What changed in this filing

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Item 9A. Controls and Procedures

2024-12-20 compared with 2023-12-13 · 418 added, 271 removed, 980 unchanged (41% of the section changed)

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

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

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

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

Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, 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 have identified material weaknesses described in this Item 9A and we are not yet able to conclude that such material weaknesses have been remediated by the changes we made in response to those material weaknesses.

Management’s Report on Internal Control over Financial Reporting.

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

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission (“2013 Framework”).

Based on our evaluation under the COSO 2013 Framework, our management concluded that our internal control over financial reporting was effective as of September 30, 2023.

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.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2024.

“In making its assessment of internal control, management used the criteria described in “Internal Control Integrated Framework” under the 2013 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, 2024.

Material Weaknesses

As of September 30, 2024, management has identified material weaknesses.

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.

In August 2024 during its fiscal 2024 third quarter review the Company identified certain control deficiencies related to its business expense reimbursement and selected purchases policy and application of a legacy credit card program for Company credit cards.

The control deficiencies arose out of a lack of adequate review and incomplete supporting documentation related to certain business expenses including those for reimbursement for Company credit card charges from a C level Company executive as well as undocumented compensation agreement with regards to the use of credit card points which resulted in undisclosed compensation.

The Audit Committee engaged a third party to investigate and analyze certain transactions made on the corporate credit card and it was not led by management.

As of September 30, 2024, the C-level executive returned to the Company approximately $20,000 in aggregate related to the portion of the undisclosed compensation in excess of the intended compensation agreement

In response to these control deficiencies, the Company performed additional analysis and reconciliation around all the credit card activity, including reimbursement, purchases and review of the credit card use policies, assessed various alternatives to remediate this material weakness and implemented changes to our internal controls including implementation of additional review and confirmation process by designated employees and the termination of the legacy benefit program identified above.

During the preparation of the Company’s annual financial statement, the Company performed further analysis and testing of these controls including the newly implemented controls.

These identified control deficiencies could have resulted in a material misstatement of the Company’s financial statements that would not have been prevented or detected, although no such misstatements occurred.

During the preparation of our annual financial statements, we determined that the controls over the credit card 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, 2024.

The COSO principles of Exercises oversight responsibility and develops control activities were not properly followed in our internal controls.

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

Accordingly, management concluded that the control deficiencies were a material weakness in the Company’s internal control over financial reporting.

Remediation of Material Weaknesses

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that the material weaknesses are remediated as soon as possible.

We believe we have made progress towards remediation and continue to implement our remediation plan for the material weakness, which includes the following steps.

● All points earned on the Company credit cards will accrue only to the benefit of the .Company.

● The Company will further update its Credit Card purchase and Reimbursement Policy and take steps to ensure the Expense Policy is followed with documentation and proper approvals.

● In fiscal year 2025, internal audit will test a reasonable number of selections from all corporate credit card expenses monthly and report findings directly to the Company’s CFO.

If there is an exception, this will be reported to the Audit Committee

● Quarterly a summary report of Credit card internal audit results will be reported to the Audit Committee.

They consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

The process of designing and implementing an effective accounting and financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain an accounting and financial reporting system that is adequate to satisfy our reporting obligations.

As we continue to evaluate and take actions to improve our internal control over financial reporting, we may determine to take additional actions to address control deficiencies or determine to modify certain of the remediation measures described above.

Management identified another material weakness in our internal controls over financial reporting for income taxes relating to current/non-current taxes payable, certain deferred tax assets and liabilities, and current and deferred tax expenses.

We use a third-party provider to prepare our tax provision and related disclosures on a quarterly basis.

The company reviews the provision and disclosures.

We believe the material weakness occurred due to a lack of competency of the third-party provider and management needs to perform a more comprehensive review with the third-party preparer.

Management put in place a remediation plan to address the material weakness as described below however, as a result, we concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2024.

Remediation of Material Weaknesses

With oversight from the Audit Committee, management designed and began implementing changes in processes and controls to remediate the material weakness relating to income taxes identified and has enhanced the Company's internal control over financial reporting as follows:

o Hire a new accounting firm with global expertise as our new third-party tax provider to prepare tax provisions and corporate income tax returns.

We intend to use this firm to assist with enhancing internal controls over financial reporting for income taxes and developing and implementing a remediation plan.

o Hold quarterly meetings with our new third-party tax provider to discuss changes in tax law, key aspects of our quarterly/annual provisions and required updates to provisions, deciding a course of action and documenting such actions, review and approval of the tax data by senior members of our finance team and final discussion, review and approval of the third-party provider prepared provisions and returns.

o Provide income tax accounting training to those involved in the review of the tax data from our third-party tax provider.

Attestation Report

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.

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Changes in Internal Control over Financial Reporting

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 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

During the year ended September 30, 2024, the Company began implementing the remediation efforts described above for both material weaknesses.

There were no other changes in our internal control over financial reporting during the year ended September 30, 2024, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information

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

2014 Employee Stock Purchase Plan (the "ESPP") and the 2015 Stock Incentive Plan.

In fiscal 2023 and 2022, the Company granted to certain key employees, certain officers including its Chief Executive Officer and non-employee directors’ shares of non-vested common stock instead of stock options.

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

2014 Employee Stock Purchase Plan (the "ESPP") and the 2015 Stock Incentive Plan.

In fiscal 2024 and 2023, the Company granted certain key employees, certain officers including its Chief Executive Officer and non-employee directors’ shares of non-vested common stock instead of stock options.

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

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

following table sets forth information as of September 30, 2023 regarding the total number of securities outstanding under these equity compensation plans.

The following table sets forth information as of September 30, 2024 regarding the total number of securities outstanding under these equity compensation plans.

Number of securities

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December 26, 2007

Articles of Amendment to the Company's Articles of Organization, adopted February 21, 2024

February 22, 2024

Articles of Amendment to the Company's Articles of Organization, adopted June 26, 2024

June 27, 2024

By-laws, as amended December 13, 2012

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Description of Securities

December 28, 2022

Form of Employee Invention and Non-Disclosure Agreement

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February 14, 2018

Share Purchase and Assignment Agreement

June 27, 2018

Insider Trading Policy

Consent of RSM LLP, Independent Registered Public Accounting Firm

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Policy relating to recovery of erroneously awarded compensation

December 13, 2023

XBRL Instance

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

and its subsidiaries (the Company) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

and Subsidiaries (the Company) as of September 30, 2024 and 2023, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, 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.

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net transactions.

• Assessed the reasonableness of the revenue allocation of third-party service contracts and the related vendor costs.

• Evaluated the accuracy of the summary file through inspection of customer and vendor invoices, purchase orders and information on vendor websites accessed through third-party search engines and through inquiries with management.

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Accounts receivable, net of allowances of $ 147 and $ 100

Investment in lease, net-current portion

Refundable income taxes

Financing receivables, net of allowances of $ 12 and $ 0

Other current assets

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Intangibles, net

Investment in lease, net-less current portion

Long-term receivable

Financing receivables due after one year, net of allowances of $ 25 and $ 0

Deferred income taxes, net

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Line of credit

Notes payable - current portion

Deferred revenue

Deferred revenue and contract liabilities

Pension and retirement plans

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Pension and retirement plans

Notes payable - noncurrent portion

Operating lease liabilities - noncurrent portion

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Total liabilities and shareholders’ equity

(1) Retroactively adjusted for the effects of a two for one stock split effected in the form of a 100 % stock dividend for fiscal year 2023 (see Note 1)

See accompanying notes to consolidated financial statements.

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Total operating expenses

Operating income (loss)

Operating (loss) income

Other income (expense):

Foreign exchange (loss) gain

Foreign exchange loss

Interest expense

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Employee Retention Tax Credit, net of costs to collect

Other income (expense), net

Other income, net

Total other income, net

Income before income taxes

Income tax (benefit) expense

Net income attributable to common shareholders

Net income per common share - basic

(Loss) income before income taxes

Income tax benefit

Net (loss) income

Net (loss) income attributable to common shareholders

Net (loss) income per common share - basic (1)

Weighted average common shares outstanding - basic (1)

Net income per common share - diluted

Net (loss) income per common share - diluted (1)

Weighted average common shares outstanding - diluted (1)

(1) Retroactively adjusted for the effects of a two for one stock split effected in the form of a 100 % stock dividend for fiscal year 2023 (see Note 1)

See accompanying notes to consolidated financial statements.

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September 30,

Other comprehensive income (loss):

Net (loss) income

Other comprehensive income:

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

Foreign currency translation gain (loss) adjustments, net

Foreign currency translation gain adjustments, net of tax effect

Other comprehensive income

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Balance as of September 30, 2023

Adoption of Accounting Standards Update 2016-13

Other comprehensive income

Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

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Stock-based compensation

Restricted stock cancellation

Restricted stock issuance

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Balance as of September 30, 2023

(1) Retroactively adjusted for the effects of a two for one stock split effected in the form of a 100 % stock dividend for fiscal year 2023 (see Note 1)

See accompanying notes to consolidated financial statements.

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Operating activities

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

Net (loss) income

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

Amortization of intangibles

Loss on disposal of fixed assets, net

Foreign exchange loss (gain)

Provision for losses (recoveries) on accounts receivable

Foreign exchange loss

Provision for credit losses - financing receivables

Provision for credit losses - accounts receivable

Provision for obsolete inventory

Amortization of lease right-of-use assets

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

Stock-based compensation expense on restricted stock awards

Deferred income taxes

Decrease in cash surrender value of life insurance

Increase in cash surrender value of life insurance

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable

Decrease (increase) in inventories

(Increase) decrease in accounts receivable

Decrease in financing receivables

(Increase) decrease in inventories

Decrease in refundable income taxes

Increase in operating lease right-of-use assets

Decrease (increase) in other assets

Decrease in investment in lease

Decrease in long-term receivable

(Decrease) increase in accounts payable and accrued expenses

Decrease in interest payable

(Increase) decrease in other assets

Increase (decrease) in accounts payable and accrued expenses

Decrease in operating lease liabilities

(Decrease) increase in deferred revenue

Decrease in pension and retirement plans liabilities

Increase (decrease) in income taxes payable

Decrease in other long-term liabilities

Increase (decrease) in deferred revenue and contract liabilities

Increase (decrease) in pension and retirement plans liabilities

(Decrease) increase in income taxes payable

Decrease in other noncurrent liabilities

Net cash provided by operating activities

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Proceeds from maturities of held-to-maturity investments

Proceeds from corporate life insurance owned policy

Proceeds from sales of property, equipment, and improvements

Additions of intangible assets

Purchases of property, equipment and improvements

Net cash (used in) provided by investing activities

Net cash used in investing activities

Financing activities

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Net borrowing under line-of-credit agreement

Repayments on notes payable

Repayments on note payable

Principal payments on finance leases

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Proceeds from issuance of shares under equity compensation plans

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Effects of exchange rate on cash, net

Net increase in cash and cash equivalents

Cash and cash equivalents beginning of year

Cash and cash equivalents end of year

Cash and cash equivalents beginning of period

Cash and cash equivalents end of period

Supplementary cash flow information:

Cash paid (received) for income taxes

Cash paid for income taxes

Cash paid for interest

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

Customer financing for inventory sold (see Note 2 Accounts and Long-Term Receivable for details)

Customer financing for inventory sold (see Note 3 Financing receivables, net for details)

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

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Organization and Business

("CSPi"

or "CSPI"

or "the Company"

or "we"

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

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

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

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

Summary of Significant Accounting Policies

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

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

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All significant intercompany accounts and transactions have been eliminated.

Presentation – sales whose payment terms exceed one year

Effective in fiscal year 2024 sales whose payment terms exceed one year is now presented as “Financing receivables, net of allowances” on the Consolidated Balance Sheets rather than being combined with Accounts receivable, net of allowances.

The financial statement line item Long-term receivable is now labeled as “Financing receivables due after one year, net of allowances.” These changes are reflected retrospectively as of September 30, 2023.

This change was made to provide more detail on the balance sheet related to these receivables and align with our notes to the consolidated financial statements.

Presentation – two-for-one stock split

On February 21, 2024, the Board of Directors of CSP Inc.

approved an amendment to the Company’s Articles of Organization to increase the total number of its authorized shares of Common Stock, par value $ 0.01 , from 7,500,000 shares to 9,753,900 shares (the “Amendment”).

No shareholder approval was required under the Massachusetts Business Corporation Act with respect to the Amendment.

The Amendment became effective upon filing with the Secretary of the Commonwealth of Massachusetts on February 21, 2024.

On February 21, 2024, the Company announced its Board of Directors approved and declared a two -for-one stock split to be effected in the form of a 100 % stock dividend.

The stock dividend was paid on March 20, 2024 to shareholders of record as of the close of business on March 6, 2024.

In accordance with ASC 505 Equity , specifically ASC 505-20-25-3 through ASC 505-20-25-6 , we have determined this had a material effect on reducing share market value and therefore was treated this event as a stock split for accounting purposes.

All common shares and per share amounts contained in these financial statements and notes have been retrospectively restated to reflect this two -for-one stock split in the form a 100 % dividend in accordance with ASC 260 Earnings Per Share , specifically ASC 260-10-55-12 .

On June 26, 2024, the stockholders of CSP, Inc.

approved an amendment to the Company's Articles of Organization, as amended (the "Articles of Organization"), to increase the number of authorized shares of Common Stock from 9,753,900 to 20,000,000 (the "Amendment").

On June 26, 2024, the Company filed an Articles of Amendment to the Articles of Organization with the Secretary of the Commonwealth of Massachusetts to effect the Amendment, which became effective immediately upon such filing.

Adopted Accounting Pronouncement in the Year Ended September 30, 2024

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

Additional updates were issued in 2018-2020.

The amended guidance replaces the current incurred loss impairment methodology for measurement of credit losses on financial instruments with a methodology (the “current expected credit losses model,” or “CECL model”) that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Under the CECL model, the allowance for losses on financial assets, measured at amortized cost, reflects management’s estimate of credit losses over the remaining expected life of such assets.

The Company adopted ASU 2016-13 (the “new CECL standard”) as of October 1, 2023 using the modified retrospective method, with a cumulative-effect adjustment to the opening balance of Shareholders’ equity as of October 1, 2023.

The adoption primarily impacted the estimation of our Allowance for credit losses for Accounts receivable and Financing receivables.

Additionally, it affected allowance for credit losses of contract assets with effects being immaterial.

The total impact recorded on our initial adoption of ASU 2016-13 as of October 1, 2023 included an increase of Accounts receivable, net of $ 67 k and a decrease of Financing receivables, net in the amount of $ 82 k with the total adjustment decreasing retained earnings of $ 15 k.

For the accounting policies adopted and details of impacts from adoption refer to Note 2 - Accounts receivable, net and Note 3 - Financing receivables, net .

Accounting Pronouncement Not Yet Adopted as of September 30, 2024

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis.

Early adoption is permitted.

The Company is currently evaluating the effect of this pronouncement on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This ASU expands existing income tax disclosures primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The ASU is effective for all public entities for annual periods beginning after December 15, 2024, with early adoption permitted.

Entities should apply the amendments on a prospective basis, but retrospective application is permitted.

The Company is currently evaluating the impact this ASU will have on its disclosures.

In November 2024, the FASB issued ASU 2024-04, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires expanded disclosures in the notes to the financial statements about certain costs and expenses.

This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, on a retrospective basis.

Early adoption is permitted.

The Company is currently evaluating the effect of this pronouncement on its disclosures.

Foreign Currency Translation

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In consolidation, foreign transactions are remeasured into the functional currency, British Pounds, of our U.K.

This non-cash remeasurement is included in foreign exchange gain or loss on the income statement.

This non-cash remeasurement is included in the foreign exchange gain or loss on the Consolidated Statements of Operations.

After this remeasurement, assets and liabilities of the Company’s foreign operations are translated into U.S.

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For purposes of the consolidated statements of cash flows, highly liquid investments with original maturities of three months or less at the time of acquisition are considered cash equivalents.

The Company maintains its cash and cash equivalents with financial institutions and, at times, the balance may exceed the Federal Deposit Insurance Corporation federally insured limits (United States - $250,000 per depositer) or Financial Services Compensation Scheme (United Kingdom - £85,000 per depositer).

The Company has never experienced any losses related to these balances.

Employee Retention Tax Credit

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There are no other amounts that will be received related to this credit.

There is $ 0.6 million on the Consolidated Balance Sheets in the financial statement line item Accounts payable and accrued expenses, which will be paid back to the IRS in fiscal year 2024.

We accounted for the ERC as a gain contingency in accordance with ASC 450-30 Gain Contingencies.

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The Company reviews its long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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

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

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

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

We did not have intangible assets with indefinite lives or goodwill at any time during the two years ended September 30, 2023.

We did not have intangible assets with indefinite lives any time during the two years ended September 30, 2024.

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.

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

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

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

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

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

Finance leases

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

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

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

Leases as Lessor

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

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

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

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

The Company as a lessor does not have operating leases.

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

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

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

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

There is no variable consideration in these agreements.

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

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

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

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

See Note 9 Leases for additional information.

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

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Repairs and maintenance costs are expensed as incurred.

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

Trade accounts receivable are stated at amounts that have been billed to customers less an allowance for doubtful accounts.

Allowances for doubtful accounts are recorded for the estimated losses resulting from the inability of our customers to make required payments.

The estimates for the allowance for doubtful accounts are based on the length of time the receivables are past due, current business environment, and our historical experience.

Accounts Receivable, net of Allowance for Credit Losses

Accounts receivable are recorded at the invoiced amount and are non-interest bearing.

Accounts receivable are stated at their net realizable value, net of the allowance for credit losses.

Allowances for credit losses are recorded for the estimated losses resulting from the inability of our customers to make required payments based on historical data as well as forecasted future conditions.

The estimation of the allowance is based on an analysis of historical loss experience, management’s assessment of current conditions and reasonable and supportable expectation of future conditions as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible including reviewing the current receivables aging.

If the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.

Accounts receivable are charged off against the reserve when management has determined they are uncollectible.

Within trade accounts receivable and long-term receivable are financing agreements with an original payment term of greater than one year.

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

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

Financing Receivables, net of Allowance for Credit Losses

Financing receivables are recorded at the invoiced amount and are interest bearing.

Financing receivables are stated at their net realizable value, net of the allowance for credit losses.

The Company recognizes an allowance for credit losses for financing receivables in an amount equal to the probable losses net of recoveries.

A probability method for calculating credit losses is used based on historical data of defaults of Fitch ratings and length of time.

Various factors are also assessed in the allowance for credit losses including internal historical data as well as macroeconomic forecast assumptions and management judgments applicable to and through the expected life of the portfolios.

Macroeconomic conditions include the level of gross domestic product growth and unemployment rates, which directly correlate with our historical credit losses.

If the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.

Financing receivables are charged off against the reserve when management has determined they are uncollectible.

Pension and Retirement Plans

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

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

In the U.S., the Company also provides for officer death benefits and

post-retirement health insurance benefits through supplemental post-retirement plans to certain officers.

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

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We have two operating segments:

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

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

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

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

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

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

The operations and assets of our TS segment are located in the United States and the United Kingdom, which are the two divisions that make up the TS segment.

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

For each identified performance obligation in a transaction, we evaluate the facts and circumstances present to determine whether or not we control the specified good or service prior to transfer to the customer.

This evaluation includes, but is not limited to, assessing indicators such as whether:

(i) we are primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) we have inventory risk before the specified good or service has been transferred to a customer and (iii) we have discretion in establishing the price for the specified good or service.

When the evaluation indicates we control the specified good or service prior to transfer to the customer, we are acting as a principal.

When the evaluation indicates we do not control the specified good or service prior to transfer to the customer, we are acting as an agent.

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

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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 includes critical updates.

critical updates.

When CSPi sells goods and services with a financing component the strongest indicator is whether the Company has discretion in selling price as many of the agreements are brought to us at predetermined price by the manufacturer.

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

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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.

Royalty revenue is sales-based and recognized on the 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.

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Revenue generated from maintenance services is recognized evenly over the term of the contract.

Some transactions include shipping as part of the contract.

The Company records shipping billed to its customers as Product revenue and the related freight costs as Product cost of sales when the underlying product revenue is recognized.

For freight not billed to its customers, the Company records the freight costs as Product cst of sales.

The Company considers shipping to be a fulfillment activity and not a separate performance obligation.

The right of return risk lies with the original manufacturer of the product.

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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.

HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the ARIA, Multicomputer, and Myricom product lines.

ARIA revenue is derived from sale of hardware, software, and managed services.

ARIA Zero Trust Gateway (“AZT”) revenue contains two performance obligations:

a software license and post contract support.

The transaction price is generally fixed consideration and allocated based on relative stand-alone selling price.

Software license revenue is recognized at a point in time, generally when the license is made available to the customer.

Post contract support revenue is recognized ratably over the contractual period of generally one year.

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.

Multicomputer revenue is derived from the sale of hardware, software, extended warranties, royalties, and repair services.

ARIA revenue is derived from sale of hardware, software, and managed services.

See disaggregated revenues below by products/services and geography.

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

See details of timing of revenue recognition and whether CSPi acted as the principal or agent below.

Also see geographic areas based on the which the products were shipped or services rendered.

Technology Solutions Segment

Year ended September 30,

(Amounts in thousands)

Timing of Revenue Recognition

Transferred at a point in time where CSPi is principal

Transferred at a point in time where CSPi is agent

Transferred over time where CSPi is principal

Total Revenue

United States

Americas (excluding United States)

Total Revenue

Timing of Revenue Recognition

Transferred at a point in time where CSPi is principal

Transferred at a point in time where CSPi is agent

Transferred over time where CSPi is principal

Total Revenue

United States

Americas (excluding United States)

Total Revenue

In the TS US division financing of goods and services is offered to certain customers.

This involves amounts due reflecting sales whose payment terms exceed one year.

See Note 3 Financing Receivables, net for more details.

Revenue from these agreements in fiscal year 2024 was $ 2.0 million, which consisted of $ 1.5 million with CSPi acting as the principal and $ 0.5 million with CSPi acting as the agent.

Revenue from these agreements in fiscal year 2023 was $ 0.8 million with CSPi acting as the agent.

Contract Assets and Liabilities

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Current contract assets were $ 1.7 million and $ 0.9 million as of September 30, 2024 and September 30, 2023, respectively.

Current contract assets were $ 4.4 million as of September 30, 2022.

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

There were no noncurrent contract assets as of September 30, 2024 and September 30, 2023.

There were no noncurrent contract assets as of September 30, 2022.

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

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Current contract liabilities were $ 2.2 million and $ 1.9 million as of September 30, 2024 and September 30, 2023, respectively.

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

Current contract liabilities were $ 4.1 million as of September 30, 2022.

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

There were no long-term contract liabilities as of September 30, 2024 and 2023, respectively.

There were no long-term contract liabilities as of September 30, 2022.

Revenue recognized for the year ended September 30, 2024 that was included in contract liabilities as of September 30, 2023 was $ 1.3 million.

At times, customers delay projects that were supposed to be complete within a year, which is why the full balance of Deferred revenue and contract liabilities as of September 30, 2023 was not recognized in the twelve months ended September 30, 2024.

The Company cannot reasonably predict when the customers will make these delays.

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.

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There were 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, 2023 and 2022 were $ 436 thousand and $ 366 thousand, respectively.

The amount of incremental costs amortized for the years ended September 30, 2024 and 2023 were $ 477 thousand and $ 436 thousand, respectively.

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

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These costs amortized were recorded in cost of sales.

There was no impairment related to fulfillment costs capitalized for the years ended September 30, 2023 and 2022, respectively.

There was no impairment related to fulfillment costs capitalized for the year ended and 2023.

Projects are typically billed upon completion or at certain milestones.

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Our product sales generally include a hardware warranty which ranges from 90 -days to three-years .

At time of product shipment, we accrue for the estimated cost to repair or replace potentially defective products.

At time of product shipment, we accrue for the estimated cost including labor and hardware to repair or replace potentially defective products.

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

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

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

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

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

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Earnings per Share of Common Stock

Basic net income per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted net income per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income available to common shareholders by the assumed weighted average number of common shares outstanding.

We are required to present earnings per share ("EPS") utilizing the two-class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities.

Basic and diluted earnings per share computations for the Company’s reported net income attributable to common stockholders are as follows:

Basic net (loss) income per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted net income per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive restricted stock awards and is computed by dividing net income available to common shareholders by the assumed weighted average number of common shares outstanding.

Basic and diluted (loss) income per share computations for the Company’s reported net (loss) income attributable to common stockholders are as follows:

September 30,

Net (loss) income

net income attributable to nonvested common stock

Net income attributable to common shareholders

Net (loss) income attributable to common shareholders

Weighted average total shares outstanding - basic (1)

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Weighted average common shares outstanding - diluted (1)

Net income per common share - basic

Net income per common share - diluted

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

Non-vested restricted stock awards of 54 thousand shares were excluded from net income per share for the year ended September 30, 2023 because their inclusion would have been anti-dilutive.

Net (loss) income per common share - basic (1)

Net (loss) income per common share - diluted (1)

(1) Retroactively adjusted for the effects of a two for one stock split effected in the form of a 100 % stock dividend for fiscal year 2023 (see Note 1)

All anti-dilutive securities, including restricted stock awards, are excluded from the diluted (loss) income per share computation.

Non-vested restricted stock awards of 396 thousand shares were excluded from net loss per share for the year ended September 30, 2024 because their inclusion would have been anti-dilutive as there was a net loss for the period.

Non-vested restricted stock awards of 108 thousand shares were excluded from net income per share for the year ended September 30, 2023 because their inclusion would have been anti-dilutive.

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Stock-Based Compensation

We measure and recognize compensation expense for all stock-based payment awards made to employees and directors for nonvested shares of restricted common stock based on estimated fair values of stock-based payment awards on the date of grant.

We measure and recognize compensation expense for nonvested stock-based payment awards made to employees and directors based on the closing market price of our common stock as quoted on the Nasdaq Global Market on the date of grant over the requisite service period.

The Company recognizes stock compensation expense, net of actual forfeitures.

The Company has no outstanding stock options issued as of September 30, 2024 and did not issue any for the years ended September 30, 2024 and 2023, respectively.

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.

Stock-based compensation expense recognized in the consolidated statements of operations for the fiscal years ended September 30, 2024 and 2023 is based on awards ultimately expected to vest and 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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Concentrations of Credit Risk

Cash and cash equivalents are maintained with several financial institutions in the U.S.

Deposits held with banks may exceed the amount of insurance on such deposits.

Generally, these deposits may be redeemed upon demand.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents.

We had one customer who totaled approximately $ 7.4 million, or 30 %, and approximately $ 15.8 million, or 52 %, of total consolidated accounts receivable as of September 30, 2023 and September 30, 2022, respectively.

We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with this customer as of September 30, 2023.

No other customers accounted for 10% or more of total consolidated accounts receivable as of September 30, 2023.

There was no customer with 10% or more of accounts receivable as of September 30, 2024 or September 30, 2023.

Below are customers with 10% or more of financing receivables as of September 30, 2024 or 2023.

As of September 30,

(Amounts in millions)

Financing Receivables

We do not believe we have a significant credit risk with respect to accounts receivable or financing receivables.

Subsequent Events

The Company recognizes in the consolidated financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the statement of financial position, including the estimates inherent in the process of preparing financial statements.

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

New accounting standards not adopted as of September 30, 2023

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.

Accounts and Long-Term Receivable

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

The Company has evaluated subsequent events through the date of this filing, see Note 22 Subsequent event.

Accounts Receivable, net

Upon adoption of the new CECL standard as described in Note 1 Basis of Presentation and New Significant Accounting Policy , the Company recognizes an allowance for credit losses on accounts receivable in an amount equal to the current expected credit losses.

This results in a general reserve and a specific reserve.

The Company assesses collectability by pooling receivables where similar characteristics exist and evaluates receivables individually when specific customer balances no longer share those risk characteristics and are considered at risk or uncollectible.

The expense associated with the allowance for expected credit losses is recognized in Selling, general, and administrative expenses in the Consolidated Statements of Operations.

The balance of accounts receivable, net as of September 30, 2022 was $ 14.0 million, adjusted for the change in Presentation – sales whose payment terms exceed one year (see Note 1 for details).

Also adjusted, the balance of the current and non-current portion of financing receivables as of September 30, 2022 was $ 9.0 million and $ 7.4 million, respectively.

Amounts disclosed below for the year ended September 30, 2024 reflect adoption of the new CECL standard and the amounts disclosed for the year ended September 30, 2023 reflect superseded guidance.

The following table presents the changes in the allowance for accounts receivable for the periods indicated.

September 30, 2024

September 30, 2023

(Amounts in thousands)

Allowance for credit losses for accounts receivable:

Balances at beginning of the period

Adjustment for adoption of new CECL standard

Provision for credit losses

Balances at end of the period

Financing Receivables, net

In the TS-US division financing of goods and services is offered to certain customers within the United States.

This involves amounts due reflecting sales whose payment terms exceed one year.

This financing is separate from agreements with a leasing component, see Note 10 Leases for financing through leases.

These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $ 7.2 million and $ 4.2 million as of September 30, 2023, respectively.

These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $ 8.9 million and $ 7.4 million as of September 30, 2022, respectively.

The receivables with a payment term exceeding one year carry an average weighted interest rate of 6.2 % as of September 30, 2023, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

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

All accounts had no past amounts due as of September 30, 2023 or 2022, respectively.

There was no activity in the allowance for credit losses of these receivables for the years ended September 30, 2023 and 2022, respectively.

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

There are various factors that are considered in extending a customer payment terms longer than one year including payment history, economic conditions, and capacity to pay.

The credit quality of customers is monitored by payment activity.

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

The amount of interest income earned from sales whose payment terms exceed one year for the year ended September 30, 2023 and 2022 was $ 810 thousand and $ 548 thousand, respectively.

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

There was one new agreement effective in the first quarter of fiscal year 2023 causing an increase in Accounts and Long-term receivable.

This agreement included approximately $ 3.0 million in payments to be received over the next 2 years from the effective date of the agreement.

The revenue for this transaction was recorded as net revenue.

There were two new agreements effective in the third quarter of fiscal year 2023.

One agreement included approximately $ 3.1 million in payments to be received over the next 4 years from the effective date of the agreement.

The second agreement included approximately $ 0.7 million in payments to be received over the next four years from the effective date of the agreement.

The revenue for these transactions was recorded as net revenue.

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.

Determining whether to offer financing involves looking at the customer’s payment history, economic conditions, and capacity to pay.

These financing arrangements do not contain collateral.

The Company assigns an internal risk rating to each customer at inception, which groups customers into a portfolio based on this risk rating.

A risk rating is assigned by analyzing a customer’s financial statements and the latest Fitch rating, if publicly available, as well as recent payment activity.

The credit quality of customers is continually monitored by these items.

Accounts rated low risk have the equivalent of a Fitch rating of BBB– or higher, while accounts rated moderate risk have the equivalent of BB.

The Company does not offer financing for customers where the risk is classified as higher, which would be lower than the equivalent of a BB Fitch rating due to the likelihood of loss being higher.

The risk characteristics of each portfolio are consistent with the Fitch rating or equivalent.

According to Fitch Ratings, “'’BB' ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time;

however, business or financial flexibility exists that supports the servicing of financial commitments.” According to Fitch Ratings, “'BBB' ratings indicate that expectations of default risk are currently low.

The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.”

The only significant change in factors that influenced the estimate of expected credit losses as of September 30, 2024 was a significant customer having its Fitch Rating upgraded from BB+ to BBB-.

This customer had a balance of $ 1.9 million, or 25 %, of financing receivables, net and $ 2.5 million, or 22 %, as of September 30, 2024 and September 30, 2023, respectively.

Financing receivables, net carry an average weighted average interest rate of 8.4 %, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

The amount of interest income earned from sales whose payment terms exceed one year for the years ended September 30, 2024 and 2023 was $ 700 thousand and $ 810 thousand, respectively.

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

Amounts disclosed below as of September 30, 2024 reflect adoption of the new CECL standard and the amounts disclosed as of September 30, 2023 reflect superseded guidance.

The following table presents the components of the Company’s Financing receivables, net segregated by portfolio (risk rating) for the periods indicated:

As of September 30, 2024

As of September 30, 2023

(Amounts in thousands)

Financing receivables, net:

Financing receivables, gross

Unearned interest income

Allowance for credit losses

Financing receivables, net

Amounts disclosed below for the year ended September 30, 2024 reflect adoption of the new CECL standard and the amounts for the year ended September 30, 2023 reflect superseded guidance.

The following table presents the changes in Allowance for credit losses for Financing receivables, net for the periods indicated:

September 30, 2024

September 30, 2023

(Amounts in thousands)

Allowance for credit losses for financing receivables:

Balances at beginning of the period

Adjustment for adoption of new CECL standard

Recovery charged to Consolidated Statements of Operations

Balances at end of the period

Upon adoption of the new CECL standard as described in Note 1 Basis of Presentation and New Significant Accounting Policy , the Company recognizes an allowance for credit losses for financing receivables in an amount equal

to the probable losses net of recoveries.

A probability method for calculating credit losses is used based on historical data of defaults of Fitch ratings and length of time.

Macroeconomic conditions include the level of gross domestic product (“GDP”) growth and unemployment rates, which directly correlate with our historical credit losses.

The expense associated with the allowance for expected credit losses is recognized in Selling, general, and administrative expenses in the Consolidated Statements of Operations.

Financing 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 nonaccrual status the payment is first applied to interest and then principal.

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 receivables with an original contractual maturity over one year are as follows:

There were no financing receivables placed on non-accrual status as of September 30, 2024 or September 30, 2023.

The following table presents Financing receivables, gross, including accrued interest and excluding any allowance, by credit quality indicator segregated by risk rating and year of origination as of September 30, 2024:

September 30, 2024

Fiscal year of origination

Contractual maturities of outstanding financing receivables are as follows:

Fiscal year ending September 30:

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unearned interest income

Total, net of unearned interest income

Inventories consist of the following:

allowance for credit losses

Total, net of unearned interest income and allowance for credit losses

Inventories, net

Inventories, net consist of the following:

September 30,

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The inventory we purchase at the TS segment is in high demand, especially in the current environment, and has a limited risk of obsolescence.

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

We are dependent on key vendors such as ADP, NXP, and BCRM for a variety of processors for certain products.

We are dependent on NVIDIA 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.

The TS segment has many vendors it transacts with.

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

We are dependent on key vendors such as ADP, NXP, and BCRM for a variety of processors for certain products.

We are dependent on NVIDIA for our high-speed interconnect components.

The TS US division has many vendors it transacts with and does not have any specific agreement with any vendor that it must purchase certain products.

Management believes other suppliers could provide similar products with comparable terms.

Accumulated Other Comprehensive Loss

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Balance as of September 30, 2024

The changes in the minimum pension liability are net of an amortization gain of $ 200 thousand in 2023 and a loss of $ 91 thousand in 2022 included in net periodic pension cost.

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

The changes in the minimum pension liability are net of an amortization gain of $ 185 thousand in 2024 and a gain of $ 200 thousand in 2023 included in net periodic pension cost.

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

For the Years Ended

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(Amounts in thousands)

Income (loss) before income tax expense

Income (loss) before income tax benefit

Income tax expense:

Total income tax (benefit) expense

Total income tax benefit

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

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Return to Provision Adjustments

Income tax (benefit) expense

Income tax benefit

Significant components of the Company's net deferred tax assets and liabilities as of September 30, 2024 and 2023 are as follows:

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The Company undertakes a review of its valuation allowance at each financial statement period, reviewing the positive and negative evidence to help determine whether it is more likely than not that the Company will realize the future tax benefits from its deferred tax balances.

In the fiscal year ended September 30, 2020, the Company established a partial valuation allowance against its deferred tax assets in light of results at the time, the COVID-19 pandemic, and the resulting economic fallout, and established a full valuation during the fiscal year ended September 30, 2021.

Since that time, the COVID-19 pandemic has ended, and the Company’s Technology Solutions business has grown its revenue and operating income in fiscal years 2023 and 2022.

As a result, the Company has determined that it is more likely than not that substantially all of its net deferred tax assets in the U.S.

jurisdiction will be utilized and associated valuation allowances should be reversed during the fiscal year ended September 30, 2023.

The valuation reversed during the period and resulted in a $ 1.8 million benefit.

The Company has determined that it is more likely than not that substantially all of its net deferred tax assets in the U.S.

jurisdiction will be utilized and that associated valuation allowances should not be reversed at September 30, 2024 or 2023.

The Company separately analyzed the realizability of its federal and state credits and determined $ 796 thousand (net of federal benefit) of state credits are expected to expire unutilized and kept a valuation allowance against these credits.

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jurisdiction.

As of September 30, 2023, the Company did not have U.S.

net operating loss carryforwards for federal purposes or U.S.

tax credit carryforwards for federal purposes.

As of September 30, 2022, the Company had $ 162 thousand of U.S.

net operating loss carryforwards for federal purposes and $ 884 thousand of U.S.

tax credit carryforwards for federal purposes.

As of September 30, 2024, and 2023, the Company had no U.S.

net operating loss or tax credit carryforwards for federal purposes.

As of September 30, 2024, and 2023, the Company had U.S.

net operating loss carryforwards for state purposes of approximately $ 12 thousand and $ 3.7 million, respectively, which are available to offset future taxable income through 2034.

As of September 30, 2023, the Company had state tax credit carryforwards of $ 1.1 million available to reduce future

state tax expense, of which $ 55 thousand has unlimited carryover status and the remainder of the credits are available through FY 2038.

net operating loss carryforwards for state purposes of approximately $ 60 thousand and $ 12 thousand, respectively, which are available to offset future taxable income through 2035.

As of September 30, 2024, the Company had state tax credit carryforwards of $ 1.1 million available to reduce future state tax expense, of which $ 55 thousand has unlimited carryover status and the remainder of the credits are available through FY 2038.

As of September 30, 2024, the Company had U.K.

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For the Year Ended

September 30, 2024

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Additions for tax positions of current year

(Subtractions) additions for tax positions of prior years

Additions for tax positions of prior years

Reduction for lapse of the applicable statute of limitations

Accrued penalties and interest

Balance, end of period

If the unrecognized tax benefits of $ 323 thousand as of September 30, 2023 are recognized, they would reduce our annual effective tax rate, subject to the valuation allowance.

The unrecognized tax benefits of $ 350 thousand as of September 30, 2024, if recognized, would reduce our annual effective tax rate, subject to the valuation allowance.

The Company does not expect our unrecognized tax benefits to change significantly over the next 12 months.

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Customer list

Amortization expense on these intangible assets was $ 15 thousand and $ 9 thousand for the year ended September 30, 2023 and 2022, respectively.

Amortization expense on these intangible assets was $ 6 thousand and $ 15 thousand for the years ended September 30, 2024 and 2023, respectively.

There were additions of $ 10 and $ 51 thousand for the years ended Septembe 30, 2024 and 2023.

These additions were at our HPP segment related to our ARIA cybersecurity products.

Annual amortization expense related to intangible assets for each of the following successive fiscal years is as follows:

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Accounts payable

Vendor financing agreements

Compensation and fringe benefits

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Taxes, other than income

Finance lease liability

Director fees

Operating lease liability

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Product warranty

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 2 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:

The TS US division enters into certain multi-year agreements with vendors when also entering into some of the multi-year contracts the Company enters into with customers.

The caption “Vendor financing agreements” above represents the interest-bearing amounts due to vendors, which are current.

See Note 3 Financing Receivables, net for further information related to the multi-year agreements with customers.

There was not an interest rate stated explicitly in the agreements and therefore interest was imputed under ASC 835 Interest as the payments in the exchange represented two elements:

principal and interest.

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Interest expense related to these agreements was $ 219 thousand and $ 229 thousand for the years ended September 30, 2024 and 2023, respectively.

The amounts owed for these agreements are within accounts payable and other noncurrent liabilities because they are owed to a vendor rather than banks or financial institutions for borrowings.

See Note 11 Line of Credit and Note 12 Notes Payable for amounts due to banks and other financial institutions for borrowings.

The amounts owed for these agreements are within the Consolidated balance sheets in 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 Note 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:

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Other noncurrent liabilities

The Company had a total of approximately $ 3.3 million due (net of interest) to one of these vendors as of September 30, 2023.

This is approximately 26 % of Accounts payable and other noncurrent liabilities.

The Company had a total of approximately $ 16.1 million due (net of interest) to one of these vendors as of September 30, 2022.

This is approximately 63 % 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.

The TS US division has many vendors it transacts with and does not have any specific agreement with any vendor that it must purchase certain products.

Management believes other suppliers could provide similar products with comparable terms.

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The following table specifies where the right-of-use assets, lease liabilities, and investment in lease are within the Consolidated Balance Sheets as of September 30, 2024 and 2023:

Condensed Balance Sheets Location

Consolidated Balance Sheets Location

September 30, 2024

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Lease receivable - current

Investment in lease, net-current portion

Other current assets

Lease receivable - noncurrent

Investment in lease, net-less current portion

Total lease receivable

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Total operating lease liabilities

Current finance lease liabilities

Accounts payable and accrued expenses

The components of lease costs for the year ended September 30, 2024 and 2023 are as follows:

Condensed Consolidated Statements of Operations Location

Consolidated Statements of Operations Location

September 30, 2024

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Fiscal year ending September 30:

Payments received

(Amounts in thousands)

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Financing cash flows paid for finance leases

Cash received from subleases

Lease assets obtained in exchange for new lease liabilities

Operating leases

Cash received from subleases

Information as a lessee related to weighted averages of lease term and discount rate as of September 30, 2024 is below:

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Balance at the beginning of the year

Accruals for warranties for products sold in the period

Usage for warranties for products sold in the period

Fulfillment of warranty obligations

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As of September 30, 2024 and 2023, there were no cash withdrawals outstanding.

Notes Payable

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.

This is the only note payable outstanding as of September 30, 2023.

Interest expense related to the notes for the years ended September 30, 2023 and 2022 was $ 22 thousand and $ 50 thousand, respectively.

This note payable was paid in full as of September 30, 2024.

There was no interest expense for the year ended September 30, 2024.

Interest expense related to the note for the year ended September 30, 2023 was $ 22 thousand.

Below are details of the notes payable.

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(Amounts in thousands)

notes discount

Notes payable - current portion

notes discount

Notes payable - noncurrent portion

note discount

Note payable - current portion

Pension and Retirement Plans

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The domestic supplemental retirement plans have life insurance policies which are not considered plan assets but were purchased by the Company as a vehicle to fund the costs of the plan.

These insurance policies are included in the balance sheet at their cash surrender value, net of policy loans, aggregating $ 3.7 million and $ 3.5 million as of September 30, 2023 and 2022, respectively.

These insurance policies are included in the balance sheet in the financial statement line item “Cash surrender value of life insurance” at their cash surrender value, net of policy loans aggregating $ 3.8 million and $ 3.7 million as of September 30, 2024 and 2023, respectively.

The loans against the policies have been taken out by the Company to pay the premiums.

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The Company revises these assumptions based on an annual evaluation of long-term trends, as well as market conditions, that may have an impact on the cost of providing retirement benefits.

For the supplementary domestic plan, medical benefits are assumed to be increasing based on the Long Term Healthcare Cost Trends Getzen Model commencing with 7.5 % per year with such increase decreasing by 0.5 % per year over the next several years and decreasing in accordance with the model pre 65 and 4.54 % post 65.

Life expectancy for medical benefits is based on the PRI-2012 White Collar for Males and Females Pre and Post retirement, Adjusted to 2006 projected using scale MP-2021.

The components of net periodic benefit costs related to the U.S.

and international plans are as follows:

Years ended September 30,

Year ended September 30,

(Amounts in thousands)

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Amortization of past service costs

Amortization of net (gain) loss

Amortization of net gain

Net periodic (benefit) cost

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Amortization of net gain

Net periodic (benefit) cost

Decrease in minimum liability included in other comprehensive income

Net periodic benefit

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

Post Retirement:

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

Increase in minimum liability included in other comprehensive income

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

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Foreign exchange impact

Administrative expenses

Benefits paid

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Total accrued benefit liability

As of September 30, 2023 and 2022, the amounts included in accumulated other comprehensive loss, consisted of deferred net losses totaling approximately $ 0.1 million and $ 0.4 million, respectively.

As of September 30, 2024 and 2023, the amounts included in accumulated other comprehensive income, consisted of deferred net gains totaling approximately $ 0.1 million and $ 0.1 million, respectively.

The amount of net deferred gain expected to be recognized as a component of net periodic benefit cost for the year ending September 30, 2024, is approximately $ 185 thousand.

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This investment primarily holds stocks within developed global equity markets, excluding the UK.

Potential sale of U.K.

Subsequent to September 30, 2024 the U.K.

pension assets, excluding cash, were all converted into cash to sell the U.K.

pension obligation.

As of the date of this filing, there is an agreement to sell the pension obligation in full.

This agreement has many contingencies and the expected timeframe of the sale occurring is 4 to 16 months from the date of these consolidated financial statements are issued.

Defined Contribution Plans

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Stock Based Incentive Compensation

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

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

During fiscal year 2022 an additional 400,000 shares of common stock were authorized to be reserved for issuance pursuant to the 2015 Plan.

In 2015, the Company adopted the 2015 Stock Incentive Plan (the "2015 Plan") and authorized 600,000 (adjusted for stock split in fiscal year 2024, see Note 1 for details) shares of common stock to be reserved for issuance pursuant to the 2015 Plan.

During fiscal year 2019 an additional 600,000 (adjusted for stock split in fiscal year 2024, see Note 1 for details) shares of common stock were authorized to be reserved for issuance pursuant to the 2015 Plan.

During fiscal year 2023 an additional 800,000 (number of shares adjusted for stock split which occurred in fiscal year 2024, see Note 1 for details) shares of common stock were authorized to be reserved for issuance pursuant to the 2015 Plan.

As of September 30, 2024, there were 192,434 shares available to be granted under the 2015 Plan.

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Awards issued under the 2015 Plan are not affected by termination of the plan.

The Company had no awarded stock options outstanding as of September 30, 2023 nor did it issue any for the two years ended September 30, 2023.

The Company had no awarded stock options outstanding as of September 30, 2024 or 2023.

The Company issues restricted stock awards at their fair value on the date of grant.

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The vesting for non-employee directors’ restricted stock awards is one year .

The vesting period for the key employees’ restricted stock awards is typically four years or immediately.

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 Summary of Significant Accounting Policies .

The vesting period for the key employees’ restricted stock awards is typically four years or immediately in the case of a sales commission for the ARIA cybersecurity products.

The Company recognizes stock compensation expense, net of actual forfeitures.

Stock-based compensation expense incurred and recognized for the years ended September 30, 2024 and 2023 related to nonvested stock granted to employees and non-employee directors under the Company’s stock incentive and employee stock purchase plans totaled approximately $ 1.6 million and $ 1.1 million, respectively.

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For the year ended September 30, 2023, the Company granted 142,344 nonvested shares to certain key employees, 104,000 nonvested shares to certain officers including 70,000 shares granted to the Chief Executive Officer, and 40,000 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.

All equity compensation awards granted for the years ended September 30, 2023 and September 30, 2022 were restricted stock awards.

As stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, expense for grants have been reduced for estimated forfeitures.

The forfeiture rates for the years ended September 30, 2023 and 2022 were based on actual forfeitures.

These numbers for the fiscal year 2023 were retroactively adjusted for the effects of a two for one stock split effected in the form of a 100 % stock dividend (see Note 1 Summary of Significant Accounting Policies ).

No cash was used to settle equity instruments granted under share-base payment arrangements in any of the years in the two-year period ended September 30, 2024.

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

(in thousands)

Outstanding at September 30, 2021

Outstanding at September 30, 2022

Outstanding at September 30, 2023

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

(in thousands)

Nonvested shares outstanding at September 30, 2021

Nonvested shares outstanding at of September 30, 2022

Activity in fiscal year 2023:

Nonvested shares outstanding at September 30, 2022

Nonvested shares outstanding as of September 30, 2023

Activity in fiscal year 2024:

Nonvested shares outstanding at September 30, 2023

As of September 30, 2023, there was $ 2.0 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.

Nonvested shares outstanding as of September 30, 2024

As of September 30, 2024, there was $ 3.3 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements (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 2.72 years.

1 unchanged sentence

Employee Stock Purchase Plan

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

In December 2013, the Board of Directors of the Company adopted the 2014 Employee Stock Purchase Plan (the "ESPP") covering up to 500,000 shares (all shares adjusted for stock split, see Note 1) of Common Stock, which was ratified by a vote of the Company’s shareholders in February 2014.

An additional 600,000 shares of common stock were approved by stockholders in fiscal year 2024.

3 unchanged sentences

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.

On February 8, 2011, the Board of Directors authorized the Company to purchase up to 500 thousand (adjusted retrospectively for stock split, see Note 1) additional shares of the Company's outstanding common stock at market price.

The plan does not expire.

The Company repurchased 600 shares of its outstanding common stock on the open market during fiscal year 2023.

The Company repurchased 7,600 shares of its outstanding common stock on the open market during fiscal year 2024 and this is the total shares of treasury stock owned with a cost basis of $ 104 thousand as of September 30, 2024.

As of September 30, 2024, 334,654 shares remain authorized to repurchase under the stock repurchase program.

Segment Information

Our reporting segments are aligned to how the Chief Operating Decision Maker allocates resources and assesses performance against the Company’s strategies and budgets.

It is also consistent with how we manage the business and view the markets we serve.

The following table presents certain operating segment information.

5 unchanged sentences

Interest income

Stock compensation expense

Capital expenditures

3 unchanged sentences

Interest income

Stock compensation expense

Capital expenditures

8 unchanged sentences

(Amounts in thousands)

The following table lists customers from which the Company derived revenues in excess of 10% of total revenues for the years ended years ended September 30, 2023 and 2022.

Year ended September 30,

(in millions)

In addition, accounts receivable from Customer A totaled approximately $ 7.4 million, or 30 %, and approximately $ 15.8 million, or 52 %, of total consolidated accounts receivable as of September 30, 2023 and September 30, 2022, respectively.

We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with this customer as of September 30, 2023.

No other customers accounted for 10% or more of total consolidated accounts receivable as of September 30, 2023.

Fair Value Disclosures

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Cash and cash equivalents

Condensed Consolidated Balance Sheets

Accounts and long-term receivable*

Consolidated Balance Sheets

Accounts receivable, net

Financing receivables, net

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

Line of Credit

Notes payable

*Original maturity over one year

1 unchanged sentence

Carrying amount approximated fair value.

Accounts and long-term receivable with original maturity over one year

Accounts receivable and accounts payable with original maturity of less than one year

Fair value was not materially different from their carrying values as of September 30, 2024, and 2023

Financing receivables.

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

5 unchanged sentences

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 September 30, 2023, and 2022.

For the fiscal year ended September 30, 2023 the Company paid cash dividends as follows:

For the fiscal year ended September 30, 2024 the Company paid cash dividends on common stock below.

Date Declared

(1) Amounts above are retroactively adjusted for the effects of a two for one stock split effected in the form of a 100 % stock dividend February 21, 2024.

Related Party Transactions

3 unchanged sentences

There were no amounts due to the vendor as of September 30, 2024 or 2023.

Subsequent Event

Subsequent to September 30, 2024, the U.K.

pension assets, excluding cash, were all converted into cash to sell the U.K.

pension obligation.

The value of the converted assets were not materially different from the balances as of September 30, 2024.

As of the date of these issued consolidated financial statements, there is an agreement to sell the pension obligation in full.

This agreement has many contingencies and the expected timeframe of the sale occurring is 4 to 16 months from the date of these consolidated financial statements are issued.

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