What changed in this filing

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Item 9A. Controls and Procedures

2020-12-28 compared with 2019-12-10 · 595 added, 563 removed, 734 unchanged (61% of the section changed)

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Disclosure Controls and Procedures.

The Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2019.

The Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of September 30, 2020.

Our Chief Executive Officer, our Chief Financial Officer and other members of our senior management team supervised and participated in this evaluation.

The term “disclosure controls and procedures,”

as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s ("SEC") rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s ("SEC") rules and forms.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2019, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.

As defined in Rule 13a‑15(f) under the Exchange Act, internal control over financial reporting is a process designed by or under the supervision of a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective.

This is due to the fact that we are not yet able to conclude that the material weakness described in this Item 9A has been remediated by the changes we made in response to that material weakness.

Management’s Report on Internal Control over Financial Reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.

As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by or under the supervision of a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

It includes those policies and procedures that:

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● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of a company are being made only in accordance with authorizations of management and the board of directors of a company;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on its financial statements.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2019.

In making its assessment of internal control, management used the criteria described in “Internal Control-Integrated Framework”

issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission.

As a result of its assessment, management has concluded that the Company’s internal control over financial reporting was effective as of September 30, 2019.

● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on its financial statements.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020.

In making its assessment of internal control, management used the criteria described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission.

As a result of its assessment, management has concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2020.

As of September 30, 2020, management has identified a material weakness.

As defined in Rule 12b-2 under the Exchange Act, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected in a timely basis.

The material weakness noted is in connection with internal controls over the revenue recognition process, specifically the failure to properly identify whether the Company was to be considered the principal or the agent in certain transactions.

We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether the Company is acting as a principal party to the transaction or acting as an agent or broker based on control and timing of the goods/services.

The Company is a principal if it controls the good or service before that good or service is transferred to the customer.

We record revenue as gross when the Company is a principal party to the arrangement and net of cost when we are acting as a broker or agent.

Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold.

Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction.

Third-party service contracts are sold in different combinations with hardware, software, and services.

When the Company is an agent, revenue is typically recorded at a point in time.

When the Company is the principal, revenue is recognized over the contract term.

The control failure was identified during the preparation of the fiscal year 2020 consolidated financial statements.

The Company does business with many manufacturers and distributors.

Included among the Company’s controls in the revenue recognition process are the review of key words in the item description and stock-keeping unit (“SKU”) to identify items which are consistent with the Company’s role as principal or agent followed by a judgmental review by sales and financial management, as necessary.

During 2020, we determined that the design of these controls needed to be improved and the controls themselves were not operating effectively on a consistent basis.

The primary control failure related to the key words identifying certain items where the Company was the principal, but the item was incorrectly recorded on a net basis.

See Note 1 and Note 20 for details of the revision.

We determined that controls over the revenue recognition process were not operating effectively and the resulting control gap amounted to a material weakness in our controls over financial reporting.

As a result, we concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2020.

Although we have implemented changes to our internal controls over financial reporting as described below, at this time we cannot conclude that the material weakness has been remediated.

During the period following our initial identification of the material weakness referred to above, management assessed various alternatives to remediate this material weakness and we implemented changes to our system of internal controls.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls

may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This Annual Report on Form 10‑K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2019 was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that call for the Company to provide only management’s report in this Annual Report on Form 10‑K.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020 was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that call for the Company to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting.

During the quarter ended September 30, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We did, however, note that certain controls were not operating correctly as described above.

Other Information

Directors, Executive Officers and Corporate Governance

We incorporate the information required by this item by reference to the sections captioned “Nominees for Election”, “Our Board of Directors”, “Our Executive Officers”, “Section 16(a) Beneficial Ownership Reporting Compliance”

and “Corporate Governance”

in our Schedule 14A Proxy Statement for our 2020 Annual Meeting of Stockholders, to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2019.

We incorporate the information required by this item by reference to the sections captioned “Nominees for Election”, “Our Board of Directors”, “Our Executive Officers”, “Delinquent Section 16(a) reports” and “Corporate Governance” in our Schedule 14A Proxy Statement for our 2021 Annual Meeting of Stockholders, to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2020.

Executive Compensation

We incorporate the information required by this item by reference to the sections captioned “Compensation of Executive Officers”

and “Compensation of Non-Employee Directors”

in our Schedule 14A Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2019.

We incorporate the information required by this item by reference to the sections captioned “Compensation of Executive Officers” and “Compensation of Non-Employee Directors” in our Schedule 14A Proxy Statement for our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2020.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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The equity compensation plans approved by our stockholders consist of the CSP, Inc.

1997 Incentive Stock Option Plan, the 2003 Stock Incentive Plan, the 2007 Stock Incentive Plan, the 2014 Employee Stock Purchase Plan (the "ESPP") and the 2015 Stock Incentive Plan.

In fiscal 2019 and 2018, the Company granted to certain key employees, certain officers including its Chief Executive Officer and non-employee directors’

shares of non-vested common stock instead of stock options.

The vesting periods for the key employees’, officers’, the Chief Executive Officer’s and the non-employee directors’

non-vested stock awards are four years, three years and one year, respectively.

The following

table sets forth information as of September 30, 2019 regarding the total number of securities outstanding under these equity compensation plans.

1997 Incentive Stock Option Plan, the 2003 Stock Incentive Plan, the 2007 Stock Incentive Plan, the 2014 Employee Stock Purchase Plan (the "ESPP") and the 2015 Stock Incentive Plan.

In fiscal 2020 and 2019, the Company granted to certain key employees, certain officers including its Chief Executive Officer and non-employee directors’ shares of non-vested common stock instead of stock options.

The non-vested common stock has a four-year vesting period for key employees, officers including the Chief Executive Officer.

There is a one-year vesting period for the non-employee directors.

The following table sets forth information as of September 30, 2020 regarding the total number of securities outstanding under these equity compensation plans.

Number of securities

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(3) Includes 223,965 shares available for future issuance under the stock incentive and stock option plans and 64,731 under the ESPP.

We incorporate additional information required by this Item by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management”

in our Schedule 14A Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2019.

We incorporate additional information required by this Item by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in our Schedule 14A Proxy Statement for our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2020.

Certain Relationships and Related Transactions and Director Independence

We incorporate the information required by this item by reference to the section captioned “Corporate Governance”

in our Schedule 14A Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2019.

We incorporate the information required by this item by reference to the section captioned “Corporate Governance” in our Schedule 14A Proxy Statement for our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2020.

Principal Accountant Fees and Services

We incorporate the information required by this item by reference to the sections captioned “Fees for Professional Services”

and “Pre-approval Policies and Procedures”

in our Schedule 14A Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2019.

We incorporate the information required by this item by reference to the sections captioned “Fees for Professional Services” and “Pre-approval Policies and Procedures” in our Schedule 14A Proxy Statement for our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2020.

Exhibits and Financial Statement Schedules

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Consolidated Statements of Operations for the years ended September 30, 2020 and 2019

Consolidated Statements of Comprehensive Income for the years ended September 30, 2019 and 2018

Consolidated Statements of Shareholders’

Equity for the years ended September 30, 2019 and 2018

Consolidated Statements of Comprehensive Loss for the years ended September 30, 2020 and 2019

Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended September 30, 2020 and 2019

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December 20, 2012

Description of Securities

Form of Employee Invention and Non-Disclosure Agreement

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June 27, 2018

Note, dated as of April 17, 2020, by, and between Paragon Bank and CSP, Inc.

April 23, 2020

Note, dated as of April 17, 2020, by, and between Paragon Bank and Modcomp, Inc.

April 23, 2020

Consent of RSM LLP, Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of CSP Inc.

and Subsidiaries (the “Company”) as of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders’

equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

and Subsidiaries (the “Company”) as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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/s/ RSM US LLP

We have served as the Company’s auditor since 2007.

Boston, Massachusetts

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Accounts receivable, net of allowances of $181 and $138

Unbilled accounts receivable

Investment in lease, net-current portion

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Property, equipment and improvements, net

Other assets:

Operating lease right-of-use assets

Intangibles, net

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Cash surrender value of life insurance

Total other assets

LIABILITIES AND SHAREHOLDERS’

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

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Line of credit

Note payable - current portion

Notes payable - current portion

Deferred revenue

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Pension and retirement plans

Note payable - noncurrent portion

Notes payable - noncurrent portion

Operating lease liabilities - noncurrent portion

Income taxes payable

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Total liabilities

Commitments and contingencies

Shareholders’

Shareholders’ equity:

Common stock, $.01 par value per share;

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Accumulated other comprehensive loss

Total shareholders’

Total liabilities and shareholders’

Total shareholders’ equity

Total liabilities and shareholders’ equity

See accompanying notes to consolidated financial statements.

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Other income (expense):

Foreign exchange gain

Other income, net

Total other income

Foreign exchange (loss) gain

Interest expense

Interest income

Other income, (expense) net

Total other income (expense)

Loss before income taxes

Income tax (benefit) expense

Net loss from continuing operations

Discontinued operations:

Gain from sale of discontinued operations

Loss from discontinued operations

Net income from discontinued operations

Net (loss) income

Net (loss) income attributable to common stockholders

Net loss from continuing operations per share –

Gain per share from sale of discontinued operations - basic

Net loss from discontinued operations per share –

Total income per share of discontinued operations - basic

Net (loss) income per share –

Weighted average shares outstanding –

Net loss from continuing operations per share –

Gain per share from sale of discontinued operations - diluted

Net loss from discontinued operations per share –

Total income per share of discontinued operations - diluted

Net (loss) income per share –

Weighted average shares outstanding –

Income tax expense (benefit)

Net loss attributable to common stockholders

Net loss per share – basic

Weighted average shares outstanding – basic

Net loss per share – diluted

Weighted average shares outstanding – diluted

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands)

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September 30,

Net (loss) income

Other comprehensive income (loss):

Unrealized actuarial (loss) gain on minimum pension liability, net of tax effect

Foreign currency translation loss adjustments

Other comprehensive loss

Total comprehensive (loss) income

Unrealized actuarial gain (loss) on minimum pension liability, net of tax effect

Foreign currency translation gain (loss) adjustments

Other comprehensive gain (loss)

Total comprehensive loss

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’

For the Year Ended September 30, 2019 and 2018:

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Years Ended September 30, 2020 and 2019:

(Amounts in thousands)

comprehensive

Shareholders’

For the year ended September 30, 2019:

Balance as of September 30, 2018

Comprehensive income:

Adoption of ASU 2014-09

Other comprehensive loss

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comprehensive

Shareholders’

For the year ended September 30, 2020:

Balance as of September 30, 2019

Comprehensive income:

Adoption of ASU 2014-09 (see note 1)

Other comprehensive loss

Other comprehensive income

Exercise of stock options

Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

Issuance of shares under employee stock purchase plan

Purchase of common stock

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

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September 30,

Cash flows used in operating activities:

Net loss from continuing operations

Net income from discontinued operations

Net (loss) income

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

Operating activities

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

Amortization of intangibles

Loss on disposal of property, equipment and improvements

Gain on sale of discontinued operations

Foreign exchange gain

Loss on sale of fixed assets, net

Foreign exchange loss (gain)

Non-cash changes in accounts receivable

Non-cash changes in inventories

Non-cash lease expense

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

Deferred income taxes

(Increase) decrease in cash surrender value of life insurance

Increase in cash surrender value of life insurance

Non-cash other

Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable

Decrease (increase) in life insurance receivable

Increase in inventories

Decrease (increase) in refundable income taxes

Increase in other assets and deferred costs

Decrease (increase) in investment in lease

Increase in long term receivable

Increase (decrease) in accounts payable and accrued expenses

Increase in deferred revenue

Decrease (increase) in accounts receivable

Decrease in life insurance receivable

Decrease (increase) in inventories

Increase in refundable income taxes

Increase in operating lease right-of-use assets

Decrease (increase) in other assets

Decrease in investment in lease

Decrease (increase) in long-term receivable

(Decrease) increase in accounts payable and accrued expenses

Increase in operating lease liabilities

Increase (decrease) in deferred revenue

Decrease in pension and retirement plans liabilities

(Decrease) increase in income taxes payable

Decrease in income taxes payable

(Decrease) increase in other long-term liabilities

Net cash used in operating activities of continuing operations

Net cash provided by operating activities of discontinued operations

Net cash provided by (used in) operating activities

Cash flows used in investing activities:

Investing activities

Life insurance premiums paid

Proceeds from sale of discontinued operations

Purchases of property, equipment and improvements

Net cash provided by (used in) investing activities of continuing operations

Net cash used in investing activities of discontinued operations

Net cash provided by (used in) investing activities

Cash flows used in financing activities:

Net cash used in investing activities

Financing activities

Dividends paid

Net borrowings under line-of-credit agreement

Net payments under line-of-credit agreement

Proceeds from debt

Principal payments on capital leases

Repayments on debt

Principal payments on finance leases

Purchase of common stock

Proceeds from issuance of shares under equity compensation plans

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effects of exchange rate on cash

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents beginning of period

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Supplementary non-cash financing and investing activities:

Obtaining a right-of-use asset in exchange for a lease liability

Non-cash purchases of property and equipment

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Organization and Business

("CSPi" or "CSPI" or "the Company" or "we" or "our") was founded in 1968 and is based in Lowell, Massachusetts.

("CSPi"

or "CSPI"

or "the Company"

or "we"

or "our") was founded in 1968 and is based in Lowell, Massachusetts.

To meet the diverse requirements of commercial and defense customers worldwide, CSPI and its subsidiaries develop and market IT integration solutions, advanced security products, managed IT services, purpose built network adapters, and high-performance cluster computer systems.

The Company operates in two segments, its High Performance Products ("HPP") segment and its Technology Solutions ("TS") segment.

The Company operates in two segments, its Technology Solutions ("TS") segment and its High Performance Products ("HPP") segment.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying audited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America and the rules and regulations of the Securities and Exchange Commission.

For additional information, these Consolidated Financial Statements should be read in conjunction with CSPI’s notes to the Consolidated Financial Statements for the years ended September 30, 2020 and 2019.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.

All significant inter-company accounts and transactions have been eliminated.

Certain prior year amounts have been reclassified for consistency with the current period presentation.

These reclassifications had no effect on the reported results of operations.

All significant intercompany accounts and transactions have been eliminated.

Foreign Currency Translation

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The financial information for entities outside the United States is measured using the local currency as the functional currency.

Assets and liabilities of the Company’s foreign operations are translated into U.S.

dollars at the exchange rates in effect at the balance sheet date.

Revenue and expenses are translated at average rates in effect during the period.

The resulting translation adjustment is reflected as accumulated other comprehensive loss, a separate component of shareholders’

equity on the consolidated balance sheets.

The resulting translation adjustment is reflected as accumulated other comprehensive loss, a separate component of shareholders’ equity on the consolidated balance sheets.

Currency transaction gains and losses are recorded as other income (expense) in the consolidated statements of operations.

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Management assesses the recoverability of the long-lived assets (other than goodwill) by comparing the estimated undiscounted cash flows associated with the related asset or group of assets against their respective carrying amounts.

The amount of impairment, if any, is calculated based on the excess of the carrying amount over the fair value of those assets.

The amount of impairment, if any, is calculated based on the excess of the carrying amount over the fair value of those

Intangible assets that are not subject to amortization are also required to be tested annually, or more frequently if events or circumstances indicate that the asset may be impaired.

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The remaining useful lives of intangible assets are evaluated on an annual basis.

Intangible assets subject to amortization are

also tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Intangible assets subject to amortization are also tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

If the fair value of an intangible asset subject to amortization is determined to be less than its carrying value, then an impairment charge is recorded to write down that asset to its fair value.

Investment in lease, net

A lease receivable for equipment is recorded at lease inception, which includes future minimum lease payments at present value using the implicit interest rate, net of unearned interest income.

Interest income is recognized on a monthly basis utilizing the effective-interest method.

Interest income is recorded in revenue as equipment leasing is part of the Company’s central operations.

There was no impairment as of September 30, 2020.

Leases as Lessee

At the inception of an arrangement, the Company determines whether the arrangement contains a lease.

This includes arrangements with goods and services to determine if there is an embedded lease.

An arrangement containing a lease would allow the Company the right to control an implicitly or explicitly identified asset.

If there is a lease in an arrangement, the classification is determined at inception of the arrangement.

Certain leases may contain transfer of ownership or an option to purchase the underlying asset.

The most relevant criterion for our lease classification is transfer of ownership, which if included in the arrangement makes the lease a finance lease rather than an operating lease.

The discount rate used to assess classification is the incremental borrowing rate at the commencement date due to the implicit rate not being readily determinable.

The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

The lease term includes periods where we are reasonably certain we will exercise the renewal option.

The Company has elected not to apply Subtopic ASC 842-25 to short-term leases, which are defined as a lease that has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Therefore, there are no right-of-use assets or lease liabilities related to short-term leases in the Consolidated Balance Sheets and the lease payments are expensed on a straight-line basis over the lease term.

Leases are typically not able to be terminated without penalty.

None of our lease arrangements contain residual value guarantees, restrictions, or covenants.

None of the Company’s current leases are with related parties.

In fiscal year 2020 the office lease in Lowell, Massachusetts was renewed through February 2022.

Additionally, the office lease in Deerfield Beach, FL was renewed through June 2025.

The right-of-use asset and lease liability was adjusted for the Lowell lease.

The Deerfield Beach lease renewal period was included in the right-of-use asset and lease liability upon adoption of ASC 842 on October 1, 2019 because it was reasonably certain this renewal period would be exercised by the Company.

There are no lease arrangements that we have entered into as of September 30, 2020 that have not yet commenced.

See Note 9 Leases for additional information.

Operating leases

The Company has operating leases for office space, data centers, and other information technology equipment under various leases.

Operating lease right-of-use assets and liabilities are recognized at the commencement date using the present value of the fixed lease payments over the lease term.

We do not have leases with variable consideration.

The incremental borrowing rate is used in determining present value.

Certain operating leases, primarily office space and IT equipment, have an option to extend the lease.

Renewal periods related to certain lease agreements related to office buildings are included in the lease term for lease accounting.

The Company has operating lease agreements with lease components (e.g.

fixed payments including rent, real estate taxes, and insurance costs) as well as nonlease components (e.g.

common-area maintenance, colocation services).

The Company has elected to account for lease and nonlease components as one single lease component for all classes of assets.

Lease expense is recognized on a straight-line basis over the lease term.

Finance leases

The Company has finance leases for information technology equipment and subleases all this equipment (see Lessor section below for details).

All finance leases transfer ownership to the Company, which meets the criterion to be a finance lease.

Due to our finance leases being subleases, there are no finance right-of-use assets because instead there is a net investment in lease in the Consolidated Balance Sheets.

Leases as Lessor

The Company is a lessor, but only as a sublessor.

The process for identifying and classifying a lease is similar to the process described above in the lessee section.

Additionally, the most relevant criteria to classification is transfer of ownership and present value of the total lease payments in relation to fair value of the underlying asset.

The Company as a lessor has both sales-type and direct financing leases.

The Company as a lessor does not have operating leases.

All the Company’s sublease agreements are bundled agreements containing managed services, software, and other services.

The fixed payments under bundled agreements are allocated based on the relative standalone selling prices of the lease and non-lease deliverables are consistent with ASC 606.

The allocation of the fixed payments may be calculated using a budgeted cost-plus margin approach if there are other services in addition to managed services.

Due to the complex nature of these contracts, there is significant judgment in allocating the fixed payments.

There is no variable consideration in these agreements.

The discount rate used as a lessor pertaining to the lease component is the implicit rate.

As sublessor, lease agreements contain an option to purchase the underlying asset or transfers ownership at the end of the lease.

The leases typically do not have any residual value to the Company.

In the Company’s sublessor agreements, the payments allocated to the lease component cannot be terminated.

There were no new agreements where the Company was a lessor for the year ended September 30, 2020.

See Note 9 Leases for additional information.

Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method.

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Repairs and maintenance costs are expensed as incurred.

Property, equipment and improvements are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

If the fair value of property, equipment and improvements is determined to be less than their carrying value, then an impairment charge is recorded to write down that asset to its fair value.

Trade Accounts Receivable, Long Term Receivable, and Allowance for Doubtful Accounts

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Interest income earned on these receivables is recognized using the effective interest method.

See Note 3 Accounts and Long Term Receivables.

See Note 2 Accounts and Long-Term Receivables for further details on financing arrangements.

Pension and Retirement Plans

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Additionally, plan assets and obligations are measured as of our fiscal year-end balance sheet date (September 30).

We have defined benefit and defined contribution plans in the United Kingdom (the “U.K.”) and in the U.S.

the Company provides defined benefit pension plans for certain employees and former employees and defined contribution plans for the majority of the employees.

The defined benefit plan in the U.K.

is closed to newly hired

employees and has been for the two years ended September 30, 2019.

is closed to newly hired employees and has been for the two years ended September 30, 2020.

In the U.S., the Company also provides defined contribution plans that cover most employees and supplementary retirement plans to certain employees and former employees who are now retired.

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In the U.S., the Company also provides for officer death benefits and post-retirement health insurance benefits through supplemental post-retirement plans to certain officers.

The Company also funds these supplemental plans’

obligations through whole life insurance policies on the officers.

The Company also funds these supplemental plans’ obligations through whole life insurance policies on the officers.

Pension expense is based on an actuarial computation of current future benefits using estimates for expected return on assets, expected compensation increases and applicable discount rates.

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We have two operating segments:

(i) High Performance Products ("HPP") and (ii) Technology Solutions ("TS").

(i) Technology Solutions ("TS") and (ii) High Performance Products ("HPP").

In the TS segment, we focus on value added reseller ("VAR") integrated solutions including third party hardware, software and technical computer-related consulting and managed services.

In the HPP segment, we design, manufacture and deliver products and services to customers that require specialized cyber security services, networking and signal processing products.

In the TS segment, we focus on value added reseller ("VAR") integrated solutions including third party hardware, software and technical computer-related consulting and managed services.

The operations and assets of our HPP segment are located in the United States.

The operations and assets of our TS segment are located in the United States and the United Kingdom.

The operations and assets of our HPP segment are located in the United States.

Revenue Recognition

Effective October 1, 2018, the Company adopted ASU No.

2014‑09, Revenue from Contracts with Customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

See below for effects of initial adoption.

The following reflects the accounting policy change for revenue starting on the date of adoption:

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

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Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold.

Under net sales recognition, the cost

to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction.

Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction.

Third-party service contracts are sold in different combinations with hardware, software, and services.

We have determined the third-party services contracts are a single performance obligation in each sale.

When the Company is an agent, revenue is typically recorded at a point in time.

When the Company is the principal, revenue is recognized over the contract term.

We have concluded we are the agent in sales of third-party maintenance, software or hardware support, and certain security software that is sold with integral third-party delivered software maintenance that include critical updates.

Professional services generally include implementation, installation, and training services.

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Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement.

The lease components include the hardware and software, which are subject to ASC 840.

The non-lease component includes the managed services and is subject to ASC 606.

The lease component includes hardware, which is subject to ASC 842, Leases .

The non-lease components are subject to ASC 606, Revenue from Contracts with Customers .

Other services generally include revenue generated through our royalty, extended warranty, multicomputer repair, and maintenance contracts.

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TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software.

Financing revenue is recognized in accordance with ASC 840, Leases .

Financing revenue is recorded in revenue as equipment leasing and is part of the Company’s operations.

Financing revenue pertaining to the portion of an arrangement containing a lease is recognized in accordance with ASC 842.

Financing revenue related to the lease is recorded in revenue as equipment leasing is part of the Company’s operations.

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

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Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products’ functionality, and post contract maintenance and support.

Post contract maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation.

Post contract

maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation.

See disaggregated revenues below by products/services and geography.

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(Amounts in thousands)

Technology Solutions Segment

For the year ended September 30,

(Amounts in thousands)

* Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers (ASC 606).

Significant Judgments

Allocating transaction price with agreements with multiple components including leasing and/or a financing component

A financing component exists when at contract inception the period between the transfer of a promised good and/or service to the customer differs from when the customer pays for the good and/or service.

As a practical expedient, the Company has elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less.

Certain contracts contain a financing component including managed services contracts with financing of hardware and software.

The interest rate used reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement.

The lease component includes hardware, which is subject to ASC 842, Leases .

The non-lease components are subject to ASC 606, Revenue from Contracts with Customers .

When product and non-managed services are sold together, the allocation of the transaction price to each performance obligation is calculated based on the estimated relative selling price or a budgeted cost-plus margin approach, as appropriate.

Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price.

These estimates are periodically reviewed by project managers, engineers, and other staff involved to

ensure estimates are appropriate.

For items sold separately, including hardware, software, professional services, maintenance contracts, other services, and third-party service contracts, there is no allocation as there is one performance obligation.

Professional Services Sold Without Products

The input method using labor hours expended relative to the total expected hours is used to recognize revenue for professional services.

Only the hours that depict the Company’s performance toward satisfying a performance obligation are used for progress.

An estimate for professional services is made at the beginning of each contract based on prior experience and monitored throughout the services.

This method is most appropriate as it depicts the measure of progress towards satisfaction of the performance obligation.

When product and services are sold together, the allocation of the transaction price to each performance obligation is calculated using a budgeted cost-plus margin approach.

Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price.

These estimates are periodically reviewed by project managers, engineers, and other staff involved to ensure estimates are appropriate.

Gross versus Net Revenue

We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether the Company is acting as a principal party to the transaction or simply acting as an agent or broker based on control and timing of the goods/services.

The Company is a principal if it controls the good or service before that good or service is transferred to the customer.

We record revenue as gross when the Company is a principal party to the arrangement and net of cost when we are acting as a broker or agent.

Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold.

Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction.

Third-party service contracts are sold in different combinations with hardware, software, and services.

When the Company is an agent, revenue is typically recorded at a point in time when the sale is complete.

When the Company is the principal, revenue is recognized over the contract term.

Contract Assets and Liabilities

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When the Company has the right to bill a customer, accounts receivable is recorded as an unconditional right exists.

Current contract assets were $0.6 million and $1.1 million as of September 30, 2019 and October 1, 2018, respectively.

Current contract assets were $1.0 million and $0.6 million as of September 30, 2020 and September 30, 2019, respectively.

The current portion is recorded in other current assets on the consolidated balance sheets.

There were no non-current contract assets as of September 30, 2019 and October 1, 2018.

There were no non-current contract assets as of September 30, 2020 and 2019.

The difference in the balances is due to regular timing differences between when work is performed and having an unconditional right to payment.

Contract liabilities arise when payment is received before the Company transfers a good or service to the customer.

Current contract liabilities were $0.7 million and $0.9 million as of September 30, 2019 and October 1, 2018, respectively.

Current contract liabilities were $0.9 million and $0.7 million as of September 30, 2020 and 2019, respectively.

The current portion of contract liabilities is recorded in deferred revenue on the consolidated balance sheets.

The long-term portion of contract liabilities were $0.3 million as of September 30, 2019.

There were none at October 1, 2018.

The long-term portion of contract liabilities were $0.2 million and $0.3 million as of September 30, 2020 and 2019, respectively.

These non-current liabilities are recorded in other noncurrent liabilities.

1 unchanged sentence

Contract Costs

Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are less than a one-year period, are expensed as incurred, utilizing the practical expedient in ASC 340‑40‑25‑4 .

For a period greater than one year, incremental contract costs are capitalized if the Company

expects to recover these costs.

These costs are only capitalized if the contract is obtained.

Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are equal to or less than a one-year period, are expensed as incurred, utilizing the practical expedient in ASC 340-40-25-4 .

For a period greater than one year, incremental contract costs are capitalized if the Company expects to recover these costs.

The costs are amortized over the contract term and expected renewal periods.

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Incremental costs are related to commissions in the TS portion of the business.

Current capitalized contract costs are within the account other current assets on the consolidated balance sheets for the periods ended September 30, 2019 and September 30, 2018.

The portion of current capitalized costs was $85 thousand and $71 thousand as of September 30, 2019 and October 1, 2018, respectively.

There are no non-current capitalized costs on the consolidated balance sheets.

The amount of incremental costs amortized for the year ended September 30, 2019 was $235 thousand, which is recorded in selling, general, and administrative expenses.

There was no impairment related to incremental costs capitalized during the year ended September 30, 2019.

Current capitalized contract costs are within the other current assets on the consolidated balance sheets as of September 30, 2020 and 2019.

The portion of current capitalized costs were $130 thousand and $85 thousand as of September 30, 2020 and September 30, 2019, respectively.

There are no non-current capitalized costs on the

consolidated balance sheets as these commissions are paid annually even when the contract extends beyond a one-year period.

The amount of incremental costs amortized for the year ended September 30, 2020 and 2019 were $332 thousand and $235 thousand, respectively.

This is recorded in selling, general, and administrative expenses.

There was no impairment related to incremental costs capitalized during the year ended September 30, 2020 and 2019.

Costs to fulfill a contract are capitalized when the costs are related to a contract or anticipated contract, generate or enhance resources that will be used in satisfying performance obligations in the future, and costs are recoverable.

Costs to fulfill a contract are related to the TS portion of the business and involve activities performed before managed services can be completed.

Current capitalized fulfillment costs are in the account other current assets on the consolidated balance sheets.

The portion of current capitalized costs was $47 thousand and $60 thousand as of September 30, 2019 and October 1, 2018, respectively.

There are no non-current capitalized fulfillment costs on the consolidated balance sheets.

The amount of fulfillment costs amortized for year ended September 30, 2019 was $13 thousand, which is recorded in cost of sales.

Current capitalized fulfillment costs are in the other current assets and noncurrent costs are in other assets on the consolidated balance sheets.

The portion of current capitalized costs were $13 thousand and $47 thousand as of September 30, 2020 and 2019, respectively.

The portion of noncurrent capitalized costs were $22 thousand as of September 30, 2020 and there were not any as of September 30, 2019.

The amount of fulfillment costs amortized for the year ended September 30, 2020 and 2019 was $13 thousand and $13 thousand, respectively.

These costs are recorded in cost of sales.

There was no impairment related to fulfillment costs capitalized.

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Payment terms are typically 30 days to pay in full except in Europe where it could be up to 90 days.

Most of the Company’s contracts are less than one year.

There are certain contracts that do contain a financing component.

See Note 3 to the consolidated financial statements for additional information.

See Note 2 Accounts and Long-Term Receivables to the consolidated financial statements for additional information.

The Company elected to use the optional exemption to not disclose the aggregate amount of the transaction price allocated to performance obligations that have an original expected duration of one year or less.

This is due to a low amount of performance obligations less than one year being unsatisfied at each period end.

This is due to a low amount of performance obligations, which are less than one year from being unsatisfied at each period end.

Most of these contracts are related to product sales.

The Company has certain contracts that have an original term of more than one year.

The royalty agreement is longer than one year and managed service contracts are generally longer than one year.

For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of September 30, 2019 is mainly related to managed service contracts and is set forth in the table below:

The royalty agreement is longer than one year, but not included in the table below as the royalties are sales-based.

Managed service contracts are generally longer than one year.

(Amounts in thousands)

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Estimated warranty costs are based upon prior actual warranty costs for substantially similar products.

See Note 10 Product Warranties for balances as of September 30, 2020 and 2019.

Engineering and Development Expenses

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Engineering and development expenses also include third-party development and programming costs.

We consider technological feasibility for our software products to be reached upon the release of the software, accordingly, no internal software development costs have been capitalized.

We consider technological feasibility for our software products

to be reached upon the release of the software, accordingly, no internal software development costs have been capitalized.

We use the asset and liability method of accounting for income taxes whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are recognized.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions.

The Company records liabilities for estimated tax obligations in the U.S.

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Diluted net income 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 by the assumed weighted average number of common shares outstanding.

We are required to present earnings per share ("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 attributable to common stockholders are as follows:

For the years ended

We are required to present earnings per share ("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 year ended

September 30, 2020

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(Amounts in thousands except per share data)

Loss from continuing operations

Gain from sale of discontinued operations

Loss from discontinued operations

Total income from discontinued operations

Net (loss) income

net income attributable to nonvested common stock

Net (loss) income attributable to common stockholders

Weighted average total shares outstanding –

weighted average non–vested shares outstanding

Weighted average number of common shares outstanding –

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

Weighted average common shares outstanding –

Net loss from continuing operations per share –

Net income from discontinued operations per share –

Net (loss) income share –

Net (loss) from continuing operations per share –

Net income from discontinued operations per share –

Net (loss) income per share –

net loss attributable to nonvested common stock

Net loss attributable to common stockholders

Weighted average total shares outstanding – basic

weighted average non–vested shares outstanding

Weighted average number of common shares outstanding – basic

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

Weighted average common shares outstanding – diluted

Net loss per share – basic

Net loss per share – diluted

All anti-dilutive securities, including stock options, are excluded from the diluted income per share computation.

Non-vested restricted stock awards of 165,000 shares were excluded from net income per share for the year ended September 30, 2018, and their inclusion would have been anti-dilutive.

Non-vested restricted stock awards of 201,000 and 179,000 shares were excluded from net loss per share for the year ended September 30, 2020 and 2019, respectively, because their inclusion would have been anti-dilutive.

Use of Estimates

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The fair value of nonvested restricted share awards is equal to the quoted market price of our common stock as quoted on the Nasdaq Global Market on the date of grant.

The fair value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations.

Because stock-based compensation expense recognized in the consolidated statements of operations for the fiscal years ended September 30, 2019 and 2018 is based on awards ultimately expected to vest, it has been reduced for

estimated forfeitures and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock-based compensation expense recognized for the fiscal years ended September 30, 2019 and 2018 consisted of options and restricted stock granted pursuant to the Company’s stock incentive and employee stock purchase plans of approximately $0.8 million and $0.7 million, respectively.

The fair value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations.

Because stock-based compensation expense recognized in the consolidated statements of operations for the fiscal years ended September 30, 2020 and 2019 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock-based compensation expense recognized for the fiscal years ended September 30, 2020 and 2019 consisted of options and restricted stock granted pursuant to the Company’s stock incentive and employee stock purchase plans of approximately $1.0 million and $0.8 million, respectively.

Concentrations of Credit Risk

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The Company has evaluated subsequent events through the date of this filing.

Accounting standards recently adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2014‑09, Revenue from Contracts with Customers (ASC 606) , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

The standard outlines a five-step model whereby revenue is recognized as performance obligations within a contract are satisfied.

The standard also requires new, expanded disclosures regarding revenue recognition.

The ASU replaces most existing revenue recognition guidance in GAAP.

The new standard was adopted by the Company effective October 1, 2018 using the modified retrospective approach only to contracts that were not completed as of adoption date.

The Company recognized the cumulative effect of initial application as an adjustment to the opening balance of retained earnings.

This resulted in an increase of $158 thousand to retained earnings as of October 1, 2018.

This was primarily due to revenue related to customer support in the HPP segment no longer being deferred, which resulted in a decrease of deferred revenue as part of the cumulative effect.

Additionally, revenue from software sales is no longer being deferred under ASC 606 as recognition is now when control transfers to the customer.

There were no previous period financial statement adjustments.

The effects of ASC 606 adoption for the Company for the condensed consolidated statements of operations and balance sheet are as follows:

Year ended September 30, 2019

(Amounts in thousands, except per share amounts)

Total cost of sales

Operating loss

Income tax benefit

Net loss attributable to common stockholders

Basic earnings per share

Diluted earnings per share

As of September 30, 2019

(Amounts in thousands)

Accounts receivable

Unbilled accounts receivable

Other current assets

Deferred tax asset

Deferred revenue

Shareholders' Equity:

Retained Earnings

In May 2016, the FASB issued ASU 2016-01, Financial Instruments –

Overall (Subtopic 825-10), which included updates to the recognition and measurement of financial assets and liabilities.

It also modified the disclosure requirements, which are reflected in Note 19.

The new standard was adopted by the Company effective October 1, 2018 and did not have a material impact on the consolidated financial statements.

In August 2016, the FASB issued ASU No.

2016-15, Classification of Certain Cash Receipts and Cash Payments , an amendment of the FASB Accounting Standards Codification.

This ASU will reduce diversity in practice for classifying cash payments and receipts in the statement of cash flows for a number of common transactions.

It will also clarify when identifiable cash flows should be separated versus classified based on their predominant source or use.

This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

An entity that elects early adoption must adopt all of the amendments in the same period.

The new standard was adopted by the Company effective October 1, 2018 and did not have a material impact on the consolidated financial statements.

In October 2016, the FASB issued ASU No.

2016-16, Intra-Entity Transfers of Assets Other Than Inventory , an amendment of the FASB Accounting Standards Codification.

This ASU requires the seller and buyer to recognize at the transaction date the current and deferred income tax consequences of intercompany asset transfers (except transfers of

Under current GAAP, the seller and buyer defer the consolidated tax consequences of an intercompany asset transfer from the period of the transfer to a future period when the asset is transferred out of the consolidated group, or otherwise affects consolidated earnings.

This standard will cause volatility in companies’

effective tax rates, particularly for those that transfer intangible assets to foreign subsidiaries.

For public entities, the new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017.

An entity may early adopt the standard but only at the beginning of an annual period for which it has not issued or made available for issuance financial statements (interim or annual).

The new standard was adopted by the Company effective October 1, 2018 and did not have a material impact on the consolidated financial statements.

In January 2017, FASB issued ASU No.

2017-01, Business Combinations Clarifying the Definition of a Business (Topic 805) (“ASU No.

2017-01”).

ASU 2017-01 provides a framework to use in determining when a set of assets and activities is a business.

ASU 2017-01 provides more consistency in applying the business combination guidance, reduces the costs of application, and makes the definition of a business more operable.

ASU 2017-01 is effective for interim and annual periods within those annual periods beginning after December 15, 2017.

The new standard was adopted by the Company effective October 1, 2018 and did not have a material impact on the consolidated financial statements.

In March 2017, the FASB issued ASU No.

2017-07, Compensation Retirement Benefits (Topic 715):

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , an amendment of the FASB Accounting Standards Codification.

This ASU requires employers that sponsor defined benefit pension and/or other post-retirement benefit plans to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period.

Employers are required to present the other components of net benefit costs in the income statement separately from the service cost component and outside a subtotal of income from operations.

Additionally, only the service cost component of net periodic pension cost will be eligible for asset capitalization.

For public entities, the new standard is effective for annual periods beginning after December 15, 2017, including interim periods within that annual period.

The new standard was adopted by the Company effective October 1, 2018 and did not have a material impact on the consolidated financial statements.

New accounting standards not adopted as of September 30, 2019

Revision of Prior Period Financial Statements

During the preparation of the consolidated financial statements for the year ended September 30, 2020, we identified an immaterial error in the first three quarters of fiscal year 2020 related to the recognition of certain revenue as “net,” when in fact the revenue should have been recorded on as “gross” basis.

We referred to the Codification of SEC Staff Accounting Bulletins (“SAB”) Topics 1.M Materiality and 1.N Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements to assess the materiality of the misstatements by quarter.

Our analysis included a materiality assessment of both quantitative and qualitative factors.

As a result of evaluating the error, we determined the impact was not material to our financial statements in any prior interim period.

However, management has revised the first three quarters of fiscal year 2020.

A summary of these revisions is presented in Note 20.

Accounting standards adopted in fiscal year 2020

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , an amendment of the FASB Accounting Standards Codification.

This ASU requires lessees to recognize a right-of-use asset and lease liability for most lease arrangements.

The new standard is effective for the Company on October 1, 2019.

The standard mandates a modified retrospective transition method for all entities and early adoption is permitted.

The Company will adopt the new lease guidance using the modified retrospective approach at the period of adoption (October 1, 2019) with no adjustment to prior period disclosures .

A package of three practical expedients that is applicable to all leases as lessee or lessor will be adopted.

This includes not reassessing whether any expired or existing contracts are or contain leases, not reassessing lease classification for any expired or existing leases, and not reassessing initial direct cost for any existing lease under ASC Topic 840.

The Company also elected the practical expedient as a lessee to not separate non-lease components.

A material impact on the Company’s consolidated balance sheet is anticipated due to the recognition of right-of-use assets and lease liabilities for operating leases, which are currently not recorded.

There is no material effect anticipated in the statement of operations.

The Company is evaluating the effect that ASU 2016‑02 will have on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326) , an amendment of the FASB Accounting Standards Codification.

This ASU will change how entities account for credit losses for most financial assets and certain other instruments.

For trade receivables, loans and held-to-maturity debt securities entities will be required to estimate lifetime expected credit losses.

For available-for-sale debt securities entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset.

Additionally, there will be a significant increase in the amount of disclosures by year of origination for certain financing receivables.

For public entities, the new standard is effective for annual periods beginning after December 15, 2019, including interim periods within that annual period.

The Company is evaluating the effect that ASU 2016‑13 will have on its consolidated financial statements and related disclosures.

This ASU requires lessees to recognize a right-of-use asset and lease liability for most lease arrangements, which excludes leases that meet the definition of a short-term lease.

The Company adopted this standard on October 1, 2019 using a modified retrospective transition method with an adjustment to the assets and liabilities on the Consolidated Balance Sheet with no adjustment to any prior period.

Additionally, prior comparative periods were not restated.

A package of three practical expedients that is applicable to all leases as lessee or lessor was adopted.

This includes not reassessing whether any expired or existing contracts contain leases, not reassessing lease classification for any expired or existing leases, and not reassessing initial direct cost for any existing lease under ASC Topic 840.

The Company also elected the practical expedient as a lessee to not separate lease and non-lease components for operating leases.

The statement of operations for year ended September 30, 2020 was not materially affected.

However, there was a material impact on the Company’s consolidated balance sheet as of September 30, 2020 due to the recognition of right-of-use assets and lease liabilities for operating leases.

The initial impact to the balance sheet as a result of the adoption is shown in the following table:

September 30, 2019

October 1, 2019

(In thousands)

Operating lease right-of-use assets

Accounts payable and accrued expenses

Operating lease liabilities - noncurrent portion

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allow a reclassification from accumulated other comprehensive income (loss) (“AOCI”) to retained earnings for stranded tax effects resulting from the change in the U.S.

federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”).

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allow a

reclassification from accumulated other comprehensive income (loss) (“AOCI”) to retained earnings for stranded tax effects resulting from the change in the U.S.

federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”).

The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is evaluating the effect that ASU 2018‑02 will have on its consolidated financial statements and related disclosures.

Beginning October 1, 2019, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements.

In June 2018, the FASB issued ASU No.

5 unchanged sentences

For public entities, the new standard is effective for annual periods beginning after December 15, 2018, including interim periods within that fiscal year.

Beginning October 1, 2019, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements.

New accounting standards not adopted as of September 30, 2020

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) , an amendment of the FASB Accounting Standards Codification.

This ASU will change how entities account for credit losses for most financial assets and certain other instruments.

For trade receivables, loans and held-to-maturity debt securities entities will be required to estimate lifetime expected credit losses.

For available-for-sale debt securities entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset.

Additionally, there will be a significant increase in the amount of disclosures by year of origination for certain financing receivables.

For smaller reporting public entities, the new standard is effective for annual periods beginning after December 15, 2022 (as amended by ASU 2019-10), including interim periods within that annual period.

The Company is evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

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Under this ASU existing disclosures not considered cost beneficial are removed, disclosures identified as relevant are added, and there is added clarification regarding specific existing disclosures.

For public entities, the new standard is effective for annual periods beginning after December 15, 2020.

The Company is evaluating the effect that ASU 2018‑14 will have on its consolidated financial statements and related disclosures.

Discontinued Operations of TS segment

On July 31, 2018, CSPi LTD, a wholly owned indirect subsidiary of the Company, completed its sale of all of the outstanding stock of Modcomp GmbH, to Reply AG, an affiliate of Reply SpA, a holding company for a worldwide group of companies, pursuant to the terms of a Share Purchase and Assignment Agreement dated June 27, 2018.

Modcomp GmbH, dba CSPI GmbH, through itself and its wholly owned subsidiaries, provided managed security services to customers primarily in Germany.

Upon the closing of the Share Purchase Agreement, Reply AG paid to CSPI total cash at closing of approximately $14.4 million, which consisted of the original purchase price of $11.7 million plus an adjustment at closing for Net Cash (as defined in the Share Purchase Agreement) of approximately $2.7 million.

An additional €400 thousand is included in escrow and will be recorded if and when received by the Company.

Accordingly, CSPi determined that the assets and liabilities of this reportable segment met the discontinued operations criteria in U.S.

GAAP in the year ended September 30, 2018.

The gain recorded due to the sale of all the stock of Modcomp GmbH was approximately $16.8 million.

No income taxes were provided as the transaction was a tax-free exchange in the U.K.

As such, Modcomp GmbH’s results have been recorded as discontinued operations in the accompanying consolidated balance sheets and consolidated statements of operations for all periods presented.

Summarized Discontinued Operations Financial Information

As the sale of the subsidiary occurred prior to September 30, 2018 there were no assets or liabilities of discontinued operations in the accompanying consolidated balance sheets for the years ended September 30, 2019 and 2018.

The following table summarizes the results of discontinued operations for the years ended September 30, 2019, and 2018.

For the year ended

September 30,

Cost of sales

Selling, general and administrative expenses

Operating loss

Other expenses

Loss before income taxes

Income tax expense

Loss from discontinued operations

Gain from sale of discontinued operations

Total income from discontinued operations

For public entities, the new standard is effective for annual periods ending after December 15, 2020 and to be applied retrospectively.

The Company is evaluating the effect that ASU 2018- 14 will have on its disclosures.

Accounts and Long-Term Receivable

Within accounts receivable and long-term receivable there are amounts due reflecting sales whose payment terms exceed one year.

This financing is separate from agreements with a leasing component, see Note 4 for financing through leases.

These receivables are included in Accounts Receivable and Long Term Receivable in the amount of $2.1 million and $5.0 million as of September 30, 2019.

The long-term receivable carries a weighted interest rate of 6.9%, which reflects the approximate interest rate consistent with a separate financing transaction with the customer.

The Company did not finance any sales of hardware, software, or services in fiscal year 2018, except for agreements containing a lease which is described in Note 4.

This financing is separate from agreements with a leasing component, see Note 9 Leases for financing through leases.

These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $2.3 million and $3.5 million as of September 30, 2020, respectively.

These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $2.1 million and $5.0 million as of September 30, 2019, respectively.

The receivables with a payment term exceeding one year carry an average weighted interest rate of 6.1% as of September 30, 2020, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

There is not an allowance for credit losses nor impairments for accounts and long-term receivables with a contractual maturity of over one year.

There was also no activity in the allowance for credit losses of these receivables for the year ended September 30, 2019.

All accounts had no past amounts due as of September 30, 2020 or 2019, respectively.

There was no activity in the allowance for credit losses of these receivables for the years ended

September 30, 2020 or 2019, respectively.

All these agreements are looked at as one portfolio in determining credit losses.

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The credit quality of customers is monitored by payment activity.

The unearned income represents a rate similar to market.

The unearned income represents a rate similar to market at the inception of the agreement.

The amount of interest income earned from sales whose payment terms exceed one year for the year ended September 30, 2020 and 2019 was $453 thousand and $75 thousand, respectively.

Interest income from these agreements is recorded in Other income, net on the Consolidated Statements of Operations.

Receivables whose payment terms exceed one year are placed on nonaccrual status, meaning interest income stops being recorded, when the customer has a past due amount in excess of 30 days or reasonable doubt exists in collecting all interest and principal.

A payment due in excess of 30 days is considered delinquent.

If a payment is received for a receivable on nonaccrual status the payment is first applied to interest and then principal.

Recording interest income resumes once no reasonable doubt exists regarding collecting all interest and principal.

Contractual maturities of outstanding financing with an original contractual maturity over one year are as follows:

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Total, net of unearned income

The current portion of $2.1 million is within accounts receivable.

Total long term receivable was $5.3 million at September 30, 2019, which included $5.0 million from financing and $0.3 million that did not have a financing component.

The $0.3 million was recorded as the contract it relates to is noncancelable.

Investment in Lease

Investment in Lease, net

The Company enters into certain agreements where it supplies equipment to be used in a customer’s IT infrastructure in conjunction with the Company providing managed services.

Agreements contain a lease because the customer has a right to use the equipment for a stated period of time.

The leases are either a direct-financing or sales-type.

At lease inception a lease receivable is recorded, which includes future minimum lease payments at present value using the implicit interest rate.

Interest income is recognized on a monthly basis utilizing the effective-interest method.

Interest income from leases is recorded in revenue as equipment leasing is part of the Company’s central operations.

A summary of components for the Company’s investment in lease, net is as follows:

September 30, 2019

September 30, 2018

(Amounts in thousands)

Investment in lease, gross

Unearned income

Total investment in lease, net

Current portion

Noncurrent portion

The schedule of future minimum lease payments receivable is as follows:

Fiscal year ending September 30:

(Amounts in thousands)

Minimum lease payments including interest

Amount representing interest

Minimum lease payments excluding interest

Inventories consist of the following:

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Balance as of September 30, 2020

The changes in the minimum pension liability are net of amortization of net loss of $127 thousand in 2019 and net gain of $151 thousand in 2018 included in net periodic pension cost.

The components of income before income tax and income tax (benefit) expense are comprised of the following:

The changes in the minimum pension liability are net of amortization of net loss of $102 thousand in 2020 and net loss of $127 thousand in 2019 included in net periodic pension cost.

The components of loss before income tax and income tax (benefit) expense are comprised of the following:

For the Years Ended

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(Amounts in thousands)

Income before income tax:

Loss before income tax (benefit) expense

Income tax (benefit) expense:

As of September 30, 2019, management assessed the positive and negative evidence in the U.S.

operations, and estimated we will have sufficient future taxable income to utilize the existing deferred tax assets, except for certain state net operating losses and tax credit carryforwards.

Significant objective positive evidence included the cumulative profits that we realized over the most recent years.

This evidence enhances our ability to consider other subjective evidence such as our projections for future growth.

Other factors we considered are the likelihood for new revenue from cyber security products, continued royalty income in future years, and our expectation that the TS segment will continue to be profitable in future years.

On the basis of this evaluation, as of September 30, 2019, we have concluded that our U.S.

deferred tax asset is more likely than not to be realized.

It should be noted however, that the amount of the deferred tax

asset realized could be adjusted in future years, if estimates of taxable income during the carryforward periods are reduced, or if objective negative evidence in the form of cumulative loses is present.

The recording and ultimate reversal of valuation allowances for our deferred tax asset requires significant judgment associated with past and projected performance.

In assessing the realizability of deferred tax assets, we consider our taxable future earnings and the expected timing of the reversal of temporary differences.

We recorded a valuation allowance which reduced the gross deferred tax asset to an amount that we believed was more likely than not to be realized because of the cumulative losses incurred in the U.K.

in recent years, which represented sufficient negative evidence to record a valuation allowance against certain deferred tax assets.

We continue to maintain a full valuation allowance against our U.K.

deferred tax assets as we have experienced cumulative loses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards.

To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax assets may change.

Reconciliation of federal statutory rate and income tax expense to the Company’s effective tax rate and actual income tax expense is as follows:

The effective income tax rate differed from the statutory federal income tax rate due to the following:

For the Years Ended September 30,

(Dollar amounts in thousands)

Computed “expected”

Computed “expected” tax benefit

Increases (reductions) in taxes resulting from:

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Deferred revenue

Impact of 965 one-time transition tax

Federal tax rate change

Payable true up

Uncertain tax liability adjustment

Research & development credit

Research and development credit

Benefit of US Federal NOL carryback

Income tax (benefit) expense

For the years ended September 30, 2019 and 2018, temporary differences, which give rise to deferred tax assets (liabilities), are as follows:

Significant components of the Company's net deferred tax assets and liabilities as of September 30, 2020 and 2019 are as follows:

September 30,

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Inventory reserves and other

State credits, net of federal benefit

Federal and state tax credits

Federal and state net operating loss carryforwards

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Net deferred tax assets

The deferred tax valuation allowance increased by approximately $241 thousand, which was primarily due to the U.

valuation allowance on the deferred tax asset for certain state net operating losses carryover.

In assessing the realizability of deferred tax assets, the Company considers its taxable future earnings and the expected timing of the reversal of temporary differences.

Accordingly, the Company has recorded a valuation allowance which reduces the gross deferred tax asset to an amount which management believes will more likely than not be realized.

The valuation allowance was determined by assessing both positive and negative evidence whether it is more likely than not that deferred tax assets are realizable.

Such assessment is done on a jurisdiction-by-jurisdiction basis.

The Company's inability to project future profitability in certain states beyond fiscal year 2019 and the cumulative losses incurred in recent years in the U.K.

represent sufficient negative evidence to record a valuation allowance against certain deferred tax assets.

In December 2017, the Tax Cuts and Jobs Act ("Tax Reform Act") was enacted.

The legislation significantly changes U.S.

tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system, expanding the tax base and imposing a tax on deemed repatriated earnings of foreign subsidiaries.

The Tax Reform Act permanently reduces the U.S.

corporate federal income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

The Company has recognized the impact of the Tax Reform Act in these consolidated financial statements and related disclosures in 2018.

The impact of the remeasurement of the Company’s US deferred tax assets and liabilities to 21% resulted in a tax expense of approximately $0.6 million consisting of a reduction of the Company’s net deferred tax asset.

The Company recorded tax expense of approximately $0.8 million related to the deemed repatriation tax.

The Company’s used a blended U.S.

statutory tax rate for fiscal 2018 of 24.28% and in fiscal 2019 the corporate tax rate was 21%.

The Company regularly assesses the need for a valuation allowance against its deferred tax assets.

In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized.

In assessing the realizability of deferred tax assets, we consider taxable income in prior carryback years, as permitted under the tax law, our forecasted taxable earnings, tax planning strategies, and the expected timing of the reversal of temporary differences.

This determination requires significant judgment, including assumptions about future taxable income that are based on historical and projected information and is performed on a jurisdiction-by-jurisdiction basis.

The valuation allowance against deferred tax assets increased by approximately $1,187 thousand for the year ended September 30, 2020, which was primarily due to the recording of a partial valuation allowance against the U.S.

deferred tax assets during the year.

During the period ended September 30, 2020, management assessed the positive and negative evidence in the U.S.

operations, and concluded that it is more likely than not that a portion of its deferred tax assets as of September 30, 2020 will not be realized in light of recent results, the COVID-19 pandemic, and the resulting economic fallout.

In determining the amount of the valuation allowance to record, the Company considered taxable income in prior carryback years for U.S.

federal tax purposes and the reversal of existing taxable temporary differences as sources of taxable income against which a portion of its U.S.

deferred tax assets is benefitted.

The Company recorded a full valuation allowance against the remaining U.S.

deferred tax assets in excess of these sources of taxable income.

We continue to maintain a full valuation allowance against our U.K.

deferred tax assets as we have experienced cumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards.

To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax assets may change.

As of 2019, the Company had U.S.

net operating loss carryforwards for federal purposes of approximately $2 million.

Due to changes in federal tax law enacted as part of the Coronavirus Aid, Relief, and Economic Security Act during fiscal year 2020, the Company is carrying back all of its available federal net operating losses to recover federal taxes paid in prior periods.

As a result, there is no federal net operating loss carryforwards as of September 30, 2020.

As of September 30, 2020 and 2019, the Company had U.S.

net operating loss carryforwards for federal purposes of approximately $2 million and $1 million, respectively, which are available to offset future taxable income

with no expiration.

The Company had U.S.

net operating loss carryforwards for state purposes of approximately $4.8 million and $2.0 million, respectively, which are available to offset future taxable income through 2035.

As of September 30, 2019, the Company had other state tax credit carryforwards of $55 thousand available to reduce future state tax expense which has unlimited carryover status.

As of September 30, 2019, the Company concluded that a net increase of $241 thousand of the valuation allowances for the U.S.

was appropriate.

As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating taxable income in state jurisdictions and its near-term forecasts of future taxable income.

The net increase in the Company’s valuation allowance of $241 thousand is to reserve for certain state net operating losses and state tax credit carryforwards that the Company believes will expire unused.

tax credit carryforwards for federal purposes of $0 and $279

thousand, respectively.

The fiscal year 2020 federal R&D credit and all carried forward credits were applied to offset the current period federal tax liability.

As of September 30, 2020, and 2019, the Company had U.S.

net operating loss carryforwards for state purposes of approximately $76 thousand and $4.8 million, respectively, which are available to offset future taxable income through 2040.

As of September 30, 2020, the Company had state tax credit carryforwards of $495 thousand available to reduce future state tax expense, of which $54 thousand has unlimited carryover status and the remainder of the credits are available through fiscal year 2035.

As of September 30, 2020, the Company had U.K.

net operating loss carryforwards of approximately $9.3 million that have an indefinite life with no expiration.

Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $11.0 million and $12.7 million at September 30, 2019 and 2018, respectively.

The Company's is considering cash distribution of undistributed foreign earnings in the future and will continue to assess the potential impact of any future distributions on U.S.

Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $10.3 million and $11.0 million as of September 30, 2020 and 2019, respectively.

The Company is considering cash distribution of undistributed foreign earnings in the future and will continue to assess the potential impact of any future distributions on U.S.

The state tax impact of a distribution of foreign earnings and profits would not be material.

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These estimated tax liabilities include the provision for taxes that may become payable in the future.

As of September 30, 2019, the total amount of uncertain tax liabilities was reversed since the statute of limitations have expired on the potential uncertain tax position.

As of September 30, 2020, the total amount of uncertain tax liabilities relates to state tax credit carryforwards and are all recorded net in deferred taxes.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

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Balance, beginning of year

Additions for tax positions of current year

Additions for tax positions of prior years

Accrued penalties and interest

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Customer list

Non-compete agreements

Developed technology

Amortization expense on these intangible assets was $9 thousand and $11 thousand for fiscal 2020 and 2019, respectively.

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Compensation and fringe benefits

Professional fees and shareholders’

reporting costs

Professional fees and shareholders’ reporting costs

Taxes, other than income

In September 2019, the Company borrowed $1.0 million with a 5.0% rate of interest related to a multi-year agreement with a customer (see Note 3 for the disclosure related to the receivable).

Payments are due each month and maturities are outlined in the tables below.

Finance lease liability

Operating lease liability

Information related to both lessee and lessor

The following table specifies where the right-of-use assets and lease liabilities are within the Consolidated Balance Sheets as of September 30, 2020 and October 1, 2019 (adoption date):

Consolidated Balance Sheets Location

September 30, 2020

October 1, 2019

(Amounts in thousands)

Operating leases

Operating lease right-of-use assets

Lease receivable - current

Investment in lease, net-current portion

Lease receivable - noncurrent

Investment in lease, net-less current portion

Total lease receivable

Current operating lease liabilities

Accounts payable and accrued expenses

Non-current operating lease liabilities

Operating lease liabilities - noncurrent portion

Total operating lease liabilities

Current finance lease liabilities

Accounts payable and accrued expenses

Non-current finance lease liabilities

Other noncurrent liabilities

Total finance lease liabilities

The components of lease costs for the twelve months ended September 30, 2020 are as follows:

Twelve months ended

Consolidated Statements of Operations Location

September 30, 2020

(Amounts in thousands)

Finance Lease:

Interest on lease liabilities

Selling, general, and administrative

Operating Lease:

Operating lease cost

Selling, general, and administrative

Short-term lease cost

Selling, general, and administrative

Total lease costs

Less sublease interest income

Total lease costs, net of sublease interest income

Future lease payments under our non-cancellable leases and payments to be received as a sublessor as of September 30, 2020 are in the following table:

Operating lease

Finance lease

Fiscal year ending September 30:

Payments received

(Amounts in thousands)

note discount

As of September 30, 2019

Less imputed interest

Supplemental cash flow information related to leases for the fiscal year ended September 30, 2020 is below:

Twelve months ended

September 30, 2020

(Amounts in thousands)

note discount

Note payable - current portion

note discount

Note payable - noncurrent portion

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from short-term leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Lease assets obtained in exchange for new lease liabilities

Operating leases

Cash received from subleases

Information as a lessee related to weighted averages of lease term and discount rate as of September 30, 2020 is below:

Weighted-average remaining lease term (years)

September 30, 2020

Operating leases

Finance leases

Weighted-average discount rate

September 30, 2020

Operating leases

Finance leases

Product Warranties

Product warranty activity for the years ended September 30 was as follows:

(Amounts in thousands)

Balance at the beginning of the period

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These amounts are within accounts payable and accrued expenses on the consolidated balance sheets.

Stock Based Incentive Compensation

In 2015, the Company adopted the 2015 Stock Incentive Plan (the "2015 Plan") and authorized 300,000 shares of common stock to be reserved for issuance pursuant to the 2015 Plan.

During 2019 an additional 300,000 shares of common stock were authorized to be reserved for issuance pursuant to the 2015 Plan.

As of September 30, 2019, there were 320,715 shares available to be granted under the 2015 Plan.

Under all of the stock incentive plans, both incentive stock options and non-qualified stock options may be granted to officers, key employees and other persons providing services to the Company.

All of the Company’s stock incentive plans have a ten year life.

Awards issued under any of the stock option plans are not affected by termination of the plan.

The Company issues stock options at their fair market value on the date of grant.

Vesting of stock options granted pursuant to the Company’s stock incentive plans is determined by the Company’s compensation committee.

Generally, options granted to employees vest over four years and expire ten years from the date of grant.

Options granted to non-employee directors have historically included cliff vesting after six months from the date of grant and expire three years from the date of grant.

In fiscal years 2016 through 2019, the Company granted certain officers including its Chief Executive Officer and non-employee directors, and key employees shares of nonvested common stock instead of stock options.

The vesting periods for the officers’, the Chief Executive Officer’s and the non-employee directors’

nonvested stock awards are four years, three years and one year, respectively.

The vesting period for the key employees’

awards is four years.

We measure and recognize compensation expense for all stock-based payment awards made to employees and directors including employee stock options and awards of nonvested stock based on estimated fair values, as described in Note 1.

Stock-based compensation expense incurred and recognized for the years ended September 30, 2019 and 2018 related to stock options and nonvested stock granted to employees and non-employee directors under the Company’s stock incentive and employee stock purchase plans totaled approximately $792 thousand and $691 thousand, respectively.

The classification of the cost of stock-based compensation, in the consolidated statements of operations, is consistent with the nature of the services being rendered in exchange for the share based payment.

The following table summarizes stock-based compensation expense in the Company’s consolidated statements of operations:

Line of Credit

As of September 30, 2020 and September 30, 2019, the Company maintained an inventory line of credit with a borrowing capacity of $15.0 million and $20.0 million, respectively.

The amount of the inventory line of credit and cash withdrawal was lowered in June of 2020 primarily due to lack of need for full use of the line.

It may be used by the TS or HPP segment in the U.S.

to purchase inventory from approved vendors with payment terms which exceed those offered by the vendors.

No interest accrues under the inventory line of credit when advances are paid within terms, however, late payments are subject to an interest charge of the rate published in the Wall Street Journal as the “prime rate” plus 5%.

The prime rate was 3.25% as of September 30, 2020.

The credit agreement for the inventory line of credit contains financial covenants which require the Company to maintain the following TS segment-specific financial ratios:

(1) a minimum current ratio of 1.2, (2) tangible net worth of no less than $4.0 million, and (3) a maximum ratio of total liabilities to total net worth of less than 5.0:1.

As of September 30, 2020 and September 30, 2019, Company borrowings, all from the TS segment, under the inventory line of credit were $1.6 million and $2.5 million, respectively, and the Company was in compliance with all covenants.

As of September 30, 2020 and September 30, 2019, this line of credit also included availability of a limited cash withdrawal of up to $1.0 million and $1.5 million, respectively.

As of September 30, 2020 and September 30, 2019, there were no cash withdrawals outstanding.

Notes Payable

In September 2019, the Company borrowed $1.0 million with a 5.0% rate of interest related to a multi-year agreement with a customer.

See Note 2 for the disclosure related to the receivables.

In October 2019, the Company borrowed $2.0 million with a 5.1% rate of interest related to a multi-year agreement with a customer.

On April 17, 2020, CSP, Inc.

and Modcomp, Inc., its wholly owned subsidiary (collectively, the “Borrowers”) each received a loan in the form of a promissory note from Paragon Bank (“Lender”) in the amounts of $827,000 and $1,353,600, respectively (the “SBA Loans”) under the Paycheck Protection Program, which was established under the

recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S.

Small Business Administration (“SBA”).

The SBA Loans have a two-year term and carry an annual fixed interest rate of 1%.

The SBA Loans provide for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, materially false or misleading representations to Lender or SBA, and adverse changes in the financial condition or business operations that Lender believes may materially affect Borrowers’ ability to pay the SBA Loans.

The Borrowers did not provide any collateral or guarantees for the SBA Loans and the Borrowers may prepay the principal of the SBA Loans at any time without penalty.

The Borrowers may apply to the Lender for forgiveness of an amount due on the SBA Loans in an amount equal to the sum of certain costs during the 8 or 24-week period beginning on the date of the first disbursement of the SBA Loans.

The Company elected to use the 24-week period.

However, based on guidance from the SBA the borrowers may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness, which is our intention.

The amount of SBA Loans forgiveness shall be calculated in accordance with the requirements of the Paycheck Protection Program, including provisions of Section 1106 of the CARES Act.

We intend to use the SBA Loans proceeds in accordance with the applicable SBA guidelines.

Subsequent to September 30, 2020 and as of the date of this filing, we have received forgiveness for the SBA Loans from the SBA.

Interest expense related to the notes for the year ended September 30, 2020 was $131 thousand.

There was no interest expense related to a note for the year ended September 30, 2019 as only one note was taken out, which was at the end of the period.

Below are details of the notes payable.

Fiscal year ending September 30:

(Amounts in thousands)

note discount

September 30, 2020

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(Amounts in thousands)

Cost of sales

Engineering and development

Selling, general and administrative

For the year ended September 30, 2019, the Company granted 33,000 nonvested shares to certain key employees, 55,000 nonvested shares to certain officers including 35,000 shares granted to the Chief Executive Officer, and 20,000 nonvested shares to its non-employee directors.

For the year ended September 30, 2018, the Company granted 12,000 nonvested shares to certain key employees, 40,000 nonvested shares to certain officers including 30,000 to its Chief Executive Officer and 20,000 nonvested shares to its non-employee directors.

The Company measures the fair value of nonvested stock awards based upon the market price of its common stock as of the date of grant.

The Company used the Black-Scholes option-pricing model to value stock options.

The Black-Scholes model requires the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate and the weighted average expected life of the options, at the time of grant.

The expected dividend yield is equal to the divided per share declared, divided by the closing share price on the date the options were granted.

All equity compensation awards granted for the years ended September 30, 2019 and September 30, 2018 were nonvested stock awards.

As stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, expense for grants beginning upon adoption on October 1, 2005 has been reduced for estimated forfeitures.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The forfeiture rates for the years ended September 30, 2019 and 2018 were based on actual forfeitures.

No cash was used to settle equity instruments granted under share-base payment arrangements in any of the years in the two-year period ended September 30, 2019.

The following tables provide summary data of stock option award activity:

(in thousands)

Outstanding at September 30, 2017

Outstanding at September 30, 2018

Outstanding at September 30, 2019

Exercisable at September 30, 2019

Vested and expected to vest at September 30, 2019

There were no stock options granted in the years ended September 30, 2019 and 2018.

The aggregate intrinsic value of stock options exercised during the years ended September 30, 2019 and 2018 was $8 thousand and $34 thousand, respectively.The following table provides summary data of nonvested stock award activity:

(in thousands)

Nonvested shares outstanding at September 30, 2017

Activity in 2018:

Nonvested shares outstanding at September 30, 2018

Activity in 2019:

Nonvested shares outstanding at September 30, 2019

Vested at September 30, 2019

Vested and expected to vest at September 30, 2019

As of September 30, 2019, there was $1.4 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements (including nonvested stock awards) granted under the Company’s stock incentive plans.

This cost is expected to be expensed over a weighted average period of approximately 2.50 years.

The total fair value of shares vested during the years ended September 30, 2019 and 2018 was $716 thousand and $662 thousand, respectively.

Employee Stock Purchase Plan

In December 2013, the Board of Directors of the Company adopted the 2014 Employee Stock Purchase Plan covering up to 250,000 shares of Common Stock (the "ESPP"), which was ratified by a vote of the Company’s shareholders in February 2014.

Under the ESPP, the Company’s employees may purchase shares of common stock at a price per share that is currently 95% of the lesser of the fair market value as of the beginning or end of semi-annual option periods.

Pursuant to the ESPP, the Company issued 29,238 and 22,895 shares for the two years ended September 30, 2019 and September 30, 2018, respectively.

notes discount

Notes payable - current portion

notes discount

Notes payable - noncurrent portion

Pension and Retirement Plans

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These supplementary plans are funded through whole life insurance policies.

The Company expects to recover all insurance premiums paid under these policies in the future, through the cash surrender value of the policies and any death benefits or portions thereof to be paid upon the death of the participant.

expects to recover all insurance premiums paid under these policies in the future, through the cash surrender value of the policies and any death benefits or portions thereof to be paid upon the death of the participant.

These whole life insurance policies are carried on the balance sheet at their cash surrender values as they are owned by the Company and not assets of the defined benefit plans.

In the U.S., the Company also provides for officer death benefits and post-retirement health insurance benefits through supplemental post-retirement plans to certain officers.

The Company also funds these supplemental plans’

obligations through whole life insurance policies on the officers.

The Company also funds these supplemental plans’ obligations through whole life insurance policies on the officers.

Defined Benefit Plans

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The costs and benefit payments for these plans are paid through operating cash flows of the Company to the extent that they cannot be funded through the use of the cash values in the insurance policies.

The Company expects that the recorded value of the insurance policies will be sufficient to fund all of the Company’s obligations under these plans.

The following table provides the weighted average actuarial assumptions used to determine the actuarial present value of projected benefit obligations at:

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Expected return on plan assets

Amortization of past service costs

Amortization of net gain (loss)

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Net periodic cost

Decrease in minimum liability included in other comprehensive income (loss)

Increase (decrease) in minimum liability included in other comprehensive income (loss)

Post Retirement:

Decrease in minimum liability included in other comprehensive income (loss)

Decrease in minimum liability included in comprehensive income (loss)

Increase in minimum liability included in other comprehensive income

Increase (decrease) in minimum liability included in comprehensive income (loss)

The following table presents an analysis of the changes in 2020 and 2019 of the benefit obligation, the plan assets and the funded status of the plans:

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(Amounts in thousands)

Change in projected benefit obligation (“PBO”)

Balance beginning of year

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Post Retirement:

Change in projected benefit obligation (“PBO”):

Balance beginning of year

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Accrued benefit liability

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Net amount recognized

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Total accrued benefit liability

As of September 30, 2019 and 2018, the amounts included in accumulated other comprehensive income, consisted of deferred net losses totaling approximately $6.3 million and $5.3 million, respectively.

As of September 30, 2020 and 2019, the amounts included in accumulated other comprehensive loss, consisted of deferred net losses totaling approximately $6.1 million and $6.3 million, respectively.

The amount of net deferred loss expected to be recognized as a component of net periodic benefit cost for the year ending September 30, 2021, is approximately $152 thousand.

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Pension plan assets are managed by a fiduciary committee.

The Company’s investment strategy for pension plan assets is to maximize the long-term rate of return on plan assets within an acceptable level of risk while maintaining adequate funding levels.

Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment process.

In deciding on the investments to be held, the trustees take into account the risk of possible fluctuations in income from, and market values of, the assets as well as the risk of departing from an asset profile which broadly matches the liability profile.

The committee has invested the plan assets in a single pooled fund with an authorized investment company (the “Fund”).

The Fund selected by the trustees is consistent with the plan’s overall investment principles and strategy described herein.

The committee has invested the plan assets in a single pooled fund with an authorized investment company (the “Fund”).

The Fund selected by the trustees is consistent with the plan’s overall investment principles and strategy described herein.

There are no specific targets as to asset allocation other than those contained within the Fund that is managed by the authorized investment company.

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Defined Contribution Plans

The Company has defined contribution plans in domestic and international locations under which the Company matches a portion of the employee’s contributions and may make discretionary contributions to the plans.

The Company’s contributions were $178 thousand and $204 thousand for the years ended September 30, 2019 and 2018, respectively.

Lines of Credit

As of September 30, 2018, the Company maintained a line of credit that allows for borrowings of up to $1.0 million.

Availability under the facility was reduced by outstanding borrowings thereunder.

The interest rates on outstanding borrowings was London Inter-Bank Offer Rate ("LIBOR") plus 2.5%, with a floor of 4%.

Borrowings under the credit agreements are required to be repaid on demand in certain circumstances, upon termination of the agreements, or may be prepaid by the Company without penalty.

The Company had no amounts outstanding under the line of credit during the fiscal year ending September 30, 2018.

This line of credit closed during fiscal year 2019.

As of September 30, 2019 and September 30, 2018, the Company also maintained an inventory line of credit that may be used by the TS segment in the U.S.

to purchase inventory from approved vendors with payment terms which exceed those offered by the vendors.

In fiscal year 2019, HPP gained access to this inventory line of credit, but did not use it in fiscal year 2019.

No interest accrues under the inventory line of credit when advances are paid within terms, however, late payments are subject to an interest charge of Prime plus 5%.

The credit agreement for the inventory line of credit contains financial covenants which require the Company to maintain the following TS segment-specific financial ratios:

(1) a minimum current ratio of 1.2, (2) tangible net worth of no less than $4.0 million, and (3) a maximum ratio of total liabilities to total net worth of less than 5.0:1.

As of September 30, 2019 and September 30, 2018, Company borrowings under the inventory line of credit were $2.5 million and $3.2 million, respectively, and the Company was in compliance with all covenants.

Commitments and Contingencies

Operating Leases

The Company occupies office space under lease agreements expiring at various dates during the next two years, which all have renewal options and escalation clauses.

The leases are classified as operating leases and provide for the payment of real estate taxes, insurance, utilities and maintenance.

The Company also leases equipment under lease agreements expiring at various dates during the next four years.

The Company was obligated under non-cancelable operating leases with an initial term in excess of one year as follows:

Fiscal year ending September 30:

(Amounts in thousands)

Occupancy expenses under the operating leases approximated $0.7 million in 2019 and $0.8 million in 2018.

Capital Leases

The Company leases equipment under agreements expiring at various times during the next four years.

The Company has the capital lease obligation within its consolidated balance sheets.

The current portion of $0.4 million is within accounts payable and accrued expenses and the long-term portion of $0.3 million is included in other long term liabilities.

The assets acquired under the capital leases were sub-leased to a customer.

See Investment in Lease Note 4.

The Company was obligated under non-cancelable capital leases as follows:

Fiscal year ending September 30:

The Company’s contributions were $156 thousand and $178 thousand for the years ended September 30, 2020 and 2019, respectively.

Stock Based Incentive Compensation

In 2015, the Company adopted the 2015 Stock Incentive Plan (the "2015 Plan") and authorized 300,000 shares of common stock to be reserved for issuance pursuant to the 2015 Plan.

During 2019 an additional 300,000 shares of common stock were authorized to be reserved for issuance pursuant to the 2015 Plan.

As of September 30, 2020, there were 223,965 shares available to be granted under the 2015 Plan.

Under all of the stock incentive plans, both incentive stock options and non-qualified stock options may be granted to officers, key employees and other persons providing services to the Company.

All of the Company’s stock incentive plans have a ten-year life.

Awards issued under any of the stock option plans are not affected by termination of the plan.

The Company issues stock options at their fair market value on the date of grant.

Vesting of stock options granted pursuant to the Company’s stock incentive plans is determined by the Company’s compensation committee.

Generally, options granted to employees vest over four years and expire ten years from the date of grant.

Options granted to non-employee directors have historically included cliff vesting after six months from the date of grant and expire three years from the date of grant.

In fiscal years 2016 through 2020, the Company granted certain officers including its Chief Executive Officer and non-employee directors, and key employees shares of nonvested common stock instead of stock options.

The vesting periods for the officers’, the Chief Executive Officer’s and the non-employee directors’ nonvested stock awards are four years, three years and one year, respectively.

The vesting period for the key employees’ awards is four years.

Stock-based compensation expense incurred and recognized for the years ended September 30, 2020 and 2019 related to stock options and nonvested stock granted to employees and non-employee directors under the Company’s stock incentive and employee stock purchase plans totaled approximately $982 thousand and $792 thousand, respectively.

The following table summarizes stock-based compensation expense in the Company’s consolidated statements of operations:

September 30,

(Amounts in thousands)

Minimum lease payments including interest

Amount representing interest

Minimum lease payments excluding interest

Common Stock Repurchase

From time to time the Company’s Board of Directors passes resolutions to authorize the Company to purchase shares of its outstanding common stock.

The Company did not repurchase any shares during the years ended years ended September 30, 2019 and 2018.

As of September 30, 2019, the Company is authorized to repurchase an additional 201 thousand shares pursuant to such resolutions.

Cost of sales

Engineering and development

Selling, general and administrative

For the year ended September 30, 2020, the Company granted 36,750 nonvested shares to certain key employees, 40,000 nonvested shares to certain officers including 30,000 shares granted to the Chief Executive Officer, and 20,000 nonvested shares to its non-employee directors.

For the year ended September 30, 2019, the Company granted 33,000 nonvested shares to certain key employees, 55,000 nonvested shares to certain officers including 35,000 to its Chief Executive Officer and 20,000 nonvested shares to its non-employee directors.

The Company measures the fair value of nonvested stock awards based upon the market price of its common stock as of the date of grant.

The Company used the Black-Scholes option-pricing model to value stock options.

The expected dividend yield is equal to the divided per share declared, divided by the closing share price on the date the options were granted.

All equity compensation awards granted for the years ended September 30, 2020 and September 30, 2019 were nonvested stock awards.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The forfeiture rates for the years ended September 30, 2020 and 2019 were based on actual forfeitures.

No cash was used to settle equity instruments granted under share-base payment arrangements in any of the years in the two-year period ended September 30, 2020.

The following tables provide summary data of stock option award activity:

(in thousands)

Outstanding at September 30, 2018

Outstanding at September 30, 2019

Outstanding at September 30, 2020

Exercisable at September 30, 2020

Vested and expected to vest at September 30, 2020

There were no stock options granted in the years ended September 30, 2020 and 2019.

The aggregate intrinsic value of stock options exercised during the years ended September 30, 2020 and 2019 was $5 thousand and $8 thousand, respectively.

The following table provides summary data of nonvested stock award activity:

(in thousands)

Nonvested shares outstanding at September 30, 2018

Activity in 2019:

Nonvested shares outstanding at September 30, 2019

Activity in 2020:

Nonvested shares outstanding at September 30, 2020

As of September 30, 2020, there was $1.7 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements (including nonvested stock awards) granted under the Company’s stock

incentive plans.

This cost is expected to be expensed over a weighted average period of approximately 2.50 years.

The total fair value of shares vested during the years ended September 30, 2020 and 2019 was $819 thousand and $716 thousand, respectively.

Employee Stock Purchase Plan

Pursuant to the ESPP, the Company issued 32,222 and 29,238 shares for the two years ended September 30, 2020 and September 30, 2019, respectively.

Repurchase of Common Stock

On February 8, 2011, the Board of Directors authorized the Company to purchase up to 250 thousand shares of the Company's outstanding common stock at market price.

The plan does not expire.

Pursuant to the aforementioned authorization, the Company repurchased 6.4 thousand shares of its outstanding common stock on the open market during the fiscal year ended September 30, 2020.

There were no purchases during the fiscal year ended September 30, 2019.

As of September 30, 2020, approximately 194 thousand shares remain authorized to repurchase under the stock repurchase program.

As of May 14, 2020, we have suspended our stock repurchase program until further economic clarity.

Segment Information

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All intercompany transactions have been eliminated.

The following table details the Company’s sales by operating segment for fiscal years ended September 30, 2019 and 2018.

The Company’s sales by geographic area based on the location of where the products were shipped or services rendered are as follows:

(Amounts in thousands)

Substantially all Americas amounts are United States.

Long-lived assets by geographic location at years ended September 30, 2019 and 2018 were as follows:

September 30,

Over 99% of long-lived assets are located in North America.

The following table details the Company’s sales by operating segment for fiscal years ended September 30, 2020 and 2019.

The Company’s sales by geographic area based on the location of where the products were shipped or services rendered are as follows:

(Amounts in thousands)

North America

Deferred tax assets by geographic location at years ended September 30, 2020 and 2019 were as follows:

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The following table lists customers from which the Company derived revenues in excess of 10% of total revenues for the years ended years ended September 30, 2020 and 2019.

For the years ended

September 30, 2019

September 30, 2018

(Amounts in millions)

For the year ended September 30,

In addition, accounts receivable from Customer A totaled approximately $4.7 million, or 28%, and approximately $7.4 million, or 36%, of total consolidated accounts receivable as of September 30, 2020 and September 30, 2019, respectively.

Accounts receivable and long term receivable from Customer B totaled approximately $7.4 million, or 36%, and approximately $0.2 million, or 2%, of total consolidated accounts receivable as of September 30, 2019 and September 30, 2018, 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 September 30, 2019.

We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with this customer as of September 30, 2020.

No other customers accounted for 10% or more of total consolidated accounts receivable as of September 30, 2020.

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inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly

unobservable inputs (e.g., a reporting entity’s or other entity’s own data)

The Company had no assets or liabilities measured at fair value on a recurring (except our pension plan assets, see Note 13) or non-recurring basis as of September 30, 2020 or September 30, 2019.

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Consolidated Balance Sheets

Accounts & long term receivable*

Accounts and long-term receivable*

Notes payable

*Original maturity over one year

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Fair value of accounts receivable with an original maturity of one year or less and accounts payable was not materially different from their carrying values at September 30, 2020, and 2019.

For the years ended September 30, 2019 and 2018, the Company declared and paid cash dividends as follows:

As of May 14, 2020, we have suspended our stock repurchase program until further economic clarity.

For the years ended September 30, 2020 and 2019, the Company paid cash dividends as follows:

Date Declared

Revision of Prior Period Financial Statements (Unaudited)

We identified an immaterial error in the first three quarters of fiscal year 2020 related to the recognition of certain revenue as “net,” when in fact the revenue should have been recorded on as “gross” basis.

We revised the first three quarters of fiscal year 2020 for this error.

A summary of revisions for our previously reported financial statements are presented below (in thousands, except per share data).

There were no effects on the Consolidated Balance Sheets or Consolidated Statements of Cash Flows for the periods below.

For the three months ended December 31, 2019

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

For the three months ended March 31, 2020

For the six months ended March 31, 2020

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

For the three months ended June 30, 2020

For the nine months ended June 30, 2020

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

Subsequent Events

As of the date of this filing, we received forgiveness of the SBA loans from the SBA, which totaled around $2.2 million.

This amount will be recognized in income in the first quarter of fiscal year 2021.

See Note 12 for further details of the SBA loans.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures