UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 – K

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

For the Fiscal Year Ended September 30, 2017

2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File
No. 001-11703

GENCOR INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Incorporated in the

State of

Delaware

 

59-0933147
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer


IdentificationNo. 59-0933147

)

5201 North Orange Blossom Trail

Orlando, Florida 32810

(Address of principal executive offices, including zip code)
Registrant’s Telephone Number, Including Area Code:telephone number, including area code: (407)
290-6000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Common Stock ($.10 Par Value)

Title of Class
Trading Symbol(s)
Name of Exchange on which Registered
Common Stock ($.10 Par Value)
GENC
NASDAQ Global Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act    ☐  Yes    ☒  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act    ☐  Yes    ☒  No

Indicate by check mark whether the Registrantregistrant (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 Registrantregistrant 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    ☒  Yes    ☐  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to thisForm 10-K.  ☒

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.

Act:
Large accelerated filerAccelerated Filer   Accelerated filerFiler 
Non-accelerated filerNon-Accelerated Filer ☐  (Do not check if a smaller reporting company)  Smaller reporting companyReporting Company 
   Emerging growth companyGrowth 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 Section13(a)Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes    ☒  No

The

State the aggregate market value of the voting and
non-voting
common equity held by
non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $152,357,700.

quarter: $109,937,000.

Indicate the number of shares outstanding of each of the Registrant’sregistrant’s classes of Common Stock, as of the latest practicable date:                     12,154,829 shares of Common Stock ($.10 par value) and 2,263,857 shares of Class B Stock ($.10 par value) asdate. As of December 1, 2017.

11, 2020:

Common Stock ($.10 par value):
12,287,337 shares
Class B Stock ($.10 par value):
2,318,857 shares

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form
10-K
is incorporated by reference from the Registrant’s 20182021 Proxy Statement for the Annual Meeting of the Stockholders.

Introductory Note: Caution Concerning Forward-Looking Statements

This annual reportAnnual Report on Form
10-K (“
(this “Annual Report”) and the Company’s other communications and statements may contain “forward-looking statements,”statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the Company’s beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. TheseAll forward-looking statements, by their nature, are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond the Company’s control. The Company’s actual future results may differ materially from those set forth in the Company’s forward-looking statements depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, demand for the Company’s products, the duration and scope of the coronavirus
(“COVID-19”)
pandemic, actions government entities and businesses take in response to the
COVID-19
pandemic, including mandatory business closures; the impact of the pandemic and actions taken on regional economies; and the pace of recovery when the
COVID-19
pandemic subsides. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements. All forward-looking statements, by their nature, are subject to risks and uncertainties. The Company’s actual future results may differ materially from those set forth in the Company’s forward-looking statements.
For information concerning these factors and related matters, see “Risk Factors” in Part I, Item 1A in this Annual Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in this Annual Report. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Annual Report. The Company does not undertake to update any forward-looking statement, except as required by law.

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PART I

ITEM1. 1BUSINESS

General

Gencor Industries, Inc. and its subsidiaries (the “Company,” “Gencor,” “we,” “us” or “our”) is a leading manufacturer of heavy machinery used in the production of highway construction materials and environmental control equipment. The Company’s products are manufactured in two facilities in the United States. The Company’s products are sold through a combination of Company sales representatives and independent dealers and agents located throughout the world.

The Company designs, manufactures and sells machinery and related equipment used primarily for the production of asphalt and highway construction materials. The Company’s principal core products include asphalt plants, combustion systems and fluid heat transfer systems. The Company believes that its technical and design capabilities and environmentally friendly process technology and wide range of products have enabled it to become a leading producer of highway construction materials fuelshot mix asphalt plants and environmental control equipment worldwide.related components in North America. The Company believes it has the largest installed base of asphalt production plants in the United States.

Because the Company’s products are sold primarily to companies in the highway construction industry, theits business has historically been seasonal. Traditionally, the Company’s customers do not purchase new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and repair work. The majority of orders for the Company’s productsasphalt plants are typically received between October and February, with a significant volume of shipments occurring prior to June. The principal factors driving demand for the Company’s products are the level of governmentfederal and state funding for domestic highway construction and repair, the replacement of existing plants, the need for spare parts, and a continuing trend towards efficiencies of aefficient, larger plant.

plants.

In 1968, the Company was formed by the merger of Mechtron Corporation with General Combustion, Inc. (“General Combustion”) and Genco Manufacturing, Inc. The new entity reincorporated in Delaware in 1969 and adopted the name Mechtron International Corporation in 1970. In 1985, the Company began a series of acquisitions into related fields starting with the Beverley Group Ltd. (“Beverley”) in the United Kingdom (the “UK”).Hy-Way Heat Company, Inc. (“Hy-Way Heat”) and the Bituma Group were acquired in 1986. In 1987, the Company changed its name to Gencor Industries, Inc. and acquired Davis Line Inc. and its subsidiaries in 1988.

In 1998, the Company entered into agreements with Carbontronics, LLC (“CLLC”) pursuant to which the Company designed, manufactured, sold and installed four synthetic fuel production plants. In addition to payment for the plants, the Company received membership interests in two synthetic fuel entities. These derived significant cash flows from the sale of synthetic fuel and tax credits (Internal Revenue Code, Section 29) and, consequently, distributed significant cash to the Company from 2001 to 2010.

The tax credit legislation expired at the end of calendar year 2007. Consequently, the four synthetic fuel plants were decommissioned. The plants were sold or transferred to site owners in exchange for a release of all contracted liabilities related to the removal of plants from the sites. Gencor no longer has anyGencor’s ownership in the two synthetic fuel entities.

entities ended in 2013.

In October 2020, the Company acquired the Blaw-Knox paver business from Volvo Construction Equipment North America, LLC (“Volvo CE”). The acquisition expands the Company’s product offerings by adding highway class asphalt pavers to its asphalt plant and related equipment products. Operations will continue with Blaw-Knox’s in place management and workforce.
Products

AsphaltPlants
. The Company manufactures and produces
hot-mix
asphalt plants used in the production of asphalt paving materials. The Company also manufactures related asphalt plant equipment, including
hot-mix
storage silos, fabric filtration systems, cold feed bins and other plant components. The Company’s H&B (Hetherington and Berner) product line is the world’s oldest asphalt plant line, first manufactured in 1894. The Company’s subsidiary, Bituma Corporation, formerly known as Boeing Construction Company, developed the first continuous process for asphalt production. Gencor developed and patented the first counter flow drum mix technology, several adaptations of which have become the industry standard, which recaptures and burns emissions and vapors, resulting in a cleaner and more efficient process. The Company also manufactures a very comprehensive range of fully mobile batch plants.

3

CombustionSystemsandIndustrialIncinerators
. The Company manufactures combustion systems, which are large burners that can transform most solid, liquid or gaseous fuels into usable energy, or burn multiple fuels, alternately or simultaneously. Through its subsidiary General Combustion, the Company has been a significant source of combustion systems for the asphalt and aggregate drying industries since the 1950’s. The Company also manufactures soil remediation machinery, as well as combustion systems for rotary dryers, kilns, fume and liquid incinerators and fuel heaters. The Company believes maintenance and fuel costs are lower for its burners because of their superior design.

FluidHeatTransferSystems
. The Company’s General Combustion subsidiary also manufactures theHy-Way heat Heat and Beverley lines of thermal fluid heat transfer systems and specialty storage tanks for a wide array of industry uses. Thermal fluid heat transfer systems are similar to boilers, but use high temperature oil instead of water. Thermal fluid heaters have been replacing steam pressure boilers as the best method of heat transfer for storage, heating and pumping viscous materials (i.e., asphalt, chemicals, heavy oils, etc.) in many industrial and petrochemical applications worldwide. The Company believes the high-efficiency design of its thermal fluid heaters can outperform competitive units in many types of process applications.

Asphalt Pavers. 
The Company manufactures asphalt pavers under the Blaw-Knox brand.
The Blaw-Knox brand dates back over a century, when in 1917 Blaw Collapsible Steel Centering Company merged with the Knox Pressed and Welded Steel Company. Blaw-Knox made its first road paving equipment in 1929. Blaw-Knox pavers are the industry leading, highway class pavers that deliver outstanding reliability and produce the highest quality rideable surfaces in the industry. Projects paved with Blaw-Knox pavers continually win industry awards for the highest quality highway pavements.
Product Engineering and Development

The Company is engaged in product engineering and development efforts to expand its product lines and to further develop more energy-efficient and environmentally friendly systems.

equipment.

Product engineering and development activities are directed toward more efficient methods of producing asphalt and lower cost fluid heat transfer systems. In addition, efforts are also focused on developing combustion systems that operate at higher efficiency and offer a higher level of environmental compatibility.

Sources of Supply and Manufacturing

Substantially all products and components sold by the Company and its subsidiaries are manufactured and assembled by the Company, except for procured raw materials and hardware.Company. The Company purchases steel, other raw materials and hardware used to manufacture its products from numerous suppliers and is not dependent on any single supplier. Periodically, the Company reviews the cost effectiveness of internal manufacturing versus outsourcing to independent third parties. The Company believes it has the internal capability to produce the highest quality products at the lowest cost.suppliers. The Company may augment internal production by outsourcing some of its production when demand for its products exceeds its manufacturing capacity.

Seasonality

The Company is concentrated in the manufacturing of asphalt plants and related components, which had historically beenis typically subject to a seasonal slow-down during the third and fourth quarters of the calendar year. Recent bidding activity and delivery of equipment has been occurring more evenly throughout the year. The Company cannot determine if this is a new trend or the result of a greater near-term demand for its products.

Competition

The markets for the Company’s products are highly competitive. The industry remains fairly concentrated, with a small number of companies competing for the majority of the Company’s product lines. The principal competitive factors include quality, price, delivery, and technology. The Company believes it manufactures the highest quality and heaviest equipment in the industry. Its products’ performance reliability, brand recognition, pricing, and
after-the-sale
technical support are other important factors.

Sales and Marketing

The Company’s products and services are marketed primarily through Company-employed sales representatives and to a lesser extent, independent dealers.

Sales Backlog

The size of the Company’s backlog should not be viewed as an indicator of the Company’s quarterly or annualized revenues, due to the timing of order fulfillment of asphalt plants. The Company’s backlog, which includes orders received through the date of this filing, was $46.0$24.9 million and $32.1$27.3 million as of December 1, 20172020 and December 1, 2016,2019, respectively.

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Financial Information about Geographic Areas Reporting Segments

For a geographic breakdown of revenues and long-term assets, see the table captioned Reporting Segments and Geographic Areas in Note 1 to the Consolidated Financial Statements.

Licenses, Patents and Trademarks

The Company held numerous patents covering technology and applications related to various products, equipment and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in various foreign countries. In general, the Company depends upon technological capabilities, manufacturing quality control and application
know-how,
rather than patents or other proprietary rights in the conduct of its business. The Company believes the expiration of any one patent would not have a material adverse effect on the overall operations of the Company.

Government Regulations

The Company believes its design and manufacturing processes meet all industry and governmental agency standards that may apply to its entire line of products, including all domestic and foreign environmental, structural, electrical and safety codes. The Company’s products are designed and manufactured to comply with U.S. Environmental Protection Agency regulations. Certain state and local regulatory authorities have strong environmental impact regulations. While the Company believes that such regulations have helped, rather than restricted its marketing efforts and sales results, there is no assurance that changes to federal, state, local, or foreign laws and regulations will not have a material adverse effect on the Company’s products and earnings in the future.

Environmental Matters

The Company is subject to various federal, state, local and foreign laws and regulations relating to the protection of the environment. The Company believes it is in compliance with all applicable environmental laws and regulations. The Company does not expect any material impact on future operating costs as a result of compliance with currently enacted environmental regulations.

Employees

As of September 30, 2017,2020, the Company had a total of 332316 full-time employees and 3 part-time employees. The Company has a collective bargaining agreement covering employees at its Marquette, Iowa facility. No other employees are represented by a labor union or collective bargaining agreement.

Available Information

For further discussion concerning the Company’s business, see the information included in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 8 (Financial Statements and Supplementary Data) of this Annual Report.

The Company makes available free of charge through its website at www.gencor.com the Company’s Annual ReportReports on Form
10-K, quarterly reports
Quarterly Reports on Form
10-Q, current reports
Current Reports on Form
8-K
and all amendments to those reports, if applicable, filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act, of 1934, as amended, as soon as reasonably practicable after the material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information posted on the website is not incorporated into this Annual Report on Form10-K.

Report.

5

ITEM 1A.1A
RISK FACTORS

The following risk factors and other information included in this Annual Report on Form10-K should be carefully considered. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not presently known to the Company, or that the Company presently deems less significant, may also impair the Company’s operations. If any of the following risks actually occur, the Company’s business operating results and financial condition could be materially adversely affected. The order of these risk factors does not reflect their relative importance or likelihood of occurrence.

Thebusinessisaffectedbythecyclicalnatureofthemarketsitserves and steel prices
.

The demand for the Company’s products and service is dependent on general economic conditions and more specifically, the commercial highway construction industry. Adverse economic conditions may cause customers to forego or delay new purchases and rely more on repairing existing equipment thus negatively impacting the Company’s sales and profits. Rising oil prices, volatileVolatile steel prices and shortage of qualified workers may have adverse effects on the Company. Market conditions could limit the Company’s ability to raise selling prices to offset increases in material andand/or labor costs.

ThebusinessisaffectedbythelevelofgovernmentfundingforhighwayconstructionintheUnitedStatesand Canada.
Most highway contractors in the U.S. and Canada.

Many contractors depend on funding by federal, foreign,provincial, state and local agencies for highway, transit and infrastructure programs. Future legislation may increase or decrease government spending, which, if decreased, could have a negative effect on the Company’s financial condition or results of operations. Federal and/or state funding allocated to infrastructure may be decreaseddecrease in the future.

In fiscal years 2017, 2016 and 2015,

Previously, the Company depended on one customer for a significant portion of its revenue. The loss of thisany relationship with a large customer, or a significant downturn in the business or financial condition of any such customer, could have adverse consequences on the Company’s future business.

The percentage of the Company’s net revenue that was derived from sales to oneits largest customer was 13%9% in fiscal 2017, 14%2020, 6% in fiscal 20162019 and 15%3% in fiscal 2015.

2018. No customer accounted for 10% or more of fiscal 2020 or 2019 revenues. If the Company had customers that accounted for a significant portion of its net revenues, then the loss of any of those customers, or a significant reduction in sales to any such customer, could adversely affect the Company’s revenues and, consequently, its business.

If the Company fails to comply with requirements relating to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, the business could be harmed and its stock price could decline.

Rules adopted by the Securities and Exchange CommissionSEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require the Company to assess its internal control over financial reporting annually. The rules governing the standards that must be met for management to assess its internal control over financial reporting are complex. They require significant documentation, testing, and possible remediation of any significant deficiencies in and/or material weaknesses of internal controls in order to meet the detailed standards under these rules. The Company has evaluated its internal control over financial reporting as effective as of September 30, 2017.2020. See Item 9A – Controls and Procedures – Management’s Annual Report on Internal Control over Financial Reporting. Although the Company has evaluatedconcluded that its internal control over financial reporting aswas effective as of September 30, 2017,2020, in future fiscal years, the Company may encounter unanticipated delays or problems in assessing its internal control over financial reporting as effective or in completing its assessments by the required dates. In addition, the Company cannot assure yoube assured that, if required, its independent registered public accountants will attest that internal control over financial reporting is effective in future fiscal years. If the Company cannot assess its internal control over financial reporting as effective, investor confidence and share value may be negatively impacted.

6

The Company may be required to reduce its profit margins on contracts on which it useswhere revenues are recognized over time.
Revenues from contracts with customers for thepercentage-of-completion accounting method.

The Company records revenues design, manufacture and profits on manysale of its contracts usingcustom equipment are recognized over time when thepercentage-of-completion method performance obligation is satisfied by transferring control of accounting.the equipment. Control of the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset with an alternative use. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred during the entire contract. As a result, revisions made to the estimates of revenues and profits are recorded in the period in which the conditions that require such revisions become known and can be estimated. Although the Company believes that its profit margins are fairly stated and that adequate provisions for losses for its fixed-price contracts are recorded in the financial statements, as required under U.S.by accounting principles generally accepted accounting principlesin the United States of America (“GAAP”), the Company cannot assure you that its estimated contract profit margins will not decrease or its estimated loss provisions will not increase materially in the future.

TheCompanymayencounterdifficultieswithfutureacquisitions.

acquisitions.

As part of its growth strategy, the Company intends to evaluate the acquisition of other companies, assets or product lines that would complement or expand the Company’s existing business or broaden its customer relationships.base. Although the Company conducts due diligence reviews of potential acquisition candidates, it may not be able to identify all material liabilities or risks related to potential acquisition candidates. There can be no assurance that the Company will be able to locate and acquire any business, retain key personnel and customers of an acquired business or integrate any acquired business successfully. Additionally, there can be no assurance that financing for any acquisition, if necessary, will be available on acceptable terms, if at all, or that the Company will be able to accomplish its strategic objectives in connection with any acquisition. Although
Demand for the Company periodically considers possible acquisitions, no specific acquisitions are probable as of the date of this Report on Form10-K.

DemandfortheCompany’sproductsiscyclicalinnature.

nature.

Demand for the Company’s products depends, in part, upon the level of capital and maintenance expenditures by companies in the highway construction industry. The highway construction industry historically has been cyclical in nature and vulnerable to general downturns in the economy. Decreases in industry spending could have a material adverse effect upon demand for the Company’s products and negatively impact its business, financial condition, results of operations and the market price of its common stock.

TheCompany’smarketablesecuritiesarecomprisedofcashandmoneyfunds,equities,corporatebonds,mutualfunds,exchange-tradedfunds,andgovernmentsecuritiesinvestedthroughaprofessionalinvestmentmanagementfirm firms andaresubjecttovariousrisks,,suchasinterestrates,markets,andcredit.

credit.

Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of securities, changes in these risk factors could have a material adverse impact on the Company’s results of operations.

ThereareandwillcontinuetobequarterlyfluctuationsoftheCompany’soperatingresults.

results.

The Company’s operating results historically have fluctuated from quarter to quarter as a result of a number of factors, including the value, timing and shipment of individual orders and the mix of products sold. Revenues from certain large contracts with customers for the design, manufacture and sale of custom equipment are recognized usingover time when thepercentage-of-completion method performance obligation is satisfied by transferring control of accounting. The Company recognizes product revenues upon shipmentthe equipment. Revenues from all other contracts for the restdesign and manufacture of its products.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. The Company’s asphalt production equipment operations are subject to seasonal fluctuation,fluctuations, which may lower revenues and result in possible losses in a quarter.

quarterly operating losses.

IftheCompanyisunabletoattractandretainkeypersonnel,itsbusinesscouldbeadverselyaffected.

affected.

The success of the Company will continue to depend substantially upon the efforts, abilities and services of its management team and certain other key employees. The loss of one or more key employees could adversely affect the Company’s operations. The Company’s ability to attract and retain qualified personnel, either through direct hiring, or acquisition of other businesses employing such persons, will also be an important factor in determining its future success.

TheCompanymayberequiredtodefenditsintellectualpropertyagainstinfringementoragainstinfringementclaimsofothers.

7

The Company holdsmay be required to defend its intellectual property against infringement or against infringement claims of others.
The Company held numerous patents covering technology and applications related to various products, equipment and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in various foreign countries. There can be no assurance as to the breadth or degree of protection that existing or future patents or trademarks may afford the Company, or that any pending patent or trademark applications will result in issued patents or trademarks, or that the Company’s patents, registered trademarks or patent applications, if any, will be upheld if challenged, or that competitors will not develop similar or superior methods or products outside the protection of any patents issued, licensed or sublicensed to the Company. Although the Company believes that none of its patents, technologies, products or trademarks infringe upon the patents, technologies, products or trademarks of others, it is possible that the Company’s existing patents, trademarks or other rights may not be valid or that infringement of existing or future patents, trademarks or proprietary rights may occur. In the event that the Company’s products are deemed to infringe upon the patent or proprietary rights of others, the Company could be required to modify the design of its products, change the name of its products or obtain a license for the use of certain technologies incorporated into its products. There can be no assurance that the Company would be able to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could have a material adverse effect on the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent, registered trademark or other proprietary right, and, if the Company’s products are deemed to infringe upon the patents, trademarks or other proprietary rights of others, the Company could become liable for damages, which could also have a material adverse effect on the Company.

TheCompanymaybesubjecttosubstantialliabilityforitsproducts.

products.

The Company is engaged in a business that could expose it to possible liability claims for personal injury or property damage due to alleged design or manufacturing defects in its products. The Company believes that it meets existing professional specification standards recognized or required in the industries in which it operates, and there are no material product liability claims pending against the Company as of the date hereof. Although the Company currently maintains product liability coverage, which it believes is adequate for the continued operation of its business, such insurance may prove inadequate or become difficult to obtain or unobtainable in the future on terms acceptable to the Company.

TheCompanyissubjecttoextensiveenvironmentallawsandregulations,andthecostsrelatedtocompliancewith,ortheCompany’sfailuretocomplywith,existingorfuturelawsandregulations,couldadverselyaffectthebusinessandresultsofoperations.

operations.

The Company’s operations are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment. Sanctions for noncompliance may include revocation of permits, corrective action orders, significant administrative or civil penalties and criminal prosecution. The Company’s business involves environmental management and issues typically associated with historical manufacturing operations. To date, the Company’s cost of complying with environmental laws and regulations has not been material, but the fact that such laws or regulations are changed frequently makes predicting the cost or impact of such laws and regulations on the Company’s future operations uncertain.

The loss of one or more of the Company’s raw materialsstrategic suppliers could cause production delays.

The principal raw materialsmaterial the Company uses areis carbon steel and related products.which is sourced through numerous suppliers. The Company has been ablealso uses select suppliers to obtain sufficient supplies of raw materials forprovide proprietary components to its operations.finished products. Although the Company believes that such raw materials are readily available from alternate sources, an interruption in the supply of steel and related products or a substantial increase in the price of any of these raw materialssteel could have a material adverse effect on the Company’s businessproduction and its results of operations.

8

TheCompanyissubjecttosignificantgovernmentregulations.

regulations.

The Company is committed to responsible environmental, social and governance (“ESG”) practices. The Company strives to be recognized as a company that achieves customer expectations safely and in a manner that rewards both its customers and its employees. The Company strives to achieve these goals through an organizational structure that provides excellent service and a reputation of integrity with the communities where it operates while providing its employees with growth opportunities in an injury-free environment.
The Company is subject to a variety of governmental regulations relating to the manufacturing of its products. Any failureFailure by the Company to comply with present or future regulations could subject it to future liabilities, or the suspension of production that could have a material adverse effect on the Company’s results of operations.results. Such regulations could also restrict the Company’s ability to expand its facilities, or could require the Company to acquire costly equipment or to incur other expenses to comply with such regulations. Although the Company believes it has the design and manufacturing capability to meet all industry or governmental agency standards that may apply to its product lines, including all domestic and foreign environmental, structural, electrical and safety codes, there can be no assurance that governmental laws and regulations will not become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with a violation. The cost to the Company of such compliance to date has not materially affected its business, financial condition or results of operations. There can be no assurance, however, that violations will not occur in the future as a result of human error, equipment failure or other causes. The Company’s customers are also subject to extensive regulations, including those related to the workplace. The Company cannot predict the nature, scope or effect of governmental legislation, or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered, or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the Company and could adversely affect its business, financial condition and results of operations.

Increasing scrutiny and changing expectations from stakeholders with respect to the Company’s ESG practices may expose us to new or additional risks.
Companies across many industries are facing increasing scrutiny from stakeholders related to their ESG practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, investors’ and stakeholders’ increased focus related to stakeholder ESG expectations and standards, which are evolving, may cause the Company to suffer from reputational damage and its business or financial condition could be adversely affected.
TheCompany’smanagementhaseffectivevotingcontrol.

control.

The Company’s officers and directors beneficially own an aggregate of approximately 96.8%100% of the outstanding shares of the Company’s $.10 par value Class B stock. The holders of the Class B stock isare entitled to elect 75% (calculated to the nearest whole number, rounding five-tenths to next highest whole number) of the members of itsthe Company’s Board of Directors. Further, approval of a majority of the holders of the Class B stock is generally required to effect a sale of the Company and certain other corporate transactions. As a result, thesethe Class B shareholders can elect more than a majority of the Board of Directors and exercise significant influence over most matters requiring approval by the Company’s shareholders. This concentration of control may also have the effect of delaying or preventing a change in control.

Theissuanceofpreferredstockmayimpedeachangeofcontrolormaybedilutivetoexistingshareholders.

shareholders.

The Company’s Certificate of Incorporation, as amended, authorizes the Company’s Board of Directors, without shareholder vote, to issue up to 300,000 shares of preferred stock in one or more series and to determine for any series the dividend, liquidation, conversion, voting or other preferences, rights and terms that are senior, and not available, to the holders of the Company’s common stock. Thus, issuances of series of preferred stock could adversely affect the relative voting power, distributions and other rights of the common stock. The issuance of preferred stock could deter or impede a merger, tender offer or other transaction that some, or a majority of the Company’s common shareholders might believe to be in their best interest or in which the Company’s common shareholders might receive a premium for their shares over the then current market price of such shares.

TheCompanymayberequiredtoindemnifyitsdirectorsandexecutiveofficers.

officers.

The Company has authority under Section 145 of the Delaware General Corporation Law to indemnify its directors and officers to the extent provided in that statute. The Company’s Certificate of Incorporation, as amended, provides that a director shall not be personally liable to the Company for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law. The Company’s Bylaws provide, in part, that it indemnify each of its directors and officers against liabilities imposed upon them (including reasonable amounts paid in settlement) and expenses incurred by them in connection with any claim made against them or any action, suit or proceeding to which they may be a party by reason of their being or having been a director or officer. The Company maintains officers’ and directors’ liability insurance coverage. There can be no assurance that such insurance will be available in the future, or that if available, it will be available on terms that are
9

acceptable to the Company. Furthermore, there can be no assurance that the insurance coverage provided will be sufficient to cover the amount of any judgment awarded against an officer or director (either individually or in the aggregate). Consequently, if such judgment exceeds the coverage under the policy, the Company may be forced to pay such difference.

The Company enters into indemnification agreements with each of its executive officers and directors containing provisions that may require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as officers or directors (other than liabilities arising from willful misconduct of a culpable nature) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. Management believes that such indemnification provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

TheCompanydoesnotexpecttopaycashdividendsfortheforeseeablefuture.

For the foreseeable future, thefuture.

The Company intends to retain any earningsits cash to financefund its business requirements. It does not anticipate paying any cash dividends on its common stock or Class B stock. Any future determination to pay cash dividends will be at the discretion of the Company’s Board of Directors and will be dependent upon then existing conditions, including the financial condition and results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.

Competition could reduce revenue from the Company’s products and services and cause it to lose market share.

The Company currently faces strong competition in product performance, price and service. Some of the Company’s competitors have greater financial, product development and marketing resources than the Company. If competition in the Company’s industry intensifies or if the current competitors enhance their products or lower their prices for competing products, the Company may lose sales or be required to lower the prices it charges for its products. This may reduce revenues from the Company’s products and services, lower its gross margins, or cause it to losea loss in market share.

The Company’s quarterly operating results are likely to fluctuate, which may decrease its stock price.

The Company’s quarterly operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. As a result, the Company’s operating results may fall below the expectations of securities analysts and investors in some quarters, which could result in a decrease in the market price of its common stock. The reasons the Company’s quarterly results may fluctuate include:

General competitive and economic conditionsconditions;

Delays in, or uneven timing in, delivery of customer ordersorders;

The seasonal nature of the industryindustry;

The fluctuations in the market value of its securities portfolioportfolio;

The introduction of new products by the Company or its competitorscompetitors;

Product supply shortagesshortages;

Reduced demand due to adverse weather conditionsconditions;

Expiration or renewal of Federal highway programs,programs; and

Changes to state or Canadian provincial programs.

Period-to-period
comparisons of such items should not be relied on as indications of future performance.

The Company’s common stock has been, and likely will continue to be, subject to substantial price and volume fluctuations due to a number of factors, many of which will be beyond the Company’s control.

The market price of the Company’s common stock may be significantly affected by various factors, such as:

Quarterly variations in operating resultsresults;

Changes in revenue growth rates as a whole or for specific geographic areas or productsproducts;

Changes in earnings estimates by market analystsanalysts;

10

The announcement of new products or product enhancements by the Company or its competitorscompetitors;

Speculation in the press or analyst community of potential acquisitions by the Company,Company; and

General market conditions or market conditions specific to particular industries.

The Company’s business, results of operations, financial condition, cash flows, and the stock price of its common stock could be adversely affected by the
COVID-19
pandemic.
The Company’s business, results of operations financial condition, cash flows, and the stock price of its common stock can be adversely affected by pandemics or other public health emergencies, such as the recent outbreak of
COVID-19.
In March 2020, the WHO declared
COVID-19
as a pandemic. The
COVID-19
pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures.
The outbreak of
COVID-19
and any preventive or protective actions taken by governmental authorities may have a material adverse effect on the Company’s operations, supply chain, customers, and transportation networks, including business shutdown or disruptions. The extent to which
COVID-19
may adversely impact the Company’s business depends on future developments, which are highly uncertain and unpredictable, depends upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effect. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect the Company’s business, results of operations, financial condition, and cash flows. Even after the
COVID-19
pandemic has subsided, the Company may experience materially adverse impacts to its business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of
COVID-19
have caused extreme volatility in financial and other capital markets, which has and may continue to adversely impact the Company’s stock price, its ability to access capital markets, and the value of its investment portfolio. To the extent the
COVID-19
pandemic adversely affects the Company’s business and financial results it may also have the effect of heightening many of the other risks described in this Annual Report, such as those relating to the Company’s products and financial performance.
The Company may suffer adverse consequences if it is deemed an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
Under Section 3(a)(1)(A) of the Investment Company Act, a company is deemed to be an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities. The Company believes that it is not an investment company under Section 3(a)(1)(A) of the Investment Company Act because it does not hold itself out as being engaged primarily in the business of investing in securities. Rather, the Company has been a manufacturer of heavy equipment used in the production of asphalt for highway construction and environmental control equipment for over 50 years. The Company’s core products include asphalt plants, combustion systems, and fluid heat transfer systems. The Company is expanding its product offerings through new product introductions and its recent acquisition of an asphalt paver product line.
Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis. As reflected on the Company’s balance sheet at September 30, 2020, the Company owns a significant amount of marketable securities, which include cash, cash equivalents, government and corporate bonds, mutual funds, exchange-traded funds and equities. Section 3(a)(2) defines the term “investment securities”, as used in Section 3(a)(1)(C) to include all marketable securities except government securities and cash and cash equivalents. The value of the Company’s investment securities was approximately 57% of the value of its total assets (excluding government securities and cash items) at September 30, 2020. Because of the value of its investment securities, the Company may be deemed an investment company. The Company believes that it is not an investment company under Section 3(a)(1)(C) of the Investment Company Act because it does not propose to engage in the business of investing, reinvesting, owning, holding, or trading in securities. In addition, if the Company was deemed an investment company under Section 3(a)(1)(C), it believes that it will qualify for an exemption from the definition of an investment company as it is primarily engaged in a business other than that of investing in securities. As noted above, the Company is primarily engaged in the manufacturing of heavy equipment. If the SEC or a court challenged the Company’s status as an operating company, it could incur significant legal expenses.
11

If the Company was deemed to be, and was required to register as an investment company, the Company would be forced to comply with the legal requirements of the Investment Company Act. As an investment company, the Company would be (i) subjected to disclosure and accounting guidance geared toward investment, rather than operating, companies; and (ii) required to undertake significant expense to meet other disclosure, reporting, and regulatory requirements to which it would be subject as a registered investment company.
The Company faces risks in connection with the acquisition of Blaw-Knox and any future acquisitions. 
The Company acquired the Blaw-Knox paver product line on October 1, 2020. The success of this acquisition depends, in part, on the Company’s ability to successfully grow the business and realize anticipated benefits, including any synergies. It may take longer than expected to realize growth in the business or realize anticipated benefits, which may be smaller than the Company expects. Also, there are a number of challenges and risks involved in the Company’s ability to successfully integrate Blaw-Knox with its current business. Any of these factors could have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
Acquiring businesses or products that expand and/or complement the Company’s operations has been an element of its business strategy. The Company continues to evaluate potential acquisitions that may expand and/or complement its business. The Company may not be able to successfully identify attractive acquisition candidates or negotiate favorable terms in the future. Furthermore, the Company’s ability to effectively integrate any future acquisitions will depend on, among other things, the adequacy of its implementation plans, the ability of its management to oversee and operate effectively the combined operations, and the Company’s ability to achieve desired operational efficiencies. The Company’s failure to successfully integrate the operations of any business that it may acquire in the future may adversely affect our business, financial position, results of operations, or cash flows.
12

ITEM1B. 1B
UNRESOLVED STAFF COMMENTS

None

ITEM2. 2
PROPERTIES

The following table lists the operating properties owned or leased by the Company as of September 30, 2017:

Location

  Owned
Acreage
   Building
Square

Footage
   Principal Function

Marquette, Iowa

   72.0    137,000   Offices and manufacturing

Orlando, Florida

   27.0    215,000   Corporate offices and manufacturing

2020:
Location
  
Acreage
   
Building

Square

Footage
   
Principal Function
Marquette, Iowa   72.0    137,000   Owned offices and manufacturing - Gencor
Orlando, Florida   27.0    215,000   Owned corporate offices and manufacturing - Gencor
Chambersburg, Pennsylvania   7.4    91,500   Leased offices and manufacturing – Blaw-Knox (as of September 1, 2020)
ITEM3. 3
LEGAL PROCEEDINGS

The Company has various litigation and claims, either as a plaintiff or defendant, pending as of the date of this Form10-KAnnual Report, which have occurred in the ordinary course of business, and which may be covered in whole, or in part, by insurance. Management has reviewed all litigation matters arising in the ordinary course of business and, upon advice of legal counsel, has made provisions, not deemed material, for any estimableprobable losses and expenses of litigation.

ITEM4. 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
MINE SAFETY DISCLOSURES

There were no matters submitted during the fourth quarter of this fiscal year to a vote of security holders.

None
13

PART II

ITEM5. 5
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER’SISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock has beenis traded on the NASDAQNasdaq Global Market under the symbol “GENC” since December 20, 2007.

Stock Split

On July 11, 2016,“GENC.”

The Company has not issued any securities during the Company’s Board of Directors approved athree-for-two split ofprior two years that were not already registered under the Company’s common and Class B stock to be effected in the form of a 50% stock dividend. As a result, shareholders received one additional share of common or Class B stock for every two shares they held of the respective class of stock as of the record date. These shares were distributed on August 1, 2016, to shareholders of record as of the end of business on July 22, 2016.

Following are the high and low closing prices for the Company’s common stock for the periods indicated:

2017

  HIGH   LOW 

First Quarter

  $16.05   $11.01 

Second Quarter

  $16.15   $13.50 

Third Quarter

  $16.80   $15.10 

Fourth Quarter

  $17.85   $15.35 

2016

  HIGH   LOW 

First Quarter

  $9.25   $6.07 

Second Quarter

  $10.29   $7.00 

Third Quarter

  $10.62   $9.19 

Fourth Quarter

  $13.41   $9.84 

Exchange Act.

As of September 30, 2017,2020, there were 228200 holders of common stock of record and 56 holders of Class B stock of record. The Company has not paid any cash dividends during the last two fiscal years and there ishas no intention to pay cash dividends in the foreseeable future.

EQUITY COMPENSATION PLANS

The following table includes information about the Company’s common and Class B stock that may be issued upon exercise of options, warrants and rights under all of the existing equity compensation plans and arrangements previously approved by security holders as of September 30, 2017:

Plan

  Number of Securities to
be Issued upon
Exercise of
Outstanding Options
   Weighted-Average
Exercise Price of
Outstanding
Options
   Number of Securities Remaining
Available for Future Issuance
under Equity Compensation
Plans
 

2009 Incentive Compensation Plan

   440,000   $5.739    582,000 

2020:
Plan
  Number of Securities to
be Issued upon
Exercise of
Outstanding Options
   
Weighted-Average

Exercise Price of
Outstanding
Options
   Number of Securities Remaining
Available for Future Issuance
under Equity Compensation
Plans
 
2009 Incentive Compensation Plan
   252,492   $6.205     
14

*ITEM 7Includes 100,000 of Class B securities

COMPARATIVE5-YEAR CUMULATIVE RETURN GRAPH

The following graph sets forth the cumulative total return to the Company’s shareholders during the five-year period ended September 30, 2017, as well as the Wilshire USMicro-Cap Price Index and the Dow Jones Heavy Construction Index. The stock performance assumes $100 was invested on October 1, 2012.

Comparison of Cumulative Total Return among Gencor Industries, Inc., the

Wilshire US Micro-Cap Price Index and the Dow Jones Heavy  Construction Index

With Base Year of 2012:

  9/30/2012   9/30/2013   9/30/2014   9/30/2015   9/30/2016   9/30/2017 

Gencor Industries, Inc.

   100.00    115.95    132.70    122.16    242.84    357.77 

DJ Heavy Construction Index

   100.00    125.38    119.13    87.91    98.97    106.11 

Wilshire USMicro-Cap Index

   100.00    131.96    139.78    138.23    155.37    191.34 

On December 1, 2017, the Company’s stock was available for trading on the NASDAQ Global Market under the symbol “GENC.”

ITEM 6.SELECTED FINANCIAL DATA

Selected Consolidated Statement of Operations Data:

   Years Ended September 30 
   2017   2016   2015  2014  2013 

Net Revenue

  $80,608,000   $69,991,000   $39,230,000  $40,017,000  $48,943,000 

Operating Income (Loss)

   10,236,000    7,816,000    (794,000  (26,000  2,578,000 

Net Income (Loss)

   8,418,000    7,043,000    (1,819,000  3,473,000   6,725,000 

Per Share Data:

        

Basic – Net Income (Loss)

  $0.58   $0.49   $(0.13 $0.24  $0.47 

Diluted – Net Income (Loss)

  $0.57   $0.48   $(0.13 $0.24  $0.47 

Selected Consolidated Balance Sheet Data:

   September 30 
   2017   2016   2015   2014   2013 

Current Assets

  $137,118,000   $123,420,000   $112,366,000   $110,619,000   $108,791,000 

Current Liabilities

   12,374,000    8,191,000    7,399,000    2,960,000    6,036,000 

Total Assets

   142,893,000    128,712,000    120,144,000    117,828,000    116,948,000 

Long Term Debt

   —      —      —      —      —   

Shareholders’ Equity

   128,918,000    120,205,000    112,745,000    114,175,000    110,428,000 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking”Information

This Form10-KAnnual Report contains certain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), which represent the Company’s expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company’s products and future financing plans, income from investees and litigation. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, the performance of the investment portfolio and the demand for the Company’s products.

For information concerning these factors and related matters, see “Risk Factors” in Part I, Item 1A in this Annual Report. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Annual Report. The Company does not undertake to update any forward-looking statements, except as required by law.

Overview

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

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

On July 6, 2012, President Obama signed a $118 billion transportation bill, Moving Ahead for Progress in the 21st Century Act(“MAP-21”).MAP-21 included a final three-month extension of the previousSAFETEA-LU bill at then current spending levels combined with a newtwo-year, $105 billion authorization of the federal highway, transit, and safety programs effective October 1, 2012. The bill provided states with two years of funding to build roads, bridges, and transit systems. On August 8, 2014, President Obama signed a $10.8 billionten-month bill to fund Federal highway and mass-transit programs through May 31, 2015. On May 29, 2015,MAP-21 was extended through July 31, 2015. On July 31, 2015, President Obama signed a three-month extension ofMAP-21, which provided $8 billion in funding for the Highway Trust Fund from August 1, 2015 through October 29, 2015. Two additional short-term extensions were approved between October 29, 2015 and December 4, 2015.

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

On the eve of its expiration, a

one-year
extension to the FAST Act was passed and signed into law. The
one-year
extension maintains current funding levels under the FAST Act through September 2021.
California’s Senate Bill 1 (“SB1”), the Road Repair and Accountability Act of 2017, was signed into law on April 28, 2017. The legislative package invests $54 billion over the next decade to fix roads, freeways and bridges in communities across California and puts more dollars towards transit and safety. These funds will be allocated to state and local projects.

The Canadian government has also enacted major infrastructure stimulus programs. In 2007, the Building Canada Plan provided $33 billion Additionally, numerous other states have taken steps to increase their gas tax revenues in infrastructure funding through 2014. The 2014 New Building Canada Fund is one component within the $53 billion 2014 New Building Canada Plan. The 2014 New Building Canada Fund provided funding for infrastructure projects at the national, provincial and local levels.

In addition to government funding and overall economic conditions, fluctuationsrecent years.

Fluctuations in the price of oil,carbon steel, which is a major componentsignificant cost and material used in the manufacturing of asphalt mix,the Company’s equipment, may affect the Company’s financial performance. An increase in the price of oil increases the cost of liquid asphalt and could decrease demand forhot-mix asphalt paving materials and certain of the Company’s products. The Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the increased costs and thus could have a negative impact on the Company’s financial performance.

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

15

Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the Company’s financial performance.
The Company believes its strategy of continuing to invest in product engineering and development and its focus on delivering the highest quality products and superior service will strengthen the Company’s market position. The Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. The Company will continue to scrutinize its relationships with external suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.

Results of Operations

Year ended September 30, 20172020 compared with the year ended September 30, 2016

2019

Net revenue for the year ended September 30, 2017 was $80.6 million, an increase of 15.2% or $10.62020 decreased 4.8% to $77.4 million from $70.0$81.3 million for the year ended September 30, 2016.2019. Net revenue for the fourth quarter of 2017 was up 25.4% or $3.82020 decreased 27.8% to $10.5 million overcompared to $14.5 million for the fourth quarter of 2016.ended September 30, 2019. The Company’s increasedecrease in net revenuerevenues reflects a continued strong demand for its equipment due todecline in orders from prior year as the passingimpact of the FAST Act. In addition, stateAct, which was set to expire at the end of September 2020, has slowed. On the eve of its expiration, a
one-year
extension to the FAST Act was passed and local programs that fund infrastructure, including gas tax increases and other ballot initiatives passed oversigned into law. The
one-year
extension maintains current funding levels under the previous few years, have had a positive impact on the demand for the Company’s products.

FAST Act through September 2021.

Gross profit for fiscal 20172020 was 26.2%24.5% of net revenue versus 25.0%27.6% of net revenue in fiscal 2016.2019. The reduced gross margin increase in 2017 was dueprofit margins resulted from lower margins on contract jobs related to new products and overall higher net revenues and improved overhead absorption from increasedlower production volumes.

Product engineering and development (“PED”) expenses increased $580,000decreased by $234,000 or 37.0%7.1% to $3,061,000 from $3,295,000 in fiscal 20162019 due to increased headcount to meet the higher demands for our engineered products.reduced supplies, consulting and travel expenses. Selling, general and administrative (“SG&A”) expenses increased $634,000$709,000 or 7.8%7.3% to $8,776,000$10,356,000 from $8,142,000$9,647,000 in fiscal 2016.2019. The higher SG&A expenses increasedin 2020 were due to increased headcount, increased sales commissions due to higher revenues, and increased trade show and professional expenses. SG&A expenses to capitalize on the renewed optimism within the highway construction industry. Asas a percentage of net revenue SG&A expenses declinedincreased to 10.9%13.4%, compared to 11.6%11.9% in the prior year.

Fiscal 20172020 had operating income of $10,236,000$5,536,000 versus $7,816,000$9,470,000 in fiscal 2016.2019 based on lower net revenues and increased selling expenses.
On October 1, 2020, the Company completed the acquisition of the Blaw-Knox paver business and associated assets, including inventory fixed assets and related intellectual property, for a purchase price of approximately $14.4 million, subject to post-closing adjustments. The improved operating results were due primarilyacquisition expands the Company’s product offerings by adding highway class asphalt pavers to higher net revenueits asphalt plant and improved cost absorption, partially offsetrelated equipment products. Operations will continue with Blaw-Knox’s current management and workforce at a manufacturing facility located in Chambersburg, Pennsylvania. The financial information included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report and in the accompanying Consolidated Financial Statements is that of Gencor prior to the acquisition of Blaw-Knox because the acquisition was completed after September 30, 2020, the annual period covered by increasesthe Consolidated Financial Statements included in PED and SG&A expenses.

this Annual Report. Accordingly, the historical information included in this Annual Report, unless otherwise indicated, is that of Gencor prior to the acquisition.

As of September 30, 20172020 and 2016,2019, the cost basis of the investment portfolio was $87.0$89.5 million and $86.2$104.2 million, respectively. During the fourth quarter of 2020, approximately $17.0 million of investments were liquidated. The cash was used to fund the acquisition of the Blaw-Knox paver business (see Note 12 - Subsequent Events to Consolidated Financial Statements for additional information). For theboth years ended September 30, 20172020 and 2016,2019, net investment interest and dividend income (“Investment Income”) was $0.7 million and $0.8 million, respectively.$2.3 million. The net realized and unrealized gains (losses) on marketable securities were $1.3$(1.2) million in fiscal 20172020 versus $0.8$1.0 million in fiscal 2016.2019. The total cash, cash equivalents and investments balance at September 30, 20172020 was $110.8$125.1 million, compared to the September 30, 20162019 cash, cash equivalents and investments balance of $104.2$115.6 million, an increase of $6.6$9.5 million.

The effective income tax rate for fiscal 20172020 was 30.9%17.2% versus 25.1%20.5% in fiscal 2016. As of September 30, 2016,2019.
In fiscal 2019, the Company had $647,000 ingenerated $241,000 of federal research and development tax credits (“R&D Credits”) carryforwards., all of which were used in fiscal 2019. In fiscal 2017, there were $332,0002020, the Company generated $421,000 of new credits generated, bringing the total R&D Credits, to $979,000,all of which all were used. There arewere no R&D Credits carryforwards as of September 30, 2017.

2020 or September 30, 2019.

16

As of September 30, 2016,2018, the Company had $224,000$87,000 in Florida state research and development tax credits (“Florida R&D Credits”) carryforwards. The Company receiveddid not receive any additional Florida R&D Credits of $22,000 in fiscal 2017 and2019 or fiscal 2020. The Company used $91,000, leaving $155,000the $87,000 of Florida R&D Credits carryforwards as of September 30, 2017. The $155,000 offrom fiscal 2018 in fiscal 2019. There were no Florida R&D Credits which are included in net deferred and other income tax liabilities of $(1,601,000)carryforwards at September 30, 2017, expire in fiscal 2021.

2020 or September 30, 2019.

Net income for the year ended September 30, 20172020 was $8,418,000$5,531,000 or $0.57$0.38 per diluted share versus net income of $7,043,000$10,196,000 or $0.48$0.69 per diluted share for the year ended September 30, 2016.2019. The increasedecrease in net income was primarily due to the improvedlower net revenue andrevenues, higher gross profit margins.

Year ended September 30, 2016 compared with the year ended September 30, 2015

Net revenue for the year ended September 30, 2016 was $70.0 million, an increase of 78.4% or $30.8 million from $39.2 million for the year ended September 30, 2015. Net revenue for the fourth quarter of 2016 was up 79.3% or $6.5 million over the fourth quarter of 2015. On December 4, 2015, President Obama signed the FAST Act, which gave our U.S. customers the confidence to invest in new asphalt equipment for production capacity expansion and replacement of older, less efficient equipment. The Company’s increased net revenue reflects a significantly improved demand for its equipment due to the passing of the FAST Act. In Canada, orders were weak in fiscal 2016 due to low oil prices impacting the Canadian economy and the increase in theUS-Canada exchange rate.

Gross profit for fiscal 2016 was 25.0% of net revenue versus 19.1% of net revenue in fiscal 2015. The gross profit increase in 2016 was due to higher net revenue and improved overhead absorption from increased production volumes.

Product engineering and development expenses increased $145,000 or 10.2% from fiscal 2015 due to increased headcount. SG&A expenses increased $1,264,000 or 18.4% to $8,142,000 from $6,878,000 in fiscal 2015. SG&A expenses increased due to increased headcount, and increased sales commissions due to higher net revenue. As a percentage of net revenue, SG&A expenses declined to 11.6%, compared to 17.5% in the prior year.

Fiscal 2016 had operating income of $7,816,000 versus an operating loss of $(794,000) in fiscal 2015. As compared to fiscal 2015, the improved operating results were due to significantly higher net revenue, resulting in improved cost absorption, partially offset by a moderate increase in SG&A.

As of September 30, 2016 and 2015, the cost basis of thelower investment portfolio was $86.2 million and $87.1 million, respectively. For the years ended September 30, 2016 and 2015, Investment Income was $0.8 million and $0.9 million, respectively. The net realized and unrealized gains on marketable securities were $0.8 million in fiscal 2016 versus net losses of $(3.6) million in fiscal 2015. Total cash and investment balance at September 30, 2016 was $104.2 million, compared to the September 30, 2015 cash and investment balance of $95.5 million, an increase of $8.6 million.

The effective income tax rate for fiscal 2016 was 25.1% versus a benefit of (48.7%) in fiscal 2015. As of September 30, 2015, the Company had $900,000 in R&D Credits carryforwards. In fiscal 2016, there was a net usage of R&D Credits of $253,000, bringing the total R&D Credits carry-forwards to $647,000 at September 30, 2016. The $647,000 of R&D Credits carryforwards, which are included in net deferred and other income tax liabilities of $(316,000) at September 30, 2016, expire in fiscal years 2031 through 2035.

As of September 30, 2015, the Company had $214,000 in Florida R&D Credits carryforwards. The Company received additional net Florida R&D Credits of $10,000 in fiscal 2016. The $224,000 of Florida R&D Credits, which are included in net deferred and other income tax liabilities of $(316,000) at September 30, 2016, expire in fiscal 2020.

Net income for the year ended September 30, 2016 was $7,043,000 or $0.48 per diluted share versus a net loss of $(1,819,000) or $(0.13) per diluted share for the year ended September 30, 2015 (adjusted forthree-for-two stock split – see Note 10 to Consolidated Financial Statements). The increase in net income was primarily due to the improved net revenue and higher gross profit margins.

income.

Liquidity and Capital Resources

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

The Company had no long-term debt outstanding at September 30, 20172020 or 2016.2019. As of September 30, 2017,2020, the Company has funded $135,000$85,000 in cash deposits at insurance companies to cover collateral needs.

In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2021, unless terminated earlier, and can be extended, as provided by the agreement. The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.

As of September 30, 2017,2020, the Company had $22.9$35.6 million in cash and cash equivalents, and $87.9$89.5 million in marketable securities. The marketable securities are invested through a professional investment management firm.firms. The securities may be liquidated at any time into cash and cash equivalents.

The Company’s backlog, which includes orders received through the filing date of this filing,Annual Report, was $61.3$34.6 million at September 30, 20172020 versus $43.2$36.9 million at September 30, 2016, an increase of 41.9%.2019. The Company’s working capital was $124.7$153.2 million at September 30, 20172020 versus $115.2$150.4 million at September 30, 2016.

2019.

The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash flows typically reflect the recurringfrequent purchase and sale of United States treasury bills.

In the fourth quarter of fiscal 2020, the Company liquidated approximately $17.0 million of its investments. The cash was used to fund the acquisition of the Blaw-Know paver product line (see Note 12 - Subsequent Events to Consolidated Financial Statements for additional information).

Year ended September 30, 20172020 compared with the year ended September 30, 2016

2019

Cash provided by operations in fiscal 20172020 was $26,774,000, primarily resulting from the sale of $6,108,000 was primarily from increasesinvestment securities and net income. The decrease in net revenue.costs and estimated earnings in excess of billings of $7.4 million reflects the completion of customer contracts with revenues recognized over time that were open at the end of fiscal 2019 and the reduced number of such contracts open at the end of fiscal 2020. The increase in inventories of $5.1$1.7 million reflects the ongoing need for additional equipment to meet the increased demand for our products. Similarly, customerprogress on several contract jobs where revenues are recognized at a point in time. Customer deposits increased $4.1$1.9 million, reflecting the down payments on our increased backlogthese jobs.
Cash provided by operations in fiscal 2019 was $4,163,000, primarily resulting from net income. The increase in inventories of orders.

$3.5 million reflected the impact of a product build to meet the anticipated demand for the Company’s products at the start of fiscal 2020. The increase in costs and estimated earnings in excess of billings of $1.9 million reflects the ongoing progress on customer contracts with revenues recognized over time prior to final billing and payment of amounts due in advance of shipment. Customer deposits decreased $2.6 million, reflecting the application of down payments on those jobs.

Cash used in investing activities during the year ended September 30, 20172020 of $1,617,000$1,595,000 and $2,104,000 for the year ended September 30, 2019, related primarily to capital expenditures for manufacturing equipment. Cash provided by financing activities of $223,000$103,000 in fiscal 20172020 and $231,000 in fiscal 2019 related to proceeds from the exercise of stock options.

Year ended September 30, 2016 compared with the year ended September 30, 2015

Cash provided by operations during the years ended September 30, 2016 and 2015 was $6,993,000 and $4,512,000, respectively, primarily from increases in net revenues. The change in deferred income taxes between years is primarily due to the tax impact on net unrealized losses on marketable securities, which were an unrealized loss of $(0.3) million at September 30, 2016 versus an unrealized loss of $(2.7) million at September 30, 2015. Costs and estimated earnings in excess of billings increased $2.5 million, reflecting the composition of openpercentage-of-completion towards larger plants as of September 30, 2016 versus plant components at September 30, 2015. Prepaid expenses increased $0.8 million over prior year reflecting an overpayment on estimated federal income taxes for fiscal 2016. Inventories decreased $1.1 million as prior year stock build was used to fulfill current year orders. Accrued expenses increased $0.8 million as payroll and related accruals and sales commissions increased due to increased headcount and significantly improved revenues.Cash used in investing activities during the years ended September 30, 2016 and 2015 of $306,000 and $689,000, respectively, related to capital expenditures for manufacturing equipment. Cash provided by financing activities of $380,000 and $136,000 in fiscal 2016 and 2015, respectively, related to proceeds from the exercise of stock options.

17

Critical Accounting Policies, Estimates and Assumptions

The Company believes the following discussion addresses itsit’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Accounting policies, in addition to the critical accounting policies referenced below, are presented in Note 1 to the Consolidated Financial Statements, “Accounting Policies.”

Estimates and Assumptions

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

Revenues & Expenses

As previously discussed in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form
10-K
for the year ended September 30, 2018, under the heading “Accounting Pronouncements and Policies”, the Company adopted the provisions of ASU
No. 2014-09
and its related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard.
Revenues from contracts with customers for the design, manufacture and sale of asphalt plantscustom equipment are recognized underover time when thepercentage-of-completion method. Thepercentage-of-completion method performance obligation is satisfied by transferring control of accounting for these contracts recognizes revenue, netthe equipment. Control of any promotional discounts,the equipment transfers over time as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred during the entire contract.Pre-contract All incremental costs related to obtaining a contract are expensed as incurred.incurred as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed is classified ason equipment sales recognized over time. These contract assets were $6,405,000 and $13,838,000 at September 30, 2020 and 2019, respectively, and are included in current assets under “costsas costs and estimated earnings in excess of billings.”billings on the Company’s consolidated balance sheets. The Company anticipates that all incurred costs associated with these contractsof the contract assets at September 30, 2017,2020, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of custom 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 following four revenue recognition criteria are met: product is delivered/ownership is transferredgoods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is performed, persuasive evidencetypically due prior to shipment. Payment for services under contract with customers is due as services are completed. Accounts receivable related to contracts with customers at September 30, 2020 and September 30, 2019 were $223,000 and $301,000, respectively.
Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.
18

Under certain contracts with customers, recognition of an arrangement exists,a portion of the selling priceconsideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at September 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $3,853,000 and $1,918,000 at September 30, 2020 and 2019, respectively, and are included in current liabilities on the Company’s consolidated balance sheets.
The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is fixed or determinable,identified as a separate performance obligation. The cost of shipping and collectabilityhandling is reasonably assured.

classified as cost of goods sold concurrently.

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

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

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

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the
less-than-90-day
past due aging buckets. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts.

Inventories

Inventories are valued at the lower of cost or market,net realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the
last-in,
first-out
(“LIFO”) method to the
first-in,
first-out
(“FIFO”) method. The Company believes the FIFO method improved financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and expenses. The change in accounting method also required the Company to make a change for U.S. income tax purposes.
As required by GAAP, the Company has reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented. The retrospective application of the change resulted in an increase in the Company’s September 30, 2018 and September 30, 2017 retained earnings of $2,838,000 (net of $838,000 in taxes) and $2,708,000 (net of $792,000 in taxes) respectively, and an increase to the Company’s net income of $130,000 (net of $45,000 in taxes) for the year ended September 30, 2018. This change did not affect our previously reported cash flows from operating, investing or financing activities nor did it have a significant impact on the previously reported quarterly operating results for fiscal 2019.
All inventories are now valued at the lower of cost or net realizable value, with cost being determined principally by usingunder thelast-in,first-out (“LIFO”) FIFO method and market defined as replacement cost for raw materials and net realizable value for work in processdefined as the estimated selling price of goods less reasonable costs of completion and finished goodsdelivery (see Note 2 to Consolidated Financial Statements). Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material,materials, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on
trade-in
from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

19

Investments

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

Long Lived Asset Impairment

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

Inflation

The overall effects of inflation on the Company’s business during the periods discussed have not been significant. The Company monitors the prices it charges for its products and services on an ongoing basis and believes that it will be able to adjust those prices to take into account future changes in the rate of inflation.

Contractual Obligations

There were no outstanding borrowings or long-term contractual obligations at September 30, 2017.

The Company had no long-term or short-term debt as of September 30, 2017. There2020 and there was no long-term debt facility in place and there were no outstanding letters of credit at September 30, 2017.

Off-Balance Sheet Arrangements

None

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

2020.

In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2021, unless terminated earlier, and can be extended, as provided by the agreement. The Company operates manufacturing facilities and sales offices at two locations inintends to renew the United States.letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.
On August 28, 2020, the Company is subject to business risks inherent innon-U.S. activities, including political and economic uncertainty, import and export limitations, and market riskentered into a three year operating lease for property related to changes in interest ratesthe manufacturing and foreign currency exchange rates.

Atwarehousing of the Blaw-Knox paver business which was acquired after September 30, 2017 and 2016,2020 (refer to Note 12 – Subsequent Events to Consolidated Financial Statements for additional information). The lease term is for the Company had no debt outstanding. Atperiod September 30, 2017, there was no credit facility in place.

The Company’s marketable securities are invested in cash and money funds, equities, corporate bonds, mutual funds, exchange-traded funds, and government securities1, 2020 through a professional investment advisor. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of securities, it is possible that changes in these risk factors could have an adverse material impact on the Company’s results of operations or equity.

August 31, 2023.

Off-Balance
Sheet Arrangements
None
20

ITEM 8.8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

GENCOR INDUSTRIES, INC.

   
Page
 

22
23
   24 

Report of Independent Registered Public Accounting Firm

25 

Consolidated Balance Sheets as of September 30, 2017 and 2016

26
Consolidated Statements of Operations for the years ended September 30, 2017, 2016 and 201527
  2825 
  2926 

   30

Supplementary Data – Selected Quarterly Financial Data (Unaudited)

4227 

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

GENCOR INDUSTRIES, INC.

MANAGEMENT ASSESSMENT REPORT

The management of Gencor Industries, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control system is designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of all internal control systems no matter how well designed. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of a change in circumstances or conditions.

In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of September 30, 2017. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes the Company maintained effective internal control over financial reporting as of September 30, 2017. Moore Stephens Lovelace, P.A., the Company’s independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting as of September 30, 2017.

21

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gencor Industries, Inc. (the “Company”) as of September 30, 20172020 and 2016,2019, and the related consolidated statements of operations,income, shareholders’ equity, and cash flows for each of the years in the three-year
two-year
period ended September 30, 2017. We have also audited2020, and the Company’s internal control overrelated notes (collectively referred to as the consolidated financial reportingstatements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2017, based on criteria established in Internal Control – Integrated Framework issued by2020 and 2019, and the Committeeconsolidated results of Sponsoring Organizationsits operations and its cash flows for each of the Treadway Commission (“COSO”). The Company’s management is responsibleyears in the
two-year
period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for theseOpinion
These consolidated financial statements for maintaining effective internal control over financial reporting, and for its assessmentare the responsibility of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements and 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, and whether effectivedue to error or fraud. 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, was maintained in all material respects. 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. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. 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 statement presentation. 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.statements. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding

/s/ MSL, P.A.
MSL, P.A.
Certified Public Accountants
We have served as 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.

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the consolidated financial position of Gencor Industries, Inc. as of September 30, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Gencor Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

/s/ MOORE STEPHENS LOVELACE, P.A.

MOORE STEPHENS LOVELACE, P.A.
Certified Public Accountants
Orlando, Florida
December 6, 2017

Company’s auditor since 2001.

Orlando, Florida
December 18, 2020
22

Part I. Financial Information

GENCOR INDUSTRIES, INC.

Consolidated Balance Sheets

As of September 30, 20172020 and 2016

   2017   2016 

ASSETS

    

Current assets:

    

Cash and cash equivalents

  $22,933,000   $18,219,000 

Marketable securities at fair value (cost of $86,967,000 at September 30, 2017 and $86,203,000 at September 30, 2016)

   87,886,000    85,938,000 

Accounts receivable, less allowance for doubtful accounts of $207,000 at September 30, 2017 and $195,000 at September 30, 2016

   1,184,000    1,110,000 

Costs and estimated earnings in excess of billings

   6,768,000    4,921,000 

Inventories, net

   16,687,000    11,634,000 

Prepaid expenses

   1,660,000    1,598,000 
  

 

 

   

 

 

 

Total current assets

   137,118,000    123,420,000 
  

 

 

   

 

 

 

Property and equipment, net

   5,722,000    5,239,000 

Other assets

   53,000    53,000 
  

 

 

   

 

 

 

Total Assets

  $142,893,000   $128,712,000 
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

  $1,320,000   $1,443,000 

Customer deposits

   8,628,000    4,484,000 

Accrued expenses

   2,426,000    2,264,000 
  

 

 

   

 

 

 

Total current liabilities

   12,374,000    8,191,000 
  

 

 

   

 

 

 

Deferred and other income taxes

   1,601,000    316,000 
  

 

 

   

 

 

 

Total liabilities

   13,975,000    8,507,000 
  

 

 

   

 

 

 

Commitments and contingencies

    

Shareholders’ equity:

    

Preferred stock, par value $.10 per share; 300,000 shares authorized; none issued

   —      —   

Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,154,829 shares and 12,111,079 shares issued and outstanding at September 30, 2017 and 2016, respectively *

   1,215,000    1,211,000 

Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,263,857 shares issued and outstanding at September 30, 2017 and 2016 *

   226,000    226,000 

Capital in excess of par value

   11,178,000    10,887,000 

Retained earnings

   116,299,000    107,881,000 
  

 

 

   

 

 

 

Total shareholders’ equity

   128,918,000    120,205,000 
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

  $142,893,000   $128,712,000 
  

 

 

   

 

 

 

2019

   
2020
   
2019
 
ASSETS
    
Current assets:
    
Cash and cash equivalents
  $35,584,000   $10,302,000 
Marketable securities at fair value (cost of $89,514,000 at September 30, 2020 and $104,176,000 at September 30, 2019)
   89,498,000    105,322,000 
Accounts receivable, less allowance for doubtful accounts of $442,000 at September 30, 2020 and $459,000 at September 30, 2019
   1,992,000    1,603,000 
Costs and estimated earnings in excess of billings
   6,405,000    13,838,000 
Inventories, net
   27,090,000    25,366,000 
Prepaid expenses
   1,189,000    499,000 
  
 
 
   
 
 
 
Total current assets
   161,758,000    156,930,000 
  
 
 
   
 
 
 
Property and equipment, net
   8,341,000    8,389,000 
Other long-term assets
   995,000    53,000 
  
 
 
   
 
 
 
Total Assets
  $171,094,000   $165,372,000 
  
 
 
   
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
    
Current liabilities:
    
Accounts payable
  $1,728,000   $1,907,000 
Customer deposits
   3,853,000    1,918,000 
Accrued expenses
   2,605,000    2,660,000 
Current operating lease liabilities
   328,000    —   
  
 
 
   
 
 
 
Total current liabilities
   8,514,000    6,485,000 
Deferred and other income taxes
   746,000    3,372,000 
Non-current operating lease liabilities
   614,000    —   
  
 
 
   
 
 
 
Total liabilities
   9,874,000    9,857,000 
  
 
 
   
 
 
 
Commitments and contingencies
Shareholders’ equity:
    
Preferred stock, par value $.10 per share; 300,000 shares authorized;
 
NaN issued
   0      0   
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,287,337 shares and 12,277,337 shares issued and outstanding at September 30, 2020 and 2019, respectively
  
 
1,229,000
 
  
 
1,228,000
 
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares and 2,308,857 shares issued and outstanding at September 30, 2020 and 2019, respectively
  
 
232,000
 
  
 
231,000
 
Capital in excess of par value
   12,331,000    12,159,000 
Retained earnings
   147,428,000    141,897,000 
  
 
 
   
 
 
 
Total shareholders’ equity
   161,220,000    155,515,000 
  
 
 
   
 
 
 
Total Liabilities and Shareholders’ Equity
  $171,094,000   $165,372,000 
  
 
 
   
 
 
 
See accompanying Notes to Consolidated Financial Statements

*2016 adjusted forthree-for-two stock split

23

GENCOR INDUSTRIES, INC.

Consolidated Income Statements of Operations

For the Years Ended September 30, 2017, 20162020 and 2015

   2017  2016   2015 

Net revenue

  $80,608,000  $69,991,000   $39,230,000 

Cost of goods sold

   59,449,000   52,466,000    31,724,000 
  

 

 

  

 

 

   

 

 

 

Gross profit

   21,159,000   17,525,000    7,506,000 

Operating expenses:

     

Product engineering and development

   2,147,000   1,567,000    1,422,000 

Selling, general and administrative

   8,776,000   8,142,000    6,878,000 
  

 

 

  

 

 

   

 

 

 

Total operating expenses

   10,923,000   9,709,000    8,300,000 
  

 

 

  

 

 

   

 

 

 

Operating income (loss)

   10,236,000   7,816,000    (794,000

Other income (expense), net:

     

Interest and dividend income, net of fees

   650,000   754,000    883,000 

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

   1,297,000   828,000    (3,638,000

Other

   (5,000  2,000    3,000 
  

 

 

  

 

 

   

 

 

 
   1,942,000   1,584,000    (2,752,000
  

 

 

  

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

   12,178,000   9,400,000    (3,546,000

Income tax expense (benefit)

   3,760,000   2,357,000    (1,727,000
  

 

 

  

 

 

   

 

 

 

Net income (loss)

  $8,418,000  $7,043,000   $(1,819,000
  

 

 

  

 

 

   

 

 

 

Basic earnings per common share:

     

Net income (loss) *

  $0.58  $0.49   $(0.13
  

 

 

  

 

 

   

 

 

 

Diluted earnings per common share:

     

Net income (loss) *

  $0.57  $0.48   $(0.13
  

 

 

  

 

 

   

 

 

 

2019

   
2020
  
2019
 
Net revenue
  $77,420,000  $81,329,000 
Cost of goods sold
   58,467,000   58,917,000 
  
 
 
  
 
 
 
Gross profit
   18,953,000   22,412,000 
Operating expenses:
   
Product engineering and development
   3,061,000   3,295,000 
Selling, general and administrative
   10,356,000   9,647,000 
  
 
 
  
 
 
 
Total operating expenses
   13,417,000   12,942,000 
  
 
 
  
 
 
 
Operating income
   5,536,000   9,470,000 
Other income (expense), net:
   
Interest and dividend income, net of fees
   2,321,000   2,307,000 
Realized and unrealized gains (losses) on marketable securities, net
   (1,160,000  1,047,000 
Other
   (16,000  —   
  
 
 
  
 
 
 
   1,145,000   3,354,000 
  
 
 
  
 
 
 
Income before income tax expense
   6,681,000   12,824,000 
Income tax expense
   1,150,000   2,628,000 
  
 
 
  
 
 
 
Net income
  $5,531,000  $10,196,000 
  
 
 
  
 
 
 
Basic earnings per common share
  $0.38  $0.70 
  
 
 
  
 
 
 
  
Diluted earnings per common share
  $0.38  $0.69 
  
 
 
  
 
 
 
See accompanying Notes to Consolidated Financial Statements

*2016 and 2015 adjusted forthree-for-two stock split

24

GENCOR INDUSTRIES, INC.

Consolidated Statements of Shareholders’ Equity

For the Years Ended September 30, 2017, 20162020 and 2015

   Common Stock   Class B Stock   Capital in
Excess of
   Retained  Total
Shareholders’
 
   Shares*   Amount*   Shares*   Amount*   Par Value *   Earnings  Equity 

September 30, 2014

   12,015,079   $1,202,000    2,263,857   $226,000   $10,090,000   $102,657,000  $114,175,000 

Net loss

   —      —      —      —      —      (1,819,000  (1,819,000

Stock-based compensation

   —      —      —      —      253,000    —     253,000 

Stock options exercised

   28,125    3,000    —      —      133,000    —     136,000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

September 30, 2015

   12,043,204    1,205,000    2,263,857    226,000    10,476,000    100,838,000   112,745,000 

Net income

   —      —      —      —      —      7,043,000   7,043,000 

Stock-based compensation

   —      —      —      —      37,000    —     37,000 

Stock options exercised

   67,875    6,000    —      —      374,000    —     380,000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

September 30, 2016

   12,111,079    1,211,000    2,263,857    226,000    10,887,000    107,881,000   120,205,000 

Net income

   —      —      —      —      —      8,418,000   8,418,000 

Stock-based compensation

   —      —      —      —      71,000    —     71,000 

Stock options exercised

   43,750    4,000    —      —      220,000    —     224,000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

September 30, 2017

   12,154,829   $1,215,000    2,263,857   $226,000   $11,178,000   $116,299,000  $128,918,000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

2019

   Common Stock   Class B Stock   Capital in
Excess of
Par Value
   Retained
Earnings
   Total
Shareholders’
Equity
 
   Shares   Amount   Shares   Amount 
September 30, 2018 *
   12,252,337   $1,225,000    2,288,857   $229,000   $11,862,000   $131,701,000   $145,017,000 
Net income
   —      —      —      —      —      10,196,000    10,196,000 
Stock-based compensation
   —      —      —      —      71,000    —      71,000 
Stock options exercised
   25,000    3,000    20,000    2,000    226,000    —      231,000 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
September 30, 2019
   12,277,337   $1,228,000    2,308,857   $231,000   $12,159,000   $141,897,000   $155,515,000 
Net income
   —      —      —      —      —      5,531,000    5,531,000 
Stock-based compensation
   —      —      —      —      71,000    —      71,000 
Stock options exercised
   10,000    1,000    10,000    1,000    101,000    —      103,000 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
September 30, 2020
   12,287,337   $1,229,000    2,318,857   $232,000   $12,331,000   $147,428,000   $161,220,000 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying Notes to Consolidated Financial Statements

*
2016
The balances as of September 30, 2018, have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 2015 adjusted forthree-for-two stock split2 to the Consolidated Financial Statements.

25

GENCOR INDUSTRIES, INC.

Consolidated Statements of Cash Flows

For the Years Ended September 30, 2017, 20162020 and 2015

   2017  2016  2015 

Cash flows from operating activities:

    

Net income (loss)

  $8,418,000  $7,043,000  $(1,819,000

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

    

Purchase of marketable securities

   (492,674,000  (550,295,000  (384,668,000

Proceeds from sale and maturity of marketable securities

   491,852,000   549,027,000   383,773,000 

Change in value of marketable securities

   (1,126,000  (314,000  3,649,000 

Deferred and other income taxes

   1,285,000   1,647,000   (2,024,000

Depreciation and amortization

   1,128,000   1,397,000   1,385,000 

Provision for doubtful accounts

   115,000   105,000   60,000 

Loss on disposal of assets

   7,000   65,000   1,000 

Stock-based compensation

   71,000   37,000   253,000 

Changes in assets and liabilities:

    

Accounts receivable

   (189,000  (341,000  514,000 

Costs and estimated earnings in excess of billings

   (1,847,000  (2,525,000  (2,052,000

Inventories

   (5,053,000  1,136,000   968,000 

Prepaid expenses

   (62,000  (781,000  32,000 

Accounts payable

   (123,000  (86,000  582,000 

Customer deposits

   4,144,000   66,000   4,094,000 

Accrued expenses

   162,000   812,000   (236,000
  

 

 

  

 

 

  

 

 

 

Total adjustments

   (2,310,000  (50,000  6,331,000 
  

 

 

  

 

 

  

 

 

 

Cash flows provided by operating activities

   6,108,000   6,993,000   4,512,000 
  

 

 

  

 

 

  

 

 

 

Cash flows from investing activities:

    

Capital expenditures

   (1,624,000  (306,000  (689,000

Proceeds from sale of property and equipment

   7,000   —     —   
  

 

 

  

 

 

  

 

 

 

Cash flows used in investing activities

   (1,617,000  (306,000  (689,000
  

 

 

  

 

 

  

 

 

 

Cash flows from financing activities:

    

Proceeds from stock option exercises

   223,000   380,000   136,000 
  

 

 

  

 

 

  

 

 

 

Cash flows provided by financing activities

   223,000   380,000   136,000 
  

 

 

  

 

 

  

 

 

 

Net increase in cash

   4,714,000   7,067,000   3,959,000 

Cash and cash equivalents at:

    

Beginning of year

   18,219,000   11,152,000   7,193,000 
  

 

 

  

 

 

  

 

 

 

End of year

  $22,933,000  $18,219,000  $11,152,000 
  

 

 

  

 

 

  

 

 

 

2019

   
2020
  
2019
 
Cash flows from operating activities:
   
Net income
  $5,531,000  $10,196,000 
Adjustments to reconcile net income to cash provided by operating activities:
   
Purchase of marketable securities
   (131,635,000  (188,066,000
Proceeds from sale and maturity of marketable securities
   146,122,000   188,047,000 
Change in value of marketable securities
   1,337,000   (1,245,000
Deferred and other income taxes
   (2,626,000  732,000 
Depreciation and amortization
   1,643,000   1,600,000 
Provision for doubtful accounts
   50,000   175,000 
Loss on disposal of assets
   —     4,000 
Stock-based compensation
   71,000   71,000 
Changes in assets and liabilities:
   
Accounts receivable
   (439,000  (785,000
Costs and estimated earnings in excess of billings
   7,433,000   (1,938,000
Inventories
   (1,724,000  (3,476,000
Prepaid expenses
   (690,000  849,000 
Accounts payable
   (179,000  69,000 
Customer deposits
   1,935,000   (2,645,000
Accrued expenses
   (55,000  575,000 
  
 
 
  
 
 
 
Total adjustments
   21,243,000   (6,033,000
  
 
 
  
 
 
 
Cash flows provided by operating activities
   26,774,000   4,163,000 
  
 
 
  
 
 
 
Cash flows from investing activities:
   
Capital expenditures
   (1,595,000  (2,104,000
  
 
 
  
 
 
 
Cash flows used in investing activities
   (1,595,000  (2,104,000
  
 
 
  
 
 
 
Cash flows from financing activities:
   
Proceeds from stock option exercises
   103,000   231,000 
  
 
 
  
 
 
 
Cash flows provided by financing activities
   103,000   231,000 
  
 
 
  
 
 
 
Net increase in cash and cash equivalents
   25,282,000   2,290,000 
Cash and cash equivalents at:
   
Beginning of year
   10,302,000   8,012,000 
  
 
 
  
 
 
 
End of year
  $35,584,000  $10,302,000 
  
 
 
  
 
 
 
Non-cash
investing and financing activities:
   
Operating lease
right-of-use
assets
  $942,000  $—   
Operating lease liabilities
   942,000   —   
See accompanying Notes to Consolidated Financial Statements

26

GENCOR INDUSTRIES, INC.

Notes to Consolidated Financial Statements

For the Years Ended September 30, 2017, 20162020 and 2015

2019

NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Gencor Industries, Inc. and its subsidiaries (collectively, the “Company”) is a diversified, heavy machinery manufacturer for the production of highway construction materials and environmental control machinery and equipment.

These consolidated financial statements include the accounts of Gencor Industries, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Pronouncements and Policies

In May 2014, the FASB issued ASU
No. 2014-09,
RevenuefromContractswithCustomers: (Topic
(Topic 606) (“ASU
2014-09”),
amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, including interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or (ii) a retrospective approach with the cumulative effect upon initial adoption recognized at the date of adoption, which includes additional footnote disclosures.2017. The Company plans to adoptadopted ASU
2014-09
in the new standard infirst quarter of fiscal 2019. The Company does not expectelected to adopt the standard using the modified retrospective method. The adoption of this standard toASU
2014-09
did not have a materialsignificant impact on its results of operations.

consolidated financial statements.

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

statements. During the fourth quarter of fiscal 2020, the Company entered into a new operating lease which resulted in reporting a right-of-use (“ROU”) asset and related lease liabilities of approximately $970,000 (see Note 9 – Leases)

.
In March 2016,May 2017, the FASB issued ASU No.2016-09,
2017-09,
Compensation - StockCompensation(Topic
(Topic 718):
Scope of Modification Accounting
(“ASU
2017-09”).
The new standard identifies areas for simplification involving several aspectsguidance clarifies when a change to the terms or conditions of accounting fora share-based payment transactions, including the income tax consequences, classification of awardsaward must be accounted for as equity or liabilities, an option to recognize gross stock compensation expensea modification. ASU
2017-09
is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows.early adoption permitted. The Company adopted ASU
2017-09
in the provisionsfirst quarter of fiscal 2019. The adoption of ASU No. 2016-09 during the quarter ended March 31, 2017 with no material
2017-09
did not have a significant impact on the Company’sits consolidated financial position, results of operations or cash flows.

statements.

No other accounting pronouncements recently issued or newly effective during the fiscal 2017 have had, or are expected to have, a material impact on the Company’s consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

27

Earnings per Share (“EPS”)

The consolidated financial statements include basic and diluted earnings (loss) per share (“EPS”) information. Basic EPS is based on the weighted-average number of shares outstanding. Diluted EPS is based on the sum of the weighted-average number of shares outstanding plus common stock equivalents.

On July 11, 2016, the Company’s Board of Directors approved athree-for-two split of the Company’s common and Class B stock to be effected in the form of a 50% stock dividend. As a result, shareholders received one additional share of common or Class B stock for every two shares they held of the respective class of stock as of the record date. These shares were distributed on August 1, 2016, to shareholders of record as of the end of business on July 22, 2016. All share and per share data (except par value) has been adjusted to reflect the effect of the stock split for all periods presented.

The number of shares of common and Class B stock issuable upon exercise of outstanding stock options were proportionately increased in accordance with terms of the respective plans (see Note 11). The number of authorized shares, as reflected on the consolidated balance sheets, was not affected by the stock split and, accordingly, has not been adjusted.

Weighted-averageweighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation as ofat September 30, 20172020 were 463,000,256,000, which equates to 284,000125,000 dilutive common stock equivalents on a post stock split basis.equivalents. For the year ended September 30, 2016,2019, the weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation were 480,000,307,000, which equates to 190,000157,000 dilutive common stock equivalents. For the year ended September 30, 2015, there were no common stock equivalents included in the diluted EPS calculations, as to do so would have been anti-dilutive. 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 zero7,000 in 20172020 and 2016, and 512,0000 in 2015 on a post stock split basis.

2019.

The following presents the calculation of the basic and diluted EPS for the years ended September 30, 2017, 20162020 and 2015:

   2017   2016   2015 
   Net Income   Shares   EPS   Net Income   Shares   EPS   Net Loss  Shares   EPS 

Basic EPS

  $8,418,000    14,396,000   $0.58   $7,043,000    14,334,000   $0.49   $(1,819,000  14,283,000   $(0.13

Common stock equivalents

     284,000        190,000       —     
    

 

 

       

 

 

      

 

 

   

Diluted EPS

  $8,418,000    14,680,000   $0.57   $7,043,000    14,524,000   $0.48   $(1,819,000  14,283,000   $(0.13
    

 

 

       

 

 

      

 

 

   

2019:

   2020   2019 
   Net Income   Shares   EPS   Net Income   Shares   EPS 
Basic EPS
  $5,531,000    14,595,000   $0.38   $10,196,000    14,551,000   $0.70 
Common stock equivalents
     125,000        157,000   
    
 
 
       
 
 
   
Diluted EPS
  $5,531,000    14,720,000   $0.38   $10,196,000    14,708,000   $0.69 
    
 
 
       
 
 
   
Cash Equivalents

Cash equivalents consist of short-term certificates of deposit and deposits in money market accounts with original maturities of three months or less.

Marketable Securities

and Fair Value Measurements 

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

Fair Value Measurements

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

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

firms.

From time to time the Company may transfer cash between its marketable securities portfolio and operating cash and cash equivalents. 
28

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2017:

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 

Equities

  $11,338,000   $—     $—     $11,338,000 

Mutual Funds

   7,155,000    —      —      7,155,000 

Exchange-Traded Funds

   3,417,000    —      —      3,417,000 

Corporate Bonds

   —      7,196,000    —      7,196,000 

Government Securities

   54,542,000    —      —      54,542,000 

Cash and Money Funds

   4,238,000    —      —      4,238,000 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $80,690,000   $7,196,000   $—     $87,886,000 
  

 

 

   

 

 

   

 

 

   

 

 

 

2020:

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 
Equities
  $11,949,000   $—     $—     $11,949,000 
Mutual Funds
   9,595,000    —      —      9,595,000 
Exchange-Traded Funds
   10,344,000    —      —      10,344,000 
Corporate Bonds
   —      27,877,000    —      27,877,000 
Government Securities
   16,147,000    —      —      16,147,000 
Cash and Money Funds
   13,586,000    —      —      13,586,000 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $61,621,000   $27,877,000   $—     $89,498,000 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net unrealized gainslosses reported during fiscal 20172020 on trading securities still held as of September 30, 2017,2020, were $1,183,000.$(1,091,000). There were no0 transfers of investments between Level 1 and Level 2 during the year ended September 30, 2017.

2020.

In the fourth quarter of fiscal 2020, the Company liquidated approximately $17.0 million of its
investments.
The cash was used to fund the acquisition of the Blaw-Knox paver business and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE (see Note 12 - Subsequent Events for additional information).
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2016:

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 

Equities

  $2,408,000   $—     $—     $2,408,000 

Mutual Funds

   5,212,000    —      —      5,212,000 

Exchange-Traded Funds

   510,000    —      —      510,000 

Government Securities

   69,583,000    —      —      69,583,000 

Cash and Money Funds

   8,225,000    —      —      8,225,000 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $85,938,000   $—     $—     $85,938,000 
  

 

 

   

 

 

   

 

 

   

 

 

 

2019:

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 
Equities
  $10,412,000   $—     $—     $10,412,000 
Mutual Funds
   3,987,000    —      —      3,987,000 
Exchange-Traded Funds
   5,163,000    —      —      5,163,000 
Corporate Bonds
   —      38,690,000    —      38,690,000 
Government Securities
   45,171,000    —      —      45,171,000 
Cash and Money Funds
   1,899,000    —      —      1,899,000 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $66,632,000   $38,690,000   $—     $105,322,000 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net unrealized gains reported during fiscal 20162019 on trading securities still held as of September 30, 2016,2019, were $2,502,000.$737,000. There were no0 transfers of investments between Level 1 and Level 2 during the year ended September 30, 2016.

Net unrealized losses reported during2019.

In fiscal 2015 on trading2019, the Company transferred a net $2.0 million from the marketable securities still held as of September 30, 2015, were $(4,882,000).

portfolio to operating cash and cash equivalents.

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

Foreign Currency Transactions

Gains and losses resulting from foreign currency transactions are included in income and were not significant during the years ended September 30, 2017, 20162020 and 2015.

2019.

Risk Management

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist primarily of cash and cash equivalents, marketable securities, and accounts receivable. The Company maintains its cash accounts in various domestic financial institutions which may from time to time exceed federally insured limits. Operating cash is retained overnight innon-interest-bearing accounts which allow for offsets to treasury service charges. The marketable securities are investedinclude investments in cash and money funds, mutual funds, exchange-tradedexchange traded funds (ETF’s)(“ETF’s”), corporate bonds, government securities and stocks through a professional investment advisor.management firms. Investment securities are exposed to various risks, such as interest rate, market and credit risks.

29

The Company’s customers are not concentrated in any specific geographic region, but are concentrated in the road and highway construction industry. The Company extends limited credit on parts sales to its customers based upon their credit- worthiness and generallycredit-worthiness. Generally, the Company requires a significantup-front deposit before beginning constructionmanufacturing on complete asphalt plant and component orders, and requires full payment subject to hold-back provisions prior to shipment on complete asphalt plant and component orders.shipment. The Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.

Inventories

Inventories are valued at the lower of cost or market, withnet realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost being determined principally by usingof inventories from the
last-in,
first-out
(“LIFO”) method and market defined as replacement cost for raw materials and net realizable value for workto the
first-in,
first-out
(“FIFO”) method. As required by accounting principles generally accepted in process and finished goods (see Note 2). the United States of America (“GAAP”), the Company reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented.
Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on
trade-in
from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence,
an allowance is established to reduce
the cost basis of inventories three to four years old are reduced by 50%, while
the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero.0. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Changes in the allowance for slow moveslow-moving and obsolete inventories are as follows:

   2017   2016   2015 

Balance, beginning of year

  $3,869,000   $3,310,000   $3,139,000 

Charged to cost of sales

   77,000    621,000    144,000 

Disposal of inventory, net of recoveries

   (120,000   (62,000   27,000 
  

 

 

   

 

 

   

 

 

 

Balance, end of year

  $3,826,000   $3,869,000   $3,310,000 
  

 

 

   

 

 

   

 

 

 

   2020   2019 
Balance, beginning of year
  $4,700,000   $4,543,000 
Charged to cost of sales
   401,000    304,000 
Disposal of inventory, net of recoveries
   (484,000   (147,000
  
 
 
   
 
 
 
Balance, end of year
  $4,617,000   $4,700,000 
  
 
 
   
 
 
 
Property and Equipment

Property and equipment are stated at cost (see Note 4). Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets, as follows:

   Years

Land improvements

  15

Buildings and& improvements

  6-40

Equipment

  2-10

Impairments

Property and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be
 recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. NoNaN such impairment loss waslosses were recorded during the years ended September 30, 2017, 20162020 and 2015.

2019. 

3
0

Revenues and Expenses

The Company adopted the provisions of ASU
No. 2014-09
and related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard.
The following table disaggregates the Company’s net revenue by major source for the years ended September 30, 2020 and 2019:
   2020   2019 
Equipment sales recognized over time
  $35,579,000   $43,489,000 
Equipment sales recognized at a point in time
   23,642,000    19,987,000 
Parts and component sales
   13,896,000    13,356,000 
Freight revenue
   3,983,000    4,130,000 
Other
   320,000    367,000 
  
 
 
   
 
 
 
Net revenue
  $77,420,000   $81,329,000 
  
 
 
   
 
 
 
Revenues from contracts with customers for the design, manufacture and sale of asphalt plantscustom equipment are recognized underover time when thepercentage-of-completion method. Thepercentage-of-completion method performance obligation is satisfied by transferring control of accounting for these contracts recognizes revenue, netthe equipment. Control of any promotional discounts,the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract.Pre-contract All incremental costs related to obtaining a contract are expensed as incurred.incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed is classified ason equipment sales recognized over time. These contract assets were $6,405,000 and $13,838,000 at September 30, 2020 and 2019, respectively, and are included in current assets under “costsas costs and estimated earnings in excess of billings.”billings on the Company’s consolidated balance sheets. The Company anticipates that all incurred costs associated with these contractsof the contract assets at September 30, 2017,2020, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of custom 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 following four revenue recognition criteria are met: product is delivered/ownership is transferredgoods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is performed, persuasive evidence of an arrangement exists, the selling pricetypically due prior to shipment. Payment for services under contract with customers is fixed or determinable,due as
s
ervices
 are completed. Accounts receivable related to contracts with customers for equipment sales were $223,000 and collectability is reasonably assured.

$301,000 at September 30, 2020 and September 30, 2019, respectively.

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:

   2017   2016   2015 

Balance, beginning of year

  $401,000   $205,000   $367,000 

Warranties issued

   400,000    475,000    20,000 

Warranties settled

   (389,000   (279,000   (182,000
  

 

 

   

 

 

   

 

 

 

Balance, end of year

  $412,000   $401,000   $205,000 
  

 

 

   

 

 

   

 

 

 

   2020   2019 
Balance, beginning of year
  $277,000   $400,000 
Warranties issued
   375,000    140,000 
Warranties settled
   (353,000   (263,000
  
 
 
   
 
 
 
Balance, end of year
  $299,000   $277,000 
  
 
 
   
 
 
 
31

Provisions for estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.
Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at September 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $3,853,000 and $1,918,000 at September 30, 2020 and 2019, respectively, and are included in current liabilities on the Company’s consolidated balance sheets.
The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costs concurrently with the revenue recognition.
All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the
less-than-90-day
past due aging category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable.uncollectible. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.

Changes in the allowance for doubtful accounts are composed of the following:

   2017   2016   2015 

Balance, beginning of year

  $195,000   $357,000   $244,000 

Provision for doubtful accounts

   115,000    105,000    60,000 

Provision for estimated returns and allowances

   385,000    175,000    170,000 

Uncollectible accountswritten-off

   (16,000   (89,000   (46,000

Returns and allowances issued

   (472,000   (353,000   (71,000
  

 

 

   

 

 

   

 

 

 

Balance, end of year

  $207,000   $195,000   $357,000 
  

 

 

   

 

 

   

 

 

 

   2020   2019 
Balance, beginning of year
  $459,000   $313,000 
Provision for doubtful accounts
   50,000    175,000 
Provision for estimated returns and allowances
   205,000    315,000 
Uncollectible accounts written off
   (5,000   (71,000
Returns and allowances issued
   (267,000   (273,000
  
 
 
   
 
 
 
Balance, end of year
  $442,000   $459,000 
  
 
 
   
 
 
 
Shipping and Handling Costs

Shipping and handling costs are included in production costs in the consolidated statements of operations.

income statements.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and primarily consist primarily of taxes currently due, plus deferred taxes (see
(see Note 6)6 – Income Taxes).

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return.

Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the Company is more likely than not to realize the benefit of a deferred tax asset and whether a valuation allowance is needed for some portion or all of a deferred tax asset. NoNaN such valuation allowances were recorded as of September 30, 20172020 and 2016.

2019.

32

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by
pre-tax
book income) from period to period. The Company’s effective tax rates for fiscal 2020 and 2019 reflect the impact of the reduced rates under the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act) which was signed into law on December 22, 2017.
Comprehensive Income

For the years ended September 30, 2017, 20162020 and 2015,2019, other comprehensive income (loss) is equal to net income (loss).

income.

Reporting Segments and Geographic Areas

The Company only has one reportable segment. Information concerning principal geographic areas is as follows:

   2017   2016   2015 
   Revenues   Long-Term
Assets
   Revenues   Long-Term
Assets
   Revenues   Long-Term
Assets
 

United States

  $80,608,000   $5,775,000   $69,991,000   $5,292,000   $39,230,000   $7,778,000 

Other

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $80,608,000   $5,775,000   $69,991,000   $5,292,000   $39,230,000   $7,778,000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For fiscal 2020 and 2019, total revenues of $77,420,000 and $81,329,000, and total long-term assets of $9,336,000 and $8,442,000, respectively, were attributed to the United States. Revenues are attributed to geographic areas based on the location of the assets producing the revenues.

Customers with 10% (or greater) of Net Revenues

Approximately 13% of total net revenue in the year ended September 30, 2017, 14% of total net revenue for the year ended September 30, 2016 and 15% of total net revenue for the year ended September 30, 2015, was from one or more separate U.S. entities owned by a foreign-based global company.

One other

No customer accounted for approximately 10% or more of fiscal 2020 or 2019 net revenue for the year ended September 30, 2017. Net revenue for this customer was less than 1% during the two prior year comparative periods.

revenues.

Subsequent Events

Management has evaluated events occurring from September 30, 20172020 through the date these consolidated financial statements were filed with the SECSecurities and Exchange Commission for proper recording and disclosures thereindisclosure herein.
On October 1, 2020, the Company acquired the Blaw-Knox
paver business and associated assets, including inventory, fixed assets and related intellectual property,
 from Volvo CE. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $14.4 million was funded by cash on hand
 (see Note 12).

Reclassifications and Adjustments

Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the fiscal 2017 presentation. All historical share and per share data in the consolidated financial statements and notes thereto have been restated to give retroactive recognition of the Company’sthree-for-two stock split. In the Consolidated Statements of Shareholders’ Equity, for all periods presented, the par value of the additional shares was reclassified from capital in excess of par value to common stock. Refer to Note 10 and Note 1112 - Subsequent Events for additional information regarding the stock split.

information).

NOTE 2 - INVENTORIES NET

Inventories are valued at the lower of cost or net realizable value. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the LIFO method to the FIFO method. The Company believes the FIFO method improves financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the inventory, and by providing better matching of revenues and ex
p
enses.
Net inventories consist of the following:

   September 30, 
   2017   2016 

Raw materials

  $9,407,000   $7,072,000 

Work in process

   3,098,000    976,000 

Finished goods

   4,166,000    3,545,000 

Used equipment

   16,000    41,000 
  

 

 

   

 

 

 
  $16,687,000   $11,634,000 
  

 

 

   

 

 

 

At September 30, 2017 and 2016, cost is determined by the LIFO method for inventories. The estimated current cost of inventories exceeded their LIFO basis by approximately $4,250,000 and $4,766,000 at September 30, 2017 and 2016, respectively. Slow moving

   September 30, 
   2020   2019 
Raw materials
  $14,607,000   $14,158,000 
Work in process
   3,633,000    1,397,000 
Finished goods
   8,810,000    9,811,000 
Used equipment
   40,000    —   
  
 
 
   
 
 
 
Inventories, net
  $27,090,000   $25,366,000 
  
 
 
   
 
 
 
Slow-moving and obsolete inventory reserves were $3,826,000$4,617,000 and $3,869,000$4,700,000 at September 30, 20172020 and 2016,2019, respectively.

33

NOTE 3 - COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS

Costs and estimated earnings in excess of billings on uncompleted contracts as of September 30, 20172020 and 20162019 consisted of the following:

   September 30, 
   2017   2016 

Costs incurred on uncompleted contracts

  $10,250,000   $8,898,000 

Estimated earnings

   3,161,000    3,124,000 
  

 

 

   

 

 

 
   13,411,000    12,022,000 

Billings to date

   6,643,000    7,101,000 
  

 

 

   

 

 

 

Costs and estimated earnings in excess of billings

  $6,768,000   $4,921,000 
  

 

 

   

 

 

 

   September 30, 
   2020   2019 
Costs incurred on uncompleted contracts
  $10,390,000   $18,707,000 
Estimated earnings
   4,680,000    9,063,000 
  
 
 
   
 
 
 
   15,070,000    27,770,000 
Billings to date
   8,665,000    13,932,000 
  
 
 
   
 
 
 
Costs and estimated earnings in excess of billings
  $6,405,000   $13,838,000 
  
 
 
   
 
 
 

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of September 30, 20172020 and 2016:

   September 30, 
   2017   2016 

Land and improvements

  $3,323,000   $3,323,000 

Buildings and improvements

   12,935,000    12,886,000 

Equipment

   9,943,000    8,599,000 
  

 

 

   

 

 

 
   26,201,000    24,808,000 

Less: Accumulated depreciation and amortization

   (20,479,000   (19,569,000
  

 

 

   

 

 

 

Property and equipment, net

  $5,722,000   $5,239,000 
  

 

 

   

 

 

 

2019:

   September 30, 
   2020   2019 
Land and improvements
  $3,323,000   $3,323,000 
Buildings and improvements
   13,547,000    13,462,000 
Equipment
   16,305,000    14,809,000 
  
 
 
   
 
 
 
   33,175,000    31,594,000 
Less: Accumulated depreciation and amortization
   (24,834,000   (23,205,000
  
 
 
   
 
 
 
Property and equipment, net
  $8,341,000   $8,389,000 
  
 
 
   
 
 
 
Property and equipment includes approximately $10,645,000$14,300,000 and $8,777,000$12,866,000 of fully depreciated assets, which remained in service during fiscal 20172020 and 2016,2019, respectively.

NOTE 5 - ACCRUED EXPENSES

Accrued expenses consist of the following as of September 30, 20172020 and 2016:

   September 30, 
   2017   2016 

Payroll and related accruals

  $1,374,000   $1,330,000 

Warranty and related accruals

   412,000    401,000 

Professional fees

   158,000    133,000 

Other

   482,000    400,000 
  

 

 

   

 

 

 

Accrued expenses

  $2,426,000   $2,264,000 
  

 

 

   

 

 

 

2019:

   September 30, 
   2020   2019 
Payroll and related accruals
  $1,608,000   $1,759,000 
Warranty and related accruals
   299,000    277,000 
Professional fees
   247,000    205,000 
Income tax accruals
   225,000    175,000 
Other
   226,000    244,000 
  
 
 
   
 
 
 
Accrued expenses
  $2,605,000   $2,660,000 
  
 
 
   
 
 
 
34

NOTE 6 - INCOME TAXES

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

   Years Ended September 30, 
   2017   2016   2015 

Current:

      

Federal

  $2,381,000   $679,000   $261,000 

State

   50,000    31,000    37,000 
  

 

 

   

 

 

   

 

 

 

Total current

   2,431,000    710,000    298,000 
  

 

 

   

 

 

   

 

 

 

Deferred:

      

Federal

   1,238,000    1,768,000    (1,871,000

State

   91,000    (121,000   (154,000
  

 

 

   

 

 

   

 

 

 

Total deferred

   1,329,000    1,647,000    (2,025,000
  

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

  $3,760,000   $2,357,000   $(1,727,000
  

 

 

   

 

 

   

 

 

 

   Year Ended September 30, 
   2020   2019 
Current:
    
Federal
  $3,430,000   $2,297,000 
State
   346,000    148,000 
  
 
 
   
 
 
 
Total current
   3,776,000    2,445,000 
  
 
 
   
 
 
 
Deferred:
    
Federal
   (2,436,000   52,000 
State
   (190,000   131,000 
  
 
 
   
 
 
 
Total deferred
   (2,626,000   183,000 
  
 
 
   
 
 
 
Income tax expense
  $ 1,150,000   $2,628,000 
  
 
 
   
 
 
 
A reconciliation of the federal statutory tax rate to the total tax provision is as follows:

   Years Ended September 30, 
   2017  2016  2015 

Federal income taxes computed at the statutory rate

   34.0  34.0  34.0

State income taxes, net of federal benefit

   1.2  1.5  3.3

Research & development tax refunds & credits

   (2.1%)   (2.8%)   5.2

Dividend received deduction

   (0.9%)   (2.2%)   —   

Domestic production activities deduction

   (2.8%)   (1.9%)   —   

Domestic international sales corporation benefits

   —     —     5.8

Other, net

   1.5  (3.5%)   0.4
  

 

 

  

 

 

  

 

 

 

Effective income tax rate

   30.9  25.1  48.7
  

 

 

  

 

 

  

 

 

 

   Year Ended September 30, 
   2020  2019 
Federal income taxes computed at the statutory rate
   21.0  21.0
State income taxes, net of federal benefit
   1.3  1.6
Research & development tax refunds & credits
   (6.3%)   (1.9%) 
Dividend received deduction
   (1.2%)   (0.6%) 
263A Section 481(a) adjustment
   1.5  —   
Other, net
   0.9  0.4
  
 
 
  
 
 
 
Effective income tax rate
   17.2  20.5
  
 
 
  
 
 
 
Deferred income tax assets and liabilities consist of the following:

   September 30, 
   2017   2016 

Deferred Tax Assets:

    

Accrued liabilities and reserves

  $351,000   $331,000 

Allowance for doubtful accounts

   73,000    70,000 

Inventory

   778,000    632,000 

R&D tax credits carryforwards

   155,000    871,000 

Stock-based compensation

   95,000    140,000 

Net operating losses carryforwards

   58,000    73,000 

Unrealized loss on investments

   —      85,000 

Other

   48,000    62,000 
  

 

 

   

 

 

 

Gross Deferred Tax Assets

   1,558,000    2,264,000 
  

 

 

   

 

 

 

Deferred and Other Tax Liabilities:

    

Domestic international sales corporation

   (839,000   (577,000

Percentage of completion

   (1,114,000   (1,158,000

Property and equipment

   (694,000   (683,000

Unrealized gain on investments

   (332,000   —   

Unrecognized tax benefits

   (150,000   (150,000

Other

   (30,000   (12,000
  

 

 

   

 

 

 

Gross Deferred and Other Tax Liabilities

   (3,159,000   (2,580,000
  

 

 

   

 

 

 

Net Deferred and Other Income Tax Assets (Liabilities)

  $(1,601,000  $(316,000
  

 

 

   

 

 

 

   September 30, 
   2020   2019 
Deferred Tax Assets:
    
Accrued liabilities and reserves
  $340,000   $344,000 
Allowance for doubtful accounts
   98,000    104,000 
Inventory
   369,000    98,000 
Stock-based compensation
   81,000    82,000 
Net operating losses carryforwards
   5,000    7,000 
  
 
 
   
 
 
 
Gross Deferred Income Tax Assets
   893,000    635,000 
  
 
 
   
 
 
 
Deferred and Other Tax Liabilities:
      
Domestic international sales corporation
   (329,000   (464,000
Percentage of completion
   —      (2,048,000
Property and equipment
   (1,158,000   (1,080,000
Unrealized gain on investments
   (2,000   (265,000
Unrecognized tax benefits
   (150,000   (150,000
  
 
 
   
 
 
 
Gross Deferred and Other Income Tax Liabilities
   (1,639,000   (4,007,000
  
 
 
   
 
 
 
Net Deferred and Other Income Tax Assets (Liabilities)
  $(746,000  $(3,372,000
  
 
 
   
 
 
 
35

Total income taxes paid in fiscal 20172020 and 20162019 were $1,918,000$3,850,000 and $1,105,000,$1,150,000, respectively.

Accounting principles generally accepted in The fiscal 2020 income taxes paid includes $2,050,000 of tax payments due on the United Statesfiling of America (“GAAP”)the Company’s Form 3115 with the Internal Revenue Service to reflect the revenue recognition method change to the percentage of completion method for tax purposes pursuant to Internal Revenue Code Sections 460 and 451(b).

GAAP prescribes a comprehensive model for the financial recognition, measurement, classification, and disclosure of
uncertain tax positions. GAAP contains a
two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Significant judgment is required in evaluating the Company’s uncertain tax position and determining the Company’s provision for taxes. Although the Company believes the reserves of unrecognized tax benefits (“UTB’s”) are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provision and accruals. The Company adjusts these reserves in light of changing facts and circumstances. As of September 30, 20172020 and 2016,2019, the Company had UTB’s of $150,000. There were no0 additional accruals of UTB’s during fiscal years ended September 30, 20172020 and 2016.

2019.

The Company recognizes interest and penalties accrued related to UTB’s as a component of income tax expense. There were no0 additional accruals of interest expense nor penalties during fiscal years ended September 30, 2017, 20162020 and 2015.2019. It is reasonably possible that the amount of the UTB’s with respect to certain unrecognized tax positions will increase or decrease during the next 12 months.
The Company does not expect the change to have a material effect on its results of operations or its financial position. The only expected potential reason for change would be the normal expiration of the statute of limitations or the ultimate results stemming from any examinations by taxing authorities. 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 20172020 was 30.9%17.2% versus 25.1%20.5% in fiscal 2016 and a benefit of 48.7% in2019.
In fiscal 2015. As of September 30, 2016,2019, the Company had $647,000 ingenerated $241,000 of federal research and development tax credits (“R&D Credits”) carryforwards., all of which were used. In fiscal 2017, there was $332,0002020, the Company generated $421,000 of new credits generated bringing the total R&D Credits, to $979,000,all of which all were used. There are nowere 0 R&D Credits carryforwards as of September 30, 2017.

2020.

As of September 30, 2016,2018, the Company had $224,000$87,000 in Florida state research and development tax credits (“Florida R&D Credits”) carryforwards. The Company receiveddid 0t receive any additional Florida R&D Credits of $22,000 in fiscal 2017 and2020 or fiscal 2019. The Company used $91,000, leaving $155,000the $87,000 of Florida R&D Credits carryforwards as of September 30, 2017. The $155,000 offrom fiscal 2018 in fiscal 2019. There were 0 Florida R&D Credits which are included in net deferred and other income tax liabilities of $(1,601,000)carryforwards at September 30, 2017, expire in fiscal 2021.

2020.

The Company files U.S. federal income tax returns, as well as Florida and Iowa income tax returns. The Company’s U.S. federal income tax returns filed for tax years prior to fiscal year ended September 30, 20142017 are generally no longer subject to examination by taxing authorities due to the expiration of the statute of limitations.

NOTE 7 - RETIREMENT BENEFITS

The Company has a voluntary 401(k) employee benefit plan, which covers all eligible, domestic employees. The Company makes discretionary matching contributions subject to a maximum level, in accordance with the terms of the plan. The Company charged approximately $218,000, $178,000$290,000 and $159,000$282,000 to expense under the provisions of the plan during the fiscal years 2017, 2016ended September 30, 2020 and 2015,2019, respectively.

NOTE 8 - LONG-TERM DEBT

AND ARRANGEMENTS WITH FINANCIAL INSTITUTIONS 

The Company had no0 long-term debt outstanding at September 30, 20172020 or 2016.2019. The Company does not currently require a credit facility.

As of September 30, 2017,2020, total cash deposits with insurance companies covering collateral needs were $135,000.

$85,000.
36

In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2021, unless terminated earlier, and can be extended, as provided by the agreement. The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.
NOTE 9 - LEASES 
The Company leases certain equipment under non-cancelable operating leases. Future minimum rental payments under these leases at September 30, 2020 are immaterial. Total rental expense for the fiscal years ended September 
30, 2020 and 2019 was $37,000 and $40,000, respectively.
On August 28, 2020, the Company entered into a
three-year
operating lease for property related to the manufactur
ing
 and warehousing of the Blaw-Knox
paver business
which was acquired after September 30, 2020 (refer to Note 12 – Subsequent Events
 for additional information
). The lease term is for the period 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. 
For the year ended September 30, 2020, operating lease cost was 
$28,000 which was accrued at September 30, 2020 and paid in October 2020. There were no cash payments related to this operating lease in fiscal 2020.
Other information concerning the Company’s operating lease accounted for under ASC 842 guidelines is as follows:
   As of September 30, 2020 
Operating lease ROU asset included in other long-term assets
  $942,000 
Current operating lease liability
   328,000 
Non-current operating lease liability
   614,000 
Weighted average remaining lease term (in years)
   2.92 
Weighted average discount rate used in calculating ROU
 
asset
   4.0
Future annual minimum lease payments as of September 30, 2020 are as follows:
Fiscal Year
  Annual Lease Payments 
2021
  $335,000 
2022
   343,000 
2023
   322,000 
  
 
 
 
Total
   1,000,000 
Less interest
   (58,000
  
 
 
 
Present value of lease liabilities
  $942,000 
  
 
 
 

NOTE 910 - COMMITMENTS AND CONTINGENCIES

Leases

Litigation
The Company leases certain equipment undernon-cancelable operating leases. There were no future minimum rental commitments under these leases at September 30, 2017 (see Note 12). Total rental expense foris involved in legal proceedings arising out of the fiscal years ended September 30, 2017, 2016 and 2015 was $179,000, $200,000 and $182,000, respectively.

Litigation

The Company has no pending litigationnormal course of business, none of which we believe will have a material adverse effect on our business, financial condition or other claims.results of operations. Claims made in the ordinary course of business may be covered in whole or in part by insurance.

COVID-19
Pandemic
The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the 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, 2020 and as of the date these Consolidated Financial Statements are issued. As such, the full magnitude that the
COVID-19
pandemic will have on
37

the Company’s financi
a
l condition and future results of operations is uncertain. Management is actively monitoring the situation on the Company’s financial condition, operations, suppliers, industry, customers, and workforce. As 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 1011 - SHAREHOLDERS’ EQUITY

AND STOCK-BASED COMPENSATION

Shareholders’ Equity
Under the Company’s amended Certificate of Incorporation, as amended, certain rights of the holders of the Company’s common stock are modified by shares of Class B stock for as long as such shares shall remain outstanding. During that period, holders of common stock will have the right to elect approximately 25% of the Company’s Board of Directors, and conversely, holders of Class B stock will be entitled to elect approximately 75%
of the Company’s Board of Directors. During the period when shares of common stock and Class B stock are outstanding, certain matters submitted to a vote of shareholders will also require approval of the holders of common stock and Class B stock, each voting separately as a class. Common stock and Class B shareholders have equal rights with respect to dividends, preferences, and rights, including rights in liquidation.

Stock Split

On July 11, 2016, the Company’s Board of Directors approved athree-for-two split of the Company’s common and Class B stock to be effected in the form of a 50% stock dividend. As a result, shareholders received one additional share of common or Class B stock for every two shares they held of the respective class of stock as of the record date. These shares were distributed on August 1, 2016, to shareholders of record as of the end of business on July 22, 2016.

NOTE 11 – STOCK-BASED COMPENSATION

The Company maintains a stock-based compensation plan, which provides for the issuance of Company stock to certain directors, officers, key employees and affiliates.

Stock-Based Compensation
On March 17, 2009, the shareholders of the Company approved the 2009 Incentive Compensation Plan (the “2009 Plan”). The 2009 Plan provides that the total number of shares of Company stock that may be subject to the granting of awards under the 2009 Plan (“Awards”) at any time during the term of the 2009 Plan shall be equal to
equals
800,000 shares of common stock and 160,000 shares of Class B stock. The foregoing limit shall be increased, as provided for in stock
, subject to adjustment pursuant to the terms of
the 2009 Plan. Persons eligible to receive Awards under the 2009 Plan include employees, directors, consultants and other persons who provide services to the Company. The 2009 Plan imposes individual limitations on the amount of certain Awards, in part, to comply with Internal Revenue Code, Section 162(m). The Awards can be in the form of stock options, restricted and deferred stock, performance awards and other stock-based awards, as provided for in the 2009 Plan.

As of September 30, 2017,2020
 and 2019
, all outstanding common stock options
 issued under the 2009 Plan
had been fully expensed. vested. These options amounted to 365,000177,492 at September 30, 2017, adjusted for thethree-for-two stock split.2020. As long as the employee remains
employees remain 
employed by the Company, these options are exercisable through October 1, 2021.

On January 19, 2016, 30,000

As of September 30, 2020
 and 2019
, 45,000 outstanding Class B stock options (45,000 post stock split) were
issued to an employee under the 2009 Plan. These options vest at 25% per year starting on January 19, 2017Plan
were fully vested and each year thereafterare exercisable through January 19, 2020. AsOctober 1, 2021 as long as the employee remains employed by the Company, these options will be exercisable upon vesting and remain exercisable through October 1, 2021. The Company used the Black-Scholes pricing model to estimate the fair value of the options of $138,000 at time of grant. At September 30, 2017, $78,000 of compensation expense remained to be expensed through January 19, 2020. The following assumptions were used to determine the fair value of the stock options at time of grant:

Risk-free interest rate

2.5

Expected life of options

10.0 years

Dividend yield

0.0

Volatility

29.1

On September 26, 2016,Company. In addition, 30,000 outstanding Class B stock options were

issued to an employee under the 2009 Plan. These options vest Plan
were fully vested
at 25% per year starting on September 26, 201730, 2020, and each year thereafterwere 75% vested as of September 30, 2019, 
and are exercisable through September 26, 2020. As2026 as long as the employee remains employed by the Company, these options will be exercisable upon vesting and remain exercisable through September 26, 2026. The Company used the Black-Scholes pricing model to estimate the fair value of the options of $147,000 at time of grant. At September 30, 2017, $110,000 of compensation expense remained to be expensed through September 26, 2020. The following assumptions were used to determine the fair value of the stock options at time of grant:

Risk-free interest rate

2.25

Expected life of options

10.0 years

Dividend yield

0.0

Volatility

29.2

Company.

As of September 30, 2017, 482,000 shares of Company common stock and 100,000 shares of Class B stock2020,
0
options
 are available for granting of Awards under the 2009 Plan.

The

38

Th
e
following table summarizes option activity under the
2009
Plan:

   Number of
Shares
   Average
Exercise Price
Per Share
 

Options outstanding at September 30, 2014

   474,750   $5.103 

Options exercised during fiscal 2015

   (28,125  $4.839 
  

 

 

   

Options outstanding at September 30, 2015

   446,625   $5.120 

Options granted

   75,000   $8.760 

Options exercised during fiscal 2016

   (37,875  $5.126 
  

 

 

   

Options outstanding at September 30, 2016

   483,750   $5.684 

Options exercised during fiscal 2017

   (43,750  $5.126 
  

 

 

   

Options outstanding at September 30, 2017

   440,000   $5.739 
  

 

 

   

No

   Number of
Shares
   Average
Exercise Price
Per Share
 
Options outstanding at September 30, 2018
   317,492   $5.984 
Options exercised during fiscal 2019
   (45,000  $5.126 
  
 
 
   
Options outstanding at September 30, 2019
   272,492   $6.126 
Options exercised during fiscal 2020
   (20,000  $5.126 
  
 
 
   
Options outstanding at September 30, 2020
   252,492   $6.205 
  
 
 
   
NaN
options were granted, forfeited or cancelled during the yearyears ended September 30, 2017.2020 or September 30, 2019. The weighted average remaining contractual life on the options outstanding as of September 30, 20172020 is 4.3
 1.6 years under the 2009 Plan.

The 1997 Stock Option Plan (the “1997 Plan”) provided for the issuance of incentive stock options and nonqualified stock options to purchase up to 1,200,000 shares of the Company’s common stock, 1,200,000 shares of the Company’s Class B stock and up to 15% of the authorized common stock of any subsidiary. Under the terms of the 1997 Plan, option holders may tender previously owned shares with a market value equal to the exercise price of the options at exercise date, subject to compensation committee approval. Additionally, option holders may, upon compensation committee approval, surrender shares of stock to satisfy federal withholding tax requirements. Options become exercisable in a manner and on such dates and times, as determined by a committee of the Board of Directors. Options expire not more than ten years from the date of grant. The option holders have no shareholder rights until the date of issuance of a stock certificate for such shares.

As of September 30, 2017, there were no options available for future grants and there were no options outstanding under the 1997 Plan.

The following table summarizes option activity under the 1997 Plan:

   Number of
Shares
   Exercise Price
Per Share
 

Outstanding at September 30, 2014 and 2015

   41,250   $6.213 

Options exercised during fiscal 2016

   (30,000  $6.213 

Options expired during fiscal 2016

   (11,250  $6.213 
  

 

 

   

Options outstanding at September 30, 2016

   —     
  

 

 

   

NOTE 12 - RELATED PARTY TRANSACTIONS

Marcar Leasing Corporation (“Marcar”)SUBSEQUENT EVENTS

O
n
October 1, 2020, the Company acquired the Blaw-Knox paver business and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE
.
The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $14.4 
million, which is engagedsubject to post-closing adjustments, was funded by cash on hand.
Due to COVID-19 constraints, as well as limited time since the acquisition date, the Company is still in leasing machinery and vehicles to the public andprocess of completing the Company. Marcar is owned by family membersinitial accounting for the business combination. As a result, the specific amounts for the major classes of assets acquired are not provided. There were no liabilities assumed. 
This acquisition provides the Company entry into the hot mix paver segment of the Company’s chairman. New leases between the Company and Marcar provide for equal monthly payments. During fiscal 2017, 2016 and 2015, the Company made lease payments to Marcar totaling $125,000, $147,000 and $136,000, respectively.

Subsequent Event

On October 5, 2017, the Company agreed to purchase all of the leased vehicles under contract with Marcar for $320,000.  The Company has no further obligation to Marcar.

SUPPLEMENTARY DATA - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

   For the Quarters Ended     
   12/31/16   3/31/17  6/30/17  9/30/17   Fiscal 2017 

Net Revenue

  $15,783,000   $22,526,000  $23,743,000  $18,556,000   $80,608,000 

Gross Profit

   4,150,000    6,657,000   6,690,000   3,662,000    21,159,000 

Other income (expense), net

   448,000    818,000   (72,000  748,000    1,942,000 

Net income

   1,394,000    3,415,000   2,588,000   1,021,000    8,418,000 

Net income per common share:

        

Basic

  $0.10   $0.24  $0.18  $0.07   $0.58 

Diluted

  $0.10   $0.23  $0.18  $0.07   $0.57 

Weighted-average common shares outstanding

        

Basic

   14,380,000    14,390,000   14,400,000   14,414,000    14,396,000 

Diluted

   14,589,000    14,597,000   14,699,000   14,700,000    14,680,000 
   For the Quarters Ended     
   12/31/15   3/31/16  6/30/16  9/30/16   Fiscal 2016 

Net Revenue

  $13,258,000   $22,078,000  $19,863,000  $14,792,000   $69,991,000 

Gross Profit

   3,282,000    5,441,000   5,151,000   3,651,000    17,525,000 

Other income (expense), net

   979,000    (285,000  563,000   327,000    1,584,000 

Net income

   1,575,000    1,630,000   2,114,000   1,724,000    7,043,000 

Net income per common share:

        

Basic

  $0.11   $0.11  $0.15  $0.12   $0.49 

Diluted

  $0.11   $0.11  $0.15  $0.12   $0.48 

Weighted-average common shares outstanding

        

Basic

   14,307,000    14,320,000   14,333,000   14,368,000    14,334,000 

Diluted

   14,425,000    14,489,000   14,550,000   14,616,000    14,524,000 

asphalt industry. 

39

ITEM9. 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM9A. 9A
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule
13a-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act) as of the end of the period covered by this Annual Report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, the Company’s disclosure controls and procedures are effective.

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

As of the end of the period covered by this Annual Report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules
13a-15(b).
Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.

2020.

Management’s Annual Report on Internal Control over Financial Reporting

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule13a-15(f)
under the Exchange Act) for the Company. The Company’s internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of all internal control systems no matter how well designed. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of a change in circumstances or conditions.

In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of September 30, 2017.2020. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes the Company maintained effective internal control over financial reporting as of September 30, 2017. The effectiveness of our internal control over financial reporting as of September 30, 2017 has been audited by Moore Stephens Lovelace, P.A., an independent registered public accounting firm, as stated in their report that is included herein.

2020

Changes in Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the year ended September 30, 20172020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

40

ITEM9B. 9BOTHER INFORMATION

None

PART III

ITEM10. 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 is incorporated herein by reference to the Company’s Definitive 2018 Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM11. 11EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated herein by reference to the Company’s Definitive 2018 Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM12. 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is incorporated herein by reference to the Company’s Definitive 2018 Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM13. 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated herein by reference to the Company’s Definitive 2018 Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM 14.14
PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item 14 is incorporated herein by reference to the Company’s Definitive 2018 Proxy Statement for the 2021 Annual Meeting of Stockholders.

41

PART IV

ITEM15. 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)
A listing of financial statements and financial statement schedules filed as part of this Annual Report and which financial statements and schedules are incorporated into this report by reference, is set forth in the “Index to Financial Statements and Financial Statement Schedules” in Item 8 hereof.

(b)
Exhibit Index

EXHIBIT

NUMBER

  

DESCRIPTION

  

FILED HEREWITH

    3.1  Restated Certificate of Incorporation of Company, incorporated by reference to Exhibit 3.1 to Registration
No. 33-627 (P)33-627(P)
  
    3.2  Amended and RestatedBy-Laws of Gencor Industries, Inc., incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form10-K for the year ended September 30, 2007  
    3.3  
Certificate of Amendment, changing name of Mechtron International Corporation to Gencor Industries, Inc. and adding a “twelfth” article regarding director liability limitation, incorporated by reference to the Company’s Annual Report onForm
10-K
for the year ended December 31, 1987 (P)
1987(P)
  
    4.1  Form of Common Stock certificate, incorporated by reference to Exhibit 4.1 to RegistrationNo. 33-627 (P)
33-627(P)
  
    4.2Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934, as amendedX
10.1  The Company’s 2009 Incentive Compensation Plan, as incorporated by reference to the Company’s 2009 Proxy Statement filed with the Securities and Exchange Commission on Schedule 14A on January 28, 2009  
10.5  10.2  Form of Agreement for Nonqualified Stock Options granted in 1986, incorporated by reference to the Annual Report onForm
10-K
for the year ended December 31, 1986 (P)1986(P)
  
10.11  10.3  1997 Stock Option Plan incorporated by reference to Exhibit A to the Company’s Proxy Statement on 14A, filed March 3, 1997  
10.12  10.4  First Amendment to the Stock Option Plan Agreement incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form10-Q for the quarter ended June 30, 2006  
21.1  Subsidiaries of the Registrant  X
23.1  Consent of Independent Registered Public Accountants  X
31.1  Certification of Chief Executive Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended  X
31.2  Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended  X
32.1  Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U. S. C. Section 1350  X

42

EXHIBIT

NUMBER

  

DESCRIPTION

  

FILED HEREWITH

101.INS  XBRL Instance Document  X
101.SCH  XBRL Taxonomy Extension Schema  X
101.CAL  XBRL Taxonomy Extension Calculation Linkbase  X
101.DEF  XBRL Taxonomy Extension Definition Linkbase  X
101.LAB  XBRL Taxonomy Extension Label Linkbase  X
101.PRE  XBRL Taxonomy Extension Presentation Linkbase  X

ITEM 16
FORM
10-K
SUMMARY
None
43

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: December 6, 201718, 2020  GENCOR INDUSTRIES, INC.
  (Registrant)
  

/s/ John E. Elliott

  John E. Elliott
  Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. The signatures of Directors constitute a majority of Directors.

/s/ E.J. Elliott

  

/s/ John E. Elliott

E.J. Elliott  December 6, 201718, 2020  John E. Elliott December 6, 201718, 2020
Chairman  Chief Executive Officer
    (Principal Executive Officer)

/s/ Marc G. Elliott

  

/s/ Eric E. Mellen

Marc G. Elliott  December 6, 201718, 2020  Eric E. Mellen December 6, 201718, 2020
President  Chief Financial Officer
    (Principal Financial and Accounting Officer)

/s/ James P. Sharp

  

/s/ Cort J. Dondero

General John G. Coburn
James P. Sharp  December 6, 201718, 2020Gen. John G. CoburnDecember 18, 2020
DirectorDirector
/s/ David A. Air
   Cort J. Dondero
David A. Air  December 6, 201718, 2020
Director   Director

/s/ Randolph H. Fields

/s/ David A. Air

Randolph H. FieldsDecember 6, 2017David A. AirDecember 6, 2017
DirectorDirector

47

44