Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The discussion below contains certain forward-looking statements including, but not limited to, among others, statements concerning future revenues and future business plans. Forward-looking statements include statements in which we use words such as “expect”, “believe”, “anticipate”, “intend”, “project”, “estimate”, “should”, “could”, “may”, “plan”, “potential”, “predict”, “project”, “will”, “would” and similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, the forward-looking statements are subject to significant risks and uncertainties, and thus we cannot assure you that these expectations will prove to have been correct, and actual results may vary from those contained in such forward-looking statements. We discuss many of these risks and uncertainties in Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024. An additional risk factor can be found within this Form 10-Q under Item 1A under the heading “Risk Factors.” Factors that may cause such variances include, but are not limited to, our dependence on a small number of customers for a significant portion of our revenue, intense competition in the market segments in which we operate, changes in the U.S. Tax laws, the impact of the Ukrainian-Russian military and Israeli-Hamas conflict on global trade and financial markets, and the impact of pandemics on our business, tariffs, results of operations and financial condition. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses for accounts receivable and financing receivables, inventory valuation, income taxes, deferred compensation and retirement plans, as well as estimated selling prices used for revenue recognition and contingencies. We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A description of our critical accounting policies is contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 in the “Critical Accounting Policies” section contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management believes there have been no significant changes for the nine months ended June 30, 2025 to the items that we disclosed as our critical accounting estimates in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
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Recent trends affecting our financial performance
As of June 30, 2025, the Russian/Ukrainian military conflict and the Israeli-Hamas conflict have not had a direct or significant impact on revenue as we do not have any significant recurring customers in either region. However, we do have customers and suppliers in surrounding regions which may be affected and further escalation of both conflicts and geopolitical tensions related to such conflicts could adversely affect our business, financial condition and results of operations, by among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets. It is not possible at this time to predict the size of the impact or consequences of the conflicts on the Company and our customers or suppliers.
Results of Operations
Overview of the three months ended June 30, 2025
Our sales increased by $2.3 million, or 18%, to $15.4 million for the three months ended June 30, 2025 compared to $13.1 million for the three months ended June 30, 2024. Our gross margin percentage decreased to 29% for the three months ended June 30, 2025 compared to 35% for the three months ended June 30, 2024. For the three months ended June 30, 2025 there was an operating loss of $1.2 million compared to an operating loss of $0.7 million for the three months ended June 30, 2024. Other income, net decreased $0.3 million to $0.2 million for the three months ended June 30, 2025 compared to $0.5 million for the same prior year period. An income tax benefit of $0.8 million was recorded for the three months ended June 30, 2025 compared to an income tax benefit of $0.1 million in the same period in the prior year.
The following table details our results of operations in dollars and as a percentage of sales for the three months ended June 30, 2025 and 2024:
%
%
June 30, 2025
of sales
June 30, 2024
of sales
(Dollar amounts in thousands)
Sales
$
15,448
100
%
$
13,105
100
%
Costs and expenses:
Cost of sales
10,995
71
%
8,523
65
%
Engineering and development
791
5
%
737
6
%
Selling, general and administrative
4,885
32
%
4,565
35
%
Total costs and expenses
16,671
108
%
13,825
106
%
Operating loss
(1,223)
(8)
%
(720)
(5)
%
Other income, net
208
1
%
460
4
%
(Loss) income before income taxes
(1,015)
(7)
%
(260)
(1)
%
Income tax (benefit) expense
(751)
5
%
(75)
—
%
Net loss
$
(264)
(2)
%
$
(185)
(1)
%
Sales
TS segment sales change was as follows for the three months ended June 30, 2025 and 2024:
June 30,
Increase
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
10,138
$
7,825
$
2,313
30
%
Services
4,926
4,701
225
5
%
Total
$
15,064
$
12,526
$
2,538
20
%
The increase in TS segment product sales of $2.3 million is primarily due to increased sales to several existing major customers in the US division of $2.4 million, partially offset with decreased sales to an existing customer in the UK
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division of $0.1 million. Service sales for the three months ended June 30, 2025 increased $0.2 million from the same prior year period, which was attributable to the US division. The increase in service sales included increased internal and third-party services of $0.4 million, partially offset by decreased third-party maintenance sales of $0.2 million.
HPP segment sales change was as follows for the three months ended June 30, 2025 and 2024:
June 30,
Decrease
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
12
$
20
$
(8)
(40)
%
Services
372
559
(187)
(33)
%
Total
$
384
$
579
$
(195)
(34)
%
The HPP product sales were immaterial for the three months ended June 30, 2025 and the same prior year period. The HPP service sales decreased $0.2 million due to decreased royalties of $0.2 million and decreased Multicomputer repairs of $0.2 million, partially offset by $0.2 million of increased ARIA AZT customer support revenue.
Our sales by geographic area, which are based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended June 30, 2025 and 2024:
June 30,
Increase (decrease)
2025
%
2024
%
$
%
(Dollar amounts in thousands)
Americas
$
15,285
99
%
$
12,443
95
%
$
2,842
23
%
Europe
140
1
%
362
3
%
(222)
(61)
%
APAC and Africa
23
—
%
300
2
%
(277)
(92)
%
Totals
$
15,448
100
%
$
13,105
100
%
$
2,343
18
%
The $2.8 million increase in sales to the Americas was primarily the result of an increase in the TS-US division. The $0.2 million decrease in sales to Europe was primarily the result of decreased sales by our TS segment’s US division. The sales to APAC and Africa decreased $0.3 million for the three months ended June 30, 2025 compared to the same prior year period due to decreased sales in the HPP segment.
Gross Margins
Our gross margin ("GM") decreased $0.1 million for the three months ended June 30, 2025 as compared to the same prior year period. The GM as a percentage of sales decreased to 29% for the three months ended June 30, 2025 compared to the same prior year period of 35%.
June 30,
2025
2024
Increase (decrease)
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
TS
$
4,329
29
%
$
4,319
34
%
$
10
(5)
%
HPP
124
32
%
263
45
%
(139)
(13)
%
Total
$
4,453
29
%
$
4,582
35
%
$
(129)
(6)
%
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The impact of product mix within our TS segment on gross margin for the three months ended June 30, 2025 and 2024 was as follows:
June 30,
2025
2024
Increase (decrease)
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
Products
$
1,629
16
%
$
1,396
18
%
$
233
(2)
%
Services
2,700
55
%
2,923
62
%
(223)
(7)
%
Total
$
4,329
29
%
$
4,319
34
%
$
10
(5)
%
The overall TS segment GM as a percentage of sales decreased to 29% for the three month period ended June 30, 2025 compared to 34% for the same prior year period. Product GM as a percentage of revenue decreased 2% due to a different product mix without any significant changes from the prior year period. The service GM as a percentage of revenue decreased 7% from the prior year due to decreased third-party maintenance sales, which are recorded “net” which means that the revenue, net of the associated cost, is recorded in the Services revenue financial statement line item causing an increase in GM as a percentage of sales.
The impact of product mix within our HPP segment on gross margin for the three months ended June 30, 2025 and 2024 was as follows:
June 30,
2025
2024
Increase (decrease)
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
Products
$
(32)
(267)
%
$
(74)
(370)
%
$
42
103
%
Services
156
42
%
337
60
%
(181)
(18)
%
Total
$
124
32
%
$
263
45
%
$
(139)
(13)
%
The overall HPP segment GM as a percentage of sales decreased to 32% for the three months ended June 30, 2025 from 45% for the three months ended June 30, 2024. The 103% increase in product GM as a percentage of product revenue for the three months ended June 30, 2025 compared to the same prior year period is due to less allocated manufacturing overhead costs in the three months ended June 30, 2025 compared to the prior year period. The service GM as a percentage of services revenue from the same prior year period decreased 18% to 42% for the three months ended June 30, 2025 compared to 60% for the three months ended June 30, 2024 due to decreased Multicomputer repair sales, which are high GM as a percentage of revenue.
Engineering and Development Expenses
The engineering and development expenses incurred by our HPP segment increased approximately $0.1 million for three months ended June 30, 2025 compared to the prior year period due to increased stock compensation, consulting, and recruiting. The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA Zero Trust Gateway cyber security products.
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Selling, General and Administrative Expenses
The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the three months ended June 30, 2025 and 2024:
Three months ended June 30,
$
%
% of
% of
Increase
Increase
2025
Total
2024
Total
(Dollar amounts in thousands)
By Operating Segment:
TS segment
$
3,722
76
%
$
3,412
75
%
$
310
9
%
HPP segment
1,163
24
%
1,153
25
%
10
1
%
Total
$
4,885
100
%
$
4,565
100
%
$
320
7
%
SG&A expenses increased $0.3 million to $4.9 million for the three months ended June 30, 2025 compared to the same prior year period. The $0.3 million increase in TS segment SG&A expenses compared to the same prior year period is primarily the result of increased variable compensation, salaries, stock compensation expense, and recruiting. The HPP segment SG&A expenses remained relatively flat at $1.2 million for the three months ended June 30, 2025 as compared to the prior year period without any significant change in types of expenses.
Other Income/Expenses
The following table details other income, net for the three months ended June 30, 2025 and 2024:
Three months ended
June 30, 2025
June 30, 2024
$ Change
(Amounts in thousands)
Foreign exchange loss
$
(200)
$
(10)
$
(190)
Interest expense
(105)
(55)
(50)
Interest income
440
523
(83)
Other income, net
73
2
71
Total other income, net
$
208
$
460
$
(252)
Total other income, net for the three months ended June 30, 2025 was $0.2 million compared to $0.5 million for the three months ended June 30, 2024.
The $0.2 million increased foreign exchange loss for the three months ended June 30, 2025 was primarily due to the US Dollar weakening more than the same prior year period relative to the British Pound. In consolidation, US dollars are remeasured into the functional currency, British Pounds, of our UK subsidiary. This non-cash remeasurement is included in the Foreign exchange loss in the Consolidated Statements of Operations. The foreign exchange loss was primarily from the US Dollar bank account in our TS UK division.
Interest income decreased $83 thousand for the three months ended June 30, 2025 compared to the same prior year period primarily due to decreased interest income from agreements that have payment terms in excess of one year (see Note 5 Financing receivables, net in Item 1 to this Quarterly Report on Form 10-Q for details) as well as a reduction in interest rates related to our Cash and cash equivalents. Although new agreements with higher interest rates have been entered into during fiscal 2024 and 2025, this was more than offset by lower interest income recognized from a larger number of prior agreements because interest income decreases from each agreement as time elapses due to principal payments being received. All of these agreements are in the TS-US division.
The interest expense increase of $50 thousand for the three months ended June 30, 2025 compared to the same prior year period was related to the TS US division entering into additional multi-year vendor contracts related to sales agreements that have payment terms in excess of one year during fiscal years 2024 and 2025.
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Income Taxes
The Company recorded an income tax benefit of $751 thousand and $75 thousand for the three months ended June 30, 2025 and 2024, respectively. The income tax benefit for the three months ended June 30, 2025 was primarily driven by the impact of the Company's pre-tax loss, the excess tax benefits on restricted stock awards vested during the period, and an income tax refund related to an amended fiscal year 2019 tax return for the Employee Retention Credit wages claimed in which the statute had expired. No receivable had been recorded for this item, and as such, the Company recorded a discrete P&L benefit during the quarter. The income tax benefit for the three months ended June 30, 2024 was driven by a decrease in pre-tax earnings.
On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (“OBBBA”) into law. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Section 163(j) interest limitations, and expanded Section 162(m) aggregation requirements. In accordance with ASC 740, the effects of the new tax law will be recognized in the period of enactment. The Company is currently evaluating the impact of the OBBBA, and an estimate of the financial effect cannot be determined at this time.
Overview of the nine months ended June 30, 2025
Our sales increased by $2.1 million, or 5%, to $44.3 million for the nine months ended June 30, 2025 as compared to $42.2 million for the nine months ended June 30, 2024. The increase in sales is the result of an increase of $4.4 million in the TS segment, partially offset by a decrease of approximately $2.3 million in our HPP segment. Our gross margin percentage decreased 6% to 30% of sales for the nine months ended June 30, 2025 compared to 36% for the nine months ended June 30, 2024. For the nine months ended June 30, 2025 operating loss was $2.6 million compared to operating income of $0.2 million for the nine months ended June 30, 2024. Other income, net decreased $0.1 million for the nine months ended June 30, 2025 compared to the nine months ended June 30, 2024. An income tax benefit of $1.5 million was recorded for the nine months ended June 30, 2025 compared to an income tax expense of $0.1 million in the same prior year period.
The following table details our results of operations in dollars and as a percentage of sales for the nine months ended June 30, 2025 and 2024:
%
%
June 30, 2025
of sales
June 30, 2024
of sales
(Dollar amounts in thousands)
Sales
$
44,265
100
%
$
42,186
100
%
Costs and expenses:
Cost of sales
31,041
70
%
27,031
64
%
Engineering and development
2,340
5
%
2,163
5
%
Selling, general and administrative
13,455
30
%
12,821
30
%
Total costs and expenses
46,836
105
%
42,015
99
%
Operating (loss) income
(2,571)
(5)
%
171
1
%
Other income, net
1,122
3
%
1,232
2
%
(Loss) income before income taxes
(1,449)
(2)
%
1,403
3
%
Income tax (benefit) expense
(1,549)
2
%
73
—
%
Net income
$
100
—
%
$
1,330
3
%
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Sales
TS segment sales change was as follows for the nine months ended June 30, 2025 and 2024:
June 30,
Increase
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
29,350
$
25,175
$
4,175
17
%
Services
13,454
13,218
236
2
%
Total
$
42,804
$
38,393
$
4,411
11
%
The increase in TS segment product sales of $4.2 million during the period as compared to the prior year period is primarily attributable to increased sales of $4.1 million to existing major customers combined with an increase in sales of $0.1 million in the UK division to an existing customer. Service sales for the nine months ended June 30, 2025 increased $0.2 million from the prior year period due to an increase of $0.6 million from internal and third-party services and an increase in managed services of $0.1 million, partially offset by a decrease in third-party maintenance sales of $0.5 million. All of these service sales changes occurred in the US division.
HPP segment sales change was as follows for the nine months ended June 30, 2025 and 2024:
June 30,
Decrease
2025
2024
$
%
(Dollar amounts in thousands)
Products
$
367
$
2,535
$
(2,168)
(86)
%
Services
1,094
1,258
(164)
(13)
%
Total
$
1,461
$
3,793
$
(2,332)
(61)
%
The HPP product sales decreased by $2.2 million for the nine months ended June 30, 2025 as compared to the prior year period primarily as a result of one large ARIA AZT order of $2.0 million which occurred in the prior year period and did not recur in the current year combined with a $0.4 million decrease in Myricom sales, which was partially offset by increased ARIA AZT revenue to new customers of $0.2 million. The HPP service sales decreased $0.2 million for the nine months ended June 30, 2025 compared to the prior year period due to decreased revenue from Multicomputer repair services of $0.3 million combined with decreased royalties on high-speed processing boards related to the E2D program of $0.2 million, partially offset by increased ARIA AZT customer support revenue of $0.3 million.
Our sales by geographic area, which are based on the customer location to which the products were shipped or services rendered, were as follows for the nine months ended June 30, 2025 and 2024:
June 30,
Increase (decrease)
2025
%
2024
%
$
%
(Dollar amounts in thousands)
Americas
$
43,112
98
%
$
40,525
96
%
$
2,587
6
%
Europe
976
2
%
967
2
%
9
1
%
APAC and Africa
177
—
%
694
2
%
(517)
(74)
%
Totals
$
44,265
100
%
$
42,186
100
%
$
2,079
5
%
The $2.6 million increase in sales to the Americas was the result of an increase in the TS-US division of $4.7 million and TS-UK division of $0.1 million, partially offset with a decrease in the HPP segment of $2.2 million. The sales to Europe remained relatively flat from prior year with increased sales to Europe in the TS-US division of $0.1 million, offset by a decrease of sales to Europe in the TS-UK division. The sales to APAC and Africa decreased $0.5 million as a result of decreased sales in the TS segment’s US division of $0.4 million combined with decreased sales in the HPP segment of $0.1 million.
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Gross Margins
Our gross margin ("GM") decreased $1.9 million for the nine months ended June 30, 2025 compared to the same prior year period. The GM as a percentage of total sales decreased to 30% for the nine months ended June 30, 2025 as compared to the same prior year period of 36%.
June 30,
2025
2024
Increase (decrease)
(Dollar amounts in thousands)
GM$
GM%
GM$
GM%
GM$
GM%
TS
$
12,514
29
%
$
12,390
32
%
$
124
(3)
%
HPP
710
49
%
2,765
73
%
(2,055)
(24)
%
Total
$
13,224
30
%
$
15,155
36
%
$
(1,931)
(6)
%
The impact of product mix within our TS segment on gross margin for the nine months ended June 30, 2025 and 2024 was as follows:
June 30,
2025
2024
Increase (decrease)
GM$
GM%
GM$
GM%
GM$
GM%
(Dollar amounts in thousands)
Products
$
4,965
17
%
$
4,503
18
%
$
462
(1)
%
Services
7,549
56
%
7,887
60
%
(338)
(4)
%
Total
$
12,514
29
%
$
12,390
32
%
$
124
(3)
%
The overall TS segment GM as a percentage of total sales decreased to 29% for the nine month period ended June 30, 2025 compared to 32% from the prior year period. Product GM as a percentage of revenue for the nine months ended June 30, 2025 decreased 1% from the prior year period due to product mix. Service GM as a percentage of total sales decreased to 56% for the nine months ended June 30, 2025 compared to 60% from the prior year period. This was primarily due to decreased third-party maintenance sales, which are recorded “net” which means that the revenue, net of the associated cost, is recorded in the Services revenue financial statement line item causing an increase in GM as a percentage of sales.
The impact of product mix within our HPP segment on gross margin for the nine months ended June 30, 2025 and 2024 was as follows:
June 30,
2025
2024
Decrease
(Dollar amounts in thousands)
GM$
GM%
GM$
GM%
GM$
GM%
Products
$
201
55
%
$
2,040
80
%
$
(1,839)
(25)
%
Services
509
47
%
725
58
%
(216)
(11)
%
Total
$
710
49
%
$
2,765
73
%
$
(2,055)
(24)
%
The overall HPP segment GM as a percentage of sales decreased to 55% for the nine months ended June 30, 2025 from 80% for the nine months ended June 30, 2024. The 25% decrease in product GM as a percentage of product revenue compared to the same prior year period was primarily attributed to one large ARIA Zero Trust Gateway order in the prior year period, which was nearly all GM and did not recur in the current period. The 11% decrease in service GM as a percentage of service revenue for the nine months ended June 30, 2025 compared to the same prior year period was due to decreased royalty sales, which are nearly all GM.
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Engineering and Development Expenses
The engineering and development expenses incurred by our HPP segment increased to $2.3 million for the nine months ended June 30, 2025 compared to the same prior year period of $2.2 million due to increased consulting. The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA Zero Trust Gateway cyber security products.
Selling, General and Administrative Expenses
The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the nine months ended June 30, 2025 and 2024:
Nine months ended June 30,
$
%
% of
% of
Increase
Increase
2025
Total
2024
Total
(Dollar amounts in thousands)
By Operating Segment:
TS segment
$
10,016
74
%
$
9,512
74
%
$
504
5
%
HPP segment
3,439
26
%
3,309
26
%
130
4
%
Total
$
13,455
100
%
$
12,821
100
%
$
634
5
%
SG&A expenses increased $0.6 million for the nine months ended June 30, 2025 compared to the same prior year period. The $0.5 million increase in TS segment SG&A expenses compared to the same prior year period is primarily the result of increased stock compensation expense, salaries, variable compensation, and expenses incurred in connection with the planned termination of our defined benefit pension plan in the U.K. The HPP segment SG&A expenses increased $0.1 million for the nine months ended June 30, 2025 as compared to the prior year period primarily due to increased stock compensation expense.
Other Income/Expenses
The following table details other income, net for the nine months ended June 30, 2025 and 2024:
Nine months ended
June 30, 2025
June 30, 2024
$ Change
(Amounts in thousands)
Foreign exchange loss
$
(37)
$
(152)
$
115
Interest expense
(259)
(150)
(109)
Interest income
1,343
1,497
(154)
Other income, net
75
37
38
Total other income, net
$
1,122
$
1,232
$
(110)
Total other income, net for the nine months ended June 30, 2025 decreased $0.1 million to income of $1.1 million compared to income of $1.2 million in the same prior year period.
The $0.1 million decreased foreign exchange loss for the nine months ended June 30, 2025 was due to the US Dollar weakening less relative to the British Pound compared to the same prior year period. In consolidation, US dollars are remeasured into the functional currency, British Pounds, of our UK subsidiary. This non-cash remeasurement is included in the Foreign exchange loss in the Consolidated Statements of Operations. The foreign exchange loss in the current period was primarily from the US Dollar bank account in our TS UK division.
Interest income decreased $154 thousand for the nine months ended June 30, 2025 compared to the same prior year period primarily due to decreased interest income from agreements that have payment terms in excess of one year (see Note 5 Financing receivables, net in Item 1 to this Quarterly Report on Form 10-Q for details) as well as a reduction in interest rates related to our Cash and cash equivalents. Although new agreements with higher interest rates have been
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entered into during fiscal years 2024 and 2025, this is more than offset by lower interest income recognized from a larger number of prior agreements because interest income decreases from each agreement as time elapses due to principal payments being received. All of these agreements are in the TS-US division.
The interest expense increase of $109 thousand for the nine months ended June 30, 2025 compared to the same prior year period was primarily related to the TS US division entering into additional multi-year vendor contracts related to sales agreements in fiscal year 2025 and 2024 that have payment terms in excess of one year. Interest expense increased while interest income decreased because many of the Company’s financing sales prior to fiscal year 2024 did not have vendor financing, but in fiscal years 2024 and 2025 vendor financing became more prevalent.
Income Taxes
The Company recorded an income tax benefit of $1.5 million and income tax expense of $73 thousand for the nine months ended June 30, 2025 and 2024, respectively. The income tax benefit for the nine months ended June 30, 2025 was primarily driven by the impact of the Company's pre-tax loss, the excess tax benefits on restricted stock awards vested during the period, and an income tax refund related to an amended fiscal year 2019 tax return for the Employee Retention Credit wages claimed in which the statute had expired. No receivable had been recorded for this item, and as such, the Company recorded a discrete P&L benefit during the current fiscal year. The income tax benefit for nine months ended June 30, 2024 was primarily driven by income earned in the United States.
See the Overview of the three months ended June 30, 2025 within this Item 2 for discussion of the One Big Beautiful Bill Act signed on July 4, 2025.
Liquidity and Capital Resources
Our primary source of liquidity is our Cash and cash equivalents and our line of credit.
Cash and cash equivalents decreased by $4.3 million to $26.3 million as of June 30, 2025 from $30.6 million as of September 30, 2024.
The following is a summary of our cash flows for the nine months ended June 30, 2025 and 2024:
Nine months ended June 30,
2025
2024
(Dollar amounts in thousands)
Net cash provided by (used in):
Operating activities
$
370
$
5,721
Investing activities
(174)
(238)
Financing activities
(4,454)
(1,824)
Effect of exchange rate changes on cash
(19)
15
(Decrease) increase in Cash and cash equivalents
$
(4,277)
$
3,674
Operating Activities
Cash provided by operating activities was $0.4 million for the nine months ended June 30, 2025 compared to $5.7 million provided by operating activities in the prior year. The significant changes from the prior period include decreased collections of Accounts receivable of $2.5 million, increased payments in Inventories of $1.2 million, increased payments in Accounts payable and accrued expenses of $0.7 million, partially offset by increased collections of Financing receivables of $1.4 million. The remaining differences are primarily related to timing differences in operating assets and liabilities. Inventory fluctuations are dependent on when orders are received and shipped. Accounts payable and accrued expenses fluctuations are dependent on when vendor invoices are received as well as the related timing of the payments.
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Investing Activities
Cash used in investing activities was flat at $0.2 million for the nine months ended June 30, 2025 and 2024.
Financing Activities
Cash used in financing activities increased approximately $2.6 million from the prior year to $4.5 million for the nine months ended June 30, 2025 compared to $1.8 million for the prior year period. The increase from the prior year was primarily due to increased net repayments on our line-of-credit of approximately $2.3 million from the prior year, repurchases of common stock of $0.6 million, increased cash dividend payments of $0.2 million, partially offset by a decrease of a note payable of $0.4 million.
Other Liquidity and Capital Resources Items
Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $3.9 million as of June 30, 2025 and consisted of 0.2 million Euros, 0.1 million British Pounds, and 3.5 million US Dollars. This cash is included in our total Cash and cash equivalents reported on the Condensed Consolidated Balance Sheets.
As of June 30, 2025 and September 30, 2024, the Company maintained a line of credit with a capacity of up to $15.0 million for inventory accessible to both the HPP and TS segments. This line of credit also includes availability of a limited cash withdrawal of up to $1.0 million. An amount of $13.9 million and $10.8 million were available as of June 30, 2025 and September 30, 2024, respectively. As of June 30, 2025 and September 30, 2024 there were no cash withdrawals outstanding. For further discussion of the Company’s line of credit, including its financial covenants, see Item 1, Note 9 Line of Credit.
If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans or other means. If we are unable to secure additional financing, we may not be able to complete development or enhancement of products, take advantage of future opportunities, respond to competition, retain key employees, or continue to effectively operate our business.
Based on our current plans and business conditions, management believes that the Company’s available Cash and cash equivalents, the cash generated from operations, and availability on our line of credit will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the date of this filing.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.