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What changed in CSP INC /MA/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CSP INC /MA/'s 2023 and 2024 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 2024 report.

+143 added−138 removedSource: 10-K (2024-12-20) vs 10-K (2023-12-13)

Top changes in CSP INC /MA/'s 2024 10-K

143 paragraphs added · 138 removed · 111 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur 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.
Biggest changeOur 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 2025.
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.
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.
We target SMB and LEB customers across all industries. Our current customers are in web and infrastructure hosting, education, telecommunications, healthcare services, distribution, financial services, professional services and manufacturing. Professional Services We provide professional IT consulting services in the following areas: ● Assessments, planning, designing, implementation, migration, optimization services and project management. ● Hyper-Converged Infrastructure ("HCI").
We target SMB and LEB customers across all industries. Our current customers are in web and infrastructure hosting, education, travel, telecommunications, healthcare services, distribution, financial services, professional services and manufacturing. Professional Services We provide professional IT consulting services in the following areas: ● Assessments, planning, designing, implementation, migration, optimization services and project management. ● Hyper-Converged Infrastructure ("HCI").
The 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.
The 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 2025 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.
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.
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 18 Segment Information of the notes to the consolidated financial statements.
The TS segment generates service revenues by the delivery of professional services for complex IT solutions, including advanced security; unified communications and collaboration; wireless and mobility; data center solutions; and network solutions as well as managed IT services ("MSP") that primarily serve the small and mid-sized business market ("SMB"). · Third party products and professional services are marketed and sold through the Company’s direct sales force into a variety of vertical markets, including; automotive; defense; health care; education; federal, state and local government; and maritime.
The TS segment generates service revenues by the delivery of professional services for complex IT solutions, including advanced security; unified communications and collaboration; wireless and mobility; data center solutions; and network solutions as well as managed IT services ("MSP") that primarily serve the small and mid-sized business market ("SMB"). · Third party products and professional services are marketed and sold through the Company’s direct sales force into a variety of vertical markets, including automotive, defense, healthcare, education, federal, state and local government, and maritime.
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.
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 2025.
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, 2023 and 2022.
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, 2024 and 2023.
Competition Our primary competition in the TS segment are other VARs ranging from small companies that number in the thousands, to large enterprises such as CDW, PC Connection, Insight, Presidio, Dimension Data, and Computacenter Limited.
Competition Our primary competition in the TS segment is other VARs ranging from small companies that number in the thousands, to large enterprises such as CDW, PC Connection, Insight, Presidio, Dimension Data, and Computacenter Limited.
Our value proposition is our ability to support the complete IT life cycle of planning, designing, implementing and optimizing a comprehensive solution into our customer’s IT environments, to help achieve their expected business outcomes.
Our value proposition is our ability to support the complete IT life cycle of planning, designing, implementing and optimizing a comprehensive solution into our customers’ IT environments, to help achieve their expected business outcomes.
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.
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 FY 2025 and supported for several years via our repair services offering.
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.
In addition, due to the complexities and high-costs associated with enterprise-wide security, particularly in the creation and operation of 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.
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.
ARIA AZT PROTECT™ 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.
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.
Noting that sales cycles can be up to 1 year. ​ 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 Arctic Wolf. ​ Manufacturing, Assembly and Testing ​ 6 Table of Contents Currently, products are shipped to our customers directly from our plant in Lowell, Massachusetts. ​ Research and Development For the year ended September 30, 2024, our expenses for R&D were approximately $3.0 million compared to approximately $3.1 million for the year ended September 30, 2023.
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.
Expenditures for R&D are expensed as they are incurred. Product development efforts in fiscal year 2023 and 2024 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 cybersecurity software applications.
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.
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, 2024 and 2023. Employees As of September 30, 2024, we had approximately 111 full time equivalent employees worldwide for our consolidated operations.
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.
Additional segment and geographical information are set forth in Note 18 Segment Information to the consolidated financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Segment 2024 % 2023 % ​ ​ (Dollar amounts in thousands) TS ​ $ 51,065 92 % $ 57,774 89 % HPP ​ 4,154 8 % 6,873 11 % Total Sales ​ $ 55,219 100 % $ 64,647 100 % ​ 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 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.
We have newly issued as well as pending patents for the ARIA AZT PROTECT™ software and will be pursuing additional patent rights over time. ​ Sources and Availability of Product ​ No components used in our HPP segment products are obtained from sole-source suppliers. ​ Backlog The gross backlog of customer orders and contracts in the HPP segment was $0.8 million as of September 30, 2024 as compared to $1.8 million as of September 30, 2023.
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.
HPP Segment Products and Services The mission of the HPP team is to deliver a differentiated, smarter approach to cybersecurity.
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.
Unfavorable competitive factors include low name recognition, limited geographic coverage and pricing. ​ ​ 5 Table of Contents Sources and Availability of Product ​ No components used in our TS segment products are obtained from sole-source suppliers. ​ ​ Backlog The gross backlog of customer orders and contracts for the TS segment was approximately $4.9 million as of September 30, 2024, as compared to $7.5 million as of September 30, 2023.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn 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.
Biggest changeNo 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 depend on key personnel and skilled employees and face competition in hiring and retaining qualified employees.
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.
Our quarterly results may be subject to fluctuations resulting from a number of other factors, including: ● delays in completion of internal product development projects; 12 Table of Contents ● 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.
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 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.
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.
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. 13 Table of Contents 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.
Furthermore, with respect to our issued patents and patent applications, we cannot assure that patents from any pending patent applications (or from any future patent applications) will be issued, that the scope of any patent protection will include competitors or provide competitive advantages to us, that any of our patents will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents (and patent applications) and other proprietary rights held by us.
Furthermore, with respect to our issued patents and patent applications, we cannot assure that patents from any pending patent applications (or from any future patent applications) will be issued, that the scope of any patent protection will include competitors or provide competitive advantages to us, that any of our patents will be held 11 Table of Contents valid if subsequently challenged or that others will not claim rights in or ownership of the patents (and patent applications) and other proprietary rights held by us.
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.
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.
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.
Foreign-based revenue is determined based on the location to which the product is shipped or services are rendered and represented 3% and 3% of our total revenue for the fiscal years ended September 30, 2024 and 2023, respectively.
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.
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.
When the federal government operates under a CR, delays can occur in the procurement of products and services. Historically, such delays have not had a material effect on our business; however, should funding of the federal government by CR be prolonged or extended, it could have significant consequences to our business and our industry.
When the federal government operates under a CR, delays can occur in the procurement of products 10 Table of Contents and services. Historically, such delays have not had a material effect on our business; however, should funding of the federal government by CR be prolonged or extended, it could have significant consequences for our business and our industry.
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
If any shareholder were to issue a lawsuit, we could incur substantial costs defending the lawsuit and the attention of management could be diverted. ​
Government Contracting Risks We depend on contracts with the federal government, primarily with the Department of Defense ("DoD"), for a portion of our revenue, and our business could be seriously harmed if the government significantly decreased or ceased doing business with us.
Government Contracting Risks During certain fiscal years, we may depend on contracts with the federal government, primarily with the Department of Defense ("DoD"), for a portion of our revenue, and our business could be seriously harmed if the government significantly decreased or ceased doing business with us.
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.
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. 14 Table of Contents The global economy has been negatively impacted by the military conflict between Israel and Hamas.
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.
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 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.
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 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.
We derived below 1% of our total revenue in fiscal year 2024 and 5% of our total revenue in fiscal year 2023 from the DoD as a subcontractor. Although we only derived 1% of our total revenue in fiscal year 2024, we expect that the DoD contracts to continue to be important to our business for the foreseeable future.
Competitors may be able to offer more attractive pricing or develop products that could offer performance features that are superior to our products, resulting in reduced demand for our products. Such competitors could have a negative impact on our ability to win future business opportunities.
In addition, due to the rapidly changing nature of technology, new competitors may emerge. Competitors may be able to offer more attractive pricing or develop products that could offer performance features that are superior to our products, resulting in reduced demand for our products. Such competitors could have a negative impact on our ability to win future business opportunities.
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. 11 Table of Contents 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.
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.
We will continue to make significant investments in research, development, and marketing for ARIA products, services, and technologies. Commercial success depends on many factors, including innovativeness, developer support, and effective distribution and marketing.
We have made significant investments in our ARIA cyber security products and services that may not achieve expected returns. We will continue to make significant investments in research, development, and marketing for ARIA products, services, and technologies. Commercial success depends on many factors, including innovativeness, developer support, and effective distribution and marketing.
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.
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.
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.
There could be an expansion of the countries involved, which could lead to significant detrimental effects to the global economy. 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.
Many of our competitors are substantially larger than we are and have greater access to capital and human resources and in many cases price their products and services less than ours. In addition, due to the rapidly changing nature of technology, new competitors may emerge.
The markets for our products are highly competitive and are characterized by rapidly changing technology, frequent product performance improvements and evolving industry standards. Many of our competitors are substantially larger than we are and have greater access to capital and human resources and in many cases price their products and services less than ours.
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.
Significant delays in new releases or significant problems in creating new products or services could adversely affect our revenue. 8 Table of Contents 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.
A portion of our revenues are from sales to foreign entities, including foreign governments, which are primarily paid in the form of foreign currencies. There can be no assurance that one or more of such factors will not have a material adverse effect on our future international activities and, consequently, on our business, financial condition or results of operations.
There can be no assurance that one or more of 9 Table of Contents such factors will not have a material adverse effect on our future international activities and, consequently, on our business, financial condition or results of operations. We face competition that could adversely affect our sales and profitability.
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.
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. Risks Related to Ownership of Our Common Stock Failure to remediate and then maintain our internal control over our financial reporting could cause our financial reports to be inaccurate.
Our success depends in part on our timely introduction of new products and technologies and our results can be impacted by the effectiveness of our significant investments in new products and technologies We have made significant investments in our ARIA SDS cyber security products and services that may not achieve expected returns.
There can be no assurance that we will be successful in retaining current or future employees. Our success depends in part on our timely introduction of new products and technologies and our results can be impacted by the effectiveness of our significant investments in new products and technologies.
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.
For the fiscal year ended September 30, 2024 and 2023 no one customer accounted for 10% or more of our total revenues for the fiscal year. 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.
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There can be no assurance that we will be successful in retaining current or future employees.
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A portion of our revenues are from sales to foreign entities, including foreign governments, which are primarily paid in the form of foreign currencies.
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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 are dependent on key vendors like NVIDIA for our high-speed interconnect components.
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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.
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Generally, suppliers may terminate our purchase orders without cause upon 30 days’ notice and may cease offering products to us upon 180 days’ notice.
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We are required to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
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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.
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Our management concluded that our internal control over financial reporting was ineffective as of September 30, 2024, and identified certain material weaknesses in our internal controls. While management is working to remediate the material weaknesses, there is no assurance that such changes will remediate the identified material weaknesses or that the controls will prevent or detect future material weaknesses.
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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.
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If we are not able to maintain effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business Failure to maintain our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.
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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.
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As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002, and the related rules and regulations of the SEC. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures.
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Any shortage or interruption in the supply of any of the components used in our products, or the inability to procure these components from alternate sources on acceptable terms, could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that severe shortages of components will not occur in the future.
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Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. Because we are a smaller reporting company and a non-accelerated filer, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
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Such shortages could increase the cost or delay the shipment of our products, which could have a material adverse effect on our business, financial condition and results of operations.
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However, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in this report and future annual reports on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act.
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Significant increases in the prices of these components would also materially adversely affect our financial performance since we may not be able to adjust product pricing to reflect the increase in component costs.
Added
This requires that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. As of September 30, 2024, we discovered material weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements.
Removed
We could incur set-up costs and delays in manufacturing should it become necessary to replace any key vendors due to work stoppages, shipping delays, financial difficulties, pandemics, government shutdowns or other factors and, under certain circumstances, these costs and delays could have a material adverse effect on our business, financial condition and results of operations.
Added
Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.
Removed
We face competition that could adversely affect our sales and profitability. The markets for our products are highly competitive and are characterized by rapidly changing technology, frequent product performance improvements and evolving industry standards.
Added
Because 15 Table of Contents of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
Removed
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.
Added
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if we are unable to remediate or maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements.
Removed
Our common stock has experienced and may continue to experience substantial price volatility.
Added
If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed, and investors could lose confidence in our reported financial information. 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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeManagement considers all facilities listed below to be suitable for the purpose(s) for which they are used, including manufacturing, research and development, sales, marketing, service and administration. ​ ​ ​ ​ ​ ​ ​ ​ ​ Owned ​ ​ ​ ​ ​ or ​ Approximate Location ​ Principal Use ​ Leased ​ Floor Area TS Segment Properties: ​ ​ ​ ​ Modcomp, Inc. ​ Division Headquarters ​ Leased ​ 11,815 S.F. 1182 East Newport Center Drive ​ Sales, Marketing and ​ ​ ​ Deerfield Beach, FL 33442 ​ Administration ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Modcomp, Ltd. ​ Sales, Marketing and ​ Leased ​ 484 S.F.
Biggest changeManagement considers all facilities listed below to be suitable for the purpose(s) for which they are used, including manufacturing, research and development, sales, marketing, service and administration. ​ ​ ​ ​ ​ ​ ​ ​ ​ Owned ​ ​ ​ ​ ​ or ​ Approximate Location ​ Principal Use ​ Leased ​ Floor Area HPP Segment Properties: ​ ​ ​ ​ CSP Inc. ​ Corporate Headquarters ​ Leased ​ 8,257 S.F. 175 Cabot Street, Suite 210 ​ Manufacturing, Sales, ​ ​ ​ Lowell, MA 01854 ​ Marketing and ​ ​ ​ ​ ​ Administration ​ ​ ​ ​ TS Segment Properties: ​ ​ ​ ​ Modcomp, Inc. ​ Division Headquarters ​ Leased ​ 11,815 S.F. 1182 East Newport Center Drive ​ Sales, Marketing and ​ ​ ​ Deerfield Beach, FL 33442 ​ Administration ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Modcomp, Ltd. ​ Sales, Marketing and ​ Leased ​ 484 S.F.
Item 2. Properties Listed below are our principal facilities as of September 30, 2023.
Item 2. Properties Listed below are our principal facilities as of September 30, 2024.
Legal Proceedings We are currently not a party to any material legal proceedings. Item 4. Mine Safety Disclosures Not Applicable. PART II
Indigo House, Mulberry Business Park ​ Administration ​ ​ Wokingham, Berkshire RG41 2GY ​ ​ ​ United Kingdom ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Item 3. Legal Proceedings We are currently not a party to any material legal proceedings. Item 4. Mine Safety Disclosures Not Applicable.
Removed
Indigo House, Mulberry Business Park ​ Administration ​ ​ Wokingham, Berkshire RG41 2GY ​ ​ ​ United Kingdom ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ HPP Segment Properties: ​ ​ ​ ​ CSP Inc. ​ Corporate Headquarters ​ Leased ​ 8,257 S.F. 175 Cabot Street, Suite 210 ​ Manufacturing, Sales, ​ ​ ​ Lowell, MA 01854 ​ Marketing and ​ ​ ​ ​ ​ Administration ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Item 3.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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 .
Biggest changeOur common stock is traded on the Nasdaq Global Market under the symbol CSPI. 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.
For 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] ​ ​
For the fiscal years ended September 30, 2024 and 2023 the Company paid cash dividends as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Paid Fiscal Year ​ Date Declared ​ Record Date ​ Date Paid ​ Per Share 2023 (1) 12/6/2022 ​ 12/21/2022 ​ 1/6/2023 ​ $ 0.015 2023 (1) ​ 2/8/2023 ​ 2/24/2023 ​ 3/14/2023 ​ $ 0.015 2023 (1) ​ 5/10/2023 ​ 5/25/2023 ​ 6/13/2023 ​ $ 0.020 2023 (1) ​ 8/9/2023 ​ 8/23/2023 ​ 9/12/2023 ​ $ 0.020 2024 (1) ​ 12/12/2023 ​ 12/22/2023 ​ 1/9/2024 ​ $ 0.020 2024 (1) ​ 2/14/2024 ​ 2/26/2024 ​ 3/8/2024 ​ $ 0.025 2024 ​ 5/8/2024 ​ 5/24/2024 ​ 6/12/2024 ​ $ 0.030 2024 ​ 8/13/2024 ​ 8/23/2024 ​ 9/10/2024 ​ $ 0.030 ​ (1) Retroactively adjusted for the effects of a two for one stock split effected in the form of a 100% stock dividend (see Note 1) ​
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 .
We had approximately 64 holders of record of our common stock as of December 20, 2024. This number does not include stockholders for whom shares were held in a “nominee” or “street” name.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market information . Our common stock is traded on the Nasdaq Global Market under the symbol CSPI.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Purchases of equity securities .
Added
On February 8, 2011, the Board of Directors authorized the Company to repurchase up to 500 thousand additional shares of the Company's outstanding common stock (retroactively adjusted for the effects of a stock split effected in the form of a 100% stock dividend, see Note 1 in this Form 10-K) at market price. The plan does not expire.
Added
The stock repurchase program may be suspended, terminated, or modified at any time for any reason. ​ Common stock of CSP Inc. may be repurchased on the open market at the discretion of management. 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.
Added
Below are the purchases that have been made for the three months ended September 30, 2024. 18 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Total number of shares purchased ​ Average price paid per share ​ Total number of shares purchased as part of publicly announced plans ​ Maximum number that may yet be purchased under the repurchase plan August 1-31, 2024 100 ​ $ 13.96 ​ 100 ​ 337,354 September 1-30, 2024 2,700 ​ $ 12.04 ​ 2,700 ​ 334,654 ​ Market information .
Added
Amounts below are retroactively adjusted for the effects of a two for one stock split effected in the form of a 100% stock dividend February 21, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 Fiscal Year: High Low High Low 1st Quarter ​ $ 13.85 ​ $ 8.00 ​ $ 4.73 ​ $ 3.51 2nd Quarter ​ $ 27.95 ​ $ 9.10 ​ $ 6.80 ​ $ 4.71 3rd Quarter ​ $ 19.57 ​ $ 12.20 ​ $ 7.40 ​ $ 5.25 4th Quarter ​ $ 17.82 ​ $ 11.25 ​ $ 11.80 ​ $ 5.08 ​ Stockholders .
Added
We believe the number of beneficial owners of our shares of common stock (including shares held in street name) at that date was approximately 2,639. ​ Dividends .

Item 7. Management's Discussion & Analysis

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

58 edited+14 added−12 removed36 unchanged
Biggest changeThe 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.
Biggest changeThe Company recorded an income tax benefit of $(93) thousand, which reflected an effective tax rate of 22.2%, for the fiscal year ended September 30, 2024 compared to an income tax benefit of $(469) thousand, which reflected an effective tax rate of (9.9)% for the fiscal year ended September 30, 2023. ​ ​ ​ ​ ​ ​ ​ ​ 20 Table of Contents The following table details our results of operations in dollars and as a percentage of sales for the fiscal years ended: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % ​ ​ ​ ​ % ​ September 30, 2024 of sales September 30, 2023 of sales ​ ​ (Dollar amounts in thousands) Sales ​ $ 55,219 100 % $ 64,647 100 % Costs and expenses: ​ ​ ​ Cost of sales ​ 36,364 66 % 42,727 66 % Engineering and development ​ 2,956 5 % 3,140 5 % Selling, general and administrative ​ 17,771 32 % 16,910 26 % Total costs and expenses ​ 57,091 103 % 62,777 97 % Operating (loss) income ​ (1,872) (3) % 1,870 3 % Other income, net ​ 1,453 3 % 2,865 4 % (Loss) income before income taxes ​ (419) (1) % 4,735 7 % Income tax benefit ​ (93) — % (469) (1) % Net (loss) income ​ $ (326) ​ (1) % $ 5,204 ​ 8 % ​ Revenues Revenue decreased by approximately $9.4 million, or approximately 15%, to $55.2 million for the fiscal year ended September 30, 2024 compared to $64.6 million for the fiscal year ended September 30, 2023.
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.
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. 27 Table of Contents ​ Certain contracts contain a financing component including managed services contracts with financing of hardware and software.
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.
The defined benefit plans in the U.K. are closed to newly hired employees and have been for the two years ended September 30, 2024. 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.
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.
However, we do have customers and suppliers in surrounding regions which may be affected and further escalation of both conflicts and geopolitical tensions related to such conflicts could adversely affect our business, financial condition and results of operations, by among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets.
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.
These supplementary retirement plans are also closed to newly hired employees and have been for the two years ended September 30, 2024. These supplementary plans are funded through whole life insurance policies.
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.
The Company separately analyzed the realizability of its federal and state credits and determined $796 thousand (net of federal benefit) of state credits are expected to expire unutilized and kept a valuation allowance against these credits.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered 28 Table of Contents or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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.
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.
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.
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.
Management has reviewed the discount rates and rates of return with our consulting actuaries and investment advisers and concluded they were reasonable. A decrease in the expected return on pension assets would increase pension expense. Expected compensation increases are estimated based on historical and expected increases in the future.
Management has reviewed the discount rates and rates of return with our consulting actuaries and investment advisers and concluded they were reasonable. A decrease in the expected return on pension assets would increase pension expense. Expected compensation increases are 29 Table of Contents estimated based on historical and expected increases in the future.
The primary difference was the timing in the net borrowing on the line-of-credit, which for the year ended September 30, 2023 we had a net payment of $1.6 million compared to a net borrowing of $2.2 million in the prior year.
The primary difference was the timing in the net borrowing on the line-of-credit, which for the year ended September 30, 2024 we had a net borrowing of $2.7 million compared to a net payment of $1.6 million in the prior year.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: revenue recognition, valuation allowances, specifically the allowance for doubtful accounts and net deferred tax asset valuation allowance, inventory valuation, intangibles, and pension and retirement plans.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: revenue recognition, valuation allowances, specifically the net deferred tax asset valuation allowance, inventory valuation, and pension and retirement plans.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, goodwill and intangibles, income taxes, deferred compensation, revenue recognition, retirement plans, restructuring costs and contingencies.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to the inventory valuation, income taxes, deferred compensation, revenue recognition, retirement plans, and contingencies.
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.
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.
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.
Other Liquidity and Capital Resources Items Our cash held by our foreign subsidiary in the United Kingdom totaled the equivalent of approximately $5.4 million as of September 30, 2024, which consisted of 0.4 million Euros, 0.3 million British Pounds, and 4.7 million U.S. Dollars. This cash is included in our total cash and cash equivalents reported within our financial statements.
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.
For the year ended September 30, 2023, the income tax benefit was approximately $(469) thousand, which reflected an effective tax rate of a (9.9)% benefit. The provision was primarily driven by the benefit recognized as a result of the release of the valuation allowance against the majority of the Company's deferred tax assets.
The 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.
The increase in HPP service revenue of approximately $0.2 million for the fiscal year ended September 30, 2024 was primarily the result of a $0.5 million increase in ARIA revenue, partially offset with a decrease of $0.3 million in royalty revenues on high-speed processing boards related to the E2D program as compared to the fiscal year ended September 30, 2023.
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.
Gross Margins Our gross margin ("GM") decreased by $3.1 million to $18.9 million for fiscal year 2024 as compared to GM of approximately $21.9 million for fiscal year 2023.
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.
This line of credit also includes availability of a limited cash withdrawal of up to $1.0 million. Amounts of $10.2 million and $13.5 million were available as of September 30, 2024 and September 30, 2023, respectively. As of September 30, 2024 and September 30, 2023 there were 26 Table of Contents no cash withdrawals outstanding.
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.
The $0.6 million increase in our TS segment service GM in fiscal year 2024 as compared to the prior year resulted from an increase in GM in the U.S. division.
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.
The Company has determined that it is more likely than not that substantially all of its net deferred tax assets in the U.S. jurisdiction will be utilized and that associated valuation allowances should be reversed during year ended September 30, 2024.
A subsequent review of qualified wages for the Employee Retention Credit was performed during the preparation of the tax provision for fiscal year 2023 and it was determined $0.6 million of the money received did not qualify and needs to be paid back to the Internal Revenue Service (IRS).
A subsequent review of qualified wages for the Employee Retention Credit was performed during the preparation of the tax provision for fiscal year 2023 and it was determined $0.6 million of the money received did not qualify and was paid back to the Internal Revenue Service (IRS) except for $11k, which is still owed to the IRS as of September 30, 2024.
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.
The decrease in TS segment product revenue of $7.5 million during the period was the result of a $7.4 million decrease in the U.S. division combined with a decrease of $0.1 million in the U.K. division.
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.
Cash and cash equivalents increased by $5.4 million to $30.6 million as of September 30, 2024 from $25.2 million as of September 30, 2023. ​ ​ ​ ​ 25 Table of Contents The following is a summary of our cash flows for the fiscal year ended September 30, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ ​ (Dollar amounts in thousands) ​ 2024 ​ 2023 ​ ​ (Dollar amounts in thousands) Net cash provided by (used in): ​ ​ Operating activities ​ $ 4,213 $ 3,907 Investing activities ​ ​ (256) ​ ​ (341) Financing activities ​ ​ 1,379 ​ ​ (2,401) Effect of exchange rate changes on cash ​ ​ 32 ​ ​ 70 Increase in cash and cash equivalents ​ $ 5,368 $ 1,235 ​ Operating Activities Cash provided by operating activities was $4.2 million for the year ended September 30, 2024 compared to $3.9 million for the prior year.
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.
We generated an operating loss of $(1.9) million for the fiscal year ended September 30, 2024 as compared to operating income of $1.9 million for the fiscal year ended September 30, 2023. Other income, net was $1.5 million for the fiscal year ended September 30, 2024 as compared to $2.9 million for the prior year.
In 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%.
In fiscal year 2024 as compared to the prior year, the U.S. division had an increase of $1.1 million in third party maintenance revenue, an increase of $0.4 million in managed services, partially offset by a decrease of $0.7 million in internal services. ​ ​ ​ 21 Table of Contents HPP segment revenue changes by product and services for the fiscal years ended September 30, 2024 and 2023 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, Increase (decrease) ​ ​ 2024 2023 $ % ​ ​ ​ (Dollar amounts in thousands) ​ Products ​ $ 2,599 ​ $ 5,475 ​ $ (2,876) ​ (53) % Services ​ 1,555 ​ 1,398 ​ 157 ​ 11 % Total ​ $ 4,154 ​ $ 6,873 ​ $ (2,719) ​ (40) % ​ Our HPP segment revenue decreased by approximately $2.7 million or 40%.
Service GM as a percentage of revenue decreased to 59% in fiscal year 2023 from 62% in fiscal year 2022 due to decreased third party maintenance revenue as discussed above, which is recorded as net sales meaning all the gross margin is recorded in the services revenue financial statement line item causing increased GM as a percentage of revenue.
Service GM as a percentage of revenue remained flat at 59% in fiscal year 2024 due to increased third party maintenance revenue, which is recorded as net sales meaning all the gross margin is recorded in the services revenue financial statement line item causing increased GM as a percentage of revenue, offset by decreased GM from internal services which have associated fixed costs which decreased the GM as a percentage of revenue.
The following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing. Recent trends affecting our financial performance As of September 30, 2023, the Russian/Ukrainian military conflict and the Israeli-Hamas conflict has not had a direct significant impact on revenue as we do not have any recurring customers in either region.
Recent trends affecting our financial performance As of September 30, 2024, the Russian/Ukrainian military conflict and the Israeli-Hamas conflict have not had a direct significant impact on revenue as we do not have any significant recurring customers in either region.
The impact of product mix on gross margins within our HPP segment for the fiscal years ended September 30 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ Increase (decrease) ​ ​ (Dollar amounts in thousands) ​ ​ GM$ 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 impact of product mix on gross margins within our HPP segment for the fiscal years ended September 30 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ Increase (decrease) ​ ​ (Dollar amounts in thousands) ​ ​ GM$ GM% GM$ GM% GM$ GM% Products ​ $ 1,863 72 % $ 3,428 63 % $ (1,565) 9 % Services ​ 839 54 % 826 59 % 13 (5) % Total ​ $ 2,702 65 % $ 4,254 62 % $ (1,552) 3 % ​ The overall HPP segment GM as a percentage of revenue increased to 65% in fiscal year 2024 from 62% in fiscal year 2023.
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 total GM as a percentage of revenue remained flat at 34% for fiscal year 2024 and 2023. ​ The following table summarizes GM changes by segment for fiscal years ended September 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ Increase (decrease) ​ ​ (Dollar amounts in thousands) ​ ​ GM$ GM% GM$ GM% GM$ GM% TS ​ $ 16,153 32 % $ 17,666 31 % $ (1,513) 1 % HPP ​ 2,702 65 % 4,254 62 % (1,552) 3 % Total ​ $ 18,855 34 % $ 21,920 34 % $ (3,065) — % ​ 22 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, ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ Increase (decrease) ​ GM$ GM% GM$ GM% GM$ GM% ​ ​ (Dollar amounts in thousands) ​ Products ​ $ 6,130 18 % $ 8,197 20 % $ (2,067) (2) % Services ​ 10,023 59 % 9,469 59 % 554 — % Total ​ $ 16,153 32 % $ 17,666 31 % $ (1,513) 1 % ​ The overall TS segment GM as a percentage of revenue increased to 32% in fiscal year 2024 from 31% in fiscal year 2023.
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.
Fiscal year 2024 and 2023 expenses were primarily for product engineering expenses incurred in connection with the further development of the ARIA Zero Trust (AZT) and ARIA SDS cyber security products. ​ ​ 23 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, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended September 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ $ ​ % ​ ​ 2024 Total 2023 Total ​ Increase Increase ​ ​ ​ (Dollar amounts in thousands) ​ By Operating Segment: ​ ​ ​ ​ TS segment ​ $ 13,179 74 % $ 13,089 77 % $ 90 1 % HPP segment ​ 4,592 26 % 3,821 23 % 771 20 % Total ​ $ 17,771 100 % $ 16,910 100 % $ 861 5 % ​ The TS segment SG&A expenses increased approximately $0.1 million for the fiscal year ended September 30, 2024 when compared to the prior year.
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.
Dollar and Euro bank account. The U.S. Dollar bank account consists of approximately 87% of the currency held in the U.K. subsidiary after remeasurement into U.S. dollars.
The decrease in TS segment service revenue of $0.2 million as compared to the prior year was in the U.S. division.
The decrease in the U.K. division year over year was primarily associated with two major customers. The increase in TS segment service revenue of $0.8 million as compared to the prior year was in the U.S. 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.
TS segment revenue changes by products and services for the fiscal years ended September 30, 2024 and 2023 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ Increase (decrease) ​ 2024 2023 $ % ​ ​ (Dollar amounts in thousands) ​ Products ​ $ 34,194 ​ $ 41,674 ​ $ (7,480) ​ (18) % Services ​ 16,871 ​ 16,100 ​ 771 ​ 5 % Total ​ $ 51,065 ​ $ 57,774 ​ $ (6,709) ​ (12) % ​ Our TS segment revenue decreased by approximately $6.7 million consisting of a decrease of $6.6 million in our U.S. division combined with a decrease of $0.1 million in our U.K. division.
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.
Other Income/Expenses The following table details our other income (expense) for the years ended September 30, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve months ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2024 September 30, 2023 $ Change ​ ​ ​ (Amounts in thousands) ​ Foreign exchange loss ​ $ (438) ​ $ (581) ​ $ 143 ​ Interest expense ​ ​ (235) ​ ​ (262) ​ ​ 27 ​ Interest income ​ 2,047 ​ 1,460 ​ 587 ​ Employee Retention Tax Credit, net of costs to collect ​ ​ — ​ ​ 2,136 ​ ​ (2,136) ​ Other income, net ​ 79 ​ 112 ​ (33) ​ Total other income, net ​ $ 1,453 ​ $ 2,865 ​ $ (1,412) ​ ​ For the year ended September 30, 2024 the foreign exchange loss decreased $0.1 million primarily due to the U.S. dollar weakening less against the British pound in fiscal year 2024 compared to the prior year.
Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of sales. Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction.
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. Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of sales.
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 benefit recorded during the fiscal year was $1.8 million for valuation allowances released on deferred tax assets related to prior years. The Company also claimed and received the Employee Retention Credit, which resulted in a net benefit of approximately $134 thousand, after amending prior year returns.
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.
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) ​ ​ 2024 % 2023 % $ % ​ ​ (Dollar amounts in thousands) ​ Americas ​ $ 53,308 97 % $ 62,763 97 % $ (9,455) ​ (15) % Europe ​ 1,125 2 % 1,429 2 % (304) ​ (21) % Asia-Pacific ​ 786 1 % 455 1 % 331 ​ 73 % Totals ​ $ 55,219 100 % $ 64,647 100 % $ (9,428) ​ (15) % ​ The $9.5 million decrease in the Americas revenue for the fiscal year ended September 30, 2024 as compared to the fiscal year ended September 30, 2023 was primarily due to decreased revenue by our TS-US division of $7.0 million, decreased revenue by our TS-UK division of $0.1 million, and decreased revenue by our HPP segment of $2.4 million.
The Employee Retention Tax Credit, net of costs to collect of $2.1 million was recognized in the fourth quarter of fiscal year 2023. The Coronavirus Aid, Relief, and Economic Security Act provided an Employee Retention Credit (“ERC”) which is a refundable tax credit against certain employment taxes.
The Coronavirus Aid, Relief, and Economic Security Act provided an Employee Retention Credit (“ERC”) which is a refundable tax credit against certain employment taxes.
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.
Sales to Europe decreased by $0.3 million primarily due to a decrease by our HPP segment of $0.3 million. Sales to Europe in the TS segment remained flat with an increase in the TS-US division of $0.1 million, offset with a decrease in the TS-UK division of $0.1 million. Sales to Asia-Pacific increased $0.4 million due to the TS-US division.
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.
When we are the principal, revenue is recognized over the contract term. 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.
Third-party service contracts are sold in different combinations with hardware, software, and services. When we are an agent, revenue is typically recorded at a point in time. When we are the principal, revenue is recognized over the contract term.
Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction. Third-party service contracts are sold in different combinations with hardware, software, and services. When we are an agent, revenue is typically recorded at a point in time.
The decrease from the prior year is primarily related to $322 thousand we received in the prior year for proceeds from a corporate life insurance policy. Financing Activities Cash used in financing activities was $2.4 million for the year ended September 30, 2023 compared to $1.3 million provided by financing activities for the prior year.
Financing Activities Cash provided by financing activities was $1.4 million for the year ended September 30, 2024 compared to $2.4 million used in financing activities for the prior year.
The 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.
The HPP segment SG&A expense increase of $0.8 million for the fiscal year ended September 30, 2024 when compared to the prior year was primarily attributed to increased consulting of $0.4 million, increased professional services of $0.2 million, increased selling including travel and events of $0.2 million, increased stock compensation of $0.1 million, increased recruiting of $0.1 million, partially offset by decreased bonuses of $0.2 million.
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.
Overview of Fiscal 2024 Results of Operations Revenue decreased by approximately $9.4 million, or 15%, to $55.2 million for the fiscal year ended September 30, 2024 compared to $64.6 million for the fiscal year ended September 30, 2023. Gross profit margin percentage remained consistent at 34% for the fiscal year ended September 30, 2024 and 2023.
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 decrease in HPP product revenue of $2.9 million in the fiscal year ended September 30, 2024 was primarily the result of two major non-recurring transactions of $1.8 million and $1.2 million in the prior year along with several other customers, partially offset by one major AZT sale in fiscal year 2024.
The 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.
The GM as a percentage of sales from products increased 9% primarily due to the large ARIA AZT sale which was nearly all GM. The GM as a percentage of sales from services decreased 5% primarily due to decreased Multicomputer royalty revenues, which is nearly all GM and recorded as service revenue.
The remaining differences are primarily related to timing differences in operating assets and liabilities. ​ Investing Activities Cash used in investing activities was $341 thousand for the year ended September 30, 2023 compared to $20 thousand provided by investing activities for the prior year.
The primary decreases include a decrease of net income (loss) change of $5.5 million, a decrease of $4.9 million in other assets, and a decrease of $2.7 million in accounts receivable. ​ The remaining differences are related to timing differences in operating assets and liabilities. ​ Investing Activities Cash used in investing activities was $258 thousand for the year ended September 30, 2024 compared to $341 thousand used in investing activities for the prior year.
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.
The $2.1 million product GM decrease in fiscal year 2024 as compared to the prior year resulted from a decrease in the U.S. division. Product GM as a percentage of revenue decreased 2% for fiscal year 2024 compared to the prior year due to product mix.
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.
See Note 9 Accounts payable and accrued expenses, and Other noncurrent liabilities in Item 1 to this Annual Report on Form 10-K. 24 Table of Contents Interest income increased $0.6 million for the year ended September 30, 2024 when compared to the prior year.
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.
This agreement has many contingencies and the expected timeframe of the sale occurring is 4 to 16 months from the date of this filing. ​ As of September 30, 2024 and September 30, 2023, 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 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.
Interest rates were relatively high compared to prior years in fiscal year 2024 along with inflation which caused economic uncertainty and some reduced customer spending on products. The decrease in our U.S. division product revenue year over year was primarily associated with several existing major customers, partially offset by an increase with several new major customers and existing customers.
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.
Interest expense decreased $27 thousand for the year ended September 30, 2024 compared to the prior year period primarily due to less interest expense related to multi-year agreements with vendors in the TS U.S. division. Payments on these agreements contain both principal and interest expense. As principal payments are made the interest expense decreases.
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.
This was primarily due to decreased labor expenses of $0.2 million in fiscal year 2024 when compared to fiscal year 2023, partially offset by increased stock compensation of $0.1 million.
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.
We are the principal if we control the good or service before that good or service is transferred to the customer. For each identified performance obligation in a transaction, we evaluate the facts and circumstances present to determine whether or not we control the specified good or service prior to transfer to the customer.
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.
Income Taxes The Company recorded an income tax benefit of $(93) thousand, which reflected an effective tax rate of 22.2%, for the year ended September 30, 2024. The provision is primarily driven by the benefit recognized as a result of windfalls for restricted stock awards that vested during the period, offset by the change in valuation allowance.
For a further discussion of the Company’s line of credit, including its financial covenants, see Item 1, Note 11 Line of Credit. We have multi-year agreements on both the receivables (including long-term) and payables (long-term portion in other noncurrent liabilities). Not all multi-year receivable agreements have a corresponding payable multi-year agreement.
For a further discussion of the Company’s line of credit, including its financial covenants, see Item 1, Note 12 Line of Credit. The last note payable was paid in full in fiscal year 2024 of $0.4 million and no notes remain outstanding as of September 30, 2024.
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.
Interest income from cash and cash equivalents in fiscal year 2024 increased $0.7 million from prior year due to a significantly higher average balance during fiscal year 2024 earning interest income, partially offset by decreased interest income from multi-year agreements of $0.1 million.
Removed
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.
Added
The following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing.
Removed
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.
Added
Engineering and Development Expenses Our engineering and development expenses are only in our HPP segment. These expenses decreased $0.1 million to $3.0 million for fiscal year 2024 from $3.1 million for fiscal year 2023.
Removed
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.
Added
This increase was primarily due to an increase in audit and tax fees of $0.3 million, an increase in stock compensation expense of $0.2 million, an increase in actuarial fees of $0.2 million in connection to preparing to sell the pension in the TS-UK division, partially offset with decreased variable compensation of $0.3 million and decreased bonus of $0.3 million.
Removed
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.
Added
These agreements have payment terms in excess of one year (see Note 3 Financing Receivables, net in Item 1 to this Annual Report on Form 10-K for details) and are only in the TS-US segment. The Employee Retention Tax Credit, net of costs to collect of $2.1 million was recognized in the fourth quarter of fiscal year 2023.
Removed
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.
Added
The benefit recorded during the fiscal year was $189 thousand for the windfall on restricted stock awards vesting during the period and an expense of $180 thousand for the change in valuation allowances against deferred tax assets.
Removed
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.
Added
The increase from prior year is primarily related the change in Accounts payable and accrued expense payments of $13.0 million as a large payment run at the end of fiscal year 2023 when in fiscal year 2024 there was not and a decrease in pension and retirement plan liabilities of $0.4 million.
Removed
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.
Added
The decrease from the prior year is primarily related to less additions of intangible assets and less purchases of property, equipment, and improvements during fiscal year 2024 when compared to the prior fiscal year.
Removed
The increase from prior year is primarily related to increased net income including recognizing $2.1 million from the Employee Retention Tax Credit, net of costs to collect in fiscal year 2023. Additionally, an amount of $0.9 million was paid back on insurance policy loans in the prior year, but did not recur this year.
Added
Additionally, in fiscal year 2024 there were increased cash dividends paid by $0.4 million and increased treasury stock repurchases of $0.1 million compared to the prior fiscal year.
Removed
We paid dividends of $0.7 million for the year ended September 30, 2023 compared to $0.1 million in the prior year. The dividend was suspended during fiscal year 2020 due to uncertainty from COVID-19 but was reinstated during the fourth quarter of fiscal year 2022 at $0.03 per share.
Added
Due to the pension obligation in the U.K., we maintain a large balance of cash in the U.K. Subsequent to September 30, 2024, the U.K. pension assets, excluding cash, were all converted into cash to sell the U.K. pension obligation. As of the date of this filing, there is an agreement to sell the pension obligation in full.
Removed
The dividend was increased to $0.04 per share in the third quarter of fiscal year 2023. Repayments on notes payable for the year ended September 30, 2023 were $0.4 million compared to $0.7 million in the prior year. There was only one note payable outstanding during fiscal year 2023 compared to two in fiscal year 2022.
Added
There is a total of $3.8 million due to vendors with financing agreements outstanding as of September 30, 2024, including $2.3 million payments to be made that are current. Each vendor financing agreement was related to a sale and has a related financing receivable.
Removed
In fiscal year 2024 we are scheduled to receive $7.7 million related to the multi-year receivables and pay $1.7 million related to the payables. Our last payment on the note payable as of September 30, 2023 is scheduled for payment of $0.4 million in fiscal year 2024.
Added
There is a total of $7.3 million due to the Company of customer financing agreements outstanding as of September 30, 2024, including $4.3 million to be received that are current.

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