What changed in this filing

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Item 1A. Risk Factors

2021-12-06 compared with 2020-12-07 · 50 added, 43 removed, 293 unchanged (24% of the section changed)

6 unchanged sentences

Risks Relating to Our Business and the Industry in which we Compete

Our results of operations could in the future be materially adversely impacted by global, macroeconomic events, such as the coronavirus pandemic (COVID-19), and the response to contain it.

The coronavirus (COVID-19) pandemic and the mitigation efforts to control its spread have created significant volatility, uncertainty and economic disruption.

The extent to which the coronavirus pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:

the duration and scope of the pandemic;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic, including our ability to fully perform on our contracts as a result of government actions or reduction in personnel due to the federal vaccine mandate which requires all federal contractors to be vaccinated;

the impact of the pandemic on economic activity and actions taken in response;

the effect on our clients and client demand for our services and solutions;

our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home (as described below in the Management Discussion & Analysis, this has resulted in certain delays in our provision of services and postponements of project work requiring travel) and any closures of our and our clients’ offices and facilities, particularly at our pharmacy distribution centers.

Furthermore, the significant increase in remote working of our employees may exacerbate certain risks to our business, including an increased demand for information technology resources and the increased risk of malicious technology-related events, such as cyberattacks and phishing attacks.

Customers may also slow down decision making, delay planned work or seek to terminate existing agreements.

Government agencies are our primary customers and the long-term impact of increased government spending in response to COVID-19 remains uncertain.

The duration and spread of the pandemic still may cause reduced demand for certain services we provide, particularly if its results in a recessionary economic environment or the spending priorities of the U.S.

government shift in ways adverse to our business focus.

Any of these events could materially adversely affect our business, financial condition, results of operations and the market price of our common stock.

We depend on contracts with the Federal government for virtually all of our revenue and our business could be seriously harmed if the Federal government decreased or ceased doing business with us.

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We believe that the credit risk associated with our receivables is limited due to the creditworthiness of these customers.

In general, if we were suspended or

debarred from contracting with the federal government or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our business, financial condition and operating results would be materially and adversely affected.

In general, if we were suspended or debarred from contracting with the federal government or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our business, financial condition and operating results would be materially and adversely affected.

A significant portion of our revenue is concentrated in a small number of contracts and we could be seriously harmed if we were unable to continue providing services under, or unsuccessful in our recompete efforts on, these contracts.

We remain dependent upon the continuation of our relationships with the VA and HHS as a significant portion of our revenue is concentrated in a small number of contracts with these customers.

We are dependent upon the continuation of our relationships with the VA and HHS as a significant portion of our revenue is concentrated in a small number of contracts with these customers.

There can be no assurance as to the actual amount of services that we will ultimately provide to VA and HHS under our current contracts, or that we will be successful in recompete efforts.

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We believe that our strong working relationships and effective service delivery support ongoing performance for the terms of the contracts and recompete efforts as a prime or subcontractor.

Our results of operations, cash flows and financial condition would be materially adversely affected if we were unable to continue our relationship with either of these customers, if were to lose any of our material current contracts, or if the amount of services we provide to them materially reduced.

Our results of operations, cash flows and financial condition would be materially adversely affected if we were unable to continue our relationship with either of these customers, if we were to lose any of our material current contracts, or if the amount of services we provide to them is materially reduced.

government may prefer veteran-owned, minority-owned, small and small disadvantaged businesses;

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Further, congressional seats may change during election years, and the balance of spending priorities may change along with them.

In recent years past, we have seen frequent debates regarding the scope of funding of our customers, thereby leading to budgetary uncertainty for our Federal customers.

In recent years, we have seen frequent debates regarding the scope of funding of our customers, thereby leading to budgetary uncertainty for our Federal customers.

Changes in federal government budgetary priorities could directly affect our financial performance.

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Government entities with which we do business are delayed, decreased or underfunded, our consolidated revenues and results of operations could be materially and adversely affected.

Our growth into government markets may be impacted by measures in place since March 2013, when the federal government began operating under sequestration required by the Budget Control Act of 2011 (BCA).

Under sequestration, reductions in

both defense and civil agency expenditures have taken place in each of the government’s fiscal years since 2013 and, unless the BCA is amended or repealed, will continue through the government’s Fiscal Year 2021.

In February 2018, the Bipartisan Budget Act of 2018 (the “2018 Budget Act”) was signed into law, which increased the caps on defense and non-defense discretionary spending for the government’s 2018 and 2019 fiscal years.

In late July 2019, Congress passed the Bipartisan Budget Act of 2019 (BBA 2019), which increased the caps for defense and non-defense spending for fiscal 2020 and 2021, established discretionary spending caps for fiscal 2020 and 2021, and suspended the national debt limit through July 2021.

On August 2, 2019, the President signed the measure into law.

Subsequently, in December 2019, Congress passed two appropriations bills totaling $1.4 trillion for the 2020 fiscal year;

on December 20, 2019, both bills were signed into law.

We may experience disruption of existing programs, delays in contract awards, and other actions, including partial or complete contract terminations.

VA programs, which accounted for approximately 45% and 48% of Company revenue for the years ended September 30, 2021 and 2020, respectively, were exempt from the spending caps established under Federal government sequestration targets enacted in 2013.

While we view the budget environment as stable under BBA 2019 and believe there is bipartisan support for continued investment in the areas of defense and national security, the government is currently operating under a continuing resolution (a CR) which expires December 11, 2020.

The government is currently operating under a continuing resolution (CR) which expires February 18, 2021.

When a CR expires, unless appropriations bills have been passed by Congress and signed by the President, or a new CR is passed and signed into law, the government must cease operations, or shutdown, except in certain emergency situations or when the law authorizes continued activity.

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We expect that much of the opportunities we will seek in the foreseeable future will be awarded through competitive bidding.

Furthermore, budgetary pressures and developments in the procurement process have caused many government customers to increasingly purchase goods and services through IDIQ contracts, GSA schedule contracts and other government-wide acquisition contracts.

These contracts, some of which are awarded to multiple contractors, have increased competition and pricing pressure, requiring that we make sustained post-award efforts to realize revenue under each such contract.

Many of our competitors are larger and have greater resources than we do, larger client bases and greater brand recognition.

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Our revenue and operating results could differ materially and adversely from those anticipated if any such prime contractor or teammate chooses to offer directly to the client services of the type that we provide or if they team with other companies to provide those services.

Restrictions on or other changes to the federal government’s use of service contracts may harm our operating results.

We derive virtually all of our revenue from service contracts with the federal government.

The government may face restrictions from new legislation, regulations or government union pressures, on the nature and amount of services the government may obtain from private contractors (i.e., insourcing versus outsourcing).

Any reduction in the government’s use of private contractors to provide federal services could cause our actual results to differ materially and adversely from those anticipated.

Our earnings and margins may vary based on the mix of our contracts and programs.

At September 30, 2020, our backlog included cost reimbursable, time-and-materials and fixed-price contracts.

At September 30, 2021, our backlog includes cost reimbursable, time-and-materials, and fixed-price contracts.

Our earnings and margins may vary depending on the relative mix of contract types, the costs incurred in their performance, the achievement of other performance objectives and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.

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While we have appropriate policies in effect to deter illegal activities and promote proper conduct, it is not always possible to deter employee misconduct.

Precautions to prevent and detect this activity may not be effective in controlling such risks or losses, which could materially and adversely affect our business, results of operations, financial condition, cash flows, and liquidity.

Precautions to prevent and detect this activity may not be effective in controlling such risks or losses.

As a result of employee misconduct, we could face fines and penalties, loss of security clearance and suspension or debarment from contracting with the federal government, which could materially and adversely affect our business, results of operations, financial condition, cash flows, and liquidity.

If we are unable to attract qualified personnel, our business may be negatively affected.

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Depending upon the level of problem experienced, such problems with subcontractors could cause our actual results to differ materially and adversely from those anticipated.

We have a significant amount of federal net operating loss carry forwards which we may not be able to utilize in certain circumstances.

At September 30, 2020, we had net operating losses carryforwards, or NOLs, of approximately $7.4 million for U.S.

Federal tax purposes.

NOLs begin to expire in 2030 and continue to expire through 2033.

Based upon our current estimate of future taxable earnings, we expect to fully utilize these NOLs;

however future taxable income may vary significantly from our current estimate.

Additionally, changes to U.S.

Changes to U.S.

tax laws may adversely affect our financial condition or results of operations and create the risk that we may need to adjust our accounting for these changes.

The accounting treatment of these tax law changes is complex, and some of the changes may affect both current and future periods.

Consistent with guidance from the SEC, our financial statements reflect our estimates of the tax effects of the current tax laws and regulation.

Our results of operations could in the future be materially adversely impacted by global, macroeconomic events, such as the coronavirus pandemic (COVID-19), and the response to contain it.

The global spread of the coronavirus (COVID-19) has created significant volatility, uncertainty and economic disruption.

The extent to which the coronavirus pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:

the duration and scope of the pandemic;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

the impact of the pandemic on economic activity and actions taken in response;

the effect on our clients and client demand for our services and solutions;

Customers may also slow down decision making, delay planned work or seek to terminate existing agreements.

Government agencies are our primary customers and the long-term impact of increased government spending in response to COVID-19 is uncertain.

For example, we expect that the U.S.

government fiscal year 2021 budget cycle may be delayed as the U.S.

government focuses its attention on mitigating the impact of COVID-19, which could result in a re-evaluation of spending levels and priorities.

The pandemic may cause reduced demand for certain services we provide, particularly if its results in a recessionary economic environment or the spending priorities of the U.S.

government shift in ways adverse to our business focus.

Any of these events could materially adversely affect our business, financial condition, results of operations and the market price of our common stock.

Consistent with guidance from the SEC, our consolidated financial statements reflect our estimates of the tax effects of the current tax laws and regulation.

Risks Relating to Our Information Technology Systems and Intellectual Property

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In addition, the Credit Agreement also requires prepayments of a percentage of excess cash flow.

Accordingly, a portion of our cash flow from operations will be dedicated to the repayment of our indebtedness.

Accordingly, a portion of our cash flow from operations was dedicated to the repayment of our indebtedness and we expect future cash flow to be used to reduce our indebtedness.

The loan agreement provides for customary events of default, including, among other things, a payment default, covenant default or defaults on other indebtedness or judgments in excess of a stipulated amount, change of control events, suspension or disbarment from contracting with the federal government and the material inaccuracy of our representations and warranties.

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The indebtedness outstanding under the Credit Agreement initially incurs interest based on LIBOR.

The Financial Conduct Authority of the United Kingdom has announced that it plans to phase out LIBOR by the end of calendar year 2021.

In March 2021, the Financial Conduct Authority of the

United Kingdom has announced that LIBOR will no longer be provided for the one-week and two-month U.S.

dollar settings after December 31, 2021 and that publication of the U.S.

dollar settings for the overnight, one-month, three-month, six-month and 12-month LIBOR rates will cease after June 30, 2023.

Although our Credit Agreement provides for an alternative base rate, the consequences of the phase out of LIBOR cannot be entirely predicted at this time.

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We may incur growth expenses before new business revenue is realized, thus showing lower profitability in a particular period or consecutive periods.

Other factors which may cause our cash flows and results of operations to vary from quarter to quarter include:

the terms and progress of contracts;

expenses related to certain contracts which may be incurred in periods prior to revenue being recognized;

the commencement, completion or termination of contracts during any particular quarter;

the timing and terms of award contracts;

and government budgetary delays or shortfalls.

We may be unable to achieve desired levels of revenue growth due to circumstances that are beyond our control, as already expressed regarding competition, government budgets, and the procurement process in general.

In particular, if the federal government does not adopt, or delays adoption of, a budget for each fiscal year beginning on October 1, or fails to pass a continuing resolution, federal agencies may be forced to suspend our contracts and delay the award of new and follow-on contracts and orders due to a lack of funding.

Also, some aspects of this work can be seasonal with regard to resources and funding and it is difficult to predict the timing of when those resources will be expended.

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Revenue levels achieved from our customers, the mix of solutions that we offer and our performance on future contracts will affect our financial results.

Further, changes in the volume of activity and the number of contracts commenced, completed or terminated during any quarter may cause significant variations in our cash flows and results of operations.

Therefore, period-to-period comparisons of our operating results may not be a good indication of our future performance.

Our profits and revenues could suffer if we are involved in legal proceedings, investigations, and disputes.

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As a result, such increases could have a material adverse effect on our financial condition, results of operations and liquidity.

We may be subject to fines, penalties and other sanctions if we do not comply with laws governing our business.

Our business lines operate within a variety of complex regulatory schemes, including but not limited to the FAR, Federal Cost Accounting Standards, the Truth in Negotiations Act, as well as the regulations governing accounting standards.

If a government audit finds improper or illegal activities by us or we otherwise determine that these activities have occurred, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or disqualification from doing business with the government.

Any adverse determination could adversely impact our ability to bid in response to RFPs in one or more jurisdictions.

Further, as a government contractor subject to the types of regulatory schemes described above, we are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities to which private

sector companies are not, the result of which could have a material adverse effect on our operating results, cash flows and financial condition.

We are exposed to increased costs and risks associated with complying with increasing and new regulation of corporate governance and disclosure standards.

8 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 1A. Risk Factors