What changed in this filing

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Item 9A. Controls and Procedures

2021-12-08 compared with 2020-12-28 · 292 added, 300 removed, 1029 unchanged (37% of the section changed)

7 unchanged sentences

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.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting.

7 unchanged sentences

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

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

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

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

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

As a result of its assessment, management has concluded that the Company’s internal control over financial reporting was effective as of September 30, 2021.

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, 2021 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.

Remediation of Previously Identified Material Weakness

As reported in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, management identified a material weaknesses in internal control over financial reporting 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, which determines whether revenue is recorded gross or net.

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.

6 unchanged sentences

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.

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.

We redesigned the control that failed, which was implemented the first month of fiscal year 2021.

The redesigned control involves review by multiple employees in different departments of every item sold.

As a result of the implementation of these processes and testing these processes for the entire year of fiscal year 2021, management has determined that the remediation actions discussed above were effectively designed and demonstrated effective operation for a sufficient period of time to enable the Company to conclude that the previously identified material weakness in internal control over financial reporting has been remediated as of September 30, 2021.

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.

Except as discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with management’s evaluation during our fiscal year 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other Information

Disclosure Regarding Foreign Jurisdiction that Prevent Inspections

Not applicable

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.

Governance” in our Schedule 14A Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed with the SEC within 120 days after the end of our fiscal year ended September 30, 2021.

Executive Compensation

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compensation plans (excluding

outstanding options,

stock options, warrants and

outstanding restricted stock awards,

securities reflected in column

Plan Category

warrants and rights

options, warrants and rights

Equity compensation plans approved by security holders

23 unchanged sentences

Description of Securities

December 28, 2020

Form of Employee Invention and Non-Disclosure Agreement

74 unchanged sentences

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.

and its subsidiaries (the Company) as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income (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, 2021 and 2020, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

12 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition - Gross vs net presentation

The Company recognizes 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.

The Company records revenue as gross when the Company is a principal party to the arrangement and net of cost when they are acting as a broker or agent.

The Company has concluded that it is

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.

We identified the Company’s accounting for revenue from third-party service contracts described above to be a critical audit matter due to the significant judgments used by management related to the evaluation of the principal versus agent considerations.

Auditing management’s assumptions and conclusions involved a high degree of auditor judgment.

Our audit procedures related to these contracts included the following, among others:

● We evaluated management's significant accounting policies related to these third-party contracts for consistency with accounting standards

● For a selection of contracts, we performed the following procedures:

o Inspected the customer invoice and purchase order to determine whether the sale represented a valid and enforceable transaction with a customer

o Compared the cost per the Company’s records to the cost per the vendor invoice

o Assessed the terms in the customer agreement and evaluated the Company’s determination of principal versus agent presentation by:

● Comparing the description of the transaction per the invoice to management’s summary file of gross vs net transactions

● Evaluated the accuracy of the summary file through inspection of customer invoice, purchase orders, information on vendor website accessed through third-party search engines and inquiries with management

/s/ RSM US LLP

59 unchanged sentences

Other income (expense):

Foreign exchange (loss) gain

Foreign exchange loss

Interest expense

Interest income

Gain on forgiveness of debt

Other income (expense), net

Total other income (expense)

Loss before income taxes

Income tax expense (benefit)

Net loss attributable to common stockholders

Net loss per share – basic

Total other income (expense), net

Income (loss) before income taxes

Income tax expense

Net income (loss) from continuing operations

Discontinued operations:

Gain from sale of discontinued operations

Net income (loss)

Net income (loss) attributable to common shareholders

Continued and discontinued operations:

Net income (loss) from continuing operations attributable to common shareholders

Net income from discontinued operations attributable to common shareholders

Net income (loss) attributable to common shareholders

Net income (loss) per share from continuing operations - basic

Net income per share from sale of discontinued operations - basic

Net income (loss) per share – basic

Weighted average shares outstanding – basic

Net loss per share – diluted

Weighted average shares outstanding – diluted

Net income (loss) per share from continuing operations - diluted

Net income per share from sale of discontinued operations - diluted

Net income (loss) per share – diluted

Weighted average shares outstanding continuing operations – diluted

Weighted average shares outstanding discontinued operations – diluted

Weighted average shares outstanding net income - diluted

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

2 unchanged sentences

September 30,

Net income (loss)

Other comprehensive income (loss):

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

Foreign currency translation gain (loss) adjustments

Other comprehensive gain (loss)

Total comprehensive loss

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

Foreign currency translation gain adjustments

Other comprehensive income

Total comprehensive income (loss)

See accompanying notes to consolidated financial statements.

7 unchanged sentences

Balance as of September 30, 2019

Adoption of ASU 2014-09

Other comprehensive loss

Other comprehensive income

Exercise of stock options

Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

Issuance of shares under employee stock purchase plan

Purchase of common stock

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

5 unchanged sentences

Other comprehensive income

Exercise of stock options

Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

Issuance of shares under employee stock purchase plan

Purchase of common stock

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

Balance as of September 30, 2021

7 unchanged sentences

Operating activities

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

Net income (loss) from continuing operations

Net income from discontinued operations

Net income (loss)

Adjustments to reconcile net loss to net cash provided by operating activities:

Amortization of intangibles

Loss on sale of fixed assets, net

Foreign exchange loss (gain)

Non-cash changes in accounts receivable

Non-cash changes in inventories

Non-cash lease expense

Foreign exchange loss

Provision for losses on accounts receivable

Provision for obsolete inventory

Amortization of lease right-of-use assets

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

2 unchanged sentences

Non-cash other

Adjustment for financing activities recognized in net income - Gain on forgiveness of debt

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable

Decrease in life insurance receivable

Decrease (increase) in inventories

(Increase) decrease in accounts receivable

Decrease in inventories

Increase in refundable income taxes

Increase in operating lease right-of-use assets

Decrease (increase) in other assets

Decrease (increase) in operating lease right-of-use assets

(Increase) decrease in other assets

Decrease in investment in lease

Decrease (increase) in long-term receivable

(Decrease) increase in accounts payable and accrued expenses

Increase in operating lease liabilities

Increase (decrease) in deferred revenue

(Increase) decrease in long-term receivable

Increase (decrease) in accounts payable and accrued expenses

(Decrease) increase in operating lease liabilities

Increase in deferred revenue

Decrease in pension and retirement plans liabilities

Decrease in income taxes payable

(Decrease) increase in other long-term liabilities

Net cash provided by (used in) operating activities

Increase (decrease) in other long-term liabilities

Net cash provided by operating activities

Investing activities

Life insurance premiums paid

Proceeds from sales of property, equipment, and improvements

Purchases of property, equipment and improvements

8 unchanged sentences

Proceeds from issuance of shares under equity compensation plans

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Effects of exchange rate on cash

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents beginning of period

Cash and cash equivalents at end of period

Cash and cash equivalents end of period

Supplementary cash flow information:

1 unchanged sentence

Cash paid for interest

Supplementary non-cash financing and investing activities:

Supplementary non-cash financing activities:

Gain on forgiveness of debt

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

Non-cash purchases of property and equipment

Customer financing for inventory sold (see Note 3 Accounts and Long-Term Receivable for details)

Vendor financing for inventory purchased (see Note 9 Accounts payable and accrued expenses, and Other noncurrent liabilities for details)

See accompanying notes to consolidated financial statements.

36 unchanged sentences

We did not have intangible assets with indefinite lives at any time during the two years ended September 30, 2021.

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.

Intangible assets subject to amortization are amortized on a straight-line basis over their estimated useful lives, generally three to ten year s, and are carried at net book value.

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

17 unchanged sentences

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, 2021 that have not yet commenced.

38 unchanged sentences

As of September 30, 2021, and September 30, 2020, the Company maintained inventory reserves of $ 2.3 million and $ 4.1 million, respectively.

The decrease is from disposing of inventory that was fully reserved.

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).

The Company provides for depreciation by use of the straight-line method over the estimated useful lives of the related assets ( three to seven year s).

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.

11 unchanged sentences

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.

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).

2 unchanged sentences

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.

is closed to newly hired employees and has been for the two year s ended September 30, 2021.

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 retirement plans are also closed to newly hired employees and have been for the two year s ended September 30, 2021.

These supplementary plans are funded through whole life insurance policies.

23 unchanged sentences

Revenue from software is recognized at a point in time when the license is granted.

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.

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

We are a principal if we control the good or service before that good or service is transferred to the customer.

We record revenue as gross when we are 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 sales.

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.

When we are an agent, revenue is typically recorded at a point in time.

When we are 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.

8 unchanged sentences

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.

Revenue from extended warranty contracts is recognized ratably over the warranty period.

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.

5 unchanged sentences

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.

Financing revenue related to the lease is recorded in revenue as equipment leasing is part of our 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.

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.

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

See disaggregated revenues below by products/services and geography.

6 unchanged sentences

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

Significant Judgments

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

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

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

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

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

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

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

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

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

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

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

ensure estimates are appropriate.

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

Professional Services Sold Without Products

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

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

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

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

Gross versus Net Revenue

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

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

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

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

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

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

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

Contract Assets and Liabilities

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.

When we have performed work but do not have an unconditional right to payment, a contract asset is recorded.

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

Current contract assets were $ 2.7 million and $ 1.0 million as of September 30, 2021 and September 30, 2020, 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.

There were no noncurrent contract assets as of September 30, 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 $0.9 million and $0.7 million as of September 30, 2020 and 2019, respectively.

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

Current contract liabilities were $1.8 million and $ 0.9 million as of September 30, 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 $ 0.4 million and $ 0.2 million as of September 30, 2021 and 2020, 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.

These noncurrent liabilities are recorded in other noncurrent liabilities on the consolidated balance sheets.

Revenue recognized for the year ended September 30, 2021 that was included in contract liabilities as of September 30, 2020 was $ 0.8 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.

For a period greater than one year, incremental contract costs are capitalized if we expect 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.

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, 2021 and 2020.

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

There are no non-current capitalized costs on the

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

The portion of current capitalized costs were $ 137 thousand and $ 130 thousand as of September 30, 2021 and 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 year ended September 30, 2021 and 2020 were $ 442 thousand and $ 332 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.

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

1 unchanged sentence

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.

The portion of current capitalized costs were $ 13 thousand as of September 30, 2021 and $ 13 thousand as of September 30, 2020.

The portion of noncurrent capitalized costs were $ 9 thousand and $ 22 thousand as of September 30, 2021 and September 30, 2020, respectively.

The amount of fulfillment costs amortized year ended September 30, 2021 and 2020 were $ 13 thousand and $ 13 thousand, respectively.

These costs amortized were recorded in cost of sales.

There was no impairment related to fulfillment costs capitalized.

1 unchanged sentence

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 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.

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

Most of our contracts are less than one year.

There are certain contracts that contain a financing component.

See Note 1 Summary of Significant Accounting Policies to the consolidated financial statements for additional information.

We 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.

We have 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.

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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

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

Engineering and development expenses also

include third-party development and programming costs.

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

We 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.

18 unchanged sentences

September 30,

(Amounts in thousands except per share data)

net loss attributable to nonvested common stock

Net loss attributable to common stockholders

Net income (loss) from continuing operations

Net income from sale of discontinued operations

Net income (loss)

net income attributable to nonvested common stock

Net income (loss) attributable to common shareholders

Net income (loss) attributable to common shareholders from continuing operations

Net income attributable to common shareholders from discontinued operations

Net income (loss) attributable to common shareholders

Weighted average total shares outstanding – basic

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Weighted average common shares outstanding – diluted

Net loss per share – basic

Net loss per share – diluted

Net income (loss) from continuing operations per share - basic

Net income from discontinued operations per share - basic

Net income (loss) per share - basic

Net income (loss) from continuing operations per share - diluted

Net income from discontinued operations per share - diluted

Net income (loss) per share - diluted

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

Non-vested restricted stock awards of 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.

Non-vested restricted stock awards of 136,000 shares were excluded from net income per share for the year ended September 30, 2021, because their inclusion would have been anti-dilutive.

Non-vested restricted stock awards of 201,000 shares and stock options of 1,000 shares were excluded from net loss per share for the year ended September 30, 2020, because their inclusion would have been anti-dilutive.

Use of Estimates

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

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

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, 2021 and 2020 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.

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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 2021

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:

September 30, 2019

October 1, 2019

(In thousands)

Operating lease right-of-use assets

Accounts payable and accrued expenses

Operating lease liabilities - noncurrent portion

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

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

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

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

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.

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 financial statements issued for fiscal years ending after December 15, 2020.

The Company adopted the ASU in fiscal year 2021 and it did not have a material impact on our consolidated financial statements.

The disclosures were expanded for the year ended September 30, 2021 as this standard does not affect interim disclosures.

New accounting standards not adopted as of September 30, 2021

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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.

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.

In August 2018, the FASB issued ASU No.

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.

Discontinued Operations of TS Segment

CSPi sold all stock of Modcomp GmbH to Reply AG on July 31, 2018 for $ 14.4 million cash and a gain of $ 18.1 million.

This sale was recorded in fiscal year 2018.

An additional € 400 thousand was included in escrow as part of the Share Purchase and Assignment Agreement to potentially be received later as a purchase price adjustment in fiscal year 2021.

This amount was received in July 2021 and recorded as a gain from discontinued operations in the Consolidated Statements of Operations, which is consistent with the presentation for the original transaction.

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

There are no other amounts that will be received as part of the agreement.

Accounts and Long-Term Receivable

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The receivables with a payment term exceeding one year carry an average weighted interest rate of 4.5 % as of September 30, 2021, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

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

There is no t 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, 2021 or 2020, respectively.

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

September 30, 2020 or 2019, respectively.

There was no activity in the allowance for credit losses of these receivables for the years ended September 30, 2021 or 2020, respectively.

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

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

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 the effective date of the agreement.

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.

There were two new agreements effective in the third quarter of fiscal year 2021 causing an increase in accounts and long-term receivable.

These agreements included approximately $ 5.2 million of payments to be received over the next 2 years from the effective date of the agreement.

It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $ 0.4 million during the third quarter of fiscal year 2021.

There were two new agreements effective in the fourth quarter of fiscal year 2021 causing an increase in accounts and long-term receivable.

These agreements included approximately $ 2.5 million of payments to be received over the next 2 years from the effective date of the agreement.

It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $ 0.2 million during the fourth quarter of fiscal year 2021.

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.

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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:

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

Fiscal year ending September 30:

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Total payments

unearned income

Total, net of unearned income

unearned interest income

Total, net of unearned interest income

Inventories consist of the following:

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Finished goods

Several components used in our HPP segment products are obtained from sole-source suppliers.

We are dependent on key vendors such as Xilinx, NXP, and BCRM for a variety of processors for certain products and Wind River Systems, Inc.

for VxWorks operating system software.

We are dependent Mellanox Technologies for our high-speed interconnect components.

Despite our dependence on these sole-source suppliers, based on our current forecast and our projected sales obligations, we believe we have adequate inventory on hand and our current near-term requirements can be met in the existing supply chain.

COVID-19 has adversely affected the distribution channel leading to significantly longer lead times when ordering product.

Manufacturers are not producing as much product as prior to the pandemic due to disruptions, resulting in supply shortages.

Additionally, recent global shipping delays have exacerbated this problem.

The TS segment has many vendors it transacts with and supply shortages are pervasive with many of them.

Accumulated Other Comprehensive Loss

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The changes in the minimum pension liability are net of amortization of net loss of $ 235 thousand in 2021 and net loss of $ 102 thousand in 2020 included in net periodic pension cost.

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

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

For the Years Ended

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(Amounts in thousands)

Loss before income tax (benefit) expense

Income (loss) before income tax (benefit) expense 1

Income tax (benefit) expense:

1 FY 2021 consists of $ 678 thousand from continuing operations and $ 465 thousand from discontinued operations totaling $ 1,143 thousand.

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

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(Dollar amounts in thousands)

Computed “expected” tax benefit

Computed “expected” tax expense (benefit)

Increases (reductions) in taxes resulting from:

State income taxes, net of federal tax benefit

Foreign operations

Foreign rate differential

Exclusion of PPP Loan Forgiveness Income

Exclusion of the UK's Gain on Sale of Disc Ops Entity

Permanent differences

Change in valuation allowance

Deferred revenue

Payable true up

Uncertain tax liability adjustment

Research and development credit

Benefit of US Federal NOL carryback

Return to Provision Adjustments

Income tax (benefit) expense

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Foreign net operating loss carryforwards

Foreign exchange on intercompany loan

Depreciation and amortization

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Realizable deferred tax asset

Gross deferred tax liabilities

Net deferred tax assets

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

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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.

The valuation allowance against deferred tax assets increased by approximately $ 1.2 million during FY 2021, which was primarily due to the recording of a full valuation allowance against the U.S.

deferred tax assets during the year.

During the period ended September 30, 2021, 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.

operations, and concluded that it is more likely than not that deferred tax assets as of September 30, 2021 will not be realized in light of recent results, the ongoing effects of the coronavirus (“COVID-19”) pandemic, and the resulting economic fallout.

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

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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 of September 30, 2021, and 2020, the Company had immaterial U.S.

net operating loss carryforwards for federal purposes.

Due to changes in federal tax law enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act during FY 2021, 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, 2021.

As of September 30, 2021, and 2020, the Company had U.S.

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

thousand, respectively.

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

tax credit carryforwards for federal purposes of $ 753 and $ 0 thousand, respectively.

tax credit carryforwards begin to expire after the Company's FY 2038.

The FY 2021 federal R&D credit and all carried forward credits will be used to offset future tax liabilities.

As of September 30, 2021, and 2020, 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.

net operating loss carryforwards for state purposes of approximately $ 3.4 million and $ 76 thousand, respectively, which are available to offset future taxable income through 2041.

As of September 30, 2021, the Company had state tax credit carryforwards of $ 1 million available to reduce future state tax expense, of which $ 50 thousand has unlimited carryover status and the remainder of the credits are available through FY 2035.

As of September 30, 2021, the Company had U.K.

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Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $ 7.9 million and $ 10.3 million as of September 30, 2021 and 2020, respectively.

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

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

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

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Additions for tax positions of prior years

Accrued penalties and interest

Reversal for statute of limitations

Balance, end of period

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Leasehold improvements

Property, equipment and improvements, gross

Less accumulated depreciation and amortization

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(Amounts in thousands)

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses, and Other noncurrent liabilities

Accounts payable and accrued expenses consist of the following:

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Operating lease liability

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 another agreement with a vendor to pay approximately $ 7.2 million including interest for goods and services through fiscal year 2025 in 6 payments related to a multi-year agreement with a customer.

In July 2021, the Company’s US.

division of the TS segment entered into another agreement with a vendor to pay approximately $ 0.5 million including interest for goods and services through fiscal year 2024 in 12 payments related to a multi-year agreement with a customer.

See Note 3 Accounts and Long-Term Receivable 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.

Interest expense related to these agreements for the year ended September 30, 2021 was $ 190 thousand.

There was not interest expense in prior year due to these type of agreements starting in the second quarter of fiscal year 2021.

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 12 Line of Credit and Note 13 Notes Payable for amounts due to banks and other financial institutions for borrowings.

Below are details of the aforementioned agreements with the vendors that contain imputed interest:

September 30, 2021

(Amounts in thousands)

Accounts payable and accrued expenses

Other noncurrent liabilities

The Company had a total of approximately $ 7.8 million due (net of interest) to one of these vendors as of September 30, 2021.

This is approximately 41 % 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.

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):

The following table specifies where the right-of-use assets and lease liabilities are within the Consolidated Balance Sheets as of September 30, 2021 and 2020:

Consolidated Balance Sheets Location

September 30, 2021

October 1, 2019

(Amounts in thousands)

September 30, 2020

(Amounts in thousands)

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Total finance lease liabilities

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

Twelve months ended

The components of lease costs for the year ended September 30, 2021 and 2020 are as follows:

Consolidated Statements of Operations Location

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September 30, 2021

September 30, 2020

(Amounts in thousands)

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Interest on lease liabilities

Selling, general, and administrative

Interest expense

Operating Lease:

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Less imputed interest

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

Twelve months ended

Supplemental cash flow information related to leases for the fiscal year ended September 30, 2021 and 2020 is below:

September 30, 2021

September 30, 2020

(Amounts in thousands)

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Product Warranties

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

Product warranty activity for the year ended September 30 2021 and 2020 was as follows:

(Amounts in thousands)

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As of September 30, 2021 and September 30, 2020, the Company maintained an inventory line of credit with a borrowing capacity of $ 15.0 million and $ 15.0 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.

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As of September 30, 2021 and September 30, 2020, Company borrowings, all from the TS segment, under the inventory line of credit were $ 0.9 million and $ 1.6 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.

As of September 30, 2021 and September 30, 2020, this line of credit also included availability of a limited cash withdrawal of up to $ 1.0 million.

As of September 30, 2021 and 2020, there were no cash withdrawals outstanding.

Notes Payable

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

See Note 2 for the disclosure related to the receivables.

See Note 3 Accounts and Long-Term Receivable for the disclosure related to the receivables.

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

On April 17, 2020, CSP, Inc.

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

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

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 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.

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 presented on the Consolidated Statement of Operations as Gain on forgiveness of debt.

Interest expense related to the notes for the year ended September 30, 2021 and 2020 was $ 87 thousand and $ 131 thousand, respectively.

Below are details of the notes payable.

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These supplementary plans are funded through whole life insurance policies.

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.

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.

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The amount of net deferred loss expected to be recognized as a component of net periodic benefit cost for the year ending September 30, 2022, is approximately $ 146 thousand.

The large decrease in the accrued benefit liability from $ 6.8 million as of September 30, 2020 to $ 4.4 million as of September 30, 2021 was due to a large return on assets during fiscal year 2021 (see table above for ending balances as of September 30, 2021 and 2020).

Additionally, the assumed discount rate used for the calculation of the projected benefit obligation increased and the expected return on plan assets increased, which both cause the liability to decrease.

Contributions

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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.

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

Stock-based compensation expense incurred and recognized for the years ended September 30, 2021 and 2020 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 $ 981 thousand and $ 982 thousand, respectively.

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For the year ended September 30, 2021, the Company granted 42,457 nonvested shares to certain key employees, 41,000 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.

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.

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.

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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.

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, 2021 and September 30, 2020 were nonvested stock awards.

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There were no stock options granted in the years ended September 30, 2021 and 2020.

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

No stock options were exercised during the year ended September 30, 2021.

The aggregate intrinsic value of stock options exercised during the year ended September 30, 2020 was $ 5 thousand.

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

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Nonvested shares outstanding at September 30, 2019

Activity in 2019:

Activity in fiscal year 2020:

Nonvested shares outstanding at September 30, 2020

Activity in 2020:

Activity in fiscal year 2021:

Nonvested shares outstanding at September 30, 2021

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

incentive plans.

As of September 30, 2021, there was $ 1.4 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements (including nonvested stock awards) granted under the Company’s stock incentive plans.

This cost is expected to be expensed over a weighted average period of approximately 2.32 years.

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

The total fair value of shares vested during the years ended September 30, 2021 and 2020 was $ 1.1 million and $ 0.8 million, respectively.

Employee Stock Purchase Plan

1 unchanged sentence

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.

Pursuant to the ESPP, the Company issued 32,939 and 32,222 shares for the years ended September 30, 2021 and September 30, 2020, respectively.

Repurchase of Common Stock

19 unchanged sentences

All intercompany transactions have been eliminated.

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

Over 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, 2021 and 2020.

18 unchanged sentences

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.

The Company had no assets or liabilities measured at fair value on a recurring (except our pension plan assets, see Note 14 Pension and Retirement Plan ) or non-recurring basis as of September 30, 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.

10 unchanged sentences

Accounts and long-term receivable*

Accounts payable and accrued expenses and other long-term liabilities*

Line of Credit

Consolidated Balance Sheets & Note 12

Notes payable

4 unchanged sentences

Fair value was estimated by discounting future cash flows based on the current rate with similar terms.

Fair value was estimated based on quoted market prices.

Line of credit

The fair value of our line of credit is based on borrowing rates currently available to a market participant for loans with similar terms or maturity.

The carrying amount of our outstanding revolving line of credit approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk.

No interest accrues under the inventory line of credit when advances are paid within terms.

Notes Payable

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.

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, 2021, and 2020.

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:

There were no dividends paid in fiscal year 2021.

For the year ended September 30, 2020, the Company paid cash dividends as follows:

Date Declared

Revision of Prior Period Financial Statements (Unaudited)

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

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

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

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

For the three months ended December 31, 2019

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

For the three months ended March 31, 2020

For the six months ended March 31, 2020

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

For the three months ended June 30, 2020

For the nine months ended June 30, 2020

Cost of sales:

Total cost of sales

Operating loss

Net loss per share – basic

Net loss per share – diluted

Subsequent Events

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

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

See Note 12 for further details of the SBA loans.

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

What changed 10-K

Item 9A. Controls and Procedures