ACQUISITIONS

January 18, 2018,

the Company completed its acquisition of Genasys pursuant to a Stock Purchase Agreement. Genasys, headquartered in Madrid, Spain, is a leading software provider of advanced, location-based mass messaging solutions for emergency warning systems and workforce management. Genasys has

employees based primarily in Spain.

The Company believes the combination of Genasys’ mass messaging solutions and software development capabilities will enable the Company to enhance existing product offerings through integrated mass messaging solutions as well as provide growth opportunities in new markets. Genasys’ operating results were included in the Company’s consolidated financial statements beginning

January 18, 2018

and include

$415,000

in net sales and net operating income of

$25,000,

through

March 31, 2018.

The preliminary acquisition consideration consisted of the following:

Cash paid	$	2,826,189
Acquisition escrow liability		185,250
Total consideration	$	3,011,439

As of

March 31, 2018,

the acquisition consideration is subject to change upon finalization of net working capital and other adjustments. Net working capital adjustments will be settled during the

three

months ended

June 30, 2018.

The cash portion of the purchase price was funded from cash on hand. The Company incurred

$237,345

in acquisition expenses related to this transaction, through

March 31, 2018.

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

$151,313

in the

second

quarter of fiscal

2018,

$45,016

in the

first

quarter of fiscal

2018

and

$41,016

in the

fourth

quarter of fiscal

2017.

Purchase Price Allocation and Other Items

The determination of the purchase price allocation to specific assets acquired and liabilities assumed is preliminary as of

March 31, 2018.

The purchase price allocation is subject to change based upon the final determination of fair value estimates of certain assets acquired and liabilities assumed. Based on the fair value estimates, the purchase price for Genasys has been allocated to individual assets acquired and liabilities assumed as follows:

Assets Acquired
Cash and restricted cash acquired	$	579,644
Accounts receivable		426,940
Fixed assets		5,712
Intangible assets		1,850,000
Goodwill		2,603,688
Other assets		54,520
Total assets acquired		5,520,504

Liabilities assumed
Accounts payable		275,653
Accrued expenses and other liabilities		315,817
Severance obligation		397,558
Debt		1,520,037
Total liabilities assumed		2,509,065
Net assets acquired	$	3,011,439

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

	Fair Value		Useful Lives (in years)
Technology	$	690,000	7
Customer relationships		660,000	7
Trade name portfolio		240,000	5
Non-compete agreements		260,000	3
	$	1,850,000

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

years.

The goodwill for Genasys is attributable to combining the mass messaging solutions and software development capabilities with existing LRAD products for enhanced offerings and 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 Genasys acquisition will

not

be deductible for tax purposes.

Pro Forma Information

The following table provides the unaudited pro forma results of operations for the

three

and

six

months ended

March 31, 2018

and

2017,

respectively, as if Genasys had been acquired as of the beginning of fiscal year

2017.

Pro forma results do

not

include any anticipated synergies from the combination of the companies, and accordingly, are

not

necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or that

may

result in the future.

	Three months ended				Six months ended
	March 31,				March 31,
	2018		2017		2018			2017
Net revenues	$	8,042,879	$	6,034,248	$	16,222,894		$	9,474,427
Net income		529,094		276,048		(1,081,478	)		(788,438	)
Basic and diluted earnings per share	$	0.02	$	0.01	$	(0.03	)	$	(0.02	)

The following is a reconciliation of actual net revenue and net income to pro forma net revenue and net income:

	Three months ended March 31,
	2018				2017
	Net revenues		Net income		Net revenues		Net income
LRAD actual results	$	7,453,794	$	384,516	$	5,742,391	$	298,350
Genasys actual results		589,085		89,727		291,857		79,067
Pro Forma adjustments		-		54,851		-		(101,369	)
Pro forma results	$	8,042,879	$	529,094	$	6,034,248	$	276,048

	Six months ended March 31,
	2018					2017
	Net revenues		Net income			Net revenues		Net income
LRAD actual results	$	15,082,361	$	(1,298,736	)	$	8,683,726	$	(514,329	)
Genasys actual results		1,140,533		126,844			790,701		(172,740	)
Pro Forma adjustments		-		90,414			-		(101,369	)
Pro forma results	$	16,222,894	$	(1,081,478	)	$	9,474,427	$	(788,438	)

The following table identifies the pro forma adjustments:

	Three months ended						Six months ended
	March 31,						March 31,
	2018			2017			2018			2017
Acquisition costs	$	151,313		$	-		$	196,329		$	-
Depreciation and amortization costs		(81,881	)		(163,762	)		(81,881	)		(163,762	)
Tax effect of adjustments		(14,581	)		62,393			(24,034	)		62,393
Pro forma adjustmenst	$	54,851		$	(101,369	)	$	90,414		$	(101,369	)