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Note 2 - Basis of Presentation and Significant Accounting Policies
 12 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Basis of Presentation and Significant Accounting Policies [Text Block]
2.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
PRINCIPLES OF CONSOLIDATION
 
The Company has
three
wholly owned subsidiaries, Genasys II Spain, S.A.U. and
two
currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.
 
USE OF ESTIMATES
 
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions (e.g., share-based compensation valuation, allowance for doubtful accounts, valuation of inventory and intangible assets, warranty reserve, accrued bonus and valuation allowance related to deferred tax assets) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.
 
CONCENTRATION OF CREDIT RISK
 
The Company sells its products to a large number of geographically diverse customers. The Company routinely assesses the financial strength of its customers and generally does
not
require collateral or other security to support customer receivables. At
September 
30,
2018,
accounts receivable from
two
customers accounted for
12%
and
11%
of total accounts receivable with
no
other single customer accounting for more than
10%
of the accounts receivable balance. At
September 
30,
2017,
accounts receivable from
three
customers accounted for
31%,
22%
and
14%
of total accounts receivable with
no
other single customer accounting for more than
10%
of the accounts receivable balance.
 
The Company maintains cash and cash equivalent bank deposit accounts which, at times,
may
exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Company has
not
experienced any losses in such accounts. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions. The Company also invests cash in instruments that meet high credit quality standards, as specified in the Company’s policy guidelines such as money market funds, corporate bonds, municipal bonds and Certificates of Deposit. These guidelines also limit the amount of credit exposure to any
one
issue, issuer or type of instrument. It is generally the Company’s policy to invest in instruments that have a final maturity of
no
longer than
three
years, with a portfolio weighted average maturity of
no
longer than
18
months.
 
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.
 
The Company considers any amounts pledged as collateral or otherwise restricted for use in current operations 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
September 30, 2018
and
2017,
the amount of restricted cash was
$742,983
and
$39,446,
which is included in Restricted Cash and Long-term Restricted Cash.
 
MARKETABLE SECURITIES
 
The Company accounts for investments in debt instruments as available-for-sale. Management determines the appropriate classification of such securities at the time of purchase and re-evaluates such classification as of each balance sheet date. Marketable securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss. The realized gains and losses on marketable securities are determined using the specific identification method.
 
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
The Company carries its accounts receivable at their historical cost, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts for estimated losses considering the following factors when determining if collection of a receivable is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. If the Company has
no
previous experience with the customer, the Company
may
obtain reports from various credit organizations to ensure that the customer has a history of paying its creditors. The Company
may
also request financial information to ensure that the customer has the means of making payment. If these factors do
not
indicate collection is reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash. There was
no
deferred revenue at
September 
30,
2018
or
2017
as a result of collection issues. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The Company determines allowances on a customer specific basis. At
September 30, 2018
and
2017,
the Company had an allowance for doubtful accounts of
$150,000
and
$0,
respectively.
 
CONTRACT MANUFACTURERS
 
The Company employs contract manufacturers for production of certain components and sub-assemblies. The Company
may
provide parts and components to such parties from time to time, but recognizes
no
revenue or markup on such transactions. During fiscal years
2018
and
2017,
the Company performed assembly of products in-house using components and sub-assemblies from a variety of contract manufacturers and suppliers.
 
INVENTORIES
 
Inventories are valued at the lower of cost or net realizable value. Cost is determined using a standard cost system whereby differences between the standard cost and purchase price are recorded as a purchase price variance in cost of revenues. Inventory is comprised of raw materials, assemblies and finished products intended for sale
.
The Company periodically makes judgments and estimates regarding the future utility and carrying value of inventory. The carrying value of inventory is periodically reviewed and impairments, if any, are recognized when the expected net realizable value is less than carrying value. The Company has inventory reserves for estimated obsolescence or unmarketable inventory, which is equal to the difference between the cost of inventory and the estimated market value, based upon assumptions about future demand and market conditions. The Company decreased its inventory reserve by
$21,481
and
$161,600
during the years ended
September 
30,
2018
and
2017,
respectively. These changes resulted from the disposal of obsolete inventory, net of additional excess and obsolescence reserves recorded in
2018
and
2017.
 
EQUIPMENT AND DEPRECIATION
 
Equipment is stated at cost. Depreciation on machinery and equipment and office furniture and equipment is computed over the estimated useful lives of
two
to
seven
years using the straight-line method. Leasehold improvements are amortized over the life of the lease. Upon retirement or disposition of equipment, the related cost and accumulated depreciation is removed, and a gain or loss is recorded.
 
BUSINESS COMBINATIONS
 
The acquisition method of accounting for business combinations requires the Company to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period,
not
to exceed 
one
year, in which the Company
may
adjust the provisional amounts recognized for a business combination).
 
Under the acquisition method of accounting the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed generally at the acquisition date fair value. The Company measures goodwill as of the acquisition date as the excess of consideration transferred, which the Company also measures at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that the Company incurs to complete the business combination such as investment banking, legal and other professional fees are
not
considered part of consideration and the Company charges them to general and administrative expense as they are incurred.
 
Under the acquisition method of accounting for business combinations, if the Company identifies changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and the Company records the offset to goodwill. The Company records all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.
 
On
January 18, 2018,
the Company acquired all of the issued and outstanding shares of capital stock of Genasys pursuant to a Stock Purchase Agreement, dated
January 18, 2018.
See Note
4,
Acquisition, for additional information about this transaction.
 
GOODWILL AND
INTANGIBLE
ASSET
S
 
Identifiable intangible assets, which consist of technology, customer relationships, non-compete agreements, patents, tradenames and trademarks, are carried at cost less accumulated amortization. Intangible assets are amortized over their estimated useful lives, based on a number of assumptions including estimated periodic economic benefit and utilization. The estimated useful lives of identifiable intangible assets has been estimated to be between
three
and
fifteen
years. The carrying value of intangibles is periodically reviewed and impairments, if any, are recognized when the future undiscounted cash flows realized from the assets is less than its carrying value.
 
Goodwill represents the excess of the value of the purchase price and related costs over the identifiable assets from the acquisition of Genasys, as described in Note
4,
Acquisition. The Company conducts an annual impairment assessment, at the reporting unit level, of its recorded goodwill. The Company assesses qualitative factors in order to determine whether it is more likely than
not
that the fair value of a reporting unit is less than its carrying amount. The qualitative factors evaluated by the Company include: macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than
not
that a reporting unit’s fair value is less than its carrying amount, a
two
-step impairment test is performed. Management does
not
consider the value of goodwill recorded for Genasys in the accompanying consolidated balance sheet to be impaired as of
September 30, 2018. (
See Note
8,
Goodwill and Intangible Assets for more information)
 
LEASES
 
Leases entered into are classified as either capital or operating leases. At the time a capital lease is entered into, an asset is recorded, together with its related long-term obligation to reflect the purchase and financing. At
September 
30,
2018
and
2017,
the Company had
no
capital lease obligations.
 
REVENUE RECOGNITION
 
 
The Company derives its revenue from the sale of products to customer, 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 entity 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
 
The Company sells its products to customers, including resellers and system integrators, is recognized in the periods that products are shipped (free on board (“FOB”) shipping point) or received by customers (FOB destination), when the fee is fixed or determinable, when collection of resulting receivables is reasonably assured, and when there are
no
remaining obligations. Most revenues to resellers and system integrators are based on firm commitments from the end user, and as a result, resellers and system integrators carry little or
no
inventory. Our customers do
not
have the right to return product unless the product is found to be defective.
 
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. The Company sells these maintenance services also 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 they relate.
 
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
 
We also offer 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 on a straight-line basis, over the contract 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 when selling 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 vendor specific objective evidence 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.
 
Adoption of new accounting standard
 
 
On
October 1, 2018,
the Company adopted the new accounting standard FASB Accounting Standards Codification (“ASC”) Topic
606,
Revenue from Contracts with Customers (“ASC
606”
) for all contracts using the modified retrospective method. Based on the Company’s analysis of contracts with customers in prior periods, there was
no
cumulative effect adjustment to the opening balance of the Company’s accumulated deficit as a result of the adoption of this new standard. We expect the impact of the adoption of the new standard to be immaterial to the consolidated financial statements on an ongoing basis.
 
SHIPPING AND HANDLING COSTS
 
Shipping and handling costs are included in cost of revenues. Shipping and handling costs invoiced to customers are included in revenue. Actual shipping and handling costs were
$291,994
and
$148,862
for the fiscal years ended
September 
30,
2018
and
2017,
respectively. Actual revenues from shipping and handling were
$169,184
and
$124,141
for the fiscal years ended
September 30, 2018
and
2017,
respectively.
 
ADVERTISING
 
Advertising costs are charged to expense as incurred. The Company expensed
$28,092
and
$42,232
for the years ended
September 30, 2018
and
2017,
respectively, for advertising costs.
 
RESEARCH AND DEVELOPMENT COSTS
 
Research and development costs are expensed as incurred.
 
WARRANTY RESERVES
 
The Company warrants its products to be free from defects in materials and workmanship for a period of
one
year from the date of purchase. The warranty is generally limited. The Company currently provides direct warranty service. Some agreements with OEM customers, from time to time,
may
require that certain quantities of product be made available for use as warranty replacements. International market warranties are generally similar to the U.S. market. The Company also sells extended warranty contracts and maintenance agreements.
 
The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenues are 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. The warranty reserve was
$99,216
and
$104,578
at
September 
30,
2018
and
2017,
respectively.
 
INCOME TAXES
 
The Company determines its income tax provision using the asset and liability method. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. A valuation allowance is recorded by the Company to the extent it is more likely than
not
that some portion or all of the deferred tax asset will
not
be realized. Significant management judgment is required in assessing the ability to realize the Company’s deferred tax assets. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income and the tax rates in effect at that time. Additional information regarding income taxes appears in Note
12,
Income Taxes.
 
IMPAIRMENT OF LONG-LIVED ASSETS
 
Long-lived assets and identifiable intangibles held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may
not
be recoverable. If the sum of undiscounted expected future cash flows is less than the carrying amount of the asset, or if changes in facts and circumstances indicate this, an impairment loss is measured and recognized using the asset’s fair value.
 
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 (LRAD) and Software (Genasys) and its principle markets are North and South America, Europe, 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. See Note
17,
Segment Information, for additional information.
 
NET
(LOSS)
INCOME PER SHARE
 
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per share reflects the potential dilution of securities that could occur if outstanding securities convertible into common stock were exercised or converted. See Note
16,
Net Loss Per Share, for additional information.
 
FOREIGN CURRENCY TRANSLATION
 
The Company’s reporting currency is U.S. dollars. The functional currency of LRAD is the U.S. dollar. The functional currency of Genasys is the Euro. The Company translates the assets and liabilities of Genasys at the exchange rates in effect on the balance sheet date. The Company translates the revenue, costs and expenses of Genasys at the average rates of exchange in effect during the period. The Company includes translation gains and losses in the stockholders’ equity section of the Company’s balance sheets in accumulated other comprehensive income or loss. Transactions undertaken in other currencies, which have
not
been material, are translated using the exchange rate in effect as of the transaction date and any exchange gains and losses resulting from these transactions, are included in the statements of operations. The translation loss for the period was
$236,430
resulting from transaction between LRAD and Genasys and the timing of transaction in relation to changes in exchange rates. Transaction gains and losses were
not
significant for any period presented.
 
SHARE-BASED COMPENSATION
 
The Company recognized share-based compensation expense related to qualified and non-qualified stock options issued to employees and directors over the expected vesting term of the stock-based instrument based on the grant date fair value. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates or if the Company updates its estimated forfeiture rate. See Note
14,
Share-based Compensation, for additional information.
 
RECLASSIFICATIONS
 
 
Where necessary, the prior year’s information has been reclassified to conform to the fiscal year
2018
statement presentation. These reclassifications had
no
effect on previously reported results of operations or accumulated deficit.
 
SUBSEQUENT EVENTS
 
Management has evaluated events subsequent to
September 
30,
2018
through the date the accompanying consolidated financial statements were filed with the Securities and Exchange Commission and noted that there have been
no
events or transactions which would affect the Company’s consolidated financial statements for the year ended
September 
30,
2018.