UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

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

FOR THE QUARTERLY PERIOD ENDED ~~JUNE 30,~~ DECEMBER 31, 2022

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

FOR THE TRANSITION PERIOD: From

Commission File Number:

001-11703

GENCOR INDUSTRIES, INC.


Delaware		59-0933147
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5201 North Orange Blossom Trail, Orlando, Florida 32810

(Address of principal executive offices) (Zip Code)

(407)

290-6000

(Registrant’s telephone number, including area code)

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


Title of Each Class	Trading Symbol(s)	Name of Exchange on which registered
Common Stock ($.10 Par Value)	GENC	NYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 ~~days.~~ days

Yes

☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange ~~Act)~~Act

). Yes

☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class	Outstanding at ~~August 5, 2022~~February 8, 2023

Common Stock, , $.10 par value		12,338,845 shares
Class B Stock, , $.10 par value		2,318,857 shares

~~Table of Contents~~

GENCOR INDUSTRIES, INC.


~~Index~~			Page
Index

Part I. Financial Information

Item 1. Financial Statements

	~~Item 1.~~	~~Financial Statements~~

		Condensed Consolidated Balance Sheets – ~~June 30,~~December 31, 2022 (Unaudited) and September 30, ~~2021~~2022		4

		Condensed Consolidated Statements of Operations – Quarters ~~and Nine Months~~ Ended ~~June 30,~~December 31, 2022 and 2021 (Unaudited)		5

		Condensed Consolidated Statements of Shareholders’ Equity – ~~Nine Months~~Quarters Ended ~~June 30,~~December 31, 2022 and 2021 (Unaudited)		6

		Condensed Consolidated Statements of Cash Flows – ~~Nine Months~~Quarters Ended ~~June 30,~~December 31, 2022 and 2021 (Unaudited)		7

		Notes to Condensed Consolidated Financial Statements (Unaudited)		8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		21

	Item 4.	Controls and Procedures		21

Part II. Other Information

	Item 1.	Legal Proceedings		22

	Item 1A.	Risk Factors		22

	Item 6.	Exhibits		23

Signatures			24

Caution Concerning Forward-Looking Statements

This Quarterly Report on Form

10-Q

~~(this~~ (this “Quarterly Report”) and the Company’s other communications and statements may contain certain “forward-looking 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. All 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 and its variants, 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. In addition, on February 24, 2022, Russian military forces invaded Ukraine. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the U.S. and other countries and companies against officials, individuals, regions, and industries in Russia, and actions taken by Russia and certain other countries in response to such sanctions, could result in a disruption in our supply chain and higher costs of our products. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

For information concerning these factors and related matters, see the following sections of the Company’s Annual Report on Form

10-K

for the year ended September 30, ~~2021:~~2022: (a) Part I, Item 1A, “Risk Factors” and (b) Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. 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 statement made by the Company herein speaks as of the date of this Quarterly Report. The Company does not undertake to update any forward-looking statements, except as required by law.

Unless the context otherwise indicates, all references in this Quarterly Report to the “Company,” “Gencor,” “we,” “us,” or “our,” or similar words are to Gencor Industries, Inc. and its subsidiaries.

Part I. Financial Information

Item 1. Financial Statements

~~Item 1.~~

~~Financial Statements~~

GENCOR INDUSTRIES, INC.

Condensed Consolidated Balance Sheets


					December 31, 2022 (Unaudited)		September 30, 2022
	June 30, 2022 (Unaudited)		September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	19,474,000	$	23,232,000	$	5,978,000	$	9,581,000
Marketable securities at fair value (cost of $95,216,000 at June 30, 2022 and $93,690,000 at September 30, 2021)		91,116,000		94,976,000
Accounts receivable, less allowance for doubtful accounts of $353,000 at June 30, 2022 and $321,000 at September 30, 2021		4,198,000		2,622,000
Marketable securities at fair value (cost of $94,965,000 at December 31, 2022 and $94,879,000 at September 30, 2022)						91,718,000		89,300,000
Accounts receivable, less allowance for doubtful accounts of $442,000 at December 31, 2022 and $370,000 at September 30, 2022						4,659,000		2,996,000
Costs and estimated earnings in excess of billings		1,366,000		1,903,000		4,950,000		2,118,000
Inventories, net		48,244,000		41,888,000		59,315,000		55,815,000
Prepaid expenses and other current assets		3,720,000		2,202,000		2,633,000		2,669,000

Total current assets		168,118,000		166,823,000		169,253,000		162,479,000

Property and equipment, net		11,919,000		11,801,000		13,334,000		13,491,000
Deferred and other income taxes		783,000		—		2,403,000		2,893,000
Other long-term assets		550,000		838,000		346,000		450,000

Total Assets	$	181,370,000	$	179,462,000	$	185,336,000	$	179,313,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,001,000	$	3,105,000	$	4,385,000	$	4,251,000
Customer deposits		7,436,000		5,244,000		8,387,000		5,864,000
Accrued expenses		1,997,000		2,645,000		1,878,000		1,885,000
Current operating lease liabilities		413,000		393,000		293,000		390,000

Total current liabilities		14,847,000		11,387,000		14,943,000		12,390,000

Deferred and other income taxes		—		394,000
Non-current operating lease liabilities		84,000		392,000		—		6,000

Total liabilities		14,931,000		12,173,000		14,943,000		12,396,000

Commitments and contingencies		0		0
Shareholders’ equity:
Preferred stock, par value $.10 per share; 300,000 shares authorized; 0ne issued		0 —		0 —
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,338,845 shares issued and outstanding at June 30, 2022 and September 30, 2021		1,234,000		1,234,000
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares issued and outstanding at June 30, 2022 and September 30, 2021		232,000		232,000
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; 12,338,845 shares issued and outstanding at December 31, 2022 and September 30, 2022						1,234,000		1,234,000
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares issued and outstanding at December 31, 2022 and September 30, 2022						232,000		232,000
Capital in excess of par value		12,590,000		12,590,000		12,590,000		12,590,000
Retained earnings		152,383,000		153,233,000		156,337,000		152,861,000

Total shareholders’ equity		166,439,000		167,289,000		170,393,000		166,917,000

Total Liabilities and Shareholders’ Equity	$	181,370,000	$	179,462,000	$	185,336,000	$	179,313,000

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

GENCOR INDUSTRIES, INC.

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

For the Nine Months Ended June 30, 2022

   Common Stock    Class B Stock    Capital in
Excess of    Retained Total
Shareholders’
   Shares    Amount    Shares    Amount    Par Value    Earnings Equity
September 30, 2021
   12,338,845    $ 1,234,000    2,318,857    $ 232,000    $ 12,590,000    $ 153,233,000 $ 167,289,000
Net loss
   —      —      —      —      —      (274,000 ) (274,000 )












December 31, 2021
   12,338,845    $ 1,234,000    2,318,857    $ 232,000    $ 12,590,000    $ 152,959,000 $ 167,015,000
Net income
   —      —      —      —      —      439,000 439,000












March 31, 2022
   12,338,845    $ 1,234,000    2,318,857    $ 232,000    $ 12,590,000    $ 153,398,000 $ 167,454,000
Net loss
   —      —      —      —      —      (1,015,000 ) (1,015,000 )












June 30, 2022
   12,338,845    $ 1,234,000    2,318,857    $ 232,000    $ 12,590,000    $ 152,383,000 $ 166,439,000


For the Quarter Ended December 31, 2022
	Common Stock				Class B Stock				Capital in Excess of		Retained		Total Shareholders’
	Shares		Amount		Shares		Amount		Par Value		Earnings		Equity

September 30, 2022		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	152,861,000	$	166,917,000
Net income		—		—		—		—		—		3,476,000		3,476,000

December 31, 2022		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	156,337,000	$	170,393,000

~~See accompanying Notes to Condensed Consolidated Financial Statements~~

For the Nine Months Ended June 30, 2021

   Common Stock    Class B Stock    Capital in
Excess of    Retained Total
Shareholders’
   Shares    Amount    Shares    Amount    Par Value    Earnings Equity
September 30, 2020
   12,287,337    $ 1,229,000    2,318,857    $ 232,000    $ 12,331,000    $ 147,428,000 $ 161,220,000
Net income
   —      —      —      —      —      1,551,000 1,551,000












December 31, 2020
   12,287,337    $ 1,229,000    2,318,857    $ 232,000    $ 12,331,000    $ 148,979,000    $ 162,771,000
Net income
   —      —      —      —      —      2,288,000 2,288,000
Stock options exercised
   11,000    1,000    —      —      55,000    —   56,000












March 31, 2021
   12,298,337    $ 1,230,000    2,318,857    $ 232,000    $ 12,386,000    $ 151,267,000 $ 165,115,000
Net income
   —      —      —      —      —      2,335,000 2,335,000












June 30, 2021
   12,298,337    $ 1,230,000    2,318,857    $ 232,000    $ 12,386,000    $ 153,602,000 $ 167,450,000


For the Quarter Ended December 31, 2021
	Common Stock				Class B Stock				Capital in Excess of		Retained			Total Shareholders’
	Shares		Amount		Shares		Amount		Par Value		Earnings			Equity

September 30, 2021		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	153,233,000		$	167,289,000
Net loss		—		—		—		—		—		(274,000	)		(274,000	)

December 31, 2021		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	152,959,000		$	167,015,000

See accompanying Notes to Condensed Consolidated Financial Statements

GENCOR INDUSTRIES, INC.

Condensed Consolidated Statements of Cash Flows

For the ~~Nine Months~~Quarters Ended ~~June 30,~~December 31, 2022 and 2021

(Unaudited)

2022

2021

Cash flows from operating activities:


Net income (loss)
   $ (850,000 ) $ 6,174,000
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:


Purchase of marketable securities
   (101,913,000 ) (101,040,000 )
Proceeds from sale and maturity of marketable securities
   100,705,000 99,638,000
Change in value of marketable securities
   5,068,000 (4,445,000 )
Deferred and other income taxes
   (1,177,000 ) 457,000
Depreciation and amortization
   2,063,000 1,931,000
Provision for doubtful accounts
   140,000 125,000

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

Accounts receivable
   (1,716,000 ) (1,253,000 )
Costs and estimated earnings in excess of billings
   537,000 7,090,000
Inventories
   (6,356,000 ) (3,357,000 )
Prepaid expenses and other current assets
   (1,518,000 ) (44,000 )
Accounts payable
   1,896,000 2,678,000
Customer deposits
   2,192,000 (92,000 )
Accrued expenses and other current liabilities
   (645,000 ) 268,000


Total adjustments
   (724,000 ) 1,956,000


Cash flows (used in) provided by operating activities
   (1,574,000 ) 8,130,000


Cash flows from investing activities:

Acquisition of Blaw-Knox assets
   —   (13,777,000 )
Capital expenditures
   (2,184,000 ) (2,449,000 )


Cash flows used in investing activities
   (2,184,000 ) (16,226,000 )


Cash flows from financing activities:

Proceeds from stock option exercises
   —   56,000


Cash flows provided by financing activities
   —   56,000


Net decrease in cash and cash equivalents
   (3,758,000 ) (8,040,000 )
Cash and cash equivalents at:

Beginning of period
   23,232,000 35,584,000


End of period
   $ 19,474,000 $ 27,544,000


Non-cash
investing and financing activities:

Operating lease
right-of-use
assets
   $ —   $ 254,000
Operating lease liabilities
   $ —   $ 254,000


	2022			2021
Cash flows from operating activities:
Net income (loss)	$	3,476,000		$	(274,000	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Purchase of marketable securities		(42,080,000	)		(35,718,000	)
Proceeds from sale and maturity of marketable securities		41,427,000			35,326,000
Change in value of marketable securities		(1,765,000	)		(314,000	)
Deferred and other income taxes		490,000			13,000
Depreciation and amortization		705,000			750,000
Provision for doubtful accounts		75,000			75,000
Loss on disposal of assets		157,000			—
Changes in assets and liabilities:
Accounts receivable		(1.738,000	)		(829,000	)
Costs and estimated earnings in excess of billings		(2,832,000	)		678,000
Inventories		(3,500,000	)		(3,846,000	)
Prepaid expenses and other current assets		36,000			(1,170,000	)
Accounts payable		134,000			1,350,000
Customer deposits		2,523,000			3,453,000
Accrued expenses and other		(6,000	)		(475,000	)

Total adjustments		(6,374,000	)		(707,000	)

Cash flows used in operating activities		(2,898,000	)		(981,000	)

Cash flows from investing activities:
Capital expenditures		(705,000	)		(1,003,000	)

Cash flows used in investing activities		(705,000	)		(1,003,000	)

Net decrease in cash and cash equivalents		(3,603,000	)		(1,984,000	)
Cash and cash equivalents at:
Beginning of period		9,581,000			23,232,000

End of period	$	5,978,000		$	21,248,000

Non-cash investing and financing activities:
Operating lease right-of-use assets	$	—		$	39,000
Operating lease liabilities	$	—		$	39,000

See accompanying Notes to Condensed Consolidated Financial Statements

GENCOR INDUSTRIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form

10-Q

and Article 10 of Regulation

S-X.

Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter ~~and nine months~~ ended ~~June 30,~~December 31, 2022 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2022.~~2023.

The accompanying Condensed Consolidated Balance Sheet at September 30, ~~2021~~2022 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

On October 1, 2020, the Company acquired the Blaw-Knox paver line and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE. The acquisition provided the Company entry into the asphalt paver sector of the asphalt industry. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The initial purchase price of approximately $14.4 million, which was subject to post-closing adjustments, was funded by cash on hand. After post-closing adjustments transacted during the quarter ended March 31, 2021, the final purchase price was $13.8 million, including $10.4 million in inventory and $3.4 million in fixed assets. There were no liabilities assumed. The accompanying condensed consolidated financial statements as of June 30, 2022 and September 30, 2021, and for the quarters and nine months ended June 30, 2022 and 2021, include the assets, liabilities and operating results of the paver line as of and for the periods then ended.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form

10-K

for the year ended September 30, ~~2021~~2022 filed with the Securities and Exchange Commission on December ~~17, 2021.~~16, 2022.

Recent Accounting Pronouncements

~~There were no~~

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

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

COVID-19

pandemic, including impacts on its employees, customers, suppliers and financial results. As of the date of issuance of this Quarterly Report, 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 ended ~~June 30,~~December 31, 2022 and as of the date this Quarterly Report is issued. As such, the full magnitude of the effect that the

COVID-19

pandemic will have on the Company’s financial condition and future results of operations is uncertain. Management continues to monitor the situation on the Company’s financial condition, operations, suppliers, industry, customers, and workforce. As the spread of

COVID-19

and its variants 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

and its variants. 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.

~~Table of Contents~~

Global, market and economic conditions may negatively impact our business, financial condition and share price

Concerns over inflation, geopolitical issues, global financial markets and the

COVID-19

pandemic have led to increased economic instability and expectations of slower global economic growth. Our business may be adversely affected by any such economic instability or unpredictability. Russia’s invasion of Ukraine and related sanctions has led to increased oil and natural gas prices. Such sanctions and disruptions to the global economy may lead to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies. The increased cost of oil, along with increased or prolonged periods of inflation, would likely increase our costs in the form of higher wages, further inflation on supplies and equipment necessary to operate our business. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, which could adversely affect our ability to operate efficiently and timely complete our operational goals. As of the date of issuance of this Quarterly Report, the Company’s operations have not been significantly impacted.

Note 2 - 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 condensed consolidated statements of operations. Net changes in

unrealized

gains and losses are

~~reporte~~

d reported in the condensed consolidated 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~~

r identical assets

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, government securities, and cash and money funds, are substantially based on quoted market prices (Level 1). Corporate 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 firms. From time to time the Company may transfer cash between its marketable securities portfolio and operating cash and cash equivalents.

~~Table of Contents~~

The following table sets forth, by level, within the fair value hierarchy, the Company’s marketable securities measured at fair value as of ~~June 30,~~December 31, 2022:

   Fair Value Measurements
   Level 1    Level 2    Level 3    Total
Equities
   $ 15,457,000    $ —      $ —      $ 15,457,000
Mutual Funds
   10,767,000    —      —      10,767,000
Exchange-Traded Funds
   5,450,000    —      —      5,450,000
Corporate Bonds
   —      28,669,000    —      28,669,000
Government Securities
   27,949,000    —      —      27,949,000
Cash and Money Funds
   2,824,000    —      —      2,824,000








Total
   $ 62,447,000    $ 28,669,000    $ —      $ 91,116,000


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total

Equities	$	5,524,000	$	—	$	—	$	5,524,000
Mutual Funds		5,423,000		—		—		5,423,000
Exchange-Traded Funds		4,825,000		—		—		4,825,000
Corporate Bonds		—		36,697,000		—		36,697,000
Government Securities		33,925,000		—		—		33,925,000
Cash and Money Funds		5,324,000		—		—		5,324,000

Total	$	55,021,000	$	36,697,000	$	—	$	91,718,000

Net unrealized ~~losses reported~~gains recognized during the quarter ~~and nine months~~ ended ~~June 30,~~December 31, 2022 on trading securities still held

of December 31, 2022 were ~~$(3,855,000) and $(5,386,000), respectively. There were 0 transfers~~$2,332,000.

Table of ~~investments between Level 1 and Level 2 during the nine months ended June 30, 2022.~~Contents

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured

fair value as of September 30, ~~2021:~~

2022:

   Fair Value Measurements
   Level 1    Level 2    Level 3    Total
Equities
   $ 14,734,000    $ —      $ —      $ 14,734,000
Mutual Funds
   10,357,000    —      —      10,357,000
Exchange-Traded Funds
   9,458,000    —      —      9,458,000
Corporate Bonds
   —      24,853,000    —      24,853,000
Government Securities
   30,999,000    —      —      30,999,000
Cash and Money Funds
   4,575,000    —      —      4,575,000








Total
   $ 70,123,000    $ 24,853,000    $ —      $ 94,976,000


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total

Equities	$	12,149,000	$	—	$	—	$	12,149,000
Mutual Funds		5,337,000		—		—		5,337,000
Exchange-Traded Funds		4,794,000		—		—		4,794,000
Corporate Bonds		—		37,339,000		—		37,339,000
Government Securities		29,327,000		—		—		29,327,000
Cash and Money Funds		354,000		—		—		354,000

Total	$	51,961,000	$	37,339,000	$	—	$	89,300,000

Net unrealized gains ~~and (losses) reported~~recognized during the quarter ~~and nine months~~ ended ~~June 30,~~December 31, 2021 on trading securities still held as of December 31, 2021 were ~~$(219,000) and $2,284,000, respectively. There were 0 transfers of investments between Level 1 and Level 2 during the nine months ended June 30, 2021.~~$67,000.

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.

Note 3 – Inventories

Inventories are valued at the lower of cost or net realizable value with cost being determined under the first in, first out method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery. 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 by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to 0.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

that time.

Net inventories at December 31, 2022 and September 30, 2022 consist of the following:


	December 31, 2022		September 30, 2022


Raw materials	$	35,085,000	$	31,975,000
Work in process		14,545,000		13,903,000
Finished goods		9,685,000		9,937,000

	$	59,315,000	$	55,815,000

Slow-moving and obsolete inventory reserves were

$8,352,000 and $8,192,000 at December 31, 2022 and September 30, 2022,

respectively.

Table of Contents

~~Net inventories at June 30, 2022 and September 30, 2021 consist of the following:~~

   June 30, 2022    September 30, 2021
Raw materials
   $ 30,796,000    $ 25,858,000
Work in process
   7,881,000    6,280,000
Finished goods
   9,567,000    9,730,000
Used equipment
   —      20,000




   $ 48,244,000    $ 41,888,000

~~Slow-moving and obsolete inventory allowances were $7,975,000 and $5,397,000 at June 30, 2022 and September 30, 2021, respectively.~~

Note 4 – Costs and Estimated Earnings in Excess of Billings

Costs and estimated earnings in excess of billings on uncompleted contracts as of ~~June 30,~~December 31, 2022 and September 30, ~~2021~~2022 consist of the following:


	December 31, 2022		September 30, 2022

Costs incurred on uncompleted contracts	$	17,613,000	$	12,660,000
Estimated earnings		7,155,000		4,780,000

		24,768,000		17,440,000
Billings to date		19,818,000		15,322,000

Costs and estimated earnings in excess of billings	$	4,950,000	$	2,118,000

   June 30, 2022    September 30, 2021
Costs incurred on uncompleted contracts
   $ 20,074,000    $ 11,483,000
Estimated earnings
   6,279,000    4,395,000




   26,353,000    15,878,000
Billings to date
   24,987,000    13,975,000




Costs and estimated earnings in excess of billings
   $ 1,366,000    $ 1,903,000

Note 5 – Earnings (Loss) per Share Data

~~The condensed consolidated financial statements include basic and diluted earnings (loss) per share information.~~ The following table sets forth the computation of basic and diluted ~~earnings~~income (loss) per share for the quarters ~~and nine months~~ ended ~~June 30,~~December 31, 2022 and 2021:

   Quarter Ended June 30,    Nine Months Ended June 30,
   2022    2021    2022    2021
Net Income (loss)
   $ (1,015,000 )    $ 2,335,000    $ (850,000 )    $ 6,174,000








Common Shares:

Weighted average common shares outstanding
   14,658,000    14,617,000    14,658,000    14,613,000
Effect of dilutive stock options
   —      132,000    —      129,000








Diluted shares outstanding
   14,658,000    14,749,000    14,658,000    14,742,000








Basic:

Net income (loss) per share
   $ (0.07 )    $ 0.16    $ (0.06 )    $ 0.42








Diluted:

Net income (loss) per share
   $ (0.07 )    $ 0.16    $ (0.06 )    $ 0.42


	Quarter Ended December 31,
	2022		2021
Net Income (loss)	$	3,476,000	$	(274,000	)

Common Shares:
Weighted average common shares outstanding		14,657,000		14,617,000
Effect of dilutive stock options (none)		—		—

Diluted shares outstanding		14,657,000		14,617,000

Basic:
Net income (loss) per share	$	0.24	$	(0.02	)

Diluted:
Net income (loss) per share	$	0.24	$	(0.02	)

~~Basic earnings (loss) per~~

share are based on the weighted-average number of shares outstanding. Diluted earnings per share are based on the sum of the weighted-average number of shares outstanding plus common stock equivalents. As of September 30, 2021,0 options were available for granting of awards under theThe Company’s 2009 Incentive Compensation Plan ~~(the “2009 Plan”)~~expired on October 1, 2021 and as of November 1, 2021 there were 0no outstanding stock options under the 2009 Plan. There were

~~Table~~other existing equity compensation plans and arrangements previously approved by security holders as of ~~Contents~~

For the quarter and nine months ended June 30, 2022, there were 0 common stock equivalents included in the diluted earnings per share calculation. The weighted-average shares issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and nine months ended June 30, 2021 were 252,000 and 252,000, respectively, which equates to 132,000 and 129,000 dilutive common stock equivalents, respectively. There were 0 anti-dilutive shares for the quarter and nine months ended June 30,December 31, 2022 and ~~June 30,~~ 2021.

Note 6 – Customers with 10% (or greater) of Net Revenues

During the quarter ended ~~June 30,~~December 31, 2022, two customers accounted for ~~15.2%~~13.4% and ~~14.5%~~12.5% of net revenues, respectively. ~~During the nine months ended June 30, 2022, no customer accounted for 10% or greater of net revenues.~~

During the quarter ended ~~June 30,~~December 31, 2021, ~~one customer~~three customers accounted for ~~17.5%~~13.2%, 12.4% and 10.2% of net ~~revenues. During the nine months ended June 30, 2021, no customer accounted for 10% or more of net revenues.~~revenues, respectively.

Note 7 – Income Taxes

Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and primarily consist of taxes currently due, plus deferred taxes.

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

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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. ~~NaN~~No such valuation allowances were recorded as of ~~June 30,~~December 31, 2022 and September 30, ~~2021.~~2022.

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 the quarters ~~and nine months~~ ended ~~June 30,~~December 31, 2022 and ~~June 30,~~December 31, 2021 reflect ~~the impact of the reduced~~income tax rates under the ~~U.S.~~ Tax Cuts and Jobs Act of 2017 (the ~~“Tax Reform Act) which was signed into law on December 22, 2017.~~“TCJA”).

The Company will continue to make additional estimated federal tax payments based on the current Section 174 tax law. The impact of Section 174 on the Company’s cash from operations depends primarily on the amount of research and development expenditures incurred and whether the IRS issues guidance on the provision which differs from the Company’s current interpretation.

Note 8 – Revenue Recognition and Related Costs

The Company recognizes revenue under ASU

No. 2014-09,

Revenue from Contracts with Customers

(Topic 606). The following table disaggregates the Company’s net revenue by major source for the quarters ~~and nine months~~ ended ~~June 30,~~December 31, 2022 and 2021:

   Quarter Ended June 30,    Nine Months Ended June 30,
   2022    2021    2022    2021
Equipment sales recognized over time
   $ 9,248,000    $ 6,507,000    $ 30,020,000    $ 14,509,000
Equipment sales recognized at a point in time
   13,729,000    12,258,000    28,402,000    31,959,000
Parts and component sales
   5,419,000    5,240,000    18,243,000    16,001,000
Freight revenue
   972,000    996,000    3,050,000    2,888,000
Other
   279,000    (82,000 )    692,000    (122,000 )








Net revenue
   $ 29,647,000    $ 24,919,000    $ 80,407,000    $ 65,235,000

~~Table of Contents~~


	Quarter Ended December 31,
	2022		2021

Equipment sales recognized over time	$	7,329,000	$	9,774,000
Equipment sales recognized at a point in time		11,498,000		4,198,000
Parts and component sales		5,901,000		5,443,000
Freight revenue		1,046,000		584,000
Other		51,000		107,000

Net revenue	$	25,825,000	$	20,106,000

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of 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 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. All incremental costs related to obtaining a contract are expensed as 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.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were ~~$1,366,000~~$4,950,000 and $2,118,000 at ~~June~~December 31, 2022 and September 30, 2022, ~~and $1,903,000 at September 30, 2021,~~respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets. The Company anticipates that all of the contract assets at ~~June 30,~~December 31, 2022, will be billed and collected within one ~~year.~~year

Table of Contents

Revenues

from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. 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 typically due prior to shipment. Payment for services under contract with customers is due as services are completed. Accounts receivable related to contracts with customers for equipment sales were ~~$79,000~~$133,000 and ~~$210,000~~$142,000 at ~~June 30,~~December 31, 2022 and September 30, ~~2021,~~2022, respectively.

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

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 ~~June 30,~~December 31, 2022 and September 30, ~~2021.~~2022. Customer deposits related to contracts with customers were ~~$7,436,000~~$8,387,000 and ~~$5,244,000~~$5,864,000 at ~~June 30,~~December 31, 2022 and September 30, ~~2021,~~2022, respectively, and are included in current liabilities on the Company’s condensed 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 cost of goods sold 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 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.

~~Table of Contents~~

Note 9 – Leases

The Company leases certain equipment under

non-cancelable

operating leases. Future minimum rental payments under these leases at ~~June 30,~~December 31, 2022 were immaterial.

On August 28, 2020, the Company entered into a three-year operating lease for property related to ~~the~~ manufacturing and ~~warehousing of the Blaw-Knox paver product line which was acquired on October 1, 2020.~~warehousing. The lease term is for the period beginning on September 1, 2020 through August 31, 2023. In accordance with ASU

2016-02,

the Company recorded a ROU asset totaling $970,000 and related lease liabilities at inception. On October 9, 2020, the Company entered into an operating lease for additional warehousing space for ~~Blaw-Knox~~ inventory. The original lease term was for one year beginning November 2020 with automatic

one-year

renewals. In accordance with ASU

2016-02,

the Company recorded a ROU asset totaling $254,000 and related lease liabilities at inception. An additional $39,000 was recorded as a ROU asset and related lease liability in October 2021 to reflect the impact of the lease

renewal. ~~In March 2022, the ROU asset and related liability was reduced by $39,000 to reflect the impact~~

Table of ~~a reduction in the square footage being leased.~~Contents

For

the quarter ~~and nine months~~ ended ~~June 30,~~December 31, 2022, operating lease costs were $

~~99,000~~

~~and $~~

~~301,000~~

~~, respectively,~~$107,000 and cash payments related to these operating leases were $

~~104,000~~

~~and $~~

~~320,000~~

~~, respectively.~~$133,000. For the quarter ~~and nine months~~ ended ~~June 30,~~December 31, 2021, operating lease costs were $

~~106,000~~

~~and $~~

~~301,000~~

~~, respectively,~~$101,000 and cash payments related to these operating leases were $

~~105,000~~

~~and $~~

~~349,000~~

~~, respectively.~~$109,000.

Other information concerning the Company’s operating lease accounted for under ASC 842 guidelines as of ~~June 30,~~December 31, 2022 and September 30, ~~2021,~~2022, is as follows:

   June 30, 2022 September 30, 2021
Operating lease ROU asset included in other long-term assets
   $ 497,000 $ 785,000
Current operating lease liability
   $ 413,000 $ 393,000
Non-current
operating lease liability
   $ 84,000 $ 392,000
Weighted average remaining lease term (in years)
   1.25 2.00
Weighted average discount rate used in calculating ROU asset
   4.0 % 4.0 %


	December 31, 2022			September 30, 2022

Operating lease ROU asset included in other long-term assets	$	293,000		$	396,000
Current operating lease liability	$	293,000		$	390,000
Non-current operating lease liability	$	—		$	6,000
Weighted average remaining lease term (in years)		0.75			1.00
Weighted average discount rate used in calculating ROU asset		4.0	%		4.0	%

Future annual minimum lease payments as of ~~June 30,~~December 31, 2022 are as follows:

Fiscal Year
   Annual Lease Payments
2022 (remaining 3 months)
   $ 105,000
2023
   398,000
2024
   7,000


Total
   510,000
Less interest
   (13,000 )


Present value of lease liabilities
   $ 497,000


Fiscal Year	Annual Lease Payments

2023 (remaining nine months)	$	298,000
Less interest		(5,000	)

Present value of lease liabilities	$	293,000

Note 10 – Segment Information

The Company has 1

one

reporting segment, equipment for the highway construction industry. Based on evaluation of the criteria of ASC 280 – Segment Reporting, including the nature of products and services, the nature of the production

processes

, the type of customers and the methods used

distribute products and services, the Company determined that its operating segments meet the requirements for aggregation. The Company designs, manufactures and sells asphalt plants and pavers, combustion systems and fluid heat transfer systems, for the highway construction industry and environmental and petrochemical markets. The Company’s products are manufactured at three facilities in the United States. The Company

also

services and sells spare parts for its equipment.

~~Note 11 - Subsequent Events~~4

~~On July 19, 2022, the Company announced that it was transferring the listing~~

Item 2. Management’s Discussion and Analysis of ~~its common stock, $0.10~~

~~per share par value (“Common Stock”), to the NYSE American LLC (“NYSE American”) from the NASDAQ Global Market (“NASDAQ”). Listing~~Financial Condition and ~~trading~~Results of the Company’s Common Stock on NASDAQ ended at market close on July 29, 2022 and listing and trading of its Common Stock on the NYSE American commenced at market open on August 1, 2022 under its current ticker

~~symbol ‘GENC’.~~

~~Table of Contents~~

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Operations

Forward-Looking Information

This Quarterly Report contains certain “forward-looking statements” within the meaning of 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~~Company’s products.

For information concerning these factors and related matters, see the following sections of the Company’s Annual Report on Form

10-K

for the year ended September 30, ~~2021:~~2022: (a) Part I, Item 1A, “Risk Factors” and (b) Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. 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 Quarterly Report. The Company does not undertake to update any forward-looking statement, except as required by law.

Overview

Gencor ~~is a leading manufacturer of heavy machinery used in the production~~designs, manufactures and ~~application of highway construction materials and environmental control equipment. The Company’s core products include~~sells hot mix asphalt plants, combustion systems, fluid heat transfer systems and ~~asphalt pavers.~~pavers for the highway construction industry and environmental and petrochemical markets. The Company’s products are manufactured at 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 liquid asphalt, and a trend towards larger more efficient asphalt plants.

On November 15, 2021, President Biden signed into law a five-year, $1.2 trillion infrastructure bill, the Infrastructure Investment and Jobs Act (the “IIJ Act”), including $550 billion in new spending and reauthorization of $650 billion in previously allocated funds. The IIJ Act provides $110 billion for the nation’s highways, bridges and roads.

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. Additionally, numerous other states have taken steps to increase their gas tax revenues in recent years.

Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the Company’s equipment, may affect the Company’s financial performance. 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, ~~then~~ its business results of operations and financial condition may be adversely affected. ~~As discussed under the heading “Results of Operations,” the recent increases in steel prices contributed to reduced gross profit margins during the current quarter.~~

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 ~~such higher costs~~ could have a negative impact on the Company’s financial performance.

~~The Company believes~~ its ~~strategy~~common stock, $0.10 per share par value (“Common Stock”), to the NYSE American LLC (“NYSE American”) from the NASDAQ Global Market (“NASDAQ”). Listing and trading 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 Common Stock on NASDAQ ended at market ~~position. The Company continues to review~~close on July 29, 2022 and listing and trading of its ~~internal processes to identify inefficiencies and cost-reduction opportunities. The Company will continue to scrutinize~~Common Stock on the NYSE American commenced at market open on August 1, 2022 under its ~~relationships with suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.~~

current ticker symbol ‘GENC’.

COVID-19

Pandemic

The Company continues to monitor and evaluate the risks to public health and the overall business activity related to the ~~coronavirus~~

~~(“COVID-19”)~~

COVID-19pandemic, including impacts on its employees, customers, suppliers and financial results. As of the date of issuance of this Quarterly Report, 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 ended ~~June 30,~~December 31, 2022 and as of the date this Quarterly Report is issued. As such, the full magnitude of the effect that the

COVID-19

pandemic will have on the Company’s financial condition and future results of operations is uncertain. Management continues to monitor the Company’s financial condition, operations, suppliers, industry, customers, and workforce. As the spread of

COVID-19

and its variants 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

Global, market and economic conditions may negatively impact our business, financial condition and share price

Concerns over inflation, geopolitical issues, global financial markets and the

COVID-19

As of the date of issuance of this Quarterly Report, the Company’s operations have not been significantly impacted.

Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition

Beginning in 2022, the TCJA eliminated the option of expensing all research and development expenditures in the current year, instead requiring amortization over five years pursuant to IRC Section 174. In the future, Congress may consider legislation that would eliminate the capitalization and amortization requirement. There is no assurance that the requirement will be deferred, repealed or otherwise modified. The requirement is effective for the Company’s fiscal year 2023, beginning October 1, 2022. The Company will continue to make additional estimated federal tax payments based on the current Section 174 tax law. The impact of Section 174 on the Company’s cash from operations depends primarily on the amount of research and development expenditures incurred and whether the IRS issues guidance on the provision which differs from our current interpretation.

Results of Operations

Quarter Ended ~~June 30,~~December 31, 2022 versus ~~June 30,~~December 31, 2021

Net revenues for the quarters ended ~~June 30,~~December 31, 2022 and ~~June 30,~~December 31, 2021 were ~~$29,647,000~~$25,825,000 and ~~$24,919,000,~~$20,106,000, respectively, an increase of ~~$4,728,000~~$5,719,000 or ~~19.0%~~28.4%. The ~~higher~~improved revenues ~~reflect increased bookings~~were in ~~anticipation of funding of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in November 2021.~~

contract equipment sales, paver and parts sales.

As a percent of sales, gross profit margins ~~were 19.2%~~improved to 22.5% in the quarter ended ~~June 30,~~December 31, 2022, compared to ~~22.5%~~18.4% in ~~the~~

~~quarter~~

~~ended June 30, 2021. Higher manufacturing costs associated with wages, steel, and purchased parts continued to impact the Company’s operating results for~~ the quarter ended ~~June 30, 2022.~~

December 31, 2021 on increased production and favorable price realization.

Product engineering and development expenses decreased ~~$225,000~~$452,000 to ~~$951,000~~$897,000 for the quarter ended ~~June 30,~~December 31, 2022, as compared to ~~$1,176,000~~$1,349,000 for the quarter ended ~~June 30,~~December 31, 2021, due primarily to reduced ~~payroll.~~wages and benefits on lower headcount. Selling, general and administrative (“SG&A”) expenses decreased by ~~$625,000~~$600,000 to ~~$2,577,000~~$2,799,000 for the quarter ended ~~June 30,~~December 31, 2022, compared to ~~$3,202,000~~$3,399,000 for the quarter ended ~~June 30,~~December 31, 2021. The decrease in SG&A expenses was primarily due to reduced wages and benefits on lower headcount and ~~lower~~reduced professional ~~fees.~~expenses.

~~Operating~~

The Company had operating income ~~increased from $1,227,000~~of $2,119,000 for the quarter ended ~~June 30, 2021~~December 31, 2022 as compared to ~~$2,151,000~~an operating loss of $(1,043,000) for the quarter ended ~~June 30, 2022,~~December 31, 2021. The improved operating results were due ~~primarily~~ to ~~increased sales~~higher net revenues and ~~reduced SG&A and product engineering and development expenses.~~

lower operating expenses for the quarter ended December 31, 2022.

For the quarter ended ~~June 30,~~December 31, 2022, ~~interest and dividend~~the Company had net non-operating income ~~net~~ of ~~fees, was $304,000 as~~$2,455,000 compared to ~~$306,000 in the quarter ended June 30, 2021. The net realized and unrealized losses on marketable securities were $(3,693,000)~~$700,000 for the quarter ended ~~June 30,~~December 31, 2021. Included in net non-operating income for the quarter ended December 31, 2022 ~~versus~~were net realized and unrealized gains on marketable securities of ~~$1,386,000~~$1,962,000 compared to $423,000 for the quarter ended ~~June 30,~~December 31, 2021. The higher gains in fiscal ~~2022 investment losses reflect~~2023 were due to a stronger domestic stock market during the ~~decline in equity markets due primarily to higher interest rates, inflation, and the Federal Reserve’s recent monetary tightening policy.~~

quarter ended December 31, 2022.

The effective income tax rates for the quarters ended December 31, 2022 and December 31, 2021 were 24.0% and 20.0%, respectively. The higher tax rate in fiscal 2023 is due to an anticipated reduction in research and development tax credits, effective for the Company’s fiscal 2023. Net income for the quarter ended ~~June 30,~~December 31, 2022 was ~~a benefit of 18.0% versus expense of 20.0% for the quarter ended June 30, 2021, based on the expected annual effective income tax rate.~~

~~Net loss for the quarter ended June 30, 2022 was $(1,015,000),~~$3,476,000, or ~~$(0.07)~~$0.24 per basic and diluted share, ~~versus~~compared to a net ~~income~~loss of ~~$2,335,000,~~$(274,000), or ~~$0.16~~$(0.02) per basic and diluted share for the quarter ended ~~June 30,~~December 31, 2021. The net loss for the current quarter ended June 30, 2022, was due primarily to the net investment losses on marketable securities partially offset by the impact of increased sales and reduced SG&A and product engineering and development expenses.

~~Nine Months Ended June 30, 2022 versus June 30, 2021~~

Net sales for the nine months ended June 30, 2022 and 2021 were $80,407,000 and $65,235,000, respectively, an increase of $15,172,000 or 23.3%. The higher revenues reflect increased bookings in anticipation of funding of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in November 2021. There were no revenues generated by Blaw-Knox during the first quarter of fiscal 2021, as the facility was being readied to begin production.

Gross profit margins decreased to 19.4% for the nine months ended June 30, 2022 from 22.6% for the nine months ended June 30, 2021. Increases in wages, steel and purchased parts prices contributed to the lower overall gross margins during the nine months ended June 30, 2022.

~~Product engineering and development expenses increased $130,000 in the nine months ended June 30, 2022,~~

~~compared~~

to the nine months ended June 30, 2021 due primarily to salary increases in the first quarter of fiscal 2022 partially offset by reduced payroll in the current quarter ended June 30, 2022, as well as a full nine months of engineering wages and benefits related to Blaw-Knox. SG&A expenses decreased $895,000 in the nine months ended June 30, 2022, compared to the nine months ended June 30, 2021. The decrease in SG&A expenses from a full nine months of wages and benefits related to Blaw-Knox employees was offset by reduced headcount and lower professional fees.

The Company had operating income of $3,017,000 for the nine months ended June 30, 2022 versus $1,407,000 for the nine months ended June 30, 2021. The improved operating income was due primarily to the improved revenues and reduced SG&A expenses.

For the nine months ended June 30, 2022, interest and dividend income, net of fees, from the investment portfolio was $877,000, as compared to $1,437,000 for the nine months ended June 30, 2021. Interest income for the nine months ended June 30, 2021, included $456,000 of interest collected from a customer. Net realized and unrealized losses on marketable securities was $(4,758,000) for the nine months ended June 30, 2022 versus net realized and unrealized gains of $4,873,000 for the nine months ended June 30, 2021. The fiscal 2022 investment losses reflect the decline in equity markets due to higher interest rates, inflation, and the Federal Reserve’s recent monetary tightening policy.

The effective income tax rates for the nine months ended June 30, 2022 was a benefit of 15.3% compared to expense of 20.0% for the nine months ended June 30, 2021, based on the expected annual effective income tax rate.

Net loss for the nine months ended June 30, 2022 was $(850,000), or $(0.06) per basic and diluted share, versus $6,174,000, or $0.42 per basic and diluted share for the nine months ended June 30, 2021. The net loss for the nine months ended June 30, 2022, was due primarily to the net investment losses on marketable securities partially offset by the impact of increased sales and reduced SG&A expenses.

Liquidity and Capital Resources

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

The Company had no long-term or short-term debt outstanding at ~~June 30,~~December 31, 2022 or September 30, ~~2021.~~2022. As of ~~June 30,~~December 31, 2022, the Company has funded $85,000 in cash deposits at insurance companies to cover related 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 2023, 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 ~~June 30,~~December 31, 2022, the Company had ~~$19,474,000~~$5,978,000 in cash and cash equivalents, and ~~$91,116,000~~$91,718,000 in marketable securities, including ~~$28,669,000~~$36,697,000 in corporate bonds, ~~$15,457,000~~$5,524,000 in equities, ~~$10,767,000~~$5,423,000 in mutual funds, ~~$5,450,000~~$4,825,000 in exchange-traded funds, ~~$27,949,000~~$33,925,000 in government securities, and ~~$2,824,000~~$5,324,000 in cash and money funds. The marketable securities are invested through a professional investment management firm. These securities may be liquidated at any time into cash and cash equivalents.

The Company’s backlog was ~~$40.2~~$42.5 million at ~~June 30,~~December 31, 2022 compared to ~~$28.5~~$58.0 million at ~~June 30,~~December 31, 2021. The Company’s working capital (defined as current assets less current liabilities) was ~~$153.3~~$154.3 million at ~~June 30,~~December 31, 2022 and ~~$155.4~~$150.1 million at September 30, ~~2021.~~2022. Cash flows used in ~~operating activities~~operations during the ~~nine months~~quarter ended ~~June 30,~~December 31, 2022, ~~was $1,574,000.~~were $2,898,000. The significant purchases, sales and maturities of marketable securities shown on the condensed consolidated statements of cash flows, reflect the recurring purchases and sales of United States treasury bills. Accounts receivable increased $1,738,000 compared to September 30, 2022, primarily from increased paver and parts sales. Costs and estimated earnings in excess of billings increased $2,832,000 with the timing of inventory build and percentage of completion recognition on plant sales where revenue is recognized over time. Inventories increased by ~~$6.4 million~~$3,500,000 due to progress on several large contract orders where revenue is recognized at a point in time ~~raw material and wage price increases~~ and some stock build to ~~adjust~~compensate for the increasing lead times from suppliers. Prepaid expenses increased $1.5 million due to estimated income tax deposits in excess of accrued income taxes, annual insurance contract renewals as well as deposits made on new equipment. Accounts payable increased $1.9 million with increased raw material purchases. Customer deposits increased ~~by $2.2 million~~$2,523,000 reflecting down payments and final payments on contract ~~projects, including recent orders where revenues are recognized over time but work is~~jobs not yet ~~to begin.~~

shipped.

Cash flows used in investing activities for the ~~nine months~~quarter ended ~~June 30,~~December 31, 2022 of ~~$2,184,000~~$705,000 were related to capital expenditures, primarily for manufacturing processing and finishing equipment.

Revenues & Expenses

The Company recognizes revenue under ASU

No. 2014-09,

Revenue from Contracts with Customers

~~(Topic~~ (Topic 606). Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of 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 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. All incremental costs related to obtaining a contract are expensed as 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.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were ~~$1,366,000~~$4,950,000 and ~~$1,903,000~~$2,118,000 at ~~June 30,~~December 31, 2022 and September 30, ~~2021,~~2022, respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets. The Company anticipates that all of the contract assets at ~~June 30,~~December 31, 2022, will be billed and collected within one year.

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

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

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 cost of goods sold concurrently with the revenue recognition.

less-than-90-day

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost being determined under the first in, first out method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery. 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 by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. 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.

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 condensed consolidated statements of income. Net unrealized gains and (losses) are reported in the condensed consolidated statements of income in the current period 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.

Off-Balance

Sheet Arrangements

None

~~None~~

Part II. Other Information

~~Item 1.~~

~~Legal Proceedings~~

Item 1. Legal Proceedings

From time to time the Company is engaged in legal proceedings in the ordinary course of business. We do not believe any current legal proceedings are material to our business.

~~Item 1A.~~

~~Risk Factors~~

Item 1A. Risk Factors

Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10K for the year ended September 30, ~~2021,~~2022, as filed with the SEC on December ~~17, 2021,~~16, 2022, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form

10-Q

and in our other filings filed with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report on Form

10-Q.

During the ~~nine months~~quarter ended ~~June 30,~~December 31, 2022, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form

10-K,

for the year ended September 30, ~~2021,~~2022, other than the addition of the following risk factor:

~~Global, market and economic conditions may negatively impact~~

Changes in our ~~business, financial condition and share price~~

~~Concerns over inflation, geopolitical issues, global financial markets and the~~

~~COVID-19~~

~~pandemic have led to increased economic instability and expectations of slower global economic growth. Our business may be adversely affected by any such economic instability~~tax rates or ~~unpredictability. Russia’s invasion of Ukraine and related sanctions has led to increased oil and natural gas prices. Such sanctions and disruptions to the global economy may lead~~exposure to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies. The increased cost of oil, along with increased or prolonged periods of inflation, would likely increase our costs in the form of higher wages, further inflation on supplies and equipment necessary to operate our business. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, whichtax liabilities could adversely affect our ~~ability to operate efficiently~~earnings and ~~timely complete our operational goals.~~

~~Our marketable securities, including cash~~financial condition

Beginning in 2022, the Tax Cuts and ~~money funds, equities, corporate bonds, mutual funds, exchange-traded funds,~~Jobs Act of 2017 eliminated the option of expensing all research and ~~government securities invested through a professional investment management firm are subject to general credit, liquidity, market and interest rate risks, instability~~development expenditures in the ~~global financial markets,~~current year, instead requiring amortization over five years pursuant to IRC Section 174. In the future, Congress may consider legislation that would eliminate the capitalization and amortization requirement. There is no assurance that the requirement will be deferred, repealed or ~~other factors. As a result of recent market volatility,~~otherwise modified. The requirement is effective for the ~~value of our investments has declined, may~~Company’s fiscal year 2023, beginning October 1, 2022. The Company will continue to ~~fluctuate,~~make additional estimated federal tax payments based on the current Section 174 tax law. The impact of Section 174 on the Company’s cash from operations depends primarily on the amount of research and ~~may continue to have a negative effect~~development expenditures incurred and whether the IRS issues guidance on ~~our financial results and, if we need to liquidate our investments to fund operations, then~~ the ~~availability of cash to fund our operations may be reduced. Net losses relating to marketable securities reported during~~provision which differs from the ~~quarter and nine months ended June 30, 2022 were $3,693,000 and $4,020,000, respectively.~~Company’s current interpretation.


Exhibit 31.1		Certification of Principal Executive Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended

Exhibit 31.2		Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended

Exhibit 32		Certifications of Principal Executive Officer and Chief Financial Officer Pursuant to 18 U. S. C. Section 1350

Exhibit 101.1		~~Inline~~ Interactive Data File

~~Exhibit~~ 101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

~~Exhibit~~ 101.SCH		~~Inline~~ XBRL Schema Document

~~Exhibit~~ 101.CAL		~~Inline~~ XBRL Calculation Linkbase Document

~~Exhibit~~ 101.DEF		~~Inline~~ XBRL Definition Linkbase Document

~~Exhibit~~ 101.LAB		~~Inline~~ XBRL Label Linkbase Document

~~Exhibit~~ 101.PRE		~~Inline~~ XBRL Presentation Linkbase Document

~~Exhibit~~ 104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30,~~December 31, 2022, formatted in Inline XBRL (included in Exhibit 101)


	For the Quarters Ended June 30,					For the Nine Months Ended June 30,
	2022			2021		2022			2021
Net revenue	$	29,647,000		$	24,919,000	$	80,407,000		$	65,235,000
Cost of goods sold		23,968,000			19,314,000		64,831,000			50,504,000

Gross profit		5,679,000			5,605,000		15,576,000			14,731,000
Operating expenses:
Product engineering and development		951,000			1,176,000		3,219,000			3,089,000
Selling, general and administrative		2,577,000			3,202,000		9,340,000			10,235,000

Total operating expenses		3,528,000			4,378,000		12,559,000			13,324,000

Operating income		2,151,000			1,227,000		3,017,000			1,407,000

Other income (expense), net:
Interest and dividend income, net of fees		304,000			306,000		877,000			1,437,000
Net realized and unrealized gains (losses) on marketable securities, net		(3,693,000	)		1,386,000		(4,758,000	)		4,873,000
Other		(1,000	)		—		(139,000	)		—

Total other income (expense), net		(3,390,000	)		1,692,000		(4,020,000	)		6,310,000

Income (loss) before income tax expense (benefit)		(1,239,000	)		2,919,000		(1,003,000	)		7,717,000
Income tax expense (benefit)		(224,000	)		584,000		(153,000	)		1,543,000

Net income (loss)	$	(1,015,000	)	$	2,335,000	$	(850,000	)	$	6,174,000

Basic Income (Loss) per Common Share:
Net income (loss) per share	$	(0.07	)	$	0.16	$	(0.06	)	$	0.42

Diluted Income (Loss) per Common Share:
Net income (loss) per share	$	(0.07	)	$	0.16	$	(0.06	)	$	0.42


For the Nine Months Ended June 30, 2022
	Common Stock				Class B Stock				Capital in Excess of		Retained			Total Shareholders’
	Shares		Amount		Shares		Amount		Par Value		Earnings			Equity
September 30, 2021		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	153,233,000		$	167,289,000
Net loss		—		—		—		—		—		(274,000	)		(274,000	)

December 31, 2021		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	152,959,000		$	167,015,000
Net income		—		—		—		—		—		439,000			439,000

March 31, 2022		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	153,398,000		$	167,454,000
Net loss		—		—		—		—		—		(1,015,000	)		(1,015,000	)

June 30, 2022		12,338,845	$	1,234,000		2,318,857	$	232,000	$	12,590,000	$	152,383,000		$	166,439,000


For the Nine Months Ended June 30, 2021
	Common Stock				Class B Stock				Capital in Excess of		Retained		Total Shareholders’
	Shares		Amount		Shares		Amount		Par Value		Earnings		Equity
September 30, 2020		12,287,337	$	1,229,000		2,318,857	$	232,000	$	12,331,000	$	147,428,000	$	161,220,000
Net income		—		—		—		—		—		1,551,000		1,551,000

December 31, 2020		12,287,337	$	1,229,000		2,318,857	$	232,000	$	12,331,000	$	148,979,000	$	162,771,000
Net income		—		—		—		—		—		2,288,000		2,288,000
Stock options exercised		11,000		1,000		—		—		55,000		—		56,000

March 31, 2021		12,298,337	$	1,230,000		2,318,857	$	232,000	$	12,386,000	$	151,267,000	$	165,115,000
Net income		—		—		—		—		—		2,335,000		2,335,000

June 30, 2021		12,298,337	$	1,230,000		2,318,857	$	232,000	$	12,386,000	$	153,602,000	$	167,450,000


	Quarter Ended June 30,					Nine Months Ended June 30,
	2022			2021		2022			2021
Net Income (loss)	$	(1,015,000	)	$	2,335,000	$	(850,000	)	$	6,174,000

Common Shares:
Weighted average common shares outstanding		14,658,000			14,617,000		14,658,000			14,613,000
Effect of dilutive stock options		—			132,000		—			129,000

Diluted shares outstanding		14,658,000			14,749,000		14,658,000			14,742,000

Basic:
Net income (loss) per share	$	(0.07	)	$	0.16	$	(0.06	)	$	0.42

Diluted:
Net income (loss) per share	$	(0.07	)	$	0.16	$	(0.06	)	$	0.42


Fiscal Year	Annual Lease Payments
2022 (remaining 3 months)	$	105,000
2023		398,000
2024		7,000

Total		510,000
Less interest		(13,000	)

Present value of lease liabilities	$	497,000

Large accelerated filer

Accelerated Filer

Non-accelerated
Filer

Smaller Reporting Company

Emerging Growth Company