CSP INC /MA/ 10-Q

Item 1. Financial Statements CSP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ September 30, ​ 2022 2021 ​ ​ Unaudited ​ ​ Audited ASSETS ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 20,332 ​ $ 20,007 Accounts receivable, net of allowances of $ 97 and $ 142 ​ 17,331 ​ 18,698 Investment in lease, net-current portion ​ 40 ​ 68 Inventories ​ 4,055 ​ 3,989 Refundable income taxes ​ 1,711 ​ 1,656 Other current assets ​ 3,611 ​ 4,616 Total current assets ​ 47,080 ​ 49,034 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, equipment and improvements, net ​ 782 ​ 764 Operating lease right-of-use assets ​ ​ 1,041 ​ ​ 1,358 Intangibles, net ​ 14 ​ 19 Investment in lease, net-less current portion ​ 9 ​ 15 Long-term receivable ​ ​ 5,344 ​ 7,522 Cash surrender value of life insurance ​ 4,098 ​ 4,194 Other assets ​ 62 ​ 68 Total assets ​ $ 58,430 ​ $ 62,974 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Current liabilities: ​ ​ Accounts payable and accrued expenses ​ $ 10,116 ​ $ 13,928 Line of credit ​ ​ 879 ​ ​ 941 Notes payable - current portion ​ ​ 594 ​ ​ 757 Deferred revenue ​ 2,664 ​ 1,893 Pension and retirement plans ​ 428 ​ 308 Total current liabilities ​ 14,681 ​ 17,827 Pension and retirement plans ​ 3,681 ​ 4,097 Notes payable - noncurrent portion ​ ​ 438 ​ ​ 876 Operating lease liabilities - noncurrent portion ​ ​ 583 ​ ​ 821 Income taxes payable ​ 524 ​ 524 Other noncurrent liabilities ​ 4,376 ​ 4,783 Total liabilities ​ 24,283 ​ 28,928 ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity: ​ ​ Common stock, $ .01 par value per share; authorized, 7,500 shares; issued and outstanding 4,533 and 4,394 shares, respectively ​ 46 ​ 45 Additional paid-in capital ​ 18,820 ​ 18,258 Retained earnings ​ 24,881 ​ 25,191 Accumulated other comprehensive loss ​ ( 9,600 ) ​ ( 9,448 ) Total shareholders’ equity ​ 34,147 ​ 34,046 Total liabilities and shareholders’ equity ​ $ 58,430 ​ $ 62,974 ​ See accompanying notes to unaudited condensed consolidated financial statements. ​ 3 Table of Contents CSP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except for per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Six months ended ​ ​ ​ March 31, ​ March 31, ​ March 31, ​ March 31, ​ ​ 2022 2021 2022 2021 ​ Sales: ​ ​ ​ ​ ​ Product ​ $ 8,217 ​ $ 10,976 ​ $ 16,937 ​ $ 19,384 ​ Services ​ 3,764 ​ 3,112 ​ 7,413 ​ 6,092 ​ Total sales ​ 11,981 ​ 14,088 ​ 24,350 ​ 25,476 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ ​ ​ Product ​ 6,265 ​ 8,553 ​ 13,542 ​ 15,502 ​ Services ​ 1,516 ​ 1,167 ​ 2,994 ​ 2,228 ​ Total cost of sales ​ 7,781 ​ 9,720 ​ 16,536 ​ 17,730 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ 4,200 ​ 4,368 ​ 7,814 ​ 7,746 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ Engineering and development ​ 717 ​ 762 ​ 1,344 ​ 1,491 ​ Selling, general and administrative ​ 3,507 ​ 3,727 ​ 6,890 ​ 6,913 ​ Total operating expenses ​ 4,224 ​ 4,489 ​ 8,234 ​ 8,404 ​ Operating loss ​ ( 24 ) ​ ( 121 ) ​ ( 420 ) ​ ( 658 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ ​ ​ ​ Foreign exchange gain (loss) ​ 176 ​ ( 154 ) ​ 159 ​ ( 621 ) ​ Interest expense ​ ( 101 ) ​ ( 75 ) ​ ( 206 ) ​ ( 113 ) ​ Interest income ​ 126 ​ 133 ​ 271 ​ 231 ​ Gain on forgiveness of debt ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,196 ​ Other income (expense), net ​ ( 16 ) ​ 93 ​ 3 ​ 102 ​ Total other income (expense), net ​ 185 ​ ( 3 ) ​ 227 ​ 1,795 ​ Income (loss) before income taxes ​ ​ 161 ​ ( 124 ) ​ ​ ( 193 ) ​ 1,137 ​ Income tax expense ​ ​ 5 ​ 723 ​ ​ 17 ​ 833 ​ Net income (loss) ​ $ 156 ​ $ ( 847 ) ​ $ ( 210 ) ​ $ 304 ​ Net income (loss) attributable to common shareholders ​ $ 148 ​ $ ( 847 ) ​ $ ( 210 ) ​ $ 289 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share - basic ​ $ 0.03 ​ $ ( 0.20 ) ​ $ ( 0.05 ) ​ $ 0.07 ​ Weighted average shares outstanding – basic ​ 4,274 ​ 4,158 ​ 4,237 ​ 4,117 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share - diluted ​ $ 0.03 ​ $ ( 0.20 ) ​ $ ( 0.05 ) ​ $ 0.07 ​ Weighted average shares outstanding – diluted ​ 4,285 ​ 4,158 ​ 4,237 ​ 4,202 ​ ​ See accompanying notes to unaudited condensed consolidated financial statements. ​ 4 Table of Contents CSP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Amounts in thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Six months ended ​ ​ ​ March 31, ​ March 31, ​ March 31, ​ March 31, ​ ​ 2022 2021 2022 2021 ​ Net income (loss) ​ $ 156 $ ( 847 ) ​ $ ( 210 ) $ 304 ​ Foreign currency translation (loss) gain adjustments, net ​ ( 181 ) ​ 49 ​ ( 152 ) ​ 351 ​ Total comprehensive (loss) income ​ $ ( 25 ) $ ( 798 ) ​ $ ( 362 ) $ 655 ​ ​ See accompanying notes to unaudited condensed consolidated financial statements. ​ 5 Table of Contents CSP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the three months ended March 31, 2022 and 2021: (Amounts in thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ Three Months Ended March 31, 2022: Shares Amount Capital Earnings loss Equity Balance as of December 31, 2021 4,394 ​ $ 44 ​ $ 18,483 ​ $ 24,825 ​ $ ( 9,419 ) ​ $ 33,933 Net income — ​ — ​ — ​ 156 ​ — ​ 156 Other comprehensive loss — ​ — ​ — ​ — ​ ( 181 ) ​ ( 181 ) Stock-based compensation — ​ — ​ 247 ​ — ​ — ​ 247 Restricted stock issuance 141 ​ 2 ​ — ​ — ​ — ​ 2 Issuance of shares under employee stock purchase plan 11 ​ — ​ 90 ​ — ​ — ​ 90 Purchase of common stock ( 13 ) ​ — ​ — ​ ( 100 ) ​ — ​ ( 100 ) Balance as of March 31, 2022 4,533 ​ $ 46 ​ $ 18,820 ​ $ 24,881 ​ $ ( 9,600 ) ​ $ 34,147 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ 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 income — ​ — ​ — ​ — ​ 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 condensed consolidated financial statements. ​ ​ ​ 6 Table of Contents CSP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the six months ended March 31, 2022 and 2021: (Amounts in thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ Six months ended March 31, 2022: Shares Amount Capital Earnings loss Equity Balance as of September 30, 2021 4,394 ​ $ 45 ​ $ 18,258 ​ $ 25,191 ​ $ ( 9,448 ) ​ $ 34,046 Net loss — ​ — ​ — ​ ( 210 ) ​ — ​ ( 210 ) Other comprehensive loss — ​ ​ — ​ ​ — ​ ​ — ​ ( 152 ) ​ ( 152 ) Stock-based compensation — ​ ​ — ​ ​ 472 ​ ​ — ​ — ​ 472 Restricted stock cancellation ​ — ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1 ) Restricted stock issuance 141 ​ ​ 2 ​ ​ — ​ ​ — ​ — ​ 2 Issuance of shares under employee stock purchase plan 11 ​ ​ — ​ ​ 90 ​ ​ — ​ — ​ 90 Purchase of common stock ​ ( 13 ) ​ ​ — ​ ​ — ​ ​ ( 100 ) ​ ​ — ​ ​ ( 100 ) Balance as of March 31, 2022 4,533 ​ $ 46 ​ $ 18,820 ​ $ 24,881 ​ $ ( 9,600 ) ​ $ 34,147 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ comprehensive ​ Shareholders’ 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 income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 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 condensed consolidated financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7 Table of Contents CSP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended ​ ​ March 31, ​ March 31, ​ 2022 2021 Operating activities ​ ​ Net (loss) income ​ $ ( 210 ) ​ $ 304 ​ ​ ​ ​ ​ ​ ​ Adjustments to reconcile net (loss) income to net cash provided by operating activities: ​ ​ Depreciation ​ 175 ​ 197 Amortization of intangibles ​ 5 ​ 5 Loss on sale of fixed assets, net ​ ​ 1 ​ ​ — Foreign exchange (gain) loss ​ ( 159 ) ​ 621 Provision for losses on accounts receivable ​ ( 45 ) ​ 36 Provision for obsolete inventory ​ 21 ​ 24 Amortization of lease right-of-use assets ​ ​ 360 ​ ​ 320 Stock-based compensation expense on stock options and restricted stock awards ​ 472 ​ 505 Deferred income taxes ​ — ​ 1,149 Increase in cash surrender value of life insurance ​ 156 ​ ( 61 ) ​ ​ ​ ​ ​ ​ ​ Adjustment for financing activities recognized in net income - Gain on forgiveness of debt ​ ​ — ​ ​ ( 2,196 ) ​ ​ ​ ​ ​ ​ ​ Changes in operating assets and liabilities: ​ ​ Decrease (increase) in accounts receivable ​ 1,687 ​ ( 1,824 ) Increase in life insurance receivable ​ ( 322 ) ​ — (Increase) decrease in inventories ​ ( 87 ) ​ 1,043 Increase in refundable income taxes ​ ( 55 ) ​ ( 423 ) (Increase) decrease in operating lease right-of-use assets ​ ​ ( 42 ) ​ ​ 9 Decrease (increase) in other assets ​ ​ 1,005 ​ ​ ( 1,005 ) Decrease in investment in lease ​ 34 ​ 208 Decrease (increase) in long-term receivable ​ ​ 2,179 ​ ​ ( 4,176 ) (Decrease) increase in accounts payable and accrued expenses ​ ( 3,743 ) ​ 1,701 Increase in interest payable ​ ​ 42 ​ ​ 68 Decrease in operating lease liabilities ​ ​ ( 321 ) ​ ​ ( 279 ) Increase in deferred revenue ​ 771 ​ 455 (Decrease) increase in pension and retirement plans liabilities ​ ( 244 ) ​ 31 (Decrease) increase in other long-term liabilities ​ ( 407 ) ​ 5,100 Net cash provided by operating activities ​ 1,273 ​ 1,812 ​ ​ ​ ​ ​ ​ ​ Investing activities ​ ​ Life insurance premiums paid ​ ( 60 ) ​ ( 70 ) Proceeds from sales of property, equipment, and improvements ​ ​ 2 ​ ​ — Purchases of property, equipment and improvements ​ ( 195 ) ​ ( 43 ) Net cash used in investing activities ​ ( 253 ) ​ ( 113 ) ​ ​ ​ ​ ​ ​ ​ Financing activities ​ ​ Net payments under line-of-credit agreement ​ ​ ( 62 ) ​ ​ ( 382 ) Repayments on debt ​ ​ ( 559 ) ​ ​ ( 164 ) Principal payments on finance leases ​ ( 23 ) ​ ( 173 ) Purchase of common stock ​ ​ ( 100 ) ​ ​ — Proceeds from issuance of shares under equity compensation plans ​ 90 ​ 106 Net cash used in financing activities ​ ( 654 ) ​ ( 613 ) Effects of exchange rate on cash ​ ( 41 ) ​ 47 Net increase in cash and cash equivalents ​ 325 ​ 1,133 Cash and cash equivalents beginning of period ​ ​ 20,007 ​ 19,264 Cash and cash equivalents end of period ​ $ 20,332 ​ $ 20,397 ​ ​ ​ ​ ​ ​ ​ Supplementary cash flow information: ​ ​ Cash paid for income taxes ​ $ — ​ $ 107 Cash paid for interest ​ $ 184 ​ $ 100 ​ ​ ​ ​ ​ ​ ​ Supplementary non-cash financing activities: ​ ​ ​ ​ ​ ​ Gain on forgiveness of debt ​ $ — ​ $ 2,196 Customer financing for inventory sold (see Note 6 Accounts and Long-Term Receivable for details) ​ $ 450 ​ $ 9,000 See accompanying notes to unaudited condensed consolidated financial statements. ​ 8 Table of Contents CSP INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2022 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 condensed 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 condensed consolidated financial statements should be read in conjunction with the notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021. ​ ​ ​ ​ 2. Use of Estimates The preparation of condensed 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 New accounting standards not adopted as of March 31, 2022 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. 9 Table of Contents 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 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 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. 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 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, 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. ​ 10 Table of Contents See disaggregated revenues below by products/services and geography. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated Three months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 962 ​ $ 212 ​ $ 7,042 ​ $ 7,254 ​ $ 8,216 Service ​ ​ 181 ​ ​ 104 ​ ​ 3,479 ​ ​ 3,583 ​ ​ 3,764 Finance * ​ ​ — ​ ​ — ​ ​ 1 ​ ​ 1 ​ ​ 1 Total sales ​ $ 1,143 ​ $ 316 ​ $ 10,522 ​ $ 10,838 ​ $ 11,981 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated 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 Six months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 1,682 ​ $ 274 ​ $ 14,980 ​ $ 15,254 ​ $ 16,936 Service ​ ​ 525 ​ ​ 197 ​ ​ 6,691 ​ ​ 6,888 ​ ​ 7,413 Finance * ​ ​ — ​ ​ — ​ ​ 1 ​ ​ 1 ​ ​ 1 Total sales ​ $ 2,207 ​ $ 471 ​ $ 21,672 ​ $ 22,143 ​ $ 24,350 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated 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 ​ * Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers (ASC 606). 11 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 our performance toward satisfying a performance obligation are used to measure progress. An estimate of hours for each professional service agreement is made at the beginning of each contract based on prior experience and monitored throughout the performance of 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, we have 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 remain 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 we are acting as a principal party to the transaction or simply 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 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. Contract Assets and Liabilities 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 $ 1.7 million and $ 2.7 million as of March 31, 2022 and September 30, 2021, respectively. The current portion is recorded in other current assets on the condensed consolidated balance sheets. There were no noncurrent contract assets as of March 31, 2022 and September 30, 2021. 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 we transfer a good or service to the customer. Current contract liabilities were $ 2.7 million and $ 1.9 million as of March 31, 2022 and September 30, 2021, respectively. The current portion of contract liabilities is recorded in deferred revenue on the condensed consolidated balance sheets. The long-term portion of contract liabilities were $ 0.1 million and $ 0.4 million as of March 31, 2022 and September 30, 2021, respectively. These noncurrent liabilities are recorded in other noncurrent liabilities on the condensed consolidated balance sheets. Revenue recognized for the six months ended March 31, 2022 that was included in contract liabilities as of September 30, 2021 was $ 0.7 million. 12 Table of Contents 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 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 . 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 condensed consolidated balance sheets as of March 31, 2022 and September 30, 2021. The portion of current capitalized costs were $ 121 thousand and $ 137 thousand as of March 31, 2022 and September 30, 2021, respectively. There are no noncurrent capitalized costs on the condensed 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, 2022 and 2021 were $ 91 thousand and $ 84 thousand, respectively. The amount of incremental costs amortized for the six months ended March 31, 2022 and 2021 were $ 181 thousand and $ 171 thousand, respectively. This is recorded in selling, general, and administrative expenses. There was no impairment related to incremental costs capitalized during the three months ended March 31, 2022. 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 condensed consolidated balance sheets. The portion of current capitalized costs were $ 13 thousand as of March 31, 2022 and $ 13 thousand as of September 30, 2021. The portion of noncurrent capitalized costs were $ 3 thousand and $ 9 thousand as of March 31, 2022 and September 30, 2021, respectively. The amount of fulfillment costs amortized for the three months ended March 31, 2022 and 2021 were $ 3 thousand and $ 3 thousand, respectively. The amount of fulfillment costs amortized for the six months ended March 31, 2022 and 2021 were $ 6 thousand and $ 6 thousand, respectively. These costs amortized were recorded in cost of sales. These costs amortized were recorded in cost of sales. There was no impairment related to fulfillment costs capitalized as of March 31, 2022 or September 30, 2021. 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 our contracts are less than one year. There are certain contracts that contain a financing component. See Note 6 to the condensed 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. 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. 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, 2022 is set forth in the table below: ​ ​ ​ ​ ​ ​ (Amounts in thousands) Fiscal 2022 ​ $ 657 Fiscal 2023 ​ ​ 647 Fiscal 2024 ​ ​ 30 ​ ​ $ 1,334 ​ ​ 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 13 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Six months ended ​ ​ ​ March 31, ​ March 31, ​ March 31, ​ March 31, ​ ​ 2022 2021 2022 2021 ​ ​ ​ (Amounts in thousands except per share data) ​ Net income (loss) $ 156 $ ( 847 ) $ ( 210 ) $ 304 Less: net income attributable to nonvested common stock ​ 8 ​ — ​ — ​ 15 Net income (loss) attributable to common shareholders ​ $ 148 $ ( 847 ) ​ $ ( 210 ) $ 289 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average total shares outstanding – basic ​ 4,517 4,158 ​ 4,237 4,326 ​ Less: weighted average non–vested shares outstanding ​ 243 — ​ — 209 ​ Weighted average number of common shares outstanding – basic ​ 4,274 4,158 ​ 4,237 4,117 ​ Add: potential common shares from non–vested stock awards and the assumed exercise of stock options ​ 11 — ​ — 85 ​ Weighted average common shares outstanding – diluted ​ 4,285 4,158 ​ 4,237 4,202 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share - basic ​ $ 0.03 ​ $ ( 0.20 ) ​ $ ( 0.05 ) ​ $ 0.07 ​ Net income (loss) per share - diluted ​ $ 0.03 ​ $ ( 0.20 ) ​ $ ( 0.05 ) ​ $ 0.07 ​ ​ There are no outstanding stock options as of March 31, 2022 as they expired in the second quarter of fiscal year 2022. Non-vested restricted stock awards of 218 thousand shares were excluded from the diluted loss per share calculation for the three months ended March 31, 2021. Non-vested restricted stock awards of 218 thousand shares were excluded from the diluted loss per share calculation for the six months ended March 31, 2022. These awards were excluded because there was a net loss for this period 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 $ 5.5 million and $ 5.3 million as of March 31, 2022. These receivables are included in Accounts receivable and Long-term receivable in the amount of $ 6.5 million and $ 7.5 million as of September 30, 2021, respectively. ​ The receivables with a payment term exceeding one year carry an 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, 2022 or September 30, 2021. There was no activity in the allowance for credit losses of these receivables for the six months ended March 31, 2022 and 2021, 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. 14 Table of Contents ​ There was one new agreement effective in the first quarter of fiscal year 2022 causing an increase in accounts and long-term receivable. This agreement included approximately $ 0.5 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 $ 0.1 million during the first quarter of fiscal year 2022. ​ The amount of interest income earned from sales whose payment terms exceed one year for the three months ended March 31, 2022 and 2021 was $ 122 thousand and $ 126 thousand, respectively. The amount of interest income earned from sales whose payment terms exceed one year for the six months ended March 31, 2022 and 2021 was $ 261 thousand and $ 218 thousand, respectively. Interest income from these agreements is recorded in Other income (expense), net on the Condensed 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) 2022 ​ $ 3,335 2023 ​ ​ 4,830 2024 ​ ​ 1,560 2025 ​ ​ 1,560 Total payments ​ ​ 11,285 Less: unearned interest income ​ ​ ( 508 ) Total, net of unearned interest income ​ $ 10,777 ​ ​ 7 . Inventories Inventories consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ September 30, ​ 2022 2021 ​ ​ (Amounts in thousands) Raw materials ​ $ 675 ​ $ 736 Work-in-process ​ 27 ​ ​ 289 Finished goods ​ 3,353 ​ ​ 2,964 Total ​ $ 4,055 ​ $ 3,989 ​ ​ 15 Table of Contents 8 . Leases Information related to both lessee and lessor The components of lease costs for the three months ended March 31, 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Condensed Consolidated Statements of Operations Location ​ March 31, 2022 March 31, 2021 ​ ​ ​ (Amounts in thousands) Finance Lease: ​ ​ ​ ​ ​ ​ ​ Interest on lease liabilities Interest expense ​ $ 1 ​ $ 3 Operating Lease: ​ ​ ​ ​ ​ Operating lease cost Selling, general, and administrative ​ 163 ​ 180 Short-term lease cost Selling, general, and administrative ​ ​ 19 ​ ​ 10 Total lease costs ​ ​ $ 183 ​ $ 193 Less sublease interest income Revenue ​ ​ ( 1 ) ​ ​ ( 7 ) Total lease costs, net of sublease interest income ​ ​ $ 182 ​ $ 186 ​ The components of lease costs for the six months ended March 31, 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended ​ Condensed Consolidated Statements of Operations Location ​ March 31, 2022 ​ March 31, 2021 ​ ​ ​ (Amounts in thousands) Finance Lease: ​ ​ ​ ​ ​ ​ ​ Interest on lease liabilities Interest expense ​ $ 2 ​ $ 8 Operating Lease: ​ ​ ​ ​ ​ Operating lease cost Selling, general, and administrative ​ 342 ​ 368 Short-term lease cost Selling, general, and administrative ​ ​ 31 ​ ​ 13 Total lease costs ​ ​ $ 375 ​ $ 389 Less sublease interest income Revenue ​ ​ ( 1 ) ​ ​ ( 18 ) Total lease costs, net of sublease interest income ​ ​ $ 374 ​ $ 371 ​ Supplemental cash flow information related to leases for three months ended March 31, 2022 and 2021 is below: ​ ​ ​ ​ ​ ​ ​ Three months ended ​ March 31, 2022 March 31, 2021 ​ (Amounts in thousands) Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ Operating cash flows from operating leases $ 186 $ 185 Operating cash flows from short-term leases ​ 19 ​ 3 Operating cash flows from finance leases ​ 1 ​ 3 Financing cash flows from finance leases ​ 12 ​ 87 Lease assets obtained in exchange for new lease liabilities ​ ​ ​ ​ Operating leases ​ — ​ — Cash received from subleases ​ 16 ​ 112 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 16 Table of Contents Supplemental cash flow information related to leases for six months ended March 31, 2022 and 2021 is below: ​ ​ ​ ​ ​ ​ ​ ​ Six months ended ​ March 31, 2022 March 31, 2021 ​ (Amounts in thousands) Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ Operating cash flows from operating leases $ 355 $ 376 Operating cash flows from short-term leases ​ 31 ​ 13 Operating cash flows from finance leases ​ 2 ​ 8 Financing cash flows from finance leases ​ 23 ​ 173 Lease assets obtained in exchange for new lease liabilities ​ ​ ​ ​ Cash received from subleases ​ 34 ​ 225 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 9. Accounts payable and other noncurrent liabilities The Company enters into certain multi-year agreements with vendors when also entering into some of the multi-year contracts the Company enters into with customers. See Note 6, “Accounts and Long-Term Receivable” for further information related to the multi-year agreements with customers. ​ There was not an interest rate stated in the agreements 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 three months ended March 31, 2022 and 2021 was $ 72 thousand and $ 28 thousand, respectively. Interest expense related to these agreements for the six months ended March 31, 2022 and 2021 was $ 146 thousand and $ 28 thousand, respectively. ​ The amounts owed for these agreements are in accounts payable and other noncurrent liabilities because they are owed to vendors 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 vendors that contain imputed interest: ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ March 31, 2021 ​ (Amounts in thousands) ​ ​ ​ Current $ 1,758 ​ $ 2,727 Less: discount ​ 223 ​ ​ 288 Accounts payable and accrued expenses $ 1,535 ​ $ 2,439 ​ ​ ​ ​ ​ ​ Noncurrent $ 4,452 ​ $ 5,590 Less: discount ​ 215 ​ ​ 403 Other noncurrent liabilities $ 4,237 ​ $ 5,187 ​ ​ ​ ​ ​ The Company had a total of approximately $ 6.6 million due to one of these vendors as of March 31, 2022. This is approximately 45 % 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. ​ ​ ​ 17 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 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 presented on the Condensed Consolidated Statement of Operations as Gain on forgiveness of debt for the six months ended March 31, 2021. ​ Interest expense related to the notes for the three months ended March 31, 2022 and 2021 was $ 13 thousand and $ 23 thousand, respectively. Interest expense related to the notes for the six months ended March 31, 2022 and 2021 was $ 27 thousand and $ 46 thousand, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ September 30, 2021 ​ (Amounts in thousands) Current $ 628 ​ $ 808 Less: notes discount ​ 34 ​ 51 Notes payable - current portion $ 594 ​ $ 757 ​ ​ ​ ​ ​ ​ Noncurrent $ 449 ​ $ 897 Less: notes discount ​ 11 ​ 21 Notes payable - noncurrent portion $ 438 ​ $ 876 ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, 2022 and September 30, 2021, 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, 2022 and September 30, 2021, Company borrowings, all from the TS segment, under the inventory line of credit were $ 0.9 million and $ 0.9 million, respectively, and the Company was in compliance with all financial covenants. As of March 31, 2022 and September 30, 2021, this line of credit also includes availability of a limited cash withdrawal of up to $ 1.0 million. As of March 31, 2022 and September 30, 2021 there were no cash withdrawals outstanding. ​ 18 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. A gain on a life insurance policy of $ 0.1 million occurred during the second quarter of fiscal year 2022. The life insurance policy was not a current employee at time of expiration. The Company is due $ 322 thousand from the life insurance policy, which will be paid during Q3 of fiscal year 2022. This receivable is on the Condensed Consolidated Balance Sheet in the financial statement line item Accounts receivable, net. 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 condensed 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, ​ ​ 2022 ​ 2021 ​ U.K. U.S. Total U.K. U.S. Total ​ ​ (Amounts in thousands) Pension: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest cost ​ $ 67 ​ $ 3 ​ $ 70 ​ $ 61 ​ $ 2 ​ $ 63 Expected return on plan assets ​ ( 114 ) ​ — ​ ( 114 ) ​ ( 99 ) ​ — ​ ( 99 ) Amortization of past service costs ​ ​ 2 ​ ​ — ​ ​ 2 ​ ​ 2 ​ ​ — ​ ​ 2 Amortization of net loss ​ 24 ​ 1 ​ 25 ​ 45 ​ 1 ​ 46 Net periodic benefit cost ​ $ ( 21 ) ​ $ 4 ​ $ ( 17 ) ​ $ 9 ​ $ 3 ​ $ 12 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Post Retirement: ​ ​ ​ ​ ​ ​ Service cost ​ $ — ​ $ 11 ​ $ 11 ​ $ — ​ $ 12 ​ $ 12 Interest cost ​ — ​ 11 ​ 11 ​ — ​ 11 ​ 11 Amortization of net (gain) loss ​ — ​ ( 2 ) ​ ( 2 ) ​ — ​ 12 ​ 12 Net periodic cost ​ $ — ​ $ 20 ​ $ 20 ​ $ — ​ $ 35 ​ $ 35 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended March 31, ​ ​ 2022 ​ 2021 ​ U.K. U.S. Total U.K. U.S. Total ​ ​ (Amounts in thousands) Pension: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest cost ​ $ 138 ​ $ 5 ​ $ 143 ​ $ 119 ​ $ 5 ​ $ 124 Expected return on plan assets ​ ( 236 ) ​ — ​ ( 236 ) ​ ( 196 ) ​ — ​ ( 196 ) Amortization of past service costs ​ ​ 4 ​ ​ — ​ ​ 4 ​ ​ 4 ​ ​ — ​ ​ 4 Amortization of net loss ​ 49 ​ 1 ​ 50 ​ 89 ​ 2 ​ 91 Net periodic benefit cost ​ $ ( 45 ) ​ $ 6 ​ $ ( 39 ) ​ $ 16 ​ $ 7 ​ $ 23 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Post Retirement: ​ ​ ​ ​ ​ ​ Service cost ​ $ — ​ $ 22 ​ $ 22 ​ $ — ​ $ 23 ​ $ 23 Interest cost ​ — ​ 23 ​ 23 ​ — ​ 22 ​ 22 Amortization of net (gain) loss ​ — ​ ( 4 ) ​ ( 4 ) ​ — ​ 25 ​ 25 Net periodic cost ​ $ — ​ $ 41 ​ $ 41 ​ $ — ​ $ 70 ​ $ 70 19 Table of Contents ​ ​ ​ 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, 2022 ​ September 30, 2021 ​ ​ 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 ​ $ 213 ​ $ 213 ​ $ — ​ $ — ​ $ 93 ​ $ 93 ​ $ — ​ $ — Pooled funds ​ 11,622 ​ 11,622 ​ — ​ ​ — ​ 11,828 ​ 11,828 ​ — ​ ​ — Total plan assets ​ $ 11,835 ​ $ 11,835 ​ $ — ​ $ — ​ $ 11,921 ​ $ 11,921 ​ $ — ​ $ — ​ ​ 12. Income Taxes An income tax expense of $ 5 thousand was recorded for the three months ended March 31, 2022 compared to an income tax expense of $ 723 thousand in the same period of 2021. An income tax expense of $ 17 thousand was recorded for the six months ended March 31, 2022 compared to an income tax expense of $ 833 thousand in the same period of 2021. The income tax expense for the three and six months ended March 31, 2022 is primarily driven by minimum state tax expenses, as the Company continues to maintain a full valuation allowance on its operations. The income tax expense for the three and six months ended March 31, 2021 was 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. ​ We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full calendar year to ordinary income or loss for the reporting period. However, we used a discrete effective tax rate method to calculate income taxes for the quarter ended March 31, 2022 because we have determined that our ordinary income or loss cannot be reliably estimated and small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rates. ​ 13. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ September 30, ​ 2021 2021 ​ ​ (Amounts in thousands) Cumulative effect of foreign currency translation, net ​ $ ( 4,202 ) ​ $ ( 4,050 ) Cumulative unrealized loss on pension liability ​ ( 5,398 ) ​ ( 5,398 ) Accumulated other comprehensive loss, net ​ $ ( 9,600 ) ​ $ ( 9,448 ) ​ ​ ​ ​ 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 20 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, 2022 or September 30, 2021. ​ 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, 2022 ​ ​ As of September 30, 2021 ​ ​ ​ ​ ​ ​ Carrying Amount ​ ​ Fair Value ​ ​ Carrying Amount ​ ​ Fair Value ​ Fair Value Level ​ Reference ​ ​ (Amounts in thousands) ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents $ 20,332 ​ $ 20,332 ​ $ 20,007 ​ $ 20,007 ​ 1 ​ Condensed Consolidated Balance Sheets Accounts and long-term receivable* ​ 10,777 ​ ​ 10,777 ​ ​ 13,968 ​ ​ 13,968 ​ 3 ​ Note 6 Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses and other long-term liabilities* ​ 5,772 ​ ​ 5,772 ​ ​ 5,747 ​ ​ 5,747 ​ 3 ​ Note 9 Line of Credit ​ 879 ​ ​ 879 ​ ​ 941 ​ ​ 941 ​ 2 ​ Note 10 Notes payable ​ 1,032 ​ ​ 1,032 ​ ​ 1,633 ​ ​ 1,633 ​ 3 ​ 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. ​ 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 as of March 31, 2022 and September 30, 2021. ​ 21 Table of Contents 15. Segment Information The following tables present certain operating segment information for the three and six months ended March 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated Three months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 962 ​ $ 212 ​ $ 7,043 ​ $ 7,255 ​ $ 8,217 Service ​ 181 ​ 104 ​ 3,479 ​ 3,583 ​ 3,764 Total sales ​ $ 1,143 ​ $ 316 ​ $ 10,522 ​ $ 10,838 ​ $ 11,981 (Loss) income from operations ​ $ ( 1,102 ) ​ $ ( 36 ) ​ $ 1,114 ​ $ 1,078 ​ $ ( 24 ) Total assets ​ $ 8,756 ​ $ 9,161 ​ $ 40,513 ​ $ 49,674 ​ $ 58,430 Capital expenditures ​ $ 15 ​ $ — ​ $ 43 ​ $ 43 ​ $ 58 Depreciation and amortization ​ $ 28 ​ $ — ​ $ 58 ​ $ 58 ​ $ 86 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 (Loss) income 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Technology Solutions Segment ​ ​ ​ ​ ​ High ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products ​ United ​ ​ ​ ​ ​ ​ ​ Consolidated Six months ended March 31, Segment Kingdom U.S. Total Total ​ ​ (Amounts in thousands) 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 1,682 ​ $ 274 ​ $ 14,981 ​ $ 15,255 ​ $ 16,937 Service ​ 525 ​ 197 ​ 6,691 ​ 6,888 ​ 7,413 Total sales ​ $ 2,207 ​ $ 471 ​ $ 21,672 ​ $ 22,143 ​ $ 24,350 (Loss) income from operations ​ $ ( 2,107 ) ​ $ ( 91 ) ​ $ 1,778 ​ $ 1,687 ​ $ ( 420 ) Total assets ​ $ 8,756 ​ $ 9,161 ​ $ 40,513 ​ $ 49,674 ​ $ 58,430 Capital expenditures ​ $ 60 ​ $ — ​ $ 135 ​ $ 135 ​ $ 195 Depreciation and amortization ​ $ 63 ​ $ — ​ $ 117 ​ $ 117 ​ $ 180 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 (Loss) income 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 ​ 22 Table of Contents 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 interest income from transactions with payment terms exceeding one year (see Note 6, “Accounts and Long-Term Receivable” 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, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ Six months ended March 31, ​ ​ ​ 2022 ​ ​ 2021 ​ ​ 2022 ​ ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in millions) ​ ​ (in millions) ​ ​ ​ 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 ​ $ 2.4 ​ 25 % ​ $ 1.2 ​ 8 % ​ $ 4.3 ​ 18 % ​ $ 1.8 ​ 7 % ​ Customer A had a balance of $ 9.9 million, or 44 %, of total consolidated accounts receivable and long-term receivable as of March 31, 2022. There were no other customers with more than 10% of total consolidated accounts receivable and long-term receivable as of March 31, 2022. 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, 2022. ​ ​ 16. Repurchase of Common Stock On February 8, 2011, the Board of Directors authorized the Company to purchase up to 250 thousand additional shares of the Company's outstanding common stock at market price. The plan does not expire. As of May 14, 2020, we suspended our stock repurchase program until further economic clarity. The Board of Directors approved the activation of the suspended stock repurchase program on December 29, 2021. The Company repurchased 13 thousand shares of its outstanding common stock on the open market during the three months ended March 31, 2022. As of March 31, 2022, approximately 181 thousand shares remain authorized to repurchase under the stock repurchase program. ​ ​