United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

⌧ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

◻



x	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
	~~For the Quarterly Period Ended~~	~~December 31, 2017~~
		or
o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
	~~For the transition period from to .~~

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 0-10843

CSP Inc.

(Exact name of Registrant as specified in its charter)

Massachusetts	04-2441294



~~Massachusetts~~	~~04-2441294~~
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

175 Cabot Street - Suite 210, Lowell, MaMA	01854
(Address of principle executive offices)	(Zip Code)

~~(978)-954-5038~~
~~(Registrant's telephone number, including area code)~~

(978)-954-5038

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ◻o.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ◻o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o ◻	Accelerated filer	o ◻

Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ⌧	Smaller reporting company	x ⌧

Emerging growth company	o ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻o No x

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		CSPI		Nasdaq Global Market

As of ~~February 13, 2018,~~May 5, 2021, the registrant had ~~3,983,084~~4,393,966 shares of common stock issued and outstanding.

Table of Contents

INDEX

~~INDEX~~

		Page

PART I.	FINANCIAL INFORMATION	~~Page~~

~~PART I. FINANCIAL INFORMATION~~

Item 1.	Financial Statements

	Consolidated Balance Sheets (unaudited) as of ~~December~~March 31, ~~2017~~2021 and September 30, ~~2017~~2020	3

	Consolidated Statements of Operations (unaudited) for the three and six months ended ~~December~~March 31, ~~2017~~2021 and ~~2016~~2020	4

	Consolidated Statements of Comprehensive Income ~~(loss)~~(Loss) (unaudited) for the three and six months ended ~~December~~March 31, ~~2017~~2021 and ~~2016~~2020	5

	Consolidated Statement of Shareholders’ Equity (unaudited) for the three and six months ended ~~December~~March 31, ~~2017~~2021 and 2020	6

	Consolidated Statements of Cash Flows (unaudited) for the ~~three~~six months ended ~~December~~March 31, ~~2017~~2021 and ~~2016~~2020	7 8

	Notes to Consolidated Financial Statements (unaudited)	8 9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15 25

Item 4.	Controls and Procedures	21 35

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	36

Item 6.	Exhibits	22 36

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CSP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)


	March 31,		September 30,
	2021		2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	20,397	$	19,264
Accounts receivable, net of allowances of $219 and $181		15,168		13,362
Investment in lease, net-current portion		162		336
Inventories		4,221		5,285
Refundable income taxes		1,229		807
Other current assets		3,600		2,535
Total current assets		44,777		41,589


Property, equipment and improvements, net		891		1,047
Operating lease right-of-use assets		1,686		2,014
Intangibles, net		23		28
Investment in lease, net-less current portion		47		81
Long-term receivable		7,818		3,642
Deferred income taxes		—		1,149
Cash surrender value of life insurance		4,079		3,948
Other assets		99		147
Total assets	$	59,420	$	53,645

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	10,145	$	8,523
Line of credit		1,190		1,573
Notes payable - current portion		739		1,613
Deferred revenue		1,402		947
Pension and retirement plans		313		321
Total current liabilities		13,789		12,977
Pension and retirement plans		6,834		6,471
Notes payable - noncurrent portion		1,032		2,485
Operating lease liabilities - noncurrent portion		1,074		1,390
Income taxes payable		586		586
Other noncurrent liabilities		5,304		202
Total liabilities		28,619		24,111

Shareholders’ equity:
Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 4,394 and 4,276 shares, respectively		44		43
Additional paid-in capital		17,605		16,994
Retained earnings		24,796		24,492
Accumulated other comprehensive loss		(11,644)		(11,995)
Total shareholders’ equity		30,801		29,534
Total liabilities and shareholders’ equity	$	59,420	$	53,645

December 31,
2017 September 30,
2017
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 18,190
$ 13,885
Accounts receivable, net of allowances of $240 and $261 19,935
27,630
Unbilled accounts receivable 1,169
772
Inventories 7,158
5,971
Deferred costs 2,156
929
Other current assets 3,105
1,139
Total current assets 51,713
50,326
Property, equipment and improvements, net 1,482
1,508

Other assets:

Intangibles, net 137
167
Deferred costs 647
609
Deferred income taxes 2,350
2,827
Cash surrender value of life insurance 3,395
3,300
Other assets 193
191
Total other assets 6,722
7,094
Total assets $ 59,917
$ 58,928

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 21,313
$ 18,845
Deferred revenue 5,624
6,202
Pension and retirement plans 539
534
Income taxes payable 316
442
Total current liabilities 27,792
26,023
Pension and retirement plans 11,914
11,818
Income taxes payable 561
—
Other long term liabilities 160
86
Total liabilities 40,427
37,927

Commitments and contingencies

Shareholders’ equity:
Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 3,974 and 3,935 shares, respectively 40
40
Additional paid-in capital 13,847
13,717
Retained earnings 15,770
17,407
Accumulated other comprehensive loss (10,167 ) (10,163 )
Total shareholders’ equity 19,490
21,001
Total liabilities and shareholders’ equity $ 59,917
$ 58,928

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except for per share data)


	For the three months ended				For the six months ended
	March 31,		March 31,		March 31,		March 31,
	2021		2020		2021		2020
Sales:
Product	$	10,976	$	13,146	$	19,384	$	26,705
Services		3,112		3,737		6,092		7,036
Total sales		14,088		16,883		25,476		33,741

Cost of sales:
Product		8,553		11,033		15,502		22,637
Services		1,167		1,367		2,228		2,590
Total cost of sales		9,720		12,400		17,730		25,227

Gross profit		4,368		4,483		7,746		8,514

Operating expenses:
Engineering and development		762		716		1,491		1,388
Selling, general and administrative		3,727		3,910		6,913		7,671
Total operating expenses		4,489		4,626		8,404		9,059
Operating loss		(121)		(143)		(658)		(545)

Other income (expense):
Foreign exchange (loss) gain		(154)		479		(621)		144
Interest expense		(75)		(55)		(113)		(112)
Interest income		133		163		231		336
Gain on forgiveness of debt		—		—		2,196		—
Other income (expense)		93		(7)		102		4
Total other income (expense)		(3)		580		1,795		372
(Loss) income before income taxes		(124)		437		1,137		(173)
Income tax expense		723		1,169		833		1,099
Net (loss) income	$	(847)	$	(732)	$	304	$	(1,272)
Net (loss) income attributable to common stockholders	$	(847)	$	(732)	$	289	$	(1,272)

Net (loss) income per share – basic	$	(0.20)	$	(0.18)	$	0.07	$	(0.32)
Weighted average shares outstanding – basic		4,158		4,036		4,117		3,999
Net (loss) income per share – diluted	$	(0.20)	$	(0.18)	$	0.07	$	(0.32)
Weighted average shares outstanding – diluted		4,158		4,036		4,202		3,999

For the three months ended
December 31,
2017 December 31,
2016
Sales:
Product $ 15,643
$ 14,638
Services 6,356
5,278
Total sales 21,999
19,916

Cost of sales:
Product 13,030
12,225
Services 3,836
3,239
Total cost of sales 16,866
15,464

Gross profit 5,133
4,452

Operating expenses:
Engineering and development 698
596
Selling, general and administrative 4,428
3,958
Total operating expenses 5,126
4,554

Operating income (loss) 7
(102 )

Other income (expense):
Foreign exchange gain (loss) (93 ) 54
Other expense, net (12 ) (10 )
Total other income (expense) (105 ) 44
Loss before income taxes (98 ) (58 )
Income tax expense (benefit) 1,102
(15 )
Net loss $ (1,200 ) $ (43 )
Net loss attributable to common stockholders $ (1,200 ) $ (43 )
Net loss per share – basic $ (0.32 ) $ (0.01 )
Weighted average shares outstanding – basic 3,768
3,671
Net loss per share – diluted $ (0.32 ) $ (0.01 )
Weighted average shares outstanding – diluted 3,768
3,671

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)


	For the three months ended				For the six months ended
	March 31,		March 31,		March 31,		March 31,
	2021		2020		2021		2020
Net (loss) income	$	(847)	$	(732)	$	304	$	(1,272)
Foreign currency translation gain (loss) adjustments		49		(302)		351		24
Total comprehensive (loss) income	$	(798)	$	(1,034)	$	655	$	(1,248)

For the three months ended
December 31,
2017 December 31,
2016

Net loss $ (1,200 ) $ (43 )
Other comprehensive income (loss):
Foreign currency translation gain (loss) adjustments (4 ) 138
Other comprehensive income (loss) (4 ) 138
Total comprehensive income (loss) $ (1,204 ) $ 95

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the three ~~Months Ended December~~and six months ended March 31, ~~2017:~~

2021 and 2020:

(Amounts in thousands, except per share data)



								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the Three Months Ended March 31, 2020:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of December 31, 2019	4,154	$	42	$	15,940	$	26,083	$	(12,267)	$	29,798
Net loss	—		—		—		(732)		—		(732)
Other comprehensive loss	—		—		—		—		(302)		(302)
Purchase of common stock	(6)		—		—		(43)		—		(43)
Stock-based compensation	—		—		250		—		—		250
Restricted stock issuance	97		1		—		—		—		1
Issuance of shares under employee stock purchase plan	9		—		110		—		—		110
Cash paid on common stock ($0.15 per share)	—		—		—		(640)		—		(640)
Balance as of March 31, 2020	4,254	$	43	$	16,300	$	24,668	$	(12,569)	$	28,442

								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the Three Months Ended March 31, 2021:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of December 31, 2020	4,276	$	43	$	17,259	$	25,643	$	(11,693)	$	31,252
Net loss	—		—		—		(847)		—		(847)
Other comprehensive gain	—		—		—		—		49		49
Stock-based compensation	—		—		240		—		—		240
Restricted stock issuance	103		1		—		—		—		1
Issuance of shares under employee stock purchase plan	15		—		106		—		—		106
Balance as of March 31, 2021	4,394	$	44	$	17,605	$	24,796	$	(11,644)	$	30,801

Shares Amount
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
other
comprehensive
loss

Total
Shareholders’
Equity
Balance as of September 30, 2017 3,935
$ 40
$ 13,717
$ 17,407
$ (10,163 ) $ 21,001
Net loss —
—
—
(1,200 ) —
(1,200 )
Other comprehensive loss —
—
—
—
(4 ) (4 )
Exercise of stock options 1
—
9
—
—
9
Stock-based compensation —
—
121
—
—
121
Restricted stock cancellation (13 ) —
—
—
—
—
Restricted stock issuance 51
—
—
—
—
—
Cash dividends declared on common stock ($0.11 per share) —
—
—
(437 ) —
(437 )
Balance as of December 31, 2017 3,974
$ 40
$ 13,847
$ 15,770
$ (10,167 ) $ 19,490

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~CASH FLOWS~~

SHAREHOLDERS’ EQUITY

For the three and six months ended March 31, 2021 and 2020:

(Amounts in ~~thousands)~~thousands, except per share data)


								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the six months ended March 31, 2020:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of September 30, 2019	4,154	$	42	$	15,733	$	27,246	$	(12,593)	$	30,428
Net loss	—		—		—		(1,272)		—		(1,272)
Other comprehensive gain	—		—		—		—		24		24
Exercise of stock options	—		—		2		—		—		2
Stock-based compensation	—		—		455		—		—		455
Restricted stock issuance	97		1		—		—		—		1
Issuance of shares under employee stock purchase plan	9		—		110		—		—		110
Purchase of common stock	(6)		—		—		(43)		—		(43)
Cash dividends paid on common stock ($0.30 per share)	—		—		—		(1,263)		—		(1,263)
Balance as of March 31, 2020	4,254	$	43	$	16,300	$	24,668	$	(12,569)	$	28,442

								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the six months ended March 31, 2021:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of September 30, 2020	4,276	$	43	$	16,994	$	24,492	$	(11,995)	$	29,534
Net income	—		—		—		304		—		304
Other comprehensive gain	—		—		—		—		351		351
Stock-based compensation	—		—		505		—		—		505
Restricted stock issuance	103		1		—		—		—		1
Issuance of shares under employee stock purchase plan	15		—		106		—		—		106
Balance as of March 31, 2021	4,394	$	44	$	17,605	$	24,796	$	(11,644)	$	30,801

For the three months ended
December 31,
2017 December 31,
2016
Cash flows provided by operating activities:
Net loss $ (1,200 ) $ (43 )
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 141
126
Amortization of intangibles 30
31
Loss on sale of fixed assets, net 5
—
Foreign exchange gain (loss) 93
(54 )
Non-cash changes in accounts receivable (8 ) 41
Non-cash changes in inventories 127
62
Stock-based compensation expense on stock options and restricted stock awards 121
108
Deferred income taxes 490
(4 )
Increase in cash surrender value of life insurance (29 ) (46 )
Changes in operating assets and liabilities:

Decrease in accounts receivable 7,423
2,039
Decrease in life insurance receivable —
413
Increase in inventories (1,299 ) (1,079 )
Increase in deferred costs (1,219 ) (1,938 )
(Increase) decrease in refundable income taxes 1
(148 )
Increase in other current assets (1,939 ) (190 )
Increase in accounts payable and accrued expenses 1,990
3,244
Decrease in deferred revenue (652 ) (86 )
Decrease in pension and retirement plans liabilities (27 ) (27 )
Increase (decrease) in income taxes payable 435
(159 )
Increase in other long term liabilities 71
2
Net cash provided by operating activities 4,554
2,292
Cash flows used in investing activities:

Life insurance premiums paid (66 ) —
Purchases of property, equipment and improvements (109 ) (72 )
Net cash used in investing activities (175 ) (72 )
Cash flows provided by financing activities:

Proceeds from issuance of shares under equity compensation plans 9
—
Net cash provided by financing activities 9
—
Effects of exchange rate on cash (83 ) (284 )
Net increase in cash and cash equivalents 4,305
1,936
Cash and cash equivalents, beginning of period 13,885
13,103
Cash and cash equivalents, end of period $ 18,190
$ 15,039
Supplementary cash flow information:

Cash paid for income taxes $ 95
$ 165
Cash paid for interest $ 72
$ 75
Non-cash accrual of dividend payable $ 437
$ —

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)


	For the six months ended
	March 31,		March 31,
	2021		2020
Operating activities
Net income (loss)	$	304	$	(1,272)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		197		235
Amortization of intangibles		5		4
Loss on sale of fixed assets, net		—		9
Foreign exchange loss (gain)		621		(144)
Non-cash changes in accounts receivable		36		97
Non-cash changes in inventories		24		238
Non-cash lease expense		320		322
Stock-based compensation expense on stock options and restricted stock awards		505		455
Deferred income taxes		1,149		1,946
Increase in cash surrender value of life insurance		(61)		(51)
Non-cash other		68		—

Adjustment for financing activities recognized in net income - Gain on forgiveness of debt		(2,196)		—

Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(1,824)		2,206
Decrease in inventories		1,043		1,149
Increase in refundable income taxes		(423)		(169)
Decrease (increase) in operating lease right-of-use assets		9		(2,131)
Increase in other assets		(1,005)		(473)
Decrease in investment in lease		208		178
(Increase) decrease in long-term receivable		(4,176)		176
Increase (decrease) in accounts payable and accrued expenses		1,701		(6,421)
(Decrease) increase in operating lease liabilities		(279)		2,076
Increase in deferred revenue		455		637
Increase in pension and retirement plans liabilities		31		18
Decrease in income taxes payable		—		(694)
Increase (decrease) in other long-term liabilities		5,100		(252)
Net cash provided by (used in) operating activities		1,812		(1,861)

Investing activities
Life insurance premiums paid		(70)		(144)
Purchases of property, equipment and improvements		(43)		(240)
Net cash used in investing activities		(113)		(384)

Financing activities
Dividends paid		—		(1,263)
Net payments under line-of-credit agreement		(382)		(874)
Proceeds from debt		—		2,037
Repayments on debt		(164)		(565)
Principal payments on finance leases		(173)		(157)
Purchase of common stock		—		(43)
Proceeds from issuance of shares under equity compensation plans		106		112
Net cash used in financing activities		(613)		(753)
Effects of exchange rate on cash		47		141
Net increase (decrease) in cash and cash equivalents		1,133		(2,857)
Cash and cash equivalents beginning of period		19,264		18,099
Cash and cash equivalents at end of period	$	20,397	$	15,242

Supplementary cash flow information:
Cash paid for income taxes	$	107	$	16
Cash paid for interest	$	100	$	154

Supplementary non-cash financing activities:
Gain on forgiveness of debt	$	2,196	$	—

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND 2016~~

2021

Organization and Business

CSP Inc. ("~~CSPI"~~CSPi" or "CSPI" or "the Company" or "we" or "our") was incorporated in 1968 and is based in Lowell, Massachusetts. ~~To meet the diverse requirements of its commercial and defense customers worldwide, CSPI~~CSPi and its subsidiaries develop and market IT integration solutions, advanced security ~~and~~products, managed IT services, purpose built network adapters, and high-performance cluster computer ~~systems.~~systems to meet the diverse requirements of its commercial and defense customers worldwide. The Company operates in two segments, its Technology Solutions (“TS”) segment and High Performance Products (“HPP”) ~~segment and its Technology Solutions (“TS”)~~ segment.

1. Basis of Presentation

The accompanying interim consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, have been omitted.

Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the unaudited consolidated financial statements should be read in conjunction with the footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2020.

Revision of Prior Period Financial Statements

During the preparation of the consolidated financial statements for the year ended September 30, 2020, we identified an immaterial error in the first three quarters of fiscal year 2020 related to the recognition of certain revenue as “net,” when in fact the revenue should have been recorded on a “gross” basis. As a result of evaluating the error, we determined the impact was not material to our financial statements in any prior interim period. However, management has revised the first three quarters of fiscal year 2020. The revised numbers for the three and six months ended March 31, 2020 are reflected in this Form 10-Q. The only financial statement affected was the Consolidated Statement of Operations. Specifically, financial statement line items Sales - Product, Sales - Services, and Cost of sales – product. Net income (loss) and gross profit did not change. Notes affected include Note 4 Revenue and Note 15 Segment Information.


	For the three months ended March 31, 2020						For the six months ended March 31, 2020
	As reported		Adjustment		As revised		As reported		Adjustment		As revised
Sales:
Product	$	12,296	$	850	$	13,146	$	25,518	$	1,187	$	26,705
Services		3,799		(62)		3,737		7,149		(113)		7,036
Total sales		16,095		788		16,883		32,667		1,074		33,741

Cost of sales:
Product		10,245		788		11,033		21,563		1,074		22,637
Services		1,367		—		1,367		2,590		—		2,590
Total cost of sales		11,612		788		12,400		24,153		1,074		25,227

Gross profit	$	4,483	$	—	$	4,483	$	8,514	$	—	$	8,514

Operating loss	$	(143)	$	—	$	(143)	$	(545)	$	—	$	(545)

Net loss	$	(732)	$	—	$	(732)	$	(1,272)	$	—	$	(1,272)

Net loss per share – basic	$	(0.18)	$	—	$	(0.18)	$	(0.32)	$	—	$	(0.32)
Net loss per share – diluted	$	(0.18)	$	—	$	(0.18)	$	(0.32)	$	—	$	(0.32)

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2. Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting ~~period, including~~periods. These estimates and assumptions are related to reserves for bad debt, reserves for inventory obsolescence, the impairment assessment of intangible assets, right-of-use assets and lease liabilities, and the calculation of ~~estimated~~standalone selling price ~~and post-delivery support obligations used~~ for revenue recognition, the calculation of liabilities related to deferred compensation and retirement plans and the calculation of income tax liabilities. Actual results may differ from those estimates under different assumptions or conditions.

3. Recent Accounting Pronouncements

Accounting standards adopted in fiscal year 2021

In August 2018, the FASB issued Accounting Standard Update (“ASU”) No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, an amendment of the FASB Accounting Standards Codification. Under this ASU existing disclosures not considered cost beneficial are removed, disclosures identified as relevant are added, and there is added clarification regarding specific existing disclosures. For public entities, the new standard is effective for annual periods beginning after December 15, 2020. Beginning October 1, 2020, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements. The disclosures will be expanded for the year ended September 30, 2021 as this standard does not affect interim disclosures.

New accounting standards not adopted as of March 31, 2021

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), an amendment of the FASB Accounting Standards Codification. This ASU will change how entities account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities entities will be required to estimate lifetime expected credit losses. For available-for-sale debt securities entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. Additionally, there will be a significant increase in the amount of disclosures by year of origination for certain financing receivables. For public entities classified as a smaller reporting company, the new standard is effective for annual periods beginning after December 15, 2022 (ASU 2019-10 Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates), including interim periods within that annual period. The Company is evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

4. Revenue

We derive revenue from the sale of integrated hardware and software, third-party service contracts, professional services, managed services, financing of hardware and software, and other services.

We recognize revenue from hardware upon transfer of control, which is at a point in time typically upon shipment when title transfers. Revenue from software is recognized at a point in time when the license is granted.

Professional services generally include implementation, installation, and training services. Professional services are considered a series of distinct services that form one performance obligation and revenue is recognized over time as services are performed.

Revenue generated from managed services is recognized over the term of the contract. Certain managed services contracts include financing of hardware and software. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease

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component includes hardware, which is subject to ASC 842, Leases. The non-lease components are subject to ASC 606, Revenue from Contracts with Customers.

Other services generally include revenue generated through our royalty, extended warranty, multicomputer repair, and maintenance contracts. Royalty revenue is sales-based and recognized on date of subsequent sale of the product, which occurs on the date of customer shipment. Revenue from extended warranty contracts is recognized evenly over the period of the warranty. Multicomputer repair services revenue is recognized upon control transfer when the customer takes possession of the computer at time of shipping. Revenue generated from maintenance services is recognized evenly over the term of the contract.

Variable consideration is immaterial. The right of return risk lies with the original manufacturer of the product. Managed service contracts contain the right to refund if canceled within 30 days of inception. Any products with a standard warranty are treated as a warranty obligation under ASC 460, Guarantees.

The following policies are applicable to our major categories of segment revenue transactions:

TS Segment Revenue

TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software. Financing revenue pertaining to the portion of an arrangement containing a lease is recognized in accordance with ASC 842. Financing revenue related to the lease is recorded in revenue as equipment leasing is part of the Company’s operations.

Third-party service contracts are evaluated to determine whether such service revenue should be recorded as gross or net sales and whether over time or at point in time.

HPP Segment Revenue

HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the Multicomputer, Myricom, and ARIA product lines.

Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products’ functionality, and post contract maintenance and support. Post contract maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation.

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See disaggregated revenues below by products/services and geography.


			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated
For the three months ended March 31,	Segment		Kingdom		U.S.		Total		Total

	(Amounts in thousands)
2021
Sales:
Product	$	716	$	241	$	10,012	$	10,253	$	10,969
Service		172		90		2,850		2,940		3,112
Finance *		—		—		7		7		7
Total sales	$	888	$	331	$	12,869	$	13,200	$	14,088

			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated
For the three months ended March 31,	Segment		Kingdom		U.S.		Total		Total

	(Amounts in thousands)
2020
Sales:
Product	$	922	$	184	$	12,017	$	12,201	$	13,123
Service		553		84		3,100		3,184		3,737
Finance *		—		—		23		23		23
Total sales	$	1,475	$	268	$	15,140	$	15,408	$	16,883


			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated
For the six months ended March 31,	Segment		Kingdom		U.S.		Total		Total

	(Amounts in thousands)
2021
Sales:
Product	$	1,892	$	1,644	$	15,830	$	17,474	$	19,366
Service		552		177		5,363		5,540		6,092
Finance *		—		—		18		18		18
Total sales	$	2,444	$	1,821	$	21,211	$	23,032	$	25,476

			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated
For the six months ended March 31,	Segment		Kingdom		U.S.		Total		Total

	(Amounts in thousands)
2020
Sales:
Product	$	1,689	$	737	$	24,230	$	24,967	$	26,656
Service		827		210		5,999		6,209		7,036
Finance *		—		—		49		49		49
Total sales	$	2,516	$	947	$	30,278	$	31,225	$	33,741

* Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers (ASC 606).

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Significant Judgments

The input method using labor hours expended relative to the total expected hours is used to recognize revenue for professional services. Only the hours that depict the Company’s performance toward satisfying a performance obligation are used for progress. An estimate for professional services is made at the beginning of each contract based on prior experience and monitored throughout the services. This method is most appropriate as it depicts the measure of progress towards satisfaction of the performance obligation.

A financing component exists when at contract inception the period between the transfer of a promised good and/or service to the customer differs from when the customer pays for the good and/or service. As a practical expedient, the Company has 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. The interest rate used reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease component includes hardware, which is subject to ASC 842, Leases. The non-lease components are subject to ASC 606, Revenue from Contracts with Customers.

When product and non-managed services are sold together, the allocation of the transaction price to each performance obligation is calculated based on the estimated relative selling price or a budgeted cost-plus margin approach, as appropriate. Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price. These estimates are periodically reviewed by project managers, engineers, and other staff involved to ensure estimates are appropriate. For items sold separately, including hardware, software, professional services, maintenance contracts, other services, and third-party service contracts, there is no allocation as there is one performance obligation.

We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether the Company is acting as a principal party to the transaction or simply acting as an agent or broker based on control and timing. The Company is a principal if it controls the good or service before that good or service is transferred to the customer. We record revenue as gross when the Company is a 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 goods sold. 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 the Company is an agent, revenue is typically recorded at a point in time. When the Company is 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 include critical updates.

Contract Assets and Liabilities

When the Company has performed work but does not have an unconditional right to payment, a contract asset is recorded. When the Company has the right to bill a customer, accounts receivable is recorded as an unconditional right exists. Current contract assets were $2.0 million and $1.0 million as of March 31, 2021 and September 30, 2020, respectively. The current portion is recorded in other current assets on the consolidated balance sheets. There were no noncurrent contract assets as of March 31, 2021 and September 30, 2020. The difference in the balances is due to regular timing differences between when work is performed and having an unconditional right to payment.

Contract liabilities arise when payment is received before the Company transfers a good or service to the customer. Current contract liabilities were $1.4 million and $0.9 million as of March 31, 2021 and September 30, 2020, respectively. The current portion of contract liabilities is recorded in deferred revenue on the consolidated balance sheets. The long-term portion of contract liabilities were $0.1 million and $0.2 million as of March 31, 2021 and September 30,

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2020, respectively. These noncurrent liabilities are recorded in other noncurrent liabilities. Revenue recognized for the six months ended that was included in contract liabilities as of the beginning of the period was $0.5 million.

Contract Costs

Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are equal to or less than a one year period, are expensed as incurred, utilizing the practical expedient in ASC 340-40-25-4. For a period greater than one year, incremental contract costs are capitalized if the Company expects to recover these costs. The costs are amortized over the contract term and expected renewal periods. The period of amortization is generally three to six years. Incremental costs are related to commissions in the TS portion of the business. Current capitalized contract costs are within the other current assets on the consolidated balance sheets as of March 31, 2021 and September 30, 2020. The portion of current capitalized costs were $106 thousand and $130 thousand as of March 31, 2021 and September 30, 2020, respectively. There are no noncurrent capitalized costs on the consolidated balance sheets as these commissions are paid annually even when the contract extends beyond a one year period. The amount of incremental costs amortized for the three months ended March 31, 2021 and 2020 were $84 thousand and $84 thousand, respectively. The amount of incremental costs amortized for the six months ended March 31, 2021 and 2020 were $171 thousand and $162 thousand, respectively. This is recorded in selling, general, and administrative expenses. There was no impairment related to incremental costs capitalized during the three and six months ended March 31, 2021.

Costs to fulfill a contract are capitalized when the costs are related to a contract or anticipated contract, generate or enhance resources that will be used in satisfying performance obligations in the future, and costs are recoverable. Costs to fulfill a contract are related to the TS portion of the business and involve activities performed before managed services can be completed. Current capitalized fulfillment costs are in the other current assets and noncurrent costs are in other assets on the consolidated balance sheets. The portion of current capitalized costs were $13 thousand as of March 31, 2021 and $13 thousand as of September 30, 2020. The portion of noncurrent capitalized costs were $16 thousand and $22 thousand as of March 31, 2021 and September 30, 2020, respectively. The amount of fulfillment costs amortized for three and six months ended March 31, 2021 were $3 thousand and $6 thousand, respectively. These costs amortized were recorded in cost of sales. The amount of fulfillment costs amortized for three and six months ended March 31, 2020 were $3 thousand and $6 thousand, respectively. These costs amortized were recorded in cost of sales. There was no impairment related to fulfillment costs capitalized.

Other

Projects are typically billed upon completion or at certain milestones. Product and services are typically billed when shipped or as services are being performed. Payment terms are typically 30 days to pay in full except in Europe where it could be up to 90 days. Most of the Company’s contracts are less than one year. There are certain contracts that contain a financing component. See Note 6 to the consolidated financial statements for additional information. The Company elected to use the optional exemption to not disclose the aggregate amount of the transaction price allocated to performance obligations that have an original expected duration of one year or less. This is due to a low amount of performance obligations, which are less than one year from being unsatisfied at each period end. Most of these contracts are related to product sales.

The Company has certain contracts that have an original term of more than one year. The royalty agreement is longer than one year, but not included in the table below as the royalties are sales-based. Managed service contracts are generally longer than one year. For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2021 is set forth in the table below:


	(Amounts in thousands)
Fiscal 2021 (remaining 6 months)	$	830
Fiscal 2022		596
Fiscal 2023		211
Fiscal 2024		32
	$	1,669

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5. Earnings Per Share of Common Stock

Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income (loss) by the assumed weighted average number of common shares outstanding.

We are required to present earnings per share ~~or EPS,~~(“EPS”), utilizing the two class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities.

Basic and diluted earnings per share computations for the Company’s reported net ~~income~~loss attributable to common stockholders are as follows:


	For the three months ended				For the six months ended
	March 31,		March 31,		March 31,		March 31,
	2021		2020		2021		2020

	(Amounts in thousands except per share data)
Net income (loss)	$	(847)	$	(732)		304		(1,272)
Less: net income (loss) attributable to nonvested common stock		—		—		15		—
Net income (loss) attributable to common stockholders	$	(847)	$	(732)	$	289	$	(1,272)

Weighted average total shares outstanding – basic		4,158		4,036		4,326		3,999
Less: weighted average non–vested shares outstanding		—		—		209		—
Weighted average number of common shares outstanding – basic		4,158		4,036		4,117		3,999
Potential common shares from non–vested stock awards and the assumed exercise of stock options		—		—		85		—
Weighted average common shares outstanding – diluted		4,158		4,036		4,202		3,999

Net income (loss) per share – basic	$	(0.20)	$	(0.18)	$	0.07	$	(0.32)
Net income (loss) per share – diluted	$	(0.20)	$	(0.18)	$	0.07	$	(0.32)

For the three months ended
December 31, 2017 December 31, 2016
(Amounts in thousands except per share data)
Net loss $ (1,200 ) $ (43 )
Less: net income attributable to nonvested common stock —
��
Net loss attributable to common stockholders $ (1,200 ) $ (43 )

Weighted average total shares outstanding – basic 3,768
3,671
Less: weighted average non-vested shares outstanding —
—
Weighted average number of common shares outstanding – basic 3,768
3,671
Potential common shares from non-vested stock awards and the assumed exercise of stock options —
—
Weighted average common shares outstanding – diluted 3,768
3,671

Net loss per share – basic $ (0.32 ) $ (0.01 )
Net loss per share – diluted $ (0.32 ) $ (0.01 )

Non-vested restricted stock awards of ~~170,000 and 149,000~~218,000 shares were excluded from the diluted ~~income~~loss per share calculation for the three months ended ~~December~~March 31, ~~2017~~2021. Non-vested restricted stock awards of 204,000 and ~~December~~197,000 shares were excluded from the diluted loss per share calculation for the three and six months ended March 31, ~~2016, respectively, as~~2020, respectively. These awards were excluded because there was a net loss for these periods and their inclusion would have been anti-dilutive.

6. Accounts and Long-Term Receivable

Within accounts receivable and long-term receivable there are amounts due reflecting sales whose payment terms exceed one year. This financing is separate from agreements with a leasing component, see Note 8 Leases for financing through leases. These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $6.0 million and $7.7 million as of March 31, 2021. These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of $2.3 million and $3.5 million as of September 30, 2020, respectively. There were two new agreements effective in the second quarter of fiscal year 2021 causing an increase in accounts and long-term receivable. These agreements included approximately $9.0 million of payments to be received over the next 4 years from March 31, 2021. It was determined we were acting as the agent in the transactions and recorded net revenue of approximately $0.5 million during the second quarter of fiscal year 2021. The receivables with a payment term exceeding one year carry an

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average weighted interest rate of 4.8%, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

There is not an allowance for credit losses nor impairments for accounts and long-term receivables with a contractual maturity of over one year. All accounts have no past amounts due as of March 31, 2021 or September 30, 2020. There was no activity in the allowance for credit losses of these receivables for the six months ended March 31, 2021 and March 31, 2020, respectively. All these agreements are looked at as one portfolio in determining credit losses. There are various factors that are considered in extending a customer payment terms longer than one year including payment history, economic conditions, and capacity to pay. The credit quality of customers is monitored by payment activity. The unearned income represents a rate similar to market at the inception of the agreement.

The amount of interest income earned from sales whose payment terms exceed one year for the three months ended March 31, 2021 and 2020 was $126 thousand and $114 thousand, respectively. The amount of interest income earned from sales whose payment terms exceed one year for the six months ended March 31, 2021 and 2020 was $218 thousand and $230 thousand, respectively. Interest income from these agreements is recorded in Other income (expense), net on the Consolidated Statements of Operations.

Receivables whose payment terms exceed one year are placed on non-accrual status, meaning interest income stops being recorded, when the customer has a past due amount in excess of 30 days or reasonable doubt exists in collecting all interest and principal. A payment due in excess of 30 days is considered delinquent. If a payment is received for a receivable on non-accrual status the payment is first applied to interest and then principal. Recording interest income resumes once no reasonable doubt exists regarding collecting all interest and principal.

Contractual maturities of outstanding financing with an original contractual maturity over one year are as follows:


Fiscal year ending September 30:	(Amounts in thousands)
2021	$	4,628
2022		3,860
2023		2,983
2024		1,560
2025		1,560
Total payments		14,591
Less: unearned income		910
Total, net of unearned income	$	13,681

7. Inventories

Inventories consist of the following:


	March 31,		September 30,
	2021		2020

	(Amounts in thousands)
Raw materials	$	890	$	574
Work-in-process		217		213
Finished goods		3,114		4,498
Total	$	4,221	$	5,285

December 31, 2017 September 30, 2017
(Amounts in thousands)
Raw materials $ 1,395
$ 1,334
Work-in-process 206
260
Finished goods 5,557
4,377
Total $ 7,158
$ 5,971

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8. Leases

Information related to both lessee and lessor

The components of lease costs for the three months ended March 31, 2021 and 2020 are as follows:


		Three months ended
Consolidated Statements of Operations Location	Consolidated Statements of Operations Location	March 31, 2021		March 31, 2020
		(Amounts in thousands)
Finance Lease:
Interest on lease liabilities	Selling, general, and administrative	$	3	$	12
Operating Lease:
Operating lease cost	Selling, general, and administrative		180		181
Short-term lease cost	Selling, general, and administrative		10		3
Total lease costs		$	193	$	196
Less sublease interest income	Revenue		(7)		(23)
Total lease costs, net of sublease interest income		$	186	$	173

The components of lease costs for six months ended March 31, 2021 and 2020 are as follows:


		Six months ended
Consolidated Statements of Operations Location	Consolidated Statements of Operations Location	March 31, 2021		March 31, 2020
		(Amounts in thousands)
Finance Lease:
Interest on lease liabilities	Selling, general, and administrative	$	8	$	25
Operating Lease:
Operating lease cost	Selling, general, and administrative		368		361
Short-term lease cost	Selling, general, and administrative		13		6
Total lease costs		$	389	$	392
Less sublease interest income	Revenue		(18)		(49)
Total lease costs, net of sublease interest income		$	371	$	343

Supplemental cash flow information related to leases for three months ended March 31, 2021 and 2020 is below:


	Three months ended
	March 31, 2021		March 31, 2020
	(Amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	185	$	191
Operating cash flows from short-term leases		3		10
Operating cash flows from finance leases		3		12
Financing cash flows from finance leases		87		79
Lease assets obtained in exchange for new lease liabilities
Operating leases		—		—
Cash received from subleases		112		112

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Supplemental cash flow information related to leases for six months ended March 31, 2021 and 2020 is below:


	Six months ended
	March 31, 2021		March 31, 2020
	(Amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	376	$	379
Operating cash flows from short-term leases		13		19
Operating cash flows from finance leases		8		25
Financing cash flows from finance leases		173		157
Lease assets obtained in exchange for new lease liabilities
Operating leases		—		4
Cash received from subleases		225		225

~~Finished~~9. Accounts payable and other noncurrent liabilities

In February 2021, the Company’s US. division of the TS segment entered into an agreement with a vendor to pay approximately $1.5 million including interest for goods ~~includes inventory~~and services through fiscal year 2025 in 5 payments related to a multi-year agreement with a customer.

In February 2021, the Company’s US. division of the TS segment entered into an agreement with a vendor to pay approximately $7.2 million including interest for goods and services through fiscal year 2025 in 6 payments through fiscal year 2025 related to a multi-year agreement with a customer.

See Note 6 for further information related to the multi-year agreements above.

There was not an interest rate stated and therefore interest was imputed under ASC 835 Interest as the payments in the exchange represented two elements: principal and interest. The imputed interest rate for both agreements was determined to be 5.0%. The rate was determined primarily based on the rate the Company could obtain by financing from other sources at the date of the transaction.

The amounts owed for these agreements are in within accounts payable and other noncurrent liabilities because they are owed to a vendor rather than banks or financial institutions for borrowings. See Note 10 Notes Payable and Line of Credit for amounts due to banks and other financial institutions for borrowings.

Below are details of the agreements with the vendor that ~~has been shipped, but for which all revenue recognition criteria has not been met,~~contain imputed interest:


	March 31, 2021
	(Amounts in thousands)
Current	$	2,727
Less: discount		288
Accounts payable and accrued expenses	$	2,439

Noncurrent	$	5,590
Less: discount		403
Other noncurrent liabilities	$	5,187

The Company had a total of approximately ~~$0.1~~$8.1 million due to this vendor including the two aforementioned agreements and ~~$0.4~~other payables. This is approximately 53% of Accounts payable and other noncurrent liabilities. The TS segment has many vendors it transacts with and does not have any specific agreement with this vendor that it must purchase certain products from the vendor. Management believes other suppliers could provide similar products on comparable terms.

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10. Notes Payable and Line of Credit

In September 2019, the Company borrowed $1.0 million aswith a 5.0% rate of ~~December 31, 2017~~interest related to a multi-year agreement with a customer. See Note 6 for the disclosure related to the receivables.

In October 2019, the Company borrowed $2.0 million with a 5.1% rate of interest related to a multi-year agreement with a customer.

On April 17, 2020, CSP, Inc. and ~~September 30, 2017~~Modcomp, Inc., ~~respectively.~~

~~Total inventory balances~~its wholly owned subsidiary (collectively, the “Borrowers”) each received a loan in the ~~table above~~form of a promissory note from Paragon Bank (“Lender”) in the amounts of $827,000 and $1,353,600, respectively (the “SBA Loans”) under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The SBA Loans have a two-year term and carry an annual fixed interest rate of 1%.

The SBA Loans provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, materially false or misleading representations to Lender or SBA, and adverse changes in the financial condition or business operations that Lender believed could materially affect Borrowers’ ability to pay the SBA Loans. The Borrowers did not provide any collateral or guarantees for the SBA Loans and the Borrowers could prepay the principal of the SBA Loans at any time without penalty.

The Borrowers applied to the Lender for forgiveness of an amount due on the SBA Loans in an amount equal to the sum of certain costs during the 24 week period beginning on the date of the first disbursement of the SBA Loans. The amount of SBA Loans forgiveness was calculated in accordance with the requirements of the PPP, including provisions of Section 1106 of the CARES Act. We used the SBA Loans proceeds in accordance with the applicable SBA guidelines. In November 2020 the SBA Loans were formally forgiven. The $2.2 million gain is displayed on the Consolidated Statement of Operations in the line item “Gain on forgiveness of debt.”

Interest expense related to the notes for the three months ended March 31, 2021 and 2020 was $23 thousand and $31 thousand, respectively. Interest expense related to the notes for the six months ended March 31, 2021 and 2020 was $46 thousand and $63 thousand, respectively. Below are ~~shown net~~details of ~~reserves for obsolescence~~the notes payable.


	March 31, 2021		September 30, 2020
	(Amounts in thousands)
Current	$	808	$	1,702
Less: notes discount		69		89
Notes payable - current portion	$	739	$	1,613

Noncurrent	$	1,077	$	2,559
Less: notes discount		45		74
Notes payable - noncurrent portion	$	1,032	$	2,485

As of ~~approximately $3.2 million and $3.1 million as of December~~March 31, ~~2017~~2021 and September 30, ~~2017, respectively.~~

5.~~Deferred Costs~~

~~Deferred costs represent costs of labor, third party maintenance and support contracts, and outside consultants related to transactions where the revenue recognition criteria has not been met.~~

~~6. Accumulated Other Comprehensive Loss~~

~~The components of accumulated other comprehensive loss are as follows:~~

December 31, 2017 September 30, 2017
(Amounts in thousands)
Cumulative effect of foreign currency translation $ (3,218 ) $ (3,214 )
Cumulative unrealized loss on pension liability (6,949 ) (6,949 )
Accumulated other comprehensive loss $ (10,167 ) $ (10,163 )

7.~~Income Taxes~~

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Act”), resulting in significant modifications to existing law. The Company follows the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provides additional clarification regarding the application of ASC Topic 740 in situations where2020, the Company ~~does not have~~maintained an inventory line of credit with a borrowing capacity of $15.0 million. It may be used by the ~~necessary information available, prepared, or analyzed~~TS and HPP segments in ~~reasonable detail~~the U.S. to ~~complete~~purchase inventory from approved vendors with payment terms which exceed those offered by the ~~accounting for certain income tax effects~~vendors. No interest accrues under the inventory line of ~~the Act~~credit when advances are paid within terms, however, late payments are subject to an interest charge of Prime plus 5%. The credit agreement for the ~~reporting period in~~inventory line of credit contains financial covenants which ~~the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act’s enactment date and ending when~~require the Company ~~has obtained, prepared,~~to maintain the following TS segment-specific financial ratios: (1) a minimum current ratio of 1.2, (2) tangible net worth of no less than $4.0 million, and ~~analyzed the information needed in order~~(3) a maximum ratio of total liabilities to ~~complete the accounting requirements but in no circumstances should the measurement period extend beyond one year~~total net worth of less than 5.0:1. As of March 31, 2021 and September 30, 2020, Company borrowings, all from the ~~enactment date.~~

~~During~~TS segment, under the ~~first quarter ended December 31, 2017,~~inventory line of credit were $1.2 million and $1.6 million, respectively, and the Company ~~recognized a provision for income taxes~~was in compliance with all financial covenants. As of $1.1 million that includes a provisional estimate in the amount of $649 thousand related to the one-time deemed repatriation transition tax on unrepatriated foreign earnings. The provisional amount is based on information currently available, including estimated tax earningsMarch 31, 2021 and profits from foreign investments. The Company continues to gather and analyze information, including historical adjustments to earnings and profits of foreign subsidiaries, in order to complete the accounting for the effects of the estimated transition tax. This expense has been recorded discretely in the quarter ending December 31, 2017.

The Company has also recorded a provisional estimate for a one-time tax expense of $490 thousand which consists primarily of the remeasurement of deferred tax assets and liabilities from 34% to 21%. This expense has also been recorded discretely in the quarter ending December 31, 2017.

~~The Company is using a blended federal rate of roughly 24% for the fiscal year ending~~ September 30, ~~2018~~2020 this line of credit also includes availability of a limited cash withdrawal of up to $1.0 million and ~~will use the 21% for periods after fiscal year 2018.~~$1.0 million, respectively. As of March 31, 2021 and September 30, 2020 there were no cash withdrawals outstanding.

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~~The provisions above are estimates, and accordingly, changes to these estimates will be recorded in subsequent quarters as more information and guidance becomes available.~~

Given the timing of enactment and the breadth and complexity of the legislation, additional time is needed to obtain, prepare and analyze information related to possible income tax effects of other legislative changes as a result of the Act.

11. Pension and Retirement Plans

The ~~Company has~~Company’s operations have defined benefit and defined contribution plans in the ~~United Kingdom, Germany~~U.K. and in the U.S. In the ~~United Kingdom and Germany,~~U.K., the Company provides defined benefit pension plans and defined contribution plans for some of its employees. In the U.S., the Company provides benefits through supplemental retirement plans to certain former employees. The ~~domestic~~U.S. supplemental retirement plans have life insurance policies which are not plan assets but were purchased by the Company as a vehicle to fund the costs of the plan. ~~Domestically, the~~The Company also provides for officer death benefits through post-retirement plans to certain ~~officers.~~officers of the Company in the U.S. All of the Company’s defined benefit plans are closed to newly hired employees and have been since September 2009.

The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets.

The ~~Company's~~Company’s pension plan in the ~~United Kingdom~~U.K. is the only plan with plan assets. The plan assets consist of an investment in a commingled fund which in turn comprises a diversified mix of assets including corporate equity securities, government securities and corporate debt securities.

The components of net periodic benefit costs related to the U.S. and ~~international~~U.K. plans are as follows:


	Three Months Ended March 31,
	2021						2020
	U.K.		U.S.		Total		U.K.		U.S.		Total

	(Amounts in thousands)
Pension:
Interest cost	$	61	$	2	$	63	$	66	$	4	$	70
Expected return on plan assets		(99)		—		(99)		(74)		—		(74)
Amortization of past service costs		2		—		2		2		—		2
Amortization of net gain		45		1		46		48		1		49
Net periodic benefit cost	$	9	$	3	$	12	$	42	$	5	$	47

Post Retirement:
Service cost	$	—	$	12	$	12	$	—	$	9	$	9
Interest cost		—		11		11		—		11		11
Amortization of net gain		—		12		12		—		6		6
Net periodic cost	$	—	$	35	$	35	$	—	$	26	$	26


	Six Months Ended March 31,
	2021						2020
	U.K.		U.S.		Total		U.K.		U.S.		Total

	(Amounts in thousands)
Pension:
Interest cost	$	119	$	5	$	124	$	132	$	8	$	140
Expected return on plan assets		(196)		—		(196)		(148)		—		(148)
Amortization of past service costs		4		—		4		4		—		4
Amortization of net gain (loss)		89		2		91		96		2		98
Net periodic benefit cost	$	16	$	7	$	23	$	84	$	10	$	94

Post Retirement:
Service cost	$	—	$	23	$	23	$	—	$	19	$	19
Interest cost		—		22		22		—		23		23
Amortization of net loss		—		25		25		—		12		12

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Net periodic cost

—

For the Three Months Ended December 31,
2017 2016
Foreign U.S. Total Foreign U.S. Total
(Amounts in thousands)
Pension:
Service cost $ 10
$ —
$ 10
$ 10
$ —
$ 10
Interest cost 116
7
123
93
11
104
Expected return on plan assets (75 ) —
(75 ) (65 ) —
(65 )
Amortization of:

Amortization of net gain (loss) 60
(1 ) 59
91
(1 ) 90
Net periodic benefit cost $ 111
$ 6
$ 117
$ 129
$ 10
$ 139

Post Retirement:

Service cost $ —
$ 10
$ 10
$ —
$ 10
$ 10
Interest cost —
12
12
—
10
10
Amortization of net gain (loss) —
(4 ) (4 ) —
4
4
Net periodic cost (benefit) $ —
$ 18
$ 18
$ —
$ 24
$ 24

The fair value of the assets held by the U.K. pension plan by asset category are as follows:


	Fair Values as of
	March 31, 2021								September 30, 2020
	Fair Value Measurements Using Inputs Considered as								Fair Value Measurements Using Inputs Considered as
Asset Category	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

	(Amounts in thousands)
Cash on deposit	$	76	$	76	$	—	$	—	$	471	$	471	$	—	$	—
Pooled funds		11,097		11,097		—		—		9,269		9,269		—		—
Total plan assets	$	11,173	$	11,173	$	—	$	—	$	9,740	$	9,740	$	—	$	—

12. Income Taxes

An income tax expense of $723 thousand was recorded for the three months ended March 31, 2021 compared to an income tax expense of $1.2 million in the same period of 2020. An income tax expense of $833 thousand was recorded for the six months ended March 31, 2021 compared to income tax expense of $1.0 million in the same period of 2020. The income tax expense for the three and six months ended March 31, 2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program. The deferred tax asset change is a non-cash item. The income tax expense for the six months ended March 31, 2020 reflected the recording of a valuation allowance against deferred tax assets during the second fiscal quarter, offset by the anticipated tax benefit from the carryback of net operating losses.

The provisions above are estimates, and accordingly, changes to these estimates will be recorded in subsequent periods as more information and guidance becomes available.

13. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:


	March 31,		September 30,
	2021		2020

	(Amounts in thousands)
Cumulative effect of foreign currency translation	$	(4,345)	$	(4,696)
Cumulative unrealized loss on pension liability		(7,299)		(7,299)
Accumulated other comprehensive loss	$	(11,644)	$	(11,995)

14. Fair Value of Financial Assets and Liabilities

Under the fair value standards fair value is based on the exit price and defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement should reflect all the assumptions that market participants would use in pricing an asset or liability. A fair value hierarchy is established in the authoritative guidance outlined in three levels ranking from Level 1 to Level 3 with Level 1 being the highest priority.

Level 1: observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly

Fair Values as of
December 31, 2017 September 30, 2017
Fair Value Measurements Using Inputs Considered as Fair Value Measurements Using Inputs Considered as
Asset Category Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
(Amounts in thousands)
Cash on deposit $ 51
$ 51
$ —
$ —
$ 62
$ 62
$ —
$ —
Pooled funds 8,428
8,428
—
—
8,177
8,177
—
—
Total plan assets $ 8,479
$ 8,479
$ —
$ —
$ 8,239
$ 8,239
$ —
$ —

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Level 3: unobservable inputs (e.g., a reporting entity’s or other entity’s own data)

The Company had no assets or liabilities measured at fair value on a recurring (except our pension plan assets and whole life insurance policies, see Note 11 for pension plan assets) or non-recurring basis as of March 31, 2021 or September 30, 2020.

To estimate fair value of the financial instruments below, quoted market prices are used when available and classified within Level 1. If this data is not available, we use observable market-based inputs to estimate fair value, which are classified within Level 2. If the preceding information is unavailable, we use internally generated data to estimate fair value which is classified within Level 3.


		As of March 31, 2021				As of September 30, 2020
		Carrying Amount		Fair Value		Carrying Amount		Fair Value	Fair Value Level	Reference

		(Amounts in thousands)
Assets:
Cash and cash equivalents	$	20,397	$	20,397	$	19,264	$	19,264	1	Consolidated Balance Sheets
Accounts and long-term receivable*		13,681		13,681		5,839		5,839	3	Note 6
Liabilities:
Accounts payable and accrued expenses and other long-term liabilities*		7,626		7,626		—		—	3	Note 9
Notes payable		1,771		1,771		4,098		4,098	2	Note 10

*Original maturity over one year

Cash and cash equivalents

Carrying amount approximated fair value.

Accounts and long-term receivable with original maturity over one year

Fair value was estimated by discounting future cash flows based on the current rate with similar terms.

Accounts payable and accrued expenses and other long-term liabilities

Fair value was estimated by discounting future cash flows based on the current rate the Company could get in another transaction with similar terms based on historical information.

Notes Payable

Fair value was estimated based on quoted market prices.

Fair value of accounts receivable with an original maturity of one year or less and accounts payable was not materially different from their carrying values as of March 31, 2021 and September 30, 2020.

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15. Segment Information

The following tables ~~presents~~present certain operating segment information for the three and six months ended ~~December~~March 31, ~~2017~~2021 and ~~December 31, 2016.~~2020.


			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated
For the three months ended March 31,	Segment		Kingdom		U.S.		Total		Total

	(Amounts in thousands)
2021
Sales:
Product	$	716	$	241	$	10,019	$	10,260	$	10,976
Service		172		90		2,850		2,940		3,112
Total sales	$	888	$	331	$	12,869	$	13,200	$	14,088
Income (loss) from operations	$	(1,339)	$	(66)	$	1,284	$	1,218	$	(121)
Total assets	$	8,098	$	10,497	$	40,825	$	51,322	$	59,420
Capital expenditures		1		—		9		9		10
Depreciation and amortization		45		—		53		53		98

2020
Sales:
Product	$	922	$	184	$	12,040	$	12,224	$	13,146
Service		553		84		3,100		3,184		3,737
Total sales	$	1,475	$	268	$	15,140	$	15,408	$	16,883
Income (loss) from operations	$	(1,024)	$	(50)	$	931	$	881	$	(143)
Total assets	$	8,685	$	10,757	$	34,069	$	44,826	$	53,511
Capital expenditures		29		—		4		4		33
Depreciation and amortization		57		—		57		57		114

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			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated
For the six months ended March 31,	Segment		Kingdom		U.S.		Total		Total

	(Amounts in thousands)
2021
Sales:
Product	$	1,892	$	1,644	$	15,848	$	17,492	$	19,384
Service		552		177		5,363		5,540		6,092
Total sales	$	2,444	$	1,821	$	21,211	$	23,032	$	25,476
Income (loss) from operations	$	(2,193)	$	(35)	$	1,570	$	1,535	$	(658)
Total assets	$	8,098	$	10,497	$	40,825	$	51,322	$	59,420
Capital expenditures		7		—		36		36		43
Depreciation and amortization		93		—		109		109		202

2020
Sales:
Product	$	1,689	$	737	$	24,279	$	25,016	$	26,705
Service		827		210		5,999		6,209		7,036
Total sales	$	2,516	$	947	$	30,278	$	31,225	$	33,741
Income (loss) from operations	$	(2,287)	$	(47)	$	1,789	$	1,742	$	(545)
Total assets	$	8,685	$	10,757	$	34,069	$	44,826	$	53,511
Capital expenditures		63		—		177		177		240
Depreciation and amortization		115		3		121		124		239

Technology Solutions Segment
For the three months ended December 31, High Performance Products Segment Germany
United
Kingdom
U.S. Total
Consolidated
Total
(Amounts in thousands)
2017
Sales:
Product $ 1,607
$ 1,974
$ 2,542
$ 9,520
$ 14,036
$ 15,643
Service 863
3,395
165
1,933
5,493
6,356
Total sales 2,470
5,369
2,707
11,453
19,529
21,999
Income (loss) from operations (382 ) (158 ) 142
405
389
7
Assets 16,664
20,949
2,520
19,784
43,253
59,917
Capital expenditures 10
65
—
34
99
109
Depreciation and amortization 56
47
1
67
115
171

2016
Sales:
Product $ 1,527
$ 2,080
$ 701
$ 10,330
$ 13,111
$ 14,638
Service 1,224
3,059
104
891
4,054
5,278
Total sales 2,751
5,139
805
11,221
17,165
19,916
Income (loss) from operations 46
(102 ) (206 ) 160
(148 ) (102 )
Assets 17,766
15,532
2,873
14,531
32,936
50,702
Capital expenditures 17
44
—
11
55
72
Depreciation and amortization 55
38
3
61
102
157

Income (loss) from operations consists of sales less cost of sales, engineering and development expenses, and selling, general and administrative expenses but is not affected by either other income/expense or by income taxes ~~expense/benefit.~~expense (benefit). Non-operating ~~charges/~~expenses/income consists principally of investment income, interest income from transactions with payment terms exceeding one year (see Note 6 for details), and interest expense. All intercompany transactions have been eliminated.

The following table lists customers from which the Company derived revenues ~~in excess~~ of 10% or more of total revenues for the three and six months ended ~~December~~March 31, ~~2017,~~2021 and ~~2016~~.2020.


	For the three months ended March 31,								For the six months ended March 31,
	2021				2020				2021				2020

	Customer		% of Total		Customer		% of Total		Customer		% of Total		Customer		% of Total
	Revenues		Revenues		Revenues		Revenues		Revenues		Revenues		Revenues		Revenues

	(Amounts in millions)
Customer A	$	1.2	8	%	$	2.0	12	%	$	1.8	7	%	$	3.8	11	%

For the three months ended December 31,
2017 2016
Customer Revenues
% of Total
Revenues
Customer Revenues
% of Total
Revenues

Customer A $ 1.2
6 % $ 2.9
14 %
Customer B $ 2.5
11 % $ 2.1
11 %

~~In addition, accounts receivable from~~

Customer A totaled approximately ~~$1.0~~$13.0 million, or 5%56%, and approximately ~~$2.4~~$4.7 million, or 9%28%, of total consolidated accounts receivable and long-term receivable as of ~~December~~March 31, ~~2017~~2021 and September 30, ~~2017,~~2020, respectively. ~~Accounts receivable from Customer B totaled approximately $3.3 million, or 16%, and approximately $3.9 million, or 14%,~~There were no other customers that were more than 10% of total consolidated accounts receivable ~~as of December 31, 2017~~ and ~~September 30, 2017, respectively.~~

Two additional customers, C and D, each accounted for account receivable of 10% or more, but did not account for revenue of 10% or more. Accounts receivable from customer C totaled approximately $2.8 million, or 13%, of consolidated accountslong-term receivable as of ~~December~~March 31, ~~2017. Accounts receivable from customer D totaled approximately $2.3 million, or 11%, of consolidated accounts receivable as of December 31, 2017.~~2021. We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with ~~these~~any customers as of ~~December~~March 31, ~~2017. No other customers accounted for 10% or more of total consolidated accounts receivable as of December 31, 2017.~~

2021

~~10.Dividends~~

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On December 19, 2017, the Company's board of directors declared a cash dividend of $0.11 per share which was paid on January 16, 2018 to shareholders of record as of December 29, 2017, the record date.

~~11. Recent Accounting Pronouncements~~

~~Accounting standards recently adopted~~

~~Effective September 30, 2017, the Company adopted FASB ASU No. 2014-15,~~ ~~Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,~~ an amendment of the FASB Accounting Standards Codification. The ASU has added additional disclosure requirements to the codification. It requires management to assess, at each interim and annual reporting period, whether substantial doubt exists about an entity’s ability to continue as a going concern. Substantial doubt exists if it is probable (the “probable” threshold under GAAP has generally been interpreted to be between 75 and 80 percent) that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued or available to be issued (assessment date). This guidance did not have an impact to the Company's consolidated financial statements.

~~In November 2015, the FASB issued ASU No, 2015-17,~~ ~~Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes,~~ which require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Topic apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Topic. The amendments in this Topic are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Beginning October 1, 2017, the Company adopted the ASU and it hasn’t had a material impact on our consolidated financial statements. As a result of the adoption of this ASU, the Company reclassified the current deferred tax asset previously reported on the September 30, 2017 balance sheet to the noncurrent deferred tax asset.

~~In March 2016, the FASB issued ASU No. 2016-09~~ ~~(Topic 718), Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting~~ to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Additionally, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. The Company has adopted this ASU effective October 1, 2017 and it hasn’t had a material impact on our consolidated financial statements.

~~New accounting standards not adopted as of December 31, 2017~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on October 1, 2018, and it does not plan to early adopt this ASU. The standard outlines a five-step model whereby revenue is recognized as performance obligations within a contract are satisfied. The standard also requires new, expanded disclosures regarding revenue recognition. We are utilizing a bottom-up approach to analyze the standard's impact on our contract portfolio, comparing our historical accounting policies and practices, and identifying potential differences from applying the requirements of the new standard to our contracts. While this assessment continues, we have not yet completed our determination of the impacts of the standard or the effect of these impacts on our consolidated financial statements. The Company has selected the modified retrospective approach as its transition method. Because the new standard will impact our business processes, systems and controls, we are developing a comprehensive change management project plan to guide the implementation.

~~In July 2015, the FASB issued ASU No. 2015-11,~~ ~~Inventory (Topic 330) Simplifying the Measurement of Inventory~~, which requires entities to measure inventory at the lower of cost and net realizable value, except for inventory measured using last-in, first-out (LIFO) or the retail inventory method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017 and requires prospective application, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company has not yet assessed the potential impact of implementing this ASU on our consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~, an amendment of the FASB Accounting Standards Codification. This ASU requires lessees to recognize a right-of-use asset and lease liability for most lease arrangements. The new standard is effective for the Company on October 1, 2019. The standard mandates a modified retrospective transition method for all entities and early adoption is permitted. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

~~In March 2016, the FASB issued ASU No. 2016-08~~ ~~(Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~ to clarify the implementation guidance on principal versus agent considerations. The amendments in this update provides additional guidance on indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer and does not change the core principle of previously issued guidance. The amendments in this Topic are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company does not expect the implementation of this ASU to have a material impact on our consolidated financial statements.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments~~, an amendment of the FASB Accounting Standards Codification. This ASU will reduce diversity in practice for classifying cash payments and receipts in the statement of cash flows for a number of common transactions. It will also clarify when identifiable cash flows should be separated versus classified based on their predominant source or use. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is evaluating the effect that ASU 2016-15 will have on its consolidated financial statements and related disclosures.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory,~~ an amendment of the FASB Accounting Standards Codification. This ASU requires the seller and buyer to recognize at the transaction date the current and deferred income tax consequences of intercompany asset transfers (except transfers of inventory). Under current GAAP, the seller and buyer defer the consolidated tax consequences of an intercompany asset transfer from the period of the transfer to a future period when the asset is transferred out of the consolidated group, or otherwise affects consolidated earnings. This standard will cause volatility in companies’ effective tax rates, particularly for those that transfer intangible assets to foreign subsidiaries. For public entities, the new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017. An entity may early adopt the standard but only at the beginning of an annual period for which it has not issued or made available for issuance financial statements (interim or annual). The Company is evaluating the effect that ASU 2016-16 will have on its consolidated financial statements and related disclosures.

~~In January 2017, FASB issued ASU No. 2017-01, “BusinessCombinations Clarifying the Definition of a Business"~~ (Topic 805) (“ASU No. 2017-01”). ASU 2017-01 provides a framework to use in determining when a set of assets and activities is a business. ASU 2017-01 provides more consistency in applying the business combination guidance, reduces the costs of application, and makes the definition of a business more operable. ASU 2017-01 is effective for interim and annual periods within those annual periods beginning after December 15, 2017. The Company is currently evaluating the impact ASU 2017-01 will have on the Company’s results of operations, financial position and disclosures.

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, an amendment of the FASB Accounting Standards Codification. This ASU requires employers that sponsor defined benefit pension and/or other post-retirement benefit plans to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Employers are required to present the other components of net benefit costs in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component of net periodic pension cost will be eligible for asset

capitalization. For public entities, the new standard is effective for annual periods beginning after December 15, 2017, including interim periods within that annual period. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. This ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company is evaluating the effect that ASU 2017-07 will have on its consolidated financial statements and related disclosures.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The discussion below contains certain forward-looking statements including, but not limited to, among others, statements concerning future revenues and future business plans. Forward-looking statements include statements in which we use words such as “expect”, “believe”, “anticipate”, “intend”, “project”, “estimate”, “should”, “could”, “may”, “plan”, “potential”, “predict”, “project”, “will”, “would” and similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, the forward-looking statements are subject to significant risks and uncertainties, and thus we cannot assure you that these expectations will prove to have been correct, and actual results may vary from those contained in such forward-looking statements. We discuss many of these risks and uncertainties in Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~ 2020, and in this Form 10-Q.Factors that may cause such variances include, but are not limited to, our dependence on a small number of customers for a significant portion of our revenue, our high dependence on contracts with the U.S. federal government, our reliance in certain circumstances on single sources for supply of key product components, intense competition in the market segments in which we operate, ~~and~~ the recent changes in the U.S. Tax laws, ~~which are still under review by us.~~and the impact of the novel coronavirus (COVID-19) on our business, results of operations and financial condition. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~

2020.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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, impairment assessment of intangibles, income taxes, deferred compensation and retirement plans, as well as estimated selling prices used for revenue recognition and contingencies. We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A description of our critical accounting policies is contained in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017~~2020 in the “Critical Accounting Policies” section ofcontained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Observations on effects of novel coronavirus

On March 11, 2020, the World Health Organization characterized the novel coronavirus outbreak as a pandemic. The outbreak has and continues to adversely affect the economies of the U.S., U.K., and other international markets and economies in which we operate. As a result of the World Health Organization characterizing the COVID-19 outbreak as a pandemic, national, state, and local governments have and continue to take actions such as declaring a state of emergency, implementing social distancing and other guidelines, and shutting down and/or limiting the opening or operation of certain businesses which are not considered essential.

In these times of pandemic, our top priorities are to protect the health, well-being, and safety of our employees and partners, while still focusing on the key drivers of our business. To that end, and to insure we continue to operate safety and cautiously while also meeting our public health responsibilities, the Company has adopted flexible business practices including allowing most employees to work remotely in all locations. Our revenue decreased significantly for the three and six months ended March 31, 2021 due to the pandemic. This is largely the result of customers reducing their budgets. The pandemic has also had an adverse effect on our ability to transact one-on-one business.

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We recognize the pandemic has created a dynamic and uncertain situation in the national economy, and we continue to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pandemic on our operations. Despite reduced infection rates and ever-increasing vaccination rates in the United States, many nations and certain pockets within the United States are still battling various strains/variants of the novel coronavirus, creating ongoing uncertainties as to when economies will return to business as usual and what that will look like, what regulatory measures or voluntary actions will be further implemented to limit the spread of COVID-19 and the duration of such measures, the extent, severity and impact of any further spread of COVID-19 variants or resurgence of COVID-19 in a given geographic region after it has hit its “peak,” and the extent to which herd immunity will be achieved through the vaccination process. In summary, the scope of this pandemic and its effects are unprecedented, and we cannot at this time make a reasonable estimate on the extent or duration of the impacts on our business.

Results of Operations

Overview of the three months ended ~~December~~March 31, ~~2017~~

2021

Our revenues ~~increased~~decreased by approximately ~~$2.1~~$2.8 million, or ~~10%~~17%, to ~~$22.0~~$14.1 million for the three months ended ~~December~~March 31, ~~2017~~2021 as compared to ~~$19.9~~$16.9 million for the three months ended ~~December~~March 31, ~~2016.~~2020. The ~~increase~~decrease in revenue is the result of ~~an increase~~a decrease of ~~$2.4~~$2.2 million in our TS segment ~~partially offset by~~combined with a ~~$0.3~~$0.6 million decrease in our HPP segment. Our gross margin percentage increased ~~overall, from 22%~~to 31% of revenues for the three months ended ~~December~~March 31, ~~2016, to 23%~~2021 from 27% for the three months ended ~~December~~March 31, ~~2017 due in part~~2020. The increase is attributed to ~~an increase in higher margin~~the TS ~~segment service revenues. Operating income increased by $0.1 million from~~segment. For the three months ended March 31, 2021 there was an operating loss of ~~$102 thousand for the three month period ended December 31, 2016~~$0.1 million compared to an operating ~~income~~loss of $7 thousand for the three month period ended December 31, 2017, primarily as a result of a $681 thousand increase in gross profit partially offset by an increase of $572 thousand in higher operating expenses. The increase in operating expenses was primarily the result of higher variable compensation costs, combined with increased costs for sales and engineering hires in our U.S and Germany divisions of the TS segment. ~~Our income tax expense increased by approximately $1.1 million to $1.1~~$0.1 million for the three months ended ~~December~~March 31, ~~2017~~2020, primarily as a result of decreased sales offset with a higher gross margin as a percentage of revenue. Other income, (expense) net decreased approximately $0.6 million for the three months ended March 31, 2021 to approximately none as compared to income of $0.6 million for the three months ended March 31, 2020. This is primarily due to an increase in foreign exchange loss of $0.6 million for the three months ended March 31, 2021 from the prior year. An income tax expense of $723 thousand was recorded for the three months ended March 31, 2021 compared to an income tax ~~benefit~~expense of ~~$15 thousand~~$1.2 million in the same period of 2020. The income tax expense for the three months ended ~~December~~March 31, ~~2016.~~2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program. The ~~increase to the income~~deferred tax ~~expense was primarily due to the Tax Cuts and Jobs Act which was enacted on December 22, 2017.~~

asset change is a non-cash item.

The following table details our results of operations in dollars and as a percentage of sales for the three months ~~ended:~~ended March 31, 2021 and 2020:


			%				%
	March 31, 2021		of sales		March 31, 2020		of sales

	(Dollar amounts in thousands)
Sales	$	14,088	100	%	$	16,883	100	%
Costs and expenses:
Cost of sales		9,720	69	%		12,400	74	%
Engineering and development		762	5	%		716	4	%
Selling, general and administrative		3,727	26	%		3,910	23	%
Total costs and expenses		14,209	101	%		17,026	101	%
Operating loss		(121)	(1)	%		(143)	(1)	%
Other income, (expense) net		(3)	—	%		580	3	%
Income (loss) before income taxes		(124)	(1)	%		437	2	%
Income tax expense		723	5	%		1,169	7	%
Net loss	$	(847)	(6)	%	$	(732)	(5)	%

December 31, 2017
%
of sales
December 31, 2016
%
of sales
(Dollar amounts in thousands)
Total sales $ 21,999
100 % $ 19,916
100 %
Costs and expenses:

Cost of sales 16,866
77 % 15,464
78 %
Engineering and development 698
3 % 596
3 %
Selling, general and administrative 4,428
20 % 3,958
20 %
Total costs and expenses 21,992
100 % 20,018
101 %
Operating income (loss) 7
— % (102 ) (1 )%
Other income (expense) (105 ) — % 44
— %
Loss before income taxes (98 ) — % (58 ) (1 )%
Income tax expense (benefit) 1,102
5 % (15 ) — %
Net loss $ (1,200 ) (5 )% $ (43 ) (1 )%

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Revenues

Our revenues ~~increased~~decreased by approximately ~~$2.1~~$2.8 million to ~~$22.0~~$14.1 million for the three months ended ~~December~~March 31, ~~2017~~2021 as compared to ~~$19.9~~$16.9 million of revenues for the prior year period. TS segment revenues decreased by $2.2 million and HPP segment revenues decreased by approximately $0.6 million.

TS segment revenue change was as follows for the three months ended ~~December~~March 31, ~~2016.~~ 2021 and March 31, 2020:


					Decrease
	2021		2020		$		%

	(Dollar amounts in thousands)
Products	$	10,259	$	12,224	$	(1,965)	(16)	%
Services		2,941		3,184		(243)	(8)	%
Total	$	13,200	$	15,408	$	(2,208)	(14)	%

The decrease in TS segment product revenues ~~increase~~ of ~~$2.4~~$2.0 million ~~was~~during the period is attributable to the U.S. division and is primarily the result of decreased sales to several major customers during the period due to companies continuing budget freezes or reductions. Service revenue for the three months ended March 31, 2021 decreased $0.2 million from the prior year. The changes in service revenue include decreased internal and third party service revenue of $0.7 million, partially offset ~~by a $0.3~~with increased third party maintenance revenues of $0.4 million ~~decrease in our HPP segment.~~

primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue), and increased managed services revenue of $0.1 million.

HPP segment revenue change was as follows for the three months ended ~~December~~March 31, ~~2017~~2021 and ~~2016:~~2020:


					Decrease
	2021		2020		$		%

	(Dollar amounts in thousands)
Products	$	716	$	922	$	(206)	(22)	%
Services		172		553		(381)	(69)	%
Total	$	888	$	1,475	$	(587)	(40)	%

Increase (decrease)
2017 2016 $ %
(Dollar amounts in thousands)
Products $ 1,607
$ 1,527
$ 80
5 %
Services 863
1,224
(361 ) (29 )%
Total $ 2,470
$ 2,751
$ (281 ) (10 )%

The ~~increase in~~ HPP product revenues isdecreased by $0.2 million for the three months ended March 31, 2021 as compared to prior year, primarily ~~attributed to increased~~as a result of a $0.2 million decrease in Myricom product ~~shipments partially offset by lower Multicomputer product shipments and parts sales for the period.~~sales. The ~~decrease in~~ HPP services revenues isdecreased $0.4 million for the three months ended March 31, 2021 from prior year primarily ~~attributed~~due to ~~a $329 thousand decrease in~~decreased royalties on high-speed processing boards related to the E2D ~~program shipped for the three months ended December 31, 2017 as compared to the three months ended December 31, 2016.~~

~~TS segment revenue change was as follows for the three months ended December 31, 2017 and 2016:~~

Increase
2017 2016 $ %
(Dollar amounts in thousands)
Products $ 14,036
$ 13,111
$ 925
7 %
Services 5,493
4,054
1,439
35 %
Total $ 19,529
$ 17,165
$ 2,364
14 %

The increase in TS segment product revenues of $0.9 million during the period was primarily the result of an increase in product revenues of $1.8 million in our U.K. division, partially offset by decreases of $0.8 million and $0.1 million in our U.S and German divisions, respectively. The $1.8 million increase in the U.K. segment product revenues was primarily the result of increased product shipments to a major customer. The increase in TS segment service revenues of $1.4 million during the period was primarily the result of increases of $1.0 million, $0.3 million and $0.1 million of our U.S., German and U.K.

divisions, respectively. The $1.0 million increase in the U.S. segment service revenues was primarily due to increases in third party maintenance revenues, internal/project revenues, and managed service provider revenues.

program.

Our revenues by geographic area, which is based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended ~~December~~March 31, ~~2017~~2021 and ~~December~~March 31, ~~2016:~~2020:


									Increase (decrease)
	2021		%		2020		%		$		%

	(Dollar amounts in thousands)
Americas	$	13,033	92	%	$	16,143	95	%	$	(3,110)	(19)	%
Europe		779	6	%		619	4	%		160	26	%
Asia		276	2	%		121	1	%		155	128	%
Totals	$	14,088	100	%	$	16,883	100	%	$	(2,795)	(17)	%

Increase
2017 % 2016 % $ %
(Dollar amounts in thousands)
Americas $ 13,233
60 % $ 13,123
66 % $ 110
1 %
Europe 8,318
38 % 6,497
33 % 1,821
28 %
Asia 448
2 % 296
1 % 152
51 %
Totals $ 21,999
100 % $ 19,916
100 % $ 2,083
10 %

The ~~$2.1~~$3.1 million ~~increase~~decrease in ~~revenues~~revenue to the Americas is primarily ~~attributed to increased revenues~~the result of decreased sales by our TS ~~segment.~~segment division of $2.3 million combined with a decrease in the HPP segment of $0.8 million. The ~~$1.8~~$0.2 million increase in revenue to Europe is primarily the result of increased sales by our ~~TS segment U.K. division to~~ U.S. division ~~multi-national customer.~~of $0.1 million combined with a $0.1 million increase from the HPP segment. The revenue to Asia increased $0.2 million is primarily the result of an increase from the HPP segment.

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Gross Margins

Our gross margin ("GM") ~~increased~~decreased by ~~$0.7~~approximately $0.1 million to ~~$5.1~~$4.4 million for the three months ended ~~December~~March 31, ~~2017~~2021 as compared to a gross margin of approximately $4.5 million for the ~~three months ended December 31, 2016.~~prior year. The GM as a percentage of revenue increased ~~from 22%~~to 31% for the three months ended ~~December~~March 31, ~~2016 to 23% for the three months ended December 31, 2017 as follows:~~

2017 2016 Increase (decrease)
GM$ GM% GM$ GM% GM$ GM%
(Dollar amounts in thousands)
HPP $ 1,462
59 % $ 1,760
64 % $ (298 ) (5 )%
TS 3,671
19 % 2,692
16 % 979
3 %
Total $ 5,133
23 % $ 4,452
22 % $ 681
1 %

2021, from 27%. The ~~impact of product mix within our HPP segment on gross margin for the period was as follows:~~

2017 2016 Increase (decrease)
GM$ GM% GM$ GM% GM$ GM%
(Dollar amounts in thousands)
Products $ 616
38 % $ 612
40 % $ 4
(2 )%
Services 846
98 % 1,148
94 % (302 ) 4 %
Total $ 1,462
59 % $ 1,760
64 % $ (298 ) (5 )%

~~The overall HPP segment gross margin~~increase in GM as a percentage of ~~sales decreased to 59% for the period. The 5% decrease in gross margin as a percentage of sales in the HPP segment was primarily~~revenue is attributed to ~~decreased high margin royalty revenues combined with~~ the ~~service and product mix.~~TS segment.


	2021				2020				Increase (decrease)
	GM$		GM%		GM$		GM%		GM$		GM%

	(Dollar amounts in thousands)
TS	$	3,885	29	%	$	3,656	24	%	$	229	5	%
HPP		483	54	%		827	56	%		(344)	(2)	%
Total	$	4,368	31	%	$	4,483	27	%	$	(115)	4	%

The impact of product mix within our TS segment on gross margin for the three months ended ~~December~~March 31, ~~2017~~2021 and ~~2016~~2020 was as follows:


	2021				2020				Increase (decrease)
	GM$		GM%		GM$		GM%		GM$		GM%

	(Dollar amounts in thousands)
Products	$	2,095	20	%	$	1,814	15	%	$	281	5	%
Services		1,790	61	%		1,842	58	%		(52)	3	%
Total	$	3,885	29	%	$	3,656	24	%	$	229	5	%

2017 2016 Increase
GM$ GM% GM$ GM% GM$ GM%
(Dollar amounts in thousands)
Products $ 1,997
14 % $ 1,801
14 % $ 196
— %
Services 1,674
30 % 891
22 % 783
8 %
Total $ 3,671
19 % $ 2,692
16 % $ 979
3 %

The overall TS segment ~~gross margin~~GM as a percentage of sales increased to ~~19%~~29% for the three month period ended ~~December~~March 31, ~~2017 from 16%~~2021 compared to 24% for the prior year. GM as a percentage of product sales increased to 20% for the three ~~month period~~months ended ~~December~~March 31, ~~2016.~~ 2021 from 15% for the prior year. This is primarily due to significant pricing discounts given to the U.S. division from several manufacturers that were not given in the prior year. GM as a percentage of service sales increased to 61% for the three months ended March 31, 2021 from 58% for the prior year period. This is primarily due to increased sales of third party maintenance revenues of $0.3 million primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue) and increased sales of managed services compared to the prior year.

The impact of product mix within our HPP segment on gross margin for the three months ended March 31, 2021 and 2020 was as follows:


	2021				2020				Increase (Decrease)
	GM$		GM%		GM$		GM%		GM$		GM%

	(Dollar amounts in thousands)
Products	$	326	46	%	$	299	32	%	$	27	14	%
Services		157	91	%		528	95	%		(371)	(4)	%
Total	$	483	54	%	$	827	56	%	$	(344)	(2)	%

The overall TSHPP segment ~~gross margin~~GM as a percentage of sales ~~increase was primarily due~~decreased to ~~an 8% increase in service margins~~54% for the three months ended March 31, 2021 from 56% for the three months ended March 31, 2020. This 2% decrease is attributed to decreased GM from decreased services revenue including a $0.3 million decrease of royalty revenues, which is nearly all margin. Product GM as a percentage of ~~TS segment revenues, which is substantially~~revenue increased by 14% for the six months ended March 31, 2021 from prior year due to ~~having improved margins~~product mix and a reduction in ~~our U.K. and Germany divisions.~~

manufacturing overhead expenses.

Operating Expenses

Engineering and Development Expenses

The engineering and development expenses incurred by our HPP segment ~~were $0.7 million and $0.6~~increased by approximately $0.1 million for the three months ended ~~December~~March 31, ~~2017 and 2016, respectively.~~2021 to $0.8 million from $0.7 million for the prior year. The current period

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expenses were primarily for ~~Myricom~~ product engineering expenses incurred in connection with the continued development of the ~~new Myricom~~ ARIA SDS cyber security products. The increased engineering and development expenses for the three month period ended December 31, 2017 as compared to the three month period ended December 31, 2016 is primarily attributed to an increase in engineering headcount related expenses.

Selling, General and Administrative Expenses

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the three months ended ~~December~~March 31, ~~2017~~2021 and ~~2016:~~2020:


	For the three months ended March 31,
			% of				% of		$ Decrease		% Decrease
	2021		Total		2020		Total

	(Dollar amounts in thousands)
By Operating Segment:
TS segment	$	2,667	72	%	$	2,775	71	%	$	(108)	(4)	%
HPP segment		1,060	28	%		1,135	29	%		(75)	(7)	%
Total	$	3,727	100	%	$	3,910	100	%	$	(183)	(5)	%

For the three months ended December 31,
2017 % of
Total 2016 % of
Total $ Increase % Increase
(Dollar amounts in thousands)
By Operating Segment:
HPP segment $ 1,146
26 % $ 1,118
28 % $ 28
3 %
TS segment 3,282
74 % 2,840
72 % 442
16 %
Total $ 4,428
100 % $ 3,958
100 % $ 470
12 %

SG&A expenses ~~increased by $0.5~~overall decreased $0.2 million ~~or 12%,~~ for the three months ended ~~December~~March 31, ~~2017~~2021 as compared to the ~~three months ended December 31, 2016.~~prior year. The ~~increase~~$0.1 million decrease in TS segment SG&A expenses compared to the same prior year period is primarily the result of a $0.1 million decrease of payroll. The HPP segment SG&A expenses ~~is primarily attributed to increased marketing costs related~~decreased $0.1 million for the three months ended March 31, 2021 as compared to the ~~HPP security products. The increase in the TS segment SG&A expenses is primarily attributed~~prior year due to ~~increases in variable~~decreased travel and stock compensation ~~combined with increases for sales and engineering hires in our U.S and Germany operations.~~

expense.

Other Income/Expenses

The following table details ~~our~~ other income (expense) for the three months ended ~~December~~March 31, ~~2017~~2021 and ~~2016:~~2020:


	For the three months ended
					Increase
	March 31, 2021		March 31, 2020		(Decrease)

	(Amounts in thousands)
Interest expense	$	(75)	$	(55)	$	(20)
Interest income		133		163		(30)
Foreign exchange (loss) gain		(154)		479		(633)
Other income (expense), net		93		(7)		100
Total other income (expense), net	$	(3)	$	580	$	(583)

For the three months ended,
December 31, 2017 December 31, 2016 Increase (decrease)
(Amounts in thousands)
Interest expense $ (18 ) $ (19 ) $ 1
Interest income 5
4
1
Foreign exchange gain (loss) (93 ) 54
(147 )
Other income, net 1
5
(4 )
Total other income (expense), net $ (105 ) $ 44
$ (149 )

The ~~net change to~~$583 thousand decrease in total other income ~~(expenses)~~(expense), net for the three months ended March 31, 2021 as compared to the prior year is primarily driven by an increase in foreign exchange loss of ~~$149~~$633 thousand. The U.K. division has significant bank accounts with U.S. dollars and Euros. In consolidation, U.S. dollars and Euros are remeasured into the functional currency, British Pounds, of our U.K. subsidiary. This non-cash remeasurement is included in foreign exchange gain or loss on the income statement and the foreign exchange loss is primarily from a Euro and U.S. Dollar bank account. The US dollar and Euro weakened relative to the British Pound for the three months ended March 31, 2021, which caused the foreign exchange loss.

The interest income decrease of $30 thousand for the three months ended ~~December~~March 31, 2017 as compared to the three months ended December 31, 2016, was primarily driven by the net change of approximately $(147) thousand in the foreign exchange gain (loss) on foreign currency holdings in the current period2021 as compared to the prior year ~~period.~~

is primarily related to agreements that have payment terms in excess of one year (see Note 6 in Item 1 to this Quarterly Report on Form 10-Q) from the TS-US segment.

Income Taxes

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”) was enacted into law. In accordance with ASC 740, Income Taxes, the Company is required to recognize the effect of the Tax Act in the period of enactment, which was the Company’s first quarter of fiscal 2018 that ended on December 31, 2017.

The ~~many changes in the Tax Act include a permanent reduction in the maximum federal corporate~~ income tax rate from 35% to 21% effective as of January 1, 2018. The statutory federal income tax rate applicable for the Company's fiscal year ending September 30, 2018 is expected to be 24.3% based on a fiscal year blended rate calculation.

~~The Company has made reasonable estimates of the impact of the Tax Act and, in accordance with the SEC's Staff Accounting Bulletin No. 118, has recorded a provisional net income tax~~ expense of approximately $1.1 million for the period ended December 31, 2017. The Company was required to revalue its U.S. deferred tax assets and liabilities to the new rate in the Company's first quarter of 2018. The Company has recorded a provisional estimate for a one-time tax expense of $490 thousand, for the remeasurement of deferred tax assets and liabilities. The Tax Act also requires a mandatory deemed repatriation of undistributed foreign earnings and profits, at the rate of either 15.5% for cash or 8% for non-liquid assets. The Company has included a provisional estimate in the amount of $649 thousand related to the one-time deemed repatriation transition tax on unrepatriated foreign earnings in the quarter ended December 31, 2017. As noted, these expenses have been recorded discretely in the quarter ending December 31, 2017. The provisional amount is based on information currently available, including estimated tax earnings and profits from foreign investments. The Company continues to gather and analyze information, including historical adjustments to earnings and profits of foreign subsidiaries, in order to complete the accounting for the effects of the estimated transition tax.

~~Our provision for income taxes~~ for the three months ended ~~December~~March 31, ~~2017 was $1.1 million. Our provision~~2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program. The deferred tax asset change is a non-cash item. The income ~~taxes~~tax expense for the three months ended ~~December~~March 31, ~~2016 was~~2020 reflected the recording

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of a valuation allowance against deferred tax assets during the quarter, offset by the anticipated tax benefit from the carryback of ~~$15 thousand.~~net operating losses.

We have in general historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full calendar year to ordinary income or loss for the reporting period. However, we used a discrete effective tax rate method to calculate income taxes for the quarter ended March 31, 2021 because we determined that our ordinary income or loss cannot be reliably estimated and small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rates.

Overview of the six months ended March 31, 2021

Our revenues decreased by approximately $8.3 million, or 24%, to $25.5 million for the six months ended March 31, 2021 as compared to $33.7 million for the prior year. The decrease in overall revenue for the six months ended March 31, 2021 as compared to the prior year is primarily the result of an approximately $8.2 million decrease in our TS segment revenue. The is primarily due to decreased sales to several major customers in the U.S. division. Our overall gross margin percentage increased to 30% of revenue for the six months ended March 31, 2021 from 25% of revenue for the six months ended March 31, 2020. Our operating loss increased by approximately $0.2 million resulting in an operating loss of $0.7 million for the six months ended March 31, 2021 as compared to operating loss of $0.5 million for prior year period, primarily as a result of decreased product revenues, which was partially offset by overall increased gross margin as a percentage of revenue. Other income, (expense) net increased by $1.4 million primarily due the gain on forgiveness of the Payroll Protection Program loans, partially offset by an increase in foreign exchange loss of $0.8 million. An income tax ~~provision~~expense of $833 thousand was recorded for the ~~current period is not comparable~~six months ended March 31, 2021 compared to an income tax expense of $1.1 million in the same period of 2020. The income tax expense for the six months ended March 31, 2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program. The deferred tax asset change is a non-cash item.

The following table details our results of operations in dollars and as a percentage of sales for the six months ended March 31, 2021 and 2020:


			%				%
	March 31, 2021		of sales		March 31, 2020		of sales

	(Dollar amounts in thousands)
Sales	$	25,476	100	%	$	33,741	100	%
Costs and expenses:
Cost of sales		17,730	70	%		25,227	75	%
Engineering and development		1,491	6	%		1,388	4	%
Selling, general and administrative		6,913	27	%		7,671	23	%
Total costs and expenses		26,134	103	%		34,286	102	%
Operating loss		(658)	(3)	%		(545)	(2)	%
Other income, (expense) net		1,795	7	%		372	1	%
Income (loss) before income taxes		1,137	4	%		(173)	(1)	%
Income tax expense		833	3	%		1,099	3	%
Net income (loss)	$	304	1	%	$	(1,272)	2	%

Revenues

Our total revenues decreased by approximately $8.3 million to $25.5 million for the six months ended March 31, 2021 as compared to $33.7 million of revenues for the prior year.

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TS segment revenue change was as follows for the six months ended March 31, 2021 and 2020:


					Decrease
	2021		2020		$		%

	(Dollar amounts in thousands)
Products	$	17,491	$	25,016	$	(7,525)	(30)	%
Services		5,541		6,209		(668)	(11)	%
Total	$	23,032	$	31,225	$	(8,193)	(26)	%

The decrease in TS segment product revenues of $7.5 million for the six months ended March 31, 2021 as compared to the prior year period is the result of a decrease of $8.4 million in our U.S. division, partially offset with a $0.9 million increase in our U.K. division. The $8.4 million decrease in the U.S. division product revenues is the result of decreased sales to several major customers. The $0.9 million increase in the U.K. division product revenue is due to sales to one customer that did not occur in the prior year. The decrease in TS segment service revenues of $0.7 million for the six months ended March 31, 2021 as compared to the prior year period is attributable to the U.S. division and is primarily the result of a decrease of a $1.3 million decrease in internal and third party service revenues, partially offset by an increase of $0.5 million in third party maintenance revenue primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue) and a $0.1 million increase in managed service contract revenues.

HPP segment revenue change was as follows for the six months ended March 31, 2021 and 2020:


					Increase (decrease)
	2021		2020		$		%

	(Dollar amounts in thousands)
Products	$	1,892	$	1,689	$	203	12	%
Services		552		827		(275)	(33)	%
Total	$	2,444	$	2,516	$	(72)	(3)	%

The HPP product revenue increase of $0.2 million for the six months ended March 31, 2021 as compared to the prior year is primarily due to increased Multicomputer sales of approximately $0.4 million, partially offset with a decrease of $0.2 million from Myricom product sales. The decrease in HPP services revenues of approximately $0.3 million is primarily the result of a decrease in repair revenue.

Our revenues by geographic area, which is based on the customer location to which the products were shipped or services rendered, were as follows for the six months ended March 31, 2021 and 2020:


									Increase (decrease)
	2021		%		2020		%		$		%

	(Dollar amounts in thousands)
Americas	$	22,783	90	%	$	32,268	95	%	$	(9,485)	(29)	%
Europe		2,320	9	%		1,282	4	%		1,038	81	%
Asia		373	1	%		191	1	%		182	95	%
Totals	$	25,476	100	%	$	33,741	100	%	$	(8,265)	(24)	%

The $9.5 million decrease in the Americas revenues for the six months ended March 31, 2021 as compared to the same prior year period is primarily due to decreased revenue by our TS U.S. division of $9.2 million and decreased revenue by our HPP segment of $0.3 million. The $1.0 million increase in Europe revenue for the six month period ended March 31, 2021 as compared to the prior year is primarily due to increased sales by our TS U.K. division of $0.8 million, increased sales by our TS U.S. division of $0.1 million, and increased sales in our HPP segment of $0.1 million. The $0.2 million increase in Asia revenue for the six month period March 31, 2021 as compared to the prior year is primarily due to increased sales by our HPP segment.

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Gross Margins

Our gross margin ("GM") decreased by $0.8 million to $7.7 million for the six months ended March 31, 2021 as compared to a gross margin of approximately $8.5 million for the prior year. However, the GM as a percentage of revenue increased to 30% for the six months ended March 31, 2021 from 25% for the prior year.


	2021				2020				Increase (Decrease)

	(Dollar amounts in thousands)
	GM$		GM%		GM$		GM%		GM$		GM%
TS	$	6,321	27	%	$	7,180	23	%	$	(859)	4	%
HPP		1,425	58	%		1,334	53	%		91	5	%
Total	$	7,746	30	%	$	8,514	25	%	$	(768)	5	%

The impact of product mix within our TS segment on gross margin for the ~~Tax Act, changes~~six months ended March 31, 2021 and 2020 is as follows:


	2021				2020				Increase (decrease)
	GM$		GM%		GM$		GM%		GM$		GM%

	(Dollar amounts in thousands)
Products	$	2,980	17	%	$	3,492	14	%	$	(512)	3	%
Services		3,341	60	%		3,688	59	%		(347)	1	%
Total	$	6,321	27	%	$	7,180	23	%	$	(859)	4	%

The overall TS segment GM as a percentage of sales increased to 27% for the six months ended March 31, 2021 from 23% for the same prior year period. The 3% increase in ~~pretax~~GM on product as a percentage of product sales is primarily due to significant pricing discounts given to the U.S. division from several manufacturers that were not given in the prior year. The 1% increase in GM on services as a percentage of services sales is due to increased volume of managed services and increased third party maintenance revenues primarily related to sales of security and cloud based software as well as maintenance (all recorded as net revenue).

The impact of product mix within our HPP segment on gross margin for the six months ended March 31, 2021 and 2020 is as follows:


	2021				2020				Increase (Decrease)

	(Dollar amounts in thousands)
	GM$		GM%		GM$		GM%		GM$		GM%
Products	$	901	48	%	$	576	34	%	$	325	14	%
Services		524	95	%		758	92	%		(234)	3	%
Total	$	1,425	58	%	$	1,334	53	%	$	91	5	%

The overall HPP segment GM as a percentage of sales increased to 58% for the period from 53% in the prior year period. The 5% increase in total GM as a percentage of sales in the HPP segment is primarily attributed to product mix in both product and service revenue combined with a reduction in manufacturing overhead expenses.

Operating Expenses

Engineering and Development Expenses

Engineering and development expenses increased by $0.1 million to $1.5 million for the six months ended March 31, 2021 as compared to the prior year. The current period expenses were primarily for product engineering expenses incurred in connection with continued development of the ARIA SDS cyber security products.

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Selling, General and Administrative Expenses

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the six months ended March 31, 2021 and 2020:


	For the six months ended March 31,
			% of				% of		$ Decrease		% Decrease
	2021		Total		2020		Total

	(Dollar amounts in thousands)
By Operating Segment:
TS segment	$	4,786	69	%	$	5,438	71	%	$	(652)	(12)	%
HPP segment		2,127	31	%		2,233	29	%		(106)	(5)	%
Total	$	6,913	100	%	$	7,671	100	%	$	(758)	(10)	%

SG&A expenses decreased by approximately $0.8 million, or 10%, for the six months ended March 31, 2021 as compared to the prior year. The $0.7 million decrease in TS segment expenses is primarily attributed to decreased payroll, variable compensation expenses, and travel. The HPP segment $0.1 million decrease, or 5%, for the six months ended March 31, 2021 as compared to the prior year is primarily due to decreased stock compensation and travel expenses.

Other Income/Expenses

The following table details other income ~~over many jurisdictions,~~(expense) for the six months ended March 31, 2021 and 2020:


	For the six months ended
					$ Increase
	March 31, 2021		March 31, 2020		(Decrease)

	(Amounts in thousands)
Interest expense	$	(113)	$	(112)	$	(1)
Interest income		231		336		(105)
Foreign exchange (loss) gain		(621)		144		(765)
Gain on debt forgiveness		2,196		—		2,196
Other income, net		102		4		98
Total other income (expense), net	$	1,795	$	372	$	1,423

The $1.4 million increase to total other income (expense), net for the six months ended March 31, 2021 as compared to the prior year is primarily driven by a gain on debt forgiveness of $2.2 million, partially offset by an increase in foreign exchange loss of $0.8 million. The U.K. division has significant bank accounts with U.S. dollars and Euros. In consolidation, U.S. dollars and Euros are remeasured into the functional currency, British Pounds, of our U.K. subsidiary. This non-cash remeasurement is included in foreign exchange gain or loss on the income statement and the ~~impact~~foreign exchange loss is primarily from a Euro and U.S. Dollar bank account. The US dollar and Euro weakened relative to the British Pound for the six months ended March 31, 2021, which caused the foreign exchange loss.

The decrease in interest income of ~~discrete items. Generally, fluctuations~~$105 thousand is primarily related to agreements that have payment terms in excess of one year (see Note 6) from the TS-US segment.

Income Taxes

The income tax expense of $833 thousand for the six months ended March 31, 2021 is primarily driven by an increase in the valuation allowance against deferred tax assets in the period, offset by a benefit recorded for a change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program. The deferred tax asset change is a non-cash item. The income tax expense for the three months ended March 31, 2020 reflected the recording of a valuation allowance against deferred tax assets during the quarter, offset by the anticipated tax benefit from the carryback of net operating losses.

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We have in general historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate ~~are primarily due~~for the full calendar year to ordinary income or loss for the reporting period. However, we used a discrete effective tax rate method to calculate income taxes for the quarter ended March 31, 2021 because we determined that our ordinary income or loss cannot be reliably estimated and small changes in ~~our geographic pretax~~estimated ordinary income ~~resulting from our business mix and~~would result in significant changes in the estimated annual effective tax ~~impact of permanent differences, other special items, and other discrete tax items, which may have unique tax implications depending on the nature of the item.~~

rates.

Liquidity and Capital Resources

Our primary source of liquidity is our cash and cash equivalents, which increased by ~~$4.3~~$1.1 million to ~~$18.2~~$20.4 million as of ~~December~~March 31, ~~2017~~2021 from ~~$13.9~~$19.3 million as of September 30, ~~2017.~~

~~Significant~~2020.

Our significant sources of cash for ~~the~~ ~~three~~six months ended ~~December~~March 31, ~~2017~~2021 included ~~a decrease in accounts receivable of $7.4 million,~~ an increase in accounts payable and accrued expenses of ~~$2.0~~$1.7 million, a decrease in ~~deferred tax assets~~inventories of ~~$0.5~~$1.0 million, and an increase in ~~income taxes payable~~deferred revenue of ~~$0.4~~$0.5 million.

~~Significant~~

Our significant uses of cash for the ~~three~~six months ended ~~December~~March 31, ~~2017 included an increase in other current assets of $1.9 million, an increase in inventories of $1.3 million, an increase in deferred~~2021 are primarily related to the HPP division engineering and development costs of ~~$1.2~~$1.5 million ~~a net loss of $1.2 million, and a decrease in deferred revenues of $0.7 million.~~

~~Cash~~causing the operating loss.

Our cash held by our foreign ~~subsidiaries located~~subsidiary in ~~Germany and~~ the United Kingdom totaled approximately ~~$5.8~~$9.9 million as of ~~December~~March 31, ~~2017 as compared to $4.6~~2021 consisted of 0.8 million ~~as of September 30, 2017.~~Euros, 0.3 million British Pounds, and 8.4 million U.S. Dollars. This cash is included in our total cash and cash equivalents reported ~~above.~~

within the financial statements.

As of March 31, 2021 and September 30, 2020, the Company maintained a line of credit with a capacity of up to $15.0 million for inventory accessible to both the HPP and TS segments. This line of credit also includes availability of a limited cash withdrawal of up to $1.0 million. An amount of $13.8 million and $13.4 million were available as of March 31, 2021 and September 30, 2020, respectively. As of March 31, 2021 and September 30, 2020 there were no cash withdrawals outstanding.

During the second quarter of fiscal year 2021 we entered into two multi-year agreements that involved us selling goods and services in which we were an agent and therefore recorded net revenue for the transactions. These agreements combined involved us receiving approximately $9.0 million over four years and us making payments of around $8.7 million over four years with similar dates to when we would be receiving payments.

If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through ~~lines of credit, the equity markets,~~bank loans or other means. ~~There is no assurance that we will be able to raise any such capital on terms acceptable to us, on a timely basis or at all.~~ If we are unable to secure additional financing, we may not be able to complete ~~the~~ development or enhancement of ~~our~~ products, take advantage of future opportunities, respond to competition, retain key employees, or continue to effectively operate our business.

On April 17, 2020, the Company and Modcomp, Inc., its wholly owned subsidiary each received a loan (“SBA Loans”) in the form of a promissory note from Paragon Bank in the amounts of $827,000 and $1,353,600, respectively under the Paycheck Protection Program, which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. The SBA loans had a two-year term and carried an annual fixed interest rate of 1%. The SBA Loans were forgiven in full by the SBA in the first quarter of fiscal year 2021.

Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash received from the SBA loans, the cash generated from operations, and availability on our ~~lines~~line of credit will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the ~~foreseeable future.~~

date of this filing.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~December~~March 31, ~~2017.~~2021. Our Chief Executive Officer, our Chief Financial Officer and other members of our senior management team supervised and participated in this evaluation. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~December~~March 31, ~~2017,~~2021, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective, due to the fact that we are not yet able to conclude that the material weakness described ~~below~~ in this Item 4 has been remediated by the changes we made in response to that material weakness.

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the period ended September 30, ~~2017,~~2020, our management identified a material weakness as of such date. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be able to be prevented or detected in a timely basis. The identified material weakness is in connection with ~~our~~internal controls over the revenue recognition process, ~~at our foreign subsidiaries,~~ specifically ~~whether revenue recognition criteria have been satisfied prior to recognizing revenue and~~ the failure to ~~sufficiently assess gross versus net revenue indicators~~properly identify whether the Company was to be considered the principal or the agent in certain ~~revenue~~ transactions. We determined that controls over the revenue recognition process were not operating effectively and the resulting control gap amounted to a material weakness in our controls over financial reporting.

During the ~~periods~~period following our initial identification of the material weakness referred to above, management assessed various alternatives to remediate this material weakness and we implemented changes to our system of internal controls, which included the implementation of enhanced internal auditing procedures, whereby revenue transactions are subjected to an additional review process at the corporate level to ensure the correct accounting methodology is applied to all revenue transactions. During the three months ended December 31, 2017, management continued to take additional actions to upgrade our international accounting staff and improved accounting operations in our European divisions. Although we have implemented such changes to our internal controls over financial reporting as described above, at this time, we cannot conclude that the material weakness has been remediated and we will continue to make ~~personnel~~ changes and upgrade systems and processes throughout fiscal year ~~2018.~~

2021.

Changes in Internal Control over Financial ~~Reporting.~~

Reporting

During the ~~three~~six months ended ~~December~~March 31, ~~2017, management implemented process improvements and made certain changes~~2021, there was a significant change in controls related to ~~upgrade its internal accounting staff and improve operations in our European division in connection with~~ the ~~identified~~ material weakness ~~noted~~discussed above. ~~During~~Controls around classifying whether the ~~three months ended December 31, 2017, there were no other~~Company is considered the principal or the agent in transactions have been redesigned and implemented, which are intended to remediate the material weakness.

Prior to these changes, the Company’s primary procedure to find transactions that should be recorded “net” was reliance on a search of key words in ~~our internal~~the item description and stock-keeping unit. The primary control ~~over~~failure related to the key words identifying certain items where the Company was the principal, but the item was incorrectly recorded on a net basis. As a result, the primary identifier is not on the reliance of key words. Instead, the new enhanced procedures include review of every line item with additional levels of review from both sales and financial ~~reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.~~management

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PART II. OTHER INFORMATION

Item 1A. Risk factors

There have been no material changes to the risk factors set forth in Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Item 6. Exhibits


Number		Description
~~Number~~ 31.1*		~~Description~~
~~10.1~~*		~~Executive Retention and Service Agreement with Victor Dellovo, dated September 4, 2012~~

~~10.2~~*		~~Forms of Employee Restricted Stock Award Agreement~~

~~31.1~~*		Rule 13(a)-14(a) / 15d-14(a) Certification of Chief Executive Officer

~~31.2~~* 31.2*		Rule 13(a)-14(a) / 15d-14(a) Certification of Chief Financial Officer

~~32.1~~* 32.1*		Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
101*
101*		Interactive Data Files regarding (a) our Consolidated Balance Sheets as of ~~December~~March 31, ~~2017~~2021 and September 30, ~~2017,~~2020, (b) our Consolidated Statements of Income for the three and six months ended ~~December~~March 31, ~~2017~~2021 and ~~2016,~~2020, (c) our Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended ~~December~~March 31, ~~2017~~2021 and ~~2016,~~2020, (d) our Consolidated Statement of Shareholders’ Equity for the three and six months ended ~~December~~March 31, ~~2017,~~2021 and 2020, (e) our Consolidated Statements of Cash Flows for the three and six months ended ~~December~~March 31, ~~2017~~2021 and ~~2016~~2020 and (f) the Notes to such Consolidated Financial Statements.

*Filed Herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CSP INC.

May 13, 2021	~~CSP INC.~~
By:
~~Date: February 14, 2018~~	~~By:~~	/s/ Victor Dellovo
		Victor Dellovo
		Chief Executive Officer,
		President and Director

~~Date: February 14, 2018~~ May 13, 2021	By:	/s/ Gary W. Levine
		Gary W. Levine
		Chief Financial Officer

~~Exhibit Index~~



~~Number~~		~~Description~~
~~10.1~~*		~~Executive Retention and Service Agreement with Victor Dellovo, dated September 4, 2012~~

~~10.2~~*		~~Forms of Employee Restricted Stock Award Agreement~~

~~31.1~~*		~~Rule 13(a)-14(a) / 15d-14(a) Certification of Chief Executive Officer~~

~~31.2~~*		~~Rule 13(a)-14(a) / 15d-14(a) Certification of Chief Financial Officer~~

~~32.1~~*		~~Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer~~
101*		Interactive Data Files regarding (a) our Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017, (b) our Consolidated Statements of Income for the three months ended December 31, 2017 and 2016, (c) our Consolidated Statements of Comprehensive Income for the three months ended December 31, 2017 and 2016, (d) our Consolidated Statement of Shareholders’ Equity for the three months ended December 31, 2017 (e) our Consolidated Statements of Cash Flows for the three months ended December 31, 2017 and 2016 and (f) the Notes to such Consolidated Financial Statements.

*Filed Herewith



	December 31, 2017			September 30, 2017
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,190		$	13,885
Accounts receivable, net of allowances of $240 and $261	19,935			27,630
Unbilled accounts receivable	1,169			772
Inventories	7,158			5,971
Deferred costs	2,156			929
Other current assets	3,105			1,139
Total current assets	51,713			50,326
Property, equipment and improvements, net	1,482			1,508

Other assets:
Intangibles, net	137			167
Deferred costs	647			609
Deferred income taxes	2,350			2,827
Cash surrender value of life insurance	3,395			3,300
Other assets	193			191
Total other assets	6,722			7,094
Total assets	$	59,917		$	58,928

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	21,313		$	18,845
Deferred revenue	5,624			6,202
Pension and retirement plans	539			534
Income taxes payable	316			442
Total current liabilities	27,792			26,023
Pension and retirement plans	11,914			11,818
Income taxes payable	561			—
Other long term liabilities	160			86
Total liabilities	40,427			37,927

Commitments and contingencies

Shareholders’ equity:
Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 3,974 and 3,935 shares, respectively	40			40
Additional paid-in capital	13,847			13,717
Retained earnings	15,770			17,407
Accumulated other comprehensive loss	(10,167		)	(10,163		)
Total shareholders’ equity	19,490			21,001
Total liabilities and shareholders’ equity	$	59,917		$	58,928



	For the three months ended
	December 31, 2017			December 31, 2016
Sales:
Product	$	15,643		$	14,638
Services	6,356			5,278
Total sales	21,999			19,916

Cost of sales:
Product	13,030			12,225
Services	3,836			3,239
Total cost of sales	16,866			15,464

Gross profit	5,133			4,452

Operating expenses:
Engineering and development	698			596
Selling, general and administrative	4,428			3,958
Total operating expenses	5,126			4,554

Operating income (loss)	7			(102		)

Other income (expense):
Foreign exchange gain (loss)	(93		)	54
Other expense, net	(12		)	(10		)
Total other income (expense)	(105		)	44
Loss before income taxes	(98		)	(58		)
Income tax expense (benefit)	1,102			(15		)
Net loss	$	(1,200	)	$	(43	)
Net loss attributable to common stockholders	$	(1,200	)	$	(43	)
Net loss per share – basic	$	(0.32	)	$	(0.01	)
Weighted average shares outstanding – basic	3,768			3,671
Net loss per share – diluted	$	(0.32	)	$	(0.01	)
Weighted average shares outstanding – diluted	3,768			3,671



	Shares		Amount		Additional Paid-in Capital		Retained Earnings			Accumulated other comprehensive loss			Total Shareholders’ Equity
Balance as of September 30, 2017	3,935		$	40	$	13,717	$	17,407		$	(10,163	)	$	21,001
Net loss	—		—		—		(1,200		)	—			(1,200		)
Other comprehensive loss	—		—		—		—			(4		)	(4		)
Exercise of stock options	1		—		9		—			—			9
Stock-based compensation	—		—		121		—			—			121
Restricted stock cancellation	(13	)	—		—		—			—			—
Restricted stock issuance	51		—		—		—			—			—
Cash dividends declared on common stock ($0.11 per share)	—		—		—		(437		)	—			(437		)
Balance as of December 31, 2017	3,974		$	40	$	13,847	$	15,770		$	(10,167	)	$	19,490



	For the three months ended
	December 31, 2017			December 31, 2016
	(Amounts in thousands except per share data)
Net loss	$	(1,200	)	$	(43	)
Less: net income attributable to nonvested common stock	—			��
Net loss attributable to common stockholders	$	(1,200	)	$	(43	)

Weighted average total shares outstanding – basic	3,768			3,671
Less: weighted average non-vested shares outstanding	—			—
Weighted average number of common shares outstanding – basic	3,768			3,671
Potential common shares from non-vested stock awards and the assumed exercise of stock options	—			—
Weighted average common shares outstanding – diluted	3,768			3,671

Net loss per share – basic	$	(0.32	)	$	(0.01	)
Net loss per share – diluted	$	(0.32	)	$	(0.01	)



	December 31, 2017		September 30, 2017
	(Amounts in thousands)
Raw materials	$	1,395	$	1,334
Work-in-process	206		260
Finished goods	5,557		4,377
Total	$	7,158	$	5,971



	For the Three Months Ended December 31,
	2017									2016
	Foreign			U.S.			Total			Foreign			U.S.			Total
	(Amounts in thousands)
Pension:
Service cost	$	10		$	—		$	10		$	10		$	—		$	10
Interest cost	116			7			123			93			11			104
Expected return on plan assets	(75		)	—			(75		)	(65		)	—			(65		)
Amortization of:
Amortization of net gain (loss)	60			(1		)	59			91			(1		)	90
Net periodic benefit cost	$	111		$	6		$	117		$	129		$	10		$	139

Post Retirement:
Service cost	$	—		$	10		$	10		$	—		$	10		$	10
Interest cost	—			12			12			—			10			10
Amortization of net gain (loss)	—			(4		)	(4		)	—			4			4
Net periodic cost (benefit)	$	—		$	18		$	18		$	—		$	24		$	24



	Fair Values as of
	December 31, 2017								September 30, 2017
	Fair Value Measurements Using Inputs Considered as								Fair Value Measurements Using Inputs Considered as
Asset Category	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(Amounts in thousands)
Cash on deposit	$	51	$	51	$	—	$	—	$	62	$	62	$	—	$	—
Pooled funds	8,428		8,428		—		—		8,177		8,177		—		—
Total plan assets	$	8,479	$	8,479	$	—	$	—	$	8,239	$	8,239	$	—	$	—



				Technology Solutions Segment
For the three months ended December 31,	High Performance Products Segment			Germany			United Kingdom			U.S.		Total			Consolidated Total
	(Amounts in thousands)
2017
Sales:
Product	$	1,607		$	1,974		$	2,542		$	9,520	$	14,036		$	15,643
Service	863			3,395			165			1,933		5,493			6,356
Total sales	2,470			5,369			2,707			11,453		19,529			21,999
Income (loss) from operations	(382		)	(158		)	142			405		389			7
Assets	16,664			20,949			2,520			19,784		43,253			59,917
Capital expenditures	10			65			—			34		99			109
Depreciation and amortization	56			47			1			67		115			171

2016
Sales:
Product	$	1,527		$	2,080		$	701		$	10,330	$	13,111		$	14,638
Service	1,224			3,059			104			891		4,054			5,278
Total sales	2,751			5,139			805			11,221		17,165			19,916
Income (loss) from operations	46			(102		)	(206		)	160		(148		)	(102		)
Assets	17,766			15,532			2,873			14,531		32,936			50,702
Capital expenditures	17			44			—			11		55			72
Depreciation and amortization	55			38			3			61		102			157



	December 31, 2017			% of sales		December 31, 2016			% of sales
	(Dollar amounts in thousands)
Total sales	$	21,999		100	%	$	19,916		100	%
Costs and expenses:
Cost of sales	16,866			77	%	15,464			78	%
Engineering and development	698			3	%	596			3	%
Selling, general and administrative	4,428			20	%	3,958			20	%
Total costs and expenses	21,992			100	%	20,018			101	%
Operating income (loss)	7			—	%	(102		)	(1	)%
Other income (expense)	(105		)	—	%	44			—	%
Loss before income taxes	(98		)	—	%	(58		)	(1	)%
Income tax expense (benefit)	1,102			5	%	(15		)	—	%
Net loss	$	(1,200	)	(5	)%	$	(43	)	(1	)%



					Increase (decrease)
	2017		2016		$			%
	(Dollar amounts in thousands)
Products	$	1,607	$	1,527	$	80		5	%
Services	863		1,224		(361		)	(29	)%
Total	$	2,470	$	2,751	$	(281	)	(10	)%



					Increase
	2017		2016		$		%
	(Dollar amounts in thousands)
Products	$	14,036	$	13,111	$	925	7	%
Services	5,493		4,054		1,439		35	%
Total	$	19,529	$	17,165	$	2,364	14	%



	For the three months ended December 31,
	2017		% of Total		2016		% of Total		$ Increase		% Increase
	(Dollar amounts in thousands)
By Operating Segment:
HPP segment	$	1,146	26	%	$	1,118	28	%	$	28	3	%
TS segment	3,282		74	%	2,840		72	%	442		16	%
Total	$	4,428	100	%	$	3,958	100	%	$	470	12	%



	For the three months ended,
	December 31, 2017			December 31, 2016			Increase (decrease)
	(Amounts in thousands)
Interest expense	$	(18	)	$	(19	)	$	1
Interest income	5			4			1
Foreign exchange gain (loss)	(93		)	54			(147		)
Other income, net	1			5			(4		)
Total other income (expense), net	$	(105	)	$	44		$	(149	)