CSP INC /MA/ 10-K

Item 9A. Controls and Procedures Evaluation of Controls and Procedures Disclosure Controls and Procedures. 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. 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, 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: ● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of a company; ● 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; and ● 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. ​ 32 Table of Contents 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, 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. 33 Table of Contents Item 9B. Other Information None. PART III Item 10. 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”, “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. Item 11. 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 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. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Securities Authorized for Issuance Under Equity Compensation Plans. 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 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ (a) (1)(2) (b) (c) ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ remaining available for future ​ ​ Number of securities to be ​ Weighted average ​ issuance under equity ​ ​ issued upon exercise of ​ exercise price of outstanding ​ compensation plans (excluding ​ ​ outstanding options, ​ stock options, warrants and ​ securities reflected in column Plan Category ​ warrants and rights ​ rights ​ (a)(3) Equity compensation plans approved by security holders 203,742 ​ $ 3.64 288,696 (1) Includes 202,742 non-vested shares issued and 1,000 stock options issued. (2) Does not include purchase rights under the ESPP, as the purchase price and number of shares to be purchased under the ESPP are not determined until the end of the relevant purchase period. (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 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. 34 Table of Contents Item 13. 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 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. Item 14. 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 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. PART IV Item 15. Exhibits and Financial Statement Schedules (a) (1) Financial statements filed as part of this report: Consolidated Balance Sheets as of September 30, 2020 and 2019 Consolidated Statements of Operations for the years ended September 30, 2020 and 2019 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 Notes to Consolidated Financial Statements (2) Financial statement schedules All other financial statements and schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto included in Item 8, or is not applicable, material or required. (3) Exhibits ​ ​ ​ ​ ​ ​ Incorporated by Reference Exhibit No. Description Filed with this Form 10-K ​ Form Filing Date Exhibit No. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3.1 ​ Articles of Organization and amendments thereto ​ ​ ​ 10-K ​ December 26, 2007 ​ 3.1 3.2 ​ By-laws, as amended December 13, 2012 ​ ​ ​ 10-K ​ December 20, 2012 ​ 3.2 4.1 ​ Description of Securities ​ X ​ ​ ​ ​ ​ ​ 10.1 ​ Form of Employee Invention and Non-Disclosure Agreement ​ ​ ​ 10-K ​ November 22, 1996 ​ 10.3 10.2 ​ CSPI Supplemental Retirement Income Plan ​ ​ ​ 10-K ​ December 29, 2008 ​ 10.2 10.3* ​ 2007 Stock Incentive Plan ​ ​ ​ DEF 14A ​ March 30, 2007 ​ B 10.4* ​ 2014 Variable Compensation (Executive Bonus) and Base Programs dated November 12, 2013 ​ ​ ​ 10-K ​ December 23, 2014 ​ 10.10 35 Table of Contents 10.5* ​ Death Benefit and Retirement Benefit Agreement between the Company and Victor Dellovo dated September 13, 2013 ​ ​ ​ 10-K ​ December 24, 2013 ​ 10.11 10.6* ​ Form of Change of Control Agreement with Gary W. Levine dated January 11, 2008 ​ ​ ​ 10-K ​ December 23, 2010 ​ 10.11 10.7* ​ 2014 Employee Stock Purchase Plan ​ ​ ​ DEF 14A ​ January 6, 2014 ​ A 10.8* ​ 2015 Stock Incentive Plan ​ ​ ​ DEF 14RA ​ January 25, 2019 ​ A 10.9 ​ 2015 Lowell, MA Lease ​ ​ ​ 10-K ​ December 24, 2015 ​ 10.21 10.10 ​ 2015 Deerfield Beach, FL Lease ​ ​ ​ 10-K ​ December 24, 2015 ​ 10.20 10.11* ​ Executive Retention and Service Agreement with Victor Dellovo, dated September 4, 2012 ​ ​ ​ 10-Q ​ February 14, 2018 ​ 10.1 10.12* ​ Forms of Employee Restricted Stock Award Agreement ​ ​ ​ 10-Q ​ February 14, 2018 ​ 10.2 10.13 ​ Share Purchase and Assignment Agreement ​ ​ ​ 8-K ​ June 27, 2018 ​ 2.1 10.14 ​ Note, dated as of April 17, 2020, by, and between Paragon Bank and CSP, Inc. ​ ​ ​ 8-K ​ April 23, 2020 ​ 10.1 10.15 ​ Note, dated as of April 17, 2020, by, and between Paragon Bank and Modcomp, Inc. ​ ​ ​ 8-K ​ April 23, 2020 ​ 10.2 21.1 ​ Subsidiaries ​ X ​ ​ ​ ​ ​ ​ 23.1 ​ Consent of RSM LLP, Independent Registered Public Accounting Firm ​ X ​ ​ ​ ​ ​ ​ 31.1 ​ Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ​ X ​ ​ ​ ​ ​ ​ 31.2 ​ Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ​ X ​ ​ ​ ​ ​ ​ 32.1 ​ Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ​ X ​ ​ ​ ​ ​ ​ 101.INS ​ XBRL Instance ​ ​ ​ ​ ​ ​ ​ ​ 101.SCH ​ XBRL Taxonomy Schema ​ ​ ​ ​ ​ ​ ​ ​ 101.CAL ​ XBRL Taxonomy Extension Calculation ​ ​ ​ ​ ​ ​ ​ ​ 101.DEF ​ XBRL Taxonomy Extension Definition ​ ​ ​ ​ ​ ​ ​ ​ 101.LAB ​ XBRL Taxonomy Extension Labels ​ ​ ​ ​ ​ ​ ​ ​ 101.PRE ​ XBRL Taxonomy Extension Presentation ​ ​ ​ ​ ​ ​ ​ ​ * Management contract or compensatory plan. Item 16. Form 10-K Summary None. ​ 36 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ​ CSP INC. ​ ​ ​ ​ By: /s/ Victor Dellovo ​ ​ Victor Dellovo Chief Executive Officer and President ​ Date: December 28, 2020 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date ​ ​ ​ ​ ​ /s/ Victor Dellovo ​ Chief Executive Officer, President and Director ​ December 28, 2020 Victor Dellovo ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ Gary W. Levine ​ Chief Financial Officer (Principal Financial Officer) ​ December 28, 2020 Gary W. Levine ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ Mike Newbanks ​ Vice President of Finance (Chief Accounting Officer) ​ December 28, 2020 Mike Newbanks ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ C. Shelton James ​ Director ​ December 28, 2020 C. Shelton James ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ Raymond Charles Blackmon ​ Director ​ December 28, 2020 Raymond Charles Blackmon ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ Marilyn T. Smith ​ Director ​ December 28, 2020 Marilyn T. Smith ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ Izzy Azeri ​ Director ​ December 28, 2020 Izzy Azeri ​ ​ ​ ​ ​ ​ ​ 37 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of CSP Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CSP Inc. 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. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ RSM US LLP We have served as the Company’s auditor since 2007. Boston, Massachusetts December 28, 2020 ​ 38 Table of Contents CSP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ September 30, ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ ASSETS ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 19,264 ​ $ 18,099 Accounts receivable, net of allowances of $181 and $138 ​ 13,362 ​ 15,114 Investment in lease, net-current portion ​ 336 ​ 367 Inventories ​ 5,285 ​ 7,818 Refundable income taxes ​ 807 ​ 487 Other current assets ​ 2,535 ​ 4,649 Total current assets ​ 41,589 ​ 46,534 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, equipment and improvements, net ​ 1,047 ​ 1,273 Operating lease right-of-use assets ​ ​ 2,014 ​ ​ — Intangibles, net ​ 28 ​ 37 Investment in lease, net-less current portion ​ 81 ​ 417 Long-term receivable ​ ​ 3,642 ​ 5,328 Deferred income taxes ​ 1,149 ​ 1,946 Cash surrender value of life insurance ​ 3,948 ​ 3,718 Other assets ​ 147 ​ 116 Total assets ​ $ 53,645 ​ $ 59,369 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Current liabilities: ​ ​ Accounts payable and accrued expenses ​ $ 8,523 ​ $ 16,175 Line of credit ​ ​ 1,573 ​ ​ 2,459 Notes payable - current portion ​ ​ 1,613 ​ ​ 317 Deferred revenue ​ 947 ​ 741 Pension and retirement plans ​ 321 ​ 335 Total current liabilities ​ 12,977 ​ 20,027 Pension and retirement plans ​ 6,471 ​ 6,904 Notes payable - noncurrent portion ​ ​ 2,485 ​ ​ 684 Operating lease liabilities - noncurrent portion ​ ​ 1,390 ​ ​ — Income taxes payable ​ 586 ​ 694 Other noncurrent liabilities ​ 202 ​ 632 Total liabilities ​ 24,111 ​ 28,941 ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity: ​ ​ Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 4,276 and 4,154 shares, respectively ​ 43 ​ 42 Additional paid-in capital ​ 16,994 ​ 15,733 Retained earnings ​ 24,492 ​ 27,246 Accumulated other comprehensive loss ​ (11,995) ​ (12,593) Total shareholders’ equity ​ 29,534 ​ 30,428 Total liabilities and shareholders’ equity ​ $ 53,645 ​ $ 59,369 ​ See accompanying notes to consolidated financial statements. ​ 39 Table of Contents CSP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except for per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ September 30, September 30, ​ ​ 2020 ​ 2019 Sales: ​ ​ ​ Product ​ ​ $ 47,989 ​ $ 66,017 Services ​ ​ 13,804 ​ 13,044 Total sales ​ ​ 61,793 ​ 79,061 ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ Product ​ ​ 39,907 ​ 55,836 Services ​ ​ 4,719 ​ 5,199 Total cost of sales ​ ​ 44,626 ​ 61,035 ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ ​ 17,167 ​ 18,026 ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ Engineering and development ​ ​ 2,798 ​ 2,800 Selling, general and administrative ​ ​ 15,793 ​ 16,052 Total operating expenses ​ ​ 18,591 ​ 18,852 Operating loss ​ ​ (1,424) ​ (826) ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ ​ Foreign exchange (loss) gain ​ ​ (2) ​ 157 Interest expense ​ ​ ​ (228) ​ ​ (99) Interest income ​ ​ ​ 582 ​ ​ 323 Other income, (expense) net ​ ​ 10 ​ 3 Total other income (expense) ​ ​ 362 ​ 384 Loss before income taxes ​ ​ (1,062) ​ (442) Income tax expense (benefit) ​ ​ 384 ​ (71) Net loss ​ ​ $ (1,446) ​ $ (371) Net loss attributable to common stockholders ​ ​ $ (1,446) ​ $ (371) ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share – basic ​ ​ $ (0.36) ​ $ (0.09) Weighted average shares outstanding – basic ​ ​ 4,028 ​ 3,924 Net loss per share – diluted ​ ​ $ (0.36) ​ $ (0.09) Weighted average shares outstanding – diluted ​ ​ 4,028 ​ 3,924 See accompanying notes to consolidated financial statements. ​ 40 Table of Contents CSP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ ​ September 30, September 30, ​ ​ 2020 ​ 2019 Net loss ​ ​ $ (1,446) $ (371) Other comprehensive income (loss): ​ ​ ​ Unrealized actuarial gain (loss) on minimum pension liability, net of tax effect ​ ​ 183 ​ (1,003) Foreign currency translation gain (loss) adjustments ​ ​ 415 ​ (765) Other comprehensive gain (loss) ​ ​ 598 ​ (1,768) Total comprehensive loss ​ ​ $ (848) $ (2,139) ​ See accompanying notes to consolidated financial statements. ​ 41 Table of Contents CSP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the Years Ended September 30, 2020 and 2019: (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ For the year ended September 30, 2019: Shares Amount Capital Earnings loss Equity Balance as of September 30, 2018 4,017 ​ $ 40 ​ $ 14,661 ​ $ 29,926 ​ $ (10,825) ​ $ 33,802 Adoption of ASU 2014-09 ​ — ​ ​ — ​ ​ — ​ ​ 158 ​ ​ — ​ ​ 158 Net loss — ​ — ​ — ​ (371) ​ — ​ (371) Other comprehensive loss — ​ — ​ — ​ — ​ (1,768) ​ (1,768) Exercise of stock options 1 ​ — ​ 3 ​ — ​ — ​ 3 Stock-based compensation — ​ — ​ 792 ​ — ​ — ​ 792 Restricted stock cancellation ​ (3) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Restricted stock issuance 108 ​ 1 ​ — ​ — ​ — ​ 1 Issuance of shares under employee stock purchase plan 31 ​ 1 ​ 277 ​ — ​ — ​ 278 Cash dividends paid on common stock ($0.60 per share) — ​ — ​ — ​ (2,467) ​ — ​ (2,467) Balance as of September 30, 2019 4,154 ​ $ 42 ​ $ 15,733 ​ $ 27,246 ​ $ (12,593) ​ $ 30,428 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ For the year ended September 30, 2020: Shares Amount Capital Earnings loss Equity Balance as of September 30, 2019 4,154 ​ $ 42 ​ $ 15,733 ​ $ 27,246 ​ $ (12,593) ​ $ 30,428 Net loss — ​ — ​ — ​ (1,446) ​ — ​ (1,446) Other comprehensive income — ​ — ​ — ​ — ​ 598 ​ 598 Exercise of stock options — ​ — ​ 2 ​ — ​ — ​ 2 Stock-based compensation — ​ — ​ 982 ​ — ​ — ​ 982 Restricted stock issuance 97 ​ 1 ​ — ​ — ​ — ​ 1 Issuance of shares under employee stock purchase plan 32 ​ — ​ 277 ​ — ​ — ​ 277 Purchase of common stock ​ (7) ​ ​ — ​ ​ — ​ ​ (46) ​ ​ — ​ ​ (46) Cash dividends paid on common stock ($0.30 per share) — ​ — ​ — ​ (1,262) ​ — ​ (1,262) Balance as of September 30, 2020 4,276 ​ $ 43 ​ $ 16,994 ​ $ 24,492 ​ $ (11,995) ​ $ 29,534 ​ See accompanying notes to consolidated financial statements. ​ 42 Table of Contents CSP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ September 30, ​ September 30, ​ 2020 2019 Operating activities ​ ​ Net loss ​ $ (1,446) ​ $ (371) ​ ​ ​ ​ ​ ​ ​ Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ Depreciation ​ 443 ​ 405 Amortization of intangibles ​ 9 ​ 11 Loss on sale of fixed assets, net ​ ​ 14 ​ ​ — Foreign exchange loss (gain) ​ 2 ​ (157) Non-cash changes in accounts receivable ​ 42 ​ 53 Non-cash changes in inventories ​ 430 ​ 503 Non-cash lease expense ​ ​ 653 ​ ​ — Stock-based compensation expense on stock options and restricted stock awards ​ 982 ​ 792 Deferred income taxes ​ 797 ​ (209) Increase in cash surrender value of life insurance ​ (115) ​ (134) Non-cash other ​ ​ 16 ​ ​ — Changes in operating assets and liabilities: ​ ​ Decrease (increase) in accounts receivable ​ 1,755 ​ (2,128) Decrease in life insurance receivable ​ — ​ 256 Decrease (increase) in inventories ​ 2,105 ​ (777) Increase in refundable income taxes ​ (320) ​ 585 Increase in operating lease right-of-use assets ​ ​ (2,667) ​ ​ — Decrease (increase) in other assets ​ ​ 2,089 ​ ​ (3,091) Decrease in investment in lease ​ 367 ​ 26 Decrease (increase) in long-term receivable ​ ​ 1,685 ​ ​ (5,328) (Decrease) increase in accounts payable and accrued expenses ​ (8,030) ​ 7,232 Increase in operating lease liabilities ​ ​ 2,068 ​ ​ — Increase (decrease) in deferred revenue ​ 206 ​ (244) Decrease in pension and retirement plans liabilities ​ (305) ​ (353) Decrease in income taxes payable ​ (108) ​ (500) (Decrease) increase in other long-term liabilities ​ (428) ​ 100 Net cash provided by (used in) operating activities ​ 244 ​ (3,329) ​ ​ ​ ​ ​ ​ ​ Investing activities ​ ​ Life insurance premiums paid ​ (115) ​ (144) Purchases of property, equipment and improvements ​ (230) ​ (832) Net cash used in investing activities ​ (345) ​ (976) ​ ​ ​ ​ ​ ​ ​ Financing activities ​ ​ Dividends paid ​ (1,262) ​ (2,467) Net payments under line-of-credit agreement ​ ​ (886) ​ ​ (788) Proceeds from debt ​ ​ 4,217 ​ ​ 1,001 Repayments on debt ​ ​ (1,137) ​ ​ — Principal payments on finance leases ​ (333) ​ (276) Purchase of common stock ​ ​ (46) ​ ​ — Proceeds from issuance of shares under equity compensation plans ​ 279 ​ 280 Net cash provided by (used in) financing activities ​ 832 ​ (2,250) Effects of exchange rate on cash ​ 434 ​ (453) Net increase (decrease) in cash and cash equivalents ​ 1,165 ​ (7,008) Cash and cash equivalents beginning of period ​ ​ 18,099 ​ 25,107 Cash and cash equivalents at end of period ​ $ 19,264 ​ $ 18,099 ​ ​ ​ ​ ​ ​ ​ Supplementary cash flow information: ​ ​ Cash paid for income taxes ​ $ 22 ​ $ 52 Cash paid for interest ​ $ 277 ​ $ 68 ​ ​ ​ ​ ​ ​ ​ Supplementary non-cash financing and investing activities: ​ ​ ​ ​ ​ ​ Obtaining a right-of-use asset in exchange for a lease liability ​ $ 216 ​ $ — Non-cash purchases of property and equipment ​ $ — ​ $ 141 See accompanying notes to consolidated financial statements. 43 Table of Contents CSP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2020 AND 2019 Organization and Business CSP Inc. ("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 Technology Solutions ("TS") segment and its High Performance Products ("HPP") segment. 1. 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 intercompany accounts and transactions have been eliminated. ​ Foreign Currency Translation The U.S. Dollar is the reporting currency for all periods presented. 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. Currency transaction gains and losses are recorded as other income (expense) in the consolidated statements of operations. Cash Equivalents For purposes of the consolidated statements of cash flows, highly liquid investments with original maturities of three months or less at the time of acquisition are considered cash equivalents. Research and Development Expense For the years ended September 30, 2020 and 2019, our expenses for research and development were approximately $2.8 million and $2.8 million, respectively. Expenditures for research and development are expensed as they are incurred. Impairment of Long-Lived Assets The Company reviews its long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 44 Table of Contents assets. 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. We did not have intangible assets with indefinite lives at any time during the two years ended September 30, 2020. Intangible assets subject to amortization are amortized on a straight-line basis over their estimated useful lives, generally three to ten years, and are carried at net book value. 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. 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. 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. ​ ​ 45 Table of Contents 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 Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. The recoverability of inventories is based upon the types and levels of inventories held, forecasted demand, pricing, competition and changes in technology. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. As of September 30, 2020, and September 30, 2019, the Company maintained inventory reserves of $4.1 million and $3.8 million, respectively. Property, Equipment and Improvements The components of property, equipment and improvements are stated at cost. The Company provides for depreciation by use of the straight-line method over the estimated useful lives of the related assets (three to seven years). Leasehold improvements are amortized by use of the straight-line method over the lesser of the estimated useful life of the asset or the lease term. Repairs and maintenance costs are expensed as incurred. Trade Accounts Receivable, Long Term Receivable, and Allowance for Doubtful Accounts Trade accounts receivable are stated at amounts that have been billed to customers less an allowance for doubtful accounts. Allowances for doubtful accounts are recorded for the estimated losses resulting from the inability of our customers to make required payments. The estimates for the allowance for doubtful accounts are based on the length of time the receivables are past due, current business environment, and our historical experience. If the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required. Accounts receivable are charged off against the reserve when management has determined they are uncollectible. Within trade accounts receivable and long-term receivable are financing agreements with an original payment term of greater than one year. Interest income earned on these receivables is recognized using the effective interest method. See Note 2 Accounts and Long-Term Receivables for further details on financing arrangements. 46 Table of Contents Pension and Retirement Plans The funded status of pension and other postretirement benefit plans is recognized on the consolidated balance sheet. Gains and losses, prior service costs and credits and any remaining transition amounts that have not yet been recognized through pension expense will be recognized in accumulated other comprehensive loss, net of tax, until they are amortized as a component of net periodic pension/postretirement benefits expense. 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. In the U.K. 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, 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. These supplementary retirement plans are also closed to newly hired employees and have been for the two years ended September 30, 2020. 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. 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. 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. Management has reviewed the discount rates and rates of return with our consulting actuaries and investment advisor and concluded they were reasonable. A decrease in the expected return on pension assets would increase pension expense. Expected compensation increases are estimated based on historical and expected increases in the future. Increases in estimated compensation increases would result in higher pension expense while decreases would lower pension expense. Discount rates are selected based upon rates of return on high quality fixed income investments currently available and expected to be available during the period to maturity of the pension benefit. A decrease in the discount rate would result in greater pension expense while an increase in the discount rate would decrease pension expense. The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets. Segment Information We have two operating segments: (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. 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 We derive revenue from the sale of integrated hardware and software, third-party service contracts, professional services, managed services, financing of hardware and software, and other services. We recognize revenue from hardware upon transfer of control, which is at a point in time typically upon shipment when title transfers. Revenue from software is recognized at a point in time when the license is granted. 47 Table of Contents We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether the Company is acting as a principal party to the transaction or simply acting as an agent or broker based on control and timing. The Company is a principal if it controls the good or service before that good or service is transferred to the customer. We record revenue as gross when the Company is a principal party to the arrangement and net of cost when we are acting as a broker or agent. Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold. Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction. Third-party service contracts are sold in different combinations with hardware, software, and services. 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. Professional services are considered a series of distinct services that form one performance obligation and revenue is recognized over time as services are performed. Revenue generated from managed services is recognized over the term of the contract. Certain managed services contracts include financing of hardware and software. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease 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. Royalty revenue is sales-based and recognized on date of subsequent sale of the product, which occurs on the date of customer shipment. Revenue from extended warranty contracts is recognized evenly over the period of the warranty. Multicomputer repair services revenue is recognized upon control transfer when the customer takes possession of the computer at time of shipping. Revenue generated from maintenance services is recognized evenly over the term of the contract. Variable consideration is immaterial. The right of return risk lies with the original manufacturer of the product. Managed service contracts contain the right to refund if canceled within 30 days of inception. Any products with a standard warranty are treated as a warranty obligation under ASC 460, Guarantees. The following policies are applicable to our major categories of segment revenue transactions: TS Segment Revenue TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software. Financing revenue 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. HPP Segment Revenue HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the Multicomputer and Myricom product lines. Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products’ functionality, and post contract maintenance and support. Post contract 48 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the year ended September 30, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 3,401 ​ $ 943 ​ $ 43,562 ​ $ 44,505 ​ $ 47,906 Service ​ ​ 2,475 ​ ​ 440 ​ ​ 10,889 ​ ​ 11,329 ​ ​ 13,804 Finance * ​ ​ — ​ ​ — ​ ​ 83 ​ ​ 83 ​ ​ 83 Total sales ​ $ 5,876 ​ $ 1,383 ​ $ 54,534 ​ $ 55,917 ​ $ 61,793 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the year ended September 30, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 6,406 ​ $ 4,936 ​ $ 54,540 ​ $ 59,476 ​ $ 65,882 Service ​ ​ 1,496 ​ ​ 380 ​ ​ 11,168 ​ ​ 11,548 ​ ​ 13,044 Finance * ​ ​ — ​ ​ — ​ ​ 135 ​ ​ 135 ​ ​ 135 Total sales ​ $ 7,902 ​ $ 5,316 ​ $ 65,843 ​ $ 71,159 ​ $ 79,061 ​ * 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 49 Table of Contents 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. 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. 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. ​ Contract Assets and Liabilities When the Company has performed work but does not have an unconditional right to payment, a contract asset is recorded. When the Company has the right to bill a customer, accounts receivable is recorded as an unconditional right exists. Current contract assets were $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, 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 $0.9 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 $0.2 million and $0.3 million as of September 30, 2020 and 2019, respectively. These non-current liabilities are recorded in other noncurrent liabilities. Revenue recognized for the year ended September 30, 2020 that was included in contract liabilities as of the beginning of the period was $0.5 million. Contract Costs Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are 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. The period of amortization is generally three to six years. Incremental costs are related to commissions in the TS portion of the business. Current capitalized contract costs are within the 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 50 Table of Contents 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 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. Other Projects are typically billed upon completion or at certain milestones. Product and services are typically billed when shipped or as services are being performed. Payment terms are typically 30 days to pay in full except in Europe where it could be up to 90 days. Most of the Company’s contracts are less than one year. As a practical expedient, the Company has elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less. There are certain contracts that do contain a financing component. 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, 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, but not included in the table below as the royalties are sales-based. 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, 2020 is set forth in the table below: ​ ​ ​ ​ ​ ​ (Amounts in thousands) Fiscal 2021 ​ $ 1,341 Fiscal 2022 ​ ​ 604 Fiscal 2023 ​ ​ 210 Fiscal 2024 ​ ​ 30 ​ ​ $ 2,185 ​ Product Warranty Accrual Our product sales generally include a hardware warranty which ranges from 90-days to three-years. At time of product shipment, we accrue for the estimated cost to repair or replace potentially defective products. 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 Engineering and development expenses include payroll, employee benefits, stock-based compensation and other headcount-related expenses associated with product development. Engineering and development expenses also include third-party development and programming costs. We consider technological feasibility for our software products 51 Table of Contents to be reached upon the release of the software, accordingly, no internal software development costs have been capitalized. Income Taxes 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. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We also reduce deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This methodology requires estimates and judgments in the determination of the recoverability of deferred tax assets and in the calculation of certain tax liabilities. Valuation allowances are recorded against the gross deferred tax assets that management believes, after considering all available positive and negative objective evidence, historical and prospective, with greater weight given to historical evidence, that it is more likely than not that these assets will not be realized. In addition, we are required to recognize in the consolidated financial statements, those tax positions determined to be more-likely-than-not of being sustained upon examination, based on the technical merits of the positions as of the reporting date. 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. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future. Earnings per Share of Common Stock Basic net income per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. 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. ​ ​ ​ ​ ​ ​ 52 Table of Contents 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 September 30, 2019 ​ ​ ​ (Amounts in thousands except per share data) Net loss $ (1,446) $ (371) Less: net loss attributable to nonvested common stock ​ — ​ — Net loss attributable to common stockholders ​ ​ $ (1,446) $ (371) ​ ​ ​ ​ ​ ​ ​ ​ Weighted average total shares outstanding – basic ​ ​ 4,028 3,924 Less: weighted average non–vested shares outstanding ​ ​ — — Weighted average number of common shares outstanding – basic ​ ​ 4,028 3,924 Potential common shares from non–vested stock awards and the assumed exercise of stock options ​ ​ — — Weighted average common shares outstanding – diluted ​ ​ 4,028 3,924 ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share – basic ​ ​ $ (0.36) $ (0.09) Net loss per share – diluted ​ ​ $ (0.36) $ (0.09) ​ All anti-dilutive securities, including stock options, are excluded from the diluted income per share computation. 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 The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates under different assumptions or conditions. Stock-Based Compensation We measure and recognize compensation expense for all stock-based payment awards made to employees and directors including stock options and nonvested shares of restricted common stock based on estimated fair values of stock-based payment awards on the date of grant. The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock option grants. 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, 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. 53 Table of Contents Concentrations of Credit Risk Cash and cash equivalents are maintained with several financial institutions in the U.S. and the U.K. Deposits held with banks may exceed the amount of insurance on such deposits. Generally, these deposits may be redeemed upon demand. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Subsequent Events The Company recognizes in the consolidated financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the statement of financial position, including the estimates inherent in the process of preparing financial statements. The Company has evaluated subsequent events through the date of this filing. 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, 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As reported ​ ASC 842 ​ As of ​ September 30, 2019 Adjustment October 1, 2019 ​ ​ (In thousands) Assets: ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ — ​ $ 2,448 ​ $ 2,448 Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ $ 16,175 ​ $ 665 ​ $ 16,840 Operating lease liabilities - noncurrent portion ​ $ — ​ $ 1,783 ​ $ 1,783 ​ 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 54 Table of Contents 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. 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. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting , an amendment of the FASB Accounting Standards Codification. Under this ASU companies will no longer be required to value non-employee awards differently from employee awards, but the accounting remains different for attribution and a contractual term election for valuing nonemployee equity share options. Equity-classified awards to nonemployees will now be measured at the grant date using fair value of the equity instruments the company is obligated to issue and recognition is associated with the probable outcome. Awards are subsequently measured using stock compensation guidance unless they are modified after the nonemployee stops providing goods or services. Existing disclosure requirements within the stock compensation guidance also apply to nonemployee awards. 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. In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) , Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, an amendment of the FASB Accounting Standards Codification. 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 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2. 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 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. 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 55 Table of Contents September 30, 2020 or 2019, respectively. All these agreements are looked at as one portfolio in determining credit losses. There are various factors that are considered in extending a customer payment terms longer than one year including payment history, economic conditions, and capacity to pay. The credit quality of customers is monitored by payment activity. 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: ​ ​ ​ ​ Fiscal year ending September 30: (Amounts in thousands) 2021 ​ $ 2,678 2022 ​ ​ 2,300 2023 ​ ​ 1,423 Total payments ​ ​ 6,401 Less: unearned income ​ ​ 562 Total, net of unearned income ​ $ 5,839 ​ ​ 3. Inventories Inventories consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ September 30, ​ 2020 2019 ​ ​ (Amounts in thousands) Raw materials ​ $ 574 ​ $ 671 Work-in-process ​ 213 ​ ​ 93 Finished goods ​ 4,498 ​ ​ 7,054 Total ​ $ 5,285 ​ $ 7,818 ​ ​ 4. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of ​ ​ Accumulated ​ ​ Foreign ​ Minimum ​ Other ​ ​ Currency ​ Pension ​ Comprehensive ​ ​ Translation ​ Liability ​ Loss ​ ​ (Amounts in thousands) Balance as of September 30, 2018 ​ $ (4,346) ​ $ (6,479) ​ $ (10,825) Change in period ​ (765) ​ (1,063) ​ (1,828) Tax effect of change in period ​ — ​ 60 ​ 60 Balance as of September 30, 2019 ​ $ (5,111) ​ $ (7,482) ​ $ (12,593) Change in period ​ 415 ​ 150 ​ 565 Tax effect of change in period ​ — ​ 33 ​ 33 Balance as of September 30, 2020 ​ $ (4,696) ​ $ (7,299) ​ $ (11,995) 56 Table of Contents ​ 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. 5. Income Taxes The components of loss before income tax and income tax (benefit) expense are comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ September 30, ​ 2020 2019 ​ ​ (Amounts in thousands) Loss before income tax (benefit) expense ​ ​ ​ ​ ​ ​ U.S. ​ $ (941) $ (663) Foreign ​ (121) 221 ​ ​ $ (1,062) $ (442) Income tax (benefit) expense: ​ ​ ​ ​ ​ Current: ​ ​ ​ ​ ​ Federal ​ $ (435) $ (141) State ​ 21 122 Foreign ​ — — ​ ​ (414) (19) Deferred: ​ ​ ​ ​ ​ Federal ​ 548 (73) State ​ 250 21 Foreign ​ — — ​ ​ 798 (52) ​ ​ $ 384 $ (71) ​ ​ The effective income tax rate differed from the statutory federal income tax rate due to the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended September 30, ​ ​ 2020 ​ 2019 ​ ​ (Dollar amounts in thousands) Computed “expected” tax benefit $ (225) 21.2 % $ (93) 21.0 % Increases (reductions) in taxes resulting from: ​ ​ ​ State income taxes, net of federal tax benefit ​ (7) 0.7 % (73) 16.5 % Foreign operations ​ 2 (0.2) % (46) 10.4 % Permanent differences ​ (3) 0.3 % 31 (7.0) % Change in valuation allowance ​ 1,005 (94.7) % 235 (53.2) % Deferred revenue ​ ​ — ​ — % ​ (48) ​ 10.9 % Payable true up ​ ​ — ​ — % ​ 17 ​ (3.8) % Uncertain tax liability adjustment ​ — — % (41) 9.3 % Research and development credit ​ (107) 10.1 % (90) 20.4 % Benefit of US Federal NOL carryback ​ ​ (222) ​ 20.9 % ​ — — % Other items ​ (59) 5.5 % 37 (8.4) % Income tax (benefit) expense ​ $ 384 (36.2) % $ (71) 16.1 % ​ ​ ​ 57 Table of Contents Significant components of the Company's net deferred tax assets and liabilities as of September 30, 2020 and 2019 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ September 30, ​ 2020 2019 ​ ​ (Amounts in thousands) Deferred tax assets: ​ ​ ​ ​ Pension ​ $ 1,410 ​ $ 1,378 Intangibles ​ 94 ​ 81 Other reserves and accruals ​ 1,131 ​ 291 Inventory reserves and other ​ 684 ​ 619 Federal and state tax credits ​ 391 ​ 380 Federal and state net operating loss carryforwards ​ 3 ​ 928 Foreign net operating loss carryforwards ​ 1,766 ​ 1,393 Foreign exchange on intercompany loan ​ — ​ 7 Depreciation and amortization ​ (244) ​ (232) Gross deferred tax assets ​ 5,235 ​ 4,845 Less: valuation allowance ​ (4,086) ​ (2,899) Realizable deferred tax asset ​ 1,149 ​ 1,946 Gross deferred tax liabilities ​ — ​ — Net deferred tax assets ​ $ 1,149 ​ $ 1,946 ​ 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. tax credit carryforwards for federal purposes of $0 and $279 58 Table of Contents 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 $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. taxes. The state tax impact of a distribution of foreign earnings and profits would not be material. ​ 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. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future. ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended For the Year Ended ​ ​ September 30, 2020 ​ September 30, 2019 ​ ​ (Amounts in thousands) Balance, beginning of year ​ $ — ​ $ 220 Additions for tax positions of current year ​ 78 ​ ​ — Additions for tax positions of prior years ​ 265 ​ ​ — Accrued penalties and interest ​ — ​ ​ 13 Reversal for statute of limitations ​ ​ — ​ (233) Balance, end of period ​ $ 343 ​ $ — ​ We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company has reviewed the tax positions taken on returns filed domestically and in its foreign jurisdictions for all open years, generally fiscal 2017 through 2020, and believes that tax adjustments in any audited year will not be material. ​ ​ ​ ​ ​ 59 Table of Contents 6. Property, Equipment and Improvements, Net Property, equipment and improvements, net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ September 30, September 30, ​ ​ 2020 ​ 2019 ​ ​ (Amounts in thousands) Leasehold improvements ​ $ 224 ​ $ 224 Equipment ​ 8,603 ​ 8,397 Automobiles ​ 116 ​ 98 ​ ​ 8,943 ​ 8,719 Less accumulated depreciation and amortization ​ (7,896) ​ (7,446) Property, equipment and improvements, net ​ $ 1,047 ​ $ 1,273 ​ The Company uses the straight-line method over the estimated useful lives of the assets to record depreciation expense. Depreciation expense was $443 thousand and $405 thousand for the years ended September 30, 2020 and 2019, respectively. 7. Acquired Intangible Assets As of September 30, 2020 and 2019, intangible assets are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ September 30, 2019 ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ ​ Remaining ​ ​ ​ ​ ​ ​ ​ Remaining ​ ​ ​ ​ ​ ​ ​ ​ Amortization ​ ​ ​ Accumulated ​ ​ ​ Amortization ​ ​ ​ Accumulated ​ ​ ​ Period Gross Amortization Net Period Gross Amortization Net ​ ​ (Amounts in thousands) Customer list 4 years ​ $ 90 ​ $ 62 ​ $ 28 5 years ​ $ 90 ​ $ 53 ​ $ 37 ​ Amortization expense on these intangible assets was $9 thousand and $11 thousand for fiscal 2020 and 2019, respectively. Annual amortization expense related to intangible assets for each of the following successive fiscal years is as follows: ​ ​ ​ ​ Fiscal year ending September 30: (Amounts in thousands) 2021 ​ 9 2022 ​ 9 2023 ​ 9 2024 ​ 1 Total ​ $ 28 ​ ​ ​ ​ 60 Table of Contents 8. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ 2020 2019 ​ ​ (Amounts in thousands) Accounts payable ​ $ 5,604 ​ $ 13,495 Commissions ​ 335 ​ 359 Compensation and fringe benefits ​ 1,024 ​ 992 Professional fees and shareholders’ reporting costs ​ 368 ​ 369 Taxes, other than income ​ 161 ​ 353 Finance lease liability ​ ​ 274 ​ ​ 334 Operating lease liability ​ ​ 679 ​ ​ — Warranty ​ 78 ​ 105 Other ​ — ​ 168 ​ ​ $ 8,523 ​ $ 16,175 ​ ​ 9. Leases 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) ​ (Amounts in thousands) Assets ​ ​ ​ ​ ​ ​ ​ Operating leases Operating lease right-of-use assets ​ $ 2,014 ​ $ 2,448 ​ ​ ​ ​ ​ ​ ​ ​ Lease receivable - current Investment in lease, net-current portion ​ $ 336 ​ $ 367 Lease receivable - noncurrent Investment in lease, net-less current portion ​ ​ 81 ​ ​ 417 Total lease receivable ​ ​ $ 417 ​ $ 784 ​ ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ Current operating lease liabilities Accounts payable and accrued expenses ​ $ 679 ​ $ 746 Non-current operating lease liabilities Operating lease liabilities - noncurrent portion ​ ​ 1,390 ​ ​ 1,783 Total operating lease liabilities ​ ​ $ 2,069 ​ $ 2,529 ​ ​ ​ ​ ​ ​ ​ ​ Current finance lease liabilities Accounts payable and accrued expenses ​ $ 274 ​ $ 334 Non-current finance lease liabilities Other noncurrent liabilities ​ 52 ​ 324 Total finance lease liabilities ​ ​ $ 326 ​ $ 658 ​ ​ 61 Table of Contents The components of lease costs for the twelve months ended September 30, 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve months ended Consolidated Statements of Operations Location Consolidated Statements of Operations Location ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ (Amounts in thousands) Finance Lease: ​ ​ ​ ​ ​ ​ ​ Interest on lease liabilities Selling, general, and administrative ​ ​ ​ ​ $ 30 Operating Lease: ​ ​ ​ ​ ​ ​ Operating lease cost Selling, general, and administrative ​ ​ ​ ​ 735 Short-term lease cost Selling, general, and administrative ​ ​ ​ ​ ​ 12 Total lease costs ​ ​ ​ ​ ​ $ 777 Less sublease interest income Revenue ​ ​ ​ ​ ​ (83) Total lease costs, net of sublease interest income ​ ​ ​ ​ ​ $ 694 ​ ​ 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 ​ Sublease Fiscal year ending September 30: Costs ​ Costs ​ Payments received ​ (Amounts in thousands) 2021 $ 749 ​ $ 285 ​ $ 356 2022 ​ 613 ​ ​ 51 ​ ​ 67 2023 ​ 439 ​ ​ 5 ​ ​ 12 2024 240 ​ — ​ 3 2025 182 ​ — ​ — Total $ 2,223 ​ $ 341 ​ $ 438 Less imputed interest ​ (154) ​ ​ (15) ​ ​ (21) Total $ 2,069 ​ $ 326 ​ $ 417 ​ 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) Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ Operating cash flows from operating leases ​ ​ $ 757 Operating cash flows from short-term leases ​ ​ ​ 38 Operating cash flows from finance leases ​ ​ ​ 30 Financing cash flows from finance leases ​ ​ ​ 333 Lease assets obtained in exchange for new lease liabilities ​ ​ ​ ​ Operating leases ​ ​ ​ 216 Cash received from subleases ​ ​ ​ 451 ​ ​ 62 Table of Contents 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 3.5 Finance leases 1.1 ​ ​ Weighted-average discount rate September 30, 2020 Operating leases 4.0% Finance leases 6.5% ​ ​ 10. Product Warranties Product warranty activity for the years ended September 30 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ 2020 2019 ​ ​ (Amounts in thousands) Balance at the beginning of the period ​ $ 105 ​ $ 108 Accruals for warranties for products sold in the period ​ 7 ​ 34 Fulfillment of warranty obligations ​ (34) ​ (37) Balance at the end of the period ​ $ 78 ​ $ 105 ​ ​ ​ ​ These amounts are within accounts payable and accrued expenses on the consolidated balance sheets. ​ 11. 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. 12. 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 63 Table of Contents 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) 2021 ​ $ 1,702 2022 ​ ​ 1,662 2023 ​ ​ 449 2024 ​ ​ 449 Total ​ ​ 4,262 Less: note discount ​ ​ 164 Total ​ $ 4,098 ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ September 30, 2019 ​ (Amounts in thousands) Current $ 1,702 ​ $ 359 Less: notes discount ​ 89 ​ 42 Notes payable - current portion $ 1,613 ​ $ 317 ​ ​ ​ ​ ​ ​ Noncurrent $ 2,559 ​ $ 718 Less: notes discount ​ 74 ​ 34 Notes payable - noncurrent portion $ 2,485 ​ $ 684 ​ ​ 13. Pension and Retirement Plans We have defined benefit and defined contribution plans in the U.K. and in the U.S. In the U.K., 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 plans in the U.K. are closed to newly hired employees and have 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. These supplementary retirement plans are also closed to newly hired employees and have been for the two years ended September 30, 2020. These supplementary plans are funded through whole life insurance policies. The Company 64 Table of Contents 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. Defined Benefit Plans The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheet. The domestic supplemental retirement plans have life insurance policies which are not considered plan assets but were purchased by the Company as a vehicle to fund the costs of the plan. These insurance policies are included in the balance sheet at their cash surrender value, net of policy loans, aggregating $2.4 million and $2.2 million as of September 30, 2020 and 2019, respectively. The loans against the policies have been taken out by the Company to pay the premiums. 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. Assumptions: The following table provides the weighted average actuarial assumptions used to determine the actuarial present value of projected benefit obligations at: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Domestic ​ International ​ ​ September 30, ​ September 30, ​ 2020 2019 2020 2019 Discount rate: 2.50 % 3.00 % 1.60 % 1.90 % Expected return on plan assets: 3.80 % 3.40 % Rate of compensation increase: — % — % ​ The following table provides the weighted average actuarial assumptions used to determine net periodic benefit cost for years ended: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Domestic International ​ ​ September 30, ​ September 30, ​ 2020 2019 2020 2019 Discount rate: 3.00 % 4.00 % 1.60 % 1.90 % Expected return on plan assets: 3.80 % 3.40 % Rate of compensation increase: — % — % ​ For domestic plans, the discount rate was determined by comparison against the FTSE pension liability index for AA rated corporate instruments. The Company monitors other indices to assure that the pension obligations are fairly reported on a consistent basis. The international discount rates were determined by comparison against country specific AA corporate indices, adjusted for duration of the obligation. The periodic benefit cost and the actuarial present value of projected benefit obligations are based on actuarial assumptions that are reviewed on an annual basis. The Company revises these assumptions based on an annual evaluation of long-term trends, as well as market conditions that may have an impact on the cost of providing retirement benefits. ​ 65 Table of Contents The components of net periodic benefit costs related to the U.S. and international plans are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended September 30, ​ ​ 2020 ​ 2019 ​ U.K. U.S. Total U.K. U.S. Total ​ ​ (Amounts in thousands) Pension: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest cost ​ $ 263 ​ $ 15 ​ $ 278 ​ $ 362 ​ $ 24 ​ $ 386 Expected return on plan assets ​ (289) ​ — ​ (289) ​ (327) ​ — ​ (327) Amortization of past service costs ​ ​ 7 ​ ​ — ​ ​ 7 ​ ​ — ​ ​ — ​ ​ — Amortization of net gain (loss) ​ 190 ​ 3 ​ 193 ​ 149 ​ (3) ​ 146 Net periodic benefit cost ​ $ 171 ​ $ 18 ​ $ 189 ​ $ 184 ​ $ 21 ​ $ 205 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Post Retirement: ​ ​ ​ ​ ​ ​ Service cost ​ $ — ​ $ 38 ​ $ 38 ​ $ — ​ $ 34 ​ $ 34 Interest cost ​ — ​ 46 ​ 46 ​ — ​ 53 ​ 53 Amortization of net loss ​ — ​ 24 ​ 24 ​ — ​ (20) ​ (20) Net periodic cost ​ $ — ​ $ 108 ​ $ 108 ​ $ — ​ $ 67 ​ $ 67 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension: ​ ​ ​ ​ ​ ​ Increase (decrease) in minimum liability included in other comprehensive income (loss) ​ $ (231) ​ ​ 2 ​ $ (229) ​ $ 914 ​ ​ 18 ​ $ 932 Post Retirement: ​ ​ ​ ​ ​ ​ Increase in minimum liability included in other comprehensive income ​ — ​ 79 ​ 79 ​ — ​ 131 ​ 131 Total: ​ ​ ​ ​ ​ ​ Increase (decrease) in minimum liability included in comprehensive income (loss) ​ $ (231) ​ $ 81 ​ $ (150) ​ $ 914 ​ $ 149 ​ $ 1,063 ​ ​ ​ 66 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended September 30 ​ ​ 2020 ​ 2019 ​ Foreign U.S. Total Foreign U.S. Total ​ ​ (Amounts in thousands) Pension: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in projected benefit obligation (“PBO”) ​ ​ ​ ​ ​ ​ Balance beginning of year ​ $ 13,447 ​ $ 514 ​ $ 13,961 ​ $ 12,874 ​ $ 585 ​ $ 13,459 Service cost ​ — ​ — ​ — ​ — ​ — ​ — Interest cost ​ 263 ​ 15 ​ 278 ​ 362 ​ 24 ​ 386 Changes in actuarial assumptions ​ 324 ​ 7 ​ 331 ​ 1,273 ​ 15 ​ 1,288 Foreign exchange impact ​ 629 ​ — ​ 629 ​ (772) ​ — ​ (772) Benefits paid ​ (260) ​ (110) ​ (370) ​ (290) ​ (110) ​ (400) Projected benefit obligation at end of year ​ $ 14,403 ​ $ 426 ​ $ 14,829 ​ $ 13,447 ​ $ 514 ​ $ 13,961 Changes in fair value of plan assets: ​ ​ ​ ​ ​ ​ Fair value of plan assets at beginning of year ​ $ 8,238 ​ $ — ​ $ 8,238 ​ $ 8,270 ​ $ — ​ $ 8,270 Actual gain on plan assets ​ 929 ​ — ​ 929 ​ 194 ​ — ​ 194 Company contributions ​ 437 ​ 110 ​ 547 ​ 545 ​ 110 ​ 655 Foreign exchange impact ​ 396 ​ — ​ 396 ​ (481) ​ — ​ (481) Benefits paid ​ (260) ​ (110) ​ (370) ​ (290) ​ (110) ​ (400) Fair value of plan assets at end of year ​ $ 9,740 ​ $ — ​ $ 9,740 ​ $ 8,238 ​ — ​ $ 8,238 Funded status \ net amount recognized ​ $ (4,663) ​ $ (426) ​ $ (5,089) ​ $ (5,209) ​ $ (514) ​ $ (5,723) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Post Retirement: ​ ​ ​ ​ ​ ​ Change in projected benefit obligation (“PBO”): ​ ​ ​ ​ ​ ​ Balance beginning of year ​ $ — ​ $ 1,516 ​ $ 1,516 ​ $ — ​ $ 1,318 ​ $ 1,318 Service cost ​ — ​ 38 ​ 38 ​ — ​ 34 ​ 34 Interest cost ​ — ​ 46 ​ 46 ​ — ​ 53 ​ 53 Changes in actuarial assumptions ​ — ​ 103 ​ 103 ​ — ​ 111 ​ 111 Projected benefit obligation at end of year ​ $ — ​ $ 1,703 ​ $ 1,703 ​ $ — ​ $ 1,516 ​ $ 1,516 Funded status \ net amount recognized ​ $ — ​ $ (1,703) ​ $ (1,703) ​ $ — ​ $ (1,516) ​ $ (1,516) ​ 67 Table of Contents The amounts recognized in the consolidated balance sheet consist of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended September 30 ​ ​ 2020 ​ 2019 ​ Foreign U.S. Total Foreign U.S. Total ​ ​ (Amounts in thousands) Pension: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrued benefit liability ​ $ (4,663) ​ $ (426) ​ $ (5,089) ​ $ (5,209) ​ $ (514) ​ $ (5,723) Deferred tax ​ — ​ 14 ​ 14 ​ — ​ 15 ​ 15 Accumulated other comprehensive income ​ 5,934 ​ 26 ​ 5,960 ​ 6,165 ​ 24 ​ 6,189 Net amount recognized ​ $ 1,271 ​ $ (386) ​ $ 885 ​ $ 956 ​ $ (475) ​ $ 481 Post Retirement: ​ ​ ​ ​ ​ ​ Accrued benefit liability ​ $ — ​ $ (1,703) ​ $ (1,703) ​ $ — ​ $ (1,516) ​ $ (1,516) Deferred tax ​ — ​ 10 ​ 10 ​ — ​ 41 ​ 41 Accumulated other comprehensive income ​ — ​ 160 ​ 160 ​ — ​ 113 ​ 113 Net amount recognized ​ $ — ​ $ (1,533) ​ $ (1,533) ​ $ — ​ $ (1,362) ​ $ (1,362) Total pension and post retirement: ​ ​ ​ ​ ​ ​ Accrued benefit liability ​ $ (4,663) ​ $ (2,129) ​ $ (6,792) ​ $ (5,209) ​ $ (2,030) ​ $ (7,239) Deferred tax ​ — ​ 24 ​ 24 ​ — ​ 56 ​ 56 Accumulated other comprehensive income ​ 5,934 ​ 186 ​ 6,120 ​ 6,165 ​ 137 ​ 6,302 Net amount recognized ​ $ 1,271 ​ $ (1,919) ​ $ (648) ​ $ 956 ​ $ (1,837) ​ $ (881) Accumulated Benefit Obligation: ​ ​ ​ ​ ​ ​ Pension ​ $ (14,403) ​ $ (426) ​ $ (14,829) ​ $ (13,447) ​ $ (514) ​ $ (13,961) Post Retirement ​ — ​ (1,703) ​ (1,703) ​ — ​ (1,516) ​ (1,516) Total accumulated benefit obligation ​ $ (14,403) ​ $ (2,129) ​ $ (16,532) ​ $ (13,447) ​ $ (2,030) ​ $ (15,477) ​ Plans with projected benefit obligations in excess of plan assets are attributable to unfunded domestic supplemental retirement plans, and our U.K. retirement plan. Accrued benefit liability reported as: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ 2020 2019 ​ ​ (Amounts in thousands) Current accrued benefit liability ​ $ 321 ​ $ 335 Non-current accrued benefit liability ​ 6,471 ​ 6,904 Total accrued benefit liability ​ $ 6,792 ​ $ 7,239 ​ 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. Contributions The Company expects to contribute $0.4 million to its pension plans for fiscal 2021. 68 Table of Contents Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (amounts in thousands): ​ ​ ​ ​ Fiscal year ending September 30: (Amounts in thousands) 2021 ​ $ 409 2022 ​ $ 447 2023 ​ $ 483 2024 ​ $ 524 2025 ​ $ 522 Thereafter ​ $ 924 ​ Plan Assets At September 30, 2020, our pension plan in the U.K. was the only plan with assets, holding investments of approximately $9.7 million. 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. There are no specific targets as to asset allocation other than those contained within the Fund that is managed by the authorized investment company. The fair value of the assets held by the U.K. pension plan by asset category are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Values as of ​ ​ September 30, 2020 ​ September 30, 2019 ​ ​ Fair Value Measurements Using Inputs Considered as ​ Fair Value Measurements Using Inputs Considered as Asset Category Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 ​ ​ (Amounts in thousands) Cash on deposit ​ $ 471 ​ $ 471 ​ $ — ​ $ — ​ $ 279 ​ $ 279 ​ $ — ​ $ — Pooled funds ​ 9,269 ​ 9,269 ​ — ​ ​ — ​ 7,959 ​ 7,959 ​ — ​ ​ — Total plan assets ​ $ 9,740 ​ $ 9,740 ​ $ — ​ $ — ​ $ 8,238 ​ $ 8,238 ​ $ — ​ $ — ​ The expected long-term rates of return on plan assets are equal to the yields to maturity of appropriate indices for government and corporate bonds and by adding a premium to the government bond return for equities. The expected rate of return on cash is the Bank of England base rate in force at the effective date. Level 1 investments represent mutual funds for which a quoted market price is available on an active market. These investments primarily hold stocks or bonds, or a combination of stocks and bonds. 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 $156 thousand and $178 thousand for the years ended September 30, 2020 and 2019, respectively. ​ ​ 69 Table of Contents ​ ​ ​ ​ ​ ​ ​ 14. 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. 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, 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended ​ ​ September 30, ​ September 30, ​ 2020 2019 ​ ​ (Amounts in thousands) Cost of sales ​ $ 8 ​ $ 7 Engineering and development ​ 83 ​ 49 Selling, general and administrative ​ 891 ​ 736 Total ​ $ 982 ​ $ 792 ​ 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 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, 2020 and September 30, 2019 were nonvested stock awards. 70 Table of Contents 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, 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ Aggregate ​ ​ ​ ​ average ​ Remaining ​ Intrinsic ​ ​ Number ​ exercise ​ Contractual ​ Value ​ of Options price Term (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding at September 30, 2018 3,500 ​ $ 3.42 — ​ — Granted — ​ ​ — — ​ — Expired (500) ​ 2.99 — ​ — Forfeited — ​ — — ​ — Exercised (1,000) ​ 2.99 — ​ — Outstanding at September 30, 2019 2,000 ​ $ 3.75 — ​ — Granted — ​ — — ​ — Expired (500) ​ $ 3.85 — ​ — Forfeited — ​ — — ​ — Exercised (500) ​ 3.85 — ​ ​ — Outstanding at September 30, 2020 1,000 ​ $ 3.64 .75 Years ​ $ 5 Exercisable at September 30, 2020 1,000 ​ $ 3.64 .75 Years ​ $ 5 Vested and expected to vest at September 30, 2020 1,000 ​ $ 3.64 .75 Years ​ $ 5 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Weighted ​ ​ ​ ​ ​ ​ ​ Average ​ Average ​ Aggregate ​ ​ Number of ​ grant date ​ Remaining ​ Intrinsic ​ ​ nonvested ​ Fair ​ Contractual ​ Value ​ shares Value Term (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonvested shares outstanding at September 30, 2018 154,352 ​ $ 10.34 2.11 Years ​ $ 2,025 Activity in 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Granted 108,000 ​ $ 9.98 — ​ — Vested (68,867) ​ $ 10.39 — ​ — Forfeited (2,750) ​ $ 8.91 — ​ — Nonvested shares outstanding at September 30, 2019 190,735 ​ $ 10.12 2.21 Years ​ $ 2,560 Activity in 2020: ​ ​ Granted 96,750 ​ $ 13.28 — ​ — Vested (84,743) ​ $ 9.66 — ​ — Forfeited — ​ $ — — ​ — Nonvested shares outstanding at September 30, 2020 202,742 ​ $ 11.82 2.18 Years ​ $ 1,750 ​ 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 71 Table of Contents 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. 15. 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 32,222 and 29,238 shares for the two years ended September 30, 2020 and September 30, 2019, respectively. 16. 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. ​ ​ ​ 72 Table of Contents 17. Segment Information The following table presents certain operating segment information. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the year ended September 30, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 3,401 ​ $ 943 ​ $ 43,645 ​ $ 44,588 ​ $ 47,989 Service ​ 2,475 ​ 440 ​ 10,889 ​ 11,329 ​ 13,804 Total sales ​ $ 5,876 ​ $ 1,383 ​ $ 54,534 ​ $ 55,917 ​ $ 61,793 Income (loss) from operations ​ $ (3,730) ​ $ (168) ​ $ 2,474 ​ $ 2,306 ​ $ (1,424) Total assets ​ $ 9,915 ​ $ 10,296 ​ $ 33,434 ​ $ 43,730 ​ $ 53,645 Capital expenditures ​ 89 ​ — ​ 141 ​ 141 ​ 230 Depreciation and amortization ​ 218 ​ 3 ​ 231 ​ 234 ​ 452 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ Product ​ $ 6,406 ​ $ 4,936 ​ $ 54,675 ​ $ 59,611 ​ $ 66,017 Service ​ 1,496 ​ 380 ​ 11,168 ​ 11,548 ​ 13,044 Total sales ​ $ 7,902 ​ $ 5,316 ​ $ 65,843 ​ $ 71,159 ​ $ 79,061 Income (loss) from operations ​ $ (3,085) ​ $ (62) ​ $ 2,321 ​ $ 2,259 ​ $ (826) Total assets ​ $ 11,548 ​ $ 10,530 ​ $ 37,291 ​ $ 47,821 ​ $ 59,369 Capital expenditures ​ 310 ​ 6 ​ 516 ​ 522 ​ 832 Depreciation and amortization ​ 230 ​ 6 ​ 180 ​ 186 ​ 416 ​ Profit (loss) from operations is sales less cost of sales, engineering and development, selling, general and administrative expenses but is not affected by either non-operating charges/income or by income taxes. Non-operating charges/income consists principally of investment income and interest expense. All intercompany transactions have been eliminated. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of 2020 ​ Americas ​ Europe ​ Asia ​ Total ​ Total ​ ​ ​ (Amounts in thousands) TS ​ $ 54,177 ​ $ 1,645 ​ $ 95 ​ $ 55,917 ​ 90 % HPP ​ 5,001 ​ 637 ​ 238 ​ 5,876 10 % Total ​ $ 59,178 ​ $ 2,282 ​ $ 333 ​ $ 61,793 100 % % of Total ​ 95 % 4 % 1 % 100 % ​ 2019 ​ ​ ​ ​ ​ TS ​ $ 67,228 ​ $ 3,285 ​ $ 646 ​ $ 71,159 ​ 90 % HPP ​ 5,294 ​ 771 ​ 1,837 ​ 7,902 10 % Total ​ $ 72,522 ​ $ 4,056 ​ $ 2,483 ​ $ 79,061 100 % % of Total ​ 92 % 5 % 3 % 100 % ​ ​ ​ 73 Table of Contents Deferred tax assets by geographic location at years ended September 30, 2020 and 2019 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ September 30, ​ 2020 2019 ​ ​ (Amounts in thousands) North America ​ $ 1,149 ​ $ 1,946 Europe ​ — ​ — Totals ​ $ 1,149 ​ $ 1,946 ​ 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 year ended September 30, ​ ​ ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Customer ​ % of Total ​ Customer ​ % of Total ​ ​ Revenues Revenues Revenues Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Customer A ​ $ 6,485 ​ 10 % $ 10,186 ​ 13 % ​ 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. 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. 18. Fair Value Disclosures Under the fair value standards fair value is based on the exit price and defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement should reflect all the assumptions that market participants would use in pricing an asset or liability. A fair value hierarchy is established in the authoritative guidance outlined in three levels ranking from Level 1 to level 3 with Level 1 being the highest priority. ​ Level 1: observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets ​ Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly ​ Level 3: 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. ​ ​ 74 Table of Contents To estimate fair value of the financial instruments below quoted market prices are used when available and classified within Level 1. If this data is not available, we use observable market-based inputs to estimate fair value, which are classified within Level 2. If the preceding information is unavailable, we use internally generated data to estimate fair value which is classified within Level 3. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2020 ​ ​ As of September 30, 2019 ​ ​ ​ ​ ​ ​ Carrying Amount ​ ​ Fair Value ​ ​ Carrying Amount ​ ​ Fair Value ​ Fair Value Level ​ Reference ​ ​ (Amounts in thousands) ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents $ 19,264 ​ $ 19,264 ​ $ 18,099 ​ $ 18,099 ​ 1 ​ Consolidated Balance Sheets Accounts and long-term receivable* ​ 5,839 ​ ​ 5,839 ​ ​ 7,087 ​ ​ 7,087 ​ 3 ​ Note 2 Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Notes payable ​ 4,098 ​ ​ 4,098 ​ ​ 1,001 ​ ​ 1,001 ​ 2 ​ Note 12 *Original maturity over one year ​ Cash and cash equivalents Carrying amount approximated fair value. ​ Accounts and long-term receivable with original maturity over one year Fair value was estimated by discounting future cash flows based on the current rate with similar terms. ​ Note Payable Fair value was estimated based on quoted market prices. ​ 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. ​ 19. Dividend 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Paid Fiscal Year ​ Date Declared ​ Record Date ​ Date Paid ​ Per Share 2019 12/27/2018 1/7/2019 1/22/2019 ​ $ 0.15 2019 2/12/2019 2/28/2019 3/14/2019 ​ $ 0.15 2019 5/8/2019 5/31/2019 6/14/2019 ​ $ 0.15 2019 8/7/2019 8/30/2019 9/13/2019 ​ $ 0.15 2020 12/10/2019 ​ 12/31/2019 ​ 1/15/2020 ​ $ 0.15 2020 2/12/2020 ​ 2/28/2020 ​ 3/13/2020 ​ $ 0.15 ​ ​ ​ 75 Table of Contents 20. 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As reported ​ Adjustment ​ As revised Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 13,222 ​ $ 337 ​ $ 13,559 Services ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,350 ​ (51) ​ 3,299 Total sales ​ ​ ​ ​ ​ ​ ​ ​ ​ 16,572 ​ 286 ​ 16,858 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ ​ ​ ​ ​ ​ ​ ​ ​ 11,318 ​ 286 ​ 11,604 Services ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,223 ​ — ​ 1,223 Total cost of sales ​ ​ ​ ​ ​ ​ ​ ​ ​ 12,541 ​ 286 ​ 12,827 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 4,031 ​ $ — ​ $ 4,031 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating loss ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (402) ​ $ — ​ $ (402) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (540) ​ $ — ​ $ (540) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share – basic ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (0.14) ​ $ — ​ $ (0.14) Net loss per share – diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (0.14) ​ $ — ​ $ (0.14) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, 2020 ​ For the six months ended March 31, 2020 ​ As reported ​ Adjustment ​ As revised ​ As reported ​ Adjustment ​ As revised Sales: ​ ​ ​ ​ ​ ​ ​ ​ Product $ 12,296 ​ $ 850 ​ $ 13,146 ​ $ 25,518 ​ $ 1,187 ​ $ 26,705 Services 3,799 ​ (62) ​ 3,737 ​ 7,149 ​ (113) ​ 7,036 Total sales 16,095 ​ 788 ​ 16,883 ​ 32,667 ​ 1,074 ​ 33,741 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ ​ ​ Product 10,245 ​ 788 ​ 11,033 ​ 21,563 ​ 1,074 ​ 22,637 Services 1,367 ​ — ​ 1,367 ​ 2,590 ​ — ​ 2,590 Total cost of sales 11,612 ​ 788 ​ 12,400 ​ 24,153 ​ 1,074 ​ 25,227 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit $ 4,483 ​ $ — ​ $ 4,483 ​ $ 8,514 ​ $ — ​ $ 8,514 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating loss $ (143) ​ $ — ​ $ (143) ​ $ (545) ​ $ — ​ $ (545) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss $ (732) ​ $ — ​ $ (732) ​ $ (1,272) ​ $ — ​ $ (1,272) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share – basic $ (0.18) ​ $ — ​ $ (0.18) ​ $ (0.32) ​ $ — ​ $ (0.32) Net loss per share – diluted $ (0.18) ​ $ — ​ $ (0.18) ​ $ (0.32) ​ $ — ​ $ (0.32) ​ ​ 76 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended June 30, 2020 ​ For the nine months ended June 30, 2020 ​ As reported ​ Adjustment ​ As revised ​ As reported ​ Adjustment ​ As revised Sales: ​ ​ ​ ​ ​ ​ ​ ​ Product $ 10,294 ​ $ 105 ​ $ 10,399 ​ $ 35,812 ​ $ 1,292 ​ $ 37,104 Services 3,238 ​ 143 ​ 3,381 ​ 10,387 ​ 30 ​ 10,417 Total sales 13,532 ​ 248 ​ 13,780 ​ 46,199 ​ 1,322 ​ 47,521 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ ​ ​ Product 8,361 ​ 239 ​ 8,600 ​ 29,924 ​ 1,313 ​ 31,237 Services 947 ​ 9 ​ 956 ​ 3,537 ​ 9 ​ 3,546 Total cost of sales 9,308 ​ 248 ​ 9,556 ​ 33,461 ​ 1,322 ​ 34,783 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit $ 4,224 ​ $ — ​ $ 4,224 ​ $ 12,738 ​ $ — ​ $ 12,738 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating loss $ (393) ​ $ — ​ $ (393) ​ $ (938) ​ $ — ​ $ (938) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss $ (210) ​ $ — ​ $ (210) ​ $ (1,482) ​ $ — ​ $ (1,482) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share – basic $ (0.05) ​ $ — ​ $ (0.05) ​ $ (0.37) ​ $ — ​ $ (0.37) Net loss per share – diluted $ (0.05) ​ $ — ​ $ (0.05) ​ $ (0.37) ​ $ — ​ $ (0.37) ​ ​ ​ ​ 21. 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. 77