What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2026-02-12 · 182 added, 105 removed, 65 unchanged (82% of the section changed)

18 unchanged sentences

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 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 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.

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.

Management believes there have been no significant changes for the six months ended March 31, 2026 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.

Results of Operations

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

Overview of the three months ended March 31, 2026

Our sales increased by $2.9 million, or 22%, to $16.0 million for the three months ended March 31, 2026 compared to $13.1 million for the three months ended March 31, 2025.

Our gross margin percentage decreased to 28% for the three months ended March 31, 2026 compared to 32% for the same prior year period.

For the three months ended March 31, 2026 there was an operating loss of $0.9 million compared to an operating loss of $1.0 million for the three months ended March 31, 2025.

Other income, net increased $0.3 million to $0.5 million for the three months ended March 31, 2026 compared to $0.2 million for the same prior year period.

An income tax benefit of $0.6 million was recorded for

the three months ended March 31, 2026 compared to an income tax benefit of $0.7 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 March 31, 2026 and 2025:

March 31, 2026

March 31, 2025

(Dollar amounts in thousands)

6 unchanged sentences

Other income, net

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)

Loss before income taxes

Income tax benefit

Net income (loss)

TS segment sales change was as follows for the three months ended March 31, 2026 and 2025:

(Dollar amounts in thousands)

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:

The increase in TS segment product sales of $2.8 million is primarily due to increased sales to several existing major customers in the US division of $3.2 million, partially offset with decreased sales to two existing customers in the UK division of $0.4 million.

Service sales for the three months ended March 31, 2026 increased $0.4 million from the same prior year period, which was attributable to the US division.

The increase consisted of an increase in third-party maintenance sales of $0.3 million and an increase in managed services of $0.2 million, partially offset by a $0.1 million decrease from internal and third-party services.

HPP segment sales change was as follows for the three months ended March 31, 2026 and 2025:

(Dollar amounts in thousands)

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:

The HPP product sales decreased $0.2 million for the three months ended March 31, 2026 compared to the same prior year period primarily due to decreased ARIA AZT revenue.

The HPP service sales decreased $0.1 million due to one nonrecurring customer support sale.

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 March 31, 2026 and 2025:

Increase (decrease)

1 unchanged sentence

APAC and Africa

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.

The $3.6 million increase in sales to the Americas was primarily the result of an increase in the TS-US division of $3.8 million, partially offset by a decrease of $0.2 million in the HPP segment.

The $0.6 million decrease in sales to Europe was primarily the result of decreased sales by our TS-UK division of 0.4 million combined with a decrease in our TS-US division of $0.2 million.

The sales to APAC and Africa decreased $0.1 million for the three months ended March 31, 2026 compared to the same prior year period due to the HPP segment.

Gross Margins

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%.

Our gross margin ("GM") increased $0.3 million for the three months ended March 31, 2026 as compared to the same prior year period.

The GM as a percentage of sales decreased to 28% for the three months ended March 31, 2026 compared to the same prior year period of 32%.

Increase (decrease)

(Dollar amounts in thousands)

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:

The impact of product mix within our TS segment on gross margin for the three months ended March 31, 2026 and 2025 was as follows:

Increase (decrease)

(Dollar amounts in thousands)

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:

The overall TS segment GM as a percentage of sales decreased to 27% for the three month period ended March 31, 2026 compared to 31% for the same prior year period.

Product GM as a percentage of revenue decreased 3% due to a higher volume of sales with lower margins compared to the same prior year period.

The service GM as a percentage of revenue increased 2% from the prior year primarily due to increased 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 March 31, 2026 and 2025 was as follows:

Increase (decrease)

(Dollar amounts in thousands)

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.

The overall HPP segment GM as a percentage of sales decreased to 50% for the three months ended March 31, 2026 from 57% for the three months ended March 31, 2025.

The 28% increase in product GM as a percentage of product revenue for the three months ended March 31, 2026 compared to the same prior year period was primarily attributed to the current period’s product mix primarily consisting of software sales, which were nearly all GM.

The service GM as a percentage of services revenue from the same prior year period decreased 13% to 40% for the three months ended March 31, 2026 compared to 53% for the three months ended March 31, 2025 due to one high GM customer support contract which did not recur in the current period.

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.

The research and development expenses incurred by our HPP segment remained relatively flat at $0.8 million for three months ended March 31, 2026 compared to the same prior year period without any significant change in specific types of expenses.

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 three months ended December 31, 2025 and 2024:

Three months ended December 31,

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the three months ended March 31, 2026 and 2025:

Three months ended March 31,

(Dollar amounts in thousands)

By Operating Segment:

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.

SG&A expenses increased $0.1 million to $4.5 million for the three months ended March 31, 2026 compared to the same prior year period of $4.4 million.

The $0.2 million increase in TS segment SG&A expenses compared to the same prior year period is primarily the result of increased variable compensation.

The HPP segment SG&A expenses decreased $0.1 million for the three months ended March 31, 2026 as compared to the prior year period primarily due to decreased consulting expenses.

Other Income/Expenses

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

The following table details other income, net for the three months ended March 31, 2026 and 2025:

Three months ended

December 31, 2025

December 31, 2024

March 31, 2026

March 31, 2025

(Amounts in thousands)

Foreign exchange (loss) gain

Foreign exchange gain (loss)

Interest expense

Interest income

Other income (expense), net

Total other income, net

Total other income (expense), net for the three months ended March 31, 2026 increased $0.3 million to $0.5 million compared to $0.2 million for the same prior year period.

The $0.2 million increased foreign exchange gain (loss) for the three months ended March 31, 2026 was primarily due to the US Dollar strengthening in the current period compared to the same prior year period in which it weakened 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 gain (loss) in the Consolidated Statements of Operations.

The foreign exchange gain (loss) was primarily from the US Dollar balance in our TS UK division.

Interest income increased $113 thousand for the three months ended March 31, 2026 compared to the same prior year period primarily due to increased 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), partially offset by a reduction in interest rates related to our Cash and cash equivalents combined with a decreased average balance.

All of these agreements are in the TS-US division.

The interest expense increase of $90 thousand for the three months ended March 31, 2026 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.

Not all sales agreements that have payments in excess of one year have related multi-year vendor contracts.

The Company recorded an income tax benefit of $568 thousand and $683 thousand for the three months ended March 31, 2026 and 2025, respectively.

For these periods, the difference between our effective income tax rate and the U.S.

federal statutory rate was 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 the excess tax benefits on restricted stock awards that vested during the period.

Overview of the six months ended March 31, 2026

Our sales decreased by approximately $0.8 million, or 3%, to $28.0 million for the six months ended March 31, 2026 as compared to $28.8 million for the six months ended March 31, 2025.

The decrease in sales is the result of a decrease of $0.9 million in the TS segment, partially offset by an increase of $0.1 million in our HPP segment.

Our gross margin percentage increased 3% to 33% of sales for the six months ended March 31, 2026 compared to 30% for the six months ended March 31, 2025.

For the six months ended March 31, 2026 operating loss was $1.0 million compared to operating loss of $1.3 million for the same prior year period.

Other income, net increased $0.1 million for the six months

ended March 31, 2026 compared to same prior year period.

An income tax benefit of $0.3 million was recorded for the six months ended March 31, 2026 compared to an income tax benefit of $0.8 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 six months ended March 31, 2026 and 2025:

March 31, 2026

March 31, 2025

(Dollar amounts in thousands)

Costs and expenses:

Cost of sales

Research and development

Selling, general and administrative

Total costs and expenses

Operating loss

Other income, net

Income (loss) before income taxes

Income tax benefit

TS segment sales change was as follows for the six months ended March 31, 2026 and 2025:

Increase (decrease)

(Dollar amounts in thousands)

The decrease in TS segment product sales of $1.7 million during the period as compared to the prior year period is primarily attributable to decreased sales of $1.2 million in the US division to existing major customers combined with a decrease in sales of $0.5 million in the UK division to three existing major customers.

Service sales for the six months ended March 31, 2026 increased $0.8 million from the prior year period.

division there was a $0.9 million increase due to an increase in third-party maintenance sales of $0.8 million and an increase in managed services of $0.4 million, partially offset by a decrease from internal and third-party services of $0.3 million.

There was a $0.1 million decrease in the UK service sales due to a decrease in maintenance sales.

HPP segment sales change was as follows for the six months ended March 31, 2026 and 2025:

Increase (decrease)

(Dollar amounts in thousands)

HPP product sales decreased by $0.1 million for the six months ended March 31, 2026 as compared to the prior year period primarily as a result of one ARIA AZT order which occurred in the prior year period and did not recur in the current year.

The HPP service sales increased $0.2 million for the six months ended March 31, 2026 compared to the prior year period due to increased revenue from Multicomputer repair services of $0.3 million, partially offset with decreased customer support revenue of $0.1 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 six months ended March 31, 2026 and 2025:

Increase (decrease)

(Dollar amounts in thousands)

APAC and Africa

The $0.4 million decrease in sales to the Americas was the result of a decrease in the HPP segment of $0.2 million, a decrease of $0.1 million in the TS-US division, and a decrease in the TS-UK division of $0.1 million.

The sales to Europe decreased $0.7 million from the prior year due to a decrease of $0.5 million in the TS-UK division combined with a decrease in the TS-US division of $0.2 million.

The sales to APAC and Africa increased $0.3 million due to the HPP segment.

Gross Margins

Our gross margin ("GM") increased $0.4 million for the six months ended March 31, 2026 compared to the same prior year period.

The GM as a percentage of total sales increased to 33% for the six months ended March 31, 2026 as compared to the same prior year period of 30%.

(Dollar amounts in thousands)

The impact of product mix within our TS segment on gross margin for the six months ended March 31, 2026 and 2025 was as follows:

Increase (decrease)

(Dollar amounts in thousands)

The overall TS segment GM as a percentage of total sales increased to 31% for the six month period ended March 31, 2026 compared to 30% from the same prior year period.

Product GM as a percentage of revenue for the six months ended March 31, 2026 decreased 1% from the prior year period due to product mix.

Service GM as a percentage of total sales increased to 60% for the six months ended March 31, 2026 compared to 57% from the prior year period.

This was primarily due to increased 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 six months ended March 31, 2026 and 2025 was as follows:

(Dollar amounts in thousands)

The overall HPP segment GM as a percentage of sales increased to 66% for the six months ended March 31, 2026 from 54% for the six months ended March 31, 2025.

The 28% increase in product GM as a percentage of product revenue compared to the same prior year period was primarily attributed to the product mix primarily consisting of software sales, which were nearly all GM.

The 9% increase in service GM as a percentage of service revenue for the six months ended March 31, 2026 compared to the same prior year period was due to increased Multicomputer repair services, which are relatively high margin compared to other services.

Research and Development Expenses

The research and development expenses incurred by our HPP segment increased to $1.7 million for the six months ended March 31, 2026 compared to the same prior year period of $1.5 million due to increased salaries.

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 six months ended March 31, 2026 and 2025:

Six months ended March 31,

(Dollar amounts in thousands)

By Operating Segment:

SG&A expenses decreased $0.1 million for the six months ended March 31, 2026 compared to the same prior year period.

The $0.1 million increase in TS segment SG&A expenses compared to the same prior year period is primarily the result of increased salaries and variable compensation.

The HPP segment SG&A expenses decreased $0.2 million for the six months ended March 31, 2026 as compared to the same prior year period primarily due to decreased stock compensation expense and consulting expenses.

Other Income/Expenses

The following table details other income, net for the six months ended March 31, 2026 and 2025:

Six months ended

March 31, 2026

March 31, 2025

(Amounts in thousands)

Foreign exchange gain

Interest expense

Interest income

Other income, net

Total other income, net

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.

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 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.

Total other income, net for the six months ended March 31, 2026 increased $0.1 million to income of $1.0 million compared to income of $0.9 million in the same prior year period.

The $0.1 million decreased foreign exchange gain for the six months ended March 31, 2026 was due to the US Dollar strengthening 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 gain in the Consolidated Statements of Operations.

The foreign exchange gain in the current period was primarily from the US Dollar balance in our TS UK division.

Interest income increased $225 thousand for the six months ended March 31, 2026 compared to the same prior year period primarily due to increased 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), partially offset with decreased interest rates related to our Cash and cash equivalents and a decreased average balance.

All of these agreements are in the TS-US division.

The interest expense increase of $141 thousand for the six months ended March 31, 2026 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 2026 and 2025 that have payment terms in excess of one year.

Not all sales agreements that have payments in excess of one year have related multi-year vendor contracts.

The Company recorded an income tax benefit of $288 thousand and $798 thousand for the six months ended March 31, 2026 and 2025, respectively.

For these periods, the difference between our effective income tax rate and the U.S.

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 $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,

Cash and cash equivalents decreased by $4.3 million to $23.1 million as of March 31, 2026 from $27.4 million as of September 30, 2025.

The following is a summary of our cash flows for the six months ended March 31, 2026 and 2025:

Six months ended March 31,

(Dollar amounts in thousands)

Net cash provided by (used in):

Net cash (used in) provided by:

Operating activities

2 unchanged sentences

Effect of exchange rate changes on cash

(Decrease) increase in Cash and cash equivalents

Decrease in Cash and cash equivalents

Operating Activities

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.

Cash used in operating activities was $3.4 million for the six months ended March 31, 2026 compared to $3.7 million provided by operating activities in the prior year.

Our largest source of cash provided by our operations is receipts from our customers.

Net cash provided by operating activities can be impacted by factors such as timing of when we invoice the customer and receive payment, when we receive vendor invoices and make payments as well as vendor payment terms, and inventory fluctuations are dependent on when orders are received and shipped.

The operating cash used during the period primarily reflects the payment of Accounts payable and accrued expenses outstanding as of September 30, 2025 and continued investment in ARIA Zero Trust Gateway cyber security products.

Collections remained strong during the period.

Investing Activities

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.

Cash used in investing activities increased $0.1 million for the six months ended March 31, 2026 compared to the same prior year period due to increased purchases of property, equipment, and improvements.

Financing Activities

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.

Cash used in financing activities was $0.7 million for the six months ended March 31, 2026 compared to $4.6 million used in the same prior year period.

The decrease from the prior year was primarily due to decreased net repayments on our line-of-credit of approximately $3.7 million from the prior year and repurchases of common stock of $0.2 million.

The line-of-credit payment changes are due to the timing of sales and related vendor invoices.

Other Liquidity and Capital Resources Items

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.

Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $5.0 million as of March 31, 2026 and consisted of 0.9 million Euros, 0.2 million British Pounds, and 3.8 million US Dollars.

This cash is included in our total Cash and cash equivalents reported on the Condensed Consolidated Balance Sheets.

As of March 31, 2026 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 availability of a limited cash withdrawal of up to $1.0 million.

As of March 31, 2026 and September 30, 2025 an amount of $14.1 million was available under the inventory line of credit.

As of March 31, 2026 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.

In the TS U.S.

division, financing of goods and services is offered to certain customers.

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

As of March 31, 2026 and September 30, 2025 there were

$16.4 million and $14.9 million of Financing receivables, net outstanding, respectively.

Of these amounts, $7.7 million and $8.9 million were current assets as of March 31, 2026 and September 30, 2025, respectively.

Related to the Financing Receivables, net there was a balance of $8.8 million and $4.8 million of multi-year contracts with financing due to our vendors.

Of these amounts $4.6 million and $3.1 million were current liabilities as of March 31, 2026 and September 30, 2025, respectively.

The current portion of these vendor financing arrangements is within Accounts payable and accrued expenses.

The noncurrent portion is within Other noncurrent liabilities.

Not every financing arrangement with our customers has a related vendor financing arrangement.

Some vendors do not offer financing for agreements and if offered, management determines whether to use vendor financing due to various factors including interest rates and cash flow projections.

Refer to Note 5 – Financing receivables, net and Note 8 Accounts payable and accrued expenses, and Other noncurrent liabilities for more information.

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

2 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-Q

Item 2. Management’s Discussion and Analysis