Item 1. Financial Statements
CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value)
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
September 30,
2015
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
11,590
|
|
|
$
|
11,181
|
|
Accounts receivable, net of allowances of $289 and $331
|
19,896
|
|
|
18,468
|
|
Unbilled accounts receivable
|
657
|
|
|
1,420
|
|
Inventories, net
|
5,615
|
|
|
5,749
|
|
Refundable income taxes
|
—
|
|
|
43
|
|
Deferred income taxes
|
1,383
|
|
|
1,337
|
|
Other current assets
|
2,279
|
|
|
1,884
|
|
Total current assets
|
41,420
|
|
|
40,082
|
|
Property, equipment and improvements, net
|
1,578
|
|
|
1,564
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
Intangibles, net
|
319
|
|
|
416
|
|
Deferred income taxes
|
1,660
|
|
|
1,687
|
|
Cash surrender value of life insurance
|
3,303
|
|
|
3,064
|
|
Other assets
|
119
|
|
|
183
|
|
Total other assets
|
5,401
|
|
|
5,350
|
|
Total assets
|
$
|
48,399
|
|
|
$
|
46,996
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued expenses
|
$
|
12,954
|
|
|
$
|
13,776
|
|
Deferred revenue
|
3,610
|
|
|
2,931
|
|
Pension and retirement plans
|
732
|
|
|
675
|
|
Income taxes payable
|
840
|
|
|
—
|
|
Total current liabilities
|
18,136
|
|
|
17,382
|
|
Pension and retirement plans
|
9,343
|
|
|
10,009
|
|
Other long term liabilities
|
20
|
|
|
15
|
|
Total liabilities
|
27,499
|
|
|
27,406
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 3,788 and 3,688 shares, respectively
|
38
|
|
|
37
|
|
Additional paid-in capital
|
12,621
|
|
|
12,249
|
|
Retained earnings
|
16,482
|
|
|
15,689
|
|
Accumulated other comprehensive loss
|
(8,241
|
)
|
|
(8,385
|
)
|
Total shareholders’ equity
|
20,900
|
|
|
19,590
|
|
Total liabilities and shareholders’ equity
|
$
|
48,399
|
|
|
$
|
46,996
|
|
See accompanying notes to unaudited consolidated financial statements.
CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the nine months ended
|
|
June 30,
2016
|
|
June 30,
2015
|
|
June 30,
2016
|
|
June 30,
2015
|
Sales:
|
|
|
|
|
|
|
|
Product
|
$
|
20,345
|
|
|
$
|
15,696
|
|
|
$
|
58,320
|
|
|
$
|
45,544
|
|
Services
|
6,567
|
|
|
6,591
|
|
|
19,407
|
|
|
16,050
|
|
Total sales
|
26,912
|
|
|
22,287
|
|
|
77,727
|
|
|
61,594
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
Product
|
16,460
|
|
|
13,461
|
|
|
47,750
|
|
|
37,974
|
|
Services
|
3,247
|
|
|
3,560
|
|
|
11,249
|
|
|
10,356
|
|
Total cost of sales
|
19,707
|
|
|
17,021
|
|
|
58,999
|
|
|
48,330
|
|
|
|
|
|
|
|
|
|
Gross profit
|
7,205
|
|
|
5,266
|
|
|
18,728
|
|
|
13,264
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Engineering and development
|
779
|
|
|
626
|
|
|
2,368
|
|
|
2,305
|
|
Selling, general and administrative
|
4,573
|
|
|
3,945
|
|
|
13,286
|
|
|
11,824
|
|
Total operating expenses
|
5,352
|
|
|
4,571
|
|
|
15,654
|
|
|
14,129
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
1,853
|
|
|
695
|
|
|
3,074
|
|
|
(865
|
)
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
Foreign exchange loss
|
(55
|
)
|
|
(87
|
)
|
|
(118
|
)
|
|
(216
|
)
|
Other expense, net
|
(21
|
)
|
|
(26
|
)
|
|
(47
|
)
|
|
(59
|
)
|
Total other expense
|
(76
|
)
|
|
(113
|
)
|
|
(165
|
)
|
|
(275
|
)
|
Income (loss) before income taxes
|
1,777
|
|
|
582
|
|
|
2,909
|
|
|
(1,140
|
)
|
Income tax expense (benefit)
|
520
|
|
|
333
|
|
|
866
|
|
|
(277
|
)
|
Net income (loss)
|
$
|
1,257
|
|
|
$
|
249
|
|
|
$
|
2,043
|
|
|
$
|
(863
|
)
|
Net income (loss) attributable to common stockholders
|
$
|
1,198
|
|
|
$
|
240
|
|
|
$
|
1,959
|
|
|
$
|
(863
|
)
|
Net income (loss) per share – basic
|
$
|
0.33
|
|
|
$
|
0.07
|
|
|
$
|
0.54
|
|
|
$
|
(0.25
|
)
|
Weighted average shares outstanding – basic
|
3,618
|
|
|
3,540
|
|
|
3,599
|
|
|
3,522
|
|
Net income (loss) per share – diluted
|
$
|
0.32
|
|
|
$
|
0.07
|
|
|
$
|
0.52
|
|
|
$
|
(0.25
|
)
|
Weighted average shares outstanding – diluted
|
3,743
|
|
|
3,633
|
|
|
3,733
|
|
|
3,522
|
|
See accompanying notes to unaudited consolidated financial statements.
CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the nine months ended
|
|
|
June 30,
2016
|
|
June 30,
2015
|
|
June 30,
2016
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,257
|
|
|
$
|
249
|
|
|
$
|
2,043
|
|
|
$
|
(863
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) adjustments
|
|
21
|
|
|
29
|
|
|
144
|
|
|
(88
|
)
|
Other comprehensive income (loss)
|
|
21
|
|
|
29
|
|
|
144
|
|
|
(88
|
)
|
Total comprehensive income (loss)
|
|
$
|
1,278
|
|
|
$
|
278
|
|
|
$
|
2,187
|
|
|
$
|
(951
|
)
|
See accompanying notes to unaudited consolidated financial statements.
CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the Nine Months Ended June 30, 2016:
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
other
comprehensive
loss
|
|
Total
Shareholders’
Equity
|
Balance as of September 30, 2015
|
3,688
|
|
|
$
|
37
|
|
|
$
|
12,249
|
|
|
$
|
15,689
|
|
|
$
|
(8,385
|
)
|
|
$
|
19,590
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
2,043
|
|
|
—
|
|
|
2,043
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
144
|
|
|
144
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
300
|
|
|
—
|
|
|
—
|
|
|
300
|
|
Restricted stock cancellation
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock issuance
|
105
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Issuance of shares under employee stock purchase plan
|
14
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
72
|
|
Cash dividends on common stock ($0.33 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,250
|
)
|
|
—
|
|
|
(1,250
|
)
|
Balance as of June 30, 2016
|
3,788
|
|
|
$
|
38
|
|
|
$
|
12,621
|
|
|
$
|
16,482
|
|
|
$
|
(8,241
|
)
|
|
$
|
20,900
|
|
See accompanying notes to unaudited consolidated financial statements.
CSP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
For the nine months ended
|
|
June 30,
2016
|
|
June 30,
2015
|
Cash flows provided by (used in) operating activities:
|
|
|
|
Net income (loss)
|
$
|
2,043
|
|
|
$
|
(863
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
445
|
|
|
385
|
|
Amortization of intangibles
|
97
|
|
|
97
|
|
Loss on sale of fixed assets, net
|
23
|
|
|
54
|
|
Foreign exchange loss
|
118
|
|
|
216
|
|
Non-cash changes in accounts receivable
|
103
|
|
|
(4
|
)
|
Non-cash changes in inventory
|
431
|
|
|
240
|
|
Stock-based compensation expense on stock options and restricted stock awards
|
300
|
|
|
285
|
|
Deferred income taxes
|
(22
|
)
|
|
27
|
|
Increase in cash surrender value of life insurance
|
(78
|
)
|
|
(59
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Increase in accounts receivable
|
(1,017
|
)
|
|
(5,439
|
)
|
Increase in inventories
|
(325
|
)
|
|
(497
|
)
|
(Increase) decrease in refundable income taxes
|
43
|
|
|
(187
|
)
|
Increase in other current assets
|
(415
|
)
|
|
(506
|
)
|
(Increase) decrease in other assets
|
63
|
|
|
(119
|
)
|
Increase (decrease) in accounts payable and accrued expenses
|
(708
|
)
|
|
3,691
|
|
Increase (decrease) in deferred revenue
|
707
|
|
|
(619
|
)
|
Decrease in pension and retirement plans liability
|
(124
|
)
|
|
(58
|
)
|
Increase (decrease) in income taxes payable
|
840
|
|
|
(72
|
)
|
Increase (decrease) in other long term liabilities
|
6
|
|
|
(69
|
)
|
Net cash provided by (used in) operating activities
|
2,530
|
|
|
(3,497
|
)
|
Cash flows used in investing activities:
|
|
|
|
|
|
Life insurance premiums paid
|
(161
|
)
|
|
(193
|
)
|
Purchases of property, equipment and improvements
|
(486
|
)
|
|
(398
|
)
|
Net cash used in investing activities
|
(647
|
)
|
|
(591
|
)
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
Dividends paid
|
(1,250
|
)
|
|
(1,212
|
)
|
Proceeds from issuance of shares under equity compensation plans
|
72
|
|
|
105
|
|
Net cash used in financing activities
|
(1,178
|
)
|
|
(1,107
|
)
|
Effects of exchange rate on cash
|
(296
|
)
|
|
(807
|
)
|
Net increase (decrease) in cash and cash equivalents
|
409
|
|
|
(6,002
|
)
|
Cash and cash equivalents, beginning of period
|
11,181
|
|
|
16,448
|
|
Cash and cash equivalents, end of period
|
$
|
11,590
|
|
|
$
|
10,446
|
|
Supplementary cash flow information:
|
|
|
|
|
|
Cash paid for income taxes
|
$
|
37
|
|
|
$
|
72
|
|
Cash paid for interest
|
$
|
85
|
|
|
$
|
85
|
|
See accompanying notes to unaudited consolidated financial statements.
CSP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2016 AND 2015
Organization and Business
CSP Inc. was founded in 1968 and is based in Lowell, Massachusetts. To meet the diverse requirements of its industrial, commercial and defense customers worldwide, CSP Inc. and its subsidiaries (collectively “we”, “us”, “our”,
“CSPI” or the “Company”) develop and market IT integration solutions and high-performance cluster computer systems. The Company operates in two segments, its High Performance Products (“HPP”) segment (formerly the “High Performance Products and Solutions” segment) and its Technology Solutions (“TS”) segment (formerly the "Information Technology Solutions" 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, 2015
.
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, including estimates and assumptions related to reserves for bad debt, reserves for inventory obsolescence, the impairment assessment of intangible assets, the calculation of estimated selling price and post-delivery support obligations used for revenue recognition and the calculation of income tax liabilities. Actual results may differ from those estimates under different assumptions or conditions.
3. 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 nine months ended
|
|
June 30, 2016
|
|
June 30, 2015
|
|
June 30, 2016
|
|
June 30, 2015
|
|
(Amounts in thousands except per share data)
|
Net income (loss)
|
$
|
1,257
|
|
|
$
|
249
|
|
|
$
|
2,043
|
|
|
$
|
(863
|
)
|
Less: net income (loss) attributable to nonvested common stock
|
59
|
|
|
9
|
|
|
84
|
|
|
—
|
|
Net income (loss) attributable to common stockholders
|
$
|
1,198
|
|
|
$
|
240
|
|
|
$
|
1,959
|
|
|
$
|
(863
|
)
|
|
|
|
|
|
|
|
|
Weighted average total shares outstanding – basic
|
3,797
|
|
|
3,674
|
|
|
3,754
|
|
|
3,522
|
|
Less: weighted average non-vested shares outstanding
|
179
|
|
|
134
|
|
|
155
|
|
|
—
|
|
Weighted average number of common shares outstanding – basic
|
3,618
|
|
|
3,540
|
|
|
3,599
|
|
|
3,522
|
|
Potential common shares from non-vested stock awards and the assumed exercise of stock options
|
125
|
|
|
93
|
|
|
134
|
|
|
—
|
|
Weighted average common shares outstanding – diluted
|
3,743
|
|
|
3,633
|
|
|
3,733
|
|
|
3,522
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic
|
$
|
0.33
|
|
|
$
|
0.07
|
|
|
$
|
0.54
|
|
|
$
|
(0.25
|
)
|
Net income (loss) per share – diluted
|
$
|
0.32
|
|
|
$
|
0.07
|
|
|
$
|
0.52
|
|
|
$
|
(0.25
|
)
|
All anti-dilutive securities, including certain stock options, are excluded from the diluted income (loss) per share computation. For the nine months ended June 30, 2016 and 2015,
31,000
and
28,000
shares subject to stock options, respectively, were excluded from the diluted income per share calculation because their inclusion would have been anti-dilutive as their exercise price exceeded fair value. Additionally,
130,000
shares subject to non-vested restricted stock awards were excluded from the diluted income per share calculation as there was a net loss for the nine months ended June 30, 2015 and their inclusion would have been anti-dilutive. For the three months ended June 30, 2016 and 2015,
30,000
and
12,000
shares subject to stock options, respectively, were excluded from the diluted income per share calculation because their inclusion would have been anti-dilutive as their exercise price exceeded fair value.
4. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
September 30, 2015
|
|
(Amounts in thousands)
|
Raw materials
|
$
|
1,459
|
|
|
$
|
1,788
|
|
Work-in-process
|
528
|
|
|
387
|
|
Finished goods
|
3,628
|
|
|
3,574
|
|
Total
|
$
|
5,615
|
|
|
$
|
5,749
|
|
Finished goods includes inventory that has been shipped, but for which all revenue recognition criteria has not been met, of approximately
$0.1 million
as of
June 30, 2016
and
September 30, 2015
.
Draft 5 Preliminary & Tentative For Discussion Purposes Only
Total inventory balances in the table above are shown net of reserves for obsolescence of approximately
$4.5 million
and
$4.1 million
as of
June 30, 2016
and
September 30, 2015
, respectively.
5. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
September 30, 2015
|
|
|
(Amounts in thousands)
|
Cumulative effect of foreign currency translation
|
|
$
|
(2,681
|
)
|
|
$
|
(2,825
|
)
|
Cumulative unrealized loss on pension liability
|
|
(5,560
|
)
|
|
(5,560
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(8,241
|
)
|
|
$
|
(8,385
|
)
|
6. Pension and Retirement Plans
The Company has defined benefit and defined contribution plans in the United Kingdom, Germany and the U.S. In the United Kingdom and Germany, the Company provides defined benefit pension plans and defined contribution plans for the majority of its employees. In the U.S., the Company provides benefits through supplemental retirement plans to certain current and former employees. The domestic 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. Domestically, the Company also provides for officer death benefits through post-retirement plans to certain officers. All of the Company’s defined benefit plans are closed to newly hired employees and have been for the
two
years ended
September 30, 2015
and 2014 and
for the nine months ended June 30, 2016
.
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.
The Company's pension plan in the United Kingdom 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.
The components of net periodic benefit costs related to the U.S. and international plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
2016
|
|
2015
|
|
Foreign
|
|
U.S.
|
|
Total
|
|
Foreign
|
|
U.S.
|
|
Total
|
|
(Amounts in thousands)
|
Pension:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
13
|
|
Interest cost
|
146
|
|
|
11
|
|
|
157
|
|
|
157
|
|
|
13
|
|
|
170
|
|
Expected return on plan assets
|
(92
|
)
|
|
—
|
|
|
(92
|
)
|
|
(105
|
)
|
|
—
|
|
|
(105
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service gain
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net gain
|
44
|
|
|
(1
|
)
|
|
43
|
|
|
49
|
|
|
(1
|
)
|
|
48
|
|
Net periodic benefit cost
|
$
|
107
|
|
|
$
|
10
|
|
|
$
|
117
|
|
|
$
|
114
|
|
|
$
|
12
|
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Retirement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Interest cost
|
—
|
|
|
11
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
11
|
|
Amortization of net gain
|
—
|
|
|
(21
|
)
|
|
(21
|
)
|
|
—
|
|
|
(13
|
)
|
|
(13
|
)
|
Net periodic cost (benefit)
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended June 30,
|
|
2016
|
|
2015
|
|
Foreign
|
|
U.S.
|
|
Total
|
|
Foreign
|
|
U.S.
|
|
Total
|
|
(Amounts in thousands)
|
Pension:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
42
|
|
Interest cost
|
442
|
|
|
32
|
|
|
474
|
|
|
476
|
|
|
39
|
|
|
515
|
|
Expected return on plan assets
|
(281
|
)
|
|
—
|
|
|
(281
|
)
|
|
(317
|
)
|
|
—
|
|
|
(317
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service gain
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net gain
|
134
|
|
|
(3
|
)
|
|
131
|
|
|
151
|
|
|
(2
|
)
|
|
149
|
|
Net periodic benefit cost
|
$
|
322
|
|
|
$
|
29
|
|
|
$
|
351
|
|
|
$
|
352
|
|
|
$
|
37
|
|
|
$
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Retirement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
26
|
|
Interest cost
|
—
|
|
|
32
|
|
|
32
|
|
|
—
|
|
|
33
|
|
|
33
|
|
Amortization of net gain
|
—
|
|
|
(60
|
)
|
|
(60
|
)
|
|
—
|
|
|
(38
|
)
|
|
(38
|
)
|
Net periodic cost (benefit)
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
(8
|
)
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
21
|
|
The fair value of the assets held by the U.K. pension plan by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values as of
|
|
June 30, 2016
|
|
September 30, 2015
|
|
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
|
$
|
344
|
|
|
$
|
344
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
324
|
|
|
$
|
324
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Pooled Funds
|
7,616
|
|
|
—
|
|
|
7,616
|
|
|
—
|
|
|
8,977
|
|
|
—
|
|
|
8,977
|
|
|
—
|
|
Total Plan Assets
|
$
|
7,960
|
|
|
$
|
344
|
|
|
$
|
7,616
|
|
|
$
|
—
|
|
|
$
|
9,301
|
|
|
$
|
324
|
|
|
$
|
8,977
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Segment Information
The following table presents certain operating segment information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Solutions Segment
|
|
|
For the three months ended June 30,
|
|
High Performance Products Segment
|
|
Germany
|
|
United
Kingdom
|
|
U.S.
|
|
Total
|
|
Consolidated
Total
|
|
|
(Amounts in thousands)
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
3,354
|
|
|
$
|
1,074
|
|
|
$
|
1,805
|
|
|
$
|
14,112
|
|
|
$
|
16,991
|
|
|
$
|
20,345
|
|
Service
|
|
2,248
|
|
|
2,892
|
|
|
325
|
|
|
1,102
|
|
|
4,319
|
|
|
6,567
|
|
Total sales
|
|
5,602
|
|
|
3,966
|
|
|
2,130
|
|
|
15,214
|
|
|
21,310
|
|
|
26,912
|
|
Income (loss) from operations
|
|
1,585
|
|
|
(139
|
)
|
|
(10
|
)
|
|
417
|
|
|
268
|
|
|
1,853
|
|
Assets
|
|
17,486
|
|
|
13,306
|
|
|
2,641
|
|
|
14,966
|
|
|
30,913
|
|
|
48,399
|
|
Capital expenditures
|
|
28
|
|
|
30
|
|
|
60
|
|
|
23
|
|
|
113
|
|
|
141
|
|
Depreciation and amortization
|
|
59
|
|
|
36
|
|
|
39
|
|
|
57
|
|
|
132
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
1,844
|
|
|
$
|
1,289
|
|
|
$
|
601
|
|
|
$
|
11,962
|
|
|
$
|
13,852
|
|
|
$
|
15,696
|
|
Service
|
|
2,085
|
|
|
3,535
|
|
|
377
|
|
|
594
|
|
|
4,506
|
|
|
6,591
|
|
Total sales
|
|
3,929
|
|
|
4,824
|
|
|
978
|
|
|
12,556
|
|
|
18,358
|
|
|
22,287
|
|
Income (loss) from operations
|
|
871
|
|
|
196
|
|
|
(558
|
)
|
|
186
|
|
|
(176
|
)
|
|
695
|
|
Assets
|
|
16,034
|
|
|
12,854
|
|
|
2,955
|
|
|
14,139
|
|
|
29,948
|
|
|
45,982
|
|
Capital expenditures
|
|
4
|
|
|
30
|
|
|
—
|
|
|
142
|
|
|
172
|
|
|
176
|
|
Depreciation and amortization
|
|
56
|
|
|
39
|
|
|
10
|
|
|
46
|
|
|
95
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Solutions Segment
|
|
|
For the nine months ended June 30,
|
|
High Performance Products Segment
|
|
Germany
|
|
United
Kingdom
|
|
U.S.
|
|
Total
|
|
Consolidated
Total
|
|
|
(Amounts in thousands)
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
8,165
|
|
|
$
|
4,365
|
|
|
$
|
5,150
|
|
|
$
|
40,640
|
|
|
$
|
50,155
|
|
|
$
|
58,320
|
|
Service
|
|
3,712
|
|
|
11,691
|
|
|
777
|
|
|
3,227
|
|
|
15,695
|
|
|
19,407
|
|
Total sales
|
|
11,877
|
|
|
16,056
|
|
|
5,927
|
|
|
43,867
|
|
|
65,850
|
|
|
77,727
|
|
Income (loss) from operations
|
|
661
|
|
|
1,042
|
|
|
(58
|
)
|
|
1,429
|
|
|
2,413
|
|
|
3,074
|
|
Assets
|
|
17,486
|
|
|
13,306
|
|
|
2,641
|
|
|
14,966
|
|
|
30,913
|
|
|
48,399
|
|
Capital expenditures
|
|
193
|
|
|
149
|
|
|
93
|
|
|
51
|
|
|
293
|
|
|
486
|
|
Depreciation and amortization
|
|
176
|
|
|
118
|
|
|
77
|
|
|
171
|
|
|
366
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
6,823
|
|
|
$
|
5,229
|
|
|
$
|
3,062
|
|
|
$
|
30,430
|
|
|
$
|
38,721
|
|
|
$
|
45,544
|
|
Service
|
|
2,445
|
|
|
10,753
|
|
|
873
|
|
|
1,979
|
|
|
13,605
|
|
|
16,050
|
|
Total sales
|
|
9,268
|
|
|
15,982
|
|
|
3,935
|
|
|
32,409
|
|
|
52,326
|
|
|
61,594
|
|
Income (loss) from operations
|
|
(633
|
)
|
|
445
|
|
|
(583
|
)
|
|
(94
|
)
|
|
(232
|
)
|
|
(865
|
)
|
Assets
|
|
16,034
|
|
|
12,854
|
|
|
2,955
|
|
|
14,139
|
|
|
29,948
|
|
|
45,982
|
|
Capital expenditures
|
|
50
|
|
|
205
|
|
|
1
|
|
|
142
|
|
|
348
|
|
|
398
|
|
Depreciation and amortization
|
|
187
|
|
|
130
|
|
|
27
|
|
|
138
|
|
|
295
|
|
|
482
|
|
Income (loss) from operations consists of sales less cost of sales, engineering and development expenses, and selling, general and administrative expenses but is not affected by either other income/expense or by income taxes expense/benefit. Non-operating charges/income consists principally of investment income and interest expense. All intercompany transactions have been eliminated.
The following table lists customers from which the Company derived revenues in excess of
10%
of total revenues for the
three and nine months ended
June 30, 2016
, and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the nine months ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
Customer Revenues
|
|
% of Total
Revenues
|
|
Customer Revenues
|
|
% of Total
Revenues
|
|
Customer Revenues
|
|
% of Total
Revenues
|
|
Customer Revenues
|
|
% of Total
Revenues
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
3.6
|
|
|
13
|
%
|
|
$
|
4.4
|
|
|
20
|
%
|
|
$
|
12.0
|
|
|
15
|
%
|
|
$
|
9.1
|
|
|
15
|
%
|
Customer B
|
|
$
|
3.1
|
|
|
11
|
%
|
|
$
|
2.9
|
|
|
13
|
%
|
|
$
|
10.7
|
|
|
14
|
%
|
|
$
|
9.5
|
|
|
15
|
%
|
Customer C
|
|
$
|
2.8
|
|
|
10
|
%
|
|
$
|
1.9
|
|
|
9
|
%
|
|
$
|
4.5
|
|
|
6
|
%
|
|
$
|
2.2
|
|
|
4
|
%
|
In addition, accounts receivable from Customer A totaled approximately
$2.9 million
, or
14%
, and approximately
$1.1 million
, or
6%
, of total consolidated accounts receivable as of June 30, 2016 and September 30, 2015, respectively. Accounts receivable from Customer B totaled approximately
$2.8 million
, or
14%
, and approximately
$7.9 million
, or
39%
, of total consolidated accounts receivable as of June 30, 2016 and September 30, 2015, respectively. Accounts receivable from Customer C totaled approximately
$1.0 million
, or
5%
, and approximately
$0.8 million
, or
4%
, of total consolidated accounts receivable as of June 30, 2016 and September 30, 2015, respectively. We believe that the Company is not exposed to any
significant credit risk with respect to the accounts receivable with these customers as of
June 30, 2016
. No other customers accounted for
10%
or more of total consolidated accounts receivable as of
June 30, 2016
or September 30, 2015.
8.
Dividends
On May 11, 2016, the Company's board of directors declared a cash dividend of
$0.11
per share which was paid on June 10, 2016 to shareholders of record as of May 27, 2016, the record date.
On February 16, 2016, the Company's board of directors declared a cash dividend of
$0.11
per share which was paid on March 11, 2016 to shareholders of record as of February 26, 2016, the record date.
On December 23, 2015, the Company's board of directors declared a cash dividend of
$0.11
per share which was paid on January 11, 2016 to shareholders of record as of December 31, 2015, the record date.
9. Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014 ‑09
, Revenue from Contracts with Customers
, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU clarifies the principles for recognizing revenue by, among other things, removing inconsistencies in revenue requirements, improving comparability of revenue recognition practices across entities and industries and providing improved disclosure requirements. In August 2015, the FASB approved a one year deferral of the effective date for this ASU to interim and annual reporting periods beginning after December 15, 2017; however, early adoption at the original effective date is still permitted. We are currently evaluating the impact that the adoption of this ASU will have on our consolidated financial statements.
In May 2015, the FASB issued ASU No. 2015-07,
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
, which excludes investments measured at net asset value, as a practical expedient for fair value, from the fair value hierarchy. This ASU is effective for interim and annual reporting periods beginning after December 15, 2015, and requires retrospective application, with early adoption permitted. The implementation of this ASU is not expected to have a material impact on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-12,
Plan Accounting: Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefits Plans (Topic 965)
, which requires fully benefit-responsive investment contracts to be measured at contract value. Those Topics also require an adjustment to reconcile contract value to fair value, when these measures differ,
on the face of the plan financial statements. Fair value is measured using the requirements in Topic 820, Fair Value Measurement. This ASU is effective for fiscal years beginning after December 15, 2015, and requires retrospective application, with early adoption permitted. The implementation of this ASU is not expected to have a material impact on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330) Simplifying the Measurement of Inventory
, which requires entities to measure inventory at the lower of cost and net realizable value, except for inventory measured using last-in, first-out (LIFO) or the retail inventory method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017 and requires prospective application, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company has not yet assessed the potential impact of implementing this ASU on our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes,
which require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Topic apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Topic. The amendments in this Topic are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The implementation of this guidance is not expected to have a material impact to the disclosures on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842),
to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This updated Topic 842 affects any entity that enters into a lease (as that term is defined in this Update), with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The amendments in this Topic are effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company has not yet assessed the potential impact of implementing this ASU on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-08
(Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
to clarify the implementation guidance on principal versus agent considerations. The amendments in this update provides additional guidance on indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer and does not change the core principle of previously issued guidance. The amendments in this Topic are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company does not expect the implementation of this ASU to have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09
(Topic 718), Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting
to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Additionally, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. The amendments in this Topic are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect the implementation of this ASU to have a material impact on our consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The discussion below contains certain forward-looking statements related but not limited to, among others, statements concerning future revenues and future business plans. In addition, forward-looking statements include statements in which we use words such as “expect,” “believe,” “anticipate,” “intend,” “project”, “estimate” “should” “could,” “may,” “plan,” “potential,” “predict,” “project,” “will,” “would” and similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, the forward-looking statements are subject to significant risks and uncertainties, and thus we cannot assure you that these expectations will prove to have been correct, and actual results may vary from those contained in such forward-looking statements. We discuss many of these risks and uncertainties in Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2015. Factors that may cause such variances include, but are not limited to, our dependence on a small number of customers for a significant portion of our revenue, our high dependence on contracts with the U.S. federal government, our reliance in certain circumstances on single sources for supply of key product components, and intense competition in the market segments in which we operate. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and in our Annual Report on Form 10-K for the year ended September 30, 2015.
Markets for our products and services are characterized by rapidly changing technology, new product introductions and short product life cycles. These changes can adversely affect our business and operating results. Our success will depend on our ability to enhance our existing products and services and to develop and introduce, on a timely and cost effective basis, new products that keep pace with technological developments and address increasing customer requirements. The inability to meet these demands could adversely affect our business and operating results.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, income taxes, deferred compensation and retirement plans, as well as estimated selling prices used for revenue recognition and contingencies. We base our estimates on historical performance and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A description of our critical accounting policies is contained in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2015
in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Overview of the
three
months ended
June 30, 2016
Our revenue
increase
d by approximately
$4.6 million
, or
21%
, to
$26.9 million
for the
three
months ended
June 30, 2016
as compared to
$22.3 million
for the
three
months ended
June 30, 2015
. The
increase
in revenue is the result of increases of
$3.0 million
and
$1.7 million
in our TS and HPP segments, respectively. Our gross profit margin percentage
increase
d overall from
24%
of revenues for the
three
months ended
June 30, 2015
to
27%
for the
three
months ended
June 30, 2016
. The
3%
increase
in our gross margin percentage is attributed to gross margin increases in both our HPP and TS segments. The increase in our HPP segment gross margin percentage is primarily the result of a favorable mix of high margin Multicomputer product revenues in the three months ended June 30, 2016 as compared to the same period in 2015. The increase in our TS segment gross margin percentage is due to higher margins on product revenues delivered by our U.S. division. Operating income
increase
d by
$1.2 million
to
$1.9 million
for the
three
month period ended
June 30, 2016
as compared to operating income of
$0.7 million
for the three month period ended
June 30, 2015
as a result of a $2.0 million increase in gross profit, which was partially offset by
$0.8 million
of higher operating expenses
.
The following table details our results of operations in dollars and as a percentage of sales for the
three
months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
%
of sales
|
|
June 30, 2015
|
|
%
of sales
|
|
|
(Dollar amounts in thousands)
|
Sales
|
|
$
|
26,912
|
|
|
100
|
%
|
|
$
|
22,287
|
|
|
100
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
19,707
|
|
|
73
|
%
|
|
17,021
|
|
|
76
|
%
|
Engineering and development
|
|
779
|
|
|
3
|
%
|
|
626
|
|
|
3
|
%
|
Selling, general and administrative
|
|
4,573
|
|
|
17
|
%
|
|
3,945
|
|
|
18
|
%
|
Total costs and expenses
|
|
25,059
|
|
|
93
|
%
|
|
21,592
|
|
|
97
|
%
|
Operating income
|
|
1,853
|
|
|
7
|
%
|
|
695
|
|
|
3
|
%
|
Other expense
|
|
(76
|
)
|
|
—
|
%
|
|
(113
|
)
|
|
(1
|
)%
|
Income before income taxes
|
|
1,777
|
|
|
7
|
%
|
|
582
|
|
|
2
|
%
|
Income tax expense
|
|
520
|
|
|
2
|
%
|
|
333
|
|
|
2
|
%
|
Net income
|
|
$
|
1,257
|
|
|
5
|
%
|
|
$
|
249
|
|
|
—
|
%
|
Revenues
Our revenues
increase
d by approximately
$4.6 million
to
$26.9 million
for the
three
months ended
June 30, 2016
as compared to
$22.3 million
of revenues for the three months ended
June 30, 2015
. The TS segment revenue
increase
d by
$3.0 million
and the HPP segment revenue increased by
$1.7 million
.
HPP segment revenue change by product line was as follows for the
three
months ended
June 30, 2016
and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
|
(Dollar amounts in thousands)
|
|
|
Products
|
|
$
|
3,354
|
|
|
$
|
1,844
|
|
|
$
|
1,510
|
|
|
82
|
%
|
Services
|
|
2,248
|
|
|
2,085
|
|
|
163
|
|
|
8
|
%
|
Total
|
|
$
|
5,602
|
|
|
$
|
3,929
|
|
|
$
|
1,673
|
|
|
43
|
%
|
The increase in HPP services revenues is primarily attributed to an increase in royalties on high-speed processing boards shipped for the three months ended
June 30, 2016
as compared to the three months ended
June 30, 2015
. The increase in product revenues is primarily attributed to higher Multicomputer product line sales to domestic and foreign defense contractors for the three months ended
June 30, 2016
as compared to the three months ended
June 30, 2015
. We expect to recognize royalty revenue related to the equivalent number of high-speed processing boards used in one aircraft during the fourth quarter of fiscal year 2016, which ends September 30, 2016.
TS segment revenue change by product line was as follows for the
three
months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
|
(Dollar amounts in thousands)
|
|
|
Products
|
|
$
|
16,991
|
|
|
$
|
13,852
|
|
|
$
|
3,139
|
|
|
23
|
%
|
Services
|
|
4,319
|
|
|
4,506
|
|
|
(187
|
)
|
|
(4
|
)%
|
Total
|
|
$
|
21,310
|
|
|
$
|
18,358
|
|
|
$
|
2,952
|
|
|
16
|
%
|
The
$3.0 million
increase in TS segment revenues during the three months ended
June 30, 2016
as compared to the three months ended
June 30, 2015
, was the result of increases of
$2.7 million
and
$1.2 million
, in our divisions located in the U.S. and the U.K., respectively, that was partially offset by a decrease of
$0.9 million
in our German division. Product revenues increased by approximately
$2.2 million
and
$1.2 million
in our U.S. and U.K. divisions, respectively, partially offset
by a
$0.2 million
decrease in product revenue at our German division. Services revenues decreases at our German and U.K. divisions of
$0.6 million
and
$0.1 million
, respectively, were partially offset by an increase in our U.S. division of
$0.5 million
.
Our revenues by geographic area based on the customer location to which the products were shipped or services rendered was as follows for the
three
months ended
June 30, 2016
and
June 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
2016
|
|
%
|
|
2015
|
|
%
|
|
$
|
|
%
|
|
|
(Dollar amounts in thousands)
|
Americas
|
|
$
|
19,689
|
|
|
73
|
%
|
|
$
|
16,129
|
|
|
72
|
%
|
|
$
|
3,560
|
|
|
22
|
%
|
Europe
|
|
6,464
|
|
|
24
|
%
|
|
6,032
|
|
|
27
|
%
|
|
432
|
|
|
7
|
%
|
Asia
|
|
759
|
|
|
3
|
%
|
|
126
|
|
|
1
|
%
|
|
633
|
|
|
502
|
%
|
Totals
|
|
$
|
26,912
|
|
|
100
|
%
|
|
$
|
22,287
|
|
|
100
|
%
|
|
$
|
4,625
|
|
|
21
|
%
|
Gross Margins
Our gross margin ("GM")
increase
d by
$1.9 million
, or
3%
of revenues, to
$7.2 million
for the three months ended
June 30, 2016
as compared to a gross margin of
$5.3 million
for the
three
months ended
June 30, 2015
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Increase
|
|
|
GM$
|
GM%
|
|
GM$
|
GM%
|
|
GM$
|
|
GM%
|
|
|
(Dollar amounts in thousands)
|
HPP
|
|
$
|
3,885
|
|
69
|
%
|
|
$
|
2,640
|
|
67
|
%
|
|
$
|
1,245
|
|
|
2
|
%
|
TS
|
|
3,320
|
|
16
|
%
|
|
2,626
|
|
14
|
%
|
|
694
|
|
|
2
|
%
|
Total
|
|
$
|
7,205
|
|
27
|
%
|
|
$
|
5,266
|
|
24
|
%
|
|
$
|
1,939
|
|
|
3
|
%
|
The impact of product mix within our HPP segment on gross margin for the
three
months ended
June 30, 2016
and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Increase
|
|
|
GM$
|
GM%
|
|
GM$
|
GM%
|
|
GM$
|
|
GM%
|
|
|
(Dollar amounts in thousands)
|
Products
|
|
$
|
1,650
|
|
49
|
%
|
|
$
|
571
|
|
31
|
%
|
|
$
|
1,079
|
|
|
18
|
%
|
Services
|
|
2,235
|
|
99
|
%
|
|
2,069
|
|
99
|
%
|
|
166
|
|
|
—
|
%
|
Total
|
|
$
|
3,885
|
|
69
|
%
|
|
$
|
2,640
|
|
67
|
%
|
|
$
|
1,245
|
|
|
2
|
%
|
The overall HPP segment gross margin as a percentage of sales increased to
69%
for the three month period ended
June 30, 2016
as compared to
67%
for the three month period ended
June 30, 2015
. The
2%
increase in gross margin as a percentage of sales for product sales in the HPP segment was primarily attributed to a favorable mix of high margin Multicomputer product revenues in the HPP segment during the three months ended
June 30, 2016
as compared to the three months ended
June 30, 2015
.
The impact of product mix within our TS segment on gross margin for the
three
months ended
June 30, 2016
and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Increase
|
|
|
GM$
|
GM%
|
|
GM$
|
GM%
|
|
GM$
|
|
GM%
|
|
|
(Dollar amounts in thousands)
|
Products
|
|
$
|
2,235
|
|
13
|
%
|
|
$
|
1,664
|
|
12
|
%
|
|
$
|
571
|
|
|
1
|
%
|
Services
|
|
1,085
|
|
25
|
%
|
|
962
|
|
21
|
%
|
|
123
|
|
|
4
|
%
|
Total
|
|
$
|
3,320
|
|
16
|
%
|
|
$
|
2,626
|
|
14
|
%
|
|
$
|
694
|
|
|
2
|
%
|
The overall TS segment gross margin as a percentage of sales increased to
16%
for the three month period ended
June 30, 2016
as compared to
14%
for the three month period ended
June 30, 2015
. The gross margin increase on product revenues is primarily attributed to the U.S. division, which recognized the benefit of several large orders with above average margins that are considered to be favorable one-time events. The gross margin increase in service margins as a percentage of sales is primarily attributed to a
$0.3 million
improvement in our U.K. division for the three month period ended
June 30, 2016
as compared to the three month period ended
June 30, 2015
. The improvement in our U.K. division is attributed to losses recognized in the three month period ended June 30, 2015.
Engineering and Development Expenses
The engineering and development expenses incurred primarily by our HPP segment were
$0.8 million
and
$0.6 million
for the
three
months ended
June 30, 2016
and 2015, respectively. The current year expenses are primarily for Myricom product engineering expenses incurred in connection with the development of new Myricom products.
Selling, General and Administrative Expenses
The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the
three
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
|
|
2016
|
|
% of
Total
|
|
2015
|
|
% of
Total
|
|
$ Increase
|
|
% Increase
|
|
(Dollar amounts in thousands)
|
By Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
HPP segment
|
$
|
1,521
|
|
|
33
|
%
|
|
$
|
1,197
|
|
|
30
|
%
|
|
$
|
324
|
|
|
27
|
%
|
TS segment
|
3,052
|
|
|
67
|
%
|
|
2,748
|
|
|
70
|
%
|
|
304
|
|
|
11
|
%
|
Total
|
$
|
4,573
|
|
|
100
|
%
|
|
$
|
3,945
|
|
|
100
|
%
|
|
$
|
628
|
|
|
16
|
%
|
SG&A expenses increased by
$0.6 million
, or
16%
, for the three months ended
June 30, 2016
as compared to the three months ended
June 30, 2015
. The increase in HPP segment expenses is primarily attributed to increases in variable compensation costs, consulting fees and personnel costs partially offset by lower travel and commissions costs. The TS segment expense increase of
$0.3 million
is the result of an increase in our U.S. division of
$0.6 million
, partially offset by decreases in the U.K. and Germany of
$0.2 million
and
$0.1 million
, respectively. The increase in our U.S. division is primarily attributed to commissions on higher sales and increases in variable compensation.
Other Income/Expenses
The following table details our other income (expense) for the
three
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended,
|
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
Increase
|
|
(Amounts in thousands)
|
Interest expense
|
$
|
(22
|
)
|
|
$
|
(26
|
)
|
|
$
|
4
|
|
Interest income
|
1
|
|
|
1
|
|
|
—
|
|
Foreign exchange gain (loss)
|
(55
|
)
|
|
(87
|
)
|
|
32
|
|
Other expense, net
|
—
|
|
|
(1
|
)
|
|
1
|
|
Total other income (expense), net
|
$
|
(76
|
)
|
|
$
|
(113
|
)
|
|
$
|
37
|
|
Other income (expense) was relatively flat for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015.
Income Taxes
For the three months ended June 30, 2016, the Company recognized an income tax expense of $0.5 million, which is primarily due to increased profit in the U.S. of $2.1 million, partially offset by a loss in Germany of $0.2 million. There was a profit of $0.03 million in the U.K., but we had no tax expense for the quarter due to pension contributions. The Company's tax rate was 29% for the quarter ended June 30, 2016.
Overview of the
nine
months ended
June 30, 2016
Our revenue
increase
d by approximately
$16.1 million
, or
26%
, to
$77.7 million
for the
nine
months ended
June 30, 2016
as compared to
$61.6 million
for the
nine
months ended
June 30, 2015
. Revenues increased by
$13.5 million
and
$2.6 million
in our TS and HPP segments, respectively. We recognized approximately $3.2 million of royalties related to the equivalent number of high-speed processing boards used in five aircraft during the
nine
months ended
June 30, 2016
as compared $2.0 million of royalty revenues for the
nine
month period ended
June 30, 2015
, and revenues in our TS segment increased by
$13.5 million
on increases of
$11.4 million
and
$2.1 million
in product and service revenues, respectively, in the
nine
months ended
June 30, 2016
. Our gross profit margin percentage
increase
d overall, from
22%
of revenues for the
nine
months ended
June 30, 2015
, to
24%
for the
nine
months ended
June 30, 2016
. Our operating
income
increased by approximately
$3.9 million
to
$3.1 million
for the
nine
month period ended
June 30, 2016
as compared to a
$0.9 million
operating loss for the
nine
months ended
June 30, 2015
as a result of a higher gross profit.
The following table details our results of operations in dollars and as a percentage of sales for the
nine
months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
%
of sales
|
|
June 30, 2015
|
|
%
of sales
|
|
|
(Dollar amounts in thousands)
|
Sales
|
|
$
|
77,727
|
|
|
100
|
%
|
|
$
|
61,594
|
|
|
100
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
58,999
|
|
|
76
|
%
|
|
48,330
|
|
|
78
|
%
|
Engineering and development
|
|
2,368
|
|
|
3
|
%
|
|
2,305
|
|
|
4
|
%
|
Selling, general and administrative
|
|
13,286
|
|
|
17
|
%
|
|
11,824
|
|
|
19
|
%
|
Total costs and expenses
|
|
74,653
|
|
|
96
|
%
|
|
62,459
|
|
|
101
|
%
|
Operating income (loss)
|
|
3,074
|
|
|
4
|
%
|
|
(865
|
)
|
|
(1
|
)%
|
Other expense
|
|
(165
|
)
|
|
—
|
%
|
|
(275
|
)
|
|
—
|
%
|
Income (loss) before income taxes
|
|
2,909
|
|
|
4
|
%
|
|
(1,140
|
)
|
|
(1
|
)%
|
Income tax (benefit) expense
|
|
866
|
|
|
1
|
%
|
|
(277
|
)
|
|
—
|
%
|
Net income (loss)
|
|
$
|
2,043
|
|
|
3
|
%
|
|
$
|
(863
|
)
|
|
(1
|
)%
|
Revenues
Our revenues
increase
d by
$16.1 million
to
$77.7 million
for the
nine
months ended
June 30, 2016
as compared
$61.6 million
of revenues for the
nine
months ended
June 30, 2015
. The revenue from our HPP and TS segments
increase
d by
$2.6 million
and
$13.5 million
, respectively. The
$13.5 million
increase in our TS segment revenue resulted from increases of
$11.5 million
,
$0.1 million
and
$2.0 million
in our divisions located in the U.S., Germany, and the U.K., respectively.
HPP segment revenue change by product line was as follows for the nine months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
|
(Dollar amounts in thousands)
|
|
|
Products
|
|
$
|
8,165
|
|
|
$
|
6,823
|
|
|
$
|
1,342
|
|
|
20
|
%
|
Services
|
|
3,712
|
|
|
2,445
|
|
|
1,267
|
|
|
52
|
%
|
Total
|
|
$
|
11,877
|
|
|
$
|
9,268
|
|
|
$
|
2,609
|
|
|
28
|
%
|
The increase in HPP services revenues for the
nine
months ended
June 30, 2016
compared to the
nine
months ended
June 30, 2015
was the result of recognizing approximately $3.2 million of royalties related to the equivalent number of high-speed processing boards used in five aircraft during the
nine
months ended
June 30, 2016
as compared to $2.0 million of royalty revenues for the
nine
month period ended
June 30, 2015
. We expect to recognize royalty revenue related to the equivalent number of high-speed processing boards used in one aircraft during the fourth quarter of fiscal year 2016, which ends September 30, 2016. The increase in HPP product revenues for the nine months ended June 30, 2016 compared to the nine months ended June 30, 2015 was primarily the result of a $1.2 million increase in Multicomputer shipments to government entities.
TS segment revenue change by product line was as follows for the
nine
months ended
June 30, 2016
and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
|
(Dollar amounts in thousands)
|
|
|
Products
|
|
$
|
50,155
|
|
|
$
|
38,721
|
|
|
$
|
11,434
|
|
|
30
|
%
|
Services
|
|
15,695
|
|
|
13,605
|
|
|
2,090
|
|
|
15
|
%
|
Total
|
|
$
|
65,850
|
|
|
$
|
52,326
|
|
|
$
|
13,524
|
|
|
26
|
%
|
The increase in TS segment revenues for the
nine
months ended
June 30, 2016
compared to the
nine
months ended
June 30, 2015
was the result of increases of
$0.1 million
,
$2.0 million
and
$11.5 million
in our German, U.K. and U.S. divisions, respectively. The increases were primarily the result of
$10.2 million
and
$2.1 million
in increased product revenues from our U.S. and U.K. divisions, respectively, and increased service revenues of
$0.9 million
and
$1.2 million
in the German and U.S. divisions, respectively, which were partially offset by a
$0.9 million
decrease in German product revenues.
Our revenues by geographic area based on the customer location to which the products were shipped or services rendered was as follows for the
nine
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine Months Ended June 30,
|
|
Increase
|
|
|
2016
|
|
%
|
|
2015
|
|
%
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
Americas
|
|
$
|
52,869
|
|
|
68
|
%
|
|
$
|
40,294
|
|
|
65
|
%
|
|
$
|
12,575
|
|
|
31
|
%
|
Europe
|
|
21,969
|
|
|
28
|
%
|
|
20,137
|
|
|
33
|
%
|
|
1,832
|
|
|
9
|
%
|
Asia
|
|
2,889
|
|
|
4
|
%
|
|
1,163
|
|
|
2
|
%
|
|
1,726
|
|
|
148
|
%
|
Totals
|
|
$
|
77,727
|
|
|
100
|
%
|
|
$
|
61,594
|
|
|
100
|
%
|
|
$
|
16,133
|
|
|
26
|
%
|
Gross Margins
Our gross margin increased by
$5.5 million
, or
2%
of revenues, to
$18.7 million
for the
nine
months ended
June 30, 2016
as compared to a gross margin of
$13.3 million
for the for the
nine
months ended
June 30, 2015
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Increase
|
|
|
(Dollars in thousands)
|
|
|
GM$
|
GM%
|
|
GM$
|
GM%
|
|
GM$
|
|
GM%
|
HPP
|
|
$
|
7,376
|
|
62
|
%
|
|
$
|
5,138
|
|
55
|
%
|
|
$
|
2,238
|
|
|
7
|
%
|
TS
|
|
11,352
|
|
17
|
%
|
|
8,126
|
|
16
|
%
|
|
3,226
|
|
|
1
|
%
|
Total
|
|
$
|
18,728
|
|
24
|
%
|
|
$
|
13,264
|
|
22
|
%
|
|
$
|
5,464
|
|
|
2
|
%
|
The impact of product mix within our HPP segment on gross margin was as follows for the
nine
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Increase
|
|
|
(Dollars in thousands)
|
|
|
GM$
|
GM%
|
|
GM$
|
GM%
|
|
GM$
|
|
GM%
|
Products
|
|
$
|
3,753
|
|
46
|
%
|
|
$
|
2,751
|
|
40
|
%
|
|
$
|
1,002
|
|
|
6
|
%
|
Services
|
|
3,623
|
|
98
|
%
|
|
2,387
|
|
98
|
%
|
|
1,236
|
|
|
—
|
%
|
Total
|
|
$
|
7,376
|
|
62
|
%
|
|
$
|
5,138
|
|
55
|
%
|
|
$
|
2,238
|
|
|
7
|
%
|
The overall HPP segment gross margin as a percentage of sales increased to
62%
for the
nine
month period ended
June 30, 2016
as compared to
55%
for the
nine
month period ended
June 30, 2015
. The
7%
increase in gross margin as a percentage of sales for product sales in the HPP segment was primarily attributed to an increase in Multicomputer product revenues during the
nine
months ended
June 30, 2016
as compared to the
nine
months ended
June 30, 2015
.
The impact of product mix within our TS segment on gross margin was as follows for the
nine
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Increase
|
|
|
GM$
|
GM%
|
|
GM$
|
GM%
|
|
GM$
|
|
GM%
|
|
|
(Dollar amounts in thousands)
|
Products
|
|
$
|
6,817
|
|
14
|
%
|
|
$
|
4,819
|
|
12
|
%
|
|
$
|
1,998
|
|
|
2
|
%
|
Services
|
|
4,535
|
|
29
|
%
|
|
3,307
|
|
24
|
%
|
|
1,228
|
|
|
5
|
%
|
Total
|
|
$
|
11,352
|
|
17
|
%
|
|
$
|
8,126
|
|
16
|
%
|
|
$
|
3,226
|
|
|
1
|
%
|
The gross margin as a percentage of sales for TS segment product revenues increased by
2%
for the
nine
months ended
June 30, 2016
as compared to the prior year period as a result of an increase in higher gross margin sales for our U.S. division and a decrease of relatively lower gross margin sales for our German division. The increase of gross margin as a percentage of services sales is the result of an increase in high margin sales for our U.S. division and for our U.K. division the increase is primarily attributed to the elimination of cost overruns on fixed price contracts as experienced during the first nine months of fiscal 2015 year as well as improved utilization of engineering overhead.
Engineering and Development Expenses
Engineering and development expenses
increase
d by
$0.1 million
to
$2.4 million
for the
nine
months ended
June 30, 2016
as compared to
$2.3 million
for the
nine
months ended
June 30, 2015
. The current year expenses are primarily for Myricom engineering expenses incurred in connection with the development of new Myricom products.
Selling, General and Administrative Expenses
The following table details our SG&A expense by operating segment for the nine months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine Months Ended June 30,
|
|
|
|
|
|
2016
|
|
% of
Total
|
|
2015
|
|
% of
Total
|
|
$ Increase
|
|
% Increase
|
|
(Dollar amounts in thousands)
|
By Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
HPP segment
|
$
|
4,347
|
|
|
33
|
%
|
|
$
|
3,520
|
|
|
30
|
%
|
|
$
|
827
|
|
|
23
|
%
|
TS segment
|
8,939
|
|
|
67
|
%
|
|
8,304
|
|
|
70
|
%
|
|
635
|
|
|
8
|
%
|
Total
|
$
|
13,286
|
|
|
100
|
%
|
|
$
|
11,824
|
|
|
100
|
%
|
|
$
|
1,462
|
|
|
12
|
%
|
SG&A expenses increased by $1.5 million, or 12%, for the nine months ended June 30, 2016 as compared to the nine months ended June 30, 2015. The
$0.8 million
, or
23%
,
increase
in HPP segment expenses is primarily attributed to increases in variable compensation costs, consulting fees, personnel cost and audit fees, partially offset by lower legal costs. The
$0.6 million
, or
8%
,
increase
in TS segment expenses is attributed to higher commissions and variable compensation costs for the U.S. division partially offset by the lower personnel costs for our German and U.K. divisions resulting from a restructuring of personnel and compensation plans.
Other Income/Expenses
The following table details our other income (expense) for the
nine
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended,
|
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
Increase (decrease)
|
|
(Amounts in thousands)
|
Interest expense
|
$
|
(65
|
)
|
|
$
|
(63
|
)
|
|
$
|
(2
|
)
|
Interest income
|
4
|
|
|
5
|
|
|
(1
|
)
|
Foreign exchange loss
|
(118
|
)
|
|
(216
|
)
|
|
98
|
|
Other income, net
|
14
|
|
|
(1
|
)
|
|
15
|
|
Total other expense, net
|
$
|
(165
|
)
|
|
$
|
(275
|
)
|
|
$
|
110
|
|
The decrease in the foreign exchange loss for the
nine
month period ended
June 30, 2016
as compared to the nine month period ended June 30, 2015 was primarily driven by a decrease of approximately $0.1 million in losses on foreign currency holdings in the current period as compared to a year earlier.
Income Taxes
For the nine months ended June 30, 2016, the Company recognized an income tax expense of $0.9 million, which is primarily related to profits of $2.0 million in the U.S. and a profit in Germany of $0.8 million. The U.K. had a profit of $0.1 million for the nine month period, but no tax expense was recorded due to pension contributions. The Company's tax rate for the nine month period was 30%.
Liquidity and Capital Resources
Our primary source of liquidity is our cash and cash equivalents, which increased by
$0.4 million
to
$11.6 million
as of
June 30, 2016
from
$11.2 million
as of
September 30, 2015
.
Significant sources of cash for the
nine
months ended
June 30, 2016
included net income of approximately
$2.0 million
, an increase in taxes payable of
$0.8 million
, and an increase in deferred revenues of $0.7 million.
Significant uses of cash for the
nine
months ended
June 30, 2016
included dividends paid of approximately
$1.3 million
, an increase in accounts receivable of $1.0 million, and a decrease in accounts payable and accrued expenses of
$0.7 million
.
Cash held by our foreign subsidiaries located in Germany and the United Kingdom totaled approximately $6.8 million as of
June 30, 2016
as compared to $3.3 million as of
September 30, 2015
. This cash is included in our total cash and cash equivalents reported above. We consider this cash to be permanently reinvested into these foreign locations.
If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans, the equity markets, or other means. There is no assurance that we will be able to raise any such capital on terms acceptable to us, on a timely basis or at all. If we are unable to secure additional financing, we may not be able to complete development or enhancement of products, take advantage of future opportunities, respond to competition or continue to effectively operate our business.
Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash generated from operations and availability on our lines of credit will be sufficient to provide for the Company’s working capital and capital expenditure requirements for the foreseeable future.