Company Quick10K Filing
Quick10K
CSP
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$12.85 4 $52
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-02-12 Earnings, Exhibits
8-K 2019-02-12 Shareholder Vote
8-K 2018-12-27 Earnings, Exhibits
8-K 2018-08-13 Earnings, Exhibits
8-K 2018-07-31 M&A, Exhibits
8-K 2018-06-27 Enter Agreement, Regulation FD, Exhibits
8-K 2018-05-09 Earnings, Exhibits
8-K 2018-02-13 Shareholder Vote
8-K 2018-02-12 Earnings, Exhibits
H Hyatt Hotels 8,150
ATR Aptargroup 7,140
SNDR Schneider National 1,870
SAFE Safety, Income & Growth 498
RMNI Rimini Street 328
IMH Impac Mortgage Holdings 72
FSAC Federal Street Acquisition 0
NNUP Nocopi Technologies 0
RBCA Republic Bancorp 0
ALPP Alpine 4 Technologies 0
CSPI 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 cspi-2019331xex311.htm
EX-31.2 cspi-2019331xex312.htm
EX-32.1 cspi-2019331xex321.htm

CSP Earnings 2019-03-31

CSPI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cspi-10q20190331.htm 10-Q Document
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended
March 31, 2019
 
 
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             .

Commission File Number 0-10843
 
CSP Inc.
(Exact name of Registrant as specified in its charter)
 
Massachusetts
04-2441294
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
175 Cabot Street - Suite 210, Lowell, MA
01854
(Address of principle executive offices)
(Zip Code)
 
 
(978)-954-5038
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer
o
Accelerated filer
o
 
 
 
 
Non-accelerated filer
x
Smaller reporting company
x
 
 
 
 
Emerging growth company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CSPI
Nasdaq Global Market

As of May 6, 2019, the registrant had 4,137,831 shares of common stock issued and outstanding.

1


INDEX

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value)
 
March 31,
2019
 
September 30,
2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
18,188

 
$
25,107

Accounts receivable, net of allowances of $90 and $87
16,456

 
11,980

Unbilled accounts receivable

 
1,166

Investment in lease, net-current portion
288

 
246

Inventories
5,857

 
7,558

Refundable income taxes
660

 
480

Other current assets
3,023

 
1,878

Total current assets
44,472

 
48,415

Property, equipment and improvements, net
916

 
847

 
 
 
 
Other assets:
 

 
 

Intangibles, net
41

 
48

Investment in lease, net-less current portion
477

 
564

Long term receivable
956

 

Deferred income taxes
1,837

 
1,895

Cash surrender value of life insurance
3,565

 
3,441

Other assets
66

 
65

Total other assets
6,942

 
6,013

Total assets
$
52,330

 
$
55,275

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
9,292

 
$
12,524

Deferred revenue
3,111

 
1,197

Pension and retirement plans
340

 
340

Total current liabilities
12,743

 
14,061

Pension and retirement plans
5,634

 
6,168

Income taxes payable
694

 
709

Other noncurrent liabilities
584

 
535

Total liabilities
19,655

 
21,473

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Shareholders’ equity:
 
 
 
Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 4,137 and 4,017 shares, respectively
42

 
40

Additional paid-in capital
15,165

 
14,661

Retained earnings
28,291

 
29,926

Accumulated other comprehensive loss
(10,823
)
 
(10,825
)
Total shareholders’ equity
32,675

 
33,802

Total liabilities and shareholders’ equity
$
52,330

 
$
55,275


See accompanying notes to unaudited consolidated financial statements.

3


CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except for per share data)

 
For the three months ended
 
For the six months ended
 
March 31,
2019
 
March 31,
2018
 
March 31,
2019
 
March 31,
2018
Sales:
 
 
 
 
 
 
 
Product
$
13,603

 
$
14,049

 
$
29,314

 
$
27,718

Services
2,747

 
2,555

 
6,016

 
5,516

Total sales
16,350

 
16,604

 
35,330

 
33,234

 
 
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
Product
11,371

 
11,667

 
24,583

 
22,947

Services
1,233

 
954

 
2,652

 
1,941

Total cost of sales
12,604

 
12,621

 
27,235

 
24,888

 
 
 
 
 
 
 
 
Gross profit
3,746

 
3,983

 
8,095

 
8,346

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Engineering and development
781

 
759

 
1,526

 
1,457

Selling, general and administrative
3,736

 
4,088

 
7,325

 
7,588

Total operating expenses
4,517

 
4,847

 
8,851

 
9,045

 
 
 
 
 
 
 
 
Operating loss
(771
)
 
(864
)
 
(756
)
 
(699
)
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Foreign exchange loss
(37
)
 
(44
)
 
(30
)
 
(112
)
Other income (expense), net
47

 
6

 
77

 
67

Total other income (expense)
10

 
(38
)
 
47

 
(45
)
Loss before income taxes
(761
)
 
(902
)
 
(709
)
 
(744
)
Income tax expense (benefit)
(142
)
 
(160
)
 
(140
)
 
993

Net loss from continuing operations
(619
)
 
(742
)
 
(569
)
 
(1,737
)
Net income (loss) from discontinued operations, net of tax

 
148

 

 
(57
)
Net loss
$
(619
)
 
$
(594
)
 
$
(569
)
 
$
(1,794
)
Net loss attributable to common stockholders
$
(619
)
 
$
(594
)
 
$
(569
)
 
$
(1,794
)
 
 
 
 
 
 
 
 
Net loss from continuing operations per share – basic
$
(0.15
)
 
$
(0.20
)
 
$
(0.15
)
 
$
(0.46
)
Net income (loss) from discontinued operations per share – basic
$

 
$
0.04

 
$

 
$
(0.01
)
Net loss per share - basic
$
(0.15
)
 
$
(0.16
)
 
$
(0.15
)
 
$
(0.47
)
Weighted average shares outstanding – basic
4,015

 
3,823

 
3,898

 
3,795

 
 
 
 
 
 
 
 
Net loss from continuing operations per share – diluted
$
(0.15
)
 
$
(0.20
)
 
$
(0.15
)
 
$
(0.46
)
Net income (loss) from discontinued operations per share – diluted
$

 
$
0.04

 
$

 
$
(0.01
)
Net loss per share - diluted
$
(0.15
)
 
$
(0.16
)
 
$
(0.15
)
 
$
(0.47
)
Weighted average shares outstanding – diluted
4,015

 
3,823

 
3,898

 
3,795

 
See accompanying notes to unaudited consolidated financial statements.

4


CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)

 
 
For the three months ended
 
For the six months ended
 
 
March 31,
2019
 
March 31,
2018
 
March 31,
2019
 
March 31,
2018
Net loss
 
$
(619
)
 
$
(594
)
 
$
(569
)
 
$
(1,794
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
Foreign currency translation gain (loss) adjustments
 
172

 
(86
)
 
2

 
(90
)
Other comprehensive income (loss)
 
172

 
(86
)
 
2

 
(90
)
Total comprehensive loss
 
$
(447
)
 
$
(680
)
 
$
(567
)
 
$
(1,884
)

See accompanying notes to unaudited consolidated financial statements.


5


CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the three and six months ended March 31, 2019 and March 31, 2018:
(Amounts in thousands, except per share data)


For the Three Months Ended March 31, 2019:
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
other
comprehensive
loss
 
Total
Shareholders’
Equity
Balance as of December 31, 2018
4,018

 
$
41

 
$
14,842

 
$
29,531

 
$
(10,995
)
 
$
33,419

Net loss

 

 

 
(619
)
 

 
(619
)
Other comprehensive income

 

 

 

 
172

 
172

Stock-based compensation

 

 
206

 

 

 
206

Restricted stock issuance
106

 
1

 

 

 

 
1

Issuance of shares under employee stock purchase plan
13

 

 
117

 

 

 
117

Cash dividends paid on common stock ($0.15 per share)

 

 

 
(621
)
 

 
(621
)
Balance as of March 31, 2019
4,137

 
$
42

 
$
15,165

 
$
28,291

 
$
(10,823
)
 
$
32,675


For the Three Months Ended March 31, 2018:
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
other
comprehensive
loss
 
Total
Shareholders’
Equity
Balance as of December 31, 2017
3,974

 
$
40

 
$
13,847

 
$
15,770

 
$
(10,167
)
 
$
19,490

Net loss

 

 

 
(594
)
 

 
(594
)
Other comprehensive loss

 

 

 

 
(86
)
 
(86
)
Exercise of stock options
4

 

 
13

 

 

 
13

Stock-based compensation

 

 
178

 

 

 
178

Restricted stock issuance
20

 
1

 

 

 

 
1

Issuance of shares under employee stock purchase plan
8

 

 
78

 

 

 
78

Cash dividends paid on common stock ($0.11 per share)

 

 

 
(441
)
 

 
(441
)
Balance as of March 31, 2018
4,006

 
$
41

 
$
14,116

 
$
14,735

 
$
(10,253
)
 
$
18,639



 See accompanying notes to unaudited consolidated financial statements.


6


CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the three and six months ended March 31, 2019 and March 31, 2018:
(Amounts in thousands, except per share data)

For the six months ended March 31, 2019:
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
other
comprehensive
loss
 
Total
Shareholders’
Equity
Balance as of September 30, 2018
4,017

 
$
40

 
$
14,661

 
$
29,926

 
$
(10,825
)
 
$
33,802

Adoption of ASU 2014-09 (see note 11)

 

 

 
158

 

 
158

Net loss

 

 

 
(569
)
 

 
(569
)
Other comprehensive income

 

 

 

 
2

 
2

Exercise of stock options
1

 
1

 
3

 

 

 
4

Stock-based compensation

 

 
384

 

 

 
384

Restricted stock issuance
106

 
1

 

 

 

 
1

Issuance of shares under employee stock purchase plan
13

 

 
117

 

 

 
117

Cash dividends paid on common stock ($0.30 per share)

 

 

 
(1,224
)
 

 
(1,224
)
Balance as of March 31, 2019
4,137

 
$
42

 
$
15,165

 
$
28,291

 
$
(10,823
)
 
$
32,675


For the six months ended March 31, 2018:
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
other
comprehensive
loss
 
Total
Shareholders’
Equity
Balance as of September 30, 2017
3,935

 
$
40

 
$
13,717

 
$
17,407

 
$
(10,163
)
 
$
21,001

Net loss

 

 

 
(1,794
)
 

 
(1,794
)
Other comprehensive loss

 

 

 

 
(90
)
 
(90
)
Exercise of stock options
5

 

 
22

 

 

 
22

Stock-based compensation

 

 
299

 

 

 
299

Restricted stock cancellation
(13
)
 

 

 

 

 

Restricted stock issuance
71

 
1

 

 

 

 
1

Issuance of shares under employee stock purchase plan
8

 

 
78

 

 

 
78

Cash dividends paid on common stock ($0.22 per share)

 

 

 
(878
)
 

 
(878
)
Balance as of March 31, 2018
4,006

 
$
41

 
$
14,116

 
$
14,735

 
$
(10,253
)
 
$
18,639


See accompanying notes to unaudited consolidated financial statements.

7


CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 
For the six months ended
 
March 31,
2019
 
March 31,
2018
Cash flows used in operating activities:
 
 
 
Net loss
$
(569
)
 
$
(1,794
)
Loss from discontinued operations, net of income tax benefit

 
(57
)
Net loss from continuing operations
(569
)
 
(1,737
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization
199

 
192

Amortization of intangibles
7

 
59

Loss on sale of fixed assets, net

 
4

Foreign exchange (gain) loss
30

 
112

Non-cash changes in accounts receivable
3

 
(8
)
Non-cash changes in inventories
234

 
260

Stock-based compensation expense on stock options and restricted stock awards
384

 
300

Deferred income taxes
(99
)
 
490

Increase in cash surrender value of life insurance
(54
)
 
(34
)
Changes in operating assets and liabilities:
 

 
 

(Increase) decrease in accounts receivable
(3,319
)
 
6,242

Decrease in life insurance receivable
256

 

Decrease in inventories
1,464

 
1,162

Increase in deferred costs

 
(225
)
Increase in refundable income taxes
(75
)
 
(598
)
Increase in other current assets
(1,402
)
 
(628
)
Decrease in investment in lease
46

 

Increase in long term receivable
(956
)
 

Decrease in accounts payable and accrued expenses
(3,214
)
 
(6,353
)
Increase in deferred revenue
2,124

 
486

Decrease in pension and retirement plans liabilities
(531
)
 
(55
)
Increase (decrease) in income taxes payable
(15
)
 
328

Increase in other long term liabilities
184

 
4

Net cash provided by (used in) operating activities of continuing operations
(5,303
)
 
1

Net cash used in operating activities of discontinued operations

 
(735
)
Net cash used in operating activities
(5,303
)
 
(734
)
Cash flows used in investing activities:
 

 
 

Life insurance premiums paid
(70
)
 
(150
)
Purchases of property, equipment and improvements
(268
)
 
(176
)
Net cash used in investing activities of continuing operations
(338
)
 
(326
)
Net cash used in investing activities of discontinued operations

 
(129
)
Net cash used in investing activities
(338
)
 
(455
)
Cash flows used in financing activities:
 

 
 

Dividends paid
(1,224
)
 
(878
)
Principal payments on capital leases
(136
)
 

Proceeds from issuance of shares under equity compensation plans
120

 
100

Net cash used in financing activities
(1,240
)
 
(778
)
Effects of exchange rate on cash
(38
)
 
49

Net decrease in cash and cash equivalents
(6,919
)
 
(1,918
)
Cash and cash equivalents of continuing operations, beginning of period
25,107

 
10,421

Cash and cash equivalents of discontinued operations, beginning of period

 
3,464

Cash and cash equivalents, beginning of period
25,107

 
13,885

Cash and cash equivalents, end of period
18,188

 
11,967

Less: Cash and cash equivalents of discontinued operations at end of period

 
2,801

Cash and cash equivalents of continuing operations at end of period
$
18,188

 
$
9,166

Supplementary cash flow information:
 

 
 

Cash paid for income taxes
$
40

 
$
880

Cash paid for interest
$
67

 
$
72

Supplementary non-cash financing and investing activities:
 
 
 
Non-cash purchases of property and equipment
$
15

 
$


 See accompanying notes to unaudited consolidated financial statements.

8


CSP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2019 AND 2018

 
Organization and Business
 
CSP Inc. ("CSPi" or "CSPI" or "the Company" or "we" or "our") was incorporated in 1968 and is based in Lowell, Massachusetts. CSPi and its subsidiaries develop and market IT integration solutions, advanced security products, managed IT services, purpose built network adapters, and high-performance cluster computer systems to meet the diverse requirements of its commercial and defense customers worldwide. The Company operates in two segments, its High Performance Products (“HPP”) segment and its Technology Solutions (“TS”) segment.

1.    Basis of Presentation
 
The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, have been omitted.

Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the unaudited consolidated financial statements should be read in conjunction with the footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to continuing operations. Refer to Note 12 for additional information on discontinued operations.

2.    Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are related to reserves for bad debt, reserves for inventory obsolescence, the impairment assessment of intangible assets, and the calculation of standalone selling price for revenue recognition, the calculation of liabilities related to deferred compensation and retirement plans and the calculation of income tax liabilities. Actual results may differ from those estimates under different assumptions or conditions.
 
3.    Revenue

Effective October 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. See Note 11 for effects of initial adoption. The following reflects the accounting policy change for revenue starting on the date of adoption:

We derive revenue from the sale of integrated hardware and software, third-party service contracts, professional services, managed services, financing of hardware and software, and other services.

We recognize revenue from hardware upon transfer of control, which is at a point in time typically upon shipment when title transfers. Revenue from software is recognized at a point in time when the license is granted.

We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether the Company is acting as a principal party to the transaction or simply acting as an agent or broker based on control and timing. The Company is a principal if it controls the good or service before that good or service is transferred to the customer. We record revenue as gross when the Company is a principal party to the arrangement and net of cost when we are acting as a broker or agent. Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold. Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction. Third-party service contracts are sold in different combinations with hardware, software, and services. We have determined the third-party services contracts

9


are a single performance obligation in each sale. When the Company is an agent, revenue is typically recorded at a point in time. When the Company is the principal, revenue is recognized over the contract term.

Professional services generally include implementation, installation, and training services. Professional services are considered a series of distinct services that form one performance obligation and revenue is recognized over time as services are performed.

Revenue generated from managed services is recognized over the term of the contract. Certain managed services contracts include financing of hardware and software. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease components include the hardware and software, which are subject to ASC 840. The non-lease component includes the managed services and is subject to ASC 606.

Other services generally include revenue generated through our royalty, extended warranty, multicomputer repair, and maintenance contracts. Royalty revenue is sales-based and recognized on date of subsequent sale of the product, which occurs on the date of customer shipment. Revenue from extended warranty contracts is recognized evenly over the period of the warranty. Multicomputer repair services revenue is recognized upon control transfer when the customer takes possession of the computer at time of shipping. Revenue generated from maintenance services is recognized evenly over the term of the contract.

Variable consideration is immaterial. Any products sold with right to return exists with the manufacturer. Managed service contracts contain the right to refund if canceled within 30 days of inception. Any products with a standard warranty are treated as a warranty obligation under ASC 460, Guarantees.

The following policies are applicable to our major categories of segment revenue transactions:

HPP Segment Revenue

HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the Multicomputer and Myricom product lines.
  
Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products functionality, and post contract maintenance and support. Post contract maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation.

TS Segment Revenue

TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software. Financing revenue is recognized in accordance with ASC 840, Leases. Financing revenue is recorded in revenue as equipment leasing and is part of the Company's operations.

Third-party service contracts are evaluated to determine whether such service revenue should be recorded as gross sales or net and whether over time or at point in time.

















10


See disaggregated revenues below by products/services and geography.
 
 
 
Technology Solutions Segment
 
 
For the three months ended March 31,
 
High Performance Products Segment
 
United
Kingdom
 
U.S.
 
Total
 
Consolidated
Total
 
 
(Amounts in thousands)
2019
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Product
 
$
1,375

 
$
1,888

 
$
10,303

 
$
12,191

 
$
13,566

Service
 
239

 
95

 
2,413

 
2,508

 
2,747

Finance *
 

 

 
37

 
37

 
37

Total sales
 
$
1,614

 
$
1,983

 
$
12,753

 
$
14,736

 
$
16,350


 
 
 
Technology Solutions Segment
 
 
For the six months ended March 31,
 
High Performance Products Segment
 
United
Kingdom
 
U.S.
 
Total
 
Consolidated
Total
 
 
(Amounts in thousands)
2019
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Product
 
$
3,108

 
$
3,620

 
$
22,513

 
$
26,133

 
$
29,241

Service
 
532

 
165

 
5,319

 
5,484

 
6,016

Finance *
 

 

 
73

 
73

 
73

Total sales
 
$
3,640

 
$
3,785

 
$
27,905

 
$
31,690

 
$
35,330



* Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers.

Significant Judgments

The input method using labor hours expended relative to the total expected hours is used to recognize revenue for professional services. Only the hours that depict the Company’s performance toward satisfying a performance obligation are used for progress. An estimate for professional services is made at the beginning of each contract based on prior experience and monitored throughout the services. This method is most appropriate as it depicts the measure of progress towards satisfaction of the performance obligation.
  
When product and services are sold together, the allocation of the transaction price to each performance obligation is calculated using a budgeted cost-plus margin approach. Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price. These estimates are periodically reviewed by project managers, engineers, and other staff involved to ensure estimates are appropriate. For items sold separately, including hardware, software, professional services, maintenance contracts, other services, and third-party service contracts, there is no allocation performed as there is one performance obligation.

Contract Assets and Liabilities

When the Company has performed work but does not have an unconditional right to payment, a contract asset is recorded. When the Company has the right to bill a customer, accounts receivable is recorded as an unconditional right exists. Current contract assets were $708 thousand and $1.1 million as of March 31, 2019 and October 1, 2018, respectively. The current portion is recorded in other current assets on the consolidated balance sheets. There were no non-current contract assets as of March 31, 2019 and October 1, 2018. The difference in the balances is due to regular timing differences between when work is performed and having an unconditional right to payment.


11


Contract liabilities arise when payment is received before the Company transfers a good or service to the customer. Current contract liabilities were $3.1 million and $0.9 million as of March 31, 2019 and October 1, 2018, respectively. The primary reason for the increase is due to one large non-cancelable contract that was effective as of March 31, 2019. The current portion of contract liabilities is recorded in deferred revenue on the consolidated balance sheets. There were no non-current contract liabilities as of March 31, 2019 and October 1, 2018, respectively. Revenue recognized for the six months ended March 31, 2019 that was included in contract liabilities as of the beginning of the period was $0.5 million.

Contract Costs

Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are less than a one-year period, are expensed as incurred, utilizing the practical expedient in ASC 340-40-25-4. For a period greater than one year, incremental contract costs are capitalized if the Company expects to recover these costs. These costs are only capitalized if the contract is obtained. The costs are amortized over the contract term and expected renewal periods. The period of amortization is generally three to six years. Incremental costs are related to commissions in the TS portion of the business. Current capitalized contract costs are within the account other current assets on the consolidated balance sheets for the periods ended March 31, 2019 and September 30, 2018. The portion of current capitalized costs was $79 thousand and $71 thousand as of March 31, 2019 and October 1, 2018, respectively. There are no non-current capitalized costs on the consolidated balance sheets. The amount of incremental costs amortized for the three and six months ended March 31, 2019 was $56 thousand and $108 thousand, which is recorded in selling, general, and administrative expenses. There was no impairment related to incremental costs capitalized during the three and six months ended March 31, 2019.

Costs to fulfill a contract are capitalized when the costs are related to a contract or anticipated contract, generate or enhance resources that will be used in satisfying performance obligations in the future, and costs are recoverable. Costs to fulfill a contract are related to the TS portion of the business and involve activities performed before managed services can be completed. Current capitalized fulfillment costs are in the account other current assets on the consolidated balance sheets. The portion of current capitalized costs was $52 thousand and $60 thousand as of March 31, 2019 and October 1, 2018, respectively. There are no non-current capitalized fulfillment costs on the consolidated balance sheets. The amount of fulfillment costs amortized for the three and six months ended March 31, 2019 was $5 thousand and $8 thousand, respectively, which is recorded in cost of sales. There was no impairment related to fulfillment costs capitalized.

Other

Projects are typically billed upon completion or at certain milestones. Product and services are typically billed when shipped or as services are being performed. Payment terms are typically 30 days to pay in full except in Europe where it could be up to 90 days. Most of the Company’s contracts are less than one year. As a practical expedient, the Company has elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less. The Company elected to use the optional exemption to not disclose the aggregate amount of the transaction price allocated to performance obligations that have an original expected duration of one year or less. This is due to a low amount of performance obligations less than one year being unsatisfied at each period end. Most of these contracts are related to product sales.
 
The Company has certain contracts that have an original term of more than one year. The royalty agreement is longer than one year and managed service contracts are generally longer than one year. For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2019 is mainly related to managed service contracts and is set forth in the table below:

 
 
(Amounts in thousands)

Remainder of fiscal 2019
 
$
1,115

Fiscal 2020
 
1,964

Fiscal 2021
 
1,426

Fiscal 2022
 
65

Fiscal 2023 and after
 
48

 
 
$
4,618




12


4.    Earnings Per Share of Common Stock
 
Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income (loss) by the assumed weighted average number of common shares outstanding.
 
We are required to present earnings per share, or EPS, utilizing the two class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities.

Basic and diluted earnings per share computations for the Company’s reported net income (loss) attributable to common stockholders are as follows:
 
For the three months ended
 
For the six months ended
 
March 31, 2019
 
March 31, 2018
 
March 31, 2019
 
March 31, 2018
 
(Amounts in thousands except per share data)
Loss from continuing operations
$
(619
)
 
$
(742
)
 
$
(569
)
 
$
(1,737
)
Income (loss) from discontinued operations

 
148

 

 
(57
)
Net loss
(619
)
 
(594
)
 
(569
)
 
(1,794
)
Less: net income attributable to nonvested common stock

 

 

 

Net loss attributable to common stockholders
$
(619
)
 
$
(594
)
 
$
(569
)
 
$
(1,794
)
 
 
 
 
 
 
 
 
Weighted average total shares outstanding – basic
4,015

 
3,823

 
3,898

 
3,795

Less: weighted average non-vested shares outstanding

 

 

 

Weighted average number of common shares outstanding – basic
4,015

 
3,823

 
3,898

 
3,795

Potential common shares from non-vested stock awards and the assumed exercise of stock options

 

 

 

Weighted average common shares outstanding – diluted
4,015

 
3,823

 
3,898

 
3,795

 
 
 
 
 
 
 
 
Net loss from continuing operations per share – basic
$
(0.15
)
 
$
(0.20
)
 
$
(0.15
)
 
$
(0.46
)
Net income (loss) from discontinued operations per share – basic
$

 
$
0.04

 
$

 
$
(0.01
)
Net loss share – basic
$
(0.15
)
 
$
(0.16
)
 
$
(0.15
)
 
$
(0.47
)
 
 
 
 
 
 
 
 
Net loss from continuing operations per share – diluted
$
(0.15
)
 
$
(0.20
)
 
$
(0.15
)
 
$
(0.46
)
Net income (loss) from discontinued operations per share – diluted
$

 
$
0.04

 
$

 
$
(0.01
)
Net loss per share – diluted
$
(0.15
)
 
$
(0.16
)
 
$
(0.15
)
 
$
(0.47
)
 
Non-vested restricted stock awards of 184,000 and 167,000shares were excluded from the diluted loss per share calculation for the three and six months ended March 31, 2019, as there was a net loss and their inclusion would have been anti-dilutive. Non-vested restricted stock awards of 168,000 and 169,000 shares were excluded from the diluted loss per share calculation for the three and six months ended March 31, 2018, as there was a net loss and their inclusion would have been anti-dilutive.


13

                            

5.    Inventories

Inventories consist of the following:
 
March 31, 2019
 
September 30, 2018
 
(Amounts in thousands)
Raw materials
$
1,053

 
$
1,098

Work-in-process
219

 
226

Finished goods
4,585

 
6,234

Total
$
5,857

 
$
7,558

     
Finished goods includes inventory that has been shipped, but for which all revenue recognition criteria has not been met, of approximately $1.1 million and $0.7 million as of March 31, 2019 and September 30, 2018, respectively.

Total inventory balances in the table above are shown net of reserves for obsolescence of approximately $3.5 million and $3.3 million as of March 31, 2019 and September 30, 2018, respectively.
 

6.    Accumulated Other Comprehensive Loss
 
The components of accumulated other comprehensive loss are as follows:
 
 
March 31, 2019
 
September 30, 2018
 
 
(Amounts in thousands)
Cumulative effect of foreign currency translation
 
$
(4,344
)
 
$
(4,346
)
Cumulative unrealized loss on pension liability
 
(6,479
)
 
(6,479
)
Accumulated other comprehensive loss
 
$
(10,823
)
 
$
(10,825
)

7.    Income Taxes
 
Income tax expense was $142 thousand for the three months ended March 31, 2019 compared to income tax benefit of $160 thousand in the same period of 2018 based on the loss for the periods. The income tax benefit for the six months ended March 31, 2019 was $140 thousand and tax expense for the same period of the prior year was $993 thousand due primarily to the enactment of the Tax Cuts and Jobs Act. The U.K. did not have any tax expense in the three months or six-months periods of fiscal year 2019 due to benefits from the pension contribution and utilization of a small portion of its net tax operating loss.
The provisions above are estimates, and accordingly, changes to these estimates will be recorded in subsequent periods as more information and guidance becomes available.


8.    Pension and Retirement Plans
 
The Company's continuing operations has defined benefit and defined contribution plans in the U.K. and in the U.S. The Company's discontinued operations had a defined benefit and defined contribution plan in Germany, which was assumed by Reply AG in its acquisition of the Company's operations in Germany (see Note 12 below). In the U.K., the Company provides defined benefit pension plans and defined contribution plans for some of its employees. In the U.S., the Company provides benefits through supplemental retirement plans to certain former employees. The U.S. supplemental retirement plans have life insurance policies which are not plan assets but were purchased by the Company as a vehicle to fund the costs of the plan. The Company also provides for officer death benefits through post-retirement plans to certain officers of the Company in the U.S.  All of the Company’s defined benefit plans are closed to newly hired employees and have been since September 2009.

The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets.
 

14


The Company's pension plan in the U.K. is the only plan with plan assets. The plan assets consist of an investment in a commingled fund which in turn comprises a diversified mix of assets including corporate equity securities, government securities and corporate debt securities. 


15


The components of net periodic benefit costs related to the U.S. and U.K. plans are as follows:
 
 
For the Three Months Ended March 31,
 
2019
 
2018
 
U.K.
 
U.S.
 
Total
 
U.K.
 
U.S.
 
Total
 
(Amounts in thousands)
Pension:
 
 
 
 
 
 
 
 
 
 
 
Interest cost
$
92

 
$
6

 
$
98

 
$
96

 
$
7

 
$
103

Expected return on plan assets
(78
)
 

 
(78
)
 
(79
)
 

 
(79
)
Amortization of:
 

 
 

 
 

 
 

 
 

 
 

Amortization of net gain (loss)
38

 
(1
)
 
37

 
46

 
(1
)
 
45

Net periodic benefit cost from continuing operations
52

 
5

 
57

 
63

 
6

 
69

Net periodic benefit cost from discontinued operations

 

 

 
53

 

 
53

Net periodic benefit cost
$
52

 
$
5

 
$
57

 
$
116

 
$
6

 
$
122

 
 
 
 
 
 
 
 
 
 
 
 
Post Retirement:
 

 
 

 
 

 
 

 
 

 
 

Service cost
$

 
$
9

 
$
9

 
$

 
$
10

 
$
10

Interest cost

 
13

 
13

 

 
12

 
12

Amortization of net loss

 
(5
)
 
(5
)
 

 
(4
)
 
(4
)
Net periodic cost
$

 
$
17

 
$
17

 
$

 
$
18

 
$
18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended March 31,
 
2019
 
2018
 
U.K.
 
U.S.
 
Total
 
U.K.
 
U.S.
 
Total
 
(Amounts in thousands)
Pension:
 
 
 
 
 
 
 
 
 
 
 
Interest cost
$
183

 
$
12

 
$
195

 
$
187

 
$
13

 
$
200

Expected return on plan assets
(155
)
 

 
(155
)
 
(154
)
 

 
(154
)
Amortization of net gain (loss)
76

 
(2
)
 
74

 
89

 
(1
)
 
88

Net periodic benefit cost from continuing operations
104

 
10

 
114

 
122

 
12

 
134

Net periodic benefit cost from discontinued operations

 

 

 
106

 

 
106

Net periodic benefit cost
$
104

 
$
10

 
$
114

 
$
228

 
$
12

 
$
240

 
 
 
 
 
 
 
 
 
 
 
 
Post Retirement:
 

 
 

 
 

 
 

 
 

 
 

Service cost
$

 
$
17

 
$
17

 
$

 
$
21

 
$
21

Interest cost

 
26

 
26

 

 
24

 
24

Amortization of net loss

 
(9
)
 
(9
)
 

 
(10
)
 
(10
)
Net periodic cost
$

 
$
34

 
$
34

 
$

 
$
35

 
$
35



    

16


    
The fair value of the assets held by the U.K. pension plan by asset category are as follows:
 
Fair Values as of
 
March 31, 2019
 
September 30, 2018
 
Fair Value Measurements Using Inputs Considered as
 
Fair Value Measurements Using Inputs Considered as
Asset Category
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(Amounts in thousands)
Cash on deposit
$
467

 
$
467

 
$

 
$

 
$
36

 
$
36

 
$

 
$

Pooled funds
8,290

 
8,290

 

 

 
8,234

 
8,234

 

 

Total plan assets
$
8,757

 
$
8,757

 
$

 
$

 
$
8,270

 
$
8,270

 
$

 
$

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 

9.    Segment Information

The following tables present certain operating segment information for the three and six months ended March 31, 2019 and March 31, 2018.
 
 
 
 
Technology Solutions Segment
 
 
For the three months ended March 31,
 
High Performance Products Segment
 
United
Kingdom
 
U.S.
 
Total
 
Consolidated
Total
 
 
(Amounts in thousands)
2019
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Product
 
$
1,375

 
$
1,888

 
$
10,340

 
$
12,228

 
$
13,603

Service
 
239

 
95

 
2,413

 
2,508

 
2,747

Total sales
 
1,614

 
1,983

 
12,753

 
14,736

 
16,350

Income (loss) from operations
 
(1,093
)
 
106

 
216

 
322

 
(771
)
Total assets
 
12,583

 
13,222

 
26,525

 
39,747

 
52,330

Capital expenditures
 
37

 

 

 

 
37

Depreciation and amortization
 
55

 
1

 
44

 
45

 
100

 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Product
 
$
1,480

 
$
756

 
$
11,813

 
$
12,569

 
$
14,049

Service
 
315

 
115

 
2,125

 
2,240

 
2,555

Total sales
 
1,795

 
871

 
13,938

 
14,809

 
16,604

Income (loss) from operations
 
(1,057
)
 
(233
)
 
426

 
193

 
(864
)
Assets from continuing operations
 
15,036

 
2,792

 
16,338

 
19,130

 
34,166

Assets from discontinued operations
 

 

 

 

 
21,172

Total assets
 
15,036

 
2,792

 
16,338

 
19,130

 
55,338

Capital expenditures
 
36

 

 
96

 
96

 
132

Depreciation and amortization
 
57

 
1

 
69

 
70

 
127

 
 
 
 
 
 
 
 
 
 
 

17


 
 
 
Technology Solutions Segment
 
 
For the six months ended March 31,
 
High Performance Products Segment
 
United
Kingdom
 
U.S.
 
Total
 
Consolidated
Total
 
 
(Amounts in thousands)
2019
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Product
 
$
3,108

 
$
3,620

 
$
22,586

 
$
26,206

 
$
29,314

Service
 
532

 
165

 
5,319

 
5,484

 
6,016

Total sales
 
3,640

 
3,785

 
27,905

 
31,690

 
35,330

Income (loss) from operations
 
(1,920
)
 
132

 
1,032

 
1,164

 
(756
)
Total assets
 
12,583

 
13,222

 
26,525

 
39,747

 
52,330

Capital expenditures
 
240

 

 
28

 
28

 
268

Depreciation and amortization
 
108

 
3

 
95

 
98

 
206

 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Product
 
$
3,087

 
$
3,298

 
$
21,333

 
$
24,631

 
$
27,718

Service
 
1,178

 
280

 
4,058

 
4,338

 
5,516

Total sales
 
4,265

 
3,578

 
25,391

 
28,969

 
33,234

Income (loss) from operations
 
(1,440
)
 
(91
)
 
832

 
741

 
(699
)
Assets from continuing operations
 
15,036

 
2,792

 
16,338

 
19,130

 
34,166

Assets from discontinued operations