What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 145 added, 105 removed, 449 unchanged (36% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

June 30, 2020

September 30, 2020

March 31, 2020

35 unchanged sentences

par value $ 0.01 per share, 50,000,000 shares authorized;

19,002,333 and 18,969,380 shares issued and outstanding at June 30, 2020 and March 31, 2020, respectively

19,026,587 and 18,969,380 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively

Additional paid-in capital

6 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Income

Three Months Ended

September 30,

Six Months Ended

September 30,

Cost of goods sold

3 unchanged sentences

Research and development

Foreign exchange impact of lease liabilities and forward contracts

Total operating expenses

Operating income (loss)

Operating income

Interest expense, net

Loss before income tax benefit

Income tax benefit

Basic net loss per share

Diluted net loss per share

Income before income tax expense

Income tax expense

Basic net income per share

Diluted net income per share

Weighted average number of shares outstanding:

2 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended

September 30,

Six Months Ended

September 30,

Other comprehensive (loss) income, net of tax:

1 unchanged sentence

Total other comprehensive (loss) income, net of tax

Comprehensive loss

Comprehensive income

The accompanying notes to condensed consolidated financial statements are an integral part hereof.

9 unchanged sentences

Balance at June 30, 2020

Compensation recognized under employee stock plans

Exercise of stock options

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

Foreign currency translation

Balance at September 30, 2020

Comprehensive

5 unchanged sentences

Balance at June 30, 2019

Compensation recognized under employee stock plans

Exercise of stock options

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

Foreign currency translation

Balance at September 30, 2019

The accompanying notes to condensed consolidated financial statements are an integral part hereof.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

September 30,

Cash flows from operating activities:

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

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

Depreciation and amortization

3 unchanged sentences

(Gain) loss due to the change in the fair value of the contingent consideration

Gain due to the remeasurement of lease liabilities

Foreign exchange impact of lease liabilities and forward contracts

Gain on short-term investments

16 unchanged sentences

Purchase of plant and equipment

Proceeds from sale of plant and equipment

Change in short-term investments

10 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents — Beginning of period

12 unchanged sentences

Notes to Condensed Consolidated Financial Statements

June 30, 2020

September 30, 2020

Company Background and Organization

10 unchanged sentences

Impact of the Novel Coronavirus (“COVID- 19 ”)

The recent outbreak of the COVID- 19 pandemic has led to adverse impacts on the U.S.

and global economies and created uncertainty regarding potential effects on the Company’s employees, supply chain, operations, and customer demand.

The outbreak of the COVID- 19 pandemic has led to adverse impacts on the U.S.

and global economies and created uncertainty regarding the potential effects on the Company’s employees, supply chain, operations, and customer demand.

The COVID- 19 pandemic could impact the Company’s operations and the operations of its customers, suppliers, and vendors because of quarantines, facility closures, travel, and logistics restrictions.

The extent to which the COVID- 19 pandemic impacts the Company’s business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted— including, but not limited to, the duration, spread, severity, and impact of the COVID- 19 pandemic, the effects of the COVID- 19 pandemic on its customers, suppliers, and vendors and the remedial actions and stimulus measures adopted by local, state and federal governments, and to what extent normal economic and operating conditions can resume.

The extent to which the COVID- 19 pandemic impacts the Company will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to:

(i) the severity of the virus, (ii) the duration of a “second wave” or additional spikes, (iii) the effects of the pandemic on customers, suppliers, and vendors, (iv) the remedial actions and stimulus measures adopted by local, state and federal governments, and (v) the extent to which normal economic and operating conditions can resume.

Even after the COVID- 19 pandemic has subsided, the Company may continue to experience adverse impacts to its business because of an economic recession or depression that has occurred or may occur in the future.

At this time, the Company is unable to predict accurately the ultimate long-term impact that COVID-19 will have on its business and financial condition.

At this time, the Company is unable to predict accurately the ultimate long-term impact the COVID-19 pandemic will have on its business and financial condition.

Basis of Presentation and New Accounting Pronouncements

4 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2021.

Operating results for the three and six months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2021.

This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2020, which are included in the Company’s Annual Report on Form 10 -K filed with the Securities and Exchange Commission (“SEC”) on June 15, 2020 .

3 unchanged sentences

In June 2016, the FASB issued an accounting pronouncement related to the measurement of credit losses on financial instruments.

This pronouncement, along with a subsequent Accounting Standards Updates (“ASU”) issued to clarify certain provisions of the new guidance, changes the impairment model for most financial assets and requires the use of an “expected loss” model for instruments measured at amortized cost.

This pronouncement, along with a subsequent Accounting Standards Updates (“ASU”) issued to clarify certain provisions of the new guidance, changed the impairment model for most financial assets and requires the use of an “expected loss” model for instruments measured at amortized cost.

Under this model, entities are required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset.

6 unchanged sentences

The net amount of accounts receivable and corresponding allowance for credit losses are presented separately in the condensed consolidated balance sheets.

The Company maintains an allowance for credit losses resulting from the expected failure or inability of the Comany's customers to make required payments.

The Company maintains allowances for credit losses resulting from the expected failure or inability of its customers to make required payments.

The Company recognizes the allowance for credit losses at inception and reassess quarterly based on the asset’s expected collectability.

1 unchanged sentence

The Company’s allowance for credit losses is based on the assessment of the collectability of assets pooled together with similar risk characteristics.

The Company pools its receivables based on the shared risk characteristics of our customers.

The Company records a provision for expected credit losses using a loss-rate method based on the ratio of our historical write-offs to our average trade accounts receivable.

At each reporting period, the Company will assess whether financial assets in a pool continue to display similar risk characteristics.

The Company records a provision for expected credit losses using a loss-rate method based on the ratio of its historical write-offs to its average trade accounts receivable.

At each reporting period, the Company assesses whether financial assets in a pool continue to display similar risk characteristics.

If particular receivables no longer display risk characteristics that are similar to those of the receivables in the pool, the Company may determine that it needs to move those receivables to a different pool or perform an individual assessment of expected credit losses for those specific receivables.

Fair Value Measurements

In August 2018, the FASB issued guidance , which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

In August 2018, the FASB issued guidance , which changed the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 measurements, and the narrative description of measurement uncertainty should be applied prospectively only for the most recent interim or annual period presented in the initial year of adoption.

All other amendments should be applied retrospectively applied to all periods presented upon their effective date.

The adoption of this guidance on April 1, 2020 modified certain of the Company’s disclosures for its Level 3 fair value measurements but did not have an impact on its condensed consolidated financial statements.

The adoption of this guidance on April 1, 2020 modified certain of the Company’s disclosures for its Level 3 fair value measurements but did not have an impact on its consolidated financial statements.

Reference Rate Reform

4 unchanged sentences

The Company will apply these amendments prospectively.

The adoption of this guidance on April 1, 2020 did not have an impact on the Company’s condensed consolidated financial statements for the three months ended June 30, 2020 .

The adoption of this guidance on April 1, 2020 did not have an impact on the Company’s condensed consolidated financial statements for the three and six months ended September 30, 2020 .

New Accounting Pronouncements Not Yet Adopted

2 unchanged sentences

Early adoption is permitted.

The Company is currently evaluating the impact this guidance will have on its condensed consolidated financial statements .

The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

Accounts Receivable — Net

4 unchanged sentences

When developing an estimate of expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions, and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable.

The historical loss rate method considers past write-offs of trade accounts receivable over a period commensurate with the initial term of Company’s contracts with its customers.

The historical loss rate method considers past write-offs of trade accounts receivable over a period commensurate with the initial term of the Company’s contracts with its customers.

The Company recognizes the allowance for credit losses at inception and reassesses quarterly based on management’s expectation of the asset’s collectability.

2 unchanged sentences

Accounts receivable — net is comprised of the following:

June 30, 2020

September 30, 2020

March 31, 2020

5 unchanged sentences

The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount expected to be collected.

During the three months ended June 30, 2020, the Company wrote off amounts previously fully reserved for in connection the bankruptcy filing of one of its customers in fiscal 2016.

Three Months Ended

June 30, 2020

During the six months ended September 30, 2020, the Company wrote off amounts previously fully reserved for in connection the bankruptcy filing of one of its customers in fiscal 2016.

Six Months Ended

September 30, 2020

Balance at beginning of period

3 unchanged sentences

Inventory is comprised of the following:

June 30, 2020

September 30, 2020

March 31, 2020

7 unchanged sentences

Contract Assets

During the quarter ended June 30, 2020, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 1,384,000 .

During the three and six months ended September 30, 2020, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 892,000 and $ 2,276,000 , respectively.

Contract assets are comprised of the following:

June 30, 2020

September 30, 2020

March 31, 2020

12 unchanged sentences

Significant Customer Concentrations

The largest customers accounted for the following total percentage of net sales:

The largest customers accounted for the following percentage of net sales:

Three Months Ended

The largest customers accounted for the following total percentage of accounts receivable – trade:

June 30, 2020

September 30,

Six Months Ended

The largest customers accounted for the following percentage of accounts receivable – trade:

September 30, 2020

March 31,2020

2 unchanged sentences

The Company’s products are sold predominantly in the U.S.

and accounted for the following total percentages of net sales:

and accounted for the following percentages of net sales:

Three Months Ended

September 30,

Six Months Ended

Rotating electrical products

3 unchanged sentences

Significant Supplier Concentrations

The Company had no suppliers that accounted for more than 10% of inventory purchases for the three months ended June 30, 2020 and 2019.

The Company had no suppliers that accounted for more than 10% of inventory purchases for the three and six months ended September 30, 2020 and 2019.

The Company is party to a $ 268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $ 238,620,000 revolving loan facility, subject to borrowing base restrictions, a $ 24,000,000 sublimit for borrowings by Canadian borrowers, and a $ 20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $ 30,000,000 term loan facility (the “Term Loans”).

The loans under the Credit Facility mature on June 5, 2023 .

The Credit Facility permits the payment of up to $ 20,000,000 of dividends and share repurchases per fiscal year, subject to a minimum availability threshold and pro forma compliance with financial covenants.

The Credit Facility currently permits the payment of up to $ 30,000,000 of dividends and share repurchases for this fiscal year, subject to pro forma compliance with financial covenants.

In connection with the Credit Facility, the lenders have a security interest in substantially all of the assets of the Company.

2 unchanged sentences

There is also a facility fee of 0.375 % to 0.50 %, depending on the senior leverage ratio as of the applicable measurement date.

The interest rate on the Company’s Term Loans and Revolving Facility was 2.93 % and 2.94 %, at June 30, 2020, respectively, and 4.34 % and 3.64 % at March 31, 2020, respectively.

The interest rate on the Company’s Term Loans and Revolving Facility was 2.91 % at S eptember 30, 2020 , and 4.34 % and 3.64 % , respectively, at March 31, 2020 .

The Credit Facility, among other things, requires the Company to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio.

The Company was in compliance with all financial covenants at June 30, 2020 .

While the Company made payments to its Revolving Facility of $ 40,000,000 , in light of COVID- 19, it elected not to further pay down its Revolving Facility and accumulated cash of $ 27,464,000 as of June 30, 2020.

The Credit Facility only allows up to $ 6,000,000 of credit for cash when computing the senior leverage ratio.

The Company was in compliance with all financial covenants at S eptember 30, 2020.

The Company had cash of $ 20,887,000 at September 30, 2020 and paid down its outstanding debt by $ 59,875,000 during the six months ended September 30, 2020.

However, the Credit Facility only allows up to $ 6,000,000 of credit for cash when computing the senior leverage ratio.

In addition to other covenants, the Credit Facility places limits on the Company’s ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem or repurchase capital stock, alter the business conducted by the Company and its subsidiaries, transact with affiliates, prepay, redeem or purchase subordinated debt, and amend or otherwise alter debt agreements.

The following summarizes information about the Term Loans at:

June 30, 2020

The following summarizes information about the Term Loans:

September 30, 2020

March 31, 2020

6 unchanged sentences

Year Ending March 31,

2021 - remaining nine months

2021 - remaining six months

Total payments

The Company had $ 112,000,000 and $ 152,000,000 outstanding under the Revolving Facility at June 30, 2020 and March 31, 2020, respectively.

In addition, $ 5,679,000 was outstanding for letters of credit at June 30, 2020.

At June 30, 2020, after certain contractual adjustments, $ 85,097,000 was available under the Revolving Facility.

The Company had $ 94,000,000 and $ 152,000,000 outstanding under the Revolving Facility at S eptember 30, 2020 and March 31, 2020 , respectively.

In addition, $ 5,963,000 was outstanding for letters of credit at S eptember 30, 2020 .

At September 30, 2020 , after certain contractual adjustments, $ 97,046,000 was available under the Revolving Facility.

Contract Liabilities

Contract liabilities are comprised of the following:

June 30, 2020

September 30, 2020

March 31, 2020

13 unchanged sentences

The Company leases various facilities in North America and Asia under operating leases expiring through August 2033.

The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of operations.

The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of income.

As required for other monetary liabilities, lessees remeasure foreign currency-denominated lease liabilities using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates and are not affected by subsequent changes in the exchange rates.

The Company recorded gains of $ 1,985,000 and $ 502,000 in general and administrative expenses in connection with the remeasurement of foreign currency-denominated lease liabilities during the three months ended June 30, 2020 and 2019, respectively.

The Company recorded a gain of $ 1,618,000 and a loss of $ 1,139,000 in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of income in connection with the remeasurement of foreign currency-denominated lease liabilities during the three months ended September 30, 2020 and 2019, respectively.

The Company recorded a gain of $ 3,603,000 and a loss of $ 637,000 in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of income in connection with the remeasurement of foreign currency-denominated lease liabilities during the six months ended September 30, 2020 and 2019, respectively .

Balance sheet information for leases is as follows:

June 30, 2020

September 30, 2020

March 31, 2020

8 unchanged sentences

Total lease liabilities

Lease cost recognized in the condensed consolidated statements of operations is as follows:

Lease cost recognized in the condensed consolidated statements of income is as follows:

Three Months Ended

September 30,

Six Months Ended

September 30,

Operating lease cost

5 unchanged sentences

Total lease cost

Maturities of lease commitments at June 30, 2020 were as follows:

Maturities of lease commitments at September 30, 2020 were as follows:

Maturity of lease liabilities

1 unchanged sentence

Finance Leases

2021- remaining nine months

2021 - remaining six months

Total lease payments

2 unchanged sentences

Other information about leases is as follows:

Three Months Ended

September 30, 2020

Lease term and discount rate

10 unchanged sentences

The following is a summary of accounts receivable discount programs:

Three Months Ended

Six Months Ended

September 30,

Receivables discounted

2 unchanged sentences

Amount of discount recognized as interest expense

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

Diluted net loss income per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of common stock to the extent such impact is not anti-dilutive.

The following presents a reconciliation of basic and diluted net loss per share:

Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.

Diluted net income per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, which would result in the issuance of incremental shares of common stock to the extent such impact is not anti-dilutive.

The following presents a reconciliation of basic and diluted net income per share:

Three Months Ended

September 30,

Six Months Ended

September 30,

Effect of potentially dilutive securities

Diluted shares

Net loss per share:

Basic net loss per share

Diluted net loss per share

Potential common shares that would have the effect of increasing diluted net income per share or decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net loss per share.

For the three months ended June 30, 2020 and 2019, there were 2,133,786 and 1,520,811 , respectively, of potential common shares not included in the calculation of diluted net loss per share because their effect was anti-dilutive.

The Company recorded an income tax benefit of $ 1,022,000 , or an effective tax rate of 25.3 % , and $ 1,730,000 , or an effective tax rate of 22.0 % , for the three months ended June 30, 2020 and 2019, respectively.

The effective tax rate for the three months ended June 30, 2020, was primarily impacted by non-deductible executive compensation under Internal Revenue Code Section 162 (m) and foreign income taxed at rates that are different from the federal statutory rate.

Net income per share:

Basic net income per share

Diluted net income per share

For the three months ended September 30, 2020 and 2019, there were 1,500,066 and 1,221,744 respectively, of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive.

For the six months ended September 30, 2020 and 2019, there were 1,500,066 and 1,166,432 , respectively, of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive.

The Company recorded income tax expense of $ 6,097,000 , or an effective tax rate of 28.6 % , and $ 1,980,000 , or an effective tax rate of 24.2 % , for the three months ended September 30, 2020 and 2019, respectively.

The Company recorded income tax expense of $ 5,075,000 , or an effective tax rate of 29.4 % , and $ 250,000 , or an effective tax rate of 86.8 % , for the six months ended September 30, 2020 and 2019, respectively.

The effective tax rates for the three and six months ended September 30, 2020, were primarily impacted by non-deductible executive compensation under Internal Revenue Code Section 162(m) and foreign income taxed at rates that are different from the federal statutory rate.

The Company continues to record a valuation allowance against its foreign deferred tax assets as a result of its non-U.S.

8 unchanged sentences

In evaluating the Company’s ability to recover deferred tax assets within the jurisdiction in which they arise, the Company considers all available positive and negative evidence.

At June 30, 2020, the Company is not under examination in any jurisdiction and the years ended March 31, 2019, 2018, 2017, and 2016 remain subject to examination.

At September 30, 2020, the Company is not under examination in any jurisdiction and the years ended March 31, 2016 through 2020 remain subject to examination.

The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.

13 unchanged sentences

The Company had forward foreign currency exchange contracts with a U.S.

dollar equivalent notional value of $ 36,307,000 and $ 42,052,000 at June 30, 2020 and March 31, 2020, respectively.

dollar equivalent notional value of $ 35,305,000 and $ 42,052,000 at September 30, 2020 and March 31, 2020, respectively.

These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts.

2 unchanged sentences

The credit risk is limited to the potential unrealized gains (which offset currency fluctuations adverse to the Company) in any such contract should this counterparty fail to perform as contracted.

Any changes in the fair values of forward foreign currency exchange contracts are reflected in current period earnings and accounted for as an increase or offset to general and administrative expenses.

The following shows the effect of derivative instruments on the condensed consolidated statements of operations:

Gain Recognized within General

and Administrative Expenses

Any changes in the fair values of forward foreign currency exchange contracts are included in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of income .

The following shows the effect of derivative instruments on the condensed consolidated statements of income:

Gain (Loss) Recognized as Foreign Exchange Impact of Lease Liabilities

and Forward Contracts

Derivatives Not Designated as

Three Months Ended

September 30,

Six Months Ended

September 30,

Hedging Instruments

Forward foreign currency exchange contracts

The fair value of the forward foreign currency exchange contracts of $ 3,452,000 and $ 6,284,000 is included in other current liabilities in the condensed consolidated balance sheets at June 30, 2020 and March 31, 2020, respectively.

The changes in the fair values of forward foreign currency exchange contracts are included in other liabilities in the condensed consolidated statements of cash flows for the three months ended June 30, 2020 and 2019.

The fair value of the forward foreign currency exchange contracts of $ 1,085,000 and $ 6,284,000 is included in other current liabilities in the condensed consolidated balance sheets at September 30, 2020 and March 31, 2020, respectively.

The changes in the fair values of forward foreign currency exchange contracts are included in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of cash flows for the six months ended September 30, 2020 and 2019.

Fair Value Measurements

The following summarizes financial assets and liabilities measured at fair value, by level within the fair value hierarchy:

June 30, 2020

September 30, 2020

March 31, 2020

18 unchanged sentences

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”).

In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $ 5,200,000 over the next three years .

In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $ 5,200,000 over a three-year period.

In January 2019, the Company completed the acquisition of all the equity interests of Dixie.

In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $ 1,130,000 over the next two years .

The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its condensed consolidated balance sheets at June 30, 2020 and March 31, 2020, and is a Level 3 liability measured at fair value.

In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $ 1,130,000 over a two-year period.

The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its condensed consolidated balance sheets at September 30, 2020 and March 31, 2020, and is a Level 3 liability measured at fair value.

E&M Research and Development (“R&D”) Event Milestone

The fair value of the two-year R&D event milestone based on technology development and transfer was $ 1,200,000 and $ 1,130,000 at June 30, 2020 and March 31, 2020, respectively, determined using a probability weighted discounted cash flow method with the following assumptions commensurate with the term of the contingent consideration.

The fair value of the two-year R&D event milestone based on technology development and transfer was $ 1,220,000 and $ 1,130,000 at September 30, 2020 and March 31, 2020, respectively, determined using a probability weighted discounted cash flow method with the following assumptions commensurate with the term of the contingent consideration.

Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The assumptions used to determine the fair value is as follows:

June 30, 2020

September 30, 2020

Risk free interest rate

1 unchanged sentence

E&M Gross Profit Earn-out Consideration

The fair value of the three-year gross profit earn-out consideration was $ 1,350,000 and $ 1,230,000 at June 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

The fair value of the three-year gross profit earn-out consideration was $ 1,360,000 and $ 1,230,000 at September 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The assumptions used to determine the fair value is as follows:

June 30, 2020

September 30, 2020

Risk free interest rate

4 unchanged sentences

Dixie Revenue Earn-out Consideration

The fair value of the two-year revenue earn-out consideration was $ 56,000 and $ 293,000 at June 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

The fair value of the two-year revenue earn-out consideration was $ 8,000 and $ 293,000 at September 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

The assumptions used to determine the fair value is as follows:

June 30, 2020

September 30, 2020

Risk free interest rate

7 unchanged sentences

Three Months Ended

Consideration

September 30,

Six Months Ended

September 30,

Contingent Consideration

Beginning balance

1 unchanged sentence

Ending balance

During the three months ended June 30, 2020, the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

During the three and six months ended September 30, 2020, the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments.

2 unchanged sentences

Stock Options

The Company granted options to purchase 341,825 shares of common stock during the three months ended June 30, 2020.

The Company did no t grant any options to purchase shares of common stock during the three months ended June 30, 2019.

The Company granted options to purchase 345,423 and 300,039 shares of common stock during the six months ended September 30, 2020 and 2019, respectively.

The cost associated with stock options is estimated using the Black-Scholes option-pricing model.

3 unchanged sentences

The following assumptions were used to derive the weighted average fair value of the stock options granted:

Three Months Ended

Six Months Ended

September 30,

Weighted average risk free interest rate

7 unchanged sentences

Outstanding at March 31, 2020

Outstanding at June 30, 2020

At June 30, 2020, options to purchase 722,577 shares of common stock were unvested at the weighted average exercise price of $ 17.51 .

At June 30, 2020, there was $ 4,498,000 of total unrecognized compensation expense related to unvested stock option awards.

Outstanding at September 30, 2020

At September 30, 2020, options to purchase 616,682 shares of common stock were unvested at a weighted average exercise price of $ 17.13 .

At September 30, 2020, there was $ 3,893,000 of total unrecognized compensation expense related to unvested stock option awards.

Compensation expense related to unvested stock option awards will be recognized over a weighted average vesting period of approximately 2.1 years.

Restricted Stock Units and Restricted Stock (collectively “RSUs”)

During the three months ended June 30, 2020, the Company granted 112,293 shares of RSUs with an estimated grant date fair value of $ 1,701,000 based on the closing market price on the grant date.

The Company did no t grant any shares of RSUs during the three months ended June 30, 2019.

During the six months ended September 30, 2020 and 2019, the Company granted 212,293 and 79,851 shares of RSUs, respectively, with an estimated grant date fair value of $ 3,503,000 and $ 1,591,000 , respectively, based on the closing market price on the grant date.

The following is a summary of non-vested RSUs:

2 unchanged sentences

Outstanding at March 31, 2020

Outstanding at June 30, 2020

At June 30, 2020, there was $ 3,839,000 of unrecognized compensation expense related to these awards, which will be recognized over the remaining vesting period of approximately 2.3 years.

Outstanding at September 30, 2020

At September 30, 2020, there was $ 4,932,000 of unrecognized compensation expense related to these awards, which will be recognized over the remaining vesting period of approximately 1.7 years.

Commitments and Contingencies

1 unchanged sentence

The Company allows its customers to return goods that their consumers have returned to them, whether or not the returned item is defective (“warranty returns”).

The Company accrues an estimate of its exposure to warranty returns based on a historical analysis of the level of this type of return as a percentage of total unit sales.

The Company accrues an estimate of its exposure to warranty returns based on a historical analysis of the level of this type of return as a percentage of unit sales.

Amounts charged to expense for these warranty returns are considered in arriving at the Company’s net sales.

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

September 30,

Balance at beginning of period

11 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-Q

Item 1. Financial Statements