CSP INC /MA/ 10-Q

Item 1. Financial Statements CSP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ September 30, ​ 2021 2020 ​ ​ (Unaudited) ​ ​ ​ ASSETS ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 20,397 ​ $ 19,264 Accounts receivable, net of allowances of $219 and $181 ​ 15,168 ​ 13,362 Investment in lease, net-current portion ​ 162 ​ 336 Inventories ​ 4,221 ​ 5,285 Refundable income taxes ​ 1,229 ​ 807 Other current assets ​ 3,600 ​ 2,535 Total current assets ​ 44,777 ​ 41,589 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, equipment and improvements, net ​ 891 ​ 1,047 Operating lease right-of-use assets ​ ​ 1,686 ​ ​ 2,014 Intangibles, net ​ 23 ​ 28 Investment in lease, net-less current portion ​ 47 ​ 81 Long-term receivable ​ ​ 7,818 ​ 3,642 Deferred income taxes ​ — ​ 1,149 Cash surrender value of life insurance ​ 4,079 ​ 3,948 Other assets ​ 99 ​ 147 Total assets ​ $ 59,420 ​ $ 53,645 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Current liabilities: ​ ​ Accounts payable and accrued expenses ​ $ 10,145 ​ $ 8,523 Line of credit ​ ​ 1,190 ​ ​ 1,573 Notes payable - current portion ​ ​ 739 ​ ​ 1,613 Deferred revenue ​ 1,402 ​ 947 Pension and retirement plans ​ 313 ​ 321 Total current liabilities ​ 13,789 ​ 12,977 Pension and retirement plans ​ 6,834 ​ 6,471 Notes payable - noncurrent portion ​ ​ 1,032 ​ ​ 2,485 Operating lease liabilities - noncurrent portion ​ ​ 1,074 ​ ​ 1,390 Income taxes payable ​ 586 ​ 586 Other noncurrent liabilities ​ 5,304 ​ 202 Total liabilities ​ 28,619 ​ 24,111 ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity: ​ ​ Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 4,394 and 4,276 shares, respectively ​ 44 ​ 43 Additional paid-in capital ​ 17,605 ​ 16,994 Retained earnings ​ 24,796 ​ 24,492 Accumulated other comprehensive loss ​ (11,644) ​ (11,995) Total shareholders’ equity ​ 30,801 ​ 29,534 Total liabilities and shareholders’ equity ​ $ 59,420 ​ $ 53,645 ​ See accompanying notes to unaudited consolidated financial statements. ​ 3 Table of Contents CSP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except for per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the six months ended ​ ​ ​ March 31, ​ March 31, ​ March 31, ​ March 31, ​ ​ 2021 2020 2021 2020 ​ Sales: ​ ​ ​ ​ ​ Product ​ $ 10,976 ​ $ 13,146 ​ $ 19,384 ​ $ 26,705 ​ Services ​ 3,112 ​ 3,737 ​ 6,092 ​ 7,036 ​ Total sales ​ 14,088 ​ 16,883 ​ 25,476 ​ 33,741 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ ​ ​ Product ​ 8,553 ​ 11,033 ​ 15,502 ​ 22,637 ​ Services ​ 1,167 ​ 1,367 ​ 2,228 ​ 2,590 ​ Total cost of sales ​ 9,720 ​ 12,400 ​ 17,730 ​ 25,227 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ 4,368 ​ 4,483 ​ 7,746 ​ 8,514 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ Engineering and development ​ 762 ​ 716 ​ 1,491 ​ 1,388 ​ Selling, general and administrative ​ 3,727 ​ 3,910 ​ 6,913 ​ 7,671 ​ Total operating expenses ​ 4,489 ​ 4,626 ​ 8,404 ​ 9,059 ​ Operating loss ​ (121) ​ (143) ​ (658) ​ (545) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ ​ ​ ​ Foreign exchange (loss) gain ​ (154) ​ 479 ​ (621) ​ 144 ​ Interest expense ​ (75) ​ (55) ​ (113) ​ (112) ​ Interest income ​ 133 ​ 163 ​ 231 ​ 336 ​ Gain on forgiveness of debt ​ ​ — ​ ​ — ​ ​ 2,196 ​ ​ — ​ Other income (expense) ​ 93 ​ (7) ​ 102 ​ 4 ​ Total other income (expense) ​ (3) ​ 580 ​ 1,795 ​ 372 ​ (Loss) income before income taxes ​ ​ (124) ​ 437 ​ ​ 1,137 ​ (173) ​ Income tax expense ​ ​ 723 ​ 1,169 ​ ​ 833 ​ 1,099 ​ Net (loss) income ​ $ (847) ​ $ (732) ​ $ 304 ​ $ (1,272) ​ Net (loss) income attributable to common stockholders ​ $ (847) ​ $ (732) ​ $ 289 ​ $ (1,272) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (loss) income per share – basic ​ $ (0.20) ​ $ (0.18) ​ $ 0.07 ​ $ (0.32) ​ Weighted average shares outstanding – basic ​ 4,158 ​ 4,036 ​ 4,117 ​ 3,999 ​ Net (loss) income per share – diluted ​ $ (0.20) ​ $ (0.18) ​ $ 0.07 ​ $ (0.32) ​ Weighted average shares outstanding – diluted ​ 4,158 ​ 4,036 ​ 4,202 ​ 3,999 ​ ​ See accompanying notes to unaudited consolidated financial statements. ​ 4 Table of Contents CSP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the six months ended ​ ​ ​ March 31, ​ March 31, ​ March 31, ​ March 31, ​ ​ 2021 2020 2021 2020 ​ Net (loss) income ​ $ (847) $ (732) ​ $ 304 $ (1,272) ​ Foreign currency translation gain (loss) adjustments ​ 49 ​ (302) ​ 351 ​ 24 ​ Total comprehensive (loss) income ​ $ (798) $ (1,034) ​ $ 655 $ (1,248) ​ ​ See accompanying notes to unaudited consolidated financial statements. ​ 5 Table of Contents CSP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the three and six months ended March 31, 2021 and 2020: (Amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ For the Three Months Ended March 31, 2020: Shares Amount Capital Earnings loss Equity Balance as of December 31, 2019 4,154 ​ $ 42 ​ $ 15,940 ​ $ 26,083 ​ $ (12,267) ​ $ 29,798 Net loss — ​ — ​ — ​ (732) ​ — ​ (732) Other comprehensive loss — ​ — ​ — ​ — ​ (302) ​ (302) Purchase of common stock (6) ​ ​ — ​ — ​ (43) ​ — ​ (43) Stock-based compensation — ​ — ​ 250 ​ — ​ — ​ 250 Restricted stock issuance 97 ​ 1 ​ — ​ — ​ — ​ 1 Issuance of shares under employee stock purchase plan ​ 9 ​ ​ — ​ ​ 110 ​ ​ — ​ ​ — ​ ​ 110 Cash paid on common stock ($0.15 per share) — ​ — ​ — ​ (640) ​ — ​ (640) Balance as of March 31, 2020 4,254 ​ $ 43 ​ $ 16,300 ​ $ 24,668 ​ $ (12,569) ​ $ 28,442 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ For the Three Months Ended March 31, 2021: Shares Amount Capital Earnings loss Equity Balance as of December 31, 2020 4,276 ​ $ 43 ​ $ 17,259 ​ $ 25,643 ​ $ (11,693) ​ $ 31,252 Net loss — ​ — ​ — ​ (847) ​ — ​ (847) Other comprehensive gain — ​ — ​ — ​ — ​ 49 ​ 49 Stock-based compensation — ​ — ​ 240 ​ — ​ — ​ 240 Restricted stock issuance 103 ​ 1 ​ — ​ — ​ — ​ 1 Issuance of shares under employee stock purchase plan 15 ​ — ​ 106 ​ — ​ — ​ 106 Balance as of March 31, 2021 4,394 ​ $ 44 ​ $ 17,605 ​ $ 24,796 ​ $ (11,644) ​ $ 30,801 ​ ​ See accompanying notes to unaudited consolidated financial statements. ​ ​ 6 Table of Contents CSP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the three and six months ended March 31, 2021 and 2020: (Amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ For the six months ended March 31, 2020: Shares Amount Capital Earnings loss Equity Balance as of September 30, 2019 4,154 ​ $ 42 ​ $ 15,733 ​ $ 27,246 ​ $ (12,593) ​ $ 30,428 Net loss — ​ — ​ — ​ (1,272) ​ — ​ (1,272) Other comprehensive gain — ​ — ​ — ​ — ​ 24 ​ 24 Exercise of stock options — ​ — ​ 2 ​ — ​ — ​ 2 Stock-based compensation — ​ — ​ 455 ​ — ​ — ​ 455 Restricted stock issuance 97 ​ 1 ​ — ​ — ​ — ​ 1 Issuance of shares under employee stock purchase plan 9 ​ — ​ 110 ​ — ​ — ​ 110 Purchase of common stock ​ (6) ​ ​ — ​ ​ — ​ ​ (43) ​ ​ — ​ ​ (43) Cash dividends paid on common stock ($0.30 per share) — ​ — ​ — ​ (1,263) ​ — ​ (1,263) Balance as of March 31, 2020 4,254 ​ $ 43 ​ $ 16,300 ​ $ 24,668 ​ $ (12,569) ​ $ 28,442 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ For the six months ended March 31, 2021: Shares Amount Capital Earnings loss Equity Balance as of September 30, 2020 4,276 ​ $ 43 ​ $ 16,994 ​ $ 24,492 ​ $ (11,995) ​ $ 29,534 Net income — ​ — ​ — ​ 304 ​ — ​ 304 Other comprehensive gain — ​ — ​ — ​ — ​ 351 ​ 351 Stock-based compensation — ​ — ​ 505 ​ — ​ — ​ 505 Restricted stock issuance 103 ​ 1 ​ — ​ — ​ — ​ 1 Issuance of shares under employee stock purchase plan 15 ​ — ​ 106 ​ — ​ — ​ 106 Balance as of March 31, 2021 4,394 ​ $ 44 ​ $ 17,605 ​ $ 24,796 ​ $ (11,644) ​ $ 30,801 ​ ​ See accompanying notes to unaudited consolidated financial statements. ​ ​ 7 Table of Contents ​ CSP INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ For the six months ended ​ ​ March 31, ​ March 31, ​ 2021 2020 Operating activities ​ ​ Net income (loss) ​ $ 304 ​ $ (1,272) ​ ​ ​ ​ ​ ​ ​ Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ Depreciation ​ 197 ​ 235 Amortization of intangibles ​ 5 ​ 4 Loss on sale of fixed assets, net ​ ​ — ​ ​ 9 Foreign exchange loss (gain) ​ 621 ​ (144) Non-cash changes in accounts receivable ​ 36 ​ 97 Non-cash changes in inventories ​ 24 ​ 238 Non-cash lease expense ​ ​ 320 ​ ​ 322 Stock-based compensation expense on stock options and restricted stock awards ​ 505 ​ 455 Deferred income taxes ​ 1,149 ​ 1,946 Increase in cash surrender value of life insurance ​ (61) ​ (51) Non-cash other ​ ​ 68 ​ ​ — ​ ​ ​ ​ ​ ​ ​ Adjustment for financing activities recognized in net income - Gain on forgiveness of debt ​ ​ (2,196) ​ ​ — ​ ​ ​ ​ ​ ​ ​ Changes in operating assets and liabilities: ​ ​ (Increase) decrease in accounts receivable ​ (1,824) ​ 2,206 Decrease in inventories ​ 1,043 ​ 1,149 Increase in refundable income taxes ​ (423) ​ (169) Decrease (increase) in operating lease right-of-use assets ​ ​ 9 ​ ​ (2,131) Increase in other assets ​ ​ (1,005) ​ ​ (473) Decrease in investment in lease ​ 208 ​ 178 (Increase) decrease in long-term receivable ​ ​ (4,176) ​ ​ 176 Increase (decrease) in accounts payable and accrued expenses ​ 1,701 ​ (6,421) (Decrease) increase in operating lease liabilities ​ ​ (279) ​ ​ 2,076 Increase in deferred revenue ​ 455 ​ 637 Increase in pension and retirement plans liabilities ​ 31 ​ 18 Decrease in income taxes payable ​ — ​ (694) Increase (decrease) in other long-term liabilities ​ 5,100 ​ (252) Net cash provided by (used in) operating activities ​ 1,812 ​ (1,861) ​ ​ ​ ​ ​ ​ ​ Investing activities ​ ​ Life insurance premiums paid ​ (70) ​ (144) Purchases of property, equipment and improvements ​ (43) ​ (240) Net cash used in investing activities ​ (113) ​ (384) ​ ​ ​ ​ ​ ​ ​ Financing activities ​ ​ Dividends paid ​ — ​ (1,263) Net payments under line-of-credit agreement ​ ​ (382) ​ ​ (874) Proceeds from debt ​ ​ — ​ ​ 2,037 Repayments on debt ​ ​ (164) ​ ​ (565) Principal payments on finance leases ​ (173) ​ (157) Purchase of common stock ​ ​ — ​ ​ (43) Proceeds from issuance of shares under equity compensation plans ​ 106 ​ 112 Net cash used in financing activities ​ (613) ​ (753) Effects of exchange rate on cash ​ 47 ​ 141 Net increase (decrease) in cash and cash equivalents ​ 1,133 ​ (2,857) Cash and cash equivalents beginning of period ​ ​ 19,264 ​ 18,099 Cash and cash equivalents at end of period ​ $ 20,397 ​ $ 15,242 ​ ​ ​ ​ ​ ​ ​ Supplementary cash flow information: ​ ​ Cash paid for income taxes ​ $ 107 ​ $ 16 Cash paid for interest ​ $ 100 ​ $ 154 ​ ​ ​ ​ ​ ​ ​ Supplementary non-cash financing activities: ​ ​ ​ ​ ​ ​ Gain on forgiveness of debt ​ $ 2,196 ​ $ — See accompanying notes to unaudited consolidated financial statements. ​ 8 Table of Contents CSP INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2021 Organization and Business CSP Inc. ("CSPi" or "CSPI" or "the Company" or "we" or "our") was incorporated in 1968 and is based in Lowell, Massachusetts. 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 to meet the diverse requirements of its commercial and defense customers worldwide. The Company operates in two segments, its Technology Solutions (“TS”) segment and High Performance Products (“HPP”) segment. 1. Basis of Presentation The accompanying interim consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, have been omitted. Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the unaudited consolidated financial statements should be read in conjunction with the footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020. 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 a “gross” basis. 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. The revised numbers for the three and six months ended March 31, 2020 are reflected in this Form 10-Q. The only financial statement affected was the Consolidated Statement of Operations. Specifically, financial statement line items Sales - Product, Sales - Services, and Cost of sales – product. Net income (loss) and gross profit did not change. Notes affected include Note 4 Revenue and Note 15 Segment Information. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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) ​ 9 Table of Contents ​ ​ ​ 2. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates and assumptions are related to reserves for bad debt, reserves for inventory obsolescence, the impairment assessment of intangible assets, right-of-use assets and lease liabilities, and the calculation of standalone selling price for revenue recognition, the calculation of liabilities related to deferred compensation and retirement plans and the calculation of income tax liabilities. Actual results may differ from those estimates under different assumptions or conditions. ​ 3. Recent Accounting Pronouncements Accounting standards adopted in fiscal year 2021 In August 2018, the FASB issued Accounting Standard Update (“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 beginning after December 15, 2020. Beginning October 1, 2020, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements. The disclosures will be expanded for the year ended September 30, 2021 as this standard does not affect interim disclosures. New accounting standards not adopted as of March 31, 2021 In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) , an amendment of the FASB Accounting Standards Codification. This ASU will change how entities account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities entities will be required to estimate lifetime expected credit losses. For available-for-sale debt securities entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. Additionally, there will be a significant increase in the amount of disclosures by year of origination for certain financing receivables. For public entities classified as a smaller reporting company, the new standard is effective for annual periods beginning after December 15, 2022 (ASU 2019-10 Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates ), 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. 4. Revenue 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. 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 10 Table of Contents 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, Myricom, and ARIA 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 maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation. ​ 11 Table of Contents See disaggregated revenues below by products/services and geography. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the three months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 716 ​ $ 241 ​ $ 10,012 ​ $ 10,253 ​ $ 10,969 Service ​ ​ 172 ​ ​ 90 ​ ​ 2,850 ​ ​ 2,940 ​ ​ 3,112 Finance * ​ ​ — ​ ​ — ​ ​ 7 ​ ​ 7 ​ ​ 7 Total sales ​ $ 888 ​ $ 331 ​ $ 12,869 ​ $ 13,200 ​ $ 14,088 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the three months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 922 ​ $ 184 ​ $ 12,017 ​ $ 12,201 ​ $ 13,123 Service ​ ​ 553 ​ ​ 84 ​ ​ 3,100 ​ ​ 3,184 ​ ​ 3,737 Finance * ​ ​ — ​ ​ — ​ ​ 23 ​ ​ 23 ​ ​ 23 Total sales ​ $ 1,475 ​ $ 268 ​ $ 15,140 ​ $ 15,408 ​ $ 16,883 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the six months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 1,892 ​ $ 1,644 ​ $ 15,830 ​ $ 17,474 ​ $ 19,366 Service ​ ​ 552 ​ ​ 177 ​ ​ 5,363 ​ ​ 5,540 ​ ​ 6,092 Finance * ​ ​ — ​ ​ — ​ ​ 18 ​ ​ 18 ​ ​ 18 Total sales ​ $ 2,444 ​ $ 1,821 ​ $ 21,211 ​ $ 23,032 ​ $ 25,476 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the six months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 1,689 ​ $ 737 ​ $ 24,230 ​ $ 24,967 ​ $ 26,656 Service ​ ​ 827 ​ ​ 210 ​ ​ 5,999 ​ ​ 6,209 ​ ​ 7,036 Finance * ​ ​ — ​ ​ — ​ ​ 49 ​ ​ 49 ​ ​ 49 Total sales ​ $ 2,516 ​ $ 947 ​ $ 30,278 ​ $ 31,225 ​ $ 33,741 * Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers (ASC 606). 12 Table of Contents Significant Judgments 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. A financing component exists when at contract inception the period between the transfer of a promised good and/or service to the customer differs from when the customer pays for the good and/or service. As a practical expedient, the Company has elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less. ​ Certain contracts contain a financing component including managed services contracts with financing of hardware and software. The interest rate used reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease component includes hardware, which is subject to ASC 842, Leases . The non-lease components are subject to ASC 606, Revenue from Contracts with Customers . ​ When product and non-managed services are sold together, the allocation of the transaction price to each performance obligation is calculated based on the estimated relative selling price or a budgeted cost-plus margin approach, as appropriate. Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price. These estimates are periodically reviewed by project managers, engineers, and other staff involved to ensure estimates are appropriate. For items sold separately, including hardware, software, professional services, maintenance contracts, other services, and third-party service contracts, there is no allocation as there is one performance obligation. 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 for a third party. 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. 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 $2.0 million and $1.0 million as of March 31, 2021 and September 30, 2020, respectively. The current portion is recorded in other current assets on the consolidated balance sheets. There were no noncurrent contract assets as of March 31, 2021 and September 30, 2020. 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 $1.4 million and $0.9 million as of March 31, 2021 and September 30, 2020, 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 $0.1 million and $0.2 million as of March 31, 2021 and September 30, 13 Table of Contents 2020, respectively. These noncurrent liabilities are recorded in other noncurrent liabilities. Revenue recognized for the six months ended 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 March 31, 2021 and September 30, 2020. The portion of current capitalized costs were $106 thousand and $130 thousand as of March 31, 2021 and September 30, 2020, respectively. There are no noncurrent capitalized costs on the consolidated balance sheets as these commissions are paid annually even when the contract extends beyond a one year period. The amount of incremental costs amortized for the three months ended March 31, 2021 and 2020 were $84 thousand and $84 thousand, respectively. The amount of incremental costs amortized for the six months ended March 31, 2021 and 2020 were $171 thousand and $162 thousand, respectively. This is recorded in selling, general, and administrative expenses. There was no impairment related to incremental costs capitalized during the three and six months ended March 31, 2021. 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 as of March 31, 2021 and $13 thousand as of September 30, 2020. The portion of noncurrent capitalized costs were $16 thousand and $22 thousand as of March 31, 2021 and September 30, 2020, respectively. The amount of fulfillment costs amortized for three and six months ended March 31, 2021 were $3 thousand and $6 thousand, respectively. These costs amortized were recorded in cost of sales. The amount of fulfillment costs amortized for three and six months ended March 31, 2020 were $3 thousand and $6 thousand, respectively. These costs amortized were 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. There are certain contracts that contain a financing component. See Note 6 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 March 31, 2021 is set forth in the table below: ​ ​ ​ ​ ​ ​ (Amounts in thousands) Fiscal 2021 (remaining 6 months) ​ $ 830 Fiscal 2022 ​ ​ 596 Fiscal 2023 ​ ​ 211 Fiscal 2024 ​ ​ 32 ​ ​ $ 1,669 ​ 14 Table of Contents ​ 5. Earnings Per Share of Common Stock Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income (loss) by the assumed weighted average number of common shares outstanding. We are required to present earnings per share (“EPS”), utilizing the two class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities. Basic and diluted earnings per share computations for the Company’s reported net loss attributable to common stockholders are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the six months ended ​ ​ ​ March 31, ​ March 31, ​ March 31, ​ March 31, ​ ​ 2021 2020 2021 2020 ​ ​ ​ (Amounts in thousands except per share data) ​ Net income (loss) $ (847) $ (732) ​ 304 ​ (1,272) Less: net income (loss) attributable to nonvested common stock ​ — ​ — ​ 15 ​ — Net income (loss) attributable to common stockholders ​ $ (847) $ (732) ​ $ 289 $ (1,272) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average total shares outstanding – basic ​ 4,158 4,036 ​ 4,326 3,999 ​ Less: weighted average non–vested shares outstanding ​ — — ​ 209 — ​ Weighted average number of common shares outstanding – basic ​ 4,158 4,036 ​ 4,117 3,999 ​ Potential common shares from non–vested stock awards and the assumed exercise of stock options ​ — — ​ 85 — ​ Weighted average common shares outstanding – diluted ​ 4,158 4,036 ​ 4,202 3,999 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share – basic ​ $ (0.20) $ (0.18) ​ $ 0.07 $ (0.32) ​ Net income (loss) per share – diluted ​ $ (0.20) $ (0.18) ​ $ 0.07 $ (0.32) ​ ​ Non-vested restricted stock awards of 218,000 shares were excluded from the diluted loss per share calculation for the three months ended March 31, 2021. Non-vested restricted stock awards of 204,000 and 197,000 shares were excluded from the diluted loss per share calculation for the three and six months ended March 31, 2020, respectively. These awards were excluded because there was a net loss for these periods and their inclusion would have been anti-dilutive. ​ 6 . 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 8 Leases for financing through leases. These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $6.0 million and $7.7 million as of March 31, 2021. 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. There were two new agreements effective in the second quarter of fiscal year 2021 causing an increase in accounts and long-term receivable. These agreements included approximately $9.0 million of payments to be received over the next 4 years from March 31, 2021. It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $0.5 million during the second quarter of fiscal year 2021. The receivables with a payment term exceeding one year carry an 15 Table of Contents average weighted interest rate of 4.8%, 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 have no past amounts due as of March 31, 2021 or September 30, 2020. There was no activity in the allowance for credit losses of these receivables for the six months ended March 31, 2021 and March 31, 2020, 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 three months ended March 31, 2021 and 2020 was $126 thousand and $114 thousand, respectively. The amount of interest income earned from sales whose payment terms exceed one year for the six months ended March 31, 2021 and 2020 was $218 thousand and $230 thousand, respectively. Interest income from these agreements is recorded in Other income (expense), net on the Consolidated Statements of Operations. ​ Receivables whose payment terms exceed one year are placed on non-accrual 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 non-accrual 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 ​ $ 4,628 2022 ​ ​ 3,860 2023 ​ ​ 2,983 2024 ​ ​ 1,560 2025 ​ ​ 1,560 Total payments ​ ​ 14,591 Less: unearned income ​ ​ 910 Total, net of unearned income ​ $ 13,681 ​ ​ 7 . Inventories Inventories consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ September 30, ​ 2021 2020 ​ ​ (Amounts in thousands) Raw materials ​ $ 890 ​ $ 574 Work-in-process ​ 217 ​ ​ 213 Finished goods ​ 3,114 ​ ​ 4,498 Total ​ $ 4,221 ​ $ 5,285 ​ ​ 16 Table of Contents 8 . Leases Information related to both lessee and lessor The components of lease costs for the three months ended March 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended Consolidated Statements of Operations Location Consolidated Statements of Operations Location ​ March 31, 2021 ​ March 31, 2020 ​ ​ ​ (Amounts in thousands) Finance Lease: ​ ​ ​ ​ ​ ​ ​ Interest on lease liabilities Selling, general, and administrative ​ $ 3 ​ $ 12 Operating Lease: ​ ​ ​ ​ ​ Operating lease cost Selling, general, and administrative ​ 180 ​ 181 Short-term lease cost Selling, general, and administrative ​ ​ 10 ​ ​ 3 Total lease costs ​ ​ $ 193 ​ $ 196 Less sublease interest income Revenue ​ ​ (7) ​ ​ (23) Total lease costs, net of sublease interest income ​ ​ $ 186 ​ $ 173 ​ The components of lease costs for six months ended March 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended Consolidated Statements of Operations Location Consolidated Statements of Operations Location ​ March 31, 2021 ​ March 31, 2020 ​ ​ ​ (Amounts in thousands) Finance Lease: ​ ​ ​ ​ ​ ​ ​ Interest on lease liabilities Selling, general, and administrative ​ $ 8 ​ $ 25 Operating Lease: ​ ​ ​ ​ ​ Operating lease cost Selling, general, and administrative ​ 368 ​ 361 Short-term lease cost Selling, general, and administrative ​ ​ 13 ​ ​ 6 Total lease costs ​ ​ $ 389 ​ $ 392 Less sublease interest income Revenue ​ ​ (18) ​ ​ (49) Total lease costs, net of sublease interest income ​ ​ $ 371 ​ $ 343 ​ Supplemental cash flow information related to leases for three months ended March 31, 2021 and 2020 is below: ​ ​ ​ ​ ​ ​ Three months ended ​ March 31, 2021 March 31, 2020 ​ (Amounts in thousands) Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ Operating cash flows from operating leases $ 185 $ 191 Operating cash flows from short-term leases ​ 3 ​ 10 Operating cash flows from finance leases ​ 3 ​ 12 Financing cash flows from finance leases ​ 87 ​ 79 Lease assets obtained in exchange for new lease liabilities ​ ​ ​ ​ Operating leases ​ — ​ — Cash received from subleases ​ 112 ​ 112 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17 Table of Contents Supplemental cash flow information related to leases for six months ended March 31, 2021 and 2020 is below: ​ ​ ​ ​ ​ ​ Six months ended ​ March 31, 2021 March 31, 2020 ​ (Amounts in thousands) Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ Operating cash flows from operating leases $ 376 $ 379 Operating cash flows from short-term leases ​ 13 ​ 19 Operating cash flows from finance leases ​ 8 ​ 25 Financing cash flows from finance leases ​ 173 ​ 157 Lease assets obtained in exchange for new lease liabilities ​ ​ ​ ​ Operating leases ​ — ​ 4 Cash received from subleases ​ 225 ​ 225 ​ ​ ​ ​ ​ ​ ​ ​ 9. Accounts payable and other noncurrent liabilities In February 2021, the Company’s US. division of the TS segment entered into an agreement with a vendor to pay approximately $1.5 million including interest for goods and services through fiscal year 2025 in 5 payments related to a multi-year agreement with a customer. ​ In February 2021, the Company’s US. division of the TS segment entered into an agreement with a vendor to pay approximately $7.2 million including interest for goods and services through fiscal year 2025 in 6 payments through fiscal year 2025 related to a multi-year agreement with a customer. ​ See Note 6 for further information related to the multi-year agreements above. ​ There was not an interest rate stated and therefore interest was imputed under ASC 835 Interest as the payments in the exchange represented two elements: principal and interest. The imputed interest rate for both agreements was determined to be 5.0%. The rate was determined primarily based on the rate the Company could obtain by financing from other sources at the date of the transaction. ​ The amounts owed for these agreements are in within accounts payable and other noncurrent liabilities because they are owed to a vendor rather than banks or financial institutions for borrowings. See Note 10 Notes Payable and Line of Credit for amounts due to banks and other financial institutions for borrowings. ​ Below are details of the agreements with the vendor that contain imputed interest: ​ ​ ​ ​ ​ March 31, 2021 ​ (Amounts in thousands) Current $ 2,727 Less: discount ​ 288 Accounts payable and accrued expenses $ 2,439 ​ ​ ​ Noncurrent $ 5,590 Less: discount ​ 403 Other noncurrent liabilities $ 5,187 ​ ​ ​ ​ ​ The Company had a total of approximately $8.1 million due to this vendor including the two aforementioned agreements and other payables. This is approximately 53% of Accounts payable and other noncurrent liabilities. The TS segment has many vendors it transacts with and does not have any specific agreement with this vendor that it must purchase certain products from the vendor. Management believes other suppliers could provide similar products on comparable terms. ​ ​ ​ 18 Table of Contents ​ 10 . Notes Payable and Line of Credit 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 6 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 (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The SBA Loans have a two-year term and carry an annual fixed interest rate of 1%. ​ The SBA Loans provided 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 believed could 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 could prepay the principal of the SBA Loans at any time without penalty. ​ The Borrowers applied 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 24 week period beginning on the date of the first disbursement of the SBA Loans. The amount of SBA Loans forgiveness was calculated in accordance with the requirements of the PPP, including provisions of Section 1106 of the CARES Act. We used the SBA Loans proceeds in accordance with the applicable SBA guidelines. In November 2020 the SBA Loans were formally forgiven. The $2.2 million gain is displayed on the Consolidated Statement of Operations in the line item “Gain on forgiveness of debt.” ​ Interest expense related to the notes for the three months ended March 31, 2021 and 2020 was $23 thousand and $31 thousand, respectively. Interest expense related to the notes for the six months ended March 31, 2021 and 2020 was $46 thousand and $63 thousand, respectively. Below are details of the notes payable. ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 ​ September 30, 2020 ​ (Amounts in thousands) Current $ 808 ​ $ 1,702 Less: notes discount ​ 69 ​ 89 Notes payable - current portion $ 739 ​ $ 1,613 ​ ​ ​ ​ ​ ​ Noncurrent $ 1,077 ​ $ 2,559 Less: notes discount ​ 45 ​ 74 Notes payable - noncurrent portion $ 1,032 ​ $ 2,485 ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, 2021 and September 30, 2020, the Company maintained an inventory line of credit with a borrowing capacity of $15.0 million. It may be used by the TS and HPP segments 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 Prime plus 5%. The credit agreement for the inventory line of credit contains financial covenants which require the Company to maintain the following TS segment-specific financial ratios: (1) a minimum current ratio of 1.2, (2) tangible net worth of no less than $4.0 million, and (3) a maximum ratio of total liabilities to total net worth of less than 5.0:1. As of March 31, 2021 and September 30, 2020, Company borrowings, all from the TS segment, under the inventory line of credit were $1.2 million and $1.6 million, respectively, and the Company was in compliance with all financial covenants. As of March 31, 2021 and September 30, 2020 this line of credit also includes availability of a limited cash withdrawal of up to $1.0 million and $1.0 million, respectively. As of March 31, 2021 and September 30, 2020 there were no cash withdrawals outstanding. 19 Table of Contents ​ 11. Pension and Retirement Plans The Company’s operations 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 and defined contribution plans for some of its employees. In the U.S., the Company provides benefits through supplemental retirement plans to certain former employees. The U.S. supplemental retirement plans have life insurance policies which are not plan assets but were purchased by the Company as a vehicle to fund the costs of the plan. The Company also provides for officer death benefits through post-retirement plans to certain officers of the Company in the U.S. All the Company’s defined benefit plans are closed to newly hired employees and have been since September 2009. The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets. The Company’s pension plan in the U.K. is the only plan with plan assets. The plan assets consist of an investment in a commingled fund which in turn comprises a diversified mix of assets including corporate equity securities, government securities and corporate debt securities. The components of net periodic benefit costs related to the U.S. and U.K. plans are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ 2021 ​ 2020 ​ U.K. U.S. Total U.K. U.S. Total ​ ​ (Amounts in thousands) Pension: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest cost ​ $ 61 ​ $ 2 ​ $ 63 ​ $ 66 ​ $ 4 ​ $ 70 Expected return on plan assets ​ (99) ​ — ​ (99) ​ (74) ​ — ​ (74) Amortization of past service costs ​ ​ 2 ​ ​ — ​ ​ 2 ​ ​ 2 ​ ​ — ​ ​ 2 Amortization of net gain ​ 45 ​ 1 ​ 46 ​ 48 ​ 1 ​ 49 Net periodic benefit cost ​ $ 9 ​ $ 3 ​ $ 12 ​ $ 42 ​ $ 5 ​ $ 47 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Post Retirement: ​ ​ ​ ​ ​ ​ Service cost ​ $ — ​ $ 12 ​ $ 12 ​ $ — ​ $ 9 ​ $ 9 Interest cost ​ — ​ 11 ​ 11 ​ — ​ 11 ​ 11 Amortization of net gain ​ — ​ 12 ​ 12 ​ — ​ 6 ​ 6 Net periodic cost ​ $ — ​ $ 35 ​ $ 35 ​ $ — ​ $ 26 ​ $ 26 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended March 31, ​ ​ 2021 ​ 2020 ​ U.K. U.S. Total U.K. U.S. Total ​ ​ (Amounts in thousands) Pension: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest cost ​ $ 119 ​ $ 5 ​ $ 124 ​ $ 132 ​ $ 8 ​ $ 140 Expected return on plan assets ​ (196) ​ — ​ (196) ​ (148) ​ — ​ (148) Amortization of past service costs ​ ​ 4 ​ ​ — ​ ​ 4 ​ ​ 4 ​ ​ — ​ ​ 4 Amortization of net gain (loss) ​ 89 ​ 2 ​ 91 ​ 96 ​ 2 ​ 98 Net periodic benefit cost ​ $ 16 ​ $ 7 ​ $ 23 ​ $ 84 ​ $ 10 ​ $ 94 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Post Retirement: ​ ​ ​ ​ ​ ​ Service cost ​ $ — ​ $ 23 ​ $ 23 ​ $ — ​ $ 19 ​ $ 19 Interest cost ​ — ​ 22 ​ 22 ​ — ​ 23 ​ 23 Amortization of net loss ​ — ​ 25 ​ 25 ​ — ​ 12 ​ 12 20 Table of Contents Net periodic cost ​ $ — ​ $ 70 ​ $ 70 ​ $ — ​ $ 54 ​ $ 54 ​ The fair value of the assets held by the U.K. pension plan by asset category are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Values as of ​ ​ March 31, 2021 ​ September 30, 2020 ​ ​ 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 ​ $ 76 ​ $ 76 ​ $ — ​ $ — ​ $ 471 ​ $ 471 ​ $ — ​ $ — Pooled funds ​ 11,097 ​ 11,097 ​ — ​ ​ — ​ 9,269 ​ 9,269 ​ — ​ ​ — Total plan assets ​ $ 11,173 ​ $ 11,173 ​ $ — ​ $ — ​ $ 9,740 ​ $ 9,740 ​ $ — ​ $ — ​ ​ 12. Income Taxes ​ An income tax expense of $723 thousand was recorded for the three months ended March 31, 2021 compared to an income tax expense of $1.2 million in the same period of 2020. An income tax expense of $833 thousand was recorded for the six months ended March 31, 2021 compared to income tax expense of $1.0 million in the same period of 2020. The income tax expense for the three and six months ended March 31, 2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program. The deferred tax asset change is a non-cash item. The income tax expense for the six months ended March 31, 2020 reflected the recording of a valuation allowance against deferred tax assets during the second fiscal quarter, offset by the anticipated tax benefit from the carryback of net operating losses. ​ The provisions above are estimates, and accordingly, changes to these estimates will be recorded in subsequent periods as more information and guidance becomes available. ​ 13. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ September 30, ​ 2021 2020 ​ ​ (Amounts in thousands) Cumulative effect of foreign currency translation ​ $ (4,345) ​ $ (4,696) Cumulative unrealized loss on pension liability ​ (7,299) ​ (7,299) Accumulated other comprehensive loss ​ $ (11,644) ​ $ (11,995) ​ ​ ​ ​ 14. Fair Value of Financial Assets and Liabilities 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 ​ 21 Table of Contents 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 and whole life insurance policies, see Note 11 for pension plan assets) or non-recurring basis as of March 31, 2021 or September 30, 2020. ​ 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 March 31, 2021 ​ ​ As of September 30, 2020 ​ ​ ​ ​ ​ ​ Carrying Amount ​ ​ Fair Value ​ ​ Carrying Amount ​ ​ Fair Value ​ Fair Value Level ​ Reference ​ ​ (Amounts in thousands) ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents $ 20,397 ​ $ 20,397 ​ $ 19,264 ​ $ 19,264 ​ 1 ​ Consolidated Balance Sheets Accounts and long-term receivable* ​ 13,681 ​ ​ 13,681 ​ ​ 5,839 ​ ​ 5,839 ​ 3 ​ Note 6 Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses and other long-term liabilities* ​ 7,626 ​ ​ 7,626 ​ ​ — ​ ​ — ​ 3 ​ Note 9 Notes payable ​ 1,771 ​ ​ 1,771 ​ ​ 4,098 ​ ​ 4,098 ​ 2 ​ Note 10 ​ *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. ​ Accounts payable and accrued expenses and other long-term liabilities Fair value was estimated by discounting future cash flows based on the current rate the Company could get in another transaction with similar terms based on historical information. ​ Notes 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 as of March 31, 2021 and September 30, 2020. ​ ​ ​ ​ ​ ​ ​ 22 Table of Contents 15. Segment Information The following tables present certain operating segment information for the three and six months ended March 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the three months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 716 ​ $ 241 ​ $ 10,019 ​ $ 10,260 ​ $ 10,976 Service ​ 172 ​ 90 ​ 2,850 ​ 2,940 ​ 3,112 Total sales ​ $ 888 ​ $ 331 ​ $ 12,869 ​ $ 13,200 ​ $ 14,088 Income (loss) from operations ​ $ (1,339) ​ $ (66) ​ $ 1,284 ​ $ 1,218 ​ $ (121) Total assets ​ $ 8,098 ​ $ 10,497 ​ $ 40,825 ​ $ 51,322 ​ $ 59,420 Capital expenditures ​ 1 ​ — ​ 9 ​ 9 ​ 10 Depreciation and amortization ​ 45 ​ — ​ 53 ​ 53 ​ 98 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ Product ​ $ 922 ​ $ 184 ​ $ 12,040 ​ $ 12,224 ​ $ 13,146 Service ​ 553 ​ 84 ​ 3,100 ​ 3,184 ​ 3,737 Total sales ​ $ 1,475 ​ $ 268 ​ $ 15,140 ​ $ 15,408 ​ $ 16,883 Income (loss) from operations ​ $ (1,024) ​ $ (50) ​ $ 931 ​ $ 881 ​ $ (143) Total assets ​ $ 8,685 ​ $ 10,757 ​ $ 34,069 ​ $ 44,826 ​ $ 53,511 Capital expenditures ​ 29 ​ — ​ 4 ​ 4 ​ 33 Depreciation and amortization ​ 57 ​ — ​ 57 ​ 57 ​ 114 ​ 23 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated For the six months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 1,892 ​ $ 1,644 ​ $ 15,848 ​ $ 17,492 ​ $ 19,384 Service ​ 552 ​ 177 ​ 5,363 ​ 5,540 ​ 6,092 Total sales ​ $ 2,444 ​ $ 1,821 ​ $ 21,211 ​ $ 23,032 ​ $ 25,476 Income (loss) from operations ​ $ (2,193) ​ $ (35) ​ $ 1,570 ​ $ 1,535 ​ $ (658) Total assets ​ $ 8,098 ​ $ 10,497 ​ $ 40,825 ​ $ 51,322 ​ $ 59,420 Capital expenditures ​ 7 ​ — ​ 36 ​ 36 ​ 43 Depreciation and amortization ​ 93 ​ — ​ 109 ​ 109 ​ 202 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ Product ​ $ 1,689 ​ $ 737 ​ $ 24,279 ​ $ 25,016 ​ $ 26,705 Service ​ 827 ​ 210 ​ 5,999 ​ 6,209 ​ 7,036 Total sales ​ $ 2,516 ​ $ 947 ​ $ 30,278 ​ $ 31,225 ​ $ 33,741 Income (loss) from operations ​ $ (2,287) ​ $ (47) ​ $ 1,789 ​ $ 1,742 ​ $ (545) Total assets ​ $ 8,685 ​ $ 10,757 ​ $ 34,069 ​ $ 44,826 ​ $ 53,511 Capital expenditures ​ 63 ​ — ​ 177 ​ 177 ​ 240 Depreciation and amortization ​ 115 ​ 3 ​ 121 ​ 124 ​ 239 ​ Income (loss) from operations consists of sales less cost of sales, engineering and development expenses, and selling, general and administrative expenses but is not affected by either other income/expense or by income taxes expense (benefit). Non-operating expenses/income consists principally of investment income, interest income from transactions with payment terms exceeding one year (see Note 6 for details), and interest expense. All intercompany transactions have been eliminated. The following table lists customers from which the Company derived revenues of 10% or more of total revenues for the three and six months ended March 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, ​ For the six months ended March 31, ​ ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Customer ​ % of Total ​ Customer ​ % of Total ​ Customer ​ % of Total ​ Customer ​ % of Total ​ ​ Revenues Revenues Revenues Revenues Revenues Revenues Revenues Revenues ​ ​ (Amounts in millions) ​ Customer A ​ $ 1.2 ​ 8 % $ 2.0 ​ 12 % $ 1.8 ​ 7 % $ 3.8 ​ 11 % ​ Customer A totaled approximately $13.0 million, or 56%, and approximately $4.7 million, or 28%, of total consolidated accounts receivable and long-term receivable as of March 31, 2021 and September 30, 2020, respectively. There were no other customers that were more than 10% of total consolidated accounts receivable and long-term receivable as of March 31, 2021. We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with any customers as of March 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 24 Table of Contents