What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-14 compared with 2026-05-07 · 112 added, 107 removed, 140 unchanged (61% 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 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.

Management believes there have been no significant changes for the nine months ended June 30, 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 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

Overview of the three months ended June 30, 2026

Our sales decreased by $1.0 million, or 6%, to $14.4 million for the three months ended June 30, 2026 compared to $15.4 million for the three months ended June 30, 2025.

Our gross margin percentage increased to 30% for the three months ended June 30, 2026 compared to 29% for the same prior year period.

For the three months ended June 30, 2026 we had an operating loss of $1.5 million compared to an operating loss of $1.2 million for the three months ended June 30, 2025.

Other income, net increased $0.1 million to $0.3 million for the three months ended June 30, 2026 compared to $0.2 million for the same prior year period.

An income tax benefit of $0.4 million was recorded for the three months ended June 30, 2026 compared to an income tax benefit of $0.8 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, 2026 and 2025:

June 30, 2026

June 30, 2025

(Dollar amounts in thousands)

8 unchanged sentences

Income tax benefit

Net income (loss)

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

TS segment sales change was as follows for the three months ended June 30, 2026 and 2025:

Increase (decrease)

(Dollar amounts in thousands)

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:

The decrease in TS segment product sales of $0.3 million is primarily due to decreased sales to one existing customer of $1.9 million offset with increased sales to several existing major customers in the US division of $1.6 million.

Service sales for the three months ended June 30, 2026 decreased $0.7 million from the same prior year period, which was attributable to the US division.

The decrease consisted of a decrease in third-party maintenance sales of $0.4 million and a $0.5 million decrease from internal and third-party services offset by an increase in managed services of $0.2 million

HPP segment sales change was as follows for the three months ended June 30, 2026 and 2025:

Increase (decrease)

(Dollar amounts in thousands)

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 product sales increased $0.1 million for the three months ended June 30, 2026 compared to the same prior year period primarily due to increased 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:

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, 2026 and 2025:

Increase (decrease)

1 unchanged sentence

APAC and Africa

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.

The $0.9 million decrease in sales to the Americas was primarily the result of a decrease in the TS-US division of $1.1 million, partially offset by an increase of $0.1 million in the HPP segment.

The $0.1 million decrease in sales to Europe was primarily the result of decreased sales by our TS-UK division.

The sales to APAC and Africa decreased $4 thousand for the three months ended June 30, 2026 compared to the same prior year period due to the HPP segment.

Gross Margins

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%.

Our gross margin (“GM”) decreased $0.1 million for the three months ended June 30, 2026 as compared to the same prior year period.

The GM as a percentage of sales increased to 30% for the three months ended June 30, 2026 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 March 31, 2026 and 2025 was as follows:

The impact of product mix within our TS segment on gross margin for the three months ended June 30, 2026 and 2025 was as follows:

Increase (decrease)

(Dollar amounts in thousands)

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:

The overall TS segment GM as a percentage of sales was 29% for the three month period ended June 30, 2026 compared to 29% for the same prior year period.

Product GM as a percentage of revenue increased 4% due to a higher volume of sales with higher margins compared to the same prior year period.

The service GM as a percentage of revenue decreased 3% from the prior year 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 three months ended June 30, 2026 and 2025 was as follows:

Increase (decrease)

(Dollar amounts in thousands)

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.

The overall HPP segment GM as a percentage of sales increased to 51% for the three months ended June 30, 2026 from the 32% for the three months ended June 30, 2025.

The increase in product GM as a percentage of product revenue for the three months ended June 30, 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 3% to 39% for the three months ended June 30, 2026 compared to 42% for the three months ended June 30, 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 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 research and development expenses incurred by our HPP segment remained relatively flat at $0.8 million for three months ended June 30, 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 March 31, 2026 and 2025:

Three months ended March 31,

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the three months ended June 30, 2026 and 2025:

Three months ended June 30,

(Dollar amounts in thousands)

By Operating Segment:

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.

SG&A expenses increased $0.2 million to $5.0 million for the three months ended June 30, 2026 compared to the same prior year period of $4.9 million.

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.

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.

The HPP segment SG&A expenses decreased $0.1 million for the three months ended June 30, 2026 as compared to the prior year period primarily due to decreased consulting expenses.

Other Income/Expenses

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

The following table details other income, net for the three months ended June 30, 2026 and 2025:

Three months ended

March 31, 2026

March 31, 2025

June 30, 2026

June 30, 2025

(Amounts in thousands)

Foreign exchange gain (loss)

Foreign exchange loss

Interest expense

2 unchanged sentences

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.

Total other income (expense), net for the three months ended June 30, 2026 increased $0.1 million to $0.3 million compared to $0.2 million for the same prior year period.

The $0.2 million decreased foreign exchange loss for the three months ended June 30, 2026 was primarily due to the US Dollar strengthening in the current period compared to the same prior year period in which it strengthened 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.

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

Interest income increased $84 thousand for the three months ended June 30, 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.

The interest expense increase of $77 thousand for the three months ended June 30, 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.

The Company recorded an income tax benefit of $366 thousand and $751 thousand for the three months ended June 30, 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.

Overview of the nine months ended June 30, 2026

Our sales decreased by approximately $1.8 million, or 4%, to $42.4 million for the nine months ended June 30, 2026 as compared to $44.3 million for the nine months ended June 30, 2025.

The decrease in sales is the result of a decrease of $2.0 million in the TS segment, partially offset by an increase of $0.2 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

Our gross margin percentage increased 2% to 32% of sales for the nine months ended June 30, 2026 compared to 30% for the nine months ended June 30, 2025.

For the nine months ended June 30, 2026 operating loss was $2.5 million compared to operating loss of $2.6 million for the same prior year period.

Other income, net increased $0.2 million for the nine months ended June 30, 2026 compared to same prior year period.

An income tax benefit of $0.7 million was recorded for the nine months ended June 30, 2026 compared to an income tax benefit of $1.5 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, 2026 and 2025:

June 30, 2026

June 30, 2025

(Dollar amounts in thousands)

6 unchanged sentences

Other income, net

Income (loss) before income taxes

Loss before income taxes

Income tax benefit

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

Net income (loss)

TS segment sales change was as follows for the nine months ended June 30, 2026 and 2025:

Increase (decrease)

1 unchanged sentence

The decrease in TS segment product sales of $2.0 million during the period as compared to the prior year period is primarily attributable to decreased sales of $1.6 million in the US division to existing major customers combined with a decrease in sales of $0.4 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.

Service sales for the nine months ended June 30, 2026 were relatively flat from the prior year period.

division there was a $0.3 million increase in third-party maintenance sales and an increase in managed services of $0.7 million, partially offset by a decrease from internal and third-party services of $0.7 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:

HPP segment sales change was as follows for the nine months ended June 30, 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:

HPP product sales increased by $0.1 million for the nine months ended June 30, 2026 as compared to the prior year period primarily as a result of legacy sales.

The HPP service sales increased $0.1 million for the nine months ended June 30, 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 $0.2 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, 2026 and 2025:

Increase (decrease)

1 unchanged sentence

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 $1.3 million decrease in sales to the Americas was the result of a decrease of $1.1 million in the TS-US division, and a decrease in the TS-UK division of $0.1 million, partially offset with a decrease in the HPP segment of $0.1 million.

The sales to Europe decreased $0.8 million from the prior year due to a decrease of $0.6 million in the TS-UK division combined with a decrease in the TS-US division of $0.2 million.

1 unchanged sentence

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%.

Our gross margin (“GM”) increased $0.3 million for the nine months ended June 30, 2026 compared to the same prior year period.

The GM as a percentage of total sales increased to 32% for the nine months ended June 30, 2026 as compared to the same prior year period of 30%.

Increase (decrease)

(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:

The impact of product mix within our TS segment on gross margin for the nine months ended June 30, 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.

The overall TS segment GM as a percentage of total sales increased to 31% for the nine month period ended June 30, 2026 compared to 29% from the same prior year period.

Product GM as a percentage of revenue for the nine months ended June 30, 2026 increased 1% from the prior year period due to product mix.

Service GM as a percentage of total sales increased to 57% for the nine months ended June 30, 2026 compared to 56% 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:

The impact of product mix within our HPP segment on gross margin for the nine months ended June 30, 2026 and 2025 was as follows:

Increase (decrease)

(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 overall HPP segment GM as a percentage of sales increased to 62% for the nine months ended June 30, 2026 from 49% for the nine months ended June 30, 2025.

The 32% 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.

The 6% increase in service GM as a percentage of service revenue for the nine months ended June 30, 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 research and development expenses incurred by our HPP segment increased to $2.5 million for the nine months ended June 30, 2026 compared to the same prior year period of $2.3 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,

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the nine months ended June 30, 2026 and 2025:

Nine months ended June 30,

(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.

SG&A expenses increased $0.1 million for the nine months ended June 30, 2026 compared to the same prior year period.

The $0.4 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.

The HPP segment SG&A expenses decreased $0.3 million for the nine months ended June 30, 2026 as compared to the same prior year period primarily due to a reduction in 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

The following table details other income, net for the nine months ended June 30, 2026 and 2025:

Nine months ended

June 30, 2026

June 30, 2025

(Amounts in thousands)

Foreign exchange gain

Foreign exchange gain (loss)

Interest expense

2 unchanged sentences

Total other income, net

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.

Total other income, net for the nine months ended June 30, 2026 increased $0.3 million to income of $1.4 million compared to income of $1.1 million in the same prior year period.

The $0.1 million increased foreign exchange gain for the nine months ended June 30, 2026 was due to primarily remeasurement of U.S.

dollar-denominated balances held by the Company’s U.K.

subsidiary during the current period.

In consolidation, U.S.

dollars are remeasured into the functional currency, British Pounds, of our U.K.

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.

The foreign exchange gain in the current period was primarily from the U.S.

Dollar balance in our TS U.K.

Interest income increased $309 thousand for the nine months ended June 30, 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.

The interest expense increase of $218 thousand for the nine months ended June 30, 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.

The Company recorded an income tax benefit of $654 thousand and $1.5 million for the nine months ended June 30, 2026 and 2025, respectively.

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

2 unchanged sentences

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 $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,

Cash and cash equivalents decreased by $2.8 million to $24.7 million as of June 30, 2026 from $27.4 million as of September 30, 2025.

The following is a summary of our cash flows for the nine months ended June 30, 2026 and 2025:

Nine months ended June 30,

(Dollar amounts in thousands)

6 unchanged sentences

Operating Activities

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.

Cash used in operating activities was $3.0 million for the nine months ended June 30, 2026 compared to $0.4 million provided by operating activities in the prior year.

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

1 unchanged sentence

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 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.

Cash used in investing activities was relatively flat for the nine months ended June 30, 2026 compared to the same prior year period.

Financing Activities

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.

Cash provided in financing activities was $0.4 million for the nine months ended June 30, 2026 compared to $4.5 million used in the same prior year period.

The increase from the prior year was primarily due to decreased net repayments on our line-of-credit of approximately $4.5 million from the prior year and repurchases of common stock of $0.4 million.

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

Other Liquidity and Capital Resources Items

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.

Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $5.1 million as of June 30, 2026 and consisted of 1.2 million Euros, 0.2 million British Pounds, and 3.7 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.

As of June 30, 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.

Amounts of $12.6 million and $14.1 million were available as of June 30, 2026 and September 30, 2025, respectively.

As of June 30, 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.

2 unchanged sentences

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

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

As of June 30, 2026 and September 30, 2025 there were $16.5

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.

Of these amounts, $8.3 million and $8.9 million were current assets as of June 30, 2026 and September 30, 2025, respectively.

Related to the Financing Receivables, net there was a balance of $8.1 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.

Of these amounts $4.5 million and $3.2 million were current liabilities as of June 30, 2026 and September 30, 2025, respectively.

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

7 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