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Item 2. Management’s Discussion and Analysis

2026-02-12 compared with 2025-08-14 · 102 added, 174 removed, 68 unchanged (80% of the section changed)

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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, 2025.

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.

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, the impact of tariffs or trade policies, and the impact of pandemics on our business, results of operations and financial condition.

Given these uncertainties, you should not place undue reliance on these forward-looking statements.

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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 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.

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, impairment assessment of intangibles, 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.

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A description of our critical accounting policies is contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 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.

Management believes there have been no significant changes for the three months ended December 31, 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, 2025.

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.

As of December 31, 2025, 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.

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.

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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

June 30, 2024

Overview of the three months ended December 31, 2025

The following table details our results of operations in dollars and as a percentage of sales for the three months ended December 31, 2025 and 2024:

December 31, 2025

December 31, 2024

(Dollar amounts in thousands)

1 unchanged sentence

Cost of sales

Engineering and development

Research and development

Selling, general and administrative

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Other income, net

(Loss) income before income taxes

Income tax (benefit) expense

TS segment sales change was as follows for the three months ended June 30, 2025 and 2024:

Income before income taxes

Income tax expense (benefit)

Our sales decreased by approximately $3.7 million, or 23%, to $12.0 million for the three months ended December 31, 2025 as compared to $15.7 million for the three months ended December 31, 2024.

TS segment sales change was as follows for the three months ended December 31, 2025 and 2024:

Increase (decrease)

(Dollar amounts in thousands)

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

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:

TS segment total sales decreased $4.1 million for the three months ended December 31, 2025 when compared to the same prior year period.

Product sales decreased $4.4 million primarily due to the U.S.

division because several large orders did not reoccur in the current year.

Service sales for the three months ended December 31, 2025 increased $0.4 million from the same prior year period, which is attributable to the U.S.

The increase in service sales was due to increased third party maintenance sales of $0.3 million and increased managed services of $0.3 million, partially offset by decreased internal services and third-party services of $0.2 million.

HPP segment sales change was as follows for the three months ended December 31, 2025 and 2024:

(Dollar amounts in thousands)

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:

The HPP product sales increased by $0.1 million for the three months ended December 31, 2025 as compared to the same prior year period primarily as a result of increased Myricom and Multicomputer product sales.

The HPP service sales increased by $0.3 million due to increased Multicomputer repair sales compared to the same prior year period.

Our sales by geographic area, which is based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended December 31, 2025 and 2024:

Increase (decrease)

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APAC and Africa

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.

The $4.0 million decrease in sales to the Americas was primarily the result of a decrease in the TS segment’s U.S.

division of $3.9 million and U.K.

division of $0.1 million.

The $0.1 million decrease in sales to Europe was primarily the result of decreased sales by our TS segment’s U.K.

The sales to APAC and Africa increased $0.4 million due to increased 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%.

Our gross margin ("GM") increased $0.2 million for the three months ended December 31, 2025 as compared to the same prior year period.

The GM as a percentage of sales increased to 39% for the three months ended December 31, 2025 as compared to the same prior year period of 29%.

Increase (decrease)

(Dollar amounts in thousands)

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:

The impact of product mix within our TS segment on gross margin for the three months ended December 31, 2025 and 2024 was as follows:

Increase (decrease)

(Dollar amounts in thousands)

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:

Increase (decrease)

The overall TS segment GM as a percentage of sales increased to 37% for the three month period ended December 31, 2025 compared to the same prior year period of 29%.

Product GM as a percentage of product sales increased to 19% for the three months ended December 31, 2025 compared to the 17% in the prior year period.

This was primarily due to several large sales in the prior year period with a lower margin, which did not reoccur in the current year period.

Service GM as a percentage of service sales increased to 62% for the three months ended December 31, 2025 compared to the same prior year period of 58% due to increased third party maintenance sales in which the sale is recorded “net” meaning gross profit is recorded in the services sales financial statement line item.

This “net” recording increases GM as a percentage of service sales.

In addition, managed services revenue increased while the cost of sales did not increase in proportion which caused an increase in GM as a percentage of service sales.

The impact of product mix within our HPP segment on gross margin for the three months ended December 31, 2025 and 2024 was as follows:

(Dollar amounts in thousands)

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.

The overall HPP segment GM as a percentage of sales increased to 73% for the three months ended December 31, 2025 from 50% for the three months ended December 31, 2024.

The 22% increase in product GM as a percentage of product sales for the three months ended December 31, 2025 compared to the same prior year period is primarily due to recognition of Multicomputer software license sales and Myricom hardware sales, both which have a high GM.

The hardware was nearly all profit as the Company had an an impairment expense on the inventory in a prior year period meaning there was not an expense in the current year as a result of the sale.

The 20% increase in service GM as a percentage of services revenue from the prior year was due to increased Multicomputer repairs, which are relatively high margin compared to other services revenue.

Research and Development Expenses

The research and development expenses incurred by our HPP segment increased $0.1 million for the three months ended December 31, 2025 to $0.9 million when compared to the prior year period due to increased labor expenses.

The current period expenses were primarily for research 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 three months ended June 30, 2025 and 2024:

Three months ended June 30,

The following table details our Selling, general and administrative (“SG&A”) expense by operating segment for the three months ended December 31, 2025 and 2024:

Three months ended December 31,

(Dollar amounts in thousands)

By Operating Segment:

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.

SG&A expenses of $4.0 million for the three months ended December 31, 2025 decreased approximately $0.1 million compared to the same prior year period.

The TS segment G&A expenses decreased by $0.1 million primarily due to decreased stock compensation expense when compared to the prior year period.

The HPP segment SG&A expenses decreased $0.1 million for the three months ended December 31, 2025 as compared to the prior year period primarily due to decreased stock compensation expense and decreased recruiting expense.

Other Income/Expenses

The following table details other income, net for the three months ended June 30, 2025 and 2024:

The following table details Total other income, net for the three months ended December 31, 2025 and 2024:

Three months ended

June 30, 2025

June 30, 2024

December 31, 2025

December 31, 2024

(Amounts in thousands)

Foreign exchange loss

Foreign exchange (loss) gain

Interest expense

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Total other income, net

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.

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.

The $0.2 million decrease in Total other income, net for the three months ended December 31, 2025 as compared to the same prior year period is primarily due to the current year period having a slight Foreign exchange loss compared to a Foreign exchange gain in the prior year period, partially offset by increased interest income.

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 (loss) gain on the income statement and the foreign exchange amount is primarily from the U.S.

Dollar bank account.

dollar slightly weakened relative to the British Pound for the three months ended December 31, 2025 causing a slight foreign exchange loss compared to the same prior year period where the U.S.

dollar strengthened causing a foreign exchange gain.

The Interest income increase of $112 thousand for the three months ended December 31, 2025 as compared to the prior year period is primarily due to higher interest income from financing sales in our TS U.S.

division of $201 thousand.

Since the second quarter of fiscal year 2024 there has been an increase in customers requesting financing primarily for hardware, software, and third party-maintenance, which has resulted in increased interest income.

This increase in interest income was partially offset with a decrease of $89 thousand of interest income primarily from our Cash and cash equivalents from a decreased average cash balance when compared to the prior year combined with a decrease in interest rates.

The Interest expense increase of $51 thousand for the three months ended December 31, 2025 as compared to the prior year period is related to increased multi-year agreements in the TS US division with vendors when also entering into some of the multi-year financing contracts the Company enters into with customers.

Some vendors do not offer financing

on purchases.

If the vendor does offer financing, the Company determines if it will enter into an agreement based on various factors including interest rate offered.

See Note 8 Accounts payable and accrued expenses, and Other noncurrent liabilities in Item 1 to this Quarterly Report on Form 10-Q for details.

Income tax expense of $280 thousand was recorded for the three months ended December 31, 2025 compared to an income tax benefit of $115 thousand in the same period of 2024.

For the three months ended December 31, 2025, the difference between our effective income tax rate and the U.S.

federal statutory rate are the impact of tax credits that we expect to be able to utilize against federal and state taxes, the change in valuation allowance maintained against certain state tax credits, and non-deductible executive compensation.

For the three months ended December 31, 2024, the difference between our effective income tax rate and the U.S.

federal statutory rate are the impact of tax credits that we expect to be able to utilize against federal and state taxes and the change in valuation allowance maintained against certain state tax credits.

On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (“OBBBA”) into law.

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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

June 30, 2024

(Dollar amounts in thousands)

Costs and expenses:

Cost of sales

Engineering and development

Selling, general and administrative

Total costs and expenses

Operating (loss) income

Other income, net

(Loss) income before income taxes

Income tax (benefit) expense

TS segment sales change was as follows for the nine months ended June 30, 2025 and 2024:

(Dollar amounts in thousands)

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:

(Dollar amounts in thousands)

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:

Increase (decrease)

(Dollar amounts in thousands)

APAC and Africa

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.

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%.

Increase (decrease)

(Dollar amounts in thousands)

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:

Increase (decrease)

(Dollar amounts in thousands)

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:

(Dollar amounts in thousands)

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.

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,

(Dollar amounts in thousands)

By Operating Segment:

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

(Amounts in thousands)

Foreign exchange loss

Interest expense

Interest income

Other income, net

Total other income, net

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

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.

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.

The legislation has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027.

We have evaluated the impact of the OBBBA and determined that it did not have a material effect on the Company’s financial statements for the three months ended December 31, 2025.

We will continue to assess the implications of the OBBBA as further guidance becomes available but do not expect the legislation to have a material impact on the effective tax rate in future periods.

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,

Cash and cash equivalents decreased by $2.5 million to $24.9 million as of December 31, 2025 from $27.4 million as of September 30, 2025.

The following is a summary of our cash flows for the three months ended December 31, 2025 and 2024:

Three months ended December 31,

(Dollar amounts in thousands)

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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.

Cash used in operating activities decreased $4.7 million for the three months ended December 31, 2025 compared to the same prior year period.

The changes from the prior year are primarily related to decreased Accounts payable and accrued expenses of $3.6 million, decreased Financing receivables of $2.4 million, increased inventories of $1.3 million, an increase in pension liabilities of $0.7 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.

Investing Activities

Cash used in investing activities was flat at $0.2 million for the nine months ended June 30, 2025 and 2024.

Cash used in investing activities was $105 thousand for the three months ended December 31, 2025 compared to $47 thousand used in investing activities for the prior year.

The increase in cash used from the prior year is related purchases of property, equipment, and improvements.

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.

Cash provided by financing activities was $0.5 million for the three months ended December 31, 2025 compared to $1.6 million used in financing activities for the prior year period.

The primary difference was the timing in the net borrowing on the line-of-credit.

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.

After foreign currency remeasurement and translation, our cash held by our foreign subsidiary in the United Kingdom totaled approximately $5.0 million as of December 31, 2025, which consisted of 0.4 million British Pounds, 0.7 million Euros, and 3.7 million U.S.

This cash is included in our total Cash and cash equivalents reported within our financial statements.

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

However, we have entered a buy-in agreement for the U.K.

As of December 31, 2025 and September 30, 2025, 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 the availability of a limited cash withdrawal of up to $1.0 million.

Amounts of $13.6 million and $14.1 million were available as of December 31, 2025 and September 30, 2025, respectively.

As of December 31, 2025 and September 30, 2025 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.

We have multi-year agreements in which we sell certain customers goods and services with financing.

This is on the Condensed Consolidated Balance Sheets as Financing receivables, net of allowances and Financing receivables due after one year, net of allowances.

In the year from December 31, 2025 we are scheduled to receive $8.8 million related to the financing receivables.

We also have multi-year agreements with vendors related to some of the financing agreements we have for customers, which are on the Condensed Consolidated Balance Sheets in Accounts payable and accrued expenses and Other noncurrent liabilities payables (long-term portion in other noncurrent liabilities).

In the year from December 31, 2025 we are scheduled to pay $4.7 million related to the vendor financing agreements.

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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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-Q

Item 2. Management’s Discussion and Analysis