What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-12-16 compared with 2024-12-20 · 104 added, 119 removed, 162 unchanged (58% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis of financial condition and results of operations and other portions of this filing contain forward-looking information that involves risks and uncertainties.

Our actual results could differ materially from those anticipated by the forward-looking information.

You should review the “Special Note Regarding Forward Looking Statements” and “Risk Factors” sections of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

This management’s discussion and analysis of financial condition and results of operations and other portions of this filing contain forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated by the forward-looking statements.

contained in the following discussion and analysis.

The following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing.

Recent trends affecting our financial performance

As of September 30, 2024, the Russian/Ukrainian military conflict and the Israeli-Hamas conflict have not had a direct significant impact on revenue as we do not have any significant recurring customers in either region.

As of September 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.

Overview of Fiscal 2024 Results of Operations

Revenue decreased by approximately $9.4 million, or 15%, to $55.2 million for the fiscal year ended September 30, 2024 compared to $64.6 million for the fiscal year ended September 30, 2023.

Gross profit margin percentage remained consistent at 34% for the fiscal year ended September 30, 2024 and 2023.

We generated an operating loss of $(1.9) million for the fiscal year ended September 30, 2024 as compared to operating income of $1.9 million for the fiscal year ended September 30, 2023.

Other income, net was $1.5 million for the fiscal year ended September 30, 2024 as compared to $2.9 million for the prior year.

The Company recorded an income tax benefit of $(93) thousand, which reflected an effective tax rate of 22.2%, for the fiscal year ended September 30, 2024 compared to an income tax benefit of $(469) thousand, which reflected an effective tax rate of (9.9)% for the fiscal year ended September 30, 2023.

Overview of Fiscal Year 2025

Results of Operations

Revenue increased by approximately $3.5 million, or 6%, to $58.7 million for the fiscal year ended September 30, 2025 compared to $55.2 million for the fiscal year ended September 30, 2024.

Gross profit margin percentage decreased to 32% for the fiscal year ended September 30, 2025 compared to 34% for the fiscal year ended September 30, 2024.

We generated an operating loss of $(3.1) million for the fiscal year ended September 30, 2025 as compared to an operating loss of $(1.9) million for the fiscal year ended September 30, 2024.

Other income, net was consistent at approximately $1.5 million for the fiscal years ended September 30, 2025 and 2024.

The Company recorded an income tax benefit of $(1.6) million, which reflected an effective tax rate of 94.5%, for the fiscal year ended September 30, 2025 compared to an income tax benefit of $(0.1) million, which reflected an effective tax rate of 22.2% for the fiscal year ended September 30, 2024.

The following table details our results of operations in dollars and as a percentage of sales for the fiscal years ended:

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Cost of sales

Engineering and development

Research and development

Selling, general and administrative

Total costs and expenses

Operating (loss) income

Operating loss

Other income, net

(Loss) income before income taxes

Loss before income taxes

Income tax benefit

Net (loss) income

Revenue decreased by approximately $9.4 million, or approximately 15%, to $55.2 million for the fiscal year ended September 30, 2024 compared to $64.6 million for the fiscal year ended September 30, 2023.

Revenue increased by approximately $3.5 million, or approximately 6%, to $58.7 million for the fiscal year ended September 30, 2025 compared to $55.2 million for the fiscal year ended September 30, 2024.

TS segment revenue changes by products and services for the fiscal years ended September 30, 2025 and 2024 were as follows:

September 30,

Increase (decrease)

(Dollar amounts in thousands)

Our TS segment revenue decreased by approximately $6.7 million consisting of a decrease of $6.6 million in our U.S.

division combined with a decrease of $0.1 million in our U.K.

The decrease in TS segment product revenue of $7.5 million during the period was the result of a $7.4 million decrease in the U.S.

division combined with a decrease of $0.1 million in the U.K.

Interest rates were relatively high compared to prior years in fiscal year 2024 along with inflation which caused economic uncertainty and some reduced customer spending on products.

The decrease in our U.S.

division product revenue year over year was primarily associated with several existing major customers, partially offset by an increase with several new major customers and existing customers.

The decrease in the U.K.

division year over year was primarily associated with two major customers.

The increase in TS segment service revenue of $0.8 million as compared to the prior year was in the U.S.

In fiscal year 2024 as compared to the prior year, the U.S.

division had an increase of $1.1 million in third party maintenance revenue, an increase of $0.4 million in managed services, partially offset by a decrease of $0.7 million in internal services.

HPP segment revenue changes by product and services for the fiscal years ended September 30, 2024 and 2023 were as follows:

Our TS segment revenue increased by approximately $5.7 million consisting of an increase of $5.5 million in our U.S.

division combined with an increase of $0.2 million in our U.K.

The increase in TS segment products revenue of $3.0 million during the period was the result of a $2.8 million increase in the U.S.

division combined with an increase of $0.2 million in the U.K.

The increase in our U.S.

division product revenue year over year was primarily associated with several existing major customers as well as one new customer.

The increase in the U.K.

division year over year was primarily associated with two major existing customers.

The increase in TS segment services revenue of $2.7 million as compared to the prior year was in the U.S.

division due to an increase of $1.3 million in third-party maintenance revenue, an increase of $1.1 million in internal and third party services, and an increase of $0.3 million in managed services.

HPP segment revenue changes by products and services for the fiscal years ended September 30, 2025 and 2024 were as follows:

September 30,

Increase (decrease)

(Dollar amounts in thousands)

Our HPP segment revenue decreased by approximately $2.2 million or 54%.

The decrease in HPP product revenue of $2.9 million in the fiscal year ended September 30, 2024 was primarily the result of two major non-recurring transactions of $1.8 million and $1.2 million in the prior year along with several other customers, partially offset by one major AZT sale in fiscal year 2024.

The increase in HPP service revenue of approximately $0.2 million for the fiscal year ended September 30, 2024 was primarily the result of a $0.5 million increase in ARIA revenue, partially offset with a decrease of $0.3 million in royalty revenues on high-speed processing boards related to the E2D program as compared to the fiscal year ended September 30, 2023.

The decrease in HPP products revenue of $2.1 million in the fiscal year ended September 30, 2025 was primarily the result of decreased ARIA AZT revenue of $1.7 million combined with decreased Myricom revenue of $0.4 million.

The ARIA revenue decrease was due to one large nonrecurring ARIA AZT software license sale of $2.0 million in the prior year, partially offset by increased total ARIA AZT software license sales of $0.3 million.

The decreased Myricom revenue was primarily due to one large nonrecurring transaction in the prior year.

The decrease in HPP services revenue of approximately $0.1 million for the fiscal year ended September 30, 2025 compared to the same period for the prior year was primarily the result of a $0.3 million decrease in repairs revenue and a $0.2 million decrease in royalty revenues on high-speed processing boards related to the E2D program, partially offset by an increase in Multicomputer revenue of $0.2 million and increased ARIA revenue of $0.2 million.

ARIA AZT service revenue is from post contract support of the ARIA AZT software license and ARIA ADR revenue is all recorded to service revenue.

The non-recurring AZT software license transaction discussed above was originally sold with annual post contract support, which was renewed in fiscal year 2025 for another year of service.

Our total revenues by geographic area based on the location to which the products were shipped or services rendered were as follows:

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(Dollar amounts in thousands)

The $9.5 million decrease in the Americas revenue for the fiscal year ended September 30, 2024 as compared to the fiscal year ended September 30, 2023 was primarily due to decreased revenue by our TS-US division of $7.0 million, decreased revenue by our TS-UK division of $0.1 million, and decreased revenue by our HPP segment of $2.4 million.

Sales to Europe decreased by $0.3 million primarily due to a decrease by our HPP segment of $0.3 million.

Sales to Europe in the TS segment remained flat with an increase in the TS-US division of $0.1 million, offset with a decrease in the TS-UK division of $0.1 million.

Sales to Asia-Pacific increased $0.4 million due to the TS-US division.

APAC and Africa

The $3.8 million increase in the Americas revenue for the fiscal year ended September 30, 2025 as compared to the fiscal year ended September 30, 2024 was primarily due to increased revenue by our TS-US division of $5.8 million combined with increased revenue in our TS-UK division of $0.1 million, partially offset by decreased revenue in our HPP segment of $2.1 million.

Sales to Europe increased by $0.2 million primarily due to an increase by our TS-US division of $0.1 million and an increase of $0.1 million in the TS-UK division.

Sales to APAC and Africa decreased $0.5 million due to a decrease of $0.4 million by the TS-US division and a decrease of $0.1 million in the HPP segment.

Gross Margins

Our gross margin ("GM") decreased by $3.1 million to $18.9 million for fiscal year 2024 as compared to GM of approximately $21.9 million for fiscal year 2023.

The total GM as a percentage of revenue remained flat at 34% for fiscal year 2024 and 2023.

Our gross margin ("GM") decreased to $18.5 million for fiscal year 2025 as compared to GM of $18.9 million for fiscal year 2024.

The total GM as a percentage of revenue decreased to 32% for fiscal year 2025 compared to 34% for fiscal year 2024.

The following table summarizes GM changes by segment for fiscal years ended September 30:

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(Dollar amounts in thousands)

The overall TS segment GM as a percentage of revenue increased to 32% in fiscal year 2024 from 31% in fiscal year 2023.

The overall TS segment GM as a percentage of revenue decreased to 31% in fiscal year 2025 from 32% in fiscal year 2024.

The $0.1 million product GM decrease in fiscal year 2025 as compared to the prior year resulted from a decrease in the U.S.

Product GM as a percentage of revenue decreased 2% for fiscal year 2024 compared to the prior year due to product mix.

Product GM as a percentage of revenue decreased 2% for fiscal year 2025 compared to the prior year due to higher volume of sales to certain customers with lower margins.

The $1.6 million increase in our TS segment service GM in fiscal year 2025 as compared to the prior year resulted from an increase in GM in the U.S.

Service GM as a percentage of revenue remained flat at 59% in fiscal year 2024 due to increased third party maintenance revenue, which is recorded as net sales meaning all the gross margin is recorded in the services revenue financial statement line item causing increased GM as a percentage of revenue, offset by decreased GM from internal services which have associated fixed costs which decreased the GM as a percentage of revenue.

Service GM as a percentage of revenue remained flat at 59% in fiscal year 2025 due to a proportional increase in the cost of sales compared to revenue.

The impact of product mix on gross margins within our HPP segment for the fiscal years ended September 30 was as follows:

September 30,

Increase (decrease)

(Dollar amounts in thousands)

The overall HPP segment GM as a percentage of revenue increased to 65% in fiscal year 2024 from 62% in fiscal year 2023.

The GM as a percentage of sales from products increased 9% primarily due to the large ARIA AZT sale which was nearly all GM.

The overall HPP segment GM as a percentage of revenue decreased to 46% in fiscal year 2025 from 65% in fiscal year 2024.

The GM as a percentage of sales from products decreased 26% primarily due to a nonrecurring prior year large ARIA AZT software license sale which was nearly all GM.

The GM as a percentage of sales from services decreased 9% primarily due to decreased Multicomputer royalty revenues, which is nearly all GM and recorded as service revenue.

Engineering and Development Expenses

Our engineering and development expenses are only in our HPP segment.

These expenses decreased $0.1 million to $3.0 million for fiscal year 2024 from $3.1 million for fiscal year 2023.

This was primarily due to decreased labor expenses of $0.2 million in fiscal year 2024 when compared to fiscal year 2023, partially offset by increased stock compensation of $0.1 million.

Fiscal year 2024 and 2023 expenses were primarily for product engineering expenses incurred in connection with the further development of the ARIA Zero Trust (AZT) and ARIA SDS cyber security products.

Research and Development Expenses

Our research and development expenses are only in our HPP segment.

These expenses increased $0.3 million from $3.0 million in fiscal year 2024 to $3.3 million in fiscal year 2025.

This was primarily due to increased consulting of $0.1 million, increased stock compensation of $0.1 million, and increased salaries of $0.1 million.

Fiscal year 2025 and 2024 expenses were primarily for product engineering expenses incurred in connection with the further development of the ARIA Zero Trust (AZT), ARIA SDS, and ARIA ADR cyber security products.

Selling, General and Administrative

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The TS segment SG&A expenses increased approximately $0.6 million for the fiscal year ended September 30, 2025 when compared to the prior year.

This increase was primarily due to an increase in audit and tax fees of $0.3 million, an increase in stock compensation expense of $0.2 million, an increase in actuarial fees of $0.2 million in connection to preparing to sell the pension in the TS-UK division, partially offset with decreased variable compensation of $0.3 million and decreased bonus of $0.3 million.

The HPP segment SG&A expense increase of $0.8 million for the fiscal year ended September 30, 2024 when compared to the prior year was primarily attributed to increased consulting of $0.4 million, increased professional services of $0.2 million, increased selling including travel and events of $0.2 million, increased stock compensation of $0.1 million, increased recruiting of $0.1 million, partially offset by decreased bonuses of $0.2 million.

This increase was primarily in the TS-US division due to an increase of $0.4 million in variable compensation, an increase of $0.1 million in salaries, and an increase of $0.1 million in recruiting fees.

The HPP segment SG&A expense remained flat at $4.6 million for fiscal year 2025 and 2024 without any significant changes in types of expenses.

Other Income/Expenses

The following table details our other income (expense) for the years ended September 30, 2025 and 2024:

Twelve months

September 30, 2025

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(Amounts in thousands)

Foreign exchange loss

Foreign exchange gain (loss)

Interest expense

Interest income

Employee Retention Tax Credit, net of costs to collect

Other income, net

Other (expense) income, net

Total other income, net

For the year ended September 30, 2024 the foreign exchange loss decreased $0.1 million primarily due to the U.S.

dollar weakening less against the British pound in fiscal year 2024 compared to the prior year.

For the year ended September 30, 2025, there was an increase in foreign exchange gain of $0.5 million primarily due to the TS U.K.

division carrying a higher U.S.

dollar bank account balance earlier in fiscal year 2025 when the dollar was on average stronger than the British pound, which caused a foreign exchange gain.

In the prior fiscal year the U.S.

dollar significantly weakened against the British pound causing an exchange loss.

Additionally, the euro strengthened relative to the British pound in fiscal year 2025 compared to fiscal year 2024 in which the euro weakened relative to the British pound.

division has bank accounts with U.S.

dollars and euros.

There are also transactions in both of these currencies in the TS U.K.

In consolidation, U.S.

dollars and euros 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 and the foreign exchange gain or loss is primarily from a U.S.

Dollar and Euro bank account.

Dollar bank account consists of approximately 87% of the currency held in the U.K.

subsidiary after remeasurement into U.S.

Interest expense decreased $27 thousand for the year ended September 30, 2024 compared to the prior year period primarily due to less interest expense related to multi-year agreements with vendors in the TS U.S.

This non-cash remeasurement is included in foreign exchange gain or loss on the income statement and the foreign exchange gain or loss is primarily from the U.S.

dollar and euro bank accounts.

Interest expense increased $0.1 million for the year ended September 30, 2025 compared to the prior year period primarily due to increased interest expense related to multi-year agreements with vendors in the TS U.S.

Payments on these agreements contain both principal and interest expense.

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See Note 9 Accounts payable and accrued expenses, and Other noncurrent liabilities in Item 15 to this Annual Report on Form 10-K.

Interest income increased $0.6 million for the year ended September 30, 2024 when compared to the prior year.

Interest income from cash and cash equivalents in fiscal year 2024 increased $0.7 million from prior year due to a significantly higher average balance during fiscal year 2024 earning interest income, partially offset by decreased interest income from multi-year agreements of $0.1 million.

These agreements have payment terms in excess of one year (see Note 3 Financing Receivables, net in Item 1 to this Annual Report on Form 10-K for details) and are only in the TS-US segment.

The Employee Retention Tax Credit, net of costs to collect of $2.1 million was recognized in the fourth quarter of fiscal year 2023.

The Coronavirus Aid, Relief, and Economic Security Act provided an Employee Retention Credit (“ERC”) which is a refundable tax credit against certain employment taxes.

The Consolidated Appropriations Act, 2021 extended and expanded the availability of the employee retention credit through December 31, 2021 including amending the employee retention credit to be equal to 70% of qualified wages paid to employees during the 2021 calendar year.

Both the TS-US division and HPP segment qualified for the ERC beginning in March 2021 for qualified wages through September 2021.

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

The Company recorded an income tax benefit of $(93) thousand, which reflected an effective tax rate of 22.2%, for the year ended September 30, 2024.

The provision is primarily driven by the benefit recognized as a result of windfalls for restricted stock awards that vested during the period, offset by the change in valuation allowance.

The benefit recorded during the fiscal year was $189 thousand for the windfall on restricted stock awards vesting during the period and an expense of $180 thousand for the change in valuation allowances against deferred tax assets.

For the year ended September 30, 2023, the income tax benefit was approximately $(469) thousand, which reflected an effective tax rate of a (9.9)% benefit.

The provision was primarily driven by the benefit recognized as a result of the release of the valuation allowance against the majority of the Company's deferred tax assets.

The benefit recorded during the fiscal year was $1.8 million for valuation allowances released on deferred tax assets related to prior years.

The Company also claimed and received the Employee Retention Credit, which resulted in a net benefit of approximately $134 thousand, after amending prior year returns.

Interest income decreased $0.2 million for the year ended September 30, 2025 when compared to the prior year.

This is due to lower interest income of $0.1 million from Cash and cash equivalents in fiscal year 2025 compared to the prior year due to a lower average balance and lower average interest rate during fiscal year.

Additionally, there was $0.1 million decreased interest income from multi-year agreements.

The prime rate has decreased since the end of fiscal year 2023 resulting in customers getting better lower interest rates meaning less interest income.

These agreements have payment terms in excess of one year (see Note 3 Financing Receivables, net in Item 15 to this Annual Report on Form 10-K for details) and are only in the TS-US division.

The Company recorded an income tax benefit of $(1.6) million, which resulted in an effective tax rate of 94.5%, for the year ended September 30, 2025.

The benefit was primarily driven by the U.S.

pre-tax loss, windfalls for restricted stock awards that vested during the period, and the change in valuation allowance.

For the year ended September 30, 2024, the income tax benefit was approximately $(93) thousand, which resulted in an effective tax rate of a 22.2%.

The benefit was primarily driven by windfalls for restricted stock awards that vested during the period, partially offset by the change in valuation allowance.

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.

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 be reversed during year ended September 30, 2024.

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.

The Company will continue to maintain a valuation allowance against certain state tax credits in the U.S.

and a full valuation allowance against the net deferred tax assets in the U.K.

jurisdiction.

The Company has determined that it is more likely than not that substantially all of its net deferred tax assets in the U.S., except for certain state tax credits, will be realized for the fiscal years ended September 30, 2024 and 2025.

The Company separately analyzed the realizability of its federal and state credits and determined $495 thousand (net of federal benefit) of state credits are expected to expire unutilized and maintained a

valuation allowance against these credits.

The Company continued to maintain a full valuation allowance against the net U.K.

deferred tax assets.

Liquidity and Capital Resources

Our primary source of liquidity and capital resources is our cash from operations and our line of credit.

Cash and cash equivalents increased by $5.4 million to $30.6 million as of September 30, 2024 from $25.2 million as of September 30, 2023.

The following is a summary of our cash flows for the fiscal year ended September 30, 2024 and 2023:

(Dollar amounts in thousands)

Cash and cash equivalents decreased by $3.2 million to $27.4 million as of September 30, 2025 from $30.6 million as of September 30, 2024.

The following is a summary of our cash flows for the fiscal years ended September 30, 2025 and 2024:

Year ended September 30,

(Dollar amounts in thousands)

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Effect of exchange rate changes on cash

Increase in cash and cash equivalents

(Decrease) increase in Cash and cash equivalents

Operating Activities

Cash provided by operating activities was $4.2 million for the year ended September 30, 2024 compared to $3.9 million for the prior year.

The increase from prior year is primarily related the change in Accounts payable and accrued expense payments of $13.0 million as a large payment run at the end of fiscal year 2023 when in fiscal year 2024 there was not and a decrease in pension and retirement plan liabilities of $0.4 million.

The primary decreases include a decrease of net income (loss) change of $5.5 million, a decrease of $4.9 million in other assets, and a decrease of $2.7 million in accounts receivable.

Cash provided by operating activities was $2.3 million for the year ended September 30, 2025 compared to $4.2 million for the prior year period.

The decrease from prior year is primarily related to a decrease in Accounts receivable of $2.5 million and an increase of $7.5 in Accounts payable and accrued expenses, partially offset with a decrease in financing receivables of $7.7 million.

The remaining differences are related to timing differences in operating assets and liabilities.

1 unchanged sentence

Cash used in investing activities was $(428) thousand for the year ended September 30, 2025 compared to $(256) thousand used in investing activities for the prior year.

The decrease from the prior year is primarily related to less additions of intangible assets and less purchases of property, equipment, and improvements during fiscal year 2024 when compared to the prior fiscal year.

The increase from the prior year is primarily related to increased purchases of property, equipment, and improvements during fiscal year 2025 when compared to the prior fiscal year.

Financing Activities

Cash provided by financing activities was $1.4 million for the year ended September 30, 2024 compared to $2.4 million used in financing activities for the prior year.

The primary difference was the timing in the net borrowing on the line-of-credit, which for the year ended September 30, 2024 we had a net borrowing of $2.7 million compared to a net payment of $1.6 million in the prior year.

Additionally, in fiscal year 2024 there were increased cash dividends paid by $0.4 million and increased treasury stock repurchases of $0.1 million compared to the prior fiscal year.

Cash used in financing activities was $(5.0) million for the year ended September 30, 2025 compared to $1.4 million provided by financing activities for the prior year period.

The primary difference was the timing in the net borrowing on the line-of-credit, which for the year ended September 30, 2025 we had a net repayment of $3.3 million compared to a net borrowing of $2.7 million in the prior year period.

Additionally, in fiscal year 2025 there was increased repurchases of common stock of $0.9 million and increased cash dividends paid by $0.2 million compared to the prior fiscal year.

Other Liquidity and Capital Resources Items

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Due to the pension obligation in the U.K., we maintain a large balance of cash in the 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 this filing.

In October 2024, in connection with the planned

termination of our defined benefit pension plan in the U.K., we paid 8.5 million British pounds to enter into a buy-in contract.

This payment is subject to adjustment as a result of subsequent data cleansing activities.

Under the terms of this buy-in contract, the insurer is liable to pay the benefits of the plan, but the Company still retains full legal responsibility to pay the benefits to members using the insurance payments.

This agreement has contingencies and the expected timeframe of the buy-in contract turning into a buy-out contract is within fiscal year 2026.

As of September 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.

1 unchanged sentence

Amounts of $14.1 million and $10.8 million were available as of September 30, 2025 and September 30, 2024, respectively.

As of September 30, 2024 and September 30, 2023 there were

no cash withdrawals outstanding.

For a further discussion of the Company’s line of credit, including its financial covenants, see Item 1, Note 12 Line of Credit.

As of September 30, 2025 and 2024 there were no cash withdrawals outstanding.

The last note payable was paid in full in fiscal year 2025 of $0.4 million and no notes remain outstanding as of September 30, 2025.

There is a total of $3.8 million due to vendors with financing agreements outstanding as of September 30, 2024, including $2.3 million payments to be made that are current.

There is a total of $5.3 million due to vendors with financing agreements outstanding as of September 30, 2025, including $3.5 million payments to be made in the next 12 months from September 30, 2025.

Each vendor financing agreement was related to a sale and has a related financing receivable.

There is a total of $7.3 million due to the Company of customer financing agreements outstanding as of September 30, 2024, including $4.3 million to be received that are current.

A subsequent review of qualified wages for the Employee Retention Credit was performed during the preparation of the tax provision for fiscal year 2023 and it was determined $0.6 million of the money received did not qualify and was paid back to the Internal Revenue Service (IRS) except for $11k, which is still owed to the IRS as of September 30, 2024.

This $0.6 million was included in Cash and cash equivalents as of September 30, 2023.

However, this amount was not recognized in net income in the Consolidated statements of operations for the fiscal year ended September 30, 2023.

The Company may be subject to interest and penalties related to this cash.

There is a total of $16.3 million due to the Company of customer financing agreements outstanding as of September 30, 2025, including $9.9 million to be received in the next 12 months from September 30, 2025

If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans or other means.

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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 on-going basis, we evaluate our estimates, including those related to the inventory valuation, income taxes, deferred compensation, revenue recognition, retirement plans, and contingencies.

On an on-going basis, we evaluate our estimates, including those related to income taxes, revenue recognition, and retirement plans.

We base our estimates on historical performance and on various other assumptions that are believed 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.

1 unchanged sentence

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

revenue recognition, valuation allowances, specifically the net deferred tax asset valuation allowance, inventory valuation, and pension and retirement plans.

revenue recognition, valuation allowances, specifically the net deferred tax asset valuation allowance, and pension and retirement plans.

Revenue Recognition

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

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

As a practical expedient,

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

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

28 unchanged sentences

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.

We use the asset and liability method of accounting for income taxes whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered

carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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These estimated tax liabilities include the provision for taxes that may become payable in the future.

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

The recoverability of inventories is based upon the types and levels of inventories held, forecasted demand, pricing, competition and changes in technology.

We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Pension and Retirement Plans

17 unchanged sentences

A decrease in the expected return on pension assets would increase pension expense.

Expected compensation increases are

estimated based on historical and expected increases in the future.

Expected compensation increases are estimated based on historical and expected increases in the future.

Increases in estimated compensation increases would result in higher pension expense while decreases would lower pension expense.

4 unchanged sentences

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 7. Management’s Discussion and Analysis