What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-12-08 compared with 2021-12-08 · 95 added, 88 removed, 200 unchanged (48% of the section changed)

4 unchanged sentences

The following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing.

Observations on effects of novel coronavirus (COVID-19)

Observations on effects of novel coronavirus and Russia/Ukraine Conflict

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 states 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.

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.

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 sales decreased significantly for the year ended September 30, 2021, which we believe is primarily 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, which we believe is important when rolling out new IT and security products.

During fiscal year 2021 COVID-19 has adversely affected the distribution channel leading to significantly longer lead times when ordering product.

To that end, and to insure we continue to operate safely 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.

COVID-19 has adversely affected the distribution channel leading to significantly longer lead times when ordering product.

Manufacturers are not producing as much product as prior to the pandemic due to disruptions, resulting in supply shortages.

1 unchanged sentence

The TS segment has many vendors it transacts with and supply shortages are pervasive with many of them.

The HPP segment has also experienced shortages with their vendors as well.

The HPP segment has and continues to experience shortages with their vendors as well.

If we are unable to successfully resolve these disruptions and shortages, the timing and amount of our future results may be materially impacted.

The HPP segment secured a $1.8 million contract for real-time networking monitoring for cyber attack detection in the first quarter of fiscal year 2021, but due to the delays by manufacturers the sale is anticipated to be recognized fully in revenue in fiscal year 2023 when we can obtain the product from the manufacturers.

Related to the supply shortage and potentially inflation, we have experienced price increases for our products, which we try to pass on to the customer.

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 the 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 its variants and the duration of any such measures.

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 its variants and the duration of any 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 is still uncertain.

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.

Please refer to Item 1A Risk Factors located in Part I in this Annual Report on Form 10-K for discussion of the risks related to COVID-19 on our business, financial condition, and results of operations.

As of September 30, 2022, the Russian/Ukrainian military conflict has not had a direct significant impact on revenue as we do not have any recurring customers in either country.

However, we do have customers and suppliers in surrounding regions which may be affected and further escalation of the Russian-Ukraine military conflict and geopolitical tensions related to such military conflict could adversely affect our business, financial condition and results of operations, by among other things, cyber attacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets.

It is not possible at this time to predict the size of the impact or consequences of the conflict to the Company and our customers and suppliers.

Overview of Fiscal 2022 Results of Operations

Revenue decreased by approximately $12.6 million, or 20%, to $49.2 million for the fiscal year ended September 30, 2021 versus $61.8 million for the fiscal year ended September 30, 2020.

Revenue increased by approximately $5.2 million, or 10%, to $54.4 million for the fiscal year ended September 30, 2022 versus $49.2 million for the fiscal year ended September 30, 2021.

Gross profit margin percentage increased, from 33% of revenues for the fiscal year ended September 30, 2021 to 35% for the fiscal year ended September 30, 2022.

We generated an operating loss of approximately $1.4 million for the fiscal year ended September 30, 2021 as compared to an operating loss of approximately $1.4 million for the fiscal year ended September 30, 2020.

We generated an operating loss of $40 thousand for the fiscal year ended September 30, 2022 as compared to an operating loss of approximately $1.4 million for the fiscal year ended September 30, 2021.

Other income, (expense) net was $2.0 million for the fiscal year ended September 30, 2022 as compared to $2.0 million for the prior year.

The increase of $1.6 million from prior year is due to a large one time gain on debt forgiveness of $2.2 million which did not occur in the prior year, partially offset by an increase in foreign exchange loss of $0.5 million and increase of interest expense of $0.1 million.

A one-time gain of $465k occurred in fiscal year 2021, which was a purchase price adjustment of a subsidiary (Modcomp GmbH) that was sold in fiscal year 2018.

1 unchanged sentence

There are no further amounts to be received in connection with the purchase agreement from the original sale.

The Company recorded an income tax provision of approximately $444 thousand, which reflected an effective tax rate of 39%, for the year ended September 30, 2021.

The provision is primarily driven by the recording of a full valuation allowance against US deferred tax assets that are not more-likely-than-not to be realized partially offset by the exclusion of income from the forgiveness of Paycheck Protection Program loans, the exclusion of the gain of the discontinued German entity under UK tax law, current year federal research and development credits, and the benefit resulting from the carryback of federal net operating losses to years in which the statutory federal tax rate was 34%.

The Company recorded an income tax provision of approximately $50 thousand for the fiscal year ended September 30, 2022, which reflected an effective tax rate of 3% for the year ended September 30, 2022.

The provision is primarily driven by the state tax expense.

For the fiscal year ended September 30, 2021, the income tax provision was $444 thousand, which reflected an effective tax rate of 39%.

The provision is primarily driven by the recording of a partial valuation allowance against US deferred tax assets that are not more-likely-than-not to be realized partially offset by current year federal R&D credits and the benefit resulting from the carryback of federal net operating losses to years in which the statutory federal tax rate was 34%.

The following table details our results of operations in dollars and as a percentage of sales for the fiscal years ended:

9 unchanged sentences

Other income, (expense) net

Income (loss) before income taxes

Income before income taxes

Income tax expense

Net income (loss) from continuing operations

Net income from continuing operations

Gain on sale of discontinued operations

Net income (loss)

Revenue decreased by approximately $12.6 million, or 20%, to $49.2 million for the fiscal year ended September 30, 2021 versus $61.8 million for the fiscal year ended September 30, 2020.

Our TS segment revenue decreased by approximately $11.3 million consisting of a decrease of $11.9 million in our U.S.

division, partially offset by an increase of $0.6 million in our U.K.

Our HPP segment revenue decreased by approximately $1.3 million, or 21%, primarily due to decreased product revenue of $0.3 million combined with decreased service revenue of $1.0 million.

Revenue increased by approximately $5.2 million, or approximately 10%, to $54.4 million for the fiscal year ended September 30, 2022 versus $49.2 million for the fiscal year ended September 30, 2021.

Our TS segment revenue increased by approximately $5.9 million consisting of an increase of $7.1 million in our U.S.

division, partially offset by a decrease of $1.2 million in our U.K.

Our HPP segment revenue decreased by approximately $0.8 million or 17%.

TS segment revenue changes by products and services for the fiscal years ended September 30 were as follows:

Increase (decrease)

September 30,

(Dollar amounts in thousands)

The decrease in TS segment product revenue of $12.5 million during the period was the result of a $13.1 million decrease in the U.S.

division, partially offset by an increase of $0.6 million in the U.K.

Customers’ budgets have been cut or put on hold in the short term due to the pandemic leading to significantly decreased sales.

The decrease in our U.S.

division product revenue year over year was primarily associated with several major customers, partially offset by a significant increase with several other customers.

The increase in the U.K.

division year over year was primarily associated with an increase with one major customer.

The increase in TS segment product revenue of $2.1 million during the period was the result of a $3.1 million increase in the U.S.

division, partially offset by a decrease of approximately $1.0 million in the U.K.

As the economic environment returns to pre-pandemic levels it has led to customers’ budgets not being as constrained as prior year leading to increased sales in the U.S.

The increase in our U.S.

division product revenue year over year was primarily associated with several major customers, partially offset by a decrease with several other customers.

The decrease in the U.K.

division year over year was primarily associated with a decrease with one major customer.

The increase in TS segment service revenue of $3.9 million as compared to the prior year was due to a $4.0 million increase in the U.S.

division, partially offset with a $0.1 million decrease in the U.K.

In fiscal year 2022 as compared to the prior year, the U.S.

division had an increase of $1.4 million in third party maintenance and an increase of $0.8 million in managed services, partially offset by a decrease of $1.0 million in internal and third party services revenue.

division had an increase of $1.5 million in managed services, an increase of $1.3 million in services provided by the Company and third party services, and an increase of $1.2 million in third party maintenance revenue.

HPP segment revenue changes by product and services for the fiscal years ended September 30 were as follows:

September 30,

(Dollar amounts in thousands)

The decrease in HPP product revenue of $0.3 million in the fiscal year ended September 30, 2021 was primarily the result of an approximately $0.6 million decrease in Myricom product line shipments, partially offset with a $0.3 million increase in Multicomputer product line shipments for the fiscal year ended September 30, 2021 as compared to the fiscal year ended September 30, 2020.

This is primarily due to the pandemic affecting customers’ budgets.

The decrease in HPP service revenue of approximately $1.0 million for the period was primarily the result of a $0.6 million decrease in royalty revenues on high-speed processing boards related to the E2D program combined with a $0.4 million decrease of Multicomputer repairs for the fiscal year ended September 30, 2021 as compared to the fiscal year ended September 30, 2020.

The decrease in HPP product revenue of $0.6 million in the fiscal year ended September 30, 2022 was primarily the result of an approximately $0.6 million decrease in Multicomputer product line shipments for the fiscal year ended September 30, 2022 as compared to the fiscal year ended September 30, 2021.

The decrease in HPP service revenue of approximately $0.2 million for the fiscal year ended September 30, 2022 period was primarily the result of a $0.4 million decrease in royalty revenues on high-speed processing boards related to the E2D program, partially offset with higher ARIA sales of $0.2 million as compared to the fiscal year ended September 30, 2021.

Our total revenues by geographic area based on the location to which the products were shipped or services rendered were as follows:

September 30,

Increase (decrease)

(Dollar amounts in thousands)

The $13.9 million decrease in the Americas revenue for the fiscal year ended September 30, 2021 as compared to the fiscal year ended September 30, 2020 was primarily due to decreased revenue by our TS segment of approximately $12.4 million attributable to the U.S.

division, combined with decreased sales by our HPP segment of approximately $1.5 million.

The $0.9 million increase in Europe revenue for the fiscal year ended September 30, 2021 as compared to the prior year period was primarily due to increased sales by our TS-UK division of approximately $0.6 million combined with an increase in sales by our TS-US division of approximately $0.3 million.

The $0.4 million increase in Asia revenue for the fiscal year ended September 30, 2021 as compared to the prior year period was primarily the result of increased revenue by our HPP segment of $0.2 million combined with a $0.2 million increase in our TS-U.S.

The $7.2 million increase in the Americas revenue for the fiscal year ended September 30, 2022 as compared to the fiscal year ended September 30, 2021 was primarily due to increased revenue by our TS-US division of approximately $7.7 million, partially offset with a decrease of $0.2 million attributable to the TS-UK division combined with decreased sales by our HPP segment of approximately $0.3 million.

The $1.8 million decrease in Europe revenue for the fiscal year ended September 30, 2022 as compared to the prior year period was primarily due to decreased sales by our TS-UK division of approximately $1.0 million, a decrease in sales by our TS-US division of approximately $0.5 million, and a decrease of $0.3 million in our HPP segment.

The $0.2 million decrease in Asia revenue for the fiscal year ended September 30, 2022 as compared to the prior year period was the result of decreased revenue by our HPP segment of $0.1 million combined with a $0.1 million decrease in our TS-U.S.

Gross Margins

Our gross margin ("GM") decreased by approximately $1.1 million to $16.1 million for fiscal year 2021 as compared to GM of approximately $17.2 million for fiscal year 2020.

The GM as a percentage of revenue increased to 33% for fiscal year 2021 from 28% for fiscal year 2020.

The increase in GM as a percentage of revenue was primarily attributed to a higher percentage of service revenue relative to product revenue in the TS segment and a significant increase in TS segment product GM as a percentage of revenue.

Additionally, the product mix, amount of net revenue recorded, and overall margin in products contributed to this increase from prior year.

The improved product GM margin as a percentage of revenue has been a focus in fiscal year 2021, particularly in the TS segment.

Our gross margin ("GM") increased by $2.7 million to $18.8 million for fiscal year 2022 as compared to GM of approximately $16.1 million for fiscal year 2021.

The total GM as a percentage of revenue increased to 35% for fiscal

year 2022 from 33% for fiscal year 2021.

The increase in total GM as a percentage of revenue was primarily attributed to a significantly higher increase in service revenue, which has a higher GM as a percentage of revenue, versus product revenue.

The improved product GM as a percentage of revenue has been a focus in fiscal year 2022, particularly in the TS segment.

The 8% decrease in HPP GM as a percentage of revenue from prior year was due to decreased royalty sales, which are nearly all margin.

The following table summarizes GM changes by segment for fiscal years ended September 30:

September 30,

Increase (decrease)

1 unchanged sentence

The impact of product mix within our TS segment on gross margins for the fiscal years ended September 30 was as follows:

Increase (decrease)

September 30,

(Dollar amounts in thousands)

The overall TS segment GM as a percentage of revenue increased to 33% in fiscal year 2022 from 30% in fiscal year 2021.

The increase in GM as a percentage of revenue was primarily attributed to a large relative decrease in TS segment product revenue compared to a significant increase in service revenue in fiscal year 2020 from the prior year.

Additionally, both product and service GM as a percentage of revenue increased from prior year.

The $0.9 million decrease in our TS segment product GM in fiscal year 2021 as compared to the prior year resulted from a decrease in GM in the U.S.

division of $0.8 million combined with a decrease in the U.K division of $0.1 million.

The $0.8 million increase in the TS segment service GM in fiscal year 2021 as compared to the prior year primarily resulted from increased service revenue as well as a slight increase in GM as a percentage of revenue in the U.S.

The increase in GM as a percentage of revenue was primarily attributed to increased GM as a percentage of revenue for both product and service revenue than in fiscal year 2021.

The $0.9 million increase in our TS segment product GM in fiscal year 2022 as compared to the prior year resulted from an increase in GM in the U.S.

The $2.6 million increase in the TS segment service GM in fiscal year 2022 as compared to the prior year primarily resulted from increased service GM of $2.7 million in the U.S.

division, partially offset by a decrease of $0.1 million in the U.K.

The impact of product mix on gross margins within our HPP segment for the fiscal years ended September 30 was as follows:

Increase (Decrease)

September 30,

(Dollar amounts in thousands)

The overall HPP segment GM as a percentage of revenue decreased to 51% in fiscal year 2022 from 59% in fiscal year 2021.

The 3% decrease in GM as a percentage of sales in the HPP segment was primarily attributed to the impact of a decrease of $0.6 million in high margin Multicomputer royalty revenues, which is all GM.

The GM as a percentage of sales from products increased primarily due to product mix in fiscal year 2021 as compared to the prior year.

The 8% decrease in GM as a percentage of sales in the HPP segment was primarily attributed to the impact of a decrease of $0.4 million in high margin Multicomputer royalty revenues, which is nearly all GM and recorded as service revenue.

The GM as a percentage of sales from products decreased primarily due to product mix in fiscal year 2022 as compared to the prior year.

Engineering and Development Expenses

Our engineering and development expenses are only in our HPP segment.

These expenses had a slight increase of $0.1 million from $2.8 million in fiscal year 2020 to $2.9 million for fiscal year 2021.

Fiscal year 2021 and 2020 expenses were primarily for product engineering expenses incurred in connection with the development of the ARIA SDS cyber security products.

These expenses had an increase of $0.2 million, primarily due to increased consulting costs, from $2.9 million in fiscal year 2021 to $3.1 million for fiscal year 2022.

Fiscal year 2022 and 2021 expenses were primarily for product engineering expenses incurred in connection with the development of the ARIA SDS cyber security products and ARIA Zero Trust (AZT).

Selling, General and Administrative

The following table details our selling, general and administrative (“SG&A”) expenses by operating segment for the years ended September 30, 2022 and 2021:

For the year ended September 30,

(Dollar amounts in thousands)

By Operating Segment:

For fiscal year 2021 compared to fiscal year 2020, the TS segment SG&A spending decrease of approximately $1.0 million was primarily due to a decrease in variable compensation and salaries of $1.0 million and a decrease of $0.1 million for travel expense.

For fiscal year 2021 compared to fiscal year 2020, the HPP segment SG&A spending decrease of $0.1 million was primarily attributed to decreased headcount in the sales department.

The TS segment SG&A spending increase of approximately $1.8 million for the fiscal year ended September 30, 2022 when compared to the prior year was primarily due to an increase in variable compensation of $1.5 million and an increase in salaries and other expenses of $0.3 million.

The HPP segment SG&A spending decrease of $0.7 million for the fiscal year ended September 30, 2022 when compared to the prior year was primarily attributed to decreased headcount and consulting expenses.

Other Income/Expenses

The following table details our other income (expenses) for the years ended September 30, 2021 and 2020:

For the year ended

The following table details our other income (expense) for the years ended September 30, 2022 and 2021:

September 30, 2022

1 unchanged sentence

(Amounts in thousands)

Foreign exchange gain (loss)

Interest expense

Interest income

Foreign exchange (loss) gain

Gain on debt forgiveness

Other income, net

Other income (expense), net

Total other income (expense), net

The $1.7 million increase to total other income (expense), net for the year ended September 30, 2021 as compared to the prior year period is primarily driven by a gain on debt forgiveness of $2.2 million, partially offset by an increase in foreign exchange loss of $0.5 million.

For the year ended September 30, 2022 the largest change was the foreign exchange gain increase of $2.2 million due to the U.S.

dollar significantly strengthening against the British Pound and the largest change for the year ended September 30, 2021 was a gain on debt forgiveness of $2.2 million for the Payroll Protection Program loans.

These two items had a net effect of nearly zero.

The $0.1 million decrease to total other income (expense), net for the year ended September 30, 2022 as compared to the prior year period is due to a nonrecurring rebate we received in the prior year that originated several years ago, which we did not anticipate receiving.

division has significant bank accounts with U.S.

2 unchanged sentences

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 U.S.

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

Dollar and Euro bank account.

The US dollar and Euro weakened relative to the British Pound when comparing the exchange rate as of September 30, 2021 to September 30, 2020, which caused the foreign exchange loss.

The US dollar and Euro strengthened relative to the British Pound when comparing the exchange rate as of September 30, 2022 to September 30, 2021, which caused the foreign exchange gain.

Interest income is primarily related to agreements that have payment terms in excess of one year (see Note 3 Accounts and Long-Term Receivable in Item 1 to this Annual Report on Form 10-K for details) from the TS-US segment as interest income recognized in each agreement decreases as principal payments are made.

The interest expense increase of $122 thousand for the year ended September 30, 2021 as compared to the prior year period is related to three new multi-year agreements with vendors in the TS U.S.

division in fiscal year 2021.

There were three new agreements in fiscal year 2022, which caused an increase in interest income.

The interest expense increase of $10 thousand for the year ended September 30, 2022 as compared to the prior year period is related to three total new multi-year agreements with vendors in the TS U.S.

division in the second and fourth quarters of fiscal year 2021.

Payments on these agreements contain both principal and interest expense.

In fiscal year 2022 there was a full year of interest expense compared to less than three full quarters in the prior year.

As principal payments are made the interest expense decreases and this was slightly offset by the full year of interest expense from these agreements.

See Note 9 Accounts payable and accrued expenses, and Other noncurrent liabilities in Item 1 to this Annual Report on Form 10-K.

The other income increase of $97 thousand for the year ended September 30, 2021 as compared to the prior year period is primarily related to a nonrecurring rebate we received that originated several years ago, which we did not anticipate receiving.

The Company recorded an income tax provision of approximately $444 thousand, which reflected an effective tax rate of 39%, for the year ended September 30, 2021.

The provision is primarily driven by the recording of a full valuation allowance against US deferred tax assets that are not more-likely-than-not to be realized partially offset by the exclusion of income from the forgiveness of Paycheck Protection Program loans, the exclusion of the gain of the discontinued German entity under UK tax law, and current year federal R&D credits and the benefit resulting from the carryback of federal net operating losses to years in which the statutory federal tax rate was 34%.

For the year ended September 30, 2020, the income tax provision was approximately $384 thousand, which reflected an effective tax rate of 36%.

The other income decrease of $110 thousand for the year ended September 30, 2022 as compared to the prior year period is primarily related to a nonrecurring rebate we received in the prior year that originated several years ago, which we did not anticipate receiving.

The Company recorded an income tax provision of approximately $50 thousand for the fiscal year ended September 30, 2022, which reflected an effective tax rate of 2.6% for the year ended September 30, 2022.

The provision is primarily driven by the state tax expense.

For the fiscal year ended September 30, 2021, the income tax provision was $444 thousand, which reflected an effective tax rate of 38.8%.

During the period ended September 30, 2022, management assessed the positive and negative evidence in the U.S.

operations, and concluded that it is more likely than not that the deferred tax assets as of September 30, 2021 will not be realized in light of recent results, the ongoing impacts of COVID-19, and the resulting economic fallout.

operations and concluded that it is more likely than not that the deferred tax assets as of September 30, 2022 will not be realized in light of recent results, the ongoing impacts of the coronavirus (“COVID-19”) pandemic, and the resulting economic fallout.

In assessing the realizability of deferred tax assets, we consider taxable income in prior carryback years, as permitted under the tax law, our forecasted taxable earnings, tax planning strategies, and the expected timing of the reversal of temporary differences.

11 unchanged sentences

Liquidity and Capital Resources

Our primary source of liquidity is our cash and cash equivalents, which increased by approximately $0.7 million to $20.0 million as of September 30, 2021 from $19.3 million as of September 30, 2020.

Our significant sources of cash for the year ended September 30, 2021 are primarily related to the $1.5 million net change between a increase in accounts receivable and long-term receivable of $9.3 million netted with an increase of $10.8 million in accounts payable and accrued expenses, and other-long-term liabilities.

Our primary source of liquidity is our cash and cash equivalents, which increased by $4.0 million to $24.0 million as of September 30, 2022 from $20.0 million as of September 30, 2021.

Our significant source of cash for the year ended September 30, 2022 is primarily related to the $2.9 million net change between an increase in accounts receivable and long-term receivable of $4.1 million netted with an increase of $7.0 million in accounts payable and accrued expenses, and other-long-term liabilities.

We have multi-year agreements on both the receivables (including long-term) and payables (long-term portion in other long-term liabilities).

During fiscal year 2021 we entered into agreements with customers, which contained a significant financing component totaling payments of $16.7 million including interest due to the Company over the next four years.

It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $0.9 million during fiscal year 2021

from these contracts.

For some of these agreements, we entered into agreements with vendors to pay for product over the next 4 years.

These payments totaled $9.2 million including interest.

Additionally, deferred revenue increased $0.9 million primarily due to a large upfront payment we received for one managed services contract.

Our significant uses of cash for the year ended September 30, 2021 included repayments on debt of $0.8 million, net payments under the line-of-credit agreement of $0.6 million, and principal payments on finance leases of $0.3 million.

During the fourth quarter of fiscal year 2022 we entered into a $12.8 million sales agreement with a financing component, which includes receiving three payments with the final payment due in fiscal year 2024.

We received the first payment in the fourth quarter of fiscal year 2022 of approximately $4.3 million.

Our cost of sale for this agreement was paid in full in the first quarter of fiscal year 2023 and significantly decreased our cash balance.

This is the largest driver for the increase in accounts payable.

The revenue for this transaction was recorded net during the fourth quarter of fiscal year 2022.

The other significant sources of cash were net borrowings of $2.2 million on our line of credit, tax refunds of approximately $0.6 million, and life insurance proceeds received of $0.3 million.

Other significant uses of cash for the year ended September 30, 2022 included paying $0.9 million of insurance policy loans back, payments for leases of $0.8 million, repayments on debt of $0.7 million, contributions to the pension and defined contribution plans of $0.5 million, purchases of common stock of $0.2 million, purchases of property, equipment, and improvements of $0.2 million, and dividends of $0.1 million.

Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $8.8 million as of September 30, 2022, which consisted of 0.4 million Euros, 0.2 million British Pounds, and 8.2 million U.S.

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

Due to the large pension obligation in the U.K., we maintain a large balance of cash in the U.K., most of the cash is from the sale of Modcomp GmbH in fiscal year 2018.

Due to the pension obligation in the U.K., we maintain a large balance of cash in the U.K., most of the cash is from the sale of Modcomp GmbH in fiscal year 2018.

Subsequent to September 30, 2022 approximately 3.5 million U.S.

Dollars was transferred from the foreign subsidiary in the U.K.

to Modcomp, Inc.

(TS-US) to use in operations.

As of September 30, 2022 and September 30, 2021, 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 $14.1 million and $13.4 million were available as of September 30, 2021 and September 30, 2020, respectively.

Amounts of $11.9 million and $14.1 million were available as of September 30, 2022 and September 30, 2021, respectively.

As of September 30, 2022 and September 30, 2021 there were no cash withdrawals outstanding.

14 unchanged sentences

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

revenue recognition, valuation allowances, specifically the

allowance for doubtful accounts and net deferred tax asset valuation allowance, inventory valuation, intangibles, and pension and retirement plans.

revenue recognition, valuation allowances, specifically the allowance for doubtful accounts and net deferred tax asset valuation allowance, inventory valuation, intangibles, and pension and retirement plans.

Revenue Recognition

53 unchanged sentences

The remaining useful lives of intangible assets are evaluated on an annual basis.

Intangible assets subject to amortization are also tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

If the fair value of an intangible asset subject to amortization is determined to be less than its carrying value, then an impairment charge is recorded to write down that asset to its fair value.

Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out method.

The recoverability of inventories is based upon the types and levels of inventories held, forecasted demand, pricing,

competition and changes in technology.

The recoverability of inventories is based upon the types and levels of inventories held, forecasted demand, pricing, competition and changes in technology.

We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

31 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis