What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-13 compared with 2021-02-11 · 187 added, 85 removed, 72 unchanged (79% of the section changed)

19 unchanged sentences

A description of our critical accounting policies is contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 in the “Critical Accounting Policies” section contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Observations on effects of novel coronavirus (COVID-19)

On March 11, 2020, the World Health Organization characterized the novel coronavirus (COVID-19) outbreak as a pandemic.

Observations on effects of novel coronavirus

On March 11, 2020, the World Health Organization characterized the novel coronavirus outbreak as a pandemic.

The outbreak has and continues to adversely affect the economies of the U.S., U.K., and other international markets and economies in which we operate.

As a result of the World Health Organization characterizing the COVID-19 outbreak as a pandemic, national, state, and local governments have and continue to take actions such as declaring a state of emergency, implementing social distancing and other guidelines, and shutting down and/or limiting the opening or operation of certain businesses which are not considered essential.

The Company continues to comply with such actions

causing most employees to work remotely in all locations.

Our revenue decreased significantly for the three months ended December 31, 2020 due to the pandemic.

In these times of pandemic, our top priorities are to protect the health, well-being, and safety of our employees and partners, while still focusing on the key drivers of our business.

To that end, and to insure we continue to operate safety and cautiously while also meeting our public health responsibilities, the Company has adopted flexible business practices including allowing most employees to work remotely in all locations.

Our revenue decreased significantly for the three and six months ended March 31, 2021 due to the pandemic.

This is largely the result of customers reducing their budgets.

The pandemic has also had an adverse effect on our ability to transact one-on-one business.

Due to the uncertainty of the pandemic, including but not limited to, regulatory measures or voluntary actions that have and may be put in place to limit the spread of COVID-19 and the duration of such measures, the impact of any further spread of COVID-19, or the resurgence of COVID-19 in a given geographic region after it has hit its “peak,” at this time, we cannot make a reasonable estimate on the extent or duration of the impacts on our business.

We recognize the pandemic has created a dynamic and uncertain situation in the national economy, and we continue to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pandemic on our operations.

Despite reduced infection rates and ever-increasing vaccination rates in the United States, many nations and certain pockets within the United States are still battling various strains/variants of the novel coronavirus, creating ongoing uncertainties as to when economies will return to business as usual and what that will look like, what regulatory measures or voluntary actions will be further implemented to limit the spread of COVID-19 and the duration of such measures, the extent, severity and impact of any further spread of COVID-19 variants or resurgence of COVID-19 in a given geographic region after it has hit its “peak,” and the extent to which herd immunity will be achieved through the vaccination process.

In summary, the scope of this pandemic and its effects are unprecedented, and we cannot at this time make a reasonable estimate on the extent or duration of the impacts on our business.

Results of Operations

Overview of the three months ended December 31, 2020

Our revenues decreased by approximately $5.5 million, or 33%, to $11.4 million for the three months ended December 31, 2020 as compared to $16.9 million for the three months ended December 31, 2019.

The decrease in revenue is the result of a decrease of $6.0 million in our TS segment, partially offset by a $0.5 million increase in our HPP segment.

Our gross margin percentage increased to 30% of revenues for the three months ended December 31, 2020 from 24% for the three months ended December 31, 2019.

The increase is primarily attributed to the HPP segment.

For the three months ended December 31, 2020 there was an operating loss of $0.5 million compared to an operating loss of $0.4 million for the three months ended December 31, 2019, primarily as a result of decreased sales.

Other income, (expense) net increased approximately $2.0 million for the three months ended December 31, 2020 to income of $1.8 million as compared to expense of $0.2 million for the three months ended December 31, 2019.

The primary components of Other income, (expense) include an increase from debt forgiveness of loans taken out at each operating segment under the Payroll Protection Program totaling 2.2 million, partially offset by a foreign exchange loss of $0.5 million.

The income tax provision was $0.1 million for the three months ended December 31, 2020, as compared to income tax benefit of $0.1 million for the three months ended December 31, 2019.

The effective tax rate for the current quarter was 8.7%.

The effective tax expense rate was primarily driven by an increase in tax expense.

This is primarily related to the write off 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 along with the associated change in 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 following table details our results of operations in dollars and as a percentage of sales for the three months ended December 31, 2020 and 2019:

December 31, 2020

December 31, 2019

Overview of the three months ended March 31, 2021

Our revenues decreased by approximately $2.8 million, or 17%, to $14.1 million for the three months ended March 31, 2021 as compared to $16.9 million for the three months ended March 31, 2020.

The decrease in revenue is the result of a decrease of $2.2 million in our TS segment combined with a $0.6 million decrease in our HPP segment.

Our gross margin percentage increased to 31% of revenues for the three months ended March 31, 2021 from 27% for the three months ended March 31, 2020.

The increase is attributed to the TS segment.

For the three months ended March 31, 2021 there was an operating loss of $0.1 million compared to an operating loss of $0.1 million for the three months ended March 31, 2020, primarily as a result of decreased sales offset with a higher gross margin as a percentage of revenue.

Other income, (expense) net decreased approximately $0.6 million for the three months ended March 31, 2021 to approximately none as compared to income of $0.6 million for the three months ended March 31, 2020.

This is primarily due to an increase in foreign exchange loss of $0.6 million for the three months ended March 31, 2021 from the prior year.

An income tax expense of $723 thousand was recorded for the three months ended March 31, 2021 compared to an income tax expense of $1.2 million in the same period of 2020.

The income tax expense for the three months ended March 31, 2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program.

The deferred tax asset change is a non-cash item.

The following table details our results of operations in dollars and as a percentage of sales for the three months ended March 31, 2021 and 2020:

March 31, 2021

March 31, 2020

(Dollar amounts in thousands)

7 unchanged sentences

Income (loss) before income taxes

Income tax expense (benefit)

Income tax expense

Our revenues decreased by approximately $2.8 million to $14.1 million for the three months ended March 31, 2021 as compared to $16.9 million of revenues for the prior year period.

TS segment revenues decreased by $2.2 million and HPP segment revenues decreased by approximately $0.6 million.

TS segment revenue change was as follows for the three months ended March 31, 2021 and March 31, 2020:

(Dollar amounts in thousands)

The decrease in TS segment product revenues of $2.0 million during the period is attributable to the U.S.

division and is primarily the result of decreased sales to several major customers during the period due to companies continuing budget freezes or reductions.

Service revenue for the three months ended March 31, 2021 decreased $0.2 million from the prior year.

The changes in service revenue include decreased internal and third party service revenue of $0.7 million, partially offset with increased third party maintenance revenues of $0.4 million primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue), and increased managed services revenue of $0.1 million.

HPP segment revenue change was as follows for the three months ended March 31, 2021 and 2020:

(Dollar amounts in thousands)

The HPP product revenues decreased by $0.2 million for the three months ended March 31, 2021 as compared to prior year, primarily as a result of a $0.2 million decrease in Myricom product sales.

The HPP services revenues decreased $0.4 million for the three months ended March 31, 2021 from prior year primarily due to decreased royalties on high-speed processing boards related to the E2D program.

Our revenues by geographic area, which is based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended March 31, 2021 and March 31, 2020:

Increase (decrease)

(Dollar amounts in thousands)

The $3.1 million decrease in revenue to the Americas is primarily the result of decreased sales by our TS segment division of $2.3 million combined with a decrease in the HPP segment of $0.8 million.

The $0.2 million increase in revenue to Europe is primarily the result of increased sales by our U.S.

division of $0.1 million combined with a $0.1 million increase from the HPP segment.

The revenue to Asia increased $0.2 million is primarily the result of an increase from the HPP segment.

Gross Margins

Our gross margin ("GM") decreased by approximately $0.1 million to $4.4 million for the three months ended March 31, 2021 as compared to a gross margin of approximately $4.5 million for the prior year.

The GM as a percentage of revenue increased to 31% for the three months ended March 31, 2021, from 27%.

The increase in GM as a percentage of revenue is attributed to the TS segment.

Increase (decrease)

(Dollar amounts in thousands)

The impact of product mix within our TS segment on gross margin for the three months ended March 31, 2021 and 2020 was as follows:

Increase (decrease)

(Dollar amounts in thousands)

The overall TS segment GM as a percentage of sales increased to 29% for the three month period ended March 31, 2021 compared to 24% for the prior year.

GM as a percentage of product sales increased to 20% for the three months ended March 31, 2021 from 15% for the prior year.

This is primarily due to significant pricing discounts given to the U.S.

division from several manufacturers that were not given in the prior year.

GM as a percentage of service sales increased to 61% for the three months ended March 31, 2021 from 58% for the prior year period.

This is primarily due to increased sales of third party maintenance revenues of $0.3 million primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue) and increased sales of managed services compared to the prior year.

The impact of product mix within our HPP segment on gross margin for the three months ended March 31, 2021 and 2020 was as follows:

Increase (Decrease)

(Dollar amounts in thousands)

The overall HPP segment GM as a percentage of sales decreased to 54% for the three months ended March 31, 2021 from 56% for the three months ended March 31, 2020.

This 2% decrease is attributed to decreased GM from decreased services revenue including a $0.3 million decrease of royalty revenues, which is nearly all margin.

Product GM as a percentage of revenue increased by 14% for the six months ended March 31, 2021 from prior year due to product mix and a reduction in manufacturing overhead expenses.

Operating Expenses

Engineering and Development Expenses

The engineering and development expenses incurred by our HPP segment increased by approximately $0.1 million for the three months ended March 31, 2021 to $0.8 million from $0.7 million for the prior year.

The current period

expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA SDS cyber security products.

Selling, General and Administrative Expenses

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the three months ended March 31, 2021 and 2020:

For the three months ended March 31,

(Dollar amounts in thousands)

By Operating Segment:

SG&A expenses overall decreased $0.2 million for the three months ended March 31, 2021 as compared to the prior year.

The $0.1 million decrease in TS segment SG&A expenses compared to the same prior year period is primarily the result of a $0.1 million decrease of payroll.

The HPP segment SG&A expenses decreased $0.1 million for the three months ended March 31, 2021 as compared to the prior year due to decreased travel and stock compensation expense.

Other Income/Expenses

The following table details other income (expense) for the three months ended March 31, 2021 and 2020:

For the three months ended

March 31, 2021

March 31, 2020

(Amounts in thousands)

Interest expense

Interest income

Foreign exchange (loss) gain

Other income (expense), net

Total other income (expense), net

The $583 thousand decrease in total other income (expense), net for the three months ended March 31, 2021 as compared to the prior year is primarily driven by an increase in foreign exchange loss of $633 thousand.

division has significant bank accounts with U.S.

dollars and Euros.

In consolidation, U.S.

dollars and Euros are remeasured into the functional currency, British Pounds, of our U.K.

This non-cash remeasurement is included in foreign exchange gain or loss on the income statement and the foreign exchange loss is primarily from a Euro and U.S.

Dollar bank account.

The US dollar and Euro weakened relative to the British Pound for the three months ended March 31, 2021, which caused the foreign exchange loss.

The interest income decrease of $30 thousand for the three months ended March 31, 2021 as compared to the prior year is primarily related to agreements that have payment terms in excess of one year (see Note 6 in Item 1 to this Quarterly Report on Form 10-Q) from the TS-US segment.

The deferred tax asset change is a non-cash item.

The income tax expense for the three months ended March 31, 2020 reflected the recording

of a valuation allowance against deferred tax assets during the quarter, offset by the anticipated tax benefit from the carryback of net operating losses.

We have in general historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full calendar year to ordinary income or loss for the reporting period.

However, we used a discrete effective tax rate method to calculate income taxes for the quarter ended March 31, 2021 because we determined that our ordinary income or loss cannot be reliably estimated and small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rates.

Overview of the six months ended March 31, 2021

Our revenues decreased by approximately $8.3 million, or 24%, to $25.5 million for the six months ended March 31, 2021 as compared to $33.7 million for the prior year.

The decrease in overall revenue for the six months ended March 31, 2021 as compared to the prior year is primarily the result of an approximately $8.2 million decrease in our TS segment revenue.

The is primarily due to decreased sales to several major customers in the U.S.

Our overall gross margin percentage increased to 30% of revenue for the six months ended March 31, 2021 from 25% of revenue for the six months ended March 31, 2020.

Our operating loss increased by approximately $0.2 million resulting in an operating loss of $0.7 million for the six months ended March 31, 2021 as compared to operating loss of $0.5 million for prior year period, primarily as a result of decreased product revenues, which was partially offset by overall increased gross margin as a percentage of revenue.

Other income, (expense) net increased by $1.4 million primarily due the gain on forgiveness of the Payroll Protection Program loans, partially offset by an increase in foreign exchange loss of $0.8 million.

An income tax expense of $833 thousand was recorded for the six months ended March 31, 2021 compared to an income tax expense of $1.1 million in the same period of 2020.

The income tax expense for the six months ended March 31, 2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program.

The deferred tax asset change is a non-cash item.

The following table details our results of operations in dollars and as a percentage of sales for the six months ended March 31, 2021 and 2020:

March 31, 2021

March 31, 2020

(Dollar amounts in thousands)

Costs and expenses:

Cost of sales

Engineering and development

Selling, general and administrative

Total costs and expenses

Operating loss

Other income, (expense) net

Income (loss) before income taxes

Income tax expense

Net income (loss)

Our revenues decreased by approximately $5.5 million to $11.4 million for the three months ended December 31, 2020 as compared to $16.9 million of revenues for the three months ended December 31, 2019.

TS segment revenues decreased by $6.0 million and HPP segment revenues increased by approximately $0.5 million.

TS segment revenue change was as follows for the three months ended December 31, 2020 and December 31, 2019:

Our total revenues decreased by approximately $8.3 million to $25.5 million for the six months ended March 31, 2021 as compared to $33.7 million of revenues for the prior year.

TS segment revenue change was as follows for the six months ended March 31, 2021 and 2020:

(Dollar amounts in thousands)

The decrease in TS segment product revenues of approximately $5.6 million during the period is primarily the result of a decrease of $6.4 million in our U.S.

division, partially offset by an increase in the U.K.

division of $0.8 million.

The decrease in TS segment product revenues of $7.5 million for the six months ended March 31, 2021 as compared to the prior year period is the result of a decrease of $8.4 million in our U.S.

division, partially offset with a $0.9 million increase in our U.K.

The $8.4 million decrease in the U.S.

division is primarily the result of decreased sales to several major customers during the period.

division product revenues is the result of decreased sales to several major customers.

The $0.9 million increase in the U.K.

division product revenues is primarily the result of higher sales volume to one major customer during the period as compared to the prior year period.

There was a decrease in TS segment service revenues of $0.4 million during the period as compared to the prior year period, which is primarily due to a decrease in the U.S.

division service revenues consisting of a decrease of $0.6 million in internal service and third party service revenues, partially offset by a $0.1 million increase in managed service contract revenues and a $0.1 million increase in third party maintenance revenues.

HPP segment revenue change was as follows for the three months ended December 31, 2020 and 2019:

division product revenue is due to sales to one customer that did not occur in the prior year.

The decrease in TS segment service revenues of $0.7 million for the six months ended March 31, 2021 as compared to the prior year period is attributable to the U.S.

division and is primarily the result of a decrease of a $1.3 million decrease in internal and third party service revenues, partially offset by an increase of $0.5 million in third party maintenance revenue primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue) and a $0.1 million increase in managed service contract revenues.

HPP segment revenue change was as follows for the six months ended March 31, 2021 and 2020:

Increase (decrease)

(Dollar amounts in thousands)

The HPP product revenues increased by $0.4 million for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, primarily as a result of a $0.4 million increase in Multicomputer product sales.

The HPP services revenues increased $0.1 million for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019 due to $0.3 million of increased royalties on high-speed processing boards related to the E2D program, partially offset by a decrease of $0.2 million from repairs from the prior year period.

Our revenues by geographic area, which is based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended December 31, 2020 and 2019:

The HPP product revenue increase of $0.2 million for the six months ended March 31, 2021 as compared to the prior year is primarily due to increased Multicomputer sales of approximately $0.4 million, partially offset with a decrease of $0.2 million from Myricom product sales.

The decrease in HPP services revenues of approximately $0.3 million is primarily the result of a decrease in repair revenue.

Our revenues by geographic area, which is based on the customer location to which the products were shipped or services rendered, were as follows for the six months ended March 31, 2021 and 2020:

Increase (decrease)

(Dollar amounts in thousands)

The $6.4 million decrease in revenue to the Americas is primarily the result of decreased sales by our TS segment division of $6.9 million, partially offset by an increase in the HPP segment of $0.5 million.

The $0.9 million increase in

revenue to Europe is primarily the result of increased sales by our TS segment consisting of $0.8 million from the U.K.

division and $0.1 million from the U.S.

The revenue to Asia remained stable from the prior period.

The $9.5 million decrease in the Americas revenues for the six months ended March 31, 2021 as compared to the same prior year period is primarily due to decreased revenue by our TS U.S.

division of $9.2 million and decreased revenue by our HPP segment of $0.3 million.

The $1.0 million increase in Europe revenue for the six month period ended March 31, 2021 as compared to the prior year is primarily due to increased sales by our TS U.K.

division of $0.8 million, increased sales by our TS U.S.

division of $0.1 million, and increased sales in our HPP segment of $0.1 million.

The $0.2 million increase in Asia revenue for the six month period March 31, 2021 as compared to the prior year is primarily due to increased sales by our HPP segment.

Gross Margins

Our gross margin ("GM") decreased by approximately $0.6 million to $3.4 million for the three months ended December 31, 2020 as compared to a gross margin of approximately $4.0 million for the three months ended December 31, 2019.

The GM as a percentage of revenue increased to 30% for the three months ended December 31, 2020, from 24% for the three months ended December 31, 2019.

The increase in GM as a percentage of revenue is primarily attributed the HPP segment.

Our gross margin ("GM") decreased by $0.8 million to $7.7 million for the six months ended March 31, 2021 as compared to a gross margin of approximately $8.5 million for the prior year.

However, the GM as a percentage of revenue increased to 30% for the six months ended March 31, 2021 from 25% for the prior year.

Increase (Decrease)

(Dollar amounts in thousands)

The impact of product mix within our TS segment on gross margin for the three months ended December 31, 2020 and 2019 was as follows:

The impact of product mix within our TS segment on gross margin for the six months ended March 31, 2021 and 2020 is as follows:

Increase (decrease)

(Dollar amounts in thousands)

The overall TS segment GM as a percentage of sales increased to 25% for the three month period ended December 31, 2020 from 23% for the three month period ended December 31, 2019.

This is due to a significant increase of services gross margin relative to products gross margin.

However, individually both product and service GM as percentage of revenue slightly decreased.

The impact of product mix within our HPP segment on gross margin for the three months ended December 31, 2020 and 2019 was as follows:

The overall TS segment GM as a percentage of sales increased to 27% for the six months ended March 31, 2021 from 23% for the same prior year period.

The 3% increase in GM on product as a percentage of product sales is primarily due to significant pricing discounts given to the U.S.

division from several manufacturers that were not given in the prior year.

The 1% increase in GM on services as a percentage of services sales is due to increased volume of managed services and increased third party maintenance revenues primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue).

The impact of product mix within our HPP segment on gross margin for the six months ended March 31, 2021 and 2020 is as follows:

Increase (Decrease)

(Dollar amounts in thousands)

The overall HPP segment GM as a percentage of sales increased to 61% for the three months ended December 31, 2020 from 49% for the three months ended December 31, 2019.

The 12% increase in gross margin as a percentage of sales in the HPP segment for the three months ended December 31, 2020 as compared to the prior year period is attributed to increased GM from increased services revenue including a $280 thousand increase of royalty revenues, which is all margin.

The GM as a percentage of sales from products increased primarily due to increased E2D parts sold, which carry a higher GM as a percentage of revenue than other products sold.

The overall HPP segment GM as a percentage of sales increased to 58% for the period from 53% in the prior year period.

The 5% increase in total GM as a percentage of sales in the HPP segment is primarily attributed to product mix in both product and service revenue combined with a reduction in manufacturing overhead expenses.

Operating Expenses

Engineering and Development Expenses

The engineering and development expenses incurred by our HPP segment remained stable at $0.7 million for the three months ended December 31, 2020 when compared to the three months ended December 31, 2019.

The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA SDS cyber security products.

Engineering and development expenses increased by $0.1 million to $1.5 million for the six months ended March 31, 2021 as compared to the prior year.

The current period expenses were primarily for product engineering expenses incurred in connection with continued development of the ARIA SDS cyber security products.

Selling, General and Administrative Expenses

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the three months ended December 31, 2020 and 2019:

For the three months ended December 31,

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the six months ended March 31, 2021 and 2020:

For the six months ended March 31,

(Dollar amounts in thousands)

By Operating Segment:

SG&A expenses overall decreased approximately $0.6 million for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019.

The approximate $0.6 million decrease in TS segment SG&A expenses compared to the prior year period is primarily the result of a decrease of variable compensation of $0.2 million and a decrease of payroll related expenses of $0.4 million.

The HPP segment SG&A expenses for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019 remained relatively stable.

SG&A expenses decreased by approximately $0.8 million, or 10%, for the six months ended March 31, 2021 as compared to the prior year.

The $0.7 million decrease in TS segment expenses is primarily attributed to decreased payroll, variable compensation expenses, and travel.

The HPP segment $0.1 million decrease, or 5%, for the six months ended March 31, 2021 as compared to the prior year is primarily due to decreased stock compensation and travel expenses.

Other Income/Expenses

The following table details other income (expense) for the year ended December 31, 2020 and 2019:

For the three months ended

December 31, 2020

December 31, 2019

The following table details other income (expense) for the six months ended March 31, 2021 and 2020:

For the six months ended

March 31, 2021

March 31, 2020

(Amounts in thousands)

1 unchanged sentence

Interest income

Foreign exchange loss

Foreign exchange (loss) gain

Gain on debt forgiveness

1 unchanged sentence

Total other income (expense), net

The $2.0 million increase in total other income (expense), net for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019 is primarily driven by a gain on debt forgiveness of $2.2 million, which did not occur in the prior year.

This debt forgiveness is related to two loans (one at each operating segment) taken out under the Payroll Protection Program.

The largest offset was an increase in expense of $0.1 million in a foreign exchange loss.

The $1.4 million increase to total other income (expense), net for the six months ended March 31, 2021 as compared to the prior year is primarily driven by a gain on debt forgiveness of $2.2 million, partially offset by an increase in foreign exchange loss of $0.8 million.

division has significant bank accounts with U.S.

dollars and Euros.

In consolidation, U.S.

2 unchanged sentences

Dollar bank account.

The interest income decrease of $0.1 million for the three months ended December 31, 2020 as compared to the three months ended December 31, 2020 is primarily related to agreements that have payment terms in excess of one year (see Note 6 in Item 1 to this Quarterly Report on Form 10-Q) from the TS-US segment.

The income tax provision was $0.1 million for the three months ended December 31, 2020, as compared to income tax benefit of $0.1 million for the three months ended December 31, 2019.

The effective tax rate for the current quarter was 8.7%.

The effective tax expense rate was primarily driven by an increase in tax expense.

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.

Generally, fluctuations in the effective tax rate are primarily due to changes in our geographic pretax income resulting from our business mix and changes in the tax impact of permanent differences, other special items, and other discrete tax items, which may have unique tax implications depending on the nature of the item.

The US dollar and Euro weakened relative to the British Pound for the six months ended March 31, 2021, which caused the foreign exchange loss.

The decrease in interest income of $105 thousand is primarily related to agreements that have payment terms in excess of one year (see Note 6) from the TS-US segment.

The income tax expense of $833 thousand for the six months ended March 31, 2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program.

The deferred tax asset change is a non-cash item.

The income tax expense for the three months ended March 31, 2020 reflected the recording of a valuation allowance against deferred tax assets during the quarter, offset by the anticipated tax benefit from the carryback of net operating losses.

Liquidity and Capital Resources

Our primary source of liquidity is our cash and cash equivalents, which increased by $0.6 million to $19.9 million as of December 31, 2020 from $19.3 million as of September 30, 2020.

Our significant sources of cash for the year ended December 31, 2020 included a decrease in accounts receivable of $1.3 million, an increase in accounts payable and accrued expenses of $0.4 million, and an increase in deferred revenue of $0.3 million.

Our significant uses of cash for the year ended December 31, 2020 included net payment on our line of credit of $0.8 million and an increase in inventories of $0.6 million.

Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $8.9 million as of December 31, 2020 consisted of 0.8 million Euros, 0.3 million British Pounds, and 7.4 million U.S.

Our primary source of liquidity is our cash and cash equivalents, which increased by $1.1 million to $20.4 million as of March 31, 2021 from $19.3 million as of September 30, 2020.

Our significant sources of cash for six months ended March 31, 2021 included an increase in accounts payable and accrued expenses of $1.7 million, a decrease in inventories of $1.0 million, and an increase in deferred revenue of $0.5 million.

Our significant uses of cash for the six months ended March 31, 2021 are primarily related to the HPP division engineering and development costs of $1.5 million causing the operating loss.

Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $9.9 million as of March 31, 2021 consisted of 0.8 million Euros, 0.3 million British Pounds, and 8.4 million U.S.

This cash is included in our total cash and cash equivalents reported within the financial statements.

As of December 31, 2020 and September 30, 2020 the Company maintained a line of credit with a capacity of up to $15.0 million for inventory accessible to both the HPP and TS segments.

As of March 31, 2021 and September 30, 2020, the Company maintained a line of credit with a capacity of up to $15.0 million for inventory accessible to both the HPP and TS segments.

This line of credit also includes availability of a limited cash withdrawal of up to $1.0 million.

An amount of $14.2 million and $13.4 million were available as of December 31, 2020 and September 30, 2020, respectively.

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

An amount of $13.8 million and $13.4 million were available as of March 31, 2021 and September 30, 2020, respectively.

As of March 31, 2021 and September 30, 2020 there were no cash withdrawals outstanding.

During the second quarter of fiscal year 2021 we entered into two multi-year agreements that involved us selling goods and services in which we were an agent and therefore recorded net revenue for the transactions.

These agreements combined involved us receiving approximately $9.0 million over four years and us making payments of around $8.7 million over four years with similar dates to when we would be receiving payments.

If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans or other means.

4 unchanged sentences

The SBA Loans were forgiven in full by the SBA in the first quarter of fiscal year 2021.

Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash received from the SBA loans, the cash generated from operations, and availability on our line of credit will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the date of this report.

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 2. Management’s Discussion and Analysis