectual Property to third parties and collecting license fees, royalties or other consideration from third parties, with or without engaging in litigation with such third parties (a “Non-Practicing Entity Claim”).

8.4       Certain Limitations. The indemnification provided for in Section 8.2 and Section 8.3 shall be subject to the following limitations:

(a)     Other than in respect of Intellectual Property Losses as set out in Section 8.4(c) below, the Seller Parties shall not be liable to the Buyer Indemnitees for indemnification under Section 8.2(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.2(a) exceeds $42,000 (the “Basket”), in which event the Seller Parties shall be required to pay or be liable for all such Losses from the first Dollar. The aggregate amount of all Losses for which the Seller Parties shall be liable pursuant to Section 8.2(a) shall not exceed $4,400,000 (the “Cap”).

(b)     Buyer shall not be liable to the Seller Indemnitees for indemnification under Section 8.3(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.3(a) exceeds the Basket, in which event Buyer shall be required to pay or be liable for all such Losses from the first Dollar. The aggregate amount of all Losses for which Buyer shall be liable pursuant to Section 8.3(a) shall not exceed the Cap.

46

(c)     The Seller Parties shall only be liable to the Buyer Indemnitees for indemnification under Section 8.2(a) and / or Section 8.2(c) in respect of Losses arising from the Intellectual Property Assets and Intellectual Property Agreements included in the Purchased Assets (the “Intellectual Property Losses”) from the Closing Date until the third anniversary of the Closing Date in an amount that shall not exceed the aggregate of: (i) the Holdback Amount, to the extent such amount has not been released to Seller or otherwise used to satisfy any Loss and (ii) the value of the Genasys Common Stock as follows (A) for the period that is from the Closing Date until the first anniversary of the Closing Date, up to the full value of the Genasys Common Stock as of such date; (B) for the period that is from the first anniversary of the Closing Date to the second anniversary of the Closing Date, up to two-thirds of the full value of the Genasys Common Stock as of such date; (C) for the period that is from the second anniversary of the Closing Date to the third anniversary of the Closing Date, up to one-third of the full value of the Genasys Common Stock as of such date; and (D) for the period that is from the third anniversary of the Closing Date and onwards, none of the value of the Genasys Common Stock as of such date; and in each case, as not otherwise already used to satisfy any Loss (the “Intellectual Property Cap”). For greater certainty, from the third anniversary of the Closing Date and onwards, the Seller Parties shall not be liable to the Buyer Indemnitees pursuant to Section 8.2(a) and / or Section 8.2(c) in respect of any Intellectual Property Losses and the Intellectual Property Cap shall be deemed to be zero dollars for such period. In addition, at no time shall the Seller Parties be liable for any Intellectual Property Losses in respect of a Non-Practicing Entity Claim.

(d)     Notwithstanding the foregoing, the limitations set forth in Section 8.4(a) and Section 8.4(b) shall not apply to Losses based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any representation or warranty in Section 4.1, Section 4.2, Section 4.8, Section 4.9, Section 4.19, Section 4.21, Section 4.24, Section 5.1, Section 5.2 and Section 5.4.

(e)     For purposes of this ARTICLE VIII, any inaccuracy in or breach of any representation or warranty shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty.

(f)     Any insurance proceeds actually received by an Indemnified Party under any insurance policy in connection with a claim, net of any deductibles, premiums increases and any other costs or expenses incurred in connection with securing or obtaining such insurance proceeds, shall be taken into account in calculating the amount of any Losses associated with such claim.

(g)     No Indemnified Party shall be entitled to claim as a Loss any special, consequential or punitive damages (including damages for loss of profits) except to the extent such damages are awarded to a third party in connection with a Third Party Claim.

(h)     An Indemnified Party shall not be entitled to double recovery for any Loss even though such Loss may have resulted from the breach of one or more representations, warranties or covenants in this Agreement, and no claim can be made by any such Indemnified Party in respect of any matter for which an adjustment to the Purchase Price has been made pursuant hereto.

(i)     No claim for indemnity pursuant to this Agreement may be made after the survival date for the applicable representation, warranty or covenant as set out in Section 8.1.

(j)     Nothing in this Agreement shall in any way restrict or limit the general obligation at Law of an Indemnified Party to mitigate any Losses which it may suffer or incur by reason of the breach by an Indemnifying Party of any representation, warranty, agreement or covenant of the Indemnifying Party under this Agreement or any Ancillary Document.

47

8.5       Indemnification Procedures. The party making a claim under this ARTICLE VIII is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this ARTICLE VIII is referred to as the “Indemnifying Party”.

(a)     Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “Third Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure, or the amount of the Loss or the costs to be incurred by the Indemnifying Party in defending such Third Party Claim is increased by such failure. Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, that if the Indemnifying Party is a Seller Party, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that (v) is asserted directly by or on behalf of a Person that is a supplier or customer of the Business, (w) arises in connection with any criminal or quasi-criminal proceeding, indictment or allegation, or seeks an injunction or other equitable relief against the Indemnified Party, (x) arises in connection with any criminal or quasi-criminal proceeding, indictment or allegation, or seeks non-monetary relief, (y) the Indemnifying Party has not acknowledged in writing (within a reasonable period of time following notice of such Third Party Claim) to the Indemnified Party that it is solely liable pursuant to this ARTICLE VIII with respect to such Third Party Claim for the entire amount of Losses incurred by the Indemnified Parties in connection with such Third Party Claim, or (z) if such Third Party Claim involves a legal claim for which an adverse determination would have a material adverse effect on the reputation or future business prospects any of Buyer and/or its Affiliates. In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 8.5(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 8.5(b), pay, compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. The Seller Parties and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available (subject to the provisions of Section 6.7) records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.

48

(b)     Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8.5(b). If a firm offer is made to settle a Third Party Claim without leading to Liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all Liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum Liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 8.5(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).

(c)     Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 30 days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure, or the amount of the Loss or the costs to be incurred by the Indemnifying Party in connection with such Direct Claim is increased by such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have 30 days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Indemnified Party’s premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such 30-day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party to enforce the terms of this ARTICLE VIII on the terms and subject to the provisions of this Agreement.

8.6      Payments; Holdback Amount.

(a)     Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this ARTICLE VIII, the Indemnifying Party shall satisfy its obligations within 10 Business Days of such final, non-appealable adjudication by wire transfer of immediately available funds. The parties hereto agree that should an Indemnifying Party not make full payment of any such obligations within such 10 Business Day period, any amount payable shall accrue interest from and including the date of agreement of the Indemnifying Party or final, non-appealable adjudication to and including the date such payment has been made at a rate per annum equal to 8%. Such interest shall be calculated daily on the basis of a 365 day year and the actual number of days elapsed.

49

(b)     Any Losses payable to a Buyer Indemnitee pursuant to this ARTICLE VIII shall be satisfied, as follows: (i) first, through release of funds from the Holdback Amount, (ii) second, after the Holdback Amount has been exhausted by the delivery of the number of shares of Common Stock to Buyer equal to any portion of the Loss, divided by the greater of (A) the price per share of Common Stock of Genasys as of the close of trading on the Business Day immediately preceding the date of delivery of such Common Stock to Buyer; or (B) the price per share of Common Stock used to calculate the Stock Purchase Price, and (iii) third, in cash from the Seller Parties.

(c)     On the thirty-six (36) month anniversary of the Closing, Buyer shall pay the Holdback Amount, as reduced prior to such date, to Seller by wire transfer of immediately available funds to an account designated in writing by Seller to Buyer.

8.7       Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.

8.8       Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate or by reason of the Indemnified Party’s waiver of any condition set forth in Section 7.2 or Section 7.3, as the case may be.

8.9      Exclusive Remedies. Subject to Section 2.6, Section 6.8 and Section 10.12, the parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this ARTICLE VIII. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in this ARTICLE VIII. Nothing in this Section 8.9 shall limit any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s fraudulent, criminal or intentional misconduct.

ARTICLE IX

TERMINATION

9.1      Termination. This Agreement may be terminated at any time prior to the Closing:

(a)     by the mutual written consent of Seller and Buyer;

(b)     by Buyer by written notice to Seller if:

50

(i)     Buyer is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VII and such breach, inaccuracy or failure has not been cured by Seller within ten days of Seller’s receipt of written notice of such breach from Buyer; or

(ii)     any of the conditions set forth in Section 7.1 or Section 7.2 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by the Outside Date, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

(c)     by Seller by written notice to Buyer if:

(i)     Seller is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VII and such breach, inaccuracy or failure has not been cured by Buyer within ten days of Buyer’s receipt of written notice of such breach from Seller; or

(ii)     any of the conditions set forth in Section 7.1 or Section 7.3 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by the Outside Date, unless such failure shall be due to the failure of Seller to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or

(d)     by Buyer or Seller in the event that (i) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable.

9.2       Effect of Termination. In the event of the termination of this Agreement in accordance with this Article, this Agreement shall forthwith become void and there shall be no Liability on the part of any party hereto except:

(a)     as set forth in this ARTICLE IX and Section 6.7 and ARTICLE X hereof; and

(b)     that nothing herein shall relieve any party hereto from Liability for any willful breach of any provision hereof.

ARTICLE X

MISCELLANEOUS

10.1     Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

51

10.2     Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.

10.3     Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the fourth day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.3):

If to Buyer: Genasys Inc. 16262 West Bernardo Drive San Diego, California 92127 E-mail: rdanforth@genasys.com Attention: Richard S. Danforth	with a copy to: Durham, Jones & Pinegar, P.C. 192 E 200 N, Third Floor St. George, Utah 84770 E-mail: jlittle@djplaw.com Attention: Joshua Little
If to Seller: Amika Mobile Corporation 22 Balding Crescent Ottawa, ON K2K 2L4 E-mail: ken@grigg.ca Attention: Suhayya Abu-Hakima	with a copy to: LaBarge Weinstein LLP 515 Legget Drive, Suite 800 Ottawa, ON K2K 3G4 E-mail : dw@lwlaw.com Attention: Debbie Weinstein
If to the Owners: to the respective street and email addresses set forth beneath the names of the Owners on the signature pages of this Agreement.

10.4     Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

10.5    Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Except as provided in Section 6.8, upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

10.6     Entire Agreement. This Agreement and the Ancillary Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the Ancillary Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.

52

10.7    Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that prior to the Closing Date, Buyer may, without the prior written consent of Seller, assign all or any portion of its rights under this Agreement to one or more of its direct or indirect wholly-owned subsidiaries provided, that, Genasys shall continue to guarantee the obligations of such subsidiary under this Agreement. No assignment shall relieve the assigning party of any of its obligations hereunder.

10.8     No Third-party Beneficiaries. Except as provided in ARTICLE VIII, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

10.9     Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

10.10   Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal Laws of the Province of Ontario, and the federal Laws of Canada applicable therein without giving effect to any choice or conflict of Law provision or rule (whether of the Province of Ontario or any other jurisdiction).

10.11     Arbitration. Unless otherwise specifically provided for in this Agreement, in the event of any dispute, claim, question or difference arising out of or relating to this Agreement, the parties to this Agreement shall use commercially reasonable efforts to settle such disputes, claims, questions or differences. To this effect, they shall consult and negotiate with each other, in good faith and understanding of their mutual interest, to reach a just and equitable resolution satisfactory to both. If they do not reach such resolution the disputes, claims, questions or differences shall be finally settled by arbitration. Arbitration shall be final, binding and finally resolved, pursuant to the National Arbitration Rules of the ADR Institute of Canada, Inc. pursuant to The Arbitration Act (1991) S.O. 1991 Chapter 17 as follows: (a) judgment on upon the award rendered by the arbitrators may be entered into any court having jurisdiction thereof; (b) the place of the arbitration shall be in Ottawa, Ontario; (c) the language of the arbitration shall be English; (d) the arbitration tribunal shall consist of three (3) arbitrators with one (1) arbitrator nominated by Buyer and Genasys, one (1) arbitrator nominated by Seller, and one (1) arbitrator, who shall be chairman of the arbitration tribunal, appointed by the two other arbitrators; (e) the arbitration tribunal shall be instructed that time is of the essence in proceeding with his determination any dispute, claim, questions or difference; and (f) the arbitration award shall be given in writing and shall be final, binding on the parties, not subject to any appeal, and shall deal with the question of costs of arbitration and all matters related thereto. Notwithstanding the foregoing, any Party may, in its sole discretion, apply at any time to a court of competent jurisdiction for: (x) any emergency or interim remedy to enforce the terms of this Agreement or any other Ancillary Documents or to prevent any breach of this Agreement or any Ancillary Documents, including specific performance and injunctive relief on an interim or interlocutory basis, restraining orders, receiving orders and orders regarding the detention, preservation and inspection of property; or (y) the enforcement of an award made by the arbitration tribunal.

53

10.12   Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at Law or in equity.

10.13   Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

[SIGNATURE PAGE FOLLOWS]

54

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

GENASYS INC.
By:	/s/ Richard Danforth
Name: Richard Danforth
Title: Chief Executive Officer

GENASYS COMMUNICATIONS CANADA ULC
By:	/s/ Richard Danforth
Name: Richard Danforth
Title: Chief Executive Officer

AMIKA MOBILE CORPORATION
By:	/s/ Suhayya Abu-Hakima
Name: Suhayya Abu-Hakima
Title: CEO

Signature Page to Asset Purchase Agreement

OWNERS:

/s/ Suhayya Abu-Hakima
SUHAYYA ABU-HAKIMA
/s/ Ken Grigg
KEN GRIGG
12232618 CANADA LTD.
By:	/s/ Suhayya Abu-Hakima
Name: Suhayya Abu-Hakima
Title: CEO
Address for Notices pursuant to Section 10.3:
22 Balding Crescent
Ottawa ON K2K 2L4
Canada
E-mail: ken@grigg.ca
Attention: Suhayya Abu-Hakima

Signature Page to Asset Purchase Agreement

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Richard S. Danforth, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Genasys Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm 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: February 10, 2021

/s/ Richard S. Danforth

Richard S. Danforth

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Dennis D. Klahn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Genasys Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm 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: February 10, 2021

/s/ Dennis D. Klahn

Dennis D. Klahn

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his or her capacity as an officer of Genasys Inc. (the “Company”), that, to his or her knowledge, the Quarterly Report of the Company on Form 10-Q for the quarter ended December 31, 2020 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company as of the dates and for the periods presented in the financial statements included in such report.

Dated: February 10, 2021

/s/ Richard S. Danforth

Richard S. Danforth

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Dennis D. Klahn

Dennis D. Klahn

Chief Financial Officer

(Principal Financial Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	3 Months Ended
	Dec. 31, 2020	Feb. 08, 2021
Document Information [Line Items]
Entity Registrant Name	Genasys Inc.
Entity Central Index Key	0000924383
Trading Symbol	gnss
Current Fiscal Year End Date	--09-30
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		33,641,235
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Dec. 31, 2020
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common stock, $0.00001 par value per share

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
ASSETS
Cash and cash equivalents	$ 19,584	$ 23,319
Short-term marketable securities	5,517	4,265
Restricted cash	295	282
Accounts receivable, net	3,159	5,442
Inventories, net	6,963	5,949
Prepaid expenses and other	713	860
Total current assets	36,231	40,117
Long-term marketable securities	2,419	3,805
Long-term restricted cash	1,180	395
Deferred tax assets, net	11,100	11,095
Property and equipment, net	1,885	1,930
Goodwill	8,500	2,472
Intangible assets, net	3,743	943
Operating lease right of use asset	5,384	5,285
Other assets	161	125
Total assets	70,603	66,167
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	1,618	1,370
Accrued liabilities	7,848	7,880
Notes payable, current portion	314	300
Operating lease liabilities, current portion	848	771
Total current liabilities	10,628	10,321
Notes payable, less current portion	18	18
Other liabilities, noncurrent	915	293
Operating lease liabilities, noncurrent	6,385	6,395
Total liabilities	17,946	17,027
Stockholders' equity:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; none issued and outstanding
Common stock, $0.00001 par value; 50,000,000 shares authorized; 33,587,443 and 33,561,544 shares issued and outstanding, respectively
Additional paid-in capital	94,915	91,248
Accumulated deficit	(42,477)	(41,858)
Accumulated other comprehensive income (loss)	219	(250)
Total stockholders' equity	52,657	49,140
Total liabilities and stockholders' equity	$ 70,603	$ 66,167

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Dec. 31, 2020	Sep. 30, 2020
Preferred stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.00001
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	33,587,443	33,561,544
Common stock, outstanding (in shares)	33,587,443	33,561,544

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenues:
Revenues	$ 8,028	$ 8,782
Cost of revenues	4,324	4,180
Gross Profit	3,704	4,602
Operating expenses
Selling, general and administrative	3,331	2,822
Research and development	1,066	1,084
Total operating expenses	4,397	3,906
(Loss) income from operations	(693)	696
Other income	69	96
(Loss) income before income taxes	(624)	792
Income tax (benefit) expense	(5)	172
Net (loss) income	$ (619)	$ 620
Net (loss) income per common share - basic and diluted (in dollars per share)	$ (0.02)	$ 0.02
Weighted average common shares outstanding:
Basic (in shares)	33,574,000	32,978,000
Diluted (in shares)	33,573,755	33,710,620
Product [Member]
Revenues:
Revenues	$ 6,950	$ 8,008
Service [Member]
Revenues:
Revenues	$ 1,078	$ 774

XML

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Net (loss) income	$ (619)	$ 620
Other comprehensive income
Unrealized loss on marketable securities	(3)	(3)
Unrealized foreign currency translation gain	472	88
Comprehensive (loss) income	$ (150)	$ 705

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Operating Activities:
Net (loss) income	$ (619)	$ 620
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	281	209
Warranty provision	15	(19)
Inventory obsolescence	100	94
Share-based compensation	182	158
Realized loss on foreign currency forward contract	(48)
Unrealized loss on foreign currency forward contract	(28)
Deferred income taxes	(5)	172
Amortization of operating lease right of use assets	170	145
Changes in operating assets and liabilities:
Accounts receivable, net	2,300	(2,286)
Inventories, net	(1,114)	(321)
Prepaid expenses and other	120	761
Accounts payable	232	604
Accrued and other liabilities	(314)	(1,918)
Net cash provided by (used in) operating activities	1,272	(1,781)
Investing Activities:
Purchases of marketable securities	(1,793)	(640)
Proceeds from maturities of marketable securities	1,925	589
Purchase of Amika Mobile	(4,367)
Capital expenditures	(29)	(86)
Net cash used in investing activities	(4,264)	(137)
Financing Activities:
Proceeds from exercise of stock options	54	144
Net cash provided by financing activities	54	144
Effect of foreign exchange rate on cash	1	14
Net decrease in cash, cash equivalents, and restricted cash	(2,937)	(1,760)
Cash, cash equivalents and restricted cash, beginning of period	23,996	19,517
Cash, cash equivalents and restricted cash, end of period	21,059	17,757
Cash and cash equivalents	19,584	17,092
Restricted cash, current portion	295	270
Long-term restricted cash	1,180	395
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	21,059	17,757
Noncash investing and financing activities:
Change in unrealized loss on marketable securities	(3)	(3)
Obligation to issue common stock in connection with the purchase of Amika Mobile	(3,431)
Initial measurement of operating lease right of use assets	248	5,824
Initial measurement of operating lease liabilities	248	7,815
Fair value of net assets acquired	$ 8,411

XML

Note 1 - Operations

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Nature of Operations [Text Block]

1. OPERATIONS

Genasys Inc. (formerly LRAD

®

Corporation), a Delaware corporation (the “Company”), is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products, and location-based mass messaging solutions for emergency warning and workforce management. The principal markets for the Company's proprietary sound reproduction technologies, voice broadcast products and mass messaging solutions are in North and South America, Europe, the Middle East and Asia. On

October 23, 2019,

the Company announced its rebranding and began doing business as Genasys Inc.

XML

Note 2 - Basis of Presentation and Significant Accounting Policies

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

General

The Company's unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form

10

-Q and Article

8

of Regulation S-

X

and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In management's opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented

not

misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended

September 

30,

2020

included in the Company's Annual Report on Form

10

-K, as filed with the SEC on

December 10, 2020.

The accompanying condensed consolidated balance sheet at

September 30, 2020

has been derived from the audited consolidated balance sheet at

September 30, 2020

contained in the above referenced Form

10

-K. Results of operations for interim periods are

not

necessarily indicative of the results of operations for a full year.

Principles of Consolidation

The Company has

seven

wholly owned subsidiaries, Genasys II Spain, S.A.U (“Genasys Spain”), Genasys Communications Canada ULC, Genasys Singapore PTE Ltd, Genasys Puerto Rico, LLC and Genasys Inc. (branch) in the United Arab Emirates and

two

currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The condensed consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity of

three

months or less, when purchased, to be cash equivalents. At

December 31, 2020

the amount of cash and cash equivalents was

$19,584.

At

September 30, 2020

the amount of cash and cash equivalents was

$23,319.

The Company considers any amounts pledged as collateral or otherwise restricted for use in current operations to be restricted cash. In addition, the Company considers cash and cash equivalents designated to fund specific future contractual obligations related to business combinations to be restricted cash. Restricted cash is classified as a current asset unless amounts are

not

expected to be released and available for use in operations within

one

year. At

December 31, 2020

the current portion of restricted cash was

$295

and the noncurrent portion was

$1,180.

At

September 30, 2020

the current portion of restricted cash was

$270

and the noncurrent portion was

$395.

Immaterial Correction of Prior Period Financial Statements

During the quarter ended

December 31, 2020,

Company management identified an immaterial error in the previously issued

September 30, 2020

consolidated balance sheet. This error resulted in an overstatement of prepaid expenses and accrued liabilities of

$5,205

related to a foreign currency forward contract which was presented on a gross basis rather than on a net basis. There was

no

impact to the consolidated statement of operations or the consolidated statement of cash flows as of

September 30, 2020,

as a result of this misstatement. Further, there was

no

impact to the condensed consolidated financial statements as of, and for the quarter ended

December 31, 2020,

as the forward contract was settled during this period. SEC Staff Accounting Bulletin:

No.

99

– Materiality and

No.

108

– Financial Statement Misstatement were used by management to evaluate the impact of the misstatement. Management concluded that this misstatement had

no

material impact on either the accompanying condensed consolidated balance sheet as of

December 31, 2020

or the previously issued consolidated balance sheet as of

September 30, 2020, 

and therefore the misstatement was corrected in the accompanying condensed consolidated balance sheet as of

September 30, 2020.

All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error.

Reclassifications

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

XML

Note 3 - Recent Accounting Pronouncements

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Accounting Standards Update and Change in Accounting Principle [Text Block]

3. RECENT ACCOUNTING PRONOUNCEMENTS

New pronouncements pending adoption

In

June 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2016

-

13,

Measurement of Credit Losses on Financial Instruments

, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In

November 2019,

the FASB issued ASU

No.

2019

-

10,

Financial Instruments – Credit Losses (Topic

326

), Derivatives and Hedging (Topic

815

) and Leases (Topic

842

)

, which extends the effective date of Topic

326

for certain companies until fiscal years beginning after

December 15, 2022.

The new standard will be effective for the Company in the

first

quarter of fiscal year beginning

October 1, 2023,

and early adoption is permitted. The Company has

not

completed its review of the impact of this standard on its consolidated financial statements. However, based on the Company's history of immaterial credit losses from trade receivables, management does

not

expect that the adoption of this standard will have a material effect on the Company's consolidated financial statements.

New pronouncements adopted

In 

August 2018

, 

the FASB issued ASU 

No.

2018

-

13,

 Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which improves fair value disclosure requirements by removing disclosures that are 

not

 cost beneficial, clarifying disclosures' specific requirements and adding relevant disclosure requirements

. 

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 

3

 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance is effective for all entities for fiscal years beginning after

December 15, 2019,

and interim periods within those fiscal years. The Company adopted ASU

No.

2018

-

13

on

October 1, 2020,

with

no

impact to the condensed consolidated financial statements.

XML

Note 4 - Business Combination

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Business Combination Disclosure [Text Block]

4. BUSINESS COMBINATION

On

October 2, 2020,

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

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

805.

As the acquirer for accounting purposes, the Company has estimated the purchase consideration, assets acquired and liabilities assumed as of the acquisition date, with the excess of the purchase consideration over the fair value of net assets acquired recognized as goodwill. The estimated fair value of assets purchased and liabilities assumed in certain cases

may

be subject to revision based on the final determination of fair value.

The consideration consisted of the following:

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

Under the terms of the Asset Purchase Agreement, the Company is required to deposit a holdback liability in the amount of

CAD$1,000

into an interest-bearing account as security for potential indemnification claims against the seller. The holdback amount will be released

three

years from the closing date subject to amounts withheld for actual, pending or potential claims. The Company also agreed to issue

191,267

shares of the Company's common stock to the former owners of Amika Mobile on each of the first,

second

and

third

anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is

573,801.

The fair value of the Company's common stock on the closing date was

$5.98,

resulting in an addition of

$3,431

to additional paid-in-capital. The cash portion of the purchase price was funded from cash on hand.

The Company incurred

$242

in expenses related to this transaction, through

December 31, 2020.

These expenses were recorded in selling, general and administrative expenses in the condensed consolidated statement of operations as follows:

$10

in the

first

quarter of fiscal

2021,

$132

in the

fourth

quarter of fiscal

2020

and

$100

in the

third

quarter of fiscal

2020.

Purchase Price Allocation

Assets Acquired
Prepaid expenses	$	2
Fixed assets		22
Operating lease right of use asset		248
Intangible Assets		2,820
Goodwill		5,663
Total assets acquired	$	8,755
Liabilities assumed
Accrued liabilities	$	96
Operating lease liability		248
Total liabilities assumed		344
Net Assets acquired	$	8,411

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

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

Identifiable intangible assets consist of certain technology and customer relationships purchased from Amika Mobile. Identifiable intangible assets are amortized over their useful lives based upon a number of assumptions including the estimated period of economic benefit and utilization. The weighted average amortization period for identifiable intangible assets acquired is

7

years. These intangible assets are classified as Level

3

in the ASC Topic

820

three

-tier fair value hierarchy.

The goodwill for Amika Mobile is attributable to combining the Company's existing emergency communications solutions with the software and software development capabilities of Amika Mobile to enhance product offerings. Goodwill is also attributable to the skill level of the acquired workforce. The Company will continue to analyze the transaction and refine its calculations, as appropriate during the measurement period, which could affect the value of goodwill. Goodwill from the Amika Mobile asset purchase will

not

be deductible for tax purposes.

XML

Note 5 - Revenue Recognition

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

5. REVENUE RECOGNITION

The Company adopted the guidance in Topic

606

on

October 1, 2018.

The Company adopted the new standard using the full retrospective approach.

Topic

606

outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a

five

-step analysis in determining when and how revenue is recognized:

1. Identify the contract(s) with customers

2. Identify the performance obligations

3. Determine the transaction price

4. Allocate the transaction price to the performance obligations

5. Recognize revenue when the performance obligations have been satisfied

   Topic

606

requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.

The Company derives its revenue from the sale of products to customers, contracts, license fees, other services and freight. The Company sells its products through its direct sales force and through authorized resellers and system integrators. The Company recognizes revenue for goods including software when all the significant risks and rewards have been transferred to the customer,

no

continuing managerial involvement usually associated with ownership of the goods is retained,

no

effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Software license revenue, maintenance and/or software development service fees

may

be bundled in

one

arrangement or

may

be sold separately.

Product Revenue

Product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that the Company's customer obtains control of the products. A smaller portion of product revenue is recognized when the customer receives delivery of the products. A portion of products are sold through resellers and system integrators based on firm commitments from an end user, and as a result, resellers and system integrators carry little or

no

inventory. The Company's customers do

not

have a right to return product unless the product is found defective and therefore the Company's estimate for returns has historically been insignificant

Perpetual licensed software

The sale and/or license of software products is deemed to have occurred when a customer either has taken possession of or has the ability to take immediate possession of the software and the software key. Perpetual software licenses can include

one

-year maintenance and support services. In addition, the Company sells maintenance services on a stand-alone basis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for the perpetual license and is recognized on a straight-line basis over the period to which the maintenance relates.

Time-based licensed software

The time-based license agreements include the use of a software license for a fixed term, generally

one

-year, and maintenance and support services during the same period. The Company does

not

sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognized on a straight-line basis over the term.

Warranty, maintenance and services

The Company offers extended warranty, maintenance and other services. Extended warranty and maintenance contracts are offered with terms ranging from

one

to several years, which provide repair and maintenance services after expiration of the original

one

-year warranty term. Revenues from separately priced extended warranty and maintenance contracts are recognized based on time elapsed over the service period, and classified as contract and other revenues. Revenue from other services such as training or installation is recognized when the service is completed.

Multiple element arrangements

The Company has entered into a number of multiple element arrangements, such as the sale of a product or perpetual licenses that

may

include maintenance and support (included in price of perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which

may

be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.

Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses which are

not

unbundled. When software development services are performed and are considered essential to the functionality of the software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.

The Company disaggregates revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with the Company's business operations and to be consistent with other communications and public filings. Refer to Note

19,

Segment Information and Note

20,

Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.

 

Contract Assets and Liabilities

The Company enters into contracts to sell products and provide services and recognizes contract assets and liabilities that arise from these transactions. The Company recognizes revenue and corresponding accounts receivable according to Topic

606

and, at times, recognizes revenue in advance of the time when contracts give the Company the right to invoice a customer. The Company

may

also receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company

may

receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below shows the balance of contract assets and liabilities as of

December 31, 2020

and

September 30, 2020,

including the change between the periods. The current portion of contract liabilities and the non-current portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying Condensed Consolidated Balance Sheets. Refer to Note

11,

Accrued Liabilities for additional details.

The Company's contract liabilities were as follows:

	Customer deposits			Deferred revenue			Total contract liabilities
Balance at September 30, 2020	$	3,683		$	1,024		$	4,707
New performance obligations		3,476			245			3,721
Recognition of revenue as a result of satisfying performance obligations		(2,221	)		(439	)		(2,660	)
Effect of exchange rate on deferred revenue		-			21			21
Balance at December 31, 2020	$	4,938		$	851		$	5,789
Less: non-current portion		-			(275	)		(275	)
Current portion at December 31, 2020	$	4,938		$	576		$	5,514

Remaining Performance Obligations

Remaining performance obligations related to Topic

606

represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than

one

year, which are fully or partially unsatisfied at the end of the period.

As of

December 

31,

2020,

the aggregate amount of the transaction price allocated to remaining performance obligations was approximately

$5,789.

The Company expects to recognize revenue on approximately

$5,514

or

95%

of the remaining performance obligations over the next

12

months, and the remainder is expected to be recognized thereafter.

 

Practical Expedients 

In cases where the Company is responsible for shipping after the customer has obtained control of the goods, the Company has elected to treat these activities as fulfillment activities rather than as a separate performance obligation. Additionally, the Company has elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than

one

year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than

one

year. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.

XML

Note 6 - Fair Value Measurements

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

6. FAIR VALUE MEASUREMENTS

The Company's financial instruments consist principally of cash equivalents, short and long-term marketable securities, accounts receivable and accounts payable. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or

not

the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into

three

levels (with Level

3

being the lowest) defined as follows:

Level

1:

     Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level

2:

     Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are

not

active near the measurement date.

Level

3:

     Inputs include management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument's valuation.

The fair value of the Company's cash equivalents and marketable securities was determined based on Level

1

and Level

2

inputs. The Company did

not

have any marketable securities in the Level

3

category as of

December 31, 2020

or

September 30, 2020.

The Company believes that the recorded values of its other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Instruments Measured at Fair Value

on a Recurring Basis

Cash equivalents and marketable securities

: The following tables present the Company's cash equivalents and marketable securities' costs, gross unrealized gains and losses, and fair value by major security type recorded as cash equivalents or short-term or long-term marketable securities as of

December 31, 2020

and

September 30, 2020.

Unrealized gains and losses from the remeasurement of marketable securities are recorded in accumulated other comprehensive income (loss) until recognized in earnings upon the sale or maturity of the security.

	December 31, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	528	$	-	$	528	$	528	$	-	$	-
Level 2:
Certificates of deposit		1,194		-		1,194		-		-		1,194
Municipal securities		4,411		2		4,413		-		3,638		775
Corporate bonds		2,327		2		2,329		-		1,879		450
Subtotal		7,932		4		7,936		-		5,517		2,419
Total	$	8,460	$	4	$	8,464	$	528	$	5,517	$	2,419

	September 30, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	365	$	-	$	365	$	365	$	-	$	-
Level 2:
Certificates of deposit		1,195		-		1,195		-		-		1,195
Municipal securities		3,777		4		3,781		-		2,432		1,350
Corporate bonds		3,091		3		3,094		-		1,833		1,260
Subtotal		8,063		7		8,070		-		4,265		3,805
Total	$	8,428	$	7	$	8,435	$	365	$	4,265	$	3,805

Foreign currency forward contract

: In

August 2020,

the Company entered into a foreign currency forward contract as an economic hedge against exposure to changes in the Canadian dollar in connection with the Amika Mobile asset purchase. At

September 30, 2020,

the notional value of the foreign currency forward contract was

CAD$6,955

with a maturity date in

October 2020.

The foreign currency forward contract was fair valued at

$76

and classified under Level

2

of the fair value hierarchy. The valuation techniques used to measure the fair value were based on quoted market prices. On

October 1, 2020,

the foreign currency forward contract was settled for

CAD$6,955

(

USD$5,281

), resulting in a realized loss of

$48

on the contract that was recorded in earnings as other income (expense). The estimated foreign currency forward contract liability was recorded in accrued liabilities in the consolidated balance sheet as of

September 30, 2020.

XML

Note 7 - Inventories, Net

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Inventory Disclosure [Text Block]

7 . INVENTORIES , NET

Inventories, net consisted of the following:

	December 31,			September 30,
	2020			2020
Raw materials	$	5,859		$	5,220
Finished goods		763			841
Work in process		927			456
Inventories, gross		7,549			6,517
Reserve for obsolescence		(586	)		(568	)
Inventories, net	$	6,963		$	5,949

XML

Note 8 - Property and Equipment, Net

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

8 . PROPERTY AND EQUIPMENT , NET

Property and equipment, net consisted of the following:

	December 31,			September 30,
	2020			2020
Office furniture and equipment	$	1,244		$	1,181
Machinery and equipment		1,193			1,184
Leasehold improvements		2,056			2,056
Construction in progress		28			8
Property and equipment, gross		4,521			4,429
Accumulated depreciation		(2,636	)		(2,499	)
Property and equipment, net	$	1,885		$	1,930

	Three months ended December 31,
	2020		2019
Depreciation expense	$	99	$	134

XML

Note 9 - Goodwill and Intangible Assets

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

9 . GOODWILL AND INTANGIBLE ASSETS

Goodwill is attributable to the acquisition of Genasys Spain and Amika Mobile asset purchase and is due to combining the integrated emergency critical communications, mass messaging solutions and software development capabilities with existing LRAD products for enhanced offerings and the skill level of the acquired workforces. The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. During the

three

months ended

December 31, 2020,

the Company added

$5,663

in goodwill related to the Amika Mobile asset purchase. There were

no

impairments to goodwill during the

three

months ended

December 31, 2020.

Intangible assets and goodwill related to Genasys Spain are translated from Euros to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was an increase of

$156.

Intangible assets and goodwill related to Amika Mobile are translated from Canadian dollars to U.S. dollars at the balance sheet date. During the

three

months ended

December 31, 2020,

the Company added

$2,820

in intangible assets related to the Amika Mobile asset purchase. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was an increase of

$375.

The Company's intangible assets consisted of the following:

	December 31,			September 30,
	2020			2020
Developed technology	$	3,297		$	655
Customer relationships		990			627
Trade name portfolio		238			228
Non-compete agreements		258			247
Patents		72			72
		4,855			1,829
Accumulated amortization		(1,112	)		(886	)
	$	3,743		$	943

As of

December 31, 2020,

future amortization expense is as follows:

Fiscal year ending September 30,
2021 (remaining nine months)	$	501
2022		664
2023		630
2024		615
2025		480
Thereafter		853
Total estimated amortization expense	$	3,743

Amortization expense was

$182

for the

three

months ended

December 31, 2020.

Amortization expense was

$75

for the

three

months ended

December 31, 2019.

XML

Note 10 - Prepaid Expenses and Other

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Prepaid Expenses And Other Disclosure [Text Block]

10 . PREPAID EXPENSES AND OTHER

Prepaid expenses and other current assets consisted of the following:

	December 31,		September 30,
	2020		2020
Deposits for inventory	$	90	$	54
Prepaid insurance		185		264
Dues and subscriptions		106		151
Trade shows and travel		104		103
Other		228		288
	$	713	$	860

Deposits for inventory

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

Prepaid

i

nsurance

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

Dues and subscriptions

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

Trade shows and travel

Trade shows and travel consists of payments made in advance for trade show events.

XML

Note 11 - Accrued Liabilities

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Current and Noncurrent Accrued Liabilities [Text Block]

1 1 . ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

	December 31,		September 30,
	2020		2020
Payroll and related	$	1,343	$	2,545
Deferred revenue		576		731
Customer deposits		4,938		3,683
Accrued contract costs		857		719
Warranty reserve		134		126
Other		-		76
Total	$	7,848	$	7,880

Other liabilities-noncurrent consisted of the following: 

	December 31,		September 30,
	2020		2020
Deferred extended warranty revenue	$	275	$	293
Asset purchase holdback liability		640		-
Total	$	915	$	293

Payroll and related

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

Deferred Revenue

Deferred revenue as of

December 31, 2020

included prepayments from customers for services, including extended warranty, scheduled to be performed in the

twelve

months ended

December 31, 2021.

Customer Deposits

Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered during the next

twelve

months.

Accrued contract costs

Accrued contract costs consist of accrued expenses for contracting a

third

-party service provider to fulfill repair and maintenance obligations required under a contract with a foreign military for units sold in the year ended

September 30, 2011.

Payments to the service provider will be made annually upon completion of each year of service. A new contract was signed with the customer in

May 2019

to continue repair and maintenance services through

May 2024.

These services are being recorded in cost of revenues to correspond with the revenues for these services.

W

arranty Reserve

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

	December 31,			September 30,
	2020			2020
Beginning balance	$	126		$	150
Warranty provision		15			16
Warranty settlements		(7	)		(40	)
Ending balance	$	134		$	126

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

Deferred Extended

Warranty Revenue

Deferred extended warranty revenue consists of warranties purchased in excess of the Company's standard warranty. Extended warranties typically range from

one

to

two

years.

Asset purchase holdback liability

In connection with the Amika Mobile asset purchase, the Company recorded a holdabck liability related to future adjustments to assets and liabilities and as security for potential indemnification claims. Adjustments and indemnification claims of up to

CAD$1,000

(

USD$785

) will be deducted from the asset purchase holdback liability for up to

three

years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.

XML

Note 12 - Debt

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

1 2 . DEBT

In connection with the acquisition of Genasys Spain the Company acquired certain debts of Genasys Spain. The carrying value of the acquired debt approximates fair value. The balances of the acquired debt consist of loans with governmental agencies as of

December 31, 2020.

Loans with governmental agencies represent interest free debt granted by ministries within Spain for the purpose of stimulating economic development and promoting research and development. Loans with governmental agencies as of

December 31, 2020

are as follows:

Agency	Due Date	Principal
Ministry of Economy and Competitiveness	February 2, 2022	$	37
Ministry of Economy and Competitiveness	February 2, 2024		295	(a)
		$	332

(a) This loan is secured by $295 of cash pledged as collateral by Genasys Spain, which is the current balance of the loan. This amount is included in restricted cash at December 31, 2020. The Company expects the Ministry of Economy and Competitiveness to declare the terms of the loan satisfied within fiscal 2021 and that the outstanding balance of the loan will be paid in full during fiscal 2021. Accordingly, this has been included in the current portion of notes payable as of December 31, 2020.

The following is a schedule of future annual payments as of

December 31, 2020:

2021	$	314
2022		18
Total	$	332

The current portion of debt is

$314

and the noncurrent portion of debt is

$18.

XML

Note 13 - Leases

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

1 3 . LEASES

The Company determines if an arrangement is a lease at inception. The guidance in Topic

842

defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company's leases do

not

provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to present value lease payments. The operating ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred.

The Company entered into operating leases for office and production facilities and equipment under agreements that expire at various dates through

2028.

The Company elected the package of practical expedients permitted under the new lease standard. In electing the practical expedient package, the Company is

not

required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of Topic

842.

The Company also elected the short-term lease exemption such that the new lease standard was applied to leases greater than

one

year in duration. Leases with an initial term of

twelve

months or less are

not

recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For leases beginning on or after

October 1, 2019,

lease components are accounted for separately from non-lease components for all asset classes. Certain of the Company's leases contain renewal provisions and escalating rental clauses and generally require the Company to pay utilities, insurance, taxes and other operating expenses. The renewal provisions of existing lease agreements were

not

included in the determination of the operating lease liabilities and the operating ROU assets. Variable payments such as excess usage fees on existing equipment leases were

not

included in the determination of the lease liabilities and the operating ROU assets as the achievement of the specified target that triggers the variable lease payment is

not

considered probable. In addition, the Company's facility lease in Spain has an escalating lease clause based on a consumer price index which is considered a variable lease payment and is

not

included in the determination of the lease liability and operating ROU asset. A

10%

increase in the index would increase the total lease liability approximately

$19.

The Company's leases do

not

contain any residual value guarantees or material restrictive covenants.

Upon adoption of Topic

842

as of

October 1, 2019,

the Company recognized on its consolidated balance sheet an initial measurement of approximately

$7,815

of operating lease liabilities, and approximately

$5,824

of corresponding operating ROU assets, net of tenant improvement allowances. There was

no

cumulative effect adjustment to retained earnings as a result of the transition to Topic

842.

The adoption of Topic

842

did

not

have a material impact on the Company's consolidated statement of operations.

During the

three

months ended

December 31, 2020,

the Company added an additional operating ROU asset of

$248

and operating lease liability of

$248

for office space in connection with the Amika Mobile asset purchase. The tables below show the operating ROU assets and liabilities as of

September 30, 2020

and the balances as of

December 31, 2020,

including the changes during the periods.

	Operating ROU assets
Operating lease ROU asset at September 30, 2020	$	5,285
Additional operating lease ROU assets		248
Less amortization of operating lease ROU assets		(170	)
Effect of exchange rate on operating lease ROU assets		21
Operating lease ROU asset at December 31, 2020	$	5,384

	Operating lease liabilities
Operating lease liabilities at September 30, 2020	$	7,166
Additional operating lease liabilities		248
Less lease principal payments on operating lease liabilities		(202	)
Effect of exchange rate on operating lease liabilities		21
Operating lease liabilities at December 31, 2020		7,233
Less non-current portion		(6,385	)
Current portion at December 31, 2020	$	848

As of

December 31, 2020,

the Company's operating leases have a weighted-average remaining lease term of

7.34

years and a weighted-average discount rate of

4.13%.

The maturities of the operating lease liabilities are as follows:

Fiscal year ending September 30,
2021 (remaining nine months)	$	840
2022		1,146
2023		1,090
2024		1,085
2025		1,162
Thereafter		3,104
Total undiscounted operating lease payments		8,427
Less imputed interest		(1,194	)
Present value of operating lease liabilities		7,233
Less lease liability, noncurrent		(6,385	)
Lease liability, current portion	$	848

For the

three

months ended

December 31, 2020

and

2019,

total lease expense under operating leases was approximately

$236

and

$225

respectively. The Company did

not

have any short-term lease expense during the

three

months ended

December 31, 2020

and

December 31, 2019.

XML

Note 14 - Income Taxes

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1 4 . INCOME TAXES

For the

three

months ended

December 31, 2020,

the Company recorded income tax benefit of

$5

reflecting an effective tax rate of

31.2%.

For the

three

months ended

December 31, 2019,

the Company recorded an income tax expense of

$172

reflecting an effective tax rate of

21.8%.

 The Company continues to maintain a partial valuation allowance against its deferred tax assets as the Company believes that the negative evidence that it will be able to recover these net deferred tax assets outweighs the positive evidence.

Accounting Standards Codification Topic

740,

Accounting for Uncertainty in Income Taxes

, requires the Company to recognize in its consolidated financial statements uncertainties in tax positions taken that

may

not

be sustained upon examination by the taxing authorities. If interest or penalties are assessed, the Company would recognize these charges as income tax expense. The Company has

not

recorded any income tax expense or benefit for uncertain tax positions.

XML

Note 15 - Commitments and Contingencies

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

1 5 . COMMITMENTS AND CONTINGENCIES

Litigation

The Company

may

at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in management's estimation, record adequate reserves in the Company's consolidated financial statements for pending litigation. Currently, there are

no

pending material legal proceedings to which the Company is a party or to which any of its property is subject.

Bonus Plan

The Company has a bonus plan for employees, in accordance with their terms of employment, whereby they can earn a percentage of their salary based on meeting targeted objectives for orders received, revenue, operating income and operating cash flow. In the

three

months ended

December 31, 2020,

the Company recorded

$459

of bonus expense. In the

three

months ended

December 31, 2019,

the Company recorded

$408

of bonus expense.

A

mika Mobile

Asset Purchase

In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to future adjustments to assets and liabilities and as security for potential indemnification claims. Adjustments and indemnification claims of up to

CAD$1,000

(

USD$785

) will be deducted from the asset purchase holdback liability for up to

three

years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.

The Company also agreed to issue

191,267

shares of the Company's common stock to the former owners of Amika Mobile on each of the first,

second

and

third

anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is

573,801.

The fair value of the Company's common stock on the closing date was

$5.98,

resulting in the addition of

$3,431

to additional paid-in-capital.

XML

Note 16 - Share-based Compensation

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

1

6

. SHARE-BASED COMPENSATION

Stock Option Plans

At

December 31, 2020,

the Company had

two

equity incentive plans. The

2005

Equity Incentive Plan (

“2005

Equity Plan”) was terminated with respect to new grants in

March 2015,

but remains in effect for grants issued prior to that time. The Amended and Restated

2015

Equity Incentive Plan (

“2015

Equity Plan”) was approved by the Company's Board of Directors on

December 6, 2016

and by the Company's stockholders on

March 14, 2017.

The

2015

Plan authorizes the issuance stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, to an aggregate of

5,000,000

new shares of common stock to employees, directors, advisors or consultants. At

December 31, 2020,

there were options and restricted stock units outstanding covering

115,000

and

2,942,018

shares of common stock under the

2005

Equity Plan and

2015

Equity Plan, respectively and

483,480

shares of common stock available for grant for a total of

3,540,498

currently available under the

two

equity plans.

Share-Based Compensation

The Company's employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.

There were

215,000

stock options granted during the

three

months ended

December 31, 2020.

There were

1,133,727

stock options granted during fiscal

2020.

The weighted average estimated fair value of employee stock options granted during the

three

months ended

December 31, 2020

was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	Three months ended
	December 31,
	2020			2019
Volatility		48.6	%		40.2	%
Risk-free interest rate		0.6	%		1.5	%
Forfeiture rate		3.8	%		10.0	%
Dividend yield		0.0	%		0.0	%
Expected term		6.9			5.0

Expected volatility is based on the historical volatility of the Company's common stock over the period commensurate with the expected term of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The contractual term of the options was

seven

years. The expected term is based on observed and expected time to post-vesting exercise. The expected forfeiture rate is based on past experience and employee retention data. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed. The Company did

not

pay a dividend in fiscal

2021

or in fiscal

2020.

As of

December 31, 2020,

there was approximately

$1,067

of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of

2.6

years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company's expectations.

Performance-Based Stock Options

On

August 1, 2016,

the Company awarded a performance-based stock option (PVO) to purchase

750,000

shares of the Company's common stock to a key executive, with a contractual term of

seven

years. At the grant date, there were

375,000

performance-based stock options assigned to performance criteria within each of fiscal

2019

and

2020.

Vesting is based upon the achievement of certain performance criteria for each of fiscal

2019

and

2020

including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets.  

The Company determined that certain performance conditions related to the

2019

and

2020

performance criteria were achieved.

187,500

options related to the

2019

performance criteria vested and

375,000

options related to the

2020

performance criteria vested. The Company recorded a total of

$459

in stock-based compensation expense for these options through

September 30, 2020,

in selling, general and administrative expenses in the consolidated statement of operations.

On

October 4, 2019,

the Company awarded a performance-based stock option (PVO) to purchase

800,000

shares of the Company's common stock to a key executive, with a contractual term of

seven

years. Vesting is based upon the achievement of certain performance criteria for each of fiscal

2022

and

2023

including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets. The Company has

not

recorded stock-based compensation expense related to these options.

The Company did

not

grant any PVO's during the

three

months ended

December 31, 2020.

Restricted

Stock

Units

During fiscal

2018,

the Board of Directors granted

93,330

restricted stock units (“RSUs”) to employees that will vest equally over

three

years on each of the

first

three

anniversary dates of the grant. These were issued at a market value of

$210,

which will be expensed on a straight-line basis over the

three

-year life of the grants. 

On

February 7, 2019,

the Board of Directors approved non-employee director compensation to include an annual grant of

30,000

RSUs to each of the Company's

five

non-employee directors that will vest on the

first

anniversary of the grant date. These were issued at a market value of

$413,

were expensed on a straight-line basis through the

March 12, 2020

vest date. Also, during fiscal

2019,

99,300

RSUs were granted to employees that will vest equally over

three

years on each of the

first

three

anniversary dates of the grant. These were issued at a market value of

$248,

which have and will be expensed on a straight-line basis over the

three

-year life of the grants. There were

no

RSUs granted during the

three

months ended

December 31, 2020.

Compensation expense for RSUs was

$138

for the

three

months ended

December 31, 2020.

Compensation expense for RSUs was

$126

for the

three

months ended

December 31, 2019.

A summary of the restricted stock units of the Company as of

December 31, 2020

is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		-		$	-
Released		-		$	-
Forfeited/cancelled		(277	)	$	2.26
Outstanding December 31, 2020		302,737		$	2.82

Stock Option

Summary Information

A summary of the activity in options to purchase the capital stock of the Company as of

December 31, 2020

is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		215,000		$	6.87
Forfeited/expired		(94,125	)	$	1.99
Exercised		(25,899	)	$	2.06
Outstanding December 31, 2020		2,754,281		$	2.92
Exerciseable December 31, 2020		1,500,749		$	2.08

Options outstanding are exercisable at prices ranging from

$1.31

to

$6.87

per share and expire over the period from

2020

to

2027

with an average life of

4.42

years. The aggregate intrinsic value of options outstanding and exercisable at

December 31, 2020

was

$9,993

and

$6,670,

respectively. The aggregate intrinsic value represents the difference between the Company's closing stock price on the last day of trading for the quarter, which was

$6.52

per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the

three

months ended

December 31, 2020

was

$113

and proceeds from these exercises was

$54.

The total intrinsic value of stock options exercised during the

three

months ended

December 31, 2019

was

$128

and proceeds from these exercises was

$144.

The following table summarized information about stock options outstanding at

December 31, 2020:

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Life		Price		Exercisable		Price
$1.31	-	$1.86		373,054		2.64	$	1.66		351,460	$	1.66
$1.99	-	$1.99		937,500		3.18	$	1.99		937,500	$	1.99
$2.02	-	$3.17		95,000		0.91	$	2.42		95,000	$	2.42
$3.39	-	$3.40		1,133,727		5.83	$	3.39		104,289	$	3.40
$6.87	-	$6.87		215,000		6.94	$	6.87		12,500	$	6.87
				2,754,281		4.42	$	2.92		1,500,749	$	2.08

The Company recorded

$44

and

$32

of stock option compensation expense for employees, directors and consultants for the

three

months ended

December 31, 2020,

and

2019,

respectively.

Share-Based Compensation

The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:

	Three Months Ended
	December 31,
	2020		2019
Cost of revenues	$	5	$	4
Selling, general and administrative		171		143
Research and development		6		11
	$	182	$	158

XML

Note 17 - Stockholders' Equity

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

1

7

. STOCKHOLDERS' EQUITY

Summary

The following table summarizes changes in the components of stockholders' equity during the

three

months ended

December 31, 2020

and the

three

months ended

December 31, 2019 (

amounts in thousands, except par value and share amounts):

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at September 30, 2020		33,561,544	$	336	$	91,248	$	(41,858	)	$	(250	)	$	49,140
Share-based compensation expense		-		-		182		-			-			182
Issuance of common stock upon exercise of stock options, net		25,899		-		54		-			-			54
Obligation to issue common stock		-		-		3,431		-			-			3,431
Other comprehensive loss		-		-		-		-			469			469
Net loss		-		-		-		(619	)		-			(619	)
Balance at December 31, 2020		33,587,443	$	336	$	94,915	$	(42,477	)	$	219		$	52,657

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at September 30, 2019		32,949,987	$	330	$	89,572	$	(53,732	)	$	(459	)	$	35,381
Share-based compensation expense		-		-		158		-			-			158
Issuance of common stock upon exercise of stock options, net		83,343		1		144		-			-			144
Other comprehensive loss		-		-		-		-			85			85
Net income		-		-		-		620			-			620
Balance at December 31, 2019		33,033,330	$	331	$	89,874	$	(53,112	)	$	(374	)	$	36,388

Common Stock Activity

During the

three

months ended

December 31, 2020,

the Company issued

25,899

shares of common stock and received gross proceeds of

$54

in connection with the exercise of stock options. During the

three

months ended

December 31, 2019,

the Company issued

83,343

shares of common stock and received gross proceeds of

$144

in connection with the exercise of stock options.

In connection with the Amika Mobile asset purchase, the Company agreed to issue

191,267

shares of the Company's common stock to the former owners of Amika Mobile on each of the first,

second

and

third

anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is

573,801.

The fair value of the Company's common stock on the closing date was

$5.98,

resulting in the addition of

$3,431

to additional paid-in-capital.

Share Buyback Program

In

December 2018,

the Board of Directors approved a new share buyback program beginning

January 1, 2019

and expiring on

December 31, 2020,

under which the Company was authorized to repurchase up to

$5

million of its outstanding common shares. In

December 2020,

the Board of Directors extended the buyback program until

December 31, 2022.

The previous program expired on

December 31, 2018.

During the

three

months ended

December 31, 2020

and

2019,

no

shares were repurchased by the Company.

Dividends

There were

no

dividends declared in the

three

months ended

December 31, 2020

and

2019.

XML

Note 18 - Net (Loss) Income Per Share

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

1

8

.

NET

(LOSS)

INCOME

PER SHARE

The following table sets forth the computation of basic and diluted net income per share:

	Three months Ended
	December 31,
	2020			2019
Net (loss) income	$	(619	)	$	620
Basic (loss) income per share	$	(0.02	)	$	0.02
Diluted (loss) income per share	$	(0.02	)	$	0.02
Weighted average shares outstanding - basic		33,573,755			32,977,765
Assumed exercise of dilutive options		-			732,855
Weighted average shares outstanding - diluted		33,573,755			33,710,620
Potentially diluted securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive:
Options		2,754,281			708,727
RSU		302,737			-
Total		3,057,018			708,727

XML

Note 19 - Segment Information

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

1

9

.

SEGMENT INFORMATION

The Company is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products and location-based mass messaging solutions for emergency warning and workforce management. The Company operates in

two

business segments: Hardware and Software and its principle markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company's chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the

two

operating segments are

not

material.

The following table presents the Company's segment disclosures:

For the

three

months ended

December 31, 2020:

	Revenue from External Customers		Intersegment Revenues		Operating Income			Depreciation and amortization expense		Income Tax Benefit
Hardware	$	7,389			$	160		$	90	$	(5	)
Software		639		351		(853	)		191
	$	8,028	$	351	$	(693	)	$	281	$	(5	)

As of

December 31, 2020:

	Long-lived assets		Total Assets
Hardware	$	1,863	$	56,021
Software		12,265		14,582
	$	14,128	$	70,603

For the

three

months ended

December 31, 2019:

	Revenue from External Customers		Intersegment Revenues		Operating Income			Depreciation and amortization expense		Income Tax Expense
Hardware	$	8,362	$	-	$	861		$	131	$	172
Software		420		385		(165	)		78		-
	$	8,782	$	385	$	696		$	209	$	172

As of

September 30, 2020:

	Long-lived assets		Total Assets
Hardware	$	1,924	$	61,152
Software		3,421		5,015
	$	5,345	$	66,167

XML

Note 20 - Major Customers, Suppliers and Related Information

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

20

. MAJOR CUSTOMERS

, SUPPLIERS AND RELATED INFORMATION

For the

three

months ended

December 31, 2020,

revenues from

one

customer accounted for

52%

of total revenues with

no

other single customer accounting for more than

10%

of revenues. At

December 31, 2020,

accounts receivable from

three

customers accounted for

48%,

14%

and

10%

of total accounts receivable, with

no

other single customer accounting for more than

10%

of the accounts receivable balance.

For the

three

months ended

December 31, 2019,

revenues from

two

customers accounted for

62%

and

13%

of total revenues with

no

other single customer accounting for more than

10%

of revenues. At

December 31, 2019,

accounts receivable from

two

customers accounted for

66%

and

10%

of total accounts receivable, with

no

other single customer accounting for more than

10%

of the accounts receivable balance.

Revenue from customers in the United States was

$5,712

for the

three

months ended

December 31, 2020.

Revenue from customers in the United States was

$6,512

for the

three

months ended

December 31, 2019.

The following table summarizes revenues by geographic region. Revenues are attributed to countries based on customer's delivery location.

	Three months ended December 31,
	2020		2019
Americas	$	6,014	$	6,804
Asia Pacific		1,011		1,548
Europe, Middle East and Africa		1,003		430
Total Revenues	$	8,028	$	8,782

XML

Significant Accounting Policies (Policies)

3 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

General

The Company's unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form

10

-Q and Article

8

of Regulation S-

X

and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In management's opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented

not

misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended

September 

30,

2020

included in the Company's Annual Report on Form

10

-K, as filed with the SEC on

December 10, 2020.

The accompanying condensed consolidated balance sheet at

September 30, 2020

has been derived from the audited consolidated balance sheet at

September 30, 2020

contained in the above referenced Form

10

-K. Results of operations for interim periods are

not

necessarily indicative of the results of operations for a full year.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The Company has

seven

wholly owned subsidiaries, Genasys II Spain, S.A.U (“Genasys Spain”), Genasys Communications Canada ULC, Genasys Singapore PTE Ltd, Genasys Puerto Rico, LLC and Genasys Inc. (branch) in the United Arab Emirates and

two

currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The condensed consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity of

three

months or less, when purchased, to be cash equivalents. At

December 31, 2020

the amount of cash and cash equivalents was

$19,584.

At

September 30, 2020

the amount of cash and cash equivalents was

$23,319.

The Company considers any amounts pledged as collateral or otherwise restricted for use in current operations to be restricted cash. In addition, the Company considers cash and cash equivalents designated to fund specific future contractual obligations related to business combinations to be restricted cash. Restricted cash is classified as a current asset unless amounts are

not

expected to be released and available for use in operations within

one

year. At

December 31, 2020

the current portion of restricted cash was

$295

and the noncurrent portion was

$1,180.

At

September 30, 2020

the current portion of restricted cash was

$270

and the noncurrent portion was

$395.

Immaterial Correction of Prior Period Financial Statements, Policy [Policy Text Block]

Immaterial Correction of Prior Period Financial Statements

During the quarter ended

December 31, 2020,

Company management identified an immaterial error in the previously issued

September 30, 2020

consolidated balance sheet. This error resulted in an overstatement of prepaid expenses and accrued liabilities of

$5,205

related to a foreign currency forward contract which was presented on a gross basis rather than on a net basis. There was

no

impact to the consolidated statement of operations or the consolidated statement of cash flows as of

September 30, 2020,

as a result of this misstatement. Further, there was

no

impact to the condensed consolidated financial statements as of, and for the quarter ended

December 31, 2020,

as the forward contract was settled during this period. SEC Staff Accounting Bulletin:

No.

99

– Materiality and

No.

108

– Financial Statement Misstatement were used by management to evaluate the impact of the misstatement. Management concluded that this misstatement had

no

material impact on either the accompanying condensed consolidated balance sheet as of

December 31, 2020

or the previously issued consolidated balance sheet as of

September 30, 2020, 

and therefore the misstatement was corrected in the accompanying condensed consolidated balance sheet as of

September 30, 2020.

All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error.

Reclassification, Comparability Adjustment [Policy Text Block]

Reclassifications

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

XML

Note 4 - Business Combination (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

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

Business Combination, Separately Recognized Transactions [Table Text Block]

Assets Acquired
Prepaid expenses	$	2
Fixed assets		22
Operating lease right of use asset		248
Intangible Assets		2,820
Goodwill		5,663
Total assets acquired	$	8,755
Liabilities assumed
Accrued liabilities	$	96
Operating lease liability		248
Total liabilities assumed		344
Net Assets acquired	$	8,411

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination [Table Text Block]

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

XML

Note 5 - Revenue Recognition (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]

	Customer deposits			Deferred revenue			Total contract liabilities
Balance at September 30, 2020	$	3,683		$	1,024		$	4,707
New performance obligations		3,476			245			3,721
Recognition of revenue as a result of satisfying performance obligations		(2,221	)		(439	)		(2,660	)
Effect of exchange rate on deferred revenue		-			21			21
Balance at December 31, 2020	$	4,938		$	851		$	5,789
Less: non-current portion		-			(275	)		(275	)
Current portion at December 31, 2020	$	4,938		$	576		$	5,514

XML

Note 6 - Fair Value Measurements (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	December 31, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	528	$	-	$	528	$	528	$	-	$	-
Level 2:
Certificates of deposit		1,194		-		1,194		-		-		1,194
Municipal securities		4,411		2		4,413		-		3,638		775
Corporate bonds		2,327		2		2,329		-		1,879		450
Subtotal		7,932		4		7,936		-		5,517		2,419
Total	$	8,460	$	4	$	8,464	$	528	$	5,517	$	2,419

	September 30, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	365	$	-	$	365	$	365	$	-	$	-
Level 2:
Certificates of deposit		1,195		-		1,195		-		-		1,195
Municipal securities		3,777		4		3,781		-		2,432		1,350
Corporate bonds		3,091		3		3,094		-		1,833		1,260
Subtotal		8,063		7		8,070		-		4,265		3,805
Total	$	8,428	$	7	$	8,435	$	365	$	4,265	$	3,805

XML

Note 7 - Inventories, Net (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	December 31,			September 30,
	2020			2020
Raw materials	$	5,859		$	5,220
Finished goods		763			841
Work in process		927			456
Inventories, gross		7,549			6,517
Reserve for obsolescence		(586	)		(568	)
Inventories, net	$	6,963		$	5,949

XML

Note 8 - Property and Equipment, Net (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Property, Plant and Equipment [Table Text Block]

	December 31,			September 30,
	2020			2020
Office furniture and equipment	$	1,244		$	1,181
Machinery and equipment		1,193			1,184
Leasehold improvements		2,056			2,056
Construction in progress		28			8
Property and equipment, gross		4,521			4,429
Accumulated depreciation		(2,636	)		(2,499	)
Property and equipment, net	$	1,885		$	1,930

Depreciation Expense [Member]

Notes Tables

Property, Plant and Equipment [Table Text Block]

	Three months ended December 31,
	2020		2019
Depreciation expense	$	99	$	134

XML

Note 9 - Goodwill and Intangible Assets (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	December 31,			September 30,
	2020			2020
Developed technology	$	3,297		$	655
Customer relationships		990			627
Trade name portfolio		238			228
Non-compete agreements		258			247
Patents		72			72
		4,855			1,829
Accumulated amortization		(1,112	)		(886	)
	$	3,743		$	943

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Fiscal year ending September 30,
2021 (remaining nine months)	$	501
2022		664
2023		630
2024		615
2025		480
Thereafter		853
Total estimated amortization expense	$	3,743

XML

Note 10 - Prepaid Expenses and Other (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]

	December 31,		September 30,
	2020		2020
Deposits for inventory	$	90	$	54
Prepaid insurance		185		264
Dues and subscriptions		106		151
Trade shows and travel		104		103
Other		228		288
	$	713	$	860

XML

Note 11 - Accrued Liabilities (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	December 31,		September 30,
	2020		2020
Payroll and related	$	1,343	$	2,545
Deferred revenue		576		731
Customer deposits		4,938		3,683
Accrued contract costs		857		719
Warranty reserve		134		126
Other		-		76
Total	$	7,848	$	7,880

Other Noncurrent Liabilities [Table Text Block]

	December 31,		September 30,
	2020		2020
Deferred extended warranty revenue	$	275	$	293
Asset purchase holdback liability		640		-
Total	$	915	$	293

Schedule of Product Warranty Liability [Table Text Block]

	December 31,			September 30,
	2020			2020
Beginning balance	$	126		$	150
Warranty provision		15			16
Warranty settlements		(7	)		(40	)
Ending balance	$	134		$	126

XML

Note 12 - Debt (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Loans With Governmental Agencies [Table Text Block]

Agency	Due Date	Principal
Ministry of Economy and Competitiveness	February 2, 2022	$	37
Ministry of Economy and Competitiveness	February 2, 2024		295	(a)
		$	332

Schedule of Maturities of Long-term Debt [Table Text Block]

2021	$	314
2022		18
Total	$	332

XML

Note 13 - Leases (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Initial Measurement of Operating Lease [Table Text Block]

	Operating ROU assets
Operating lease ROU asset at September 30, 2020	$	5,285
Additional operating lease ROU assets		248
Less amortization of operating lease ROU assets		(170	)
Effect of exchange rate on operating lease ROU assets		21
Operating lease ROU asset at December 31, 2020	$	5,384

	Operating lease liabilities
Operating lease liabilities at September 30, 2020	$	7,166
Additional operating lease liabilities		248
Less lease principal payments on operating lease liabilities		(202	)
Effect of exchange rate on operating lease liabilities		21
Operating lease liabilities at December 31, 2020		7,233
Less non-current portion		(6,385	)
Current portion at December 31, 2020	$	848

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Fiscal year ending September 30,
2021 (remaining nine months)	$	840
2022		1,146
2023		1,090
2024		1,085
2025		1,162
Thereafter		3,104
Total undiscounted operating lease payments		8,427
Less imputed interest		(1,194	)
Present value of operating lease liabilities		7,233
Less lease liability, noncurrent		(6,385	)
Lease liability, current portion	$	848

XML

Note 16 - Share-based Compensation (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three months ended
	December 31,
	2020			2019
Volatility		48.6	%		40.2	%
Risk-free interest rate		0.6	%		1.5	%
Forfeiture rate		3.8	%		10.0	%
Dividend yield		0.0	%		0.0	%
Expected term		6.9			5.0

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		-		$	-
Released		-		$	-
Forfeited/cancelled		(277	)	$	2.26
Outstanding December 31, 2020		302,737		$	2.82

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		215,000		$	6.87
Forfeited/expired		(94,125	)	$	1.99
Exercised		(25,899	)	$	2.06
Outstanding December 31, 2020		2,754,281		$	2.92
Exerciseable December 31, 2020		1,500,749		$	2.08

Share-based Payment Arrangement, Option, Exercise Price Range [Table Text Block]

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Life		Price		Exercisable		Price
$1.31	-	$1.86		373,054		2.64	$	1.66		351,460	$	1.66
$1.99	-	$1.99		937,500		3.18	$	1.99		937,500	$	1.99
$2.02	-	$3.17		95,000		0.91	$	2.42		95,000	$	2.42
$3.39	-	$3.40		1,133,727		5.83	$	3.39		104,289	$	3.40
$6.87	-	$6.87		215,000		6.94	$	6.87		12,500	$	6.87
				2,754,281		4.42	$	2.92		1,500,749	$	2.08

Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

	Three Months Ended
	December 31,
	2020		2019
Cost of revenues	$	5	$	4
Selling, general and administrative		171		143
Research and development		6		11
	$	182	$	158

XML

Note 17 - Stockholders' Equity (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Stockholders Equity [Table Text Block]

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at September 30, 2020		33,561,544	$	336	$	91,248	$	(41,858	)	$	(250	)	$	49,140
Share-based compensation expense		-		-		182		-			-			182
Issuance of common stock upon exercise of stock options, net		25,899		-		54		-			-			54
Obligation to issue common stock		-		-		3,431		-			-			3,431
Other comprehensive loss		-		-		-		-			469			469
Net loss		-		-		-		(619	)		-			(619	)
Balance at December 31, 2020		33,587,443	$	336	$	94,915	$	(42,477	)	$	219		$	52,657

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at September 30, 2019		32,949,987	$	330	$	89,572	$	(53,732	)	$	(459	)	$	35,381
Share-based compensation expense		-		-		158		-			-			158
Issuance of common stock upon exercise of stock options, net		83,343		1		144		-			-			144
Other comprehensive loss		-		-		-		-			85			85
Net income		-		-		-		620			-			620
Balance at December 31, 2019		33,033,330	$	331	$	89,874	$	(53,112	)	$	(374	)	$	36,388

XML

Note 18 - Net (Loss) Income Per Share (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three months Ended
	December 31,
	2020			2019
Net (loss) income	$	(619	)	$	620
Basic (loss) income per share	$	(0.02	)	$	0.02
Diluted (loss) income per share	$	(0.02	)	$	0.02
Weighted average shares outstanding - basic		33,573,755			32,977,765
Assumed exercise of dilutive options		-			732,855
Weighted average shares outstanding - diluted		33,573,755			33,710,620
Potentially diluted securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive:
Options		2,754,281			708,727
RSU		302,737			-
Total		3,057,018			708,727

XML

Note 19 - Segment Information (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Revenue from External Customers		Intersegment Revenues		Operating Income			Depreciation and amortization expense		Income Tax Benefit
Hardware	$	7,389			$	160		$	90	$	(5	)
Software		639		351		(853	)		191
	$	8,028	$	351	$	(693	)	$	281	$	(5	)

	Long-lived assets		Total Assets
Hardware	$	1,863	$	56,021
Software		12,265		14,582
	$	14,128	$	70,603

	Revenue from External Customers		Intersegment Revenues		Operating Income			Depreciation and amortization expense		Income Tax Expense
Hardware	$	8,362	$	-	$	861		$	131	$	172
Software		420		385		(165	)		78		-
	$	8,782	$	385	$	696		$	209	$	172

	Long-lived assets		Total Assets
Hardware	$	1,924	$	61,152
Software		3,421		5,015
	$	5,345	$	66,167

XML

Note 20 - Major Customers, Suppliers and Related Information (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Three months ended December 31,
	2020		2019
Americas	$	6,014	$	6,804
Asia Pacific		1,011		1,548
Europe, Middle East and Africa		1,003		430
Total Revenues	$	8,028	$	8,782

XML

Note 2 - Basis of Presentation and Significant Accounting Policies (Details Textual) $ in Thousands	Dec. 31, 2020 USD ($)	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Number of Wholly Owned Subsidiaries	7
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 19,584	$ 23,319	$ 17,092
Restricted Cash, Current	295	282
Restricted Cash, Noncurrent	1,180	$ 395
Immaterial Correction of Prior Period Financial Statements [Member]
Prepaid Expenses and Accrued Liabilities	$ 5,205

XML

Note 4 - Business Combination (Details Textual) $ / shares in Units, $ in Thousands, $ in Millions		3 Months Ended
	Oct. 02, 2020 USD ($) $ / shares shares	Dec. 31, 2020 USD ($) $ / shares shares	Dec. 31, 2020 CAD ($) shares	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Share Price (in dollars per share) | $ / shares	$ 5.98	$ 6.52
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable		$ 3,431
Assets Acquisition of Amika Mobile Corporation [Member]
Asset Acquisition, Holdback Liability Deposited			$ 1
Asset Acquisition, Adjustments from Purchase Holdback Liability, Period (Year)		3 years	3 years
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares, Each Anniversaries (in shares) | shares	191,267	191,267	191,267
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) | shares	573,801	573,801	573,801
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable	$ 3,431	$ 3,431
Business Combination, Acquisition Related Costs		$ 242
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (Year)		7 years	7 years
Assets Acquisition of Amika Mobile Corporation [Member] | Selling, General and Administrative Expenses [Member]
Business Combination, Acquisition Related Costs		$ 10		$ 132	$ 100

XML

Note 4 - Business Combination - Preliminary Consideration (Details) - USD ($) $ in Thousands		3 Months Ended
	Oct. 02, 2020	Dec. 31, 2020	Dec. 31, 2019
Cash paid		$ 4,367
Common stock to be issued		3,431
Assets Acquisition of Amika Mobile Corporation [Member]
Cash paid	$ 4,367
Asset purchase holdback liability	613
Common stock to be issued	3,431	$ 3,431
Business Combination, Consideration Transferred, Total	$ 8,411

XML

Note 4 - Business Combination - Purchase Price Allocation (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Oct. 02, 2020	Sep. 30, 2020
Goodwill	$ 8,500		$ 2,472
Assets Acquisition of Amika Mobile Corporation [Member]
Prepaid expenses		$ 2
Fixed assets		22
Operating lease right of use asset		248
Intangible Assets	$ 2,820	2,820
Goodwill		5,663
Total assets acquired		8,755
Accrued liabilities		96
Operating lease liability		248
Total liabilities assumed		344
Net Assets acquired		$ 8,411

XML

Note 4 - Business Combination - Estimate Fair Value of the Identifiable Assets Acquired and Estimated Useful Lives (Details) - Assets Acquisition of Amika Mobile Corporation [Member] - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Oct. 02, 2020
Fair value	$ 2,820	$ 2,820
Useful lives (Year)	7 years
Developed Technology Rights [Member]
Fair value	$ 2,500
Useful lives (Year)	7 years
Customer Relationships [Member]
Fair value	$ 320
Useful lives (Year)	7 years

XML

Note 5 - Revenue Recognition 1 (Details Textual)	Dec. 31, 2020 USD ($)
Revenue, Remaining Performance Obligation, Amount	$ 5,789

XML

Note 5 - Revenue Recognition 2 (Details Textual)	Dec. 31, 2020 USD ($)
Revenue, Remaining Performance Obligation, Amount	$ 5,789
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue, Remaining Performance Obligation, Amount	$ 5,514
Revenue, Remaining Performance Obligation, Percentage	95.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Month)	1 year

XML

Note 5 - Revenue Recognition - Contract Asset and Contract Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Sep. 30, 2020
Balance	$ 4,707
New performance obligations	3,721
Recognition of revenue as a result of satisfying performance obligations	(2,660)
Effect of exchange rate on deferred revenue	21
Balance	5,789
Less: non-current portion	(275)
Current portion	5,514
Customer Deposits [Member]
Balance	3,683
New performance obligations	3,476
Recognition of revenue as a result of satisfying performance obligations	(2,221)
Effect of exchange rate on deferred revenue
Balance	4,938
Less: non-current portion
Current portion	4,938	$ 3,683
Deferred Revenue [Member]
Balance	1,024
New performance obligations	245
Recognition of revenue as a result of satisfying performance obligations	(439)
Effect of exchange rate on deferred revenue	21
Balance	851
Less: non-current portion	(275)	(293)
Current portion	$ 576	$ 731

XML

Note 6 - Fair Value Measurements (Details Textual) - Foreign Exchange Forward [Member] $ in Thousands	Oct. 01, 2020 USD ($)	Oct. 01, 2020 CAD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2020 CAD ($)
Derivative, Notional Amount				$ 6,955
Payments for Derivative Instrument, Financing Activities	$ 5,281	$ 6,955
Derivative, Gain (Loss) on Derivative, Net, Total	$ (48,000)
Fair Value, Inputs, Level 2 [Member]
Derivative Liability, Total			$ 76,000

XML

Note 6 - Fair Value Measurements - Fair Value by Major Security Type (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Short-term marketable securities	$ 5,517	$ 4,265
Long-term Securities	2,419	3,805
Fair Value, Nonrecurring [Member]
Cost Basis	8,460	8,428
Unrealized Gains (Losses)	4	7
Fair Value	8,464	8,435
Cash Equivalents	528	365
Short-term marketable securities	5,517	4,265
Long-term Securities	2,419	3,805
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Cost Basis	528	365
Unrealized Gains (Losses)
Fair Value	528	365
Cash Equivalents	528	365
Short-term marketable securities
Long-term Securities
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Cost Basis	7,932	8,063
Unrealized Gains (Losses)	4	7
Fair Value	7,936	8,070
Cash Equivalents
Short-term marketable securities	5,517	4,265
Long-term Securities	2,419	3,805
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Certificates of Deposit [Member]
Cost Basis	1,194	1,195
Unrealized Gains (Losses)
Fair Value	1,194	1,195
Cash Equivalents
Short-term marketable securities
Long-term Securities	1,194	1,195
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | US States and Political Subdivisions Debt Securities [Member]
Cost Basis	4,411	3,777
Unrealized Gains (Losses)	2	4
Fair Value	4,413	3,781
Cash Equivalents
Short-term marketable securities	3,638	2,432
Long-term Securities	775	1,350
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate Debt Securities [Member]
Cost Basis	2,327	3,091
Unrealized Gains (Losses)	2	3
Fair Value	2,329	3,094
Cash Equivalents
Short-term marketable securities	1,879	1,833
Long-term Securities	$ 450	$ 1,260

XML

Note 7 - Inventories, Net - Schedule of Inventory (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Raw materials	$ 5,859	$ 5,220
Finished goods	763	841
Work in process	927	456
Inventories, gross	7,549	6,517
Reserve for obsolescence	(586)	(568)
Inventories, net	$ 6,963	$ 5,949

XML

Note 8 - Property and Equipment, Net - Property and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Property and equipment	$ 4,521	$ 4,429
Accumulated depreciation	(2,636)	(2,499)
Property and equipment, net	1,885	1,930
Furniture and Fixtures [Member]
Property and equipment	1,244	1,181
Machinery and Equipment [Member]
Property and equipment	1,193	1,184
Leasehold Improvements [Member]
Property and equipment	2,056	2,056
Construction in Progress [Member]
Property and equipment	$ 28	$ 8

XML

Note 8 - Property and Equipment, Net - Property and Equipment, Depreciation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Depreciation expense	$ 99	$ 134

XML

Note 9 - Goodwill and Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Goodwill, Acquired During Period	$ 5,663
Goodwill, Impairment Loss	0
Finite-lived Intangible Assets Acquired	2,820
Amortization of Intangible Assets, Total	182	$ 75
Genasys Acquisition [Member]
Goodwill and Intangible Assets, Foreign Currency Translation Gain (Loss)	156
Assets Acquisition of Amika Mobile Corporation [Member]
Goodwill and Intangible Assets, Foreign Currency Translation Gain (Loss)	$ 375

XML

Note 9 - Goodwill and Intangible Assets - Summary of Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Intangible assets, gross carrying amount	$ 4,855	$ 1,829
Accumulated amortization	(1,112)	(886)
Intangible assets, net	3,743	943
Developed Technology Rights [Member]
Intangible assets, gross carrying amount	3,297	655
Customer Relationships [Member]
Intangible assets, gross carrying amount	990	627
Trade Names [Member]
Intangible assets, gross carrying amount	238	228
Noncompete Agreements [Member]
Intangible assets, gross carrying amount	258	247
Patents [Member]
Intangible assets, gross carrying amount	$ 72	$ 72

XML

Note 9 - Goodwill and Intangible Assets - Estimated Future Amortization Expense (Details) $ in Thousands	Dec. 31, 2020 USD ($)
2021 (remaining nine months)	$ 501
2022	664
2023	630
2024	615
2025	480
Thereafter	853
Total estimated amortization expense	$ 3,743

XML

Note 10 - Prepaid Expenses and Other - Summary of Prepaid Expenses and Others (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020	Sep. 30, 2019
Deposits for inventory	$ 90		$ 54
Prepaid insurance	185		264
Dues and subscriptions	106		151
Trade shows and travel	104		103
Other	228		288
Prepaid expenses and other	$ 713	$ 860	$ 860

XML

Note 11 - Accrued Liabilities (Details Textual) $ in Thousands, $ in Millions			3 Months Ended
	Oct. 02, 2020 USD ($)	Oct. 02, 2020 CAD ($)	Dec. 31, 2020
Assets Acquisition of Amika Mobile Corporation [Member]
Asset Purchase Agreement, Deduction From Liability	$ 785	$ 1
Asset Purchase Agreement, Deduction, Term (Year)	3 years	3 years
Minimum [Member]
Extended Product Warranty Term (Year)			1 year
Maximum [Member]
Extended Product Warranty Term (Year)			2 years

XML

Note 11 - Accrued Liabilities - Summary of Accrued Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Payroll and related	$ 1,343	$ 2,545
Contract liability, current	5,514
Accrued contract costs	857	719
Warranty reserve	134	126
Other		76
Total	7,848	7,880
Deferred Revenue [Member]
Contract liability, current	576	731
Customer Deposits [Member]
Contract liability, current	$ 4,938	$ 3,683

XML

Note 11 - Accrued Liabilities - Other Noncurrent Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Deferred extended warranty revenue	$ 275
Asset purchase holdback liability	640
Total	915	293
Deferred Revenue [Member]
Deferred extended warranty revenue	$ 275	$ 293

XML

Note 11 - Accrued Liabilities - Changes in Warranty Reserve (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Dec. 31, 2020	Sep. 30, 2020
Beginning balance	$ 126	$ 150
Warranty provision	15	16
Warranty settlements	(7)	(40)
Ending balance	$ 134	$ 126

XML

Note 12 - Debt (Details Textual) $ in Thousands	Dec. 31, 2020 USD ($)
Long-term Debt, Current Maturities, Total	$ 314
Long-term Debt, Excluding Current Maturities, Total	18
Collateral Pledged [Member] | Loan with Ministry of Science and Innovation, Due February 2, 2024 [Member] | Genasys Acquisition [Member]
Long-term Debt, Current Maturities, Total	$ 295

XML

Note 12 - Debt - Loans With Governmental Agencies (Details) $ in Thousands	3 Months Ended
	Dec. 31, 2020 USD ($)
Principal, loans with governmental agencies	$ 332
Loans With Governmental Agencies [Member]
Principal, loans with governmental agencies	$ 332
Loans With Governmental Agencies [Member] | Ministry of Economy and Competitiveness, Debt, Due February 2, 2022 [Member]
Due date, loans with governmental agencies	Feb. 02, 2022
Principal, loans with governmental agencies	$ 37
Loans With Governmental Agencies [Member] | Ministry of Economy and Competitiveness, Debt, Due February 2, 2024 [Member]
Due date, loans with governmental agencies	Feb. 02, 2024
Principal, loans with governmental agencies	$ 295	[1]

[1] This loan is secured by $295 of cash pledged as collateral by Genasys Spain, which is the current balance of the loan. This amount is included in restricted cash at December 31, 2020. The Company expects the Ministry of Economy and Competitiveness to declare the terms of the loan satisfied within fiscal 2021 and that the outstanding balance of the loan will be paid in full during fiscal 2021. Accordingly, this has been included in the current portion of notes payable as of December 31, 2020.

XML

Note 12 - Debt - Future Annual Payments (Details) $ in Thousands	Dec. 31, 2020 USD ($)
2021	$ 314
2022	18
Total	$ 332

XML

Note 13 - Leases (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020	Oct. 01, 2019
Increase in Lease Liability with 10% Increase in Index	$ 19
Operating Lease, Liability	7,233		$ 7,166
Operating Lease, Right-of-Use Asset	$ 5,384		$ 5,285
Operating Lease, Weighted Average Remaining Lease Term (Year)	7 years 124 days
Operating Lease, Weighted Average Discount Rate, Percent	4.13%
Operating Lease, Expense	$ 236	$ 225
Short-term Lease, Cost	0	$ 0
Assets Acquisition of Amika Mobile Corporation [Member]
Operating Lease, Liability	248
Operating Lease, Right-of-Use Asset	$ 248
Accounting Standards Update 2016-02 [Member]
Operating Lease, Liability				$ 7,815
Operating Lease, Right-of-Use Asset				$ 5,824

XML

Note 13 - Leases - Initial Measurement of Operating Lease (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Sep. 30, 2020
Operating lease ROU asset at September 30, 2020	$ 5,384	$ 5,285
Additional operating lease ROU assets	248
Less amortization of operating lease ROU assets	(170)
Effect of exchange rate on operating lease ROU assets	21
Operating lease liabilities	7,233	7,166
Less lease principal payments on operating lease liabilities	(202)
Effect of exchange rate on operating lease liabilities	21
Less non-current portion	(6,385)	(6,395)
Current portion at December 31, 2020	$ 848	$ 771

XML

Note 13 - Leases - Maturities of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
2021 (remaining nine months)	$ 840
2022	1,146
2023	1,090
2024	1,085
2025	1,162
Thereafter	3,104
Total undiscounted operating lease payments	8,427
Less imputed interest	(1,194)
Present value of operating lease liabilities	7,233	$ 7,166
Less non-current portion	(6,385)	(6,395)
Current portion at December 31, 2020	$ 848	$ 771

XML

Note 14 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Tax Expense (Benefit), Total	$ (5)	$ 172
Effective Income Tax Rate Reconciliation, Percent, Total	31.20%	21.80%
Unrecognized Tax Benefits, Ending Balance	$ 0

XML

Note 15 - Commitments and Contingencies (Details Textual) $ / shares in Units, $ in Thousands, $ in Millions			3 Months Ended
	Oct. 02, 2020 USD ($) $ / shares shares	Oct. 02, 2020 CAD ($) shares	Dec. 31, 2020 USD ($) $ / shares shares	Dec. 31, 2019 USD ($)
Increase (Decrease) in Other Employee-Related Liabilities			$ 459	$ 408
Share Price (in dollars per share) | $ / shares	$ 5.98		$ 6.52
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable			$ 3,431
Assets Acquisition of Amika Mobile Corporation [Member]
Asset Purchase Agreement, Deduction From Liability	$ 785	$ 1
Asset Purchase Agreement, Deduction, Term (Year)	3 years	3 years
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares, Each Anniversaries (in shares) | shares	191,267	191,267	191,267
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) | shares	573,801	573,801	573,801
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable	$ 3,431		$ 3,431

XML

Note 16 - Share-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		12 Months Ended				50 Months Ended
	Oct. 04, 2019	Feb. 07, 2019	Aug. 01, 2016	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2015	Sep. 30, 2020	Oct. 02, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)				3,540,498
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)				215,000		1,133,727
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)				7 years
Dividends, Total				$ 0		$ 0
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total				$ 1,067
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)				2 years 219 days
Share-based Payment Arrangement, Expense				$ 182	$ 158
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance (in dollars per share)				$ 2.92		$ 2.56				$ 2.56
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term (Year)				4 years 153 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value				$ 9,993
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value				$ 6,670
Share Price (in dollars per share)				$ 6.52							$ 5.98
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value				$ 113	128
Gross Proceeds from Stock Options Exercised				$ 54	144
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance (in dollars per share)				$ 1.31
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance (in dollars per share)				$ 6.87
Selling, General and Administrative Expenses [Member]
Share-based Payment Arrangement, Expense				$ 171	143
Common Stock Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)				483,480
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)				0
Performance Shares [Member] | Key Executive [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)	800,000		750,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)	7 years		7 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Performance Criteria, Maximum Vested Per Year, Number (in shares)			375,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares (in shares)						375,000	187,500
Share-based Payment Arrangement, Expense	$ 0
Performance Shares [Member] | Key Executive [Member] | Selling, General and Administrative Expenses [Member]
Share-based Payment Arrangement, Expense										$ 459
Restricted Stock Units (RSUs) [Member]
Share-based Payment Arrangement, Expense				$ 138	126
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)				0
Restricted Stock Units (RSUs) [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)							3 years	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)							99,300	93,330
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)							3 years	3 years
Shares Granted, Value, Share-based Payment Arrangement, before Forfeiture							$ 248	$ 210
Restricted Stock Units (RSUs) [Member] | Non-employee Directors [Member]
Shares Granted, Value, Share-based Payment Arrangement, before Forfeiture		$ 413
Share Based Compensation Arrangement By Share Based Payment Award Options, Annual Grants, Gross (in shares)		30,000
Share-based Payment Arrangement, Option [Member] | Employees, Directors, and Consultations [Member]
Share-based Payment Arrangement, Expense				$ 44	$ 32
2015 Equity Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in shares)									5,000,000
2015 Equity Plan [Member] | Options and RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options and Equity Instruments Other than Options, Outstanding, Number (in shares)				2,942,018
2005 Equity Plan [Member] | Options and RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options and Equity Instruments Other than Options, Outstanding, Number (in shares)				115,000

XML

Note 16 - Share-based Compensation - Weighted-average Assumptions (Details)	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Volatility	48.60%	40.20%
Risk-free interest rate	0.60%	1.50%
Forfeiture rate	3.80%	10.00%
Dividend yield	0.00%	0.00%
Expected term (Year)	6 years 328 days	5 years

XML

Note 16 - Share-based Compensation - Restricted Stock Activity (Details) - Restricted Stock Units (RSUs) [Member]	3 Months Ended
	Dec. 31, 2020 $ / shares shares
Number of Shares Outstanding (in shares) | shares	303,014
Weighted Average Grant Date Fair Value, Outstanding (in dollars per share) | $ / shares	$ 2.82
Number of Shares Granted (in shares) | shares	0
Weighted Average Grant Date Fair Value, Granted (in dollars per share) | $ / shares
Number of Shares Released (in shares) | shares
Weighted Average Grant Date Fair Value, Released (in dollars per share) | $ / shares
Number of Shares Forfeited/cancelled (in shares) | shares	(277)
Weighted Average Grant Date Fair Value, Forfeited/cancelled (in dollars per share) | $ / shares	$ 2.26
Number of Shares Outstanding (in shares) | shares	302,737
Weighted Average Grant Date Fair Value, Outstanding (in dollars per share) | $ / shares	$ 2.82

XML

Note 16 - Share-based Compensation - Stock Option Activity (Details) - $ / shares	3 Months Ended		12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020
Number of Shares Outstanding, Beginning Balance (in shares)	2,659,305
Weighted Average Exercise Price, Shares Outstanding, Beginning Balance (in dollars per share)	$ 2.56
Number of Shares Granted (in shares)	215,000		1,133,727
Weighted Average Exercise Price, Shares Granted (in dollars per share)	$ 6.87
Number of Shares Forfeited/expired (in shares)	(94,125)
Weighted Average Exercise Price, Shares Forfeited/expired (in dollars per share)	$ 1.99
Number of Shares Exercised (in shares)	(25,899)	(83,343)
Weighted Average Exercise Price, Exercised (in dollars per share)	$ 2.06
Number of Shares Outstanding, Ending Balance (in shares)	2,754,281		2,659,305
Weighted Average Exercise Price, Shares Outstanding, Ending Balance (in dollars per share)	$ 2.92		$ 2.56
Number of Shares Exercisable (in shares)	1,500,749
Weighted Average Exercise Price, Shares Exercisable (in dollars per share)	$ 2.08

XML

Note 16 - Share-based Compensation - Stock Options Outstanding (Details)	3 Months Ended
	Dec. 31, 2020 $ / shares shares
Number Outstanding (in shares) | shares	2,754,281
Weighted Average Remaining Contractual Life (Year)	4 years 153 days
Weighted Average Exercise Price, Outstanding (in dollars per share)	$ 2.92
Number Exercisable (in shares) | shares	1,500,749
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 2.08
Weighted Average Exercise Price, Exercisable (in dollars per share)	2.08
Range One [Member]
Lower Exercise Price (in dollars per share)	1.31
Upper Exercise Price (in dollars per share)	$ 1.86
Number Outstanding (in shares) | shares	373,054
Weighted Average Remaining Contractual Life (Year)	2 years 233 days
Weighted Average Exercise Price, Outstanding (in dollars per share)	$ 1.66
Number Exercisable (in shares) | shares	351,460
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 1.66
Weighted Average Exercise Price, Exercisable (in dollars per share)	1.66
Range Two [Member]
Lower Exercise Price (in dollars per share)	1.99
Upper Exercise Price (in dollars per share)	$ 1.99
Number Outstanding (in shares) | shares	937,500
Weighted Average Remaining Contractual Life (Year)	3 years 65 days
Weighted Average Exercise Price, Outstanding (in dollars per share)	$ 1.99
Number Exercisable (in shares) | shares	937,500
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 1.99
Weighted Average Exercise Price, Exercisable (in dollars per share)	1.99
Range Three [Member]
Lower Exercise Price (in dollars per share)	2.02
Upper Exercise Price (in dollars per share)	$ 3.17
Number Outstanding (in shares) | shares	95,000
Weighted Average Remaining Contractual Life (Year)	332 days
Weighted Average Exercise Price, Outstanding (in dollars per share)	$ 2.42
Number Exercisable (in shares) | shares	95,000
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 2.42
Weighted Average Exercise Price, Exercisable (in dollars per share)	2.42
Range Four [Member]
Lower Exercise Price (in dollars per share)	3.39
Upper Exercise Price (in dollars per share)	$ 3.40
Number Outstanding (in shares) | shares	1,133,727
Weighted Average Remaining Contractual Life (Year)	5 years 302 days
Weighted Average Exercise Price, Outstanding (in dollars per share)	$ 3.39
Number Exercisable (in shares) | shares	104,289
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 3.40
Weighted Average Exercise Price, Exercisable (in dollars per share)	3.40
Range Five [Member]
Lower Exercise Price (in dollars per share)	6.87
Upper Exercise Price (in dollars per share)	$ 6.87
Number Outstanding (in shares) | shares	215,000
Weighted Average Remaining Contractual Life (Year)	6 years 343 days
Weighted Average Exercise Price, Outstanding (in dollars per share)	$ 6.87
Number Exercisable (in shares) | shares	12,500
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 6.87
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 6.87

XML

Note 16 - Share-based Compensation - Summary of Share-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Share-based Payment Arrangement, Expense	$ 182	$ 158
Cost of Sales [Member]
Share-based Payment Arrangement, Expense	5	4
Selling, General and Administrative Expenses [Member]
Share-based Payment Arrangement, Expense	171	143
Research and Development Expense [Member]
Share-based Payment Arrangement, Expense	$ 6	$ 11

XML

Note 17 - Stockholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	Oct. 02, 2020	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period (in shares)		25,899	83,343
Gross Proceeds from Stock Options Exercised		$ 54	$ 144
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable		$ 3,431
Preferred Stock, Shares Outstanding, Ending Balance (in shares)		0	0	0
Common Stock, Dividends, Per Share, Declared (in dollars per share)		$ 0	$ 0
Share Buyback Program [Member]
Stock Repurchase Program, Authorized Amount					$ 5,000
Assets Acquisition of Amika Mobile Corporation [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares, Each Anniversaries (in shares)	191,267	191,267
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares)	573,801	573,801
Business Acquisition, Share Price (in dollars per share)	$ 5.98
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable	$ 3,431	$ 3,431

XML

Note 17 - Stockholders' Equity - Summary of Changes in Stockholders' Equity (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Balance	$ 49,140	$ 35,381
Share-based compensation expense	$ 182	$ 158
Issuance of common stock upon exercise of stock options, net (in shares)	25,899	83,343
Issuance of common stock upon exercise of stock options, net	$ 54	$ 144
Obligation to issue common stock	3,431
Other comprehensive income (loss)	469	85
Net (loss) income	(619)	620
Balance	$ 52,657	$ 36,388
Common Stock [Member]
Balance (in shares)	33,561,544	32,949,987
Balance	$ 336	$ 330
Share-based compensation expense
Issuance of common stock upon exercise of stock options, net (in shares)	25,899	83,343
Issuance of common stock upon exercise of stock options, net		$ 1
Obligation to issue common stock
Other comprehensive income (loss)
Net (loss) income
Balance (in shares)	33,587,443	33,033,330
Balance	$ 336	$ 331
Additional Paid-in Capital [Member]
Balance	91,248	89,572
Share-based compensation expense	182	158
Issuance of common stock upon exercise of stock options, net	54	144
Obligation to issue common stock	3,431
Other comprehensive income (loss)
Net (loss) income
Balance	94,915	89,874
Retained Earnings [Member]
Balance	(41,858)	(53,732)
Share-based compensation expense
Issuance of common stock upon exercise of stock options, net
Obligation to issue common stock
Other comprehensive income (loss)
Net (loss) income	(619)	620
Balance	(42,477)	(53,112)
AOCI Attributable to Parent [Member]
Balance	(250)	(459)
Share-based compensation expense
Issuance of common stock upon exercise of stock options, net
Obligation to issue common stock
Other comprehensive income (loss)	469	85
Net (loss) income
Balance	$ 219	$ (374)

XML

Note 18 - Net (Loss) Income Per Share - Basic and Diluted Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Net (loss) income	$ (619)	$ 620
Basic (loss) income per share (in dollars per share)	$ (0.02)	$ 0.02
Diluted (loss) income per share (in dollars per share)	$ (0.02)	$ 0.02
Weighted average shares outstanding - basic (in shares)	33,573,755	32,977,765
Assumed exercise of dilutive options (in shares)		732,855
Weighted average shares outstanding - diluted (in shares)	33,573,755	33,710,620
Antidilutive securities (in shares)	3,057,018	708,727
Share-based Payment Arrangement, Option [Member]
Antidilutive securities (in shares)	2,754,281	708,727
Restricted Stock Units (RSUs) [Member]
Antidilutive securities (in shares)	302,737

XML

Note 19 - Segment Information (Details Textual)	3 Months Ended
	Dec. 31, 2020
Number of Reportable Segments	2
Number of Operating Segments	2

XML

Note 19 - Segment Information - Segment Disclosures (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020
Revenue from Contract with Customer, Including Assessed Tax	$ 8,028	$ 8,782
Operating Income (loss)	(693)	696
Depreciation and amortization	281	209
Income Tax Expense (Benefit), Total	(5)	172
Long-lived assets	14,128		$ 5,345
Total assets	70,603		66,167
Intersegment Eliminations [Member]
Revenue from Contract with Customer, Including Assessed Tax	351	385
Hardware [Member]
Revenue from Contract with Customer, Including Assessed Tax	7,389	8,362
Operating Income (loss)	160	861
Depreciation and amortization	90	131
Income Tax Expense (Benefit), Total	(5)	172
Long-lived assets	1,863		1,924
Total assets	56,021		61,152
Hardware [Member] | Intersegment Eliminations [Member]
Revenue from Contract with Customer, Including Assessed Tax
Software [Member]
Revenue from Contract with Customer, Including Assessed Tax	639	420
Operating Income (loss)	(853)	(165)
Depreciation and amortization	191	78
Income Tax Expense (Benefit), Total
Long-lived assets	12,265		3,421
Total assets	14,582		$ 5,015
Software [Member] | Intersegment Eliminations [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 351	$ 385

XML

Note 20 - Major Customers, Suppliers and Related Information (Details Textual) $ in Thousands	3 Months Ended
	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Revenue from Contract with Customer, Including Assessed Tax	$ 8,028	$ 8,782
UNITED STATES
Revenue from Contract with Customer, Including Assessed Tax	$ 5,712	$ 6,512
Revenue Benchmark [Member] | Customer Concentration Risk [Member]
Number Of Major Customers	1	2
Revenue Benchmark [Member] | Customer Concentration Risk [Member] | One Customer [Member]
Concentration Risk, Percentage	52.00%
Revenue Benchmark [Member] | Customer Concentration Risk [Member] | Customer 1 [Member]
Concentration Risk, Percentage		62.00%
Revenue Benchmark [Member] | Customer Concentration Risk [Member] | Customer 2 [Member]
Concentration Risk, Percentage		13.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Number Of Major Customers	3	2
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer 1 [Member]
Concentration Risk, Percentage	48.00%	66.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer 2 [Member]
Concentration Risk, Percentage	14.00%	10.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer 3 [Member]
Concentration Risk, Percentage	10.00%

XML

Note 20 - Major Customers, Suppliers and Related Information - Schedule of Major Customers (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenues	$ 8,028	$ 8,782
Americas [Member]
Revenues	6,014	6,804
Asia Pacific [Member]
Revenues	1,011	1,548
EMEA [Member]
Revenues	$ 1,003	$ 430