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EX-31.1 - EX-31.1 - CSP INC /MA/cspi-20200331ex311c57a23.htm

 

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended           March 31, 2020

or

    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  ☒    No  ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes  ☒    No  ☐.

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.

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).   Yes  ☐    No  ☒

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 12, 2020, the registrant had 4,253,596 shares of common stock issued and outstanding.

 

 

 

INDEX

 

 

 

Page

 

 

 

PART I. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets (unaudited) as of March 31, 2020 and September 30, 2019

3

 

 

 

 

Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2020 and 2019

4

 

 

 

 

Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended March 31, 2020 and 2019

5

 

 

 

 

Consolidated Statement of Shareholders’ Equity (unaudited) for the three and six months ended March 31, 2020 and 2019

6

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2020 and 2019

8

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

9

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

Item 4. 

Controls and Procedures

36

 

 

 

PART II.  

OTHER INFORMATION

 

 

 

 

Item 1A. 

Risk Factors

36

 

 

 

Item 2. 

Purchases of Equity Securities

37

 

 

 

Item 6. 

Exhibits

37

 

 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CSP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

September 30, 

 

    

2020

    

2019

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

15,242

 

$

18,099

Accounts receivable, net of allowances of $236 and $138

 

 

12,840

 

 

15,114

Investment in lease, net-current portion

 

 

399

 

 

367

Inventories

 

 

6,430

 

 

7,818

Refundable income taxes

 

 

656

 

 

487

Other current assets

 

 

5,122

 

 

4,649

Total current assets

 

 

40,689

 

 

46,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Property, equipment and improvements, net

 

 

1,270

 

 

1,273

Operating lease right-of-use assets

 

 

2,131

 

 

 —

Intangibles, net

 

 

32

 

 

37

Investment in lease, net-less current portion

 

 

207

 

 

417

Long-term receivable

 

 

5,151

 

 

5,328

Deferred income taxes

 

 

 —

 

 

1,946

Cash surrender value of life insurance

 

 

3,884

 

 

3,718

Other assets

 

 

147

 

 

116

Total assets

 

$

53,511

 

$

59,369

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable and accrued expenses

 

$

10,435

 

$

16,175

Line of credit

 

 

1,584

 

 

2,459

Notes payable - current portion

 

 

703

 

 

317

Deferred revenue

 

 

1,379

 

 

741

Pension and retirement plans

 

 

337

 

 

335

Total current liabilities

 

 

14,438

 

 

20,027

Pension and retirement plans

 

 

6,952

 

 

6,904

Notes payable - noncurrent portion

 

 

1,771

 

 

684

Operating lease liabilities - noncurrent portion

 

 

1,529

 

 

 —

Income taxes payable

 

 

 —

 

 

694

Other noncurrent liabilities

 

 

379

 

 

632

Total liabilities

 

 

25,069

 

 

28,941

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

  

 

 

  

Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 4,254 and 4,154 shares, respectively

 

 

43

 

 

42

Additional paid-in capital

 

 

16,300

 

 

15,733

Retained earnings

 

 

24,668

 

 

27,246

Accumulated other comprehensive loss

 

 

(12,569)

 

 

(12,593)

Total shareholders’ equity

 

 

28,442

 

 

30,428

Total liabilities and shareholders’ equity

 

$

53,511

 

$

59,369

 

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, 

 

March 31, 

 

March 31, 

 

March 31, 

 

 

    

2020

    

2019

    

2020

    

2019

 

Sales:

 

 

  

 

 

  

 

 

  

 

 

  

 

Product

 

$

12,296

 

$

13,603

 

$

25,518

 

$

29,314

 

Services

 

 

3,799

 

 

2,747

 

 

7,149

 

 

6,016

 

Total sales

 

 

16,095

 

 

16,350

 

 

32,667

 

 

35,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

  

 

 

  

 

 

  

 

 

  

 

Product

 

 

10,245

 

 

11,371

 

 

21,563

 

 

24,583

 

Services

 

 

1,367

 

 

1,233

 

 

2,590

 

 

2,652

 

Total cost of sales

 

 

11,612

 

 

12,604

 

 

24,153

 

 

27,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

4,483

 

 

3,746

 

 

8,514

 

 

8,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Engineering and development

 

 

716

 

 

781

 

 

1,388

 

 

1,526

 

Selling, general and administrative

 

 

3,910

 

 

3,736

 

 

7,671

 

 

7,325

 

Total operating expenses

 

 

4,626

 

 

4,517

 

 

9,059

 

 

8,851

 

Operating loss

 

 

(143)

 

 

(771)

 

 

(545)

 

 

(756)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

  

 

 

  

 

 

  

 

 

  

 

Foreign exchange gain (loss)

 

 

479

 

 

(37)

 

 

144

 

 

(30)

 

Interest expense

 

 

(55)

 

 

(22)

 

 

(112)

 

 

(49)

 

Interest income

 

 

163

 

 

66

 

 

336

 

 

121

 

Other income, (expense) net

 

 

(7)

 

 

 3

 

 

 4

 

 

 5

 

Total other income (expense)

 

 

580

 

 

10

 

 

372

 

 

47

 

Income (loss) before income taxes

 

 

437

 

 

(761)

 

 

(173)

 

 

(709)

 

Income tax expense (benefit)

 

 

1,169

 

 

(142)

 

 

1,099

 

 

(140)

 

Net loss

 

$

(732)

 

$

(619)

 

$

(1,272)

 

$

(569)

 

Net loss attributable to common stockholders

 

$

(732)

 

$

(619)

 

$

(1,272)

 

$

(569)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share – basic

 

$

(0.18)

 

$

(0.15)

 

$

(0.32)

 

$

(0.15)

 

Weighted average shares outstanding – basic

 

 

4,036

 

 

4,015

 

 

3,999

 

 

3,898

 

Net loss per share – diluted

 

$

(0.18)

 

$

(0.15)

 

$

(0.32)

 

$

(0.15)

 

Weighted average shares outstanding – diluted

 

 

4,036

 

 

4,015

 

 

3,999

 

 

3,898

 

 

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, 

 

March 31, 

 

March 31, 

 

March 31, 

 

 

    

2020

    

2019

    

2020

    

2019

 

Net loss

 

$

(732)

 

$

(619)

 

$

(1,272)

 

$

(569)

 

Other comprehensive income (loss):

 

 

  

 

 

  

 

 

  

 

 

  

 

Foreign currency translation gain (loss) adjustments

 

 

(302)

 

 

172

 

 

24

 

 

 2

 

Other comprehensive gain (loss)

 

 

(302)

 

 

172

 

 

24

 

 

 2

 

Total comprehensive loss

 

$

(1,034)

 

$

(447)

 

$

(1,248)

 

$

(567)

 

 

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, 2020 and 2019:

(Amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

other

 

Total

 

 

 

 

 

 

 

Paid-in

 

Retained

 

comprehensive

 

Shareholders’

For the Three Months Ended March 31, 2020:

    

Shares

    

Amount

    

Capital

    

Earnings

    

loss

    

Equity

Balance as of December 31, 2019

 

4,154

 

$

42

 

$

15,940

 

$

26,083

 

$

(12,267)

 

$

29,798

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(732)

 

 

 —

 

 

(732)

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(302)

 

 

(302)

Stock-based compensation

 

 —

 

 

 —

 

 

250

 

 

 —

 

 

 —

 

 

250

Restricted stock issuance

 

97

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

 

 1

Issuance of shares under employee stock purchase plan

 

 9

 

 

 —

 

 

110

 

 

 —

 

 

 —

 

 

110

Purchase of common stock

 

(6)

 

 

 —

 

 

 —

 

 

(43)

 

 

 —

 

 

(43)

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

 

 —

 

 

 —

 

 

 —

 

 

(640)

 

 

 —

 

 

(640)

Balance as of March 31, 2020

 

4,254

 

$

43

 

$

16,300

 

$

24,668

 

$

(12,569)

 

$

28,442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

other

 

Total

 

 

 

 

 

 

 

Paid-in

 

Retained

 

comprehensive

 

Shareholders’

For the Three Months Ended March 31, 2019:

    

Shares

    

Amount

    

Capital

    

Earnings

    

loss

    

Equity

Balance as of December 31, 2018

 

4,018

 

$

41

 

$

14,842

 

$

29,531

 

$

(10,995)

 

$

33,419

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(619)

 

 

 —

 

 

(619)

Other comprehensive gain

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

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

 

 

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, 2020 and 2019:

(Amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

other

 

Total

 

 

 

 

 

 

 

Paid-in

 

Retained

 

comprehensive

 

Shareholders’

For the six months ended March 31, 2020:

    

Shares

    

Amount

    

Capital

    

Earnings

    

loss

    

Equity

Balance as of September 30, 2019

 

4,154

 

$

42

 

$

15,733

 

$

27,246

 

$

(12,593)

 

$

30,428

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(1,272)

 

 

 —

 

 

(1,272)

Other comprehensive gain

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

24

 

 

24

Exercise of stock options

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 —

 

 

 2

Stock-based compensation

 

 —

 

 

 —

 

 

455

 

 

 —

 

 

 —

 

 

455

Restricted stock issuance

 

97

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

 

 1

Issuance of shares under employee stock purchase plan

 

 9

 

 

 —

 

 

110

 

 

 —

 

 

 —

 

 

110

Purchase of common stock

 

(6)

 

 

 —

 

 

 —

 

 

(43)

 

 

 —

 

 

(43)

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

 

 —

 

 

 —

 

 

 —

 

 

(1,263)

 

 

 —

 

 

(1,263)

Balance as of March 31, 2020

 

4,254

 

$

43

 

$

16,300

 

$

24,668

 

$

(12,569)

 

$

28,442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

other

 

Total

 

 

 

 

 

 

 

Paid-in

 

Retained

 

comprehensive

 

Shareholders’

For the six months ended March 31, 2019:

    

Shares

    

Amount

    

Capital

    

Earnings

    

loss

    

Equity

Balance as of September 30, 2018

 

4,017

 

$

40

 

$

14,661

 

$

29,926

 

$

(10,825)

 

$

33,802

Adoption of ASU 2014-09*

 

 —

 

 

 —

 

 

 —

 

 

158

 

 

 —

 

 

158

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(569)

 

 

 —

 

 

(569)

Other comprehensive gain

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 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


* As of October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

 

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, 

 

March 31, 

 

    

2020

    

2019

Cash flows used in operating activities:

 

 

  

 

 

  

Net loss

 

$

(1,272)

 

$

(569)

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

  

 

 

  

Depreciation

 

 

235

 

 

199

Amortization of intangibles

 

 

 4

 

 

 7

Loss on sale of fixed assets, net

 

 

 9

 

 

 —

Foreign exchange (gain) loss

 

 

(144)

 

 

30

Non-cash changes in accounts receivable

 

 

97

 

 

 3

Non-cash changes in inventories

 

 

238

 

 

234

Non-cash lease expense

 

 

322

 

 

 —

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

 

 

455

 

 

384

Deferred income taxes

 

 

1,946

 

 

(99)

Increase in cash surrender value of life insurance

 

 

(51)

 

 

(54)

Changes in operating assets and liabilities:

 

 

  

 

 

  

Decrease (increase) in accounts receivable

 

 

2,206

 

 

(3,319)

Decrease in life insurance receivable

 

 

 —

 

 

256

Decrease in inventories

 

 

1,149

 

 

1,464

Increase in refundable income taxes

 

 

(169)

 

 

(75)

Increase in operating right-of-use assets

 

 

(2,131)

 

 

 —

Increase in other assets

 

 

(473)

 

 

(1,402)

Decrease in investment in lease

 

 

178

 

 

46

Decrease (increase) in long-term receivable

 

 

176

 

 

(956)

Decrease in accounts payable and accrued expenses

 

 

(6,421)

 

 

(1,573)

Increase in operating lease liabilities

 

 

2,076

 

 

 —

Increase in deferred revenue

 

 

637

 

 

2,124

Increase (decrease) in pension and retirement plans liabilities

 

 

18

 

 

(531)

Decrease in income taxes payable

 

 

(694)

 

 

(15)

(Decrease) increase in other long-term liabilities

 

 

(252)

 

 

184

Net cash used in operating activities

 

 

(1,861)

 

 

(3,662)

 

 

 

 

 

 

 

Cash flows used in investing activities:

 

 

  

 

 

  

Life insurance premiums paid

 

 

(144)

 

 

(70)

Purchases of property, equipment and improvements

 

 

(240)

 

 

(268)

Net cash used in investing activities

 

 

(384)

 

 

(338)

 

 

 

 

 

 

 

Cash flows used in financing activities:

 

 

  

 

 

  

Dividends paid

 

 

(1,263)

 

 

(1,224)

Net payments under line-of-credit agreement

 

 

(874)

 

 

(1,641)

Proceeds from debt

 

 

2,037

 

 

 —

Repayments on debt

 

 

(565)

 

 

 —

Principal payments on finance leases

 

 

(157)

 

 

(136)

Purchase of common stock

 

 

(43)

 

 

 —

Proceeds from issuance of shares under equity compensation plans

 

 

112

 

 

120

Net cash used in financing activities

 

 

(753)

 

 

(2,881)

Effects of exchange rate on cash

 

 

141

 

 

(38)

Net decrease in cash and cash equivalents

 

 

(2,857)

 

 

(6,919)

Cash and cash equivalents beginning of period

 

 

18,099

 

 

25,107

Cash and cash equivalents at end of period

 

$

15,242

 

$

18,188

 

 

 

 

 

 

 

Supplementary cash flow information:

 

 

  

 

 

  

Cash paid for income taxes

 

$

16

 

$

40

Cash paid for interest

 

$

154

 

$

67

Supplementary non-cash financing and investing activities: