What changed in this filing

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Item 1. Financial Statements

2022-02-09 compared with 2021-08-12 · 145 added, 282 removed, 383 unchanged (53% of the section changed)

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)

12 unchanged sentences

Long-term receivable

Deferred income taxes

Cash surrender value of life insurance

22 unchanged sentences

Total liabilities and shareholders’ equity

See accompanying notes to unaudited consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except for per share data)

For the three months ended

For the nine months ended

Cost of sales:

6 unchanged sentences

Other income (expense):

Foreign exchange (loss) gain

Foreign exchange loss

Interest expense

3 unchanged sentences

Total other income (expense), net

(Loss) income before income taxes

Income (loss) before income taxes

Income tax expense

Net loss attributable to common shareholders

Net loss per share – basic

Net income (loss)

Net income (loss) attributable to common shareholders

Net (loss) income per share - basic

Weighted average shares outstanding – basic

Net loss per share – diluted

Net (loss) income per share - diluted

Weighted average shares outstanding – diluted

See accompanying notes to unaudited consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

For the three months ended

For the nine months ended

Foreign currency translation gain (loss) adjustments

Net (loss) income

Foreign currency translation gain adjustments, net

Total comprehensive (loss) income

See accompanying notes to unaudited consolidated financial statements.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the three months ended June 30, 2021 and 2020:

(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

Purchase of common stock

Stock-based compensation

Balance as of June 30, 2020

comprehensive

Shareholders’

For the Three Months Ended June 30, 2021:

Balance as of March 31, 2021

Other comprehensive income

Stock-based compensation

Restricted stock cancellation

Balance as of June 30, 2021

See accompanying notes to unaudited consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the nine months ended June 30, 2021 and 2020:

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the three months ended December 31, 2021 and 2020:

(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, 2020:

Balance as of September 30, 2020

Other comprehensive income

Exercise of stock options

Other comprehensive gain

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

Balance as of December 31, 2020

comprehensive

Shareholders’

For the nine months ended June 30, 2021:

For the Three Months Ended December 31, 2021:

Balance as of September 30, 2021

Other comprehensive income

Other comprehensive gain

Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

Issuance of shares under employee stock purchase plan

Balance as of June 30, 2021

See accompanying notes to unaudited consolidated financial statements.

Balance as of December 31, 2021

See accompanying notes to unaudited condensed consolidated financial statements.

AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

For the nine months ended

For the three months ended

Operating activities

Adjustments to reconcile net loss to net cash provided by operating activities:

Net (loss) income

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

Amortization of intangibles

Loss on sale of fixed assets, net

Foreign exchange loss

Non-cash changes in accounts receivable

Non-cash changes in inventories

Non-cash lease expense

Provision for losses on accounts receivable

Provision for obsolete inventory

Amortization of lease right-of-use assets

Stock-based compensation expense on stock options and restricted stock awards

1 unchanged sentence

Increase in cash surrender value of life insurance

Non-cash other

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

1 unchanged sentence

(Increase) decrease in accounts receivable

Decrease in inventories

Increase in refundable income taxes

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

Increase in inventories

(Increase) decrease in refundable income taxes

(Increase) decrease in operating lease right-of-use assets

(Increase) decrease in other assets

Decrease in investment in lease

(Increase) decrease in long-term receivable

Increase (decrease) in accounts payable and accrued expenses

(Decrease) increase in operating lease liabilities

Decrease in long-term receivable

(Decrease) increase in accounts payable and accrued expenses

Increase in interest payable

Decrease in operating lease liabilities

Increase in deferred revenue

(Decrease) increase in pension and retirement plans liabilities

Decrease in income taxes payable

Increase (decrease) in other long-term liabilities

Net cash provided by operating activities

Decrease in other long-term liabilities

Net cash (used in) provided by operating activities

Investing activities

4 unchanged sentences

Financing activities

Dividends paid

Net payments under line-of-credit agreement

Proceeds from debt

Repayments on debt

Principal payments on finance leases

Purchase of common stock

Proceeds from issuance of shares under equity compensation plans

Net cash (used in) provided by financing activities

Net cash used in financing activities

Effects of exchange rate on cash

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents beginning of period

5 unchanged sentences

Gain on forgiveness of debt

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

See accompanying notes to unaudited consolidated financial statements.

Customer financing for inventory sold (see Note 6 Accounts and Long-Term Receivable for details)

See accompanying notes to unaudited condensed consolidated financial statements.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2021

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2021

Organization and Business

7 unchanged sentences

Basis of Presentation

The accompanying interim consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented.

The accompanying interim condensed consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented.

All adjustments were of a normal recurring nature.

Certain information and footnote disclosures normally included in the annual consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, have been omitted.

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 revised numbers for the three and nine months ended June 30, 2020 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, Cost of sales – Product, and Cost of sales - Services.

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

Notes affected include Note 4, “Revenue” and Note 15, “Segment Information.”

For the three months ended June 30, 2020

For the nine months ended June 30, 2020

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

Certain information and footnote disclosures normally included in the annual consolidatd financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, have been omitted.

Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the unaudited condensed consolidated financial statements should be read in conjunction with the notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

These estimates and assumptions are related to reserves for bad debt, reserves for inventory obsolescence, the impairment assessment of intangible assets, right-of-use assets and lease liabilities, and the calculation of standalone selling price for revenue recognition, the calculation of liabilities related to deferred compensation and retirement plans and the calculation of income tax liabilities.

1 unchanged sentence

Recent Accounting Pronouncements

Accounting standards adopted in fiscal year 2021

In August 2018, the FASB issued Accounting Standard 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.

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 June 30, 2021

New accounting standards not adopted as of December 31, 2021

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

14 unchanged sentences

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

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

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 .

19 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)

28 unchanged sentences

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

Current contract assets were $ 1.7 million and $ 1.0 million as of June 30, 2021 and September 30, 2020, respectively.

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

There were no noncurrent contract assets as of June 30, 2021 and September 30, 2020.

Current contract assets were $ 2.6 million and $ 2.7 million as of December 31, 2021 and September 30, 2021, respectively.

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

There were no noncurrent contract assets as of December 31, 2021 and September 30, 2021.

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

There was a large increase during the nine months ended June 30, 2021 due to a noncancelable contract for managed services in the TS segment.

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

Current contract liabilities were $ 1.4 million and $ 0.9 million as of June 30, 2021 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 $ 0.6 million and $ 0.2 million as of June 30, 2021 and September 30, 2020, respectively.

These noncurrent liabilities are recorded in other noncurrent liabilities on the consolidated balance sheets.

Revenue recognized for the nine months ended that was included in contract liabilities as of September 30, 2020 was $ 0.5 million.

Current contract liabilities were $ 2.2 million and $ 1.9 million as of December 31, 2021 and September 30, 2021, respectively.

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

The long-term portion of contract liabilities were $ 0.3 million and $ 0.4 million as of December 31, 2021 and September 30, 2021, respectively.

These noncurrent liabilities are recorded in other noncurrent liabilities on the condensed consolidated balance sheets.

Revenue recognized for the three months ended December 31, 2021 that was included in contract liabilities as of September 30, 2021 was $ 0.4 million.

Contract Costs

4 unchanged sentences

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, 2021 and September 30, 2020.

The portion of current capitalized costs were $ 204 thousand and $ 130 thousand as of June 30, 2021 and September 30, 2020, respectively.

There are no noncurrent 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 months ended June 30, 2021 and 2020 were $ 89 thousand and $ 84 thousand, respectively.

The amount of incremental costs amortized for the nine months ended June 30, 2021 and 2020 were $ 260 thousand and $ 162 thousand, respectively.

Current capitalized contract costs are within the other current assets on the condensed consolidated balance sheets as of December 31, 2021 and September 30, 2021.

The portion of current capitalized costs were $ 116 thousand and $ 137 thousand as of December 31, 2021 and September 30, 2021, respectively.

There are no noncurrent capitalized costs on the condensed 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 months ended December 31, 2021 and 2020 were $ 90 thousand and $ 87 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, 2021.

There was no impairment related to incremental costs capitalized during the three months ended December 31, 2021.

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.

Costs to fulfill a contract are related to the TS portion of the business and involve activities performed before managed services can be completed.

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 as of June 30, 2021 and $ 13 thousand as of September 30, 2020.

The portion of noncurrent capitalized costs were $ 13 thousand and $ 22 thousand as of June 30, 2021 and September 30, 2020, respectively.

The amount of fulfillment costs amortized for three and nine months ended June 30, 2021 were $ 3 thousand and $ 9 thousand, respectively.

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

The portion of current capitalized costs were $ 13 thousand as of December 31, 2021 and $ 13 thousand as of September 30, 2021.

The portion of noncurrent capitalized costs were $ 6 thousand and $ 9 thousand as of December 31, 2021 and September 30, 2021, respectively.

The amount of fulfillment costs amortized for the three months ended December 31, 2021 and 2020 were $ 3 thousand and $ 3 thousand, respectively.

These costs amortized were recorded in cost of sales.

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

These costs amortized were recorded in cost of sales.

There was no impairment related to fulfillment costs capitalized.

There was no impairment related to fulfillment costs capitalized in the three months ended December 31, 2021 or September 30, 2021.

Projects are typically billed upon completion or at certain milestones.

3 unchanged sentences

There are certain contracts that contain a financing component.

See Note 6 to the consolidated financial statements for additional information.

See Note 6 to the condensed consolidated financial statements for additional information.

We elected to use the optional exemption to not disclose the aggregate amount of the transaction price allocated to performance obligations that have an original expected duration of one year or less.

4 unchanged sentences

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, 2021 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, 2021 is set forth in the table below:

(Amounts in thousands)

Fiscal 2021 (remaining 3 months)

Earnings Per Share of Common Stock

Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period.

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.

Basic net (loss) income per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period.

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 (“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.

1 unchanged sentence

For the three months ended

For the nine months ended

(Amounts in thousands except per share data)

net loss attributable to nonvested common stock

Net loss attributable to common shareholders

Net (loss) income

net (loss) income attributable to nonvested common stock

Net (loss) income attributable to common shareholders

Weighted average total shares outstanding – basic

3 unchanged sentences

Weighted average common shares outstanding – diluted

Net loss per share – basic

Net loss per share – diluted

Non-vested restricted stock awards of 208,000 and 209,000 shares were excluded from the diluted loss per share calculation for the three and nine months ended June 30, 2021, respectively.

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.

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

Net (loss) income per share - basic

Net (loss) income per share - diluted

Non-vested restricted stock awards of 194 thousand shares were excluded from the diluted loss per share calculation for the three months ended December 31, 2021.

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

Accounts and Long-Term Receivable

1 unchanged sentence

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 $ 4.6 million and $ 8.1 million as of June 30, 2021.

These receivables are included in Accounts receivable and Long-term receivable in the amount of $ 5.2 million and $ 5.6 million as of December 31, 2021.

These receivables are included in Accounts receivable and Long-term receivable in the amount of $ 6.5 million and $ 7.5 million as of September 30, 2021, respectively.

There were two new agreements effective in the second quarter of fiscal year 2021 causing an increase in accounts and long-term receivable.

These agreements included approximately $ 9.0 million of payments to be received over the next 4 years from the effective date of the agreement.

It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $ 0.5 million during the second quarter of fiscal year 2021.

There were two new agreements effective in the third quarter of fiscal year 2021 causing an increase in accounts and long-term receivable.

These agreements included approximately $ 5.2 million of payments to be received over the next 2 years from the effective date of the agreement.

It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $ 0.4 million during the third quarter of fiscal year 2021.

The receivables with a payment term exceeding one year carry an average weighted interest rate of 4.8 %, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

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, 2021 or September 30, 2020.

There was no activity in the allowance for credit losses of these receivables for the nine months ended June 30, 2021 and June 30, 2020, respectively.

All accounts have no past amounts due as of December 31, 2021 or September 30, 2021.

There was no activity in the allowance for credit losses of these receivables for the three months ended December 31, 2021 and 2020, respectively.

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

2 unchanged sentences

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 months ended June 30, 2021 and 2020 was $ 169 thousand and $ 120 thousand, respectively.

The amount of interest income earned from sales whose payment terms exceed one year for the nine months ended June 30, 2021 and 2020 was $ 387 thousand and $ 349 thousand, respectively.

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

There was one new agreement effective in the first quarter of fiscal year 2022 causing an increase in accounts and long-term receivable.

This agreement included approximately $ 0.5 million of payments to be received over the next 2 years from the effective date of the agreement.

It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $ 0.1 million during the first quarter of fiscal year 2022.

The amount of interest income earned from sales whose payment terms exceed one year for the three months ended December 31, 2021 and 2020 was $ 139 thousand and $ 92 thousand, respectively.

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

Receivables whose payment terms exceed one year are placed on non-accrual status, meaning interest income stops being recorded, when the customer has a past due amount in excess of 30 days or reasonable doubt exists in collecting all interest and principal.

5 unchanged sentences

(Amounts in thousands)

2021 (3 months)

Total payments

unearned income

Total, net of unearned income

unearned interest income

Total, net of unearned interest income

Inventories consist of the following:

5 unchanged sentences

Information related to both lessee and lessor

The components of lease costs for the three months ended June 30, 2021 and 2020 are as follows:

The components of lease costs for the three months ended December 31, 2021 and 2020 are as follows:

Three months ended

Consolidated Statements of Operations Location

June 30, 2021

June 30, 2020

(Amounts in thousands)

Finance Lease:

Interest on lease liabilities

Interest expense

Operating Lease:

Operating lease cost

Selling, general, and administrative

Short-term lease cost

Selling, general, and administrative

Total lease costs

Less sublease interest income

Total lease costs, net of sublease interest income

The components of lease costs for nine months ended June 30, 2021 and 2020 are as follows:

Nine months ended

Consolidated Statements of Operations Location

June 30, 2021

June 30, 2020

Consolidated Consolidated Statements of Operations Location

December 31, 2021

December 31, 2020

(Amounts in thousands)

10 unchanged sentences

Total lease costs, net of sublease interest income

Supplemental cash flow information related to leases for three months ended June 30, 2021 and 2020 is below:

Supplemental cash flow information related to leases for three months ended December 31, 2021 and 2020 is below:

Three months ended

June 30, 2021

June 30, 2020

(Amounts in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from short-term leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Lease assets obtained in exchange for new lease liabilities

Operating leases

Cash received from subleases

Supplemental cash flow information related to leases for nine months ended June 30, 2021 and 2020 is below:

Nine months ended

June 30, 2021

June 30, 2020

December 31, 2021

December 31, 2020

(Amounts in thousands)

8 unchanged sentences

Accounts payable and other noncurrent liabilities

In February 2021, the Company’s US.

division of the TS segment entered into an agreement with a vendor to pay approximately $ 1.5 million including interest for goods and services through fiscal year 2025 in 5 payments related to a multi-year agreement with a customer.

In February 2021, the Company’s US.

division of the TS segment entered into another agreement with a vendor to pay approximately $ 7.2 million including interest for goods and services through fiscal year 2025 in 6 payments through fiscal year 2025 related to a multi-year agreement with a customer.

See Note 6, “Accounts and Long-Term Receivable” for further information related to the multi-year agreements above.

There was not an interest rate stated and therefore interest was imputed under ASC 835 Interest as the payments in the exchange represented two elements:

The Company enters into certain multi-year agreements with vendors when also entering into some of the multi-year contracts the Company enters into with customers.

See Note 6, “Accounts and Long-Term Receivable” for further information related to the multi-year agreements with customers.

There was not an interest rate stated in the agreements and therefore interest was imputed under ASC 835 Interest as the payments in the exchange represented two elements:

principal and interest.

1 unchanged sentence

The rate was determined primarily based on the rate the Company could obtain by financing from other sources at the date of the transaction.

Interest expense related to these agreements for the three months ended June 30, 2021 was $ 92 thousand.

Interest expense related to the notes for the nine months ended June 30, 2021 was $ 121 thousand.

There was not interest expense in prior year due to these agreements being effective in the second quarter of fiscal year 2021.

The amounts owed for these agreements are in within accounts payable and other noncurrent liabilities because they are owed to a vendor rather than banks or financial institutions for borrowings.

Interest expense related to these agreements for the three months ended December 31, 2021 was $ 74 thousand.

There was no interest expense during the three months ended December 31, 2020 due to these agreements being effective in the second quarter of fiscal year 2021.

The amounts owed for these agreements are in accounts payable and other noncurrent liabilities because they are owed to vendors rather than banks or financial institutions for borrowings.

See Note 10, “Notes Payable and Line of Credit” for amounts due to banks and other financial institutions for borrowings.

Below are details of the agreements with the vendor that contain imputed interest:

June 30, 2021

Below are details of the agreements with the vendors that contain imputed interest:

December 31, 2021

(Amounts in thousands)

1 unchanged sentence

Other noncurrent liabilities

The Company had a total of approximately $ 6.8 million due to this vendor including the two aforementioned agreements and other payables as of June 30, 2021.

The Company had a total of approximately $ 9.4 million due to one of these vendors as of December 31, 2021.

This is approximately 49 % of Accounts payable and other noncurrent liabilities.

The TS segment has many vendors it transacts with and does not have any specific agreement with this vendor

that it must purchase certain products from the vendor.

The TS segment has many vendors it transacts with and does not have any specific agreement with this vendor that it must purchase certain products from the vendor.

Management believes other suppliers could provide similar products on comparable terms.

4 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 (“PPP”), 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 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S.

Small Business Administration (“SBA”).

6 unchanged sentences

In November 2020, the SBA Loans were formally forgiven.

The $ 2.2 million gain is presented on the Consolidated Statement of Operations as Gain on forgiveness of debt.

Interest expense related to the notes for the three months ended June 30, 2021 and 2020 was $ 21 thousand and $ 36 thousand, respectively.

Interest expense related to the notes for the nine months ended June 30, 2021 and 2020 was $ 67 thousand and $ 99 thousand, respectively.

Below are details of the notes payable.

June 30, 2021

The $ 2.2 million gain is presented on the Condensed Consolidated Statement of Operations as Gain on forgiveness of debt for the three months ended December 31, 2020.

Interest expense related to the notes for the three months ended December 31, 2021 and 2020 was $ 14 thousand and $ 23 thousand, respectively.

December 31, 2021

September 30, 2021

4 unchanged sentences

Notes payable - noncurrent portion

As of June 30, 2021 and September 30, 2020, the Company maintained an inventory line of credit with a borrowing capacity of $ 15.0 million.

As of December 31, 2021 and September 30, 2021, 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.

3 unchanged sentences

(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, 2021 and September 30, 2020, Company borrowings, all from the TS segment, under the inventory line of credit were $ 1.7 million and $ 1.6 million, respectively, and the Company was in compliance with all financial covenants.

As of June 30,

2021 and September 30, 2020 this line of credit also includes availability of a limited cash withdrawal of up to $ 1.0 million and $ 1.0 million, respectively.

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

As of December 31, 2021 and September 30, 2021, Company borrowings, all from the TS segment, under the inventory line of credit were $ 1.1 million and $ 0.9 million, respectively, and the Company was in compliance with all financial covenants.

As of December 31, 2021 and September 30, 2021, this line of credit also includes availability of a limited cash withdrawal of up to $ 1.0 million.

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

Pension and Retirement Plans

7 unchanged sentences

The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws.

Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets.

Liabilities for amounts in excess of these funding levels are accrued and reported in the condensed consolidated balance sheets.

The Company’s pension plan in the U.K.

3 unchanged sentences

plans are as follows:

Three Months Ended June 30,

Three Months Ended December 31,

(Amounts in thousands)

6 unchanged sentences

Interest cost

Amortization of net gain

Net periodic cost

Nine 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 loss

Net periodic cost

2 unchanged sentences

Fair Values as of

June 30, 2021

December 31, 2021

September 30, 2021

5 unchanged sentences

Total plan assets

An income tax expense of $ 35 thousand was recorded for the three months ended June 30, 2021 compared to an income tax expense of $ 10 thousand in the same period of 2020.

An income tax expense of $ 868 thousand was recorded for the nine months ended June 30, 2021 compared to income tax expense of $ 1,109 thousand in the same period of 2020.

The income tax expense for the nine months ended June 30, 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 income tax expense for the year to date ended June 30, 2020 reflected the recording of a valuation allowance against deferred tax assets during the third fiscal quarter, offset by the anticipated tax benefit from the carryback of net operating losses.

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

An income tax expense of $ 12 thousand was recorded for the three months ended December 31, 2021 compared to an income tax expense of $ 110 thousand in the same period of 2020.

The income tax expense for the three months ended December 31, 2021 was primarily driven by minimum state tax expenses, as the Company continues to maintain a full valuation allowance on its operations.

The income tax expense for the three month period ended December 31, 2020 was 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.

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 December 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.

Accumulated Other Comprehensive Loss

2 unchanged sentences

(Amounts in thousands)

Cumulative effect of foreign currency translation

Cumulative effect of foreign currency translation, net

Cumulative unrealized loss on pension liability

Accumulated other comprehensive loss

Accumulated other comprehensive loss, net

Fair Value of Financial Assets and Liabilities

Under the fair value standards fair value is based on the exit price and defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value measurement should reflect all the assumptions that market participants would use in pricing an asset or liability.

fair value measurement should reflect all the assumptions that market participants would use in pricing an asset or liability.

A fair value hierarchy is established in the authoritative guidance outlined in three levels ranking from Level 1 to Level 3 with Level 1 being the highest priority.

2 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 11 for pension plan assets) or non-recurring basis as of June 30, 2021 or September 30, 2020.

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, 2021

As of December 31, 2021

As of September 30, 2021

4 unchanged sentences

Cash and cash equivalents

Consolidated Balance Sheets

Condensed Consolidated Balance Sheets

Accounts and long-term receivable*

1 unchanged sentence

Line of Credit

Consolidated Balance Sheets & Note 10

Notes payable

6 unchanged sentences

The fair value of our line of credit is based on borrowing rates currently available to a market participant for loans with similar terms or maturity.

The carrying amount of our outstanding revolving line of credit approximates fair value because

the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk.

The carrying amount of our outstanding revolving line of credit approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk.

No interest accrues under the inventory line of credit when advances are paid within terms.

1 unchanged sentence

Fair value was estimated by discounting future cash flows based on the current rate the Company could get in another transaction with similar terms based on historical information.

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 as of June 30, 2021 and September 30, 2020.

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 as of December 31, 2021 and September 30, 2021.

Segment Information

The following tables present certain operating segment information for the three and nine months ended June 30, 2021 and 2020.

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 the three months ended December 31, 2021 and 2020.

Technology Solutions Segment

For the nine months ended June 30,

For the three months ended December 31,

(Amounts in thousands)

Income (loss) from operations

(Loss) income from operations

Capital expenditures

Depreciation and amortization

Income (loss) from operations

(Loss) income from operations

Capital expenditures

1 unchanged sentence

Income (loss) from operations consists of sales less cost of sales, engineering and development expenses, and selling, general and administrative expenses but is not affected by either other income/expense or by income taxes expense (benefit).

Non-operating expenses/income consists principally of investment income, interest income from transactions with payment terms exceeding one year (see Note 6, “Accounts and Long-Term Receivable” for details), and interest expense.

Non-operating expenses/income consists principally of interest income from transactions with payment terms exceeding one year (see Note 6, “Accounts and Long-Term Receivable” for details), and interest expense.

All intercompany transactions have been eliminated.

The following table lists customers from which the Company derived revenues of 10% or more of total revenues for the three and nine months ended June 30, 2021 and 2020.

For the three months ended June 30,

For the nine months ended June 30,

(Amounts in millions)

Customer B totaled approximately $ 12.4 million, or 51 %, and approximately $ 4.7 million, or 28 %, of total consolidated accounts receivable and long-term receivable as of June 30, 2021 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 June 30, 2021.

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, 2021.

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, 2021 and 2020.

For the three months ended December 31,

(in millions)

Customer B had a balance of $ 10.5 million, or 40 %, of total consolidated accounts receivable and long-term receivable as of December 31, 2021.

There were no other customers with more than 10% of total consolidated accounts receivable and long-term receivable as of December 31, 2021.

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, 2021.

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