COMS SYSTPAR Overview
?Technology services and infrastructure in the commercial, healthcare, financial, and education market segments. The Company's portfolio of technology solutions includes IT managed services supporting client infrastructures from the data center to the desktop, security products and services, cloud migrations, network virtualization and resiliency, wired and wireless network design and implementation, and converged infrastructure configuration and deployment. We also provide these services to a number of commercial, healthcare and education clients.
?SD-WAN Never Down® networks, sold as a product or as a recurring service, enable organizations of all sizes to reliably run Internet and cloud-based applications, connect offices worldwide and distribute traffic among a fabric of multiple, diverse ISP links, ensuring business continuity by removing bottlenecks and eliminating network downtime. These capabilities optimize Never Down performance of business-critical applications, aid in lowering IT costs, and make it easier to provision, maintain and support business networks and the applications that run over them.
Key 2021 Developments
?The Company's 2021 sales were
?The Company's 2021 net loss from continuing operations was
?At
Impact of COVID-19 Pandemic
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. In response to the pandemic, we instituted temporary office closures, implemented shelter-in-place orders and restrictions, instituted a mandatory work from home policy for substantially all office employees, and instituted social distancing work rules for operations personnel that continued to work in our facilities to satisfy customer orders. We experienced supply chain and demand disruptions during 2020 and 2021 and expect the disruption to our supply to continue into 2022, as well as higher logistics and operational costs due to the COVID-19 pandemic. As noted below, we also saw delays in orders as some projects are pushed out due to the inability to access locations due to the shutdowns. We may also see a slowdown in our business if one or more of our major customer or suppliers delays its purchase or supplies due to uncertainty in its business operations, encounters difficulties in its production due to employee safety or workforce concerns, is unable to obtain materials or labor from third parties that it needs to complete its projects, and may see a slowdown in our collection of receivables if our customers encounter cash flow difficulties or delay payments to preserve their cash resources. We are continuing to actively monitor the effects and potential impacts of the COVID-19 pandemic on all aspects of our business, liquidity and capital resources. The extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is uncertain at this time.
Forward Looking Statements
In this report and from time to time, in reports filed with the
33
--------------------------------------------------------------------------------
Critical Accounting Policies
Inventory Valuation: We value inventories at the lower of cost or net realizable value. Reserves for excess and obsolescence are estimated and recorded to reduce the carrying value to estimated net realizable value. The amount of the reserve is determined based on historical usage, projected sales information, plans for discontinued products, and other factors. Though management considers these reserves adequate and proper, changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of this reserve.
Income Taxes: In the preparation of the Company's consolidated financial statements, management calculates income taxes. This includes estimating the Company's current tax liability as well as assessing temporary differences resulting from different treatment of items for tax and book accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded on the balance sheet. These assets and liabilities are analyzed regularly and management assesses the likelihood it will realize these deferred assets from future taxable income. We determine the valuation allowance for deferred income tax benefits based upon the expectation of whether the benefits are more likely than not to be realized. The Company records interest and penalties related to income taxes as income tax expense in the consolidated statements of income (loss) and comprehensive income (loss).
Goodwill Impairment: We are required to evaluate goodwill for impairment on an
annual basis and between annual tests upon the occurrence of certain events or
circumstances.
The Company has determined that the following performance obligations identified in its Services & Support segment are transferred over time: managed services and professional services (time and materials ("T&M") and fixed price). This segment's managed services performance obligation is a bundled solution, a series of distinct services that are substantially the same and that have the same pattern of transfer to the customer and are recognized evenly over the term of the contract. T&M professional services arrangements are measured over time with an input method based on hours expended towards satisfying this performance obligation. Fixed price professional service arrangements under a relatively longer-term service will also be measured over time with an input method based on hours expended.
The Company has also identified the following performance obligations within its Services & Support segment that are recognized at a point in time which include resale of third-party hardware and software, installation, arranging for another party to transfer services to the customer, and certain professional services. The resale of third-party hardware and software is recognized at a point in time, when the goods are shipped or delivered to the customer's location, in accordance with the shipping terms. Installation services are recognized at a point in time when the services are completed. The service the Company provides to arrange for another party to transfer services to the customer is satisfied at a point in time as the Company has transferred control upon the service first being made available to the customer by the third-party vendor, which are required to be presented on a net basis. Depending on the nature of the service, certain professional services transfer control at a point in time. The Company evaluates these circumstances on a case-by-case basis to determine if revenue should be recognized over time or at a point in time.
?
34
--------------------------------------------------------------------------------
Results of Operations
2021 Compared to 2020
Consolidated sales from continuing operations were
Services & Support Results
Services & Support sales decreased 15% to
Revenues by customer group were as follows:
Services & Support Revenue by
Customer Group
2021 2020
Financial $ 1,734,000 $ 633,000
Healthcare 1,012,000 887,000
Education 273,000 4,483,000
Other commercial clients 3,991,000 2,075,000
CSI IT operations 473,000 699,000
$ 7,483,000 $ 8,777,000 Revenues by revenue type were as follows:
Services & Support Revenue by Type
2021 2020
Project & product revenue $ 1,168,000 $ 5,120,000
Services & support revenue 6,315,000 3,657,000
$ 7,483,000 $ 8,777,000 Revenues from the education sector decreased
Revenue from small to medium businesses, which are primarily healthcare,
financial and commercial clients, increased by 87% or
Gross profit decreased 2% to
Selling, general and administrative expenses increased 18% in 2021 to
Services & Support reported an operating loss of
35
--------------------------------------------------------------------------------
Other
"Other" includes non-allocated corporate overhead costs that are not considered discontinued operations. Other corporate costs increased by$1,808,000 primarily due to outside legal and financial consulting costs related to the previously announced Pineapple Energy merger. Income Taxes The Company's loss from continuing operations before income taxes was$8,154,000 in 2021 compared to a loss from continuing operations before income taxes of$4,693,000 in 2020. The Company recorded net income of$2,974,000 , driven by the gain on the sale of the Company's E&S segment, compared to a net loss of$172,000 for 2020. The Company's effective income tax rate was (0.3%) in 2021 compared to (0.3%) in 2020. The 2021 effective rate differed from the standard rate of 21% primarily due to the valuation allowances related to deferred tax assets, along with the impact of state income taxes, foreign tax rate differences, foreign losses not deductible forU.S. income tax purposes, and provisions for interest charges for uncertain income tax positions. As ofDecember 31, 2021 , the Company had a federal net operating loss carryforward from 2015 through 2020 activity of approximately$10,008,000 that is available to offset future taxable income and begins to expire in 2035. See Note 13 for a reconciliation of the standard tax rate to the Company's effective tax rate for 2021 and 2020. Effects of Inflation
Inflation has not had a significant effect on operations in recent years. The Company does not have long-term production or procurement contracts and has historically been able to adjust pricing and purchasing decisions to respond to inflationary pressures.
Liquidity and Capital Resources
As of
The Company had working capital of
Cash flow used in operating activities was approximately
Cash provided by investing activities was
Net cash used by financing activities was
In the opinion of management, based on the Company's current financial and operating position and projected future expenditures, sufficient funds are available to meet the Company's anticipated operating and capital expenditure needs.
If the merger is approved by CSI shareholders and the merger is consummated, the combined company will be subject to the risks set forth under Item 1A - Risk Factors - "Risks Related to the Combined Company Following Consummation of the Merger." Among these risks, the combined company needs to obtain substantial additional financing arrangements to provide working capital and growth capital and if financing is not available to it on acceptable terms when needed, its ability to continue to grow its business would be materially adversely impacted.
36
--------------------------------------------------------------------------------
New Accounting Pronouncements
See Note 1 of the "Notes to the Consolidated Financial Statements" under Item 8 herein for a discussion of new accounting standards.
Off Balance Sheet Arrangements
None.
© Edgar Online, source
