Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The discussion below contains certain forward-looking statements including, but not limited to, among others, statements concerning future revenues and future business plans. Forward-looking statements include statements in which we use words such as “expect”, “believe”, “anticipate”, “intend”, “project”, “estimate”, “should”, “could”, “may”, “plan”, “potential”, “predict”, “project”, “will”, “would” and similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, the forward-looking statements are subject to significant risks and uncertainties, and thus we cannot assure you that these expectations will prove to have been correct, and actual results may vary from those contained in such forward-looking statements. We discuss many of these risks and uncertainties in Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024. An additional risk factor can be found within this Form 10-Q under Item 1A under the heading “Risk Factors.” Factors that may cause such variances include, but are not limited to, our dependence on a small number of customers for a significant portion of our revenue, intense competition in the market segments in which we operate, changes in the U.S. Tax laws, the impact of the Ukrainian-Russian military and Israeli-Hamas conflict on global trade and
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financial markets, and the impact of pandemics on our business, tariffs, results of operations and financial condition. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses for accounts receivable and financing receivables, inventory valuation, impairment assessment of intangibles, income taxes, deferred compensation and retirement plans, as well as estimated selling prices used for revenue recognition and contingencies. We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A description of our critical accounting policies is contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 in the “Critical Accounting Policies” section contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management believes there have been no significant changes for the three months ended March 31, 2025 to the items that we disclosed as our critical accounting estimates in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Recent trends affecting our financial performance
As of March 31, 2025, the Russian/Ukrainian military conflict and the Israeli-Hamas conflict have not had a direct significant impact on revenue as we do not have any significant recurring customers in either region. However, we do have customers and suppliers in surrounding regions which may be affected and further escalation of both conflicts and geopolitical tensions related to such conflicts could adversely affect our business, financial condition and results of operations, by among other things, cyberattacks, 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 conflicts on the Company and our customers or suppliers.
Results of Operations
Overview of the three months ended March 31, 2025
Our sales decreased by $0.6 million, or 4%, to $13.1 million for the three months ended March 31, 2025 compared to $13.7 million for the three months ended March 31, 2024. Our gross margin percentage decreased to 32% for the three months ended March 31, 2025 compared to 47% for the three months ended March 31, 2024. For the three months ended March 31, 2025 there was an operating loss of $1.0 million compared to operating income of $1.2 million for the three months ended March 31, 2024. Other income, net decreased $0.3 million to $0.2 million for the three months ended March 31, 2025 compared to $0.5 million for the same prior year period. An income tax benefit of $0.7 million was recorded for the three months ended March 31, 2025 compared to an income tax expense of $0.1 million in the same period in the prior year.
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The following table details our results of operations in dollars and as a percentage of sales for the three months ended March 31, 2025 and 2024:
%
%
March 31, 2025
of sales
March 31, 2024
of sales
(Dollar amounts in thousands)
Sales
$
13,147
100
%
$
13,706
100
%
Costs and expenses:
Cost of sales
8,940
68
%
7,228
53
%
Engineering and development
763
6
%
726
5
%
Selling, general and administrative
4,438
34
%
4,518
33
%
Total costs and expenses
14,141
108
%
12,472
91
%
Operating (loss) income
(994)
(8)
%
1,234
9
%
Other income, net
203
2
%
489
4
%
(Loss) income before income taxes
(791)
(6)
%
1,723
13
%
Income tax (benefit) expense
(683)
(5)
%
135
1
%
Net (loss) income
$
(108)
(1)
%
$
1,588
12
%
Sales
Our sales decreased by approximately $0.6 million, or 4%, to $13.1 million for the three months ended March 31, 2025 compared to $13.7 million for the same prior year period. The decrease in sales is the result of a decrease of $1.9 million in our HPP segment, partially offset by a $1.3 million increase in our TS segment.
TS segment sales change was as follows for the three months ended March 31, 2025 and 2024:
March 31,
Increase (decrease)
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
8,279
$
6,415
$
1,864
29
%
Services
4,221
4,789
(568)
(12)
%
Total
$
12,500
$
11,204
$
1,296
12
%
The increase in TS segment product sales of $1.9 million is due to increased sales to several existing major customers in the US division of $1.5 million and the UK division of $0.4 million. Service sales for the three months ended March 31, 2025 decreased $0.6 million from the same prior year period, which was attributable to the US division. The decrease in service sales included decreased third-party maintenance sales of $0.9 million, partially offset by increased managed services sales of $0.2 million and increased internal and third-party services of $0.1 million.
HPP segment sales change was as follows for the three months ended March 31, 2025 and 2024:
March 31,
Decrease
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
273
$
2,043
$
(1,770)
(87)
%
Services
374
459
(85)
(19)
%
Total
$
647
$
2,502
$
(1,855)
(74)
%
The HPP product sales decreased $1.8 million for the three months ended March 31, 2025 compared to the same prior year period as a result of one decreased sale of ARIA Zero Trust Gateway to one major customer of $2.0 million in the prior year not recurring in the current year period, partially offset by increased ARIA Zero Trust Gateway sales to new customers of $0.2 million. The HPP service sales decreased $0.1 million due to decreased royalties of $0.2 million, partially offset by $0.1 million increased ARIA AZT customer support revenue.
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Our sales by geographic area, which are based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended March 31, 2025 and 2024:
March 31,
Increase (decrease)
2025
%
2024
%
$
%
(Dollar amounts in thousands)
Americas
$
12,343
94
%
$
13,530
99
%
$
(1,187)
(9)
%
Europe
655
5
%
154
1
%
501
325
%
APAC and Africa
149
1
%
22
—
%
127
577
%
Totals
$
13,147
100
%
$
13,706
100
%
$
(559)
(4)
%
The $1.2 million decrease in sales to the Americas was primarily the result of a $2.0 million decrease in the HPP segment, partially offset by an increase in the TS segment’s US division of $0.8 million. The $0.5 million increase in sales to Europe was primarily the result of increased sales by our TS segment’s UK division of $0.4 million and the US division of $0.1 million. The sales to APAC and Africa increased $0.1 million for the three months ended March 31, 2025 compared to the same prior year period due to an increase in the HPP segment expanding its ARIA AZT sales in the region.
Gross Margins
Our gross margin ("GM") decreased $2.3 million for the three months ended March 31, 2025 as compared to the same prior year period. The GM as a percentage of sales decreased to 32% for the three months ended March 31, 2025 compared to the same prior year period of 47%.
March 31,
2025
2024
Decrease
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
TS
$
3,836
31
%
$
4,314
39
%
$
(478)
(8)
%
HPP
371
57
%
2,164
86
%
(1,793)
(29)
%
Total
$
4,207
32
%
$
6,478
47
%
$
(2,271)
(15)
%
The impact of product mix within our TS segment on gross margin for the three months ended March 31, 2025 and 2024 was as follows:
March 31,
2025
2024
Increase (decrease)
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
Products
$
1,500
18
%
$
1,210
19
%
$
290
(1)
%
Services
2,336
55
%
3,104
65
%
(768)
(10)
%
Total
$
3,836
31
%
$
4,314
39
%
$
(478)
(8)
%
The overall TS segment GM as a percentage of sales decreased to 31% for the three month period ended March 31, 2025 compared to 39% for the same prior year period. Product GM as a percentage of revenue decreased 1% due to a different product mix without any significant changes from the prior year period. The service GM as a percentage of revenue decreased 10% from the prior year due to decreased third-party maintenance sales, which are recorded “net” meaning the revenue, net of the associated cost, is recorded in the Services revenue financial statement line item causing an increase in GM as a percentage of sales.
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The impact of product mix within our HPP segment on gross margin for the three months ended March 31, 2025 and 2024 was as follows:
March 31,
2025
2024
Decrease
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
Products
$
173
63
%
$
1,832
90
%
$
(1,659)
(27)
%
Services
198
53
%
332
72
%
(134)
(19)
%
Total
$
371
57
%
$
2,164
86
%
$
(1,793)
(29)
%
The overall HPP segment GM as a percentage of sales decreased to 57% for the three months ended March 31, 2025 from 86% for the three months ended March 31, 2024. The 27% decrease in product GM as a percentage of product revenue for the three months ended March 31, 2025 compared to the same prior year period is due to one large ARIA Zero Trust Gateway order in the prior year period, which did not recur in the current period. The large ARIA Zero Trust Gateway order in the prior year was nearly all GM. The service GM as a percentage of services revenue from the same prior year period decreased 19% to 53% for the three months ended March 31, 2025 compared to 72% for the three months ended March 31, 2024 due to decreased royalty sales, which are nearly all GM.
Engineering and Development Expenses
The engineering and development expenses incurred by our HPP segment remained relatively flat for the three months ended March 31, 2025 compared to the prior year period without any significant changes in the expense mix. The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA Zero Trust Gateway 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, 2025 and 2024:
Three months ended March 31,
$
%
% of
% of
Increase
Increase
2025
Total
2024
Total
(Decrease)
(Decrease)
(Dollar amounts in thousands)
By Operating Segment:
TS segment
$
3,264
74
%
$
3,345
74
%
$
(81)
(2)
%
HPP segment
1,174
26
%
1,173
26
%
1
—
%
Total
$
4,438
100
%
$
4,518
100
%
$
(80)
(2)
%
SG&A expenses decreased $0.1 million to $4.4 million for the three months ended March 31, 2025 compared to the same prior year period. The $0.1 million decrease in TS segment SG&A expenses compared to the same prior year period is primarily the result of decreased variable compensation. The HPP segment SG&A expenses remained relatively flat at $1.2 million the three months ended March 31, 2025 as compared to the prior year period due to increased salaries of $0.1 million, which was offset by decreased commissions of $0.1 million.
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Other Income/Expenses
The following table details other income, net for the three months ended March 31, 2025 and 2024:
Three months ended
March 31, 2025
March 31, 2024
$ Change
(Amounts in thousands)
Foreign exchange gain (loss)
$
(132)
$
32
$
(164)
Interest expense
(77)
(46)
(31)
Interest income
414
478
(64)
Other income, net
(2)
25
(27)
Total other income, net
$
203
$
489
$
(286)
Total other income, net for the three months ended March 31, 2025 was $0.2 million compared to $0.5 million for the three months ended March 31, 2024.
The $0.2 million decreased foreign exchange loss for the three months ended March 31, 2025 was primarily due to the US Dollar weakening relative to the British Pound compared to the same prior year period. In consolidation, US dollars are remeasured into the functional currency, British Pounds, of our UK subsidiary. This non-cash remeasurement is included in the foreign exchange gain (loss) in the Consolidated Statements of Operations. The foreign exchange loss was primarily from the US Dollar bank account in our TS UK division.
Interest income decreased $64 thousand for the three months ended March 31, 2025 compared to the same prior year period primarily due to decreased interest income from agreements that have payment terms in excess of one year (see Note 5 Financing receivables, net in Item 1 to this Quarterly Report on Form 10-Q for details). Although new agreements with higher interest rates have been entered into during fiscal 2024 and 2025, this is more than offset by lower interest income recognized from a larger number of prior agreements because interest income decreases from each agreement as time elapses due to principal payments being received. All of these agreements are in the TS-US division.
The interest expense increase of $31 thousand for the three months ended March 31, 2025 compared to the same prior year period was related to the TS US division entering into additional multi-year vendor contracts related to sales agreements that have payment terms in excess of one year during fiscal years 2024 and 2025. Interest expense increased while interest income decreased because many of the Company’s financing sales prior to fiscal year 2024 did not have vendor financing, but in fiscal years 2024 and 2025 vendor financing became more prevalent.
Income Taxes
The Company recorded an income tax benefit of $683 thousand and income tax expense of $135 thousand for the three months ended March 31, 2025 and 2024, respectively. The income tax benefit for the three months ended March 31, 2025 was primarily driven by the impact of tax credits that we expect to be able to utilize against federal and state taxes and the excess tax benefits on restricted stock awards vested during the period. The income tax expense for the three months ended March 31, 2024 was primarily driven by income earned in the United States.
Overview of the six months ended March 31, 2025
Our sales decreased by $0.3 million, or 1%, to $28.8 million for the six months ended March 31, 2025 as compared to $29.1 million for the six months ended March 31, 2024. The decrease in sales is the result of a decrease of approximately $2.2 million in our HPP segment, partially offset by an increase of $1.9 million in the TS segment. Our gross margin percentage decreased 6% to 30% of sales for the six months ended March 31, 2025 compared to 36% for the six months ended March 31, 2024. For the six months ended March 31, 2025 operating loss was $1.3 million compared to operating income of $0.9 million for the six months ended March 31, 2024. Other income, net increased $0.1 million for the six months ended March 31, 2025 compared to the six months ended March 31, 2024. An income
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tax benefit of $0.8 million was recorded for the six months ended March 31, 2025 compared to an income tax expense of $0.1 million in the same prior year period.
The following table details our results of operations in dollars and as a percentage of sales for the six months ended March 31, 2025 and 2024:
%
%
March 31, 2025
of sales
March 31, 2024
of sales
(Dollar amounts in thousands)
Sales
$
28,817
100
%
$
29,081
100
%
Costs and expenses:
Cost of sales
20,046
70
%
18,508
64
%
Engineering and development
1,549
5
%
1,426
5
%
Selling, general and administrative
8,570
30
%
8,256
28
%
Total costs and expenses
30,165
105
%
28,190
97
%
Operating (loss) income
(1,348)
(5)
%
891
3
%
Other income, net
914
3
%
772
3
%
(Loss) income before income taxes
(434)
(2)
%
1,663
6
%
Income tax (benefit) expense
(798)
(3)
%
148
1
%
Net income
$
364
1
%
$
1,515
5
%
Sales
Our sales decreased by approximately $0.3 million, or 1%, to $28.8 million for the six months ended March 31, 2025 as compared to $29.1 million for the six months ended March 31, 2024. The decrease in sales is the result of a decrease of approximately $2.2 million in our HPP segment, partially offset by an increase of $1.9 million in the TS segment.
TS segment sales change was as follows for the six months ended March 31, 2025 and 2024:
March 31,
Increase
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
19,212
$
17,350
$
1,862
11
%
Services
8,528
8,517
11
—
%
Total
$
27,740
$
25,867
$
1,873
7
%
The increase in TS segment product sales of $1.9 million during the period as compared to the prior year period is attributable to increased sales of $1.7 million to several existing major customers in the US division combined with an increase in sales of $0.2 million in the UK division to existing customers. Service sales for the six months ended March 31, 2025 remained relatively flat from the prior year period with changes in the mix of revenue including an increase of $0.2 million from internal and third-party services and an increase in managed services of $0.1 million, offset by a decrease in third-party services of $0.3 million. All of these service sales changes occurred in the US division.
HPP segment sales change was as follows for the six months ended March 31, 2025 and 2024:
March 31,
Increase (decrease)
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
355
$
2,515
$
(2,160)
(86)
%
Services
722
699
23
3
%
Total
$
1,077
$
3,214
$
(2,137)
(66)
%
The HPP product sales decreased by $2.2 million for the six months ended March 31, 2025 as compared to the prior year period primarily as a result of one large ARIA AZT order of $2.0 million which occurred in the prior year period
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and did not recur in the current year combined with a $0.5 million decrease in Myricom sales, which was partially offset by increased ARIA AZT revenue to new customers of $0.3 million. The HPP service sales remained flat for the six months ended March 31, 2025 compared to the prior year period with changes in the mix of revenue including increased ARIA AZT customer support revenue of $0.2 million, which was offset by decreased revenue from royalties on high-speed processing boards related to the E2D program.
Our sales by geographic area, which are based on the customer location to which the products were shipped or services rendered, were as follows for the six months ended March 31, 2025 and 2024:
March 31,
Increase (decrease)
2025
%
2024
%
$
%
(Dollar amounts in thousands)
Americas
$
27,827
96
%
$
28,082
97
%
$
(255)
(1)
%
Europe
836
3
%
605
2
%
231
38
%
APAC and Africa
154
1
%
394
1
%
(240)
(61)
%
Totals
$
28,817
100
%
$
29,081
100
%
$
(264)
(1)
%
The $0.3 million decrease in sales to the Americas was the result of a decrease in the HPP segment of $2.3 million, which was partially offset by the TS segment’s US division increase of $2.0 million. The sales to Europe increased $0.2 million due to increased sales in the TS US division of $0.1 million and the TS UK division of $0.1 million. The sales to APAC and Africa decreased $0.2 million as a result of decreased sales in the TS segment’s US division of $0.3 million, partially offset by increased sales in the HPP segment of $0.1 million.
Gross Margins
Our gross margin ("GM") decreased $1.8 million for the six months ended March 31, 2025 compared to the same prior year period. The GM as a percentage of total sales decreased to 30% for the six months ended March 31, 2025 as compared to the same prior year period of 36%.
March 31,
2025
2024
Increase (decrease)
(Dollar amounts in thousands)
GM$
GM%
GM$
GM%
GM$
GM%
TS
$
8,185
30
%
$
8,071
31
%
$
114
(1)
%
HPP
586
54
%
2,502
78
%
(1,916)
(24)
%
Total
$
8,771
30
%
$
10,573
36
%
$
(1,802)
(6)
%
The impact of product mix within our TS segment on gross margin for the six months ended March 31, 2025 and 2024 was as follows:
March 31,
2025
2024
Increase (decrease)
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
Products
$
3,336
17
%
$
3,107
18
%
$
229
(1)
%
Services
4,849
57
%
4,964
58
%
(115)
(1)
%
Total
$
8,185
30
%
$
8,071
31
%
$
114
(1)
%
The overall TS segment GM as a percentage of total sales decreased to 30% for the six month period ended March 31, 2025 compared to 31% from the prior year period. Product GM as a percentage of revenue for the six months ended March 31, 2025 decreased 1% from the prior year period due to product mix. Service GM as a percentage of total sales decreased to 57% for the six months ended March 31, 2025 compared to 58% from the prior year period. This was primarily due to decreased third-party maintenance sales, which are recorded “net” meaning the revenue, net of the associated cost, is recorded in the Services revenue financial statement line item causing an increase in GM as a percentage of sales.
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The impact of product mix within our HPP segment on gross margin for the six months ended March 31, 2025 and 2024 was as follows:
March 31,
2025
2024
Decrease
(Dollar amounts in thousands)
GM$
GM%
GM$
GM%
GM$
GM%
Products
$
233
66
%
$
2,114
84
%
$
(1,881)
(18)
%
Services
353
49
%
388
56
%
(35)
(7)
%
Total
$
586
54
%
$
2,502
78
%
$
(1,916)
(24)
%
The overall HPP segment GM as a percentage of sales decreased to 54% for the six months ended March 31, 2025 from 78% for the six months ended March 31, 2024. The 18% decrease in product GM as a percentage of product revenue compared to the same prior year period was primarily attributed to one large ARIA Zero Trust Gateway order in the prior year period, which was nearly all GM and did not recur in the current period. The 7% decrease in service GM as a percentage of service revenue for the six months ended March 31, 2025 compared to the same prior year period was due to decreased royalty sales, which are nearly all GM, partially offset by more AZT customer support GM.
Engineering and Development Expenses
The engineering and development expenses incurred by our HPP segment increased to $1.5 million for the six months ended March 31, 2025 compared to the same prior year period of $1.4 million due to increased consulting as the quantity of sales opportunities increased. The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA Zero Trust Gateway 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 six months ended March 31, 2025 and 2024:
Six months ended March 31,
% of
% of
$
%
2025
Total
2024
Total
Increase
Increase
(Dollar amounts in thousands)
By Operating Segment:
TS segment
$
6,294
73
%
$
6,100
74
%
$
194
3
%
HPP segment
2,276
27
%
2,156
26
%
120
6
%
Total
$
8,570
100
%
$
8,256
100
%
$
314
4
%
SG&A expenses increased $0.3 million for the six months ended March 31, 2025 compared to the same prior year period. The $0.2 million increase in TS segment SG&A expenses compared to the same prior year period is primarily the result of increased stock compensation expense. The HPP segment SG&A expenses increased $0.1 million for the six months ended March 31, 2025 as compared to the prior year period primarily due to increased stock compensation expense.
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Other Income/Expenses
The following table details other income, net for the six months ended March 31, 2025 and 2024:
Six months ended
March 31, 2025
March 31, 2024
$ Change
(Amounts in thousands)
Foreign exchange gain (loss)
$
163
$
(142)
$
305
Interest expense
(154)
(95)
(59)
Interest income
903
974
(71)
Other income, net
2
35
(33)
Total other income, net
$
914
$
772
$
142
Total other income, net for the six months ended March 31, 2025 increased $0.1 million to income of $0.9 million compared to income of $0.8 million in the same prior year period.
The $0.3 million increased foreign exchange gain for the six months ended March 31, 2025 was due to the US Dollar strengthening relative to the British Pound compared to the same prior year period. In consolidation, US dollars are remeasured into the functional currency, British Pounds, of our UK subsidiary. This non-cash remeasurement is included in the Foreign exchange gain (loss) in the Consolidated Statements of Operations. The foreign exchange gain in the current period was primarily from the US Dollar bank account in our TS UK division.
Interest income decreased $71 thousand for the six months ended March 31, 2025 compared to the same prior year period primarily due to decreased interest income from agreements that have payment terms in excess of one year (see Note 5 Financing receivables, net in Item 1 to this Quarterly Report on Form 10-Q for details). Although new agreements with higher interest rates have been entered into during fiscal years 2024 and 2025, this is more than offset by lower interest income recognized from a larger number of prior agreements because interest income decreases from each agreement as time elapses due to principal payments being received. All of these agreements are in the TS-US division.
The interest expense increase of $59 thousand for the three months ended March 31, 2025 compared to the same prior year period was primarily related to the TS US division entering into additional multi-year vendor contracts related to sales agreements in fiscal year 2025 that have payment terms in excess of one year. Interest expense increased while interest income decreased because many of the Company’s financing sales prior to fiscal year 2024 did not have vendor financing, but in fiscal years 2024 and 2025 vendor financing became more prevalent.
Income Taxes
The Company recorded an income tax benefit of $798 thousand and income tax expense of $148 thousand for the six months ended March 31, 2025 and 2024, respectively. The income tax benefit for the six months ended March 31, 2025 was primarily driven by the impact of tax credits that we expect to be able to utilize against federal and state taxes and the excess tax benefits on restricted stock awards vested during the period. The income tax expense for the six months ended March 31, 2024 was primarily driven by income earned in the United States.
Liquidity and Capital Resources
Our primary source of liquidity is our cash and cash equivalents and our line of credit.
Cash and cash equivalents decreased by $1.1 million to $29.5 million as of March 31, 2025 from $30.6 million as of September 30, 2024.
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The following is a summary of our cash flows for the six months ended March 31, 2025 and 2024:
Six months ended March 31,
2025
2024
(Dollar amounts in thousands)
Net cash (used in) provided by:
Operating activities
$
3,653
$
3,324
Investing activities
(108)
(193)
Financing activities
(4,603)
(1,246)
Effect of exchange rate changes on cash
(32)
17
(Decrease) increase in cash and cash equivalents
$
(1,090)
$
1,902
Operating Activities
Cash provided by operating activities was $3.7 million for the six months ended March 31, 2025 compared to $3.3 million provided by operating activities in the prior year. The significant changes from the prior period include increased collections of Accounts receivable of $0.7 million, decreased payments in Accounts payable and accrued expenses of $1.2 million, partially offset by decreased collections of Financing receivables of $0.7 million and a decreased inventory change of $0.8 million. The remaining differences are primarily related to timing differences in operating assets and liabilities. Inventory fluctuations are dependent on when orders are received and shipped. Accounts payable and accrued expenses fluctuations are dependent on when vendor invoices are received as well as the related timing of the payments.
Investing Activities
Cash used in investing activities was $0.1 million for the six months ended March 31, 2025 compared to $0.2 million used in investing activities for the prior year period. The decrease in cash used from the prior year is due to decreased purchases of property, equipment, and improvements.
Financing Activities
Cash used in financing activities increased approximately $3.4 million from the prior year to $4.6 million for the six months ended March 31, 2025 compared to $1.2 million for the prior year period. The increase from the prior year was primarily due to increased net borrowing on our line-of-credit of approximately $3.2 million from the prior year, increased cash dividend payments of $0.2 million, repurchases of common stock of $0.4 million, partially offset by a decrease of a note payable of $0.4 million.
Other Liquidity and Capital Resources Items
Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $4.6 million as of March 31, 2025 and consisted of 0.3 million Euros, 0.5 million British Pounds, and 3.6 million US Dollars. This cash is included in our total cash and cash equivalents reported on the Condensed Consolidated Balance Sheets.
As of March 31, 2025 and September 30, 2024, 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 $14.6 million and $10.8 million were available as of March 31, 2025 and September 30, 2024, respectively. As of March 31, 2025 and September 30, 2024 there were no cash withdrawals outstanding. For further discussion of the Company’s line of credit, including its financial covenants, see Item 1, Note 9 Line of Credit.
If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans or other means. If we are unable to secure additional financing, we may not be able to complete
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development or enhancement of products, take advantage of future opportunities, respond to competition, retain key employees, or continue to effectively operate our business.
Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, 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 filing.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.