What changed in CSP INC /MA/'s 2023 10-K compared to 2022?

Across the narrative sections we track, CSP INC /MA/ (CSPI) added 147 paragraphs, removed 180, and edited 109 between the 2022 and 2023 10-K filings. The biggest movers are Item 7. Management's Discussion & Analysis (+75/−94), Item 1A. Risk Factors (+39/−40), Item 1. Business (+29/−36).

Did CSP INC /MA/ add new Risk Factors in the 2023 10-K?

Yes — Item 1A Risk Factors shows 39 new/edited paragraphs and 40 removed paragraphs versus the 2022 10-K.

What changed in CSP INC /MA/'s MD&A (Item 7) in 2023?

Item 7 Management's Discussion & Analysis shows 75 new/edited paragraphs and 94 removed paragraphs year-over-year. Read the side-by-side diff to see exactly which revenue, margin, and outlook commentary was rewritten.

Where does this CSPI 10-K diff come from?

The source filings are CSP INC /MA/'s official 2022 and 2023 Form 10-K annual reports from SEC EDGAR. 10q10k.net parses each filing, aligns paragraphs by section (Item 1, 1A, 1C, 2, 3, 7, 7A), and highlights every added, removed and edited sentence side-by-side.

's 10-K — 2022 vs 2023

Paragraph-level year-over-year comparison of CSP INC /MA/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+147 added−180 removedSource: 10-K (2023-12-13) vs 10-K (2022-12-08)

Top changes in CSP INC /MA/'s 2023 10-K

147 paragraphs added · 180 removed · 109 edited across 5 sections

Item 7. Management's Discussion & Analysis+75 / −94 · 48 edited
Item 1A. Risk Factors+39 / −40 · 35 edited
Item 1. Business+29 / −36 · 22 edited
Item 5. Market for Registrant's Common Equity+3 / −9 · 3 edited
Item 2. Properties+1 / −1 · 1 edited

Item 1. Business

Business — how the company describes what it does

22 edited+7 added−14 removed30 unchanged

2022 filing

2023 filing

Biggest changeThe detection, and automation capabilities found in ARIA SDS are valuable as they allow these security service providers to scale their offerings while increasing the productivity of their security operation center staff. Aerospace & Defense Market Our focus for fiscal 2023 and beyond is to continue our support of system deployments to be made by government entities. Financial Transactions Market Myricom network adapters with DBL application software address the need for the ultra-low latency required in the world of financial trading.

Biggest changeThe detection, and automation capabilities found in ARIA solutions are valuable as they allow these security service providers to scale their offerings while increasing the productivity of their security operation center staff. Manufacturing Market Our focus for fiscal 2024 and beyond is to expand from our initial successes more broadly into this market and its various sub segments. Energy/Utility Market We believe our AZT PROTECT product is well suited to address a critical security gap in this market.

Through our business relationships with these vendors, we are able to offer competitively priced robust products to meet our diverse customers’ technology needs, 3 Table of Contents providing procurement and engineering expertise in server infrastructure, storage, security, unified communications, mobility and networking, to the small-to-medium sized businesses ("SMBs") and large enterprise businesses ("LEBs") with unique and/or complex IT environments.

Through our business relationships with these 3 Table of Contents vendors, we are able to offer competitively priced robust products to meet our diverse customers’ technology needs, providing procurement and engineering expertise in server infrastructure, storage, security, unified communications, mobility and networking, to the small-to-medium sized businesses ("SMBs") and large enterprise businesses ("LEBs") with unique and/or complex IT environments.

Unfavorable competitive factors include low name recognition, limited geographic coverage and pricing. 5 Table of Contents Sources and Availability of Product Several components used in our HPP segment products are obtained from sole-source suppliers. We are dependent on key vendors such as Xilinx, NXP, NVIDIA, Marvel, and BCRM for a variety of processors for certain products.

Unfavorable competitive factors include low name recognition, limited geographic coverage and pricing. 5 Table of Contents Sources and Availability of Product Several components used in our HPP segment products are obtained from sole-source suppliers. We are dependent on key vendors such as Xilinx, NXP, NVIDIA, and BCRM for a variety of processors for certain products.

The revenue from these products, as a percentage of overall Company revenue, is expected to continue to decline over time. Sales Information by Industry Segment The following table details our sales by operating segment for fiscal years ending September 30, 2022 and 2021.

In addition, due to the complexities and high-costs associated with enterprise-wide security, particularly in the creation and operation of Security Operation Centers (“SOCs”), we believe that ARIA will be attractive to organizations that desire SOC level protections without incurring the procurement of disparate 2 Table of Contents tools and the need to hire and retain highly-trained security analysts.

In addition, due to the complexities and high-costs associated with enterprise-wide security, particularly in the creation and operation of Security Operation Centers (“SOCs”), we believe that ARIA will be attractive to organizations that desire SOC level protections without incurring the procurement of disparate tools and the need to hire and retain highly trained security analysts.

At the present time, our ARIA SDS solutions are primarily offered through our direct sales channel, however, we have begun to add channel partners such as independent resellers. OEM vendors in the cybersecurity market can benefit from integrating the ARIA applications and leveraging them as internal solutions to allow their applications to scale, add critical functionality.

At the present time, our ARIA solutions are primarily offered through our direct sales channel, however with ARIA AZT PROTECT’s introduction we have begun to add channel partners such as independent resellers. OEM vendors in the cybersecurity market can benefit from integrating the ARIA applications and leveraging them as internal solutions to allow their applications to scale, and add critical functionality.

Our key offerings include products from Hewlett Packard (HPE)/Aruba, Cisco Systems, Palo Alto Networks, Nutanix, DellEMC, Juniper Networks, Citrix, Intel, VMWare, Fortinet, Microsoft and Barracuda.

Our key offerings include products from Hewlett Packard (HPE)/Aruba, Cisco Systems, Palo Alto Networks, Nutanix, Dell EMC, Juniper Networks, Citrix, Intel, VMWare, Fortinet, Microsoft and Barracuda.

Significant Customers See Note 18 Segment Information in the notes to the consolidated financial statements for detailed information regarding customers which comprised more than 10% of consolidated revenues for the years ended September 30, 2022 and 2021. Employees As of September 30, 2022, we had approximately 117 full time equivalent employees worldwide for our consolidated operations.

Significant Customers See Note 17 Segment Information in the notes to the consolidated financial statements for detailed information regarding customers which comprised more than 10% of consolidated revenues for the years ended September 30, 2023 and 2022. Employees As of September 30, 2023, we had approximately 112 full time equivalent employees worldwide for our consolidated operations.

Our software-defined platform makes it easier for organizations to achieve enterprise-wide network security and protection of critical assets, applications and devices by improving their ability to find, stop, and prevent cyberattacks. Markets and Marketing Cyber Security Products Market The ARIA SDS solution is targeted at organizations that need to get additional functionality out of their current cybersecurity solutions to find and stop attacks, while also reducing their operating costs.

Our software-defined platform makes it easier for organizations to achieve enterprise-wide network security with a focus on the protection of critical assets, applications and devices from cyberattacks. Markets and Marketing Cyber Security Products Market The ARIA SDS solution is targeted at organizations that need to get additional functionality out of their current cybersecurity solutions to find and stop attacks, while also reducing their operating costs.

We can experience possible large 7 Table of Contents fluctuations due to the timing of receipt of large orders often for purchases from prime contractors for sales to the government. It is expected nearly all of the customer orders in backlog will ship and/or be provided through fiscal year 2023.

Our backlog can fluctuate greatly. We can experience large fluctuations due to the timing of receipt of large orders often for purchases from prime contractors for sales to the government. It is expected nearly all of the customer orders in backlog will ship and/or be provided through fiscal year 2024.

Additional segment and geographical information are set forth in Note 18 Segment Information to the consolidated financial statements. Segment 2022 % 2021 % (Dollar amounts in thousands) TS $ 50,518 93 % $ 44,585 91 % HPP 3,843 7 % 4,623 9 % Total Sales $ 54,361 100 % $ 49,208 100 % TS Segment Products and Services Integration Solutions The TS segment is a value-added reseller ("VAR") of third-party hardware and software technology solutions along with our, advanced technology consulting, professional IT, managed IT and Cloud services.

Additional segment and geographical information are set forth in Note 17 Segment Information to the consolidated financial statements. Segment 2023 % 2022 % (Dollar amounts in thousands) TS $ 57,774 89 % $ 50,518 93 % HPP 6,873 11 % 3,843 7 % Total Sales $ 64,647 100 % $ 54,361 100 % TS Segment Products and Services Integration Solutions The TS segment is a value-added reseller ("VAR") of third-party hardware and software technology solutions along with our advanced technology consulting, professional IT, managed IT and Cloud services.

We have newly issued as well as pending patents for the ARIA SDS software and will be pursuing additional patent rights over time. Backlog The gross backlog of customer orders and contracts in the HPP segment was $5.0 million at September 30, 2022 as compared to $4.3 million at September 30, 2021. Our backlog can fluctuate greatly.

We have newly issued as well as pending patents for the ARIA AZT PROTECT™ software and will be pursuing additional patent rights over time. Backlog The gross backlog of customer orders and contracts in the HPP segment was $1.8 million as of September 30, 2023 as compared to $5.0 million as of September 30, 2022.

OEMs are interested in the Myricom Adapters including our SIA SmartNIC running our ARIA SDS applications. As mentioned, MSSPs require simple, yet differentiated, solutions that can be deployed across their customer bases.

OEMs are interested in running our ARIA SDS applications on their SmartNIC and other ARM-core based platforms. As mentioned, MSSPs require simple, yet differentiated, solutions that can be deployed across their customer bases.

Product development efforts in fiscal year 2022 and 2021 involved development of the ARIA SDS product set, ARIA Zero Trust (AZT), and enhancements to our Myricom products. We expect to continue to make investments related to the development of new hardware adapter products and new cybersecurity software applications.

Expenditures for R&D are expensed as they are incurred. Product development efforts in fiscal year 2022 and 2023 involved development of the ARIA product set, ARIA Zero Trust (AZT), and enhancements to our ADR product offering. We expect to continue to make investments related to the development of new hardware adapter products and new cybersecurity software applications.

Financial Information about Geographic Areas Information regarding our sales by geographic area and percentage of sales based on the location to which the products are shipped or services rendered are in Note 18 Segment Information of the notes to the consolidated financial statements.

The information contained on the Company’s website is not included in, nor incorporated by reference into, this annual report on Form 10-K. 7 Table of Contents Financial Information about Geographic Areas Information regarding our sales by geographic area and percentage of sales based on the location to which the products are shipped or services rendered are in Note 17 Segment Information of the notes to the consolidated financial statements.

HPP Segment ● The HPP segment revenue comes from three distinct product lines: (i) a cybersecurity solution marketed as ARIA™ Software-Defined Security (“SDS”), which is offered to commercial, original equipment manufacturers ("OEM") and government customers; (ii) the Myricom ® network adapters for commercial, government and OEM customers; and (iii) the legacy Multicomputer product portfolio for digital signal processing ("DSP") applications within the defense markets. ● The ARIA SDS solution is a software portfolio starting with an underlying platform, hosted applications that reside on top, as well as any supporting hardware then deployed in turn-key security deployments.

HPP Segment ● The HPP segment revenue comes from three distinct product lines: (i) a cybersecurity solution marketed as ARIA™ Software-Defined Security (“SDS”), which is offered to commercial, original equipment manufacturers ("OEM") and government customers; (ii) the Myricom ® network adapters and related software for commercial, government and OEM customers; and (iii) the legacy Multicomputer product portfolio for digital signal processing ("DSP") applications within the defense markets. ● The ARIA SDS solution is a software portfolio comprised of 3 products: ARIA Packet Intelligence software which is used by customers for its high-speed wire-rate in-line packet filtering, steering and policy enforcement functions.

While we believe that many of our competitors face similar supply chain risks, we continue to work closely with our long term suppliers in meeting our projected sales obligations; however, if a long term supplier is unable to provide sufficient components, and we are unable to find alternative suppliers, our projected sales may be materially impacted. COVID-19 has adversely affected manufacturers, which has led to production disruptions, resulting in supply shortages.

While we believe that many of our competitors face similar supply chain risks, we continue to work closely with our long term suppliers in meeting our projected sales obligations; however, if a long term supplier is unable to provide sufficient components, and we are unable to find alternative suppliers, our projected sales may be materially impacted. Backlog The gross backlog of customer orders and contracts for the TS segment was approximately $7.5 million at September 30, 2023, as compared to $18.2 million at September 30, 2022.

Our backlog can fluctuate greatly. These fluctuations can be due to the timing of receiving large orders for third-party products and/or IT services. It is expected that all of the customer orders in backlog will ship and/or be provided during fiscal year 2023.

Our backlog can fluctuate greatly and in the prior year there were supply chain issues which caused a relatively large backlog compared to historical years. These fluctuations can be due to the timing of receiving large orders for third-party products and/or IT services.

HPP Segment Products and Services The mission of the HPP team is to deliver a differentiated, smarter approach to cybersecurity.

It is expected that all of the customer orders in backlog will ship and/or be provided during fiscal year 2024. HPP Segment Products and Services The mission of the HPP team is to deliver a differentiated, smarter approach to cybersecurity.

The ARIA SDS portfolio of software based products will continue to expand based on customer feedback during Fiscal 2023. ● The Myricom SmartNIC adapters (“ARC Series” and Myricom Secure Intelligent Adapters or “SIA”) are optimized for and sold into markets that require high-bandwidth and low-latency including (i) packet capture, (ii) financial transactions, (iii) machine vision and (iv) network security.

We also have begun selling our unique, solution into Managed Security Service Providers (“MSSPs”) that want to offer a lower cost, more effective service at detecting today’s widening range of cyber-attacks. ● The Myricom SmartNIC adapters (“ARC Series” and Myricom Secure Intelligent Adapters or “SIA”) are optimized for and sold into markets that require high-bandwidth and low-latency including (i) packet capture, (ii) financial transactions, (iii) machine vision and (iv) network security.

Either of these approaches can be deployed into a customer’s data center environments or within Cloud Platform services such as AWS and Azure to provide cybersecurity services. ● The ARIA portfolio is of value to regulated industries, such as financial services or healthcare, due to the rise of data-privacy regulations enforced at the federal, U.S. state, and international level, as well as industry entities.

The software licenses, the support packages, as well as supporting services 2 Table of Contents are renewable on a recurring basis. ● The ARIA portfolio is of value to regulated industries, such as manufacturing, pharmaceuticals, financial services, energy production, utilities, transport and healthcare, due to the rise of critical infrastructure regulations enforced at the federal, U.S. state, and international level, as well as industry entities.

We hope to clear the majority of our backlog during the first half of FY 2023. ● Multicomputer products for DSP applications are no longer actively developed but will continue to be sold into established programs and supported for several years. Revenue flows come from servicing previously deployed products for a modest number of existing high-value defense customers.

The focus is now supporting its applications on 3rd party provided intelligent network interface cards. ● Multicomputer products for DSP applications are no longer actively developed but will continue to be sold into established programs through FY2024 and supported for several years via our repair services offering.

Removed

All are developed to secure an organization’s network, enterprise-wide, to better protect critical devices, applications and high-value data from breaches or other disruptive attacks. Revenue is derived from: (i) license sales of our software platform components, (ii) supporting hardware and (iii) any required support packages. The software licenses, as well as the support packages, are renewable on a recurring basis.

Added

ARIA Advanced Detection and Response solution used by customers to find and stop threats in real-time by monitoring their entire network, device and services footprint. It is used as the basis of MDR (Managed Detection and Response) services offered by ARIA and its MSSP partners who provide it as part of a 24x7 managed SOC (Security Operations Center) offering.

Removed

The ARIA SDS platform and applications can also be deployed on customer provided virtual machines or on our Myricom SmartNIC adapters which can be directly inserted into our customers servers or integrated as part of our turn-key appliances.

Added

The product automates the MITRE ATT&CK™ framework to find threats up to 100 times faster with fewer human resources than other solutions. ● In July of 2023 ARIA Zero Trust (AZT) PROTECT was introduced to the market.

Removed

Due to the COVID-19 pandemic and the resulting increase in hybrid remote workforce models, we believe ARIA SDS will provide additional protection against exploits entering in from home-based computers and networks.

Added

ARIA AZT PRTOECT™ was designed to fill a gap in the market – stopping the most sophisticated attacks that are used to attack critical infrastructure applications before harm can be done.

Removed

We also have begun selling our unique, solution into Managed Security Service Providers (“MSSPs”) that want to offer a lower cost, more effective service at detecting todays widening range of cyber attacks.

Added

It compliments other protection technologies already in place and can stop some of the most well-known attacks including the SolarWinds attack, and the recent Russian sponsored Sandworm attacks used on utilities and energy infrastructure.

Removed

Our primary customers for packet capture include government agencies that need to capture and/or analyze network traffic at line rate, and OEMs selling into vendors of computer security appliances. Financial institutions, such as banks and brokerage firms, use Myricom adapters to decrease transaction times.

Added

The product is already deployed and generating revenue from its initial contracts. ● Revenue is derived from: (i) license sales of our software platform components, (ii) support packages and (iii) any required supporting services.

Removed

Our machine vision customers, primarily in the manufacturing industry, use our adapters and software for high fidelity video capture and processing. ● There was limited revenue for HPP products in fiscal 2022. This was primarily due to supply chain issues which delayed delivery of components used by our Myricom Hardware.

Added

The ARC series has reached end of life due to ASIC supplier problems which will significantly reduce its contribution to the HPP line of business.

Removed

We are working to clear the backlog in fiscal 2023, although, there can be no assurances that supply shortages will be resolved or that our backlog will be timely cleared. Backlog The gross backlog of customer orders and contracts for the TS segment was approximately $18.2 million at September 30, 2022, as compared to $8.7 million at September 30, 2021.

Added

Noting that sales cycles can be up to 1 year. 6 Table of Contents Competition CSPi’s competition in the cybersecurity space comes primarily from the large, traditional security vendors like Palo Alto, VMWare and security services providers like Artic Wolf. Manufacturing, Assembly and Testing Currently, products are shipped to our customers directly from our plant in Lowell, Massachusetts. Research and Development For the year ended September 30, 2023, our expenses for R&D were approximately $3.1 million compared to approximately $3.1 million for the year ended September 30, 2022.

Removed

Running DBL on the Myricom ARC Series provides acceleration for 10G Ethernet 6 Table of Contents environments, with benchmarked application-to-application latency in the single digit microsecond range for Linux and Microsoft Windows operating systems. Packet Capture Market Myricom Sniffer10G software, running on Myricom ARC adapters, provides enterprise and government customers and partners the ability to capture, inject, and analyze network traffic at line rate, with low CPU overhead. Machine Vision Market Myricom ARC network adapters are used by OEMs for machine vision camera systems network applications, These OEM customers require the high-performance, low latency 10G attributions our solutions support. Competition CSPi’s competition in the cybersecurity space comes primarily from the large, traditional security vendors like Splunk, IBM, and McAfee.

Removed

We also face competition from traditional network security solutions vendors such as Palo Alto and Cisco. Manufacturing, Assembly and Testing Currently, products are shipped to our customers directly from our plant in Lowell, Massachusetts.

Removed

Our manufacturing activities consist mainly of final assembly and testing of printed circuit boards and systems that are designed by us and fabricated by outside third-party vendors, as well as integration of our software onto the Myricom NICs and turnkey appliances. Sources and Availability of Raw Materials Several components used in our HPP segment products are obtained from sole-source suppliers.

Removed

We are dependent on key vendors such as Xilinx, NXP, NVIDIA, Marvel, and BCRM for a variety of processors for certain products.

Removed

While we face the same supply chain risks as the rest of our competitors, we continue to work closely with our long term suppliers to meet our projected sales obligations. COVID-19 has adversely affected manufacturers, which has led to production disruptions, resulting in supply shortages.

Removed

We are working to clear the backlog in fiscal 2023. Research and Development For the year ended September 30, 2022, our expenses for R&D were approximately $3.1 million compared to approximately $2.9 million for the year ended September 30, 2021. Expenditures for R&D are expensed as they are incurred.

Removed

The information contained on the Company’s website is not included in, nor incorporated by reference into, this annual report on Form 10-K.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

35 edited+4 added−5 removed74 unchanged

2022 filing

2023 filing

Biggest changeOur business, results of operations, or financial condition could be materially adversely affected if laws, regulations, or standards relating to us or our products are newly implemented or changed. In addition, our compliance with existing regulations may have a material adverse impact on us.

Biggest changeThe effects of the ongoing conflict could heighten many of our known risks described in these "Risk Factors.” Legal and Regulatory Risks. Changes in regulations could materially adversely affect us. Our business, results of operations, or financial condition could be materially adversely affected if laws, regulations, or standards relating to us or our products are newly implemented or changed.

Our ability to maintain and renew existing engagements and obtain new business depends, in large part, on our ability to hire and retain technical personnel with the skills that keep pace with continuing changes in our industry standards and technologies. The inability to hire additional qualified personnel could impair our ability to satisfy or grow our client base.

Our ability to maintain and renew existing engagements and obtain new business depends, in large part, on our ability to hire and retain technical personnel with skills that keep pace with continuing changes in our industry standards and technologies. The inability to hire additional qualified personnel could impair our ability to satisfy or grow our client base.

To the extent our key vendors, such as NVIDIA and Marvel were to limit or reduce the sale of such components to us, or if these or other component suppliers, some of which are small companies, experience future financial difficulties or other problems which could prevent them from supplying the necessary components, such events could have a material adverse effect on our business, financial condition and results of operations.

To the extent our key vendors, such as NVIDIA were to limit or reduce the sale of such components to us, or if these or other component suppliers, some of which are small companies, experience future financial difficulties or other problems which could prevent them from supplying the necessary components, such events could have a material adverse effect on our business, financial condition and results of operations.

Our quarterly results may be subject to fluctuations resulting from a number of other factors, including: ● delays in completion of internal product development projects; ● delays in shipping hardware and software; ● delays in acceptance testing by customers; ● a change in the mix of products sold to our served markets; ● changes in customer order patterns; ● production delays due to quality problems with outsourced components; ● inability to scale quick reaction capability products due to low product volume; ● shortages and costs of components; ● the timing of product line transitions; ● declines in quarterly revenues from previous generations of products following announcement of replacement products containing more advanced technology; ● inability to realize the expected benefits from acquisitions and restructurings, or delays in realizing such benefits; ● potential asset impairment, including goodwill and intangibles, write-off of deferred tax assets or restructuring charges; and ● changes in estimates of completion on fixed price service engagements.

Our quarterly results may be subject to fluctuations resulting from a number of other factors, including: ● delays in completion of internal product development projects; ● delays in shipping hardware and software; ● delays in acceptance testing by customers; ● a change in the mix of products sold to our served markets; ● changes in customer order patterns; ● production delays due to quality problems with outsourced components; ● inability to scale quick reaction capability products due to low product volume; ● shortages and costs of components; ● the timing of product line transitions; ● declines in quarterly revenues from previous generations of products following announcement of replacement products containing more advanced technology; ● inability to realize the expected benefits from acquisitions and restructurings, or delays in realizing such benefits; 13 Table of Contents ● potential asset impairment, including goodwill and intangibles, write-off of deferred tax assets or restructuring charges; and ● changes in estimates of completion on fixed price service engagements.

The impact of a pandemic, epidemic, or other disease outbreak, such as COVID-19, may include, but would not be limited to: (i) disruption to operations due to the unavailability of employees due to illness, quarantines, risk of illness, travel restrictions or factors that limit our existing or potential workforce; (ii) volatility in the demand for or availability of our products and services, (iii) inability to meet our customers’ needs due to disruptions in the manufacture, sourcing and distribution of our products and services, or (iv) failure of third parties on which we rely, including our suppliers, clients, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so.

The impact of a pandemic, epidemic, or other disease outbreak, such as COVID-19, may include, but would not be limited to: (i) disruption to operations due to the unavailability of employees due to illness, quarantines, risk of illness, travel restrictions or factors that limit our existing or potential workforce; (ii) volatility in the demand for or availability of our products and services, (iii) inability to meet our customers’ needs due to disruptions in the manufacture, sourcing and distribution of our products and services, or (iv) failure of third 10 Table of Contents parties on which we rely, including our suppliers, clients, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so.

The following factors could cause the market price of our common stock to fluctuate significantly: ● loss of a major customer; ● loss of a major supplier; ● inflationary pressures; ● the addition or departure of key personnel; ● variations in our quarterly operating results; ● announcements by us or our competitors of significant contracts, new products or product enhancements; ● acquisitions, distribution partnerships, joint ventures or capital commitments; ● regulatory changes; ● sales of our common stock or other securities in the future; ● changes in market valuations of technology companies; and ● fluctuations in stock market prices and volumes. 16 Table of Contents In addition, the stock market in general and the NASDAQ Global Market and technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies.

The following factors could cause the market price of our common stock to fluctuate significantly: ● loss of a major customer; ● loss of a major supplier; ● inflationary pressures; ● the addition or departure of key personnel; ● variations in our quarterly operating results; ● announcements by us or our competitors of significant contracts, new products or product enhancements; ● acquisitions, distribution partnerships, joint ventures or capital commitments; ● regulatory changes; ● sales of our common stock or other securities in the future; ● changes in market valuations of technology companies; and ● fluctuations in stock market prices and volumes. In addition, the stock market in general and the NASDAQ Global Market and technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies.

Economic, Industry, and Operational Risks We depend on a small number of customers for a significant portion of our revenue and loss of any customer could significantly affect our business.

Economic, Industry, and Operational Risks We depend on a small number of customers for a significant portion of our revenue and the loss of any customer could significantly affect our business.

As we attempt to grow our operations, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases. If we suffer any data breaches involving the designs, schematics, or source code for our products or other sensitive information, our business and financial results could be adversely affected.

As we grow our operations, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases. If we suffer any data breaches involving the designs, schematics, or source code for our products or other sensitive information, our business and financial results could be adversely affected.

Actual results could differ from those estimates, and changes in estimates in subsequent periods could cause our results of operations to fluctuate. 14 Table of Contents If we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.

Actual results could differ from those estimates, and changes in estimates in subsequent periods could cause our results of operations to fluctuate. If we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.

Further, if we fail to invest sufficiently in R&D or our R&D does not produce competitive results, our products may become less attractive to our customers or potential customers, which could materially harm our business and results of operations. Our need for continued or increased investment in research and development may increase expenses and reduce our profitability.

Further, if we fail to invest sufficiently in R&D or our R&D does not produce competitive results, our products may become less attractive to our customers or potential customers, which could materially harm our business and results of operations. 12 Table of Contents Our need for continued or increased investment in research and development may increase expenses and reduce our profitability.

A significant decline in government expenditures, a shift of expenditures away from programs that we support or a change in federal government 11 Table of Contents contracting policies could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty or not to exercise options to renew contracts.

A significant decline in government expenditures, a shift of expenditures away from programs that we support or a change in federal government contracting policies could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty or not to exercise options to renew contracts.

Any significant change in our customers’ purchasing patterns could have a material adverse effect on our operating results and reported earnings per share for a particular 13 Table of Contents quarter. Thus, results of operations in any period should not be considered indicative of the results to be expected for any future period.

Any significant change in our customers’ purchasing patterns could have a material adverse effect on our operating results and reported earnings per share for a particular quarter. Thus, results of operations in any period should not be considered indicative of the results to be expected for any future period.

In particular, it is possible activity in the United Kingdom and the rest of Europe will be adversely impacted and that we will face increased regulatory and legal complexities, including those related to tax, trade, and 10 Table of Contents employee relations as a result of Brexit.

For the fiscal year ended September 30, 2022, one customer accounted for $10.4 million, or 19%, of our total revenues for the fiscal year. For the fiscal year ended September 30, 2021, no one customer accounted for 10% or more of our total revenues for the fiscal year.

For the fiscal year ended September 30, 2023, no one customer accounted for 10% or more of our total revenues for the fiscal year. For the fiscal year ended September 30, 2022, one customer accounted for $10.4 million, or 19%, of our total revenues for the fiscal year.

Furthermore, if any of these problems are not discovered until after we have commenced commercial production or deployment of a new product, we may be required to incur additional development costs and product recall, 9 Table of Contents repair or replacement costs.

We derived 2% of our total revenue in fiscal year 2022 and 4% of our total revenue in fiscal year 2022 from the DoD as a subcontractor. We expect that the DoD contracts will continue to be important to our business for the foreseeable future.

We derived 5% of our total revenue in fiscal year 2023 and 2% of our total revenue in fiscal year 2022 from the DoD as a subcontractor. We expect that the DoD contracts will continue to be important to our business for the foreseeable future.

Prior cyber attacks directed at us have not had a material adverse impact on our business or our financial results, and we believe that our continuing commitment toward threat detection and mitigation processes and procedures will help us minimize or avoid such impact in the future.

Prior cyber attacks directed at us have not had a material 14 Table of Contents adverse impact on our business or our financial results, and we believe that our continuing commitment toward threat detection and mitigation processes and procedures will help us minimize or avoid such impact in the future.

Foreign-based revenue is determined based on the location to which the product is shipped or services are rendered and represented 4% and 8% of our total revenue for the fiscal years ended September 30, 2022 and 2021, respectively.

Foreign-based revenue is determined based on the location to which the product is shipped or services are rendered and represented 3% and 4% of our total revenue for the fiscal years ended September 30, 2023 and 2022, respectively.

If any shareholder were to issue a lawsuit, we could incur substantial costs defending the lawsuit and the attention of management could be diverted.

If any shareholder were to issue a lawsuit, we could incur substantial costs defending the lawsuit and the attention of management could be diverted. 16 Table of Contents

In addition, we may incur substantial costs in attempting to protect our proprietary rights. 12 Table of Contents Also, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of our products develop similar technology independently or otherwise obtain and use information that we regard as proprietary and we may be unable to successfully identify or prosecute unauthorized uses of our technology.

Also, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of our products develop similar technology independently or otherwise obtain and use information that we regard as proprietary and we may be unable to successfully identify or prosecute unauthorized uses of our technology.

We rely on single sources for supply of certain components and our business may be seriously harmed if our supply of any of these components or other components is disrupted. Several components used in our HPP products are currently obtained from sole-source suppliers.

We cannot assure that our means of protecting our proprietary rights in the United States or abroad will be adequate, or that others will not develop technologies similar or superior to our technology or design around our proprietary rights.

New products and services may not be profitable, and even if they are profitable, operating margins for some new products and businesses may not be as high as the margins we have experienced historically. Developing new technologies and products is complex. It can require long development and testing periods.

We are largely dependent upon the skills and efforts of our senior management, managerial, sales and technical employees. None of our senior management personnel or other key employees are subject to any employment contracts except Victor Dellovo, our Chief Executive Officer and President.

We depend on key personnel and skilled employees and face competition in hiring and retaining qualified employees. We are largely dependent upon the skills and efforts of our senior management, managerial, sales and technical employees. None of our senior management personnel or other key employees are subject to any employment contracts except Victor Dellovo, our Chief Executive Officer and President.

Federal government contracts contain provisions and are subject to laws and regulations that give the government rights and remedies, some of which are not typically found in commercial contracts, including allowing the government to: ● cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable; ● claim rights in systems and software developed by us; ● suspend or debar us from doing business with the federal government or with a governmental agency; ● impose fines and penalties and subject us to criminal prosecution; and ● control or prohibit the export of our data and technology.

Although we do not have significant customers or suppliers in Russia or Ukraine, we do have customers and suppliers in surrounding regions which may be affected.

Although we do not have significant customers or suppliers in the Middle East region, we do have customers and suppliers in surrounding regions which may be affected.

We have no guaranteed supply arrangements with our suppliers and there can be no assurance that our suppliers will continue to meet our requirements. If our supply arrangements are interrupted, there can be no assurance that we would be able to find another supplier on a timely or satisfactory basis.

If our supply arrangements are interrupted, there can be no assurance that we would be able to find another supplier on a timely or satisfactory basis.

Our future success will depend in large part on our ability to enhance our current products and to develop new commercial products on a timely and cost-effective basis in order to respond to technological developments and changing customer needs.

If we are unable to do so on a timely basis our business could be materially adversely affected. Our future success will depend in large part on our ability to enhance our current products and to develop new commercial products on a timely and cost-effective basis in order to respond to technological developments and changing customer needs.

These sole source and other suppliers are each subject to quality and performance risks, materials shortages, excess demand, reduction in capacity and other factors that may disrupt the flow of goods to us or our customers, which thereby may adversely affect our business and customer relationships. 9 Table of Contents We have no guaranteed supply arrangements with our suppliers and there can be no assurance that our suppliers will continue to meet our requirements.

In addition, our revenues are largely dependent upon the ability of our customers to continue to grow or need services or to develop and sell products that incorporate our products.

In addition, our revenues are largely dependent upon the ability of our customers to continue to grow or need services or to develop and sell products that incorporate our products. No assurance can be given that our customers will not experience financial or other difficulties that could adversely affect their operations and, in turn, our results of operations.

We are dependent on key vendors like NVIDIA for our high-speed interconnect components and Marvel for Myricom components. Generally, suppliers may terminate our purchase orders without cause upon 30 days’ notice and may cease offering products to us upon 180 days’ notice.

Generally, suppliers may terminate our purchase orders without cause upon 30 days’ notice and may cease offering products to us upon 180 days’ notice.

Furthermore, governments in the United States, United Kingdom and European Union have each imposed export controls 15 Table of Contents on certain products and financial and economic sanctions on certain industry sectors and parties in Russia.

Furthermore, governments in the United States, United Kingdom and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. Although we do not have significant customers or suppliers in Russia or Ukraine, we do have customers and suppliers in surrounding regions which may be affected.

Significant delays in new releases or significant problems in creating new products or services could adversely affect our revenue. To be successful, we must respond to the rapid changes in technology. If we are unable to do so on a timely basis our business could be materially adversely affected.

It can require long development and testing periods. 8 Table of Contents Significant delays in new releases or significant problems in creating new products or services could adversely affect our revenue. To be successful, we must respond to the rapid changes in technology.

Under applicable federal securities laws, we are required to evaluate and determine the effectiveness of our internal control structure and procedures. If we have a material weakness in our internal controls, our results of operations or financial condition may be materially adversely affected, or our stock price may decline.

In addition, our compliance with existing regulations may have a material adverse impact on us. Under applicable federal securities laws, we are required to evaluate and determine the effectiveness of our internal control structure and procedures.

Risks Related to Ownership of Our Common Stock Our stock price may continue to be volatile. Historically, the market for technology stocks has been extremely volatile. Our common stock has experienced and may continue to experience substantial price volatility.

Our common stock has experienced and may continue to experience substantial price volatility.

Removed

No assurance can be given that our customers will not experience financial or other difficulties that could adversely affect their operations and, in turn, our results of operations. 8 Table of Contents We depend on key personnel and skilled employees and face competition in hiring and retaining qualified employees.

Added

The effects of the ongoing conflict could heighten many of our known risks described in these "Risk Factors.” Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Israel and Hamas.

Removed

As a result of the World Health Organization characterizing the COVID-19 outbreak as a pandemic on March 11, 2021, national, state, and local governments have taken actions such as declaring a state of emergency, establishing social distancing guidelines, and shutting down certain businesses which are not considered essential in part or entirely.

Added

The global economy has been negatively impacted by the military conflict between Israel and Hamas. There could be an expansion of the countries involved, which could lead to significant detrimental effects to the global economy.

Removed

The Company has complied with such actions causing most employees to work remotely in all locations. Such measures could have a material adverse effect on our business, financial condition and results of operations.

Added

Further escalation of the Israel and Hamas conflict and geopolitical tensions related to such military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyber attacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business, financial condition and results of operations.

Removed

If the government terminates a contract for convenience, we may recover only our incurred or committed costs, settlement expenses and profit on work completed prior to the termination.

Added

If we have a material weakness in our internal controls, our results of operations or financial condition may be materially adversely affected, or our stock price may decline. 15 Table of Contents Risks Related to Ownership of Our Common Stock Our stock price may continue to be volatile. Historically, the market for technology stocks has been extremely volatile.

Removed

The effects of the ongoing conflict could heighten many of our known risks described in section entitled "Risk Factors" in Part I, Item 1A in this Annual Report on Form 10-K for the fiscal year ended September 30, 2022. Legal and Regulatory Risks. Changes in regulations could materially adversely affect us.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed3 unchanged

2022 filing

2023 filing

Biggest changeItem 2. Properties Listed below are our principal facilities as of September 30, 2022.

Biggest changeItem 2. Properties Listed below are our principal facilities as of September 30, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−6 removed1 unchanged

2022 filing

2023 filing

Biggest changeFor the fiscal year ended September 30, 2022 the Company paid cash dividends as follows: Amount Paid Fiscal Year Date Declared Record Date Date Paid Per Share 2022 8/10/2022 8/22/2022 9/9/2022 $ 0.03 Item 6. [Reserved]

Biggest changeFor the fiscal years ended September 30, 2023 and 2022 the Company paid cash dividends as follows: Amount Paid Fiscal Year Date Declared Record Date Date Paid Per Share 2022 8/10/2022 8/22/2022 9/9/2022 $ 0.03 2023 12/6/2022 12/21/2022 1/6/2023 $ 0.03 2023 2/8/2023 2/24/2023 3/14/2023 $ 0.03 2023 5/10/2023 5/25/2023 6/13/2023 $ 0.04 2023 8/9/2023 8/23/2023 9/12/2023 $ 0.04 Item 6. [Reserved]

We had approximately 72 holders of record of our common stock as of December 6, 2022. This number does not include stockholders for whom shares were held in a “nominee” or “street” name. We believe the number of beneficial owners of our shares of common stock (including shares held in street name) at that date was approximately 1,347.

We had approximately 63 holders of record of our common stock as of December 6, 2023. This number does not include stockholders for whom shares were held in a “nominee” or “street” name. We believe the number of beneficial owners of our shares of common stock (including shares held in street name) at that date was approximately 1,891. Dividends .

The following table provides the high and low sales prices of our common stock as reported on the Nasdaq Global Market for the periods indicated. 2022 2021 Fiscal Year: High Low High Low 1st Quarter $ 9.30 $ 8.09 $ 8.71 $ 7.09 17 Table of Contents 2nd Quarter $ 8.94 $ 6.99 $ 12.76 $ 7.96 3rd Quarter $ 9.68 $ 6.81 $ 11.60 $ 8.47 4th Quarter $ 8.95 $ 7.12 $ 10.85 $ 8.70 Stockholders .

The following table provides the high and low sales prices of our common stock as reported on the Nasdaq Global Market for the periods indicated. 2023 2022 Fiscal Year: High Low High Low 1st Quarter $ 9.45 $ 7.01 $ 9.30 $ 8.09 2nd Quarter $ 13.59 $ 9.43 $ 8.94 $ 6.99 3rd Quarter $ 14.80 $ 10.50 $ 9.68 $ 6.81 4th Quarter $ 23.59 $ 10.15 $ 8.95 $ 7.12 17 Table of Contents Stockholders .

Removed

Purchases of equity securities . On February 8, 2011, the Board of Directors authorized the Company to repurchase up to 250 thousand additional shares of the Company's outstanding common stock at market price. The plan does not expire. As of May 14, 2020, we suspended our stock repurchase program until further economic clarity.

Removed

The Board of Directors approved the activation of the suspended stock repurchase program on December 29, 2021. Common stock of CSP Inc. may be repurchased on the open market at the discretion of management.

Removed

Open market repurchases will be made in compliance with the Securities and Exchanges Commission’s Rule 10b-18 in addition to complying with applicable legal and other considerations.

Removed

Below are the purchases that have been made for the three months ended September 30, 2022. Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans (1) Maximum number that may yet be purchased under the repurchase plan August 1-31, 2022 1,300 $ 8.10 1,300 173,327 September 1-30, 2022 1,600 $ 8.02 1,600 171,727 (1) On December 29, 2021, the Company announced the commencement of purchases under our stock repurchase program, which was originally authorized and announced February 8, 2011.

Removed

This program originally allowed the Company to purchase up to 250,000 shares of its Common Stock. As of the December 29, 2021 announcement, 194,125 shares of Common Stock were available to be repurchased under the stock repurchase program. The program does not expire.

Removed

The stock repurchase program may be suspended, terminated, or modified at any time for any reason. Dividends . As of May 14, 2020, we suspended our stock repurchase program and the payment of quarterly cash dividends until further economic clarity. The dividend was reinstated on August 10, 2022. There were no dividends paid in fiscal year 2021.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

48 edited+27 added−46 removed31 unchanged

2022 filing

2023 filing

Biggest changeHPP segment revenue changes by product and services for the fiscal years ended September 30 were as follows: September 30, Decrease 2022 2021 $ % (Dollar amounts in thousands) Products $ 2,516 $ 3,126 $ (610) (20) % Services 1,327 1,497 (170) (11) % Total $ 3,843 $ 4,623 $ (780) (17) % The decrease in HPP product revenue of $0.6 million in the fiscal year ended September 30, 2022 was primarily the result of an approximately $0.6 million decrease in Multicomputer product line shipments for the fiscal year ended September 30, 2022 as compared to the fiscal year ended September 30, 2021.

Biggest changeIn fiscal year 2023 as compared to the prior year, the U.S. division had a decrease of $0.9 million in internal services and a decrease of $0.7 million in third party maintenance revenue, partially offset by an increase of $1.4 million in managed services. 19 Table of Contents HPP segment revenue changes by product and services for the fiscal years ended September 30 2023 and 2022 were as follows: September 30, Increase 2023 2022 $ % (Dollar amounts in thousands) Products $ 5,475 $ 2,516 $ 2,959 118 % Services 1,398 1,327 71 5 % Total $ 6,873 $ 3,843 $ 3,030 79 % Our HPP segment revenue increased by approximately $3.0 million or 79%.

We are a principal if we control the good or service before that good or service is transferred to the customer. We record revenue as gross when we are a principal party to the arrangement and net of cost when we are acting as a broker or agent for a third party.

We are the principal if we control the good or service before that good or service is transferred to the customer. We record revenue as gross when we are the principal party to the arrangement and net of cost when we are acting as a broker or agent for a third party.

The U.K. division has significant bank accounts with U.S. dollars and Euros. In consolidation, U.S. dollars and Euros are remeasured into the functional currency, British Pounds, of our U.K. subsidiary. This non-cash remeasurement is included in foreign exchange gain or loss on the income statement and the foreign exchange gain or loss is primarily from a U.S.

The U.K. division has bank accounts with U.S. dollars and Euros. In consolidation, U.S. dollars and Euros are remeasured into the functional currency, British Pounds, of our U.K. subsidiary. This non-cash remeasurement is included in foreign exchange gain or loss on the income statement and the foreign exchange gain or loss is primarily from a U.S.

The defined benefit plans in the U.K. are closed to newly hired employees and have been for the two years ended September 30, 2022. In the U.S., the Company provides defined contribution plans that cover most employees and supplementary retirement plans to certain employees and former employees who are now retired.

The defined benefit plans in the U.K. are closed to newly hired employees and have been for the two years ended September 30, 2023. In the U.S., the Company provides defined contribution plans that cover most employees and supplementary retirement plans to certain employees and former employees who are now retired.

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

As a practical expedient, 25 Table of Contents we have elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less. Certain contracts contain a financing component including managed services contracts with financing of hardware and software.

These supplementary retirement plans are also closed to newly hired employees and have been for the two years ended September 30, 2022. These supplementary plans are funded through whole life insurance policies.

These supplementary retirement plans are also closed to newly hired employees and have been for the two years ended September 30, 2023. These supplementary plans are funded through whole life insurance policies.

Increases in estimated compensation increases would result in higher pension expense while decreases would lower pension expense. Discount rates are selected based upon rates of return on high quality fixed income investments currently available and expected to be available during the period to maturity of the pension benefit.

Increases in estimated compensation increases would result in higher pension expense while decreases would lower pension expense. Discount rates are selected based upon 27 Table of Contents rates of return on high quality fixed income investments currently available and expected to be available during the period to maturity of the pension benefit.

We also reduce deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.

We also reduce deferred tax assets by a valuation allowance if, based on the weight of 26 Table of Contents available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.

Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash received from the SBA loans, the cash generated from operations, and availability on our line of credit will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the date of this filing. 25 Table of Contents Critical Accounting Estimates and Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash generated from operations, and availability on our line of credit will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the date of this filing. Critical Accounting Estimates and Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

However, we do have customers and suppliers in surrounding regions which may be affected and further escalation of the Russian-Ukraine military conflict and geopolitical tensions related to such military conflict could adversely affect our business, financial condition and results of operations, by among other things, cyber attacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets.

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, cyber attacks, 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 conflict to the Company and our customers and suppliers.

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.

Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $8.8 million as of September 30, 2022, which consisted of 0.4 million Euros, 0.2 million British Pounds, and 8.2 million U.S. Dollars. This cash is included in our total cash and cash equivalents reported within our financial statements.

Other Liquidity and Capital Resources Items Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $4.8 million as of September 30, 2023, which consisted of 0.2 million Euros, 0.3 million British Pounds, and 4.3 million U.S. Dollars. This cash is included in our total cash and cash equivalents reported within our financial statements.

The decrease in HPP service revenue of approximately $0.2 million for the fiscal year ended September 30, 2022 period was primarily the result of a $0.4 million decrease in royalty revenues on high-speed processing boards related to the E2D program, partially offset with higher ARIA sales of $0.2 million as compared to the fiscal year ended September 30, 2021.

The increase in HPP service revenue of approximately $0.1 million for the fiscal year ended September 30, 2023 was primarily the result of a $0.4 million increase in AIRA revenue, partially offset with a decrease of $0.3 million in royalty revenues on high-speed processing boards related to the E2D program as compared to the fiscal year ended September 30, 2022.

Overview of Fiscal 2022 Results of Operations Revenue increased by approximately $5.2 million, or 10%, to $54.4 million for the fiscal year ended September 30, 2022 versus $49.2 million for the fiscal year ended September 30, 2021.

Overview of Fiscal 2023 Results of Operations Revenue increased by approximately $10.2 million, or 19%, to $64.6 million for the fiscal year ended September 30, 2023 versus $54.4 million for the fiscal year ended September 30, 2022.

The $0.9 million increase in our TS segment product GM in fiscal year 2022 as compared to the prior year resulted from an increase in GM in the U.S. division.

The $0.6 million decrease in our TS segment service GM in fiscal year 2023 as compared to the prior year resulted from a decrease in GM in the U.S. division.

Our total revenues by geographic area based on the location to which the products were shipped or services rendered were as follows: September 30, Increase (decrease) 2022 % 2021 % $ % (Dollar amounts in thousands) Americas $ 52,486 96 % $ 45,321 92 % $ 7,165 16 % Europe 1,407 3 % 3,203 7 % (1,796) (56) % Asia 468 1 % 684 1 % (216) (32) % Totals $ 54,361 100 % $ 49,208 100 % $ 5,153 10 % The $7.2 million increase in the Americas revenue for the fiscal year ended September 30, 2022 as compared to the fiscal year ended September 30, 2021 was primarily due to increased revenue by our TS-US division of approximately $7.7 million, partially offset with a decrease of $0.2 million attributable to the TS-UK division combined with decreased sales by our HPP segment of approximately $0.3 million.

Our total revenues by geographic area based on the location to which the products were shipped or services rendered were as follows: September 30, Increase (decrease) 2023 % 2022 % $ % (Dollar amounts in thousands) Americas $ 62,763 97 % $ 52,486 96 % $ 10,277 20 % Europe 1,429 2 % 1,407 3 % 22 2 % Asia 455 1 % 468 1 % (13) (3) % Totals $ 64,647 100 % $ 54,361 100 % $ 10,286 19 % The $10.3 million increase in the Americas revenue for the fiscal year ended September 30, 2023 as compared to the fiscal year ended September 30, 2022 was primarily due to increased revenue by our TS-US division of approximately $7.3 million combined with an increase of $3.0 million attributable to the HPP segment.

The SBA Loans were forgiven in full by the SBA in the first quarter of fiscal year 2021. If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans or other means.

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

This method is most appropriate as it depicts the measure of progress towards satisfaction of the performance obligation. 26 Table of Contents Gross versus Net Revenue We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether we are acting as a principal party to the transaction or acting as an agent or broker based on control and timing.

Gross versus Net Revenue We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether we are acting as the principal party to the transaction or acting as an agent or broker based on control and timing.

The following table details our results of operations in dollars and as a percentage of sales for the fiscal years ended: % % September 30, 2022 of sales September 30, 2021 of sales (Dollar amounts in thousands) Sales $ 54,361 100 % $ 49,208 100 % Costs and expenses: Cost of sales 35,534 65 % 33,059 67 % Engineering and development 3,084 6 % 2,887 6 % Selling, general and administrative 15,783 29 % 14,624 30 % Total costs and expenses 54,401 100 % 50,570 103 % Operating loss (40) - % (1,362) (3) % Other income, (expense) net 1,979 4 % 2,040 4 % Income before income taxes 1,939 4 % 678 1 % Income tax expense 50 — % 444 1 % Net income from continuing operations $ 1,889 3 % $ 234 — % Gain on sale of discontinued operations — — % 465 1 % Net income $ 1,889 3 % $ 699 1 % Revenues Revenue increased by approximately $5.2 million, or approximately 10%, to $54.4 million for the fiscal year ended September 30, 2022 versus $49.2 million for the fiscal year ended September 30, 2021.

The following table details our results of operations in dollars and as a percentage of sales for the fiscal years ended: % % September 30, 2023 of sales September 30, 2022 of sales (Dollar amounts in thousands) Sales $ 64,647 100 % $ 54,361 100 % Costs and expenses: Cost of sales 42,727 66 % 35,534 65 % Engineering and development 3,140 5 % 3,084 6 % Selling, general and administrative 16,910 26 % 15,783 29 % Total costs and expenses 62,777 97 % 54,401 100 % Operating income (loss) 1,870 3 % (40) — % Other income, net 2,865 4 % 1,979 4 % Income before income taxes 4,735 7 % 1,939 4 % Income tax (benefit) expense (469) (1) % 50 — % Net income $ 5,204 8 % $ 1,889 4 % Revenues Revenue increased by approximately $10.2 million, or approximately 19%, to $64.6 million for the fiscal year ended September 30, 2023 versus $54.4 million for the fiscal year ended September 30, 2022.

Income Taxes The Company recorded an income tax provision of approximately $50 thousand for the fiscal year ended September 30, 2022, which reflected an effective tax rate of 2.6% for the year ended September 30, 2022. The provision is primarily driven by the state tax expense.

The Company recorded an income tax benefit of $(469) thousand, which reflected an effective tax rate of (9.9)%, for the fiscal year ended September 30, 2023 compared to an income tax provision of $50 thousand, which reflected an effective tax rate of 2.6% for the fiscal year ended September 30, 2022.

The impact of product mix on gross margins within our HPP segment for the fiscal years ended September 30 was as follows: September 30, 2022 2021 Decrease (Dollar amounts in thousands) GM$ GM% GM$ GM% GM$ GM% Products $ 893 35 % $ 1,304 42 % $ (411) (7) % Services 1,055 80 % 1,440 96 % (385) (16) % Total $ 1,948 51 % $ 2,744 59 % $ (796) (8) % The overall HPP segment GM as a percentage of revenue decreased to 51% in fiscal year 2022 from 59% in fiscal year 2021.

The impact of product mix on gross margins within our HPP segment for the fiscal years ended September 30 was as follows: September 30, 2023 2022 Increase (decrease) (Dollar amounts in thousands) GM$ GM% GM$ GM% GM$ GM% Products $ 3,428 63 % $ 893 35 % $ 2,535 28 % Services 826 59 % 1,055 80 % (229) (21) % Total $ 4,254 62 % $ 1,948 51 % $ 2,306 11 % The overall HPP segment GM as a percentage of revenue increased to 62% in fiscal year 2023 from 51% in fiscal year 2022.

The 8% decrease in HPP GM as a percentage of revenue from prior year was due to decreased royalty sales, which are nearly all margin. The following table summarizes GM changes by segment for fiscal years ended September 30: September 30, 2022 2021 Increase (decrease) (Dollar amounts in thousands) GM$ GM% GM$ GM% GM$ GM% TS $ 16,879 33 % $ 13,405 30 % $ 3,474 3 % HPP 1,948 51 % 2,744 59 % (796) (8) % Total $ 18,827 35 % $ 16,149 33 % $ 2,678 2 % The impact of product mix within our TS segment on gross margins for the fiscal years ended September 30 was as follows: September 30, 2022 2021 Increase GM$ GM% GM$ GM% GM$ GM% (Dollar amounts in thousands) Products $ 6,818 20 % $ 5,898 18 % $ 920 2 % Services 10,061 62 % 7,507 60 % 2,554 2 % Total $ 16,879 33 % $ 13,405 30 % $ 3,474 3 % The overall TS segment GM as a percentage of revenue increased to 33% in fiscal year 2022 from 30% in fiscal year 2021.

The total GM as a percentage of revenue decreased to 34% for fiscal year 2023 from 35% for fiscal year 2022. The following table summarizes GM changes by segment for fiscal years ended September 30: September 30, 2023 2022 Increase (decrease) (Dollar amounts in thousands) GM$ GM% GM$ GM% GM$ GM% TS $ 17,666 31 % $ 16,879 33 % $ 787 (2) % HPP 4,254 62 % 1,948 51 % 2,306 11 % Total $ 21,920 34 % $ 18,827 35 % $ 3,093 (1) % 20 Table of Contents The impact of product mix within our TS segment on gross margins for the fiscal years ended September 30 was as follows: September 30, 2023 2022 Increase (decrease) GM$ GM% GM$ GM% GM$ GM% (Dollar amounts in thousands) Products $ 8,197 20 % $ 6,818 20 % $ 1,379 — % Services 9,469 59 % 10,061 62 % (592) (3) % Total $ 17,666 31 % $ 16,879 33 % $ 787 (2) % The overall TS segment GM as a percentage of revenue decreased to 31% in fiscal year 2023 from 33% in fiscal year 2022.

The HPP segment SG&A spending decrease of $0.7 million for the fiscal year ended September 30, 2022 when compared to the prior year was primarily attributed to decreased headcount and consulting expenses.

The HPP segment SG&A spending increase of $0.1 million for the fiscal year ended September 30, 2023 when compared to the prior year was primarily attributed to increased variable compensation.

As of September 30, 2022 and September 30, 2021, 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.

Due to the pension obligation in the U.K., we maintain a large balance of cash in the U.K. As of September 30, 2023 and September 30, 2022, 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.

The 8% decrease in GM as a percentage of sales in the HPP segment was primarily attributed to the impact of a decrease of $0.4 million in high margin Multicomputer royalty revenues, which is nearly all GM and recorded as service revenue.

The GM as a percentage of sales from services decreased 21% primarily due to a relatively significant decrease of high margin Multicomputer royalty revenues, which is nearly all GM and recorded as service revenue. Engineering and Development Expenses Our engineering and development expenses are only in our HPP segment.

Selling, General and Administrative The following table details our selling, general and administrative (“SG&A”) expenses by operating segment for the years ended September 30, 2022 and 2021: Year ended $ % % of % of Increase Increase 2022 Total 2021 Total (Decrease) (Decrease) (Dollar amounts in thousands) By Operating Segment: TS segment $ 12,032 76 % $ 10,190 70 % $ 1,842 18 % HPP segment 3,751 24 % 4,434 30 % (683) (15) % Total $ 15,783 100 % $ 14,624 100 % $ 1,159 8 % The TS segment SG&A spending increase of approximately $1.8 million for the fiscal year ended September 30, 2022 when compared to the prior year was primarily due to an increase in variable compensation of $1.5 million and an increase in salaries and other expenses of $0.3 million.

Fiscal year 2023 and 2022 expenses were primarily for product engineering expenses incurred in connection with the development of the ARIA SDS cyber security products and ARIA Zero Trust (AZT). 21 Table of Contents Selling, General and Administrative The following table details our selling, general and administrative (“SG&A”) expenses by operating segment for the years ended September 30, 2023 and 2022: Year ended September 30, $ % % of % of Increase Increase 2023 Total 2022 Total (Dollar amounts in thousands) By Operating Segment: TS segment $ 13,089 77 % $ 12,032 76 % $ 1,057 9 % HPP segment 3,821 23 % 3,751 24 % 70 2 % Total $ 16,910 100 % $ 15,783 100 % $ 1,127 7 % The TS segment SG&A spending increase of approximately $1.1 million for the fiscal year ended September 30, 2023 when compared to the prior year was primarily due to an increase in salaries of $0.6 million, an increase in variable compensation of $0.3 million, and an increase in travel expenses of $0.2 million.

Gross Margins Our gross margin ("GM") increased by $2.7 million to $18.8 million for fiscal year 2022 as compared to GM of approximately $16.1 million for fiscal year 2021. The total GM as a percentage of revenue increased to 35% for fiscal 21 Table of Contents year 2022 from 33% for fiscal year 2021.

Gross Margins Our gross margin ("GM") increased by $3.1 million to $21.9 million for fiscal year 2023 as compared to GM of approximately $18.8 million for fiscal year 2022.

We have concluded we are the agent in sales of third-party maintenance, software or hardware support, and certain security software that is sold with integral third-party delivered software maintenance that include critical updates. Product Warranty Accrual Our product sales generally include a 90-day to three-year hardware warranty.

We have concluded we are the agent in sales of third-party maintenance, software or hardware support, and certain security software that is sold with integral third-party delivered software maintenance that includes critical updates. Engineering and Development Expenses Engineering and development expenses include payroll, employee benefits, stock-based compensation and other headcount-related expenses associated with product development.

The US dollar and Euro strengthened relative to the British Pound when comparing the exchange rate as of September 30, 2022 to September 30, 2021, which caused the foreign exchange gain. 23 Table of Contents Interest income is primarily related to agreements that have payment terms in excess of one year (see Note 3 Accounts and Long-Term Receivable in Item 1 to this Annual Report on Form 10-K for details) from the TS-US segment as interest income recognized in each agreement decreases as principal payments are made.

Interest income increased $0.8 million for the year ended September 30, 2023 when compared to the prior year. Interest income is primarily related to agreements that have payment terms in excess of one year (see Note 2 Accounts and Long-Term Receivable in Item 1 to this Annual Report on Form 10-K for details) from the TS-US segment.

TS segment revenue changes by products and services for the fiscal years ended September 30 were as follows: September 30, Increase 2022 2021 $ % (Dollar amounts in thousands) Products $ 34,172 $ 32,100 $ 2,072 6 % Services 16,346 12,485 3,861 31 % 20 Table of Contents Total $ 50,518 $ 44,585 $ 5,933 13 % The increase in TS segment product revenue of $2.1 million during the period was the result of a $3.1 million increase in the U.S. division, partially offset by a decrease of approximately $1.0 million in the U.K. division.

TS segment revenue changes by products and services for the fiscal years ended September 30 2023 and 2022 were as follows: September 30, Increase (decrease) 2023 2022 $ % (Dollar amounts in thousands) Products $ 41,674 $ 34,172 $ 7,502 22 % Services 16,100 16,346 (246) (2) % Total $ 57,774 $ 50,518 $ 7,256 14 % Our TS segment revenue increased by approximately $7.3 million consisting of an increase of $7.1 million in our U.S. division combined with an increase of $0.2 million in our U.K. division.

The decrease in the U.K. division year over year was primarily associated with a decrease with one major customer. The increase in TS segment service revenue of $3.9 million as compared to the prior year was due to a $4.0 million increase in the U.S. division, partially offset with a $0.1 million decrease in the U.K. division.

The decrease in TS segment service revenue of $0.2 million as compared to the prior year was in the U.S. division.

As the economic environment returns to pre-pandemic levels it has led to customers’ budgets not being as constrained as prior year leading to increased sales in the U.S. division. The increase in our U.S. division product revenue year over year was primarily associated with several major customers, partially offset by a decrease with several other customers.

The increase in our U.S. division product revenue year over year was primarily associated with several major customers, partially offset by a decrease with several other customers. The increase in the U.K. division year over year was primarily associated with an increase with one major customer.

As of September 30, 2022, the Russian/Ukrainian military conflict has not had a direct significant impact on revenue as we do not have any recurring customers in either country.

The following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing. Recent trends affecting our financial performance As of September 30, 2023, the Russian/Ukrainian military conflict and the Israeli-Hamas conflict has not had a direct significant impact on revenue as we do not have any recurring customers in either region.

Gross profit margin percentage increased, from 33% of revenues for the fiscal year ended September 30, 2021 to 35% for the fiscal year ended September 30, 2022. 19 Table of Contents We generated an operating loss of $40 thousand for the fiscal year ended September 30, 2022 as compared to an operating loss of approximately $1.4 million for the fiscal year ended September 30, 2021.

We generated an operating income of $1.8 million for the fiscal year ended September 30, 2023 as compared to an operating loss of $(40) thousand for the fiscal year ended September 30, 2022. 18 Table of Contents Other income, net was $2.9 million for the fiscal year ended September 30, 2023 as compared to $2.0 million for the prior year.

Other Income/Expenses The following table details our other income (expense) for the years ended September 30, 2022 and 2021: Year ended Increase September 30, 2022 September 30, 2021 (Decrease) (Amounts in thousands) Foreign exchange gain (loss) $ 1,692 $ (488) $ 2,180 Interest expense (360) (350) (10) Interest income 650 575 75 Gain on debt forgiveness — 2,196 (2,196) Other income (expense), net (3) 107 (110) Total other income (expense), net $ 1,979 $ 2,040 $ (61) For the year ended September 30, 2022 the largest change was the foreign exchange gain increase of $2.2 million due to the U.S. dollar significantly strengthening against the British Pound and the largest change for the year ended September 30, 2021 was a gain on debt forgiveness of $2.2 million for the Payroll Protection Program loans.

Other Income/Expenses The following table details our other income (expense) for the years ended September 30, 2023 and 2022: Year ended Increase September 30, 2023 September 30, 2022 (Decrease) (Amounts in thousands) Foreign exchange (loss) gain $ (581) $ 1,692 $ (2,273) Interest expense (262) (360) 98 Interest income 1,460 650 810 Employee Retention Tax Credit, net of costs to collect 2,136 — 2,136 Other income (expense), net 112 (3) 115 Total other income, net $ 2,865 $ 1,979 $ 886 For the year ended September 30, 2023 the foreign exchange loss decreased $2.3 million primarily due to the U.S. dollar significantly weakening against the British pound in fiscal year 2023 compared to the prior year where it significantly strengthened.

The $1.8 million decrease in Europe revenue for the fiscal year ended September 30, 2022 as compared to the prior year period was primarily due to decreased sales by our TS-UK division of approximately $1.0 million, a decrease in sales by our TS-US division of approximately $0.5 million, and a decrease of $0.3 million in our HPP segment.

The increase in HPP product revenue of $3.0 million in the fiscal year ended September 30, 2023 was primarily the result of two major non-recurring transactions of $1.8 million and $1.2 million for the fiscal year ended September 30, 2023 as compared to the fiscal year ended September 30, 2022.

The provision is primarily driven by the state tax expense. For the fiscal year ended September 30, 2021, the income tax provision was $444 thousand, which reflected an effective tax rate of 39%.

Income Taxes The Company recorded an income tax benefit of $(469) thousand, which reflected an effective tax rate of (9.9)%, for the fiscal year ended September 30, 2023. The provision is primarily driven by the benefit recognized as a result of the release of the valuation allowance against the majority of the Company's deferred tax assets.

See Note 9 Accounts payable and accrued expenses, and Other noncurrent liabilities in Item 1 to this Annual Report on Form 10-K.

Additionally, there was decreased interest expense related to multi-year agreements with vendors in the TS U.S. division. Payments on these agreements contain both principal and interest expense. As principal payments are made the interest expense decreases. See Note 8 Accounts payable and accrued expenses, and Other noncurrent liabilities in Item 1 to this Annual Report on Form 10-K.

There were three new agreements in fiscal year 2022, which caused an increase in interest income.

There were three new agreements in fiscal year 2023, which caused an increase in interest income. Additionally, interest income from 22 Table of Contents cash and cash equivalents increased significantly from prior year due to substantially increased interest rates during fiscal year 2023.

The $2.6 million increase in the TS segment service GM in fiscal year 2022 as compared to the prior year primarily resulted from increased service GM of $2.7 million in the U.S. division, partially offset by a decrease of $0.1 million in the U.K. division.

The $1.4 million GM increase in our TS segment product GM in fiscal year 2023 as compared to the prior year resulted from an increase in the U.S. division. Product GM as a percentage of revenue remained relatively flat for fiscal year 2023 compared to fiscal year 2022 with no significant changes in any specific type of product.

Amounts of $11.9 million and $14.1 million were available as of September 30, 2022 and September 30, 2021, respectively. As of September 30, 2022 and September 30, 2021 there were no cash withdrawals outstanding. For a further discussion of the Company’s line of credit, including its financial covenants, see Item 1, Note 12 Line of Credit.

This line of credit also includes availability of a limited cash withdrawal of up to $1.0 million. Amounts of $13.5 million and $11.9 million were available as of September 30, 2023 and September 30, 2022, respectively. As of September 30, 2023 and September 30, 2022 there were 24 Table of Contents no cash withdrawals outstanding.

The other income decrease of $110 thousand for the year ended September 30, 2022 as compared to the prior year period is primarily related to a nonrecurring rebate we received in the prior year that originated several years ago, which we did not anticipate receiving.

The other income increase of $115 thousand for the year ended September 30, 2023 as compared to the prior year period is primarily related to a vendor settlement related to one specific agreement.

Our TS segment revenue increased by approximately $5.9 million consisting of an increase of $7.1 million in our U.S. division, partially offset by a decrease of $1.2 million in our U.K. division. Our HPP segment revenue decreased by approximately $0.8 million or 17%.

The increase in TS segment product revenue of $7.5 million during the period was the result of a $7.3 million increase in the U.S. division combined with an increase of $0.2 million in the U.K. division.

Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets. 28 Table of Contents Inflation and Changing Prices Management does not believe that inflation and changing prices had significant impact on sales, revenues or income during fiscal years 2022 or 2021.

Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets.

The GM as a percentage of sales from products decreased primarily due to product mix in fiscal year 2022 as compared to the prior year. 22 Table of Contents Engineering and Development Expenses Our engineering and development expenses are only in our HPP segment.

The GM as a percentage of sales from products increased 28% primarily due to two major non-recurring transactions in fiscal year 2023 when compared to fiscal year 2022 as discussed above.

There are no further amounts to be received in connection with the purchase agreement from the original sale. The Company recorded an income tax provision of approximately $50 thousand for the fiscal year ended September 30, 2022, which reflected an effective tax rate of 3% for the year ended September 30, 2022.

The benefit recorded during the fiscal year equaled $1.8 million for valuation allowances released on deferred tax assets related to prior years. The Company also claimed and received the Employee Retention Credit. For the fiscal year ended September 30, 2022, the income tax provision was approximately $50 thousand, which reflected an effective tax rate of 2.6%.

The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions.

The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future. Inventories Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out method.

During the period ended September 30, 2022, management assessed the positive and negative evidence in the U.S. operations and concluded that it is more likely than not that the deferred tax assets as of September 30, 2022 will not be realized in light of recent results, the ongoing impacts of the coronavirus (“COVID-19”) pandemic, and the resulting economic fallout.

As a result, the Company has determined that it is more likely than not that substantially all of its net deferred tax assets in the U.S. jurisdiction will be utilized and that associated valuation allowances should be reversed during year ended September 30, 2023. The valuation reversed during the period resulted in a $1.8 million benefit.

Removed

The following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing. 18 Table of Contents Observations on effects of novel coronavirus and Russia/Ukraine Conflict On March 11, 2020, the World Health Organization characterized the novel coronavirus outbreak as a pandemic.

Added

Gross profit margin percentage decreased slightly to 34% for the fiscal year ended September 30, 2023 from 35% of revenues for the fiscal year ended September 30, 2022.

Removed

The outbreak has and continues to adversely affect the economies of the U.S., U.K., and other international markets and economies in which we operate.

Added

As the economic environment returns to pre-pandemic levels it has led to customers’ budgets not being as constrained as prior year leading to increased sales in the U.S. division and U.K. division. Additionally, there have been less shortages with suppliers causing less delays and our backlog has significantly decreased from the prior year.

Removed

As a result of the World Health Organization characterizing the COVID-19 outbreak as a pandemic, national, state, and local governments have and continue to take actions such as declaring a state of emergency, implementing social distancing and other guidelines, and shutting down and/or limiting the opening or operation of certain businesses which are not considered essential.

Added

Sales to Europe remained relatively flat with an increase of $0.1 million in the TS-US division, offset with a decrease in the TS-UK division of $0.1 million. Sales to Asia remained relatively flat with no significant changes in any division.

Removed

In these times of pandemic, our top priorities are to protect the health, well-being, and safety of our employees and partners, while still focusing on the key drivers of our business.

Added

Service GM as a percentage of revenue decreased to 59% in fiscal year 2023 from 62% in fiscal year 2022 due to decreased third party maintenance revenue as discussed above, which is recorded as net sales meaning all the gross margin is recorded in the services revenue financial statement line item causing increased GM as a percentage of revenue.

Removed

To that end, and to insure we continue to operate safely and cautiously while also meeting our public health responsibilities, the Company has adopted flexible business practices including allowing most employees to work remotely in all locations. COVID-19 has adversely affected the distribution channel leading to significantly longer lead times when ordering product.

Added

These expenses remained relatively flat at $3.1 million for fiscal year 2023 and $3.1 million for fiscal year 2022. There were increased consulting expenses of $0.4 million, offset by decreased labor expenses of $0.4 million of labor expenses in fiscal year 2023 when compared to fiscal year 2022.

Removed

Manufacturers are not producing as much product as prior to the pandemic due to disruptions, resulting in supply shortages. Additionally, recent global shipping delays have exacerbated this problem. The TS segment has many vendors it transacts with and supply shortages are pervasive with many of them. The HPP segment has and continues to experience shortages with their vendors as well.

Added

Dollar and Euro bank account. The U.S. Dollar bank account consists of approximately 95% of the non-British Pound currency held in the U.K. subsidiary.

Removed

If we are unable to successfully resolve these disruptions and shortages, the timing and amount of our future results may be materially impacted.

Added

Interest expense decreased $98 thousand for the year ended September 30, 2023 as compared to the prior year period is due to less interest expense on loans on whole life insurance policies on officers as $0.9 million was paid back in fiscal year 2022 causing less interest to be incurred in fiscal year 2023.

Removed

The HPP segment secured a $1.8 million contract for real-time networking monitoring for cyber attack detection in the first quarter of fiscal year 2021, but due to the delays by manufacturers the sale is anticipated to be recognized fully in revenue in fiscal year 2023 when we can obtain the product from the manufacturers.

Added

The Employee Retention Tax Credit, net of costs to collect of $2.1 million was recognized in the fourth quarter of fiscal year 2023. The Coronavirus Aid, Relief, and Economic Security Act provided an Employee Retention Credit (“ERC”) which is a refundable tax credit against certain employment taxes.

Removed

Related to the supply shortage and potentially inflation, we have experienced price increases for our products, which we try to pass on to the customer.

Added

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

Removed

We recognize the pandemic has created a dynamic and uncertain situation in the national economy, and we continue to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of the pandemic on our operations.

Added

Both the TS-US division and HPP segment qualified for the ERC beginning in March 2021 for qualified wages through September 2021. There are no other amounts that will be received related to this credit.

Removed

Despite reduced infection rates and ever-increasing vaccination rates in the United States, many nations and certain pockets within the United States are still battling various strains/variants of the novel coronavirus, creating ongoing uncertainties as to when economies will return to business as usual and what that will look like, what regulatory measures or voluntary actions will be further implemented to limit the spread of COVID-19 and its variants and the duration of any such measures.

Added

The provision is primarily driven by the state tax expense. The Company undertakes a review of its valuation allowance at each financial statement period, reviewing the positive and negative evidence to help determine whether it is more likely than not that the Company will realize the future tax benefits from its deferred tax balances.

Removed

The extent, severity and impact of any further spread of COVID-19 variants or resurgence of COVID-19 in a given geographic region after it has hit its “peak,” and the extent to which herd immunity will be achieved through the vaccination process is still uncertain.

Added

In the year ended September 30, 2020, the Company established a partial valuation allowance against its deferred tax assets in light of results at the time, the COVID-19 pandemic, and the resulting economic fallout, and established a full valuation during the year ended September 30, 2021.

Removed

In summary, the scope of this pandemic and its effects are unprecedented, and we cannot at this time make a reasonable estimate on the extent or duration of the impacts on our business.

Added

Since that time, the COVID-19 pandemic has ended, and the Company’s Technology Solutions business has grown its revenue and operating income in fiscal years 2023 and 2022.

Removed

Other income, (expense) net was $2.0 million for the fiscal year ended September 30, 2022 as compared to $2.0 million for the prior year. A one-time gain of $465k occurred in fiscal year 2021, which was a purchase price adjustment of a subsidiary (Modcomp GmbH) that was sold in fiscal year 2018. This is classified as discontinued operations.

Added

The Company separately analyzed the realizability of its federal and state credits and determined $710 thousand (net of federal benefit) of state credits are expected to expire unutilized and kept a valuation allowance against these credits.

Removed

The provision is primarily driven by the recording of a partial valuation allowance against US deferred tax assets that are not more-likely-than-not to be realized partially offset by current year federal R&D credits and the benefit resulting from the carryback of federal net operating losses to years in which the statutory federal tax rate was 34%.

Added

The Company will continue to maintain a valuation allowance against certain state tax credits in the U.S. and a full valuation allowance against the net deferred tax assets in the U.K. jurisdiction. Liquidity and Capital Resources Cash Flows Our primary source of liquidity and capital resources is our cash from operations and our line of credit.

Removed

In fiscal year 2022 as compared to the prior year, the U.S. division had an increase of $1.5 million in managed services, an increase of $1.3 million in services provided by the Company and third party services, and an increase of $1.2 million in third party maintenance revenue.

Added

Cash and cash equivalents increased by $1.2 million to $25.2 million as of September 30, 2023 from $24.0 million as of September 30, 2022. 23 Table of Contents The following is a summary of our cash flows for the fiscal year ended September 30, 2023 and 2022: For the Year ended September 30, (Dollar amounts in thousands) 2023 2022 (Dollar amounts in thousands) Net cash provided by (used in): Operating activities $ 3,907 $ 2,675 Investing activities (341) 20 Financing activities (2,401) 1,328 Effect of exchange rate changes on cash 70 (48) Increase in cash and cash equivalents $ 1,235 $ 3,975 Operating Activities Cash provided by operating activities was $3.9 million for the year ended September 30, 2023 compared to $2.7 million for the prior year.

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Top changes in CSP INC /MA/'s 2023 10-K

Item 1. Business

Item 1A. Risk Factors

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Item 5. Market for Registrant's Common Equity

Item 7. Management's Discussion & Analysis

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