What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-12-13 compared with 2022-12-16 · 82 added, 123 removed, 422 unchanged (33% of the section changed)

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To the Board of Directors and Shareholders of Gencor Industries, Inc.:

Opinion on the Consolidated Financial Statements

Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Gencor Industries, Inc.

(the “Company”) as of September 30, 2023 and 2022, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years ended September 30, 2023 and 2022, and the related notes (collectively referred to as the consolidated financial statements).

We have also audited the Company’s internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years ended September 30, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control – Integrated Framework (2013)

issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Control over Financial Reporting”.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

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Auditing management’s estimate of the allowance for slow-moving and obsolete inventories involved subjective evaluation and high degree of auditor judgement due to significant assumptions involved in estimating future inventory turnover and sales.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

We obtained an understanding of the design of internal controls that address the risks of material misstatement relating to recording inventory at the lower of cost or net realizable value.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested operating effectiveness of certain internal controls that address the risks of material misstatement relating to recording inventory at the lower of cost or net realizable value.

We tested the accuracy and completeness of the underlying data used in calculating the inventory allowance, including testing of a sample of inventory usage transactions, and recomputed the allowance calculation.

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The Company recorded approximately $34,150,000 in revenue from custom equipment sales contracts during the year ended September 30, 2023.

Auditing management’s estimate of total estimated labor costs expected to be incurred for the entire contract with respect to incomplete contracts, and the percentage of completion on those contracts as of the end of the year involved subjective evaluation and high degree of auditor judgement due to significant assumptions involved in estimating total labor costs to complete.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

We obtained an understanding of the design of internal controls that address the risks of material misstatement relating to recording revenue from contracts with customers where revenue is recognized over time.

Auditing management’s estimate of total estimated labor costs expected to be incurred for the entire contract with respect to incomplete contracts, and the percentage of completion on those contracts as of the end of the year involved subjective evaluation and a high degree of auditor judgement due to significant assumptions involved in estimating total labor costs to complete.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested operating effectiveness of certain internal controls that address the risks of material misstatement relating to recording revenue from contracts with customers where revenue is recognized over time.

We tested the accuracy and completeness of the underlying data used in calculating the percentage of completion on incomplete contracts, including review of contracts, change orders, and underlying labor and material costs, and recomputed the percentage of completion on individual contracts.

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Orlando, Florida

December 16, 2022

Financial Information

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Cash and cash equivalents

Marketable securities at fair value (cost of $ 94,879,000 at September 30, 2022 and $ 93,690,000 at September 30, 2021)

Marketable securities at fair value (cost of $ 85,514,000 at September 30, 2023 and $ 94,879,000 at

September 30, 2022)

Accounts receivable, less allowance for doubtful accounts of $ 545,000 at September 30, 2023 and $ 370,000 at September 30, 2022

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Total current liabilities

Deferred and other income taxes

operating lease liabilities

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15,000,000 shares authorized;

12,338,845 shares issued and outstanding at September 30, 2022 and 2021

12,338,845 shares issued and

outstanding at September 30, 2023 and 2022

Class B Stock, par value $.

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6,000,000 shares authorized;

2,318,857 shares issued and outstanding at September 30, 2022 and 2021

2,318,857 shares issued and outstanding at

September 30, 2023 and 2022

Capital in excess of par value

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Realized and unrealized gains (losses) on marketable securities, net

( 5,860,000 )

Income (loss) before income tax expense (benefit)

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September 30, 2021

Stock options exercised

September 30, 2022

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Net income (loss)

Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:

Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities:

Purchase of marketable securities

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Provision for doubtful accounts

Loss on disposal of assets

Changes in assets and liabilities, excluding the initial effects of business combinations:

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Total adjustments

Cash flows (used in) provided by operating activities

Cash flows provided by (used in) operating activities

Cash flows used in investing activities:

Acquisition of Blaw-Knox assets

Capital expenditures

Cash flows used in investing activities

Cash flows from financing activities:

Proceeds from stock option exercises

Cash flows provided by financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at:

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All significant intercompany accounts and transactions have been eliminated in consolidation.

On October 1, 2020, the Company acquired the Blaw-Knox paver line and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE.

The acquisition provided the Company entry into the asphalt paver sector of the asphalt industry.

The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The initial purchase price of approximately $ 14.4 million, which was subject to post-closing adjustments, was funded by cash on hand.

After post-closing adjustments transacted during quarter ended March 31, 2021, the final purchase price was $ 13.8 million, including $ 10.4 million in inventory and $ 3.4 million in fixed assets.

There were no liabilities assumed.

The accompanying consolidated financial statements as of September 30, 2022 and September 30, 2021, and for the years then ended, include the assets, liabilities and operating results of the paver line.

Accounting Pronouncements and Policies

In August 2018, the FASB issued ASU 2018-13,

Fair Value Measurement - Disclosure Framework (Topic 820) (ASU 2018-13).

The updated guidance improves the disclosure requirements on fair value measurements, including, among other things, addition of certain disclosures related to level 3 fair value measurements, and removal of disclosure requirements for (i) the amount and reasons for transfers between level 1 and level 2 of the fair value hierarchy, and (ii) policy and timing of transfers between fair value hierarchy levels.

The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The Company adopted ASU 2018-13

in the first quarter of fiscal 2021.

The application of this guidance did not have a material effect on our disclosures.

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

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

Use of Estimates

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Actual results could differ from those estimates.

Earnings per Share

Earnings (Loss)

The consolidated financial statements include basic and diluted earnings (loss) per share (“EPS”) information.

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Diluted EPS is based on the sum of the weighted-average number of shares outstanding plus common stock equivalents.

There were no weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation at September 30, 2022.

For the year ended September 30, 2021, the weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation were 236,000 , which equates to 116,000 dilutive common stock equivalents.

Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted EPS calculation because they were anti-dilutive, were zero in 2022 and 2021.

There were no common stock equivalents as of September 30, 2023 and September 30, 2022.

The following presents the calculation of the basic and diluted EPS for the years ended September 30, 2023 and 2022:

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Cash and Money Funds

Net unrealized losses reported during fiscal 2022 on trading securities still held as of September 30, 2022, were $( 6,864,000 ).

Net unrealized gains reported during fiscal 2023 on trading securities still held as of September 30, 2023, were $ 4,316,000 .

There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2023.

$ 10,000,000 was transferred from the investment portfolio to cash to fund operating needs of the business during fiscal 2023.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2022:

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Cash and Money Funds

Net unrealized gains reported during fiscal 2021 on trading securities still held as of September 30, 2021, were $ 1,302,000 .

Net unrealized losses reported during fiscal 2022 on trading securities still held as of September 30, 2022, were $( 6,864,000 ).

There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2022.

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Operating cash is retained in overnight sweep accounts which allow for offsets to treasury service charges.

The marketable securities include investments in cash and money funds, mutual funds, exchange traded funds (“ETF’s”), corporate bonds, government securities and stocks through professional investment management firms.

The marketable securities include investments in cash and money funds, mutual funds, exchange traded funds (“ETF’s”), corporate bonds, government securities and equities

through professional investment management firms.

Investment securities are exposed to various risks, such as interest rate, market and credit risks.

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from customers is carried at estimated net realizable value.

specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old by 50 %, the cost basis of inventories four to five years old by 75 %, and the cost basis of inventories greater than five years old to zero .

Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old by 50 %, the cost basis of inventories four to five years old by 75 %, and the cost basis of inventories greater than five years old to zero .

Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end.

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The Company anticipates that all of the contract assets at September 30, 2023, will be billed and collected within one year .

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

services has been transferred.

Control of the goods or service typically transfers at time of shipment or upon completion of the service.

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

Changes in the accrual for warranty and related costs are composed of the following:

Changes in the accrual for warranty and related costs as of September 30, 2023 and 2022 consisted of the following:

Balance, beginning of year

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Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.

Changes in the allowance for doubtful acc o u

nts are composed of the following:

Changes in the allowance for doubtful accounts as of September 30, 2023 and 2022 consisted of the following:

Balance, beginning of year

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Customers with 10% (or greater) of Net Revenues

No customer accounted for 10 % or more of fiscal 2022 or 2021 net revenues.

During the year ended September 30, 2023, one customer accounted for 14.8 % of net revenue.

No customer accounted for 10 % or more of net revenue for the year ended September 30, 2022.

Subsequent Events

Management has evaluated events occurring from September 30, 2022 through the date these consolidated financial statements were filed with the Securities and Exchange Commission for proper recording and disclosure herein.

Management has evaluated events occurring from September 30, 2023 through the

date these consolidated financial statements were filed with the Securities and Exchange Commission for proper recording and disclosure herein.

NOTE 2 – INVENTORIES

Inventories are valued at the lower of cost or net realizable value.

Net inventories consist of the following:

Net inventories as of September 30, 2023 and 2022 consisted of the following:

September 30,

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Finished goods

Used equipment

Inventories, net

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NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of September 30, 2022 and 2021:

Property and equipment as of September 30, 2023 and 2022 consisted of the following:

September 30,

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Property and equipment, net

Property and equipment includes approximately $ 20,467,000 and $ 19,374,000

of fully depreciated assets, which remained in service during fiscal 2022 and 2021, respectively.

Included in equipment as of September 30, 2022 and 2021 is approximately $ 1,702,000 and $ 458,000 , respectively, of assets not yet placed in operation and, therefore, not subject to depreciation during the years ended September 30, 2022 and 2021, respectively.

Property and equipment includes approximately $ 22,693,000 and $ 20,467,000 of fully depreciated assets, which remained in service during fiscal 2023 and 2022, respectively.

Also, included in property and

equipment as of September 30, 2023 and 2022 is approximately $ 1,295,000 and $ 1,702,000 , respectively, of assets not yet placed in operation and, therefore, not subject to depreciation during the years ended September 30, 2023 and 2022, respectively.

NOTE 5 – ACCRUED EXPENSES

Accrued expenses consist of the following as of September 30, 2022 and 2021:

Accrued expenses as of September 30, 2023 and 2022 consisted of the following:

September 30,

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Property tax accruals

Income tax accruals

Income taxes payable

Professional fees

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NOTE 6 – INCOME TAXES

The provision for income tax expense (benefit) consists of:

The provision for income tax expense (benefit) consisted of the following:

Year Ended September 30,

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Total deferred

Income tax expense

Income tax expense (benefit)

A reconciliation of the federal statutory tax rate to the total tax provision (benefit) is as follows:

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Effective income tax rate

Deferred income tax assets and liabilities consist of the following:

Deferred income tax assets and liabilities as of September 30, 2023 and 2022 consisted of the following:

September 30,

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Allowance for doubtful accounts

Stock-based compensation

Unrealized loss on investments

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Property and equipment

Unrealized gain on investments

Unrecognized tax benefits

Gross Deferred and Other Income Tax Liabilities

Net Deferred and Other Income Tax Assets (Liabilities)

Net Deferred and Other Income Tax Assets

Total income taxes paid in fiscal 2023 and 2022 were $ 2,300,000 and $ 2,839,000 , respectively.

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The Company adjusts these reserves in light of changing facts and circumstances.

As of September 30, 2022 and 2021, the Company had UTB’s of $

131,000 and $

150,000 , respectively.

In the fiscal year ended September 30, 2022, the Company used all $ 150,000 of accrued UTB’s and accrued an additional $ 131,000 of UTB’s.

There were no

additional accruals of UTB’s during the fiscal year ended September 30, 2021.

As of September 30, 2023 and 2022, the Company had UTB’s of $ 176,000 and $

The Company accrued $ 45,000 and $ 131,000 of UTB’s in the years ended September 30, 2023 and September 30, 2022, respectively.

UTB’s of $ 150,000 at September 30, 2021 were used in the year ended September 30, 2022.

The Company recognizes interest and penalties accrued related to UTB’s as a component of income tax expense.

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If recognized, the entire amount of UTB’s would have an impact on the Company’s effective income tax rate.

The effective income tax rate for fiscal 2022 was a benefit of (

versus expense of 12.5 % in fiscal 2021.

The effective income tax rate for fiscal 2023 was 21.9 % versus ( 78.0 %) in fiscal 2022.

In fiscal 2022, the Company generated $ 475,000 of federal research and development tax credits (“R&D Credits”), all of which were used in fiscal 2022.

In fiscal 2021, the Company generated $ 335,000 of R&D Credits, all of which were used in fiscal 2021.

There were no R&D Credits carryforwards as of September

30, 2022 or September

There were no R&D Credits generated in fiscal 2023 and there were no carryforwards of R&D Credits as of September 30, 2023 or September 30, 2022.

The Company files U.S.

federal income tax returns, as well as Florida and Iowa income tax returns.

federal income tax returns, as well as Florida, Iowa and Pennsylvania income tax returns.

The Company’s U.S.

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The Company does not currently require a credit facility.

As of September 30, 2022, total cash deposits with insurance companies covering collateral needs were $ 85,000 .

In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers.

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On August 28, 2020, the Company entered into a three-year operating lease for property related to the manufacturing and warehousing of the Blaw-Knox assets.

The lease term is for the period beginning on September 1, 2020 through August 31, 2023 .

The lease term was for the period beginning on September 1, 2020 through August 31, 2023 .

In accordance with ASU 2016-02,

the Company recorded a ROU asset totaling $ 970,000 and related lease liabilities at inception.

On October 9, 2020, the Company entered into an operating lease for additional warehousing space for paver inventory.

The lease term is for one year beginning November 2020 with automatic one-year

In March 2023, the Company extended the lease term through August 31, 2024.

In accordance with ASU 2016-02,

the Company recorded a ROU asset totaling $ 352,000 and related lease liabilities upon extension.

On October 9, 2020, the Company entered into an operating lease for additional warehousing space.

The original lease term was for one year beginning November 2020 with automatic one-year

In accordance with ASU 2016-02,

the Company recorded a ROU asset totaling $ 254,000 and related lease liabilities at inception.

For the year ended September 30, 2022, operating lease costs were $ 425,000 and cash payments related to these operating leases were $ 396,000 .

An additional $ 39,000 was recorded as a ROU asset and related lease liability in October 2021 to reflect the impact of the lease renewal.

In March 2022, the ROU asset and related liability was reduced by $ 39,000 to reflect the impact of a reduction in the square footage being leased.

For the year ended September 30, 2023, operating lease costs were $ 429,000 and cash payments related to these operating leases were $ 458,000 .

For the year ended September 30, 2022, operating lease costs were $ 425,000 and cash payments related to

these operating leases were $ 396,000 .

Other information concerning the Company’s operating lease accounted for under ASC 842 guidelines as of September 30, 2023 and September 30, 2022, is as follows:

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Claims made in the ordinary course of business may be covered in whole or in part by insurance.

The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the novel coronavirus (“COVID-19”)

pandemic, including impacts on its employees, customers, suppliers and financial results.

As of the date of issuance of these Consolidated Financial Statements, the Company’s operations have not been significantly impacted.

However, the full impact of the COVID-19

pandemic continues to evolve subsequent to the quarter and year ended September 30, 2022 and as of the date these Consolidated Financial Statements are issued.

As such, the full magnitude that the COVID-19

pandemic will have on the Company’s financial condition and future results of operations is uncertain.

Management continues to monitor the Company’s financial condition, operations, suppliers, industry, customers, and workforce.

If the spread of COVID-19

continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to COVID-19.

Reduced demand for products or ability to meet customer demand (including as a result of disruptions at the Company’s suppliers) could have a material adverse effect on its business operations and financial performance.

NOTE 11 – SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

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On March 17, 2009, the shareholders of the Company approved the 2009 Incentive Compensation Plan (the “2009 Plan”).

On September 30, 2021, 125,984

vested common stock options issued under the 2009 Plan expired.

On September 30, 2021 ,

45,000 fully vested Class B stock options issued under the 2009 Plan also expired.

An additional 30,000

vested Class B stock options issued under the 2009 Plan expire on

September 26, 2026 .

As of September 30, 2022 and 2021, no option s

were available for granting of Awards under the 2009 Plan.

The Company’s 2009 Incentive Compensation Plan expired on October 1, 2021 .

There are no other existing equity compensation plans and arrangements previously approved by security holders as of September 30, 2022.

The following table summarizes option activity under the 2009 Plan:

Exercise Price

Options outstanding at September 30, 2020

Options exercised during fiscal 2021

Options expired on September 30, 2021

Options outstanding at September 30, 2021

Options cancelled on November 1, 2021

Options outstanding at September 30, 2022

No options were granted or forfeited during the year ended September 30, 2022.

On November 1, 2021, by unanimous vote of the Board of Directors of the Company and pursuant to the Company’s By-Laws, John

Elliott was removed as CEO of the Company.

As a result, the 30,000 fully vested, outstanding Class B stock options issued under the 2009 Plan were cancelled.

No options were granted, forfeited or cancelled during the year ended September 30, 2021.

The weighted average remaining contractual life on the options outstanding as of September 30, 2021 was 5.0 years under the 2009 Plan.

The 2009 Plan expired on October 1, 2021 , and 30,000 remaining outstanding options were cancelled on November 1, 2021 .

There were no other equity compensation plans and arrangements previously approved by security holders as of September 30, 2023 and September 30, 2022.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data