What changed in this filing

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Item 1. Financial Statements

2021-02-11 compared with 2020-08-11 · 141 added, 357 removed, 386 unchanged (56% of the section changed)

46 unchanged sentences

For the three months ended

For the nine months ended

Cost of sales:

4 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Other income (expense):

Foreign exchange gain (loss)

Foreign exchange loss

Interest expense

Interest income

Other income, (expense) net

Gain on extinguishment of debt

Total other income (expense)

12 unchanged sentences

For the three months ended

For the nine months ended

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation gain (loss) adjustments

Other comprehensive gain (loss)

Foreign currency translation gain adjustments

Total comprehensive income (loss)

2 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the three and nine months ended June 30, 2020 and 2019:

(Amounts in thousands, except per share data)

comprehensive

Shareholders’

For the Three Months Ended June 30, 2020:

Balance as of March 31, 2020

Other comprehensive loss

Stock-based compensation

Purchase of common stock

Balance as of June 30, 2020

comprehensive

Shareholders’

For the Three Months Ended June 30, 2019:

Balance as of March 31, 2019

Other comprehensive loss

Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

Cash dividends paid on common stock ($0.15 per share)

Balance as of June 30, 2019

See accompanying notes to unaudited consolidated financial statements.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the three and nine months ended June 30, 2020 and 2019:

For the three months ended December 31, 2020 and 2019:

(Amounts in thousands, except per share data)

1 unchanged sentence

Shareholders’

For the nine months ended June 30, 2020:

For the Three Months Ended December 31, 2019:

Balance as of September 30, 2019

2 unchanged sentences

Stock-based compensation

Restricted stock issuance

Issuance of shares under employee stock purchase plan

Purchase of common stock

Cash dividends paid on common stock ($0.30 per share)

Balance as of June 30, 2020

Cash declared on common stock ($0.15 per share)

Balance as of December 31, 2019

comprehensive

Shareholders’

For the nine months ended June 30, 2019:

For the Three Months Ended December 31, 2020:

Balance as of September 30, 2020

Adoption of ASU 2014-09*

Other comprehensive loss

Exercise of stock options

Other comprehensive gain

Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

Issuance of shares under employee stock purchase plan

Cash dividends paid on common stock ($0.45 per share)

Balance as of June 30, 2019

* As of October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

Balance as of December 31, 2020

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(Amounts in thousands)

For the nine months ended

For the three months ended

Operating activities

Net income (loss)

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

1 unchanged sentence

Loss on sale of fixed assets, net

Foreign exchange (gain) loss

Foreign exchange loss

Non-cash changes in accounts receivable

4 unchanged sentences

Increase in cash surrender value of life insurance

Non-cash other

Adjustment for financing activities recognized in net income - Gain on extinguishment of debt

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable

Decrease in life insurance receivable

Decrease (increase) in inventories

Increase in refundable income taxes

Increase in operating right-of-use assets

Decrease (increase) in other assets

Decrease in accounts receivable

(Increase) decrease in inventories

Decrease (increase) in refundable income taxes

Decrease (increase) in operating lease right-of-use assets

Decrease in other assets

Decrease in investment in lease

Decrease (increase) in long-term receivable

(Decrease) increase in accounts payable and accrued expenses

Increase in operating lease liabilities

Increase (decrease) in deferred revenue

Increase (decrease) in pension and retirement plans liabilities

Decrease in income taxes payable

(Decrease) increase in other long-term liabilities

Decrease in long-term receivable

Increase (decrease) in accounts payable and accrued expenses

(Decrease) increase in operating lease liabilities

Increase in deferred revenue

Increase in pension and retirement plans liabilities

Decrease in other long-term liabilities

Net cash provided by (used in) operating activities

4 unchanged sentences

Financing activities

Dividends paid

Net payments under line-of-credit agreement

2 unchanged sentences

Principal payments on finance leases

Purchase of common stock

Proceeds from issuance of shares under equity compensation plans

Net cash provided by (used in) financing activities

Net cash used in financing activities

Effects of exchange rate on cash

5 unchanged sentences

Cash paid for interest

Supplementary non-cash financing and investing activities:

Obtaining a right-of-use asset in exchange for a lease liability

Non-cash purchases of property and equipment

Non-cash accrual of dividend payable

Supplementary non-cash financing activities:

Gain on extinguishment of debt

See accompanying notes to unaudited consolidated financial statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2020 AND 2019

FOR THE THREE MONTHS ENDED DECEMBER 31, 2020

Organization and Business

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Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the unaudited consolidated financial statements should be read in conjunction with the footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Revision of Prior Period Financial Statements

During the preparation of the consolidated financial statements for the year ended September 30, 2020, we identified an immaterial error in the first three quarters of fiscal year 2020 related to the recognition of certain revenue as “net,” when in fact the revenue should have been recorded on a “gross” basis.

As a result of evaluating the error, we determined the impact was not material to our financial statements in any prior interim period.

However, management has revised the first three quarters of fiscal year 2020.

The first quarter revised numbers are reflected in this Form 10-Q.

The only financial statement affected was the Consolidated Statement of Operations.

Specifically, financial statement line items Sales - Product, Sales - Services, and Cost of sales – product.

Net income (loss) and Gross profit did not change.

Notes affected include Note 4 Revenue and Note 14 Segment Information.

For the three months ended December 31, 2019

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

Use of Estimates

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Accounting standards adopted in fiscal year 2021

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , an amendment of the FASB Accounting Standards Codification.

This ASU requires lessees to recognize a right-of-use asset and lease liability for most lease arrangements, which excludes leases that meet the definition of a short-term lease.

The Company adopted this standard on October 1, 2019 using a modified retrospective transition method with an adjustment to the assets and liabilities on the Consolidated Balance Sheet with no adjustment to any prior period.

Additionally, prior comparative periods were not restated.

A package of three practical expedients that is applicable to all leases as lessee or lessor was adopted.

This includes not reassessing whether any expired or existing contracts contain leases, not reassessing lease classification for any expired or existing leases, and not reassessing initial direct cost for any existing lease under ASC Topic 840.

The Company also elected the practical expedient as a lessee to not separate lease and non-lease components for operating leases.

The statement of operations for three and nine months ended June 30, 2020 was not materially affected.

However, there was a material impact on the Company’s consolidated balance sheet as of June 30, 2020 due to the recognition of right-of-use assets and lease liabilities for operating leases, which is shown in the following table:

September 30, 2019

October 1, 2019

(In thousands)

Operating lease right-of-use assets

Accounts payable and accrued expenses

Operating lease liabilities - noncurrent portion

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allow a reclassification from accumulated other comprehensive income (loss) (“AOCI”) to retained earnings for stranded tax effects resulting from the change in the U.S.

federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”).

The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Early adoption is permitted.

Beginning October 1, 2019, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements.

In June 2018, the FASB issued ASU No.

2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting , an amendment of the FASB Accounting Standards Codification.

Under this ASU companies will no longer be required to value non-employee awards differently from employee awards, but the accounting remains different for attribution and a contractual term election for valuing nonemployee equity share options.

Equity-classified awards to nonemployees will now be measured at the grant date using fair value of the equity instruments the company is obligated to issue and recognition is associated with the probable outcome.

Awards are subsequently measured using stock compensation guidance unless they are modified after the nonemployee stops providing goods or services.

Existing disclosure requirements within the stock compensation guidance also apply to nonemployee awards.

For public entities, the new standard is effective for annual periods beginning after December 15, 2018, including interim periods within that fiscal year.

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No.

2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) , Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, an amendment of the FASB Accounting Standards Codification.

Under this ASU existing disclosures not considered cost beneficial are removed, disclosures identified as relevant are added, and there is added clarification regarding specific existing disclosures.

For public entities, the new standard is effective for annual periods beginning after December 15, 2020.

Beginning October 1, 2020, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements.

New accounting standards not adopted as of June 30, 2020

The disclosures will be expanded for the year ended September 30, 2021 as this standard does not affect interim disclosures.

New accounting standards not adopted as of December 31, 2020

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) , an amendment of the FASB Accounting Standards Codification.

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Additionally, there will be a significant increase in the amount of disclosures by year of origination for certain financing receivables.

For public entities, the new standard is effective for annual periods beginning after December 15, 2019, including interim periods within that annual period.

The Company is evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No.

Under this ASU existing disclosures not considered cost beneficial are removed, disclosures identified as relevant are added, and there is added clarification regarding specific existing disclosures.

For public entities, the new standard is effective for annual periods beginning after December 15, 2020.

For public entities classified as a smaller reporting company, the new standard is effective for annual periods beginning after December 15, 2022 (ASU 2019-10 Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates ), including interim periods within that annual period.

The Company is evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

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Revenue from software is recognized at a point in time when the license is granted.

We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether the Company is acting as a principal party to the transaction or simply acting as an agent or broker based on control and timing.

The Company is a principal if it controls the good or service before that good or service is transferred to the customer.

We record revenue as gross when the Company is a principal party to the arrangement and net of cost when we are acting as a broker or agent.

Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold.

Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction.

Third-party service contracts are sold in different combinations with hardware, software, and services.

We have determined the third-party services contracts are a single performance obligation in each sale.

When the Company is an agent, revenue is typically recorded at a point in time.

When the Company is the principal, revenue is recognized over the contract term.

Professional services generally include implementation, installation, and training services.

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HPP Segment Revenue

HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the Multicomputer and Myricom product lines.

HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the Multicomputer, Myricom, and ARIA product lines.

Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products’ functionality, and post contract maintenance and support.

2 unchanged sentences

Technology Solutions Segment

For the three months ended June 30,

(Amounts in thousands)

Technology Solutions Segment

For the three months ended June 30,

(Amounts in thousands)

Technology Solutions Segment

For the nine months ended June 30,

For the three months ended December 31,

(Amounts in thousands)

Technology Solutions Segment

For the nine months ended June 30,

For the three months ended December 31,

(Amounts in thousands)

5 unchanged sentences

This method is most appropriate as it depicts the measure of progress towards satisfaction of the performance obligation.

When product and services are sold together, the allocation of the transaction price to each performance obligation is calculated using a budgeted cost-plus margin approach.

A financing component exists when at contract inception the period between the transfer of a promised good and/or service to the customer differs from when the customer pays for the good and/or service.

As a practical expedient, the Company has elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less.

Certain contracts contain a financing component including managed services contracts with financing of hardware and software.

The interest rate used reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement.

The lease component includes hardware, which is subject to ASC 842, Leases .

The non-lease components are subject to ASC 606, Revenue from Contracts with Customers .

When product and non-managed services are sold together, the allocation of the transaction price to each performance obligation is calculated based on the estimated relative selling price or a budgeted cost-plus margin approach, as appropriate.

Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price.

1 unchanged sentence

For items sold separately, including hardware, software, professional services, maintenance contracts, other services, and third-party service contracts, there is no allocation as there is one performance obligation.

The Company is a principal if it controls the good or service before that good or service is transferred to the customer.

We record revenue as gross when the Company is a principal party to the arrangement and net of cost when we are acting as a broker or agent for a third party.

Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold.

Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction.

Third-party service contracts are sold in different combinations with hardware, software, and services.

When the Company is an agent, revenue is typically recorded at a point in time.

When the Company is the principal, revenue is recognized over the contract term.

We have concluded we are the agent in sales of third-party maintenance, software or hardware support, and certain security software that is sold with integral third-party delivered software maintenance that include critical updates.

Contract Assets and Liabilities

1 unchanged sentence

When the Company has the right to bill a customer, accounts receivable is recorded as an unconditional right exists.

Current contract assets were $1.6 million and $0.6 million as of June 30, 2020 and September 30, 2019, respectively.

Current contract assets were $0.8 million and $1.0 million as of December 31, 2020 and September 30, 2020, respectively.

The current portion is recorded in other current assets on the consolidated balance sheets.

There were no non-current contract assets as of June 30, 2020 and September 30, 2019.

There were no non-current contract assets as of December 31, 2020 and September 30, 2020.

The difference in the balances is due to regular timing differences between when work is performed and having an unconditional right to payment.

Contract liabilities arise when payment is received before the Company transfers a good or service to the customer.

Current contract liabilities were $1.3 million and $0.7 million as of June 30, 2020 and September 30, 2019, respectively.

Current contract liabilities were $1.2 million and $0.9 million as of December 31, 2020 and September 30, 2020, respectively.

The current portion of contract liabilities is recorded in deferred revenue on the consolidated balance sheets.

The long-term portion of contract liabilities were $0.2 million and $0.3 million as of June 30, 2020 and September 30, 2019, respectively.

The long-term portion of contract liabilities were $0.2 million and $0.2 million as of December 31, 2020 and September 30, 2020, respectively.

These non-current liabilities are recorded in other noncurrent liabilities.

Revenue recognized for the three and nine months ended June 30, 2020 that was included in contract liabilities as of the beginning of the period was $0.1 million and $0.4 million, respectively.

Revenue recognized for the year ended December 31, 2020 that was included in contract liabilities as of the beginning of the period was $0.3 million.

Contract Costs

Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are less than a one-year period, are expensed as incurred, utilizing the practical expedient in ASC 340-40-25-4 .

Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are equal to or less than a one-year period, are expensed as incurred, utilizing the practical expedient in ASC 340-40-25-4 .

For a period greater than one year, incremental contract costs are capitalized if the Company expects to recover these costs.

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Incremental costs are related to commissions in the TS portion of the business.

Current capitalized contract costs are within the other current assets on the consolidated balance sheets as of June 30, 2020 and September 30, 2019.

The portion of current capitalized costs were $82 thousand and $85 thousand as of June 30, 2020 and September 30, 2019, respectively.

Current capitalized contract costs are within the other current assets on the consolidated balance sheets as of December 31, 2020 and September 30, 2020.

The portion of current capitalized costs were $104 thousand and $130 thousand as of December 31, 2020 and September 30, 2020, respectively.

There are no non-current capitalized costs on the consolidated balance sheets as these commissions are paid annually even when the contract extends beyond a one-year period.

The amount of incremental costs amortized for the three and nine months ended June 30, 2020 were $81 thousand and $243 thousand, respectively.

The amount of incremental costs amortized for the three and nine months ended June 30, 2019 were $66 thousand and $174 thousand, respectively.

The amount of incremental costs amortized for the three months ended December 31, 2020 and 2019 were $87 thousand and $78 thousand, respectively.

This is recorded in selling, general, and administrative expenses.

There was no impairment related to incremental costs capitalized during the three and nine months ended June 30, 2020.

There was no impairment related to incremental costs capitalized during the three ended December 31, 2020.

Costs to fulfill a contract are capitalized when the costs are related to a contract or anticipated contract, generate or enhance resources that will be used in satisfying performance obligations in the future, and costs are recoverable.

1 unchanged sentence

Current capitalized fulfillment costs are in the other current assets and noncurrent costs are in other assets on the consolidated balance sheets.

The portion of current capitalized costs were $13 thousand and $47 thousand as of June 30, 2020 and September 30, 2019, respectively.

The portion of noncurrent capitalized costs were $25 thousand as of June 30, 2020 and there were not any as of September 30, 2019.

The amount of fulfillment costs amortized for three and nine months ended June 30, 2020 were $3 thousand and $9 thousand, respectively.

The amount of fulfillment costs amortized for three and nine months ended June 30, 2019 were $1 thousand and $9 thousand, respectively, and recorded in cost of sales.

The portion of current capitalized costs were $13 thousand and $13 thousand as of December 31, 2020 and September 30, 2020, respectively.

The portion of noncurrent capitalized costs as of December 31, 2020 and September 30, 2020 were $18 thousand and $22 thousand, respectively.

The amount of fulfillment costs amortized for three months ended December 31, 2020 and 2019 were $3 thousand and $3 thousand, respectively.

These costs amortized were recorded in cost of sales.

There was no impairment related to fulfillment costs capitalized.

3 unchanged sentences

Most of the Company’s contracts are less than one year.

There are certain contracts that do contain a financing component.

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Managed service contracts are generally longer than one year.

For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2020 is set forth in the table below:

For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2020 is set forth in the table below:

(Amounts in thousands)

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Diluted net income (loss) per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income (loss) by the assumed weighted average number of common shares outstanding.

We are required to present earnings per share, or EPS, utilizing the two class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities.

We are required to present earnings per share (“EPS”), utilizing the two class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities.

Basic and diluted earnings per share computations for the Company’s reported net loss attributable to common stockholders are as follows:

For the three months ended

For the nine months ended

(Amounts in thousands except per share data)

Net income (loss)

net income attributable to nonvested common stock

Net income (loss) attributable to common stockholders

net income (loss) attributable to nonvested common stock

Net loss attributable to common stockholders

Weighted average total shares outstanding – basic

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Net income (loss) per share – diluted

Non-vested restricted stock awards of 205,000 and 200,000 shares were excluded from the diluted loss per share calculation for the three and nine months ended June 30, 2020, respectively.

Non-vested restricted stock awards of 176,000 shares were excluded from the diluted loss per share calculation for the nine months ended June 30, 2019.

These awards were excluded because there was a net loss for these periods and their inclusion would have been anti-dilutive.

Non-vested restricted stock awards of 190,000 shares were excluded from the diluted loss per share calculation for the three months ended December 31, 2019 because there was a net loss for this period and their inclusion would have been anti-dilutive.

Accounts and Long-Term Receivable

Within accounts receivable and long-term receivable there are amounts due reflecting sales whose payment terms exceed one year.

This financing is separate from agreements with a leasing component, see Note 8 for financing through leases.

These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $2.3 million and $5.0 million as of June 30, 2020.

This financing is separate from agreements with a leasing component, see Note 8 Leases for financing through leases.

These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $2.4

million and $3.4 million as of December 31, 2020.

These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $2.3 million and $3.5 million as of September 30, 2020, respectively.

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There is not an allowance for credit losses nor impairments for accounts and long-term receivables with a contractual maturity of over one year.

All accounts have no past amounts due as of June 30, 2020 or September 30, 2019.

There was no activity in the allowance for credit losses of these receivables for the nine months ended June 30, 2020 and June 30, 2019, respectively.

All accounts have no past amounts due as of December 31, 2020 or September 30, 2020.

There was no activity in the allowance for credit losses of these receivables for the three months ended December 31, 2020 and December 31, 2019, respectively.

All these agreements are looked at as one portfolio in determining credit losses.

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The unearned income represents a rate similar to market at the inception of the agreement.

The amount of interest income earned from sales whose payment terms exceed one year for the three and nine months ended June 30, 2020 was $120 thousand and $349 thousand, respectively.

The amount of interest income earned from this type of agreement for the three and nine months ended June 30, 2019 was $11 thousand and $12 thousand, respectively.

The amount of interest income earned from sales whose payment terms exceed one year for the three months ended December 31, 2020 and 2019 was $92 thousand and $116 thousand, respectively.

Interest income from these agreements is recorded in Other income, net on the Consolidated Statements of Operations.

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(Amounts in thousands)

2020 (remaining 3 months)

Total payments

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Finished goods

At the inception of an arrangement, the Company determines whether the arrangement contains a lease.

This includes arrangements with goods and services to determine if there is an embedded lease.

An arrangement containing a lease would allow the Company the right to control an implicitly or explicitly identified asset.

If there is a lease in an arrangement, the classification is determined at inception of the arrangement.

Certain leases may contain transfer of ownership or an option to purchase the underlying asset.

The most relevant criterion for our lease classification is transfer of ownership, which if included in the arrangement makes the lease a finance lease rather than an operating lease.

The discount rate used to assess classification is the incremental borrowing rate at the commencement date due to the implicit rate not being readily determinable.

The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

The lease term includes periods where we are reasonably certain we will exercise the renewal option.

The Company has elected not to apply Subtopic ASC 842-25 to short-term leases, which are defined as a lease that has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Therefore, there are no right-of-use assets or lease liabilities related to short-term leases in the Consolidated Balance Sheets and the lease payments are expensed on a straight-line basis over the lease term.

Leases are typically not able to be terminated without penalty.

None of our lease arrangements contain residual value guarantees, restrictions, or covenants.

None of the Company’s current leases are with related parties.

The office lease in Lowell, Massachusetts was renewed through February 2022.

Additionally, the office lease in Deerfield Beach, FL was renewed through June 2025.

The right-of-use asset and lease liability was adjusted for the Lowell lease.

The Deerfield Beach lease renewal period was included in the right-of-use asset and lease liability upon adoption of ASC 842 on October 1, 2019 because it was reasonably certain this renewal period would be exercised by the Company.

There are no lease arrangements that we have entered into as of June 30, 2020 that have not yet commenced.

Operating leases

The Company has operating leases for office space, data centers, and other information technology equipment under various leases.

Operating lease right-of-use assets and liabilities are recognized at the commencement date using the present value of the fixed lease payments over the lease term.

We do not have leases with variable consideration.

The incremental borrowing rate is used in determining present value.

Certain operating leases, primarily office space and IT equipment, have an option to extend the lease.

Renewal periods related to certain lease agreements related to office buildings are included in the lease term for lease accounting.

The Company has operating lease agreements with lease components (e.g.

fixed payments including rent, real estate taxes, and insurance costs) as well as nonlease components (e.g.

common-area maintenance, colocation services).

The Company has elected to account for lease and nonlease components as one single lease component for all classes of assets.

Lease expense is recognized on a straight-line basis over the lease term.

Finance leases

The Company has finance leases for information technology equipment and subleases all this equipment (see Lessor section below for details).

All finance leases transfer ownership to the Company, which meets the criterion to be a finance lease.

Due to our finance leases being subleases, there is no finance right-of-use assets.

However, there is a net investment in lease in the Consolidated Balance Sheets.

The Company is a lessor, but only as a sublessor.

The process for identifying and classifying a lease is similar to the process described above in the lessee section.

Additionally, the most relevant criteria to classification is transfer of ownership and present value of the total lease payments in relation to fair value of the underlying asset.

The Company as a lessor has both sales-type and direct financing leases.

The Company as a lessor does not have operating leases.

Company’s sublease agreements are bundled agreements containing managed services, software, and other services.

The fixed payments under bundled agreements are allocated based on the relative standalone selling prices of the lease and non-lease deliverables are consistent with ASC 606.

The allocation of the fixed payments may be calculated using a budgeted cost-plus margin approach if there are other services in addition to managed services.

Due to the complex nature of these contracts, there is significant judgment in allocating the fixed payments.

There is no variable consideration in these agreements.

The discount rate used as a lessor pertaining to the lease component is the implicit rate.

As sublessor, lease agreements contain an option to purchase the underlying asset or transfers ownership at the end of the lease.

The leases typically do not have any residual value to the Company.

In the Company’s sublessor agreements, the payments allocated to the lease component cannot be terminated.

There were no new agreements where the Company was a lessor for the nine months ended June 30, 2020.

Information related to both lessee and lessor

The following table specifies where the right-of-use assets and lease liabilities are within the Consolidated Balance Sheets as of June 30, 2020 and October 1, 2019 (adoption date):

Consolidated Balance Sheets Location

June 30, 2020

October 1, 2019

(Amounts in thousands)

Operating leases

Operating lease right-of-use assets

Lease receivable - current

Investment in lease, net-current portion

Lease receivable - noncurrent

Investment in lease, net-less current portion

Total lease receivable

Current operating lease liabilities

Accounts payable and accrued expenses

Non-current operating lease liabilities

Operating lease liabilities - noncurrent portion

Total operating lease liabilities

Current finance lease liabilities

Accounts payable and accrued expenses

Non-current finance lease liabilities

Other noncurrent liabilities

Total finance lease liabilities

The components of lease costs for three and nine months ended June 30, 2020 are as follows:

The components of lease costs for the three months ended December 31, 2020 and 2019 are as follows:

Three months ended

Nine months ended

Consolidated Statements of Operations Location

June 30, 2020

(Amounts in thousands)

December 31, 2020

December 31, 2019

(Amounts in thousands)

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Total lease costs, net of sublease interest income

Future lease payments under our non-cancellable leases and payments to be received as a sublessor as of June 30, 2020 are in the following table:

Operating lease

Finance lease

Fiscal year ending September 30:

Payments received

(Amounts in thousands)

2020 (remaining 3 months)

Less Imputed interest

Supplemental cash flow information related to leases for the nine months ended June 30, 2020 is below:

Supplemental cash flow information related to leases for the three months ended December 31, 2020 and 2019 are below:

Three months ended

Nine months ended

June 30, 2020

(Amounts in thousands)

December 31, 2020

December 31, 2019

(Amounts in thousands)

7 unchanged sentences

Cash received from subleases

Information as a lessee related to weighted averages of lease term and discount rate as of June 30, 2020 is below:

Weighted-average remaining lease term (years)

June 30, 2020

Operating leases

Finance leases

Weighted-average discount rate

June 30, 2020

Operating leases

Finance leases

Below are ASC 840 disclosures as previously reported in our Form 10-K for the year ended September 30, 2019:

Operating Leases

The Company was obligated under non-cancelable operating leases with an initial term in excess of one year as follows:

Fiscal year ending September 30:

(Amounts in thousands)

2020 (full year)

Capital leases

The Company was obligated under non-cancelable capital leases as follows:

Fiscal year ending September 30:

(Amounts in thousands)

2020 (full year)

Minimum lease payments including interest

Amount representing interest

Minimum lease payments excluding interest

A summary of components for the Company’s investment in lease, net is as follows:

September 30, 2019

(Amounts in thousands)

Investment in lease, gross

Unearned income

Total investment in lease, net

Current portion

Noncurrent portion

The schedule of future minimum lease payments receivable is as follows:

Fiscal year ending September 30:

(Amounts in thousands)

2020 (full year)

Minimum lease payments including interest

Amount representing interest

Minimum lease payments excluding interest

Notes Payable and Line of Credit

3 unchanged sentences

On April 17, 2020, CSP, Inc.

and Modcomp, Inc., its wholly owned subsidiary (collectively, the “Borrowers”) each received a loan in the form of a promissory note from Paragon Bank (“Lender”) in the amounts of $827,000 and $1,353,600, respectively (the “SBA Loans”) under the Paycheck Protection Program, which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S.

and Modcomp, Inc., its wholly owned subsidiary (collectively, the “Borrowers”) each received a loan in the form of a promissory note from Paragon Bank (“Lender”) in the amounts of $827,000 and $1,353,600, respectively (the “SBA Loans”) under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S.

Small Business Administration (“SBA”).

The SBA Loans have a two-year term and carry an annual fixed interest rate of 1%.

The SBA Loans provide for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, materially false or misleading representations to Lender or SBA, and adverse changes in the financial condition or business operations that Lender believes may materially affect Borrowers’ ability to pay the SBA Loans.

The Borrowers did not provide any collateral or guarantees for the SBA Loans and the Borrowers may prepay the principal of the SBA Loans at any time without penalty.

The Borrowers may apply to the Lender for forgiveness of an amount due on the SBA Loans in an amount equal to the sum of certain costs during the 8 or 24 week period beginning on the date of the first disbursement of the SBA Loans.

The Company elected to use the 24 week period.

However, based on guidance from the SBA the borrowers may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness, which is our intention.

The amount of SBA Loans forgiveness shall be calculated in accordance with the requirements of the Paycheck Protection Program, including provisions of Section 1106 of the CARES Act.

We intend to use the SBA Loans proceeds in accordance with the applicable SBA guidelines.

However, we can provide no assurances that we will be eligible for forgiveness of the SBA Loans, in whole or in part.

Interest expense related to the notes for the three and nine months ended June 30, 2020 was $36 thousand and $99 thousand, respectively.

There was no interest expense related to a note for three and nine months ended June 30, 2019 as there were no outstanding notes payable as of this date.

The SBA Loans provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, materially false or misleading representations to Lender or SBA, and adverse changes in the financial condition or business operations that Lender believed could materially affect Borrowers’ ability to pay the SBA

The Borrowers did not provide any collateral or guarantees for the SBA Loans and the Borrowers could prepay the principal of the SBA Loans at any time without penalty.

The Borrowers applied to the Lender for forgiveness of an amount due on the SBA Loans in an amount equal to the sum of certain costs during the 24 week period beginning on the date of the first disbursement of the SBA Loans.

The amount of SBA Loans forgiveness was calculated in accordance with the requirements of the PPP, including provisions of Section 1106 of the CARES Act.

We used the SBA Loans proceeds in accordance with the applicable SBA guidelines.

In November 2020 the SBA Loans were formally forgiven.

The $2.2 million gain is displayed on the Consolidated Statement of Operations in the line item “Gain on extinguishment of debt.”

Interest expense related to the notes for the three months ended December 31, 2020 and 2019 was $23 thousand and $30 thousand, respectively.

Below are details of the notes payable.

June 30, 2020

December 31, 2020

September 30, 2020

4 unchanged sentences

Notes payable - noncurrent portion

As of June 30, 2020 and September 30, 2019, the Company maintained an inventory line of credit with a borrowing capacity of $15.0 and $20.0 million, respectively.

It may be used by the TS and HPP segment in the U.S.

As of December 31, 2020 and September 30, 2020, the Company maintained an inventory line of credit with a borrowing capacity of $15.0 million.

It may be used by the TS and HPP segments in the U.S.

to purchase inventory from approved vendors with payment terms which exceed those offered by the vendors.

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(1) a minimum current ratio of 1.2, (2) tangible net worth of no less than $4.0 million, and (3) a maximum ratio of total liabilities to total net worth of less than 5.0:1.

As of June 30, 2020 and September 30, 2019, Company borrowings, all from the TS segment, under the inventory line of credit were $1.1 million and $2.5 million, respectively, and the Company was in compliance with all covenants.

As of June 30, 2020 and September 30, 2019 this line of credit also includes availability of a limited cash

withdrawal of up to $1.0 million and $1.5 million, respectively.

As of June 30, 2020 and September 30, 2019 there were no cash withdrawals outstanding.

The amount of the inventory line of credit and cash withdrawal was lowered in June of 2020 primarily due to lack of need for full use of the line.

As of December 31, 2020 and September 30, 2020, Company borrowings, all from the TS segment, under the inventory line of credit were $0.8 million and $1.6 million, respectively, and the Company was in compliance with all financial covenants.

As of December 31, 2020 and September 30, 2020 this line of credit also includes availability of a limited cash withdrawal of up to $1.0 million and $1.5 million, respectively.

As of December 31, 2020 and September 30, 2020 there were no cash withdrawals outstanding.

Pension and Retirement Plans

13 unchanged sentences

plans are as follows:

Three Months Ended June 30,

(Amounts in thousands)

Interest cost

Expected return on plan assets

Amortization of past service costs

Amortization of net gain (loss)

Net periodic benefit cost

Post Retirement:

Interest cost

Amortization of net gain (loss)

Net periodic cost

Nine Months Ended June 30,

Three Months Ended December 31,

(Amounts in thousands)

2 unchanged sentences

Amortization of past service costs

Amortization of net gain (loss)

Amortization of net gain

Net periodic benefit cost

1 unchanged sentence

Interest cost

Amortization of net gain (loss)

Amortization of net gain

Net periodic cost

2 unchanged sentences

Fair Values as of

June 30, 2020

December 31, 2020

September 30, 2020

5 unchanged sentences

Total plan assets

An income tax expense of $10 thousand was recorded for the three months ended June 30, 2020 compared to an income tax benefit of $326 thousand in the same period of 2019.

The income tax expense for the nine months ended June 30, 2020 was $1.1 million and the income tax benefit for the same period of the prior year was $466 thousand.

The year to date income tax expense reflects the recording of a valuation allowance against deferred tax assets during the second quarter, as the Company has concluded that it is more likely than not that a portion of its deferred tax assets will not be realized in light of recent results, the COVID-19 pandemic, and the resulting economic fallout.

The year to date income tax expense is net of federal tax benefits anticipated from the carryback of current and prior period federal net operating losses, as allowed under the recently enacted CARES Act, to recover federal taxes paid in prior periods.

The 2019 year to date income tax benefit reflected the benefit of prior year losses.

An income tax provision of $110 thousand was recorded for the three months ended December 31, 2020 compared to an income tax benefit of $70 thousand in the same period of 2019.

The increase in tax expense is primarily related to the write down of a deferred tax asset as a result of the change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program (“PPP”) loan with an associated change in the valuation allowance against deferred tax assets from the prior period, offset by the forgiveness of the PPP Loans for which the income is excluded for tax purposes.

This additional expense was recorded discretely during the quarter.

In the prior period, the Company established a deferred tax asset for these expenses that were expected to be deductible in a future period.

The provisions above are estimates, and accordingly, changes to these estimates will be recorded in subsequent periods as more information and guidance becomes available.

6 unchanged sentences

Accumulated other comprehensive loss

Repurchase of Common Stock

On November 13, 2007, the Board of Directors authorized the Company to purchase 250 thousand shares of its outstanding common stock.

On February 3, 2009, the Board of Directors authorized the Company to purchase up to 350 thousand additional shares of the Company's outstanding common stock at market price.

On February 8, 2011, the Board of Directors authorized the Company to purchase up to 250 thousand additional shares of the Company's outstanding common stock at market price.

The plan does not expire.

Pursuant to the aforementioned authorization, the Company repurchased 400 and 6 thousand shares of its outstanding common stock on the open market during the three and nine months ended June 30, 2020.

As of June 30, 2020, approximately 194 thousand shares remain authorized to repurchase under the stock repurchase program.

As of May 14, 2020, we have suspended our stock repurchase program until further economic clarity.

On December 10, 2019, the Company’s board of directors declared a cash dividend of $0.15 per share which was paid on January 15, 2020 to shareholders of record as of December 31, 2019, the record date.

On February 12, 2020, the Company’s board of directors declared a cash dividend of $0.15 per share which was paid on March 13, 2020 to shareholders of record as of February 28, 2020, the record date.

As of May 14, 2020, the Company has suspended dividends until further economic clarity.

Fair Value of Financial Assets and Liabilities

5 unchanged sentences

unobservable inputs (e.g., a reporting entity’s or other entity’s own data)

The Company had no assets or liabilities measured at fair value on a recurring (except our pension plan assets and whole life insurance policies, see Note 10) or non-recurring basis as of June 30, 2020 or September 30, 2019.

To estimate fair value of the financial instruments below, quoted market prices are used when available and classified within Level 1.

1 unchanged sentence

If the preceding information is unavailable, we use internally generated data to estimate fair value which is classified within Level 3.

As of June 30, 2020

As of December 31, 2020

As of September 30, 2020

5 unchanged sentences

Consolidated Balance Sheets

Accounts & long-term receivable*

Accounts and long-term receivable*

Notes payable

6 unchanged sentences

Fair value was estimated based on quoted market prices.

Fair value of accounts receivable with an original maturity of one year or less and accounts payable was not materially different from their carrying values at June 30, 2020 and September 30, 2019.

Fair value of accounts receivable with an original maturity of one year or less and accounts payable was not materially different from their carrying values at December 31, 2020 and September 30, 2020.

Segment Information

The following tables present certain operating segment information for the three and nine months ended June 30, 2020 and 2019.

Technology Solutions Segment

For the three months ended June 30,

(Amounts in thousands)

Income (loss) from operations

Capital expenditures

Depreciation and amortization

Income (loss) from operations

Capital expenditures

Depreciation and amortization

The following tables present certain operating segment information for three months ended December 31, 2020 and 2019.

Technology Solutions Segment

For the nine months ended June 30,

For the three months ended December 31,

(Amounts in thousands)

8 unchanged sentences

All intercompany transactions have been eliminated.

The following table lists customers from which the Company derived revenues in excess of 10% of total revenues for the three and nine months ended June 30, 2020 and 2019.

For the three months ended June 30,

For the nine months ended June 30,

(Dollar amounts in millions)

Customer B totaled approximately $6.3 million, or 39%, and approximately $7.4 million, or 36%, of total consolidated accounts receivable and long-term receivable as of June 30, 2020 and September 30, 2019, respectively.

There were no other customers that were more than 10% of total consolidated accounts receivable and long-term receivable as of June 30, 2020.

We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with any customers as of June 30, 2020.

The following table lists customers from which the Company derived revenues of 10% or more of total revenues for the three months ended December 31, 2020 and 2019.

For the three months ended December 31,

(Amounts in thousands)

Customer B totaled approximately $4.8 million, or 30%, and approximately $4.7 million, or 28%, of total consolidated accounts receivable and long-term receivable as of December 31, 2020 and September 30, 2020, respectively.

There were no other customers that were more than 10% of total consolidated accounts receivable and long-term receivable as of December 31, 2020.

We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with any customers as of December 31, 2020

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

What changed 10-Q

Item 1. Financial Statements