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 December 31, ~~2019~~2020

☐◻ 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~~0-10843

CSP Inc.

(Exact name of Registrant as specified in its charter)

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

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

(978)~~‑954‑5038~~-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 ☒ No ☐.◻.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐.◻.

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~~12b-2 of the Exchange Act.


Large accelerated filer	☐◻	Accelerated filer	☐◻

Non-accelerated filer	☒⌧	Smaller reporting company	☒⌧

Emerging growth company	☐

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. ☐◻

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

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 ~~7, 2020,~~5, 2021, the registrant had ~~4,238,596~~4,373,966 shares of common stock issued and outstanding.

Table of Contents

INDEX

~~INDEX~~

		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets (unaudited) as of December 31, ~~2019~~2020 and September 30, ~~2019~~2020	3


	Consolidated Statements of Operations (unaudited) for the three months ended December 31, ~~2019~~2020 and ~~2018~~2019	4


	Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (unaudited) for the three months ended December 31, ~~2019~~2020 and ~~2018~~2019	5


	Consolidated Statement of Shareholders’ Equity (unaudited) for the three months ended December 31, ~~2019~~2020 and ~~2018~~2019	6


	Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, ~~2019~~2020 and ~~2018~~2019	7


	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 20

Item 4.	Controls and Procedures	29 26

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	27

Item 6.	Exhibits	30 27

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CSP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)


	December 31,		September 30,
	2019		2019
		(Unaudited)

					December 31,		September 30,
					2020		2020
					(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	17,627	$	18,099	$	19,927	$	19,264
Accounts receivable, net of allowances of $160 and $138		12,470		15,114
Accounts receivable, net of allowances of $176 and $181						12,122		13,362
Investment in lease, net-current portion		383		367		251		336
Inventories		5,507		7,818		5,846		5,285
Refundable income taxes		555		487		1,332		807
Other current assets		4,546		4,649		2,461		2,535
Total current assets		41,088		46,534		41,939		41,589




Property, equipment and improvements, net		1,356		1,273		978		1,047
Operating lease right-of-use assets		2,288		—		1,847		2,014
Intangibles, net		35		37		26		28
Investment in lease, net-less current portion		319		417		63		81
Long-term receivable		5,258		5,328		3,542		3,642
Deferred income taxes		1,947		1,946		515		1,149
Cash surrender value of life insurance		3,808		3,718		3,981		3,948
Other assets		149		116		146		147
Total assets	$	56,248	$	59,369	$	53,037	$	53,645


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	11,112	$	16,175	$	8,888	$	8,523
Line of credit		871		2,459		802		1,573
Notes payable - current portion		694		317		729		1,613
Deferred revenue		1,433		741		1,212		947
Pension and retirement plans		349		335		322		321
Total current liabilities		14,459		20,027		11,953		12,977
Pension and retirement plans		7,275		6,904		6,767		6,471
Notes payable - noncurrent portion		1,838		684		1,109		2,485
Operating lease liabilities - noncurrent portion		1,679		—		1,216		1,390
Income taxes payable		694		694		586		586
Other noncurrent liabilities		505		632		154		202
Total liabilities		26,450		28,941		21,785		24,111

Commitments and contingencies


Shareholders’ equity:
Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 4,154 and 4,154 shares, respectively		42		42
Common stock, $.01 par value per share; authorized, 7,500 shares; issued and outstanding 4,276 and 4,276 shares, respectively						43		43
Additional paid-in capital		15,940		15,733		17,259		16,994
Retained earnings		26,083		27,246		25,643		24,492
Accumulated other comprehensive loss		(12,267)		(12,593)		(11,693)		(11,995)
Total shareholders’ equity		29,798		30,428		31,252		29,534
Total liabilities and shareholders’ equity	$	56,248	$	59,369	$	53,037	$	53,645

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
	December 31,		December 31,
	2019		2018

					For the three months ended
					December 31,		December 31,
					2020		2019
Sales:
Product	$	13,222	$	15,711	$	8,408	$	13,559
Services		3,350		3,269		2,980		3,299
Total sales		16,572		18,980		11,388		16,858


Cost of sales:
Product		11,318		13,212		6,949		11,604
Services		1,223		1,419		1,061		1,223
Total cost of sales		12,541		14,631		8,010		12,827


Gross profit		4,031		4,349		3,378		4,031


Operating expenses:
Engineering and development		672		745		729		672
Selling, general and administrative		3,761		3,589		3,186		3,761
Total operating expenses		4,433		4,334		3,915		4,433
Operating (loss) income		(402)		15

Operating loss						(537)		(402)

Other income (expense):
Foreign exchange (loss) gain		(335)		7
Foreign exchange loss						(467)		(335)
Interest expense		(57)		(27)		(38)		(57)
Interest income		173		55		98		173
Other income, net		11		2
Gain on extinguishment of debt						2,196		—
Other income						9		11
Total other income (expense)		(208)		37		1,798		(208)
(Loss) income before income taxes		(610)		52
Income tax (benefit) expense		(70)		2
Net (loss) income		(540)		50
Net (loss) income attributable to common stockholders	$	(540)	$	48

Net (loss) income per share – basic	$	(0.14)	$	0.01
Income (loss) before income taxes						1,261		(610)
Income tax expense (benefit)						110		(70)
Net income (loss)					$	1,151	$	(540)
Net income (loss) attributable to common stockholders					$	1,097	$	(540)

Net income (loss) per share – basic					$	0.27	$	(0.14)
Weighted average shares outstanding – basic		3,963		3,868		4,074		3,963
Net (loss) income per share – diluted	$	(0.14)	$	0.01
Net income (loss) per share – diluted					$	0.26	$	(0.14)
Weighted average shares outstanding – diluted		3,963		3,966		4,172		3,963

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(Amounts in thousands)

For the three months ended

December 31,

December 31,


2019

2018

Net (loss) income

$
(540)

$
50

Other comprehensive income (loss):





Foreign currency translation gain (loss) adjustments

326

(170)

Other comprehensive gain (loss)

326

(170)

Total comprehensive loss

$
(214)

$
(120)


	For the three months ended
	December 31,		December 31,
	2020		2019
Net income (loss)	$	1,151	$	(540)
Foreign currency translation gain adjustments		302		326
Total comprehensive income (loss)	$	1,453	$	(214)

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 31, ~~2019~~2020 and ~~2018:~~2019:

(Amounts in thousands, except per share data)

Accumulated

Additional

other

Total

Paid-in

Retained

comprehensive

Shareholders’
For the three months ended December 31, 2018:

Shares

Amount

Capital

Earnings

loss

Equity
Balance as of September 30, 2018

4,017

$
40

$
14,661

$
29,926

$
(10,825)

$
33,802
Adoption of ASU 2014-09*

—

—

—

158

—

158
Net income

—

—

—

50

—

50
Other comprehensive loss

—

—

—

—

(170)

(170)
Exercise of stock options

1

1

3

—

—

4
Stock-based compensation

—

—

178

—

—

178
Cash dividends declared on common stock ($0.15 per share)

—

—

—

(603)

—

(603)
Balance as of December 31, 2018

4,018

$
41

$
14,842

$
29,531

$
(10,995)

$
33,419

Accumulated

Additional

other

Total

Paid-in

Retained

comprehensive

Shareholders’
For the three months ended December 31, 2019:

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

—

—

—

(540)

—

(540)
Other comprehensive gain

—

—

—

—

326

326
Exercise of stock options

—

—

2

—

—

2
Stock-based compensation

—

—

205

—

—

205
Cash dividends declared on common stock ($0.15 per share)

—

—

—

(623)

—

(623)
Balance as of December 31, 2019

4,154

$
42

$
15,940

$
26,083

$
(12,267)

$
29,798



								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the Three Months Ended December 31, 2019:	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	—		—		—		(540)		—		(540)
Other comprehensive gain	—		—		—		—		326		326
Exercise of stock options	—		—		2		—		—		2
Stock-based compensation	—		—		205		—		—		205
Cash declared on common stock ($0.15 per share)	—		—		—		(623)		—		(623)
Balance as of December 31, 2019	4,154	$	42	$	15,940	$	26,083	$	(12,267)	$	29,798

								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the Three Months Ended December 31, 2020:	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	—		—		—		1,151		—		1,151
Other comprehensive gain	—		—		—		—		302		302
Stock-based compensation	—		—		265		—		—		265
Balance as of December 31, 2020	4,276	$	43	$	17,259	$	25,643	$	(11,693)	$	31,252

* As of October 1, 2018, the Company adopted ASU 2014-09, ~~Revenue from Contracts with Customers~~ ~~(Topic 606)~~

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 three months ended
	December 31,		December 31,
	2019		2018
Cash flows used in operating activities:
Net (loss) income	$	(540)	$	50

Adjustments to reconcile net (loss) income to net cash used in operating activities:

					For the three months ended
					December 31,		December 31,
					2020		2019
Operating activities
Net income (loss)					$	1,151	$	(540)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		123		101		102		123
Amortization of intangibles		2		5		2		2
Loss on sale of fixed assets, net		1		—		—		1
Foreign exchange loss (gain)		335		(7)
Foreign exchange loss						467		335
Non-cash changes in accounts receivable		20		2		(6)		20
Non-cash changes in inventories		116		125		12		116
Non-cash lease expense		164		—		160		164
Stock-based compensation expense on stock options and restricted stock awards		205		178		265		205
Deferred income taxes		(1)		(99)		634		(1)
Increase in cash surrender value of life insurance		(30)		(28)		(33)		(30)
Non-cash other						17		—

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

Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		2,718		(4,128)
Decrease in life insurance receivable		—		256
Decrease in inventories		2,199		629
(Increase) decrease in refundable income taxes		(68)		109
Increase in operating right-of-use assets		(2,288)		—
Decrease (increase) in other assets		80		(703)
Decrease in accounts receivable						1,300		2,718
(Increase) decrease in inventories						(572)		2,199
Decrease (increase) in refundable income taxes						(524)		(68)
Decrease (increase) in operating lease right-of-use assets						8		(2,288)
Decrease in other assets						86		80
Decrease in investment in lease		82		57		102		82
Decrease in long-term receivable		70		—		101		70
(Decrease) increase in accounts payable and accrued expenses		(6,451)		141
Increase in operating lease liabilities		2,320		—
Increase (decrease) in deferred revenue		691		(247)
Increase (decrease) in pension and retirement plans liabilities		9		(78)
Increase (decrease) in income taxes payable		—		(13)
(Decrease) increase in other long-term liabilities		(127)		101
Net cash used in operating activities		(370)		(3,549)

Cash flows used in investing activities:
Increase (decrease) in accounts payable and accrued expenses						415		(6,451)
(Decrease) increase in operating lease liabilities						(155)		2,320
Increase in deferred revenue						265		691
Increase in pension and retirement plans liabilities						15		9
Decrease in other long-term liabilities						(49)		(127)
Net cash provided by (used in) operating activities						1,567		(370)

Investing activities
Life insurance premiums paid		(60)		—		—		(60)
Purchases of property, equipment and improvements		(207)		(233)		(33)		(207)
Net cash used in investing activities		(267)		(233)		(33)		(267)

Cash flows used in financing activities:
Net borrowings under line-of-credit agreement		(1,588)		(410)

Financing activities
Net payments under line-of-credit agreement						(771)		(1,588)
Proceeds from debt		2,037		—		—		2,037
Repayments on debt		(506)		—		(81)		(506)
Principal payments on finance leases		(78)		(70)		(86)		(78)
Proceeds from issuance of shares under equity compensation plans		2		3		—		2
Net cash used in financing activities		(133)		(477)		(938)		(133)
Effects of exchange rate on cash		298		(192)		67		298
Net decrease in cash and cash equivalents		(472)		(4,451)
Net increase (decrease) in cash and cash equivalents						663		(472)
Cash and cash equivalents beginning of period		18,099		25,107		19,264		18,099
Cash and cash equivalents at end of period	$	17,627	$	20,656	$	19,927	$	17,627


Supplementary cash flow information:
Cash paid for income taxes	$	—	$	—	$	2	$	—
Cash paid for interest	$	111	$	67	$	94	$	111
Non-cash accrual of dividend payable	$	623	$	603	$	—	$	623

Supplementary non-cash financing activities:
Gain on extinguishment 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 MONTHS ENDED DECEMBER 31, ~~2019~~2020

Organization and Business

CSP Inc. ("CSPi" or "CSPI" or "the Company" or "we" or "our") was incorporated in 1968 and is based in Lowell, Massachusetts. CSPi and its subsidiaries develop and market IT integration solutions, advanced security products, managed IT services, purpose built network adapters, and high-performance cluster computer 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.

1. Basis of Presentation

The accompanying 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~~10-K for the fiscal year ended September 30, ~~2019.~~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 first quarter revised numbers 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 14 Segment Information.


	For the three months ended December 31, 2019
	As reported		Adjustment		As revised
Sales:
Product	$	13,222	$	337	$	13,559
Services		3,350		(51)		3,299
Total sales		16,572		286		16,858

Cost of sales:
Product		11,318		286		11,604
Services		1,223		—		1,223
Total cost of sales		12,541		286		12,827

Gross profit	$	4,031	$	—	$	4,031

Operating loss	$	(402)	$	—	$	(402)

Net loss	$	(540)	$	—	$	(540)

Table of Contents

Net loss per share – basic										$	(0.14)		$	—		$	(0.14)
Net loss per share – diluted										$	(0.14)		$	—		$	(0.14)

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. 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 standalone selling price 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 ~~2020~~2021

In ~~February 2016,~~August 2018, the FASB issued ~~ASU 2016‑02,~~ ~~Leases (Topic 842)~~Accounting Standards 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. ~~This~~Under this ASU ~~requires lessees to recognize a right-of-use asset~~existing disclosures not considered cost beneficial are removed, disclosures identified as relevant are added, and ~~lease liability for most lease arrangements, which excludes leases that meet~~there is added clarification regarding specific existing disclosures. For public entities, the ~~definition of a short-term lease. The Company adopted this~~new standard on October 1, 2019 using a modified retrospective transition method with an adjustment to the Consolidated Balance Sheet’s assets and liabilities with no adjustment to prior period. Additionally, prior comparative periods were not restated. A package of three practical expedients that is applicable to all leases as lessee or lessor was adopted. This includes not reassessing whether any expired or existing contracts are or contain leases, not reassessing lease classification for any expired or existing leases, and not reassessing initial direct cost for any existing lease under ASC Topic 840. The Company also elected the practical expedient as a lessee to not separate lease and non-lease components for operating leases. The statement of operations for the three month period ended December 31, 2019 was not materially affected. However, there was a material impact on the Company’s consolidated balance sheet as of December 31, 2019 due to the recognition of right-of-use assets and lease liabilities for operating leases, which is shown in the following table:

~~Table of Contents~~

As reported

ASC 842

As of


September 30, 2019

Adjustment

October 1, 2019

(In thousands)
Assets:

Operating lease right-of-use assets

$
—

$
2,448

$
2,448
Liabilities:

Accounts payable and accrued expenses

16,175

665

16,840
Operating lease liabilities - noncurrent portion

—

1,783

1,783

~~In February 2018, the FASB issued ASU 2018‑02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which allow a reclassification from accumulated other comprehensive income (loss) (“AOCI”) to retained earnings for stranded tax effects resulting from the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). The guidance is effective for ~~fiscal years~~annual periods beginning after December 15, ~~2018, including interim periods within those fiscal years. Early adoption is permitted.~~2020. Beginning October 1, ~~2019,~~2020, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements.

~~In June 2018,~~ The disclosures will be expanded for the ~~FASB issued ASU No. 2018‑07,~~ ~~Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, an amendment of the FASB Accounting Standards Codification. Under~~year ended September 30, 2021 as this ASU companies will no longer be required to value non-employee awards differently from employee awards, but the accounting remains different for attribution and a contractual term election for valuing nonemployee equity share options. Equity-classified awards to nonemployees will now be measured at the grant date using fair value of the equity instruments the company is obligated to issue and recognition is associated with the probable outcome. Awards are subsequently measured using stock compensation guidance unless they are modified after the nonemployee stops providing goods or services. Existing disclosure requirements within the stock compensation guidance also apply to nonemployee awards. For public entities, the new standard ~~is effective for annual periods beginning after December 15, 2018, including~~does not affect interim ~~periods within that fiscal year. Beginning October 1, 2019, the Company adopted the ASU and it did not have a material impact on our consolidated financial statements.~~disclosures.

New accounting standards not adopted as of December 31, ~~2019~~2020

In June 2016, the FASB issued ASU ~~2016‑13,~~ 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, ~~2019,~~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~~2016-13 will have on its consolidated financial statements and related disclosures.

~~In August 2018, the FASB issued 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. The Company is evaluating the effect that ASU 2018‑14 will have on its consolidated financial statements and related disclosures.

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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.

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. 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. We have determined the third-party services contracts are a single performance obligation in each sale. 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.

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.

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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 component includes hardware, which is subject to ASC 842, Leases. The non-lease components are subject to ASC ~~606.~~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.

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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 ~~Myricom~~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.

See disaggregated revenues below by products/services and geography.


			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated

													Technology Solutions Segment
											High
											Performance
											Products		United						Consolidated
For the three months ended December 31,	Segment		Kingdom		U.S.		Total		Total		Segment		Kingdom		U.S.		Total		Total
	(Amounts in thousands)
2019
											(Amounts in thousands)
2020
Sales:
Product	$	767	$	553	$	11,876	$	12,429	$	13,196	$	1,176	$	1,403	$	5,818	$	7,221	$	8,397
Service		274		126		2,950		3,076		3,350		380		87		2,513		2,600		2,980
Finance *		—		—		26		26		26		—		—		11		11		11
Total sales	$	1,041	$	679	$	14,852	$	15,531	$	16,572	$	1,556	$	1,490	$	8,342	$	9,832	$	11,388

			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated
For the three months ended December 31,	Segment		Kingdom		U.S.		Total		Total
	(Amounts in thousands)
2018
Sales:
Product	$	1,733	$	1,732	$	12,209	$	13,941	$	15,674
Service		293		70		2,906		2,976		3,269
Finance *		—		—		37		37		37
Total sales	$	2,026	$	1,802	$	15,152	$	16,954	$	18,980

													Technology Solutions Segment

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

	(Amounts in thousands)
2019
Sales:
Product	$	767	$	553	$	12,213	$	12,766	$	13,533
Service		274		126		2,899		3,025		3,299
Finance *		—		—		26		26		26
Total sales	$	1,041	$	679	$	15,138	$	15,817	$	16,858

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

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 ~~using~~based on the estimated relative selling price or a budgeted cost-plus margin ~~approach.~~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 ~~performed~~ 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.

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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 ~~$1.0~~$0.8 million and ~~$0.6~~$1.0 million as of December 31, ~~2019~~2020 and September 30, ~~2019,~~2020, respectively. The current portion is recorded in other current assets on the consolidated balance sheets. There were no non-current contract assets as of December 31, ~~2019~~2020 and September 30, ~~2019.~~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~~$1.2 million and ~~$0.7~~$0.9 million as of December 31, ~~2019~~2020 and September 30, ~~2019,~~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 ~~$0.3~~$0.2 million and ~~$0.3~~$0.2 million as of December 31, ~~2019~~2020 and September 30, ~~2019.~~2020, respectively. These non-current liabilities are recorded in other noncurrent liabilities. Revenue recognized for the year ended ~~September 30, 2019~~December 31, 2020 that was included in contract liabilities as of the beginning of the period was $0.3 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~~340-40-25-4. For a period greater than one year, incremental contract costs are capitalized if the Company expects to recover these costs. ~~These costs are only capitalized if the contract is obtained.~~ 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 ~~account~~ other current assets on the consolidated balance sheets ~~for the periods ended~~as of December 31, ~~2019~~2020 and September 30, ~~2019.~~2020. The portion of current capitalized costs ~~was $84~~were $104 thousand and ~~$85~~$130 thousand as of December 31, ~~2019~~2020 and September 30, ~~2019,~~2020, respectively. There are no non-current capitalized costs on the consolidated balance ~~sheets.~~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 December 31, 2020 and 2019 ~~was~~were $87 thousand and $78 ~~thousand.~~thousand, respectively. This is recorded in selling, general, and administrative expenses. There was no impairment related to incremental costs capitalized during the three ~~months~~ ended December 31, ~~2019.~~2020.

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 ~~account~~ other current assets and noncurrent costs are in other assets on the consolidated balance sheets. The portion of current capitalized costs ~~was~~were $13 thousand and ~~$47~~$13 thousand as of December 31, ~~2019~~2020 and September 30, ~~2019,~~2020, respectively. The portion of noncurrent capitalized costs ~~was $31 thousand~~ as of December 31, ~~2019~~2020 and ~~there were not any as of~~ September 30, ~~2019.~~2020 were $18 thousand and $22 thousand, respectively. The amount of fulfillment costs amortized for three months ended December 31, 2020 and 2019 ~~was~~were $3 ~~thousand. This is~~thousand and $3 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. 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. There are certain contracts that do 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.

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The Company has certain contracts that have an original term of more than one year. The royalty agreement is longer than one year, ~~and managed~~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 December 31, ~~2019 is mainly related to managed service contracts and~~2020 is set forth in the table below:


	~~(Amounts in thousands)~~
~~Fiscal 2020 (remaining 9 months)~~	$	~~1,700~~
~~Fiscal 2021~~		~~1,316~~
~~Fiscal 2022~~		~~602~~
~~Fiscal 2023~~		~~191~~
~~Fiscal 2024~~		30
	$	~~3,839~~


	(Amounts in thousands)
Fiscal 2021 (remaining 9 months)	$	1,380
Fiscal 2022		592
Fiscal 2023		210
Fiscal 2024		30
	$	2,212

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)~~loss attributable to common stockholders are as follows:


					For the three months ended
					December 31,		December 31,
					2020		2019

	For the three months ended
	December 31,		December 31,
	2019		2018

Net (loss) income		(540)		50
Less: net income attributable to nonvested common stock		—		2
Net (loss) income attributable to common stockholders	$	(540)	$	48

					(Amounts in thousands except per share data)
Net income (loss)					$	1,151	$	(540)
Less: net income (loss) attributable to nonvested common stock						54		—
Net loss attributable to common stockholders					$	1,097	$	(540)

Weighted average total shares outstanding – basic		3,963		4,018		4,277		3,963
Less: weighted average non–vested shares outstanding		—		150		203		—
Weighted average number of common shares outstanding – basic		3,963		3,868		4,074		3,963
Potential common shares from non–vested stock awards and the assumed exercise of stock options		—		98		98		—
Weighted average common shares outstanding – diluted		3,963		3,966		4,172		3,963

Net (loss) income per share – basic	$	(0.14)	$	0.01
Net (loss) income per share – diluted	$	(0.14)	$	0.01

Net income (loss) per share – basic					$	0.27	$	(0.14)
Net income (loss) per share – diluted					$	0.26	$	(0.14)

Non-vested restricted stock awards of 190,000 shares were excluded from the diluted loss per share calculation for the three months ended December 31, 2019 asbecause there was a net loss for this period and their inclusion would have been anti-dilutive.

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6.6. 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 ~~$1.8~~ $2.4

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million and ~~$5.0~~$3.4 million as of December 31, ~~2019.~~2020. These receivables are included in Accounts Receivable and Long-Term Receivable in the amount of ~~$2.1~~$2.3 million and ~~$5.0~~$3.5 million as of September 30, ~~2019.~~2020, respectively. The receivables with a payment term exceeding one year carry aan average weighted interest rate of ~~6.9%~~6.2%, which reflects the approximate interest rate consistent with a separate financing transaction with the ~~customer.~~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 December 31, ~~2019~~2020 or September 30, ~~2019.~~2020. There was ~~also~~ no activity in the allowance for credit losses of these receivables for the three months ended December 31, ~~2019. There were no sales with a payment term of more than a year as of~~2020 and December 31, ~~2018.~~2019, 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.~~market at the inception of the agreement.

The amount of interest income earned from ~~these agreements~~sales whose payment terms exceed one year for the three months ended December 31, 2020 and 2019 was ~~$0.1 million which~~$92 thousand and $116 thousand, respectively. Interest income from these agreements is recorded in Other income, net on the Consolidated Statements of Operations. ~~There was no interest income earned for the three months ended December 31, 2018 as there were no arrangements with payment terms exceeding one year during the period.~~

Receivables whose payment terms exceed one year are placed on nonaccrual 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 nonaccrual 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)		(Amounts in thousands)
2020 (remaining 9 months)	$	2,137
2021		2,258	$	2,564
2022		1,880	��	2,300
2023		1,423		1,423
Total payments		7,698		6,287
Less: unearned income		860		469
Total, net of unearned income	$	6,838	$	5,818

7.7. Inventories

Inventories consist of the following:


					December 31,		September 30,
					2020		2020

	December 31,		September 30,
	2019		2019
	(Amounts in thousands)
					(Amounts in thousands)
Raw materials	$	771	$	671	$	833	$	574
Work-in-process		203		93		426		213
Finished goods		4,533		7,054		4,587		4,498
Total	$	5,507	$	7,818	$	5,846	$	5,285

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88. . Leases

~~Lessee~~

At the inception of an arrangement, CSP determines whether the arrangement contains a lease. This includes arrangements with goods and services to determine if there is an embedded lease. An arrangement containing a lease would allow the Company the right to control an implicitly or explicitly identified asset. If there is a lease in an arrangement, the classification is determined at inception of the arrangement. Certain leases may contain transfer of ownership or an option to purchase the underlying asset. The most relevant criterion for our lease classification is transfer of ownership, which if included in the arrangement makes the lease a finance lease rather than an operating lease.

The discount rate used to assess classification is the incremental borrowing rate at the commencement date due to the implicit rate not being readily determinable. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The lease term includes periods where we are reasonably certain we will exercise the renewal option. The Company has elected not to apply Subtopic ~~ASC 842-25~~ to short-term leases, which are defined as a lease that has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Therefore, there are no right-of-use assets or lease liabilities related to short-term leases in the Consolidated Balance Sheets and the lease payments are expensed on a straight-line basis over the lease term. Leases are typically not able to be terminated without penalty. None of our lease arrangements contain residual value guarantees, restrictions, or covenants. None of the Company’s current leases are with related parties. There are no lease arrangements that we have entered into as of December 31, 2019 that have not yet commenced.

~~Operating leases~~

The Company has operating leases for office space, data centers, and other information technology equipment under various leases. Operating lease right-of-use assets and liabilities are recognized at the commencement date using the present value of the fixed lease payments over the lease term. We do not have leases with variable consideration. The incremental borrowing rate is used in determining present value. Certain operating leases, primarily office space and IT equipment, have an option to extend the lease. Renewal periods related to certain lease agreements related to office buildings are included in the lease term for lease accounting.

The Company has operating lease agreements with lease components (e.g. fixed payments including rent, real estate taxes, and insurance costs) as well as non-lease components (e.g. common-area maintenance, colocation services). The Company has elected to account for lease and nonlease components as one single lease component for all classes of assets. Lease expense is recognized on a straight-line basis over the lease term.

~~Finance leases~~

The Company has finance leases for information technology equipment and subleases all this equipment (see Lessor section below for details). All finance leases transfer ownership to the Company, which meets the criterion to be a finance lease. Due to our finance leases being subleases, there is no finance right-of-use assets. However, there is a net investment in lease in the Consolidated Balance Sheets.

~~Lessor~~

The Company is a lessor, but only as a sublessor. The process for identifying and classifying a lease is similar to the process described above in the lessee section. Additionally, the most relevant criteria to classification is transfer of ownership and present value of the total lease payments in relation to fair value of the underlying asset. The Company as a lessor has both sales-type and direct financing leases. The Company as a lessor does not have operating leases. All the Company’s sublease agreements are bundled agreements containing managed services, software, and other services. The fixed payments under bundled agreements are allocated based on the relative standalone selling prices of the lease and non-lease deliverables are consistent with ASC 606. The allocation of the fixed payments may be calculated using a

~~Table of Contents~~

budgeted cost-plus margin approach if there are other services in addition to managed services. Due to the complex nature of these contracts, there is significant judgment in allocating the fixed payments. There is no variable consideration in these agreements. The discount rate used as a lessor pertaining to the lease component is the implicit rate. As sublessor, lease agreements contain an option to purchase the underlying asset or transfers ownership at the end of the lease. The leases typically do not have any residual value to the Company. In the Company’s sublessor agreements, the payments allocated to the lease component cannot be terminated. There were no new agreements where the Company was a lessor for the three months ended December 31, 2019.

Information related to both lessee and lessor

~~The following table specifies where the right-of-use assets and lease liabilities are within the Consolidated Balance Sheets as of December 31, 2019 and October 1, 2019 (adoption date):~~

Consolidated Balance Sheets Location

December 31, 2019

October 1, 2019

(Amounts in thousands)

(Amounts in thousands)
Assets

Operating leases
Operating lease right-of-use assets

$
2,288

$
2,448

Lease receivable - current
Investment in lease, net-current portion

$
383

$
367
Lease receivable - noncurrent
Investment in lease, net-less current portion

319

417
    Total lease receivable

$
702

$
784

Liabilities

Current operating lease liabilities
Accounts payable and accrued expenses

$
685

$
746
Non-current operating lease liabilities
Operating lease liabilities - noncurrent portion

1,679

1,783
    Total operating lease liabilities

$
2,364

$
2,529

Current finance lease liabilities
Accounts payable and accrued expenses

$
338

$
333
Non-current finance lease liabilities
Other noncurrent liabilities

240

326
    Total finance lease liabilities

$
578

$
659

The components of lease costs for the three months ended December 31, 2020 and 2019 are as follows:


		Three months ended
	Consolidated Statements of Operations Location	December 31, 2019
		(Amounts in thousands)

					Three months ended
Consolidated Statements of Operations Location				Consolidated Statements of Operations Location	December 31, 2020		December 31, 2019
					(Amounts in thousands)
Finance Lease:
Interest on lease liabilities	Selling, general, and administrative	$	13	Selling, general, and administrative	$	5	$	13
Operating Lease:
Operating lease cost	Selling, general, and administrative		180	Selling, general, and administrative		188		180
Short-term lease cost	Selling, general, and administrative		3	Selling, general, and administrative		3		3
Total lease costs		$	196		$	196	$	196
Less sublease interest income	Revenue		(26)	Revenue		(11)		(26)
Total lease costs, net of sublease interest income		$	170		$	185	$	170

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~~Future lease payments under our non-cancellable leases and payments to be received as a sublessor as of December 31, 2019 are in the following table:~~

Operating lease

Finance lease

Sublease
Fiscal year ending September 30:
Costs

Costs

Payments received

(Amounts in thousands)
2020 (remaining 9 months)
$
574

$
273

$
342
2021

619

285

356
2022

520

51

67
2023

439

5

12
2024

240

—

3
Thereafter

182

—

—
Total
$
2,574

$
614

$
780
Less Imputed interest

(210)

(36)

(78)
Total
$
2,364

$
578

$
702

Supplemental cash flow information related to leases for the three months ended December 31, 2020 and 2019 isare below:


	Three months ended
	December 31, 2019
	(Amounts in thousands)

			Three months ended
			December 31, 2020		December 31, 2019
			(Amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	188	$	191	$	188
Operating cash flows from short-term leases		9		10		9
Operating cash flows from finance leases		13		5		13
Financing cash flows from finance leases		78		86		78
Lease assets obtained in exchange for new lease liabilities
Operating leases		4		—		4
Cash received from subleases		113		113		113

~~Information related to weighted averages of lease term and discount rate as of December 31, 2019 is below:~~


~~Weighted-average remaining lease term (years)~~	~~December 31, 2019~~
~~Operating leases~~	~~4.2~~
~~Finance leases~~	~~2.6~~

~~Weighted-average discount rate~~	~~December 31, 2019~~
~~Operating leases~~	~~4.0%~~
~~Finance leases~~	~~6.1%~~

~~Table of Contents~~

~~Below are ASC 840 disclosures as previously reported in our Form 10-K for the year ended September 30, 2019:~~

~~Lessee~~

~~Operating Leases~~

~~The Company was obligated under non-cancelable operating leases with an initial term in excess of one year as follows:~~

Fiscal year ending September 30:

(Amounts in thousands)
2020 (full year)

$
475
2021

173
2022

58
2023

43
Total

$
749

~~Capital leases~~

~~The Company was obligated under non-cancelable capital leases as follows:~~

Fiscal year ending September 30:

(Amounts in thousands)
2020 (full year)

$
363
2021

285
2022

51
2023

5
Minimum lease payments including interest

$
704
Amount representing interest

(46)
Minimum lease payments excluding interest

$
658

~~Lessor~~

~~A summary of components for the Company’s investment in lease, net is as follows:~~

September 30, 2019

(Amounts in thousands)
Investment in lease, gross
$
889
Unearned income

(105)
Total investment in lease, net
$
784
Current portion
$
367
Noncurrent portion
$
417

~~Table of Contents~~

~~The schedule of future minimum lease payments receivable is as follows:~~

Fiscal year ending September 30:

(Amounts in thousands)
2020 (full year)

$
451
2021

356
2022

67
2023

12
2024

3
Minimum lease payments including interest

$
889
Amount representing interest

(105)
Minimum lease payments excluding interest

$
784

99. . Notes Payable and Line of Credit

In September 2019, the Company borrowed $1.0 million with a 5.0% rate of 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. ~~See Note 6~~

On April 17, 2020, CSP, Inc. and Modcomp, Inc., its wholly owned subsidiary (collectively, the “Borrowers”) each received a loan in the 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

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Loans. The Borrowers did not provide any collateral or guarantees for the ~~disclosure related~~SBA Loans and the Borrowers could prepay the principal of the SBA Loans at any time without penalty.

The Borrowers applied to the ~~receivables.~~ 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 extinguishment of debt.”

Interest expense related to the notes for the three months ended December 31, 2020 and 2019 was $23 thousand and $30 ~~thousand. There was no interest expense related to a note for the three months ended December 31, 2018 as there were no outstanding notes payable as of this date.~~thousand, respectively. Below are details of the notes payable.


	December 31, 2019		September 30, 2019
	(Amounts in thousands)

					December 31, 2020		September 30, 2020
					(Amounts in thousands)
Current	$	808	$	359	$	808	$	1,702
Less: notes discount		114		42		79		89
Notes payable - current portion	$	694	$	317	$	729	$	1,613


Noncurrent		1,974	$	718	$	1,166	$	2,559
Less: notes discount		136		34		57		74
Notes payable - noncurrent portion	$	1,838	$	684	$	1,109	$	2,485

As of December 31, 2020 and September 30, 2020, the Company maintained an inventory line of credit with a borrowing capacity of $15.0 million. It may be used by the TS and HPP segments in the U.S. to purchase inventory from approved vendors with payment terms which exceed those offered by the vendors. No interest accrues under the inventory line of 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 inventory line of credit contains financial covenants which require the Company 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 (3) a maximum ratio of total liabilities to total net worth of less than 5.0:1. As of December 31, 2020 and September 30, 2020, Company borrowings, all from the TS segment, under the inventory line of credit were $0.8 million and $1.6 million, respectively, and the Company was in compliance with all financial covenants. As of December 31, 2020 and September 30, 2020 this line of credit also includes availability of a limited cash withdrawal of up to $1.0 million and $1.5 million, respectively. As of December 31, 2020 and September 30, 2020 there were no cash withdrawals outstanding.

10. Pension and Retirement Plans

The Company’s operations have defined benefit and defined contribution plans in the U.K. and in the U.S. In the 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 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. The Company also provides for officer death benefits through post-retirement plans to certain 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 pension plan in the 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.

1916

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


	Three Months Ended December 31,
	2020						2019
	U.K.		U.S.		Total		U.K.		U.S.		Total

	(Amounts in thousands)
Pension:
Interest cost	$	58	$	3	$	61	$	66	$	4	$	70
Expected return on plan assets		(97)		—		(97)		(74)		—		(74)
Amortization of past service costs		2		—		2		1		—		1
Amortization of net gain		44		1		45		48		1		49
Net periodic benefit cost	$	7	$	4	$	11	$	41	$	5	$	46

Post Retirement:
Service cost	$	—	$	11	$	11	$	—	$	10	$	10
Interest cost		—		11		11		—		12		12
Amortization of net gain		—		13		13		—		6		6
Net periodic cost	$	—	$	35	$	35	$	—	$	28	$	28

Three Months Ended December 31,

2019

2018


U.K.

U.S.

Total

U.K.

U.S.

Total

(Amounts in thousands)
Pension:

Interest cost

$
66

$
4

$
70

$
91

$
6

$
97
Expected return on plan assets

(74)

—

(74)

(77)

—

(77)
Amortization of past service costs

1

—

1

Amortization of net gain

48

1

49

38

(1)

37
Net periodic benefit cost

$
41

$
5

$
46

$
52

$
5

$
57

Post Retirement:












Service cost

$
—

$
10

$
10

$
—

$
9

$
9
Interest cost

—

12

12

—

13

13
Amortization of net gain

—

6

6

—

(5)

(5)
Net periodic cost

$
—

$
28

$
28

$
—

$
17

$
17

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


	Fair Values as of
	December 31, 2019								September 30, 2019
	Fair Value Measurements Using Inputs Considered as								Fair Value Measurements Using Inputs Considered as

																	Fair Values as of
																	December 31, 2020								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		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(Amounts in thousands)
																	(Amounts in thousands)
Cash on deposit	$	234	$	234	$	—	$	—	$	279	$	279	$	—	$	—	$	399	$	399	$	—	$	—	$	471	$	471	$	—	$	—
Pooled funds		8,815		8,815		—		—		7,959		7,959		—		—		10,574		10,574		—		—		9,269		9,269		—		—
Total plan assets	$	9,049	$	9,049	$	—	$	—	$	8,238	$	8,238	$	—	$	—	$	10,973	$	10,973	$	—	$	—	$	9,740	$	9,740	$	—	$	—

11. Income Taxes

~~The~~

An income tax ~~benefit~~provision of $110 thousand was ~~$70 thousand~~recorded for the three months ended December 31, ~~2019~~2020 compared to an income tax ~~expense~~benefit of $2$70 thousand in the same period of ~~2018.~~2019. The ~~U.K. did not have any income~~increase in tax expense is primarily related to the write down of a deferred tax asset as a result of the change in tax law, allowing for the immediate deduction of covered expenses incurred through the Paycheck Protection Program (“PPP”) loan with an associated change in the ~~three month period of fiscal year 2019 due to benefits~~valuation allowance against deferred tax assets from the ~~pension contribution.~~prior period, offset by the forgiveness of the PPP Loans for which the income is excluded for tax purposes. This additional expense was recorded discretely during the quarter. In the prior period, the Company established a deferred tax asset for these expenses that were expected to be deductible in a future period.

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

12. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:


					December 31,		September 30,
					2020		2020

	December 31,		September 30,
	2019		2019
	(Amounts in thousands)
					(Amounts in thousands)
Cumulative effect of foreign currency translation	$	(4,785)	$	(5,111)	$	(4,394)	$	(4,696)
Cumulative unrealized loss on pension liability		(7,482)		(7,482)		(7,299)		(7,299)
Accumulated other comprehensive loss	$	(12,267)	$	(12,593)	$	(11,693)	$	(11,995)

2017

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13. ~~Dividends~~

On December 10, 2019, the Company’s board of directors declared a cash dividend of $0.15 per share which was paid on January 15, 2020 to shareholders of record as of December 31, 2019, the record date.

~~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

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 10) or non-recurring basis as of December 31, ~~2019~~2020 or September 30, ~~2019.~~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 December 31, 2020				As of September 30, 2020
												Carrying Amount		Fair Value		Carrying Amount		Fair Value	Fair Value Level	Reference

		As of December 31, 2019				As of September 30, 2019
		Carrying Amount		Fair Value		Carrying Amount		Fair Value	Fair Value Level	Reference
		(Amounts in thousands)
												(Amounts in thousands)
Assets:
Cash and cash equivalents	$	17,627	$	17,627	$	18,099	$	18,099	1	Consolidated Balance Sheets	$	19,927	$	19,927	$	19,264	$	19,264	1	Consolidated Balance Sheets
Accounts & long-term receivable*		6,838		6,838		7,087		7,087	3	Note 6
Accounts and long-term receivable*												5,818		5,818		5,839		5,839	3	Note 6
Liabilities:
Note payable		2,532		2,532		1,001		1,001	2	Note 9
Notes payable												1,838		1,838		4,098		4,098	2	Note 9

*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.

~~Note~~Notes Payable

Fair value was estimated based on quoted market prices.

~~Table of Contents~~

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 at December 31, ~~2019~~2020 and September 30, ~~2019.~~2020.

~~15.~~18

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14. Segment Information

The following tables present certain operating segment information for ~~the~~ three months ended December 31, ~~2019~~2020 and ~~December 31, 2018.~~2019.


			Technology Solutions Segment
	High
	Performance
	Products		United						Consolidated

													Technology Solutions Segment
											High
											Performance
											Products		United						Consolidated
For the three months ended December 31,	Segment		Kingdom		U.S.		Total		Total		Segment		Kingdom		U.S.		Total		Total
	(Amounts in thousands)
											(Amounts in thousands)
2020
Sales:
Product											$	1,176	$	1,403	$	5,829	$	7,232	$	8,408
Service												380		87		2,513		2,600		2,980
Total sales											$	1,556	$	1,490	$	8,342	$	9,832	$	11,388
Income (loss) from operations											$	(854)	$	31	$	286	$	317	$	(537)
Total assets											$	9,192	$	10,675	$	33,170	$	43,845	$	53,037
Capital expenditures												6		—		27		27		33
Depreciation and amortization												48		—		56		56		104

2019
Sales:
Product	$	767	$	553	$	11,902	$	12,455	$	13,222	$	767	$	553	$	12,239	$	12,792	$	13,559
Service		274		126		2,950		3,076		3,350		274		126		2,899		3,025		3,299
Total sales	$	1,041	$	679	$	14,852	$	15,531	$	16,572	$	1,041	$	679	$	15,138	$	15,817	$	16,858
Income (loss) from operations	$	(1,263)	$	3	$	858	$	861	$	(402)	$	(1,263)	$	3	$	858	$	861	$	(402)
Total assets	$	10,496	$	10,847	$	34,905	$	45,752	$	56,248	$	10,496	$	10,847	$	34,905	$	45,752	$	56,248
Capital expenditures		34		—		173		173		207		34		—		173		173		207
Depreciation and amortization		58		3		64		67		125		58		3		64		67		125

2018
Sales:
Product	$	1,733	$	1,732	$	12,246	$	13,978	$	15,711
Service		293		70		2,906		2,976		3,269
Total sales	$	2,026	$	1,802	$	15,152	$	16,954	$	18,980
Income (loss) from operations	$	(827)	$	26	$	816	$	842	$	15
Total assets	$	14,059	$	13,110	$	27,426	$	40,536	$	54,595
Capital expenditures		203		—		30		30		233
Depreciation and amortization		53		2		51		53		106

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). Non-operating expenses/income consists principally of investment income, interest income from transactions with payment terms exceeding one year (see ~~note~~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 months ended December 31, ~~2019~~2020 and ~~2018.~~2019.


	For the three months ended December 31,
	2020				2019

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

	(Amounts in thousands)
Customer A	$	1,140	10	%	$	330	2	%
Customer B	$	611	5	%	$	1,784	11	%
Customer C	$	333	3	%	$	2,630	16	%

For the three months ended December 31,

2019

2018

Customer

% of Total

Customer

% of Total


Revenues

Revenues

Revenues

Revenues


Customer A

$
2.6

16
%
$
1.3

7
%
Customer B

$
1.8

11
%
$
1.0

5
%

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~~Accounts receivable and long term receivable combined from~~ Customer B totaled approximately ~~$5.6~~$4.8 million, or ~~32%~~30%, and approximately ~~$7.4~~$4.7 million, or ~~36%~~28%, of total consolidated accounts receivable and ~~long term~~long-term receivable as of

~~Table of Contents~~

December 31, ~~2019~~2020 and September 30, ~~2019.~~2020, respectively. There were no other customers that were more than 10% ~~or more~~ of total consolidated accounts receivable and ~~long term~~long-term receivable as of December 31, ~~2019.~~2020. We believe that the Company is not exposed to any significant credit risk with respect to the accounts receivable with any customers as of December 31, ~~2019.~~2020

~~Table of Contents~~

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~~10-K for the fiscal year ended September 30, ~~2019.~~ 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.~~laws, 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~~10-K for the fiscal year ended September 30, ~~2019.~~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~~10-K for the fiscal year ended September 30, ~~2019~~2020 in the “Critical Accounting Policies” section contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Observations on effects of novel coronavirus (COVID-19)

On March 11, 2020, the World Health Organization characterized the novel coronavirus (COVID-19) 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. The Company continues to comply with such actions

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causing most employees to work remotely in all locations. Our revenue decreased significantly for the three months ended December 31, 2020 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. Due to ~~adoption~~the uncertainty of ~~ASU No. 2016-02,~~ ~~Leases Customers (ASC 842)~~,the pandemic, including but not limited to, regulatory measures or voluntary actions that have and may be put in place to limit the spread of COVID-19 and the duration of such measures, the impact of any further spread of COVID-19, or the resurgence of COVID-19 in a given geographic region after it has hit its “peak,”at this time, we cannot make a reasonable estimate on the extent or duration of the impacts on our lease accounting policy has changed effective October 1, 2019 and is included in Note 8 of our unaudited consolidated financial statements included in Item 1 to the Quarterly Report on Form 10‑Q with effects of initial adoption in Note 3. business.

Results of Operations

Overview of the three months ended December 31, ~~2019~~2020

Our revenues decreased by approximately ~~$2.4~~$5.5 million, or ~~13%~~33%, to ~~$16.6~~$11.4 million for the three months ended December 31, ~~2019~~2020 as compared to ~~$19.0~~$16.9 million for the three months ended December 31, ~~2018.~~2019. The decrease in revenue is the result of a decrease of ~~$1.4~~$6.0 million in our TS segment, ~~combined with~~partially offset by a ~~$1.0~~$0.5 million ~~decrease~~increase in our HPP segment. Our gross margin percentage increased to ~~24%~~30% of revenues for the three months ended December 31, ~~2019~~2020 from ~~23%~~24% for the three months ended December 31, ~~2018. Operating income decreased by approximately $0.4 million from nearly no operating income for~~2019. The increase is primarily attributed to the HPP segment. For the three months ended December 31, ~~2018~~2020 there was an operating loss of $0.5 million compared to an operating loss of $0.4 million for the three months ended December 31, 2019, primarily as a result of decreased ~~revenue of $2.4~~sales. Other income, (expense) net increased approximately $2.0 million ~~and increased selling, general, and administrative expenses of $0.2 million. Our provision for income tax was a tax benefit of $70 thousand~~ for the three months ended December 31, ~~2019~~2020 to income of $1.8 million as compared to ~~a tax~~ expense of ~~$2 thousand~~$0.2 million for the three months ended

~~Table of Contents~~

December 31, ~~2018.~~2019. The primary components of Other income, (expense) include an increase from debt forgiveness of loans taken out at each operating segment under the Payroll Protection Program totaling 2.2 million, partially offset by a foreign exchange loss of $0.5 million. The income tax provision was $0.1 million for the three months ended December 31, 2020, as compared to income tax benefit of $0.1 million for the three months ended December 31, 2019. The effective tax ~~benefit~~ rate for the current quarter ~~is 11.5%~~was 8.7%. The effective tax ~~benefit~~expense rate was ~~low due~~primarily driven by an increase in ~~part~~tax expense. This is primarily related to nothe write off of a deferred tax ~~benefit recorded~~asset as a result of the change in tax law, allowing for the ~~U.K.~~immediate deduction of covered expenses incurred through the Paycheck Protection Program (“PPP”) loan along with the associated change in valuation allowance against deferred tax assets from the prior period, offset by the forgiveness of the PPP Loans for which the ~~foreign exchange loss.~~ income is excluded for tax purposes. This additional expense was recorded discretely during the quarter. In the prior period, the Company established a deferred tax asset for these expenses that were expected to be deductible in a future period.

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

ended December 31, 2020 and 2019:


											%				%
									December 31, 2020		of sales		December 31, 2019		of sales

			%				%
	December 31, 2019		of sales		December 31, 2018		of sales
	(Dollar amounts in thousands)
									(Dollar amounts in thousands)
Sales	$	16,572	100	%	$	18,980	100	%	$	11,388	100	%	$	16,858	100	%
Costs and expenses:
Cost of sales		12,541	75	%		14,631	77	%		8,010	70	%		12,827	76	%
Engineering and development		672	4	%		745	4	%		729	6	%		672	4	%
Selling, general and administrative		3,761	23	%		3,589	19	%		3,186	28	%		3,761	22	%
Total costs and expenses		16,974	102	%		18,965	100	%		11,925	105	%		17,260	102	%
Operating (loss) income		(402)	(2)	%		15	—	%
Other income (expense)		(208)	(1)	%		37	—	%
(Loss) income before income taxes		(610)	(3)	%		52	—	%
Income tax (benefit) expense		(70)	—	%		2	—	%
Net (loss) income	$	(540)	(3)	%	$	50	—	%
Operating loss										(537)	(5)	%		(402)	(2)	%
Other income, (expense) net										1,798	16	%		(208)	(1)	%
Income (loss) before income taxes										1,261	11	%		(610)	(3)	%
Income tax expense (benefit)										110	1	%		(70)	—	%
Net income (loss)									$	1,151	10	%	$	(540)	(3)	%

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Revenues

Our revenues decreased by approximately ~~$2.4~~$5.5 million to ~~$16.6~~$11.4 million for the three months ended December 31, ~~2019~~2020 as compared to ~~$19.0~~$16.9 million of revenues for the three months ended December 31, ~~2018.~~2019. TS segment revenues decreased by ~~$1.4~~$6.0 million and HPP segment revenues ~~decreased~~increased by ~~$1.0~~approximately $0.5 million.

TS segment revenue change was as follows for the three months ended December 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


													Decrease
									2020		2019		$		%

					Increase
	2019		2018		$		%
	(Dollar amounts in thousands)
									(Dollar amounts in thousands)
Products	$	12,455	$	13,978	$	(1,523)	(11)	%	$	7,232	$	12,792	$	(5,560)	(43)	%
Services		3,076		2,976		100	3	%		2,600		3,025		(425)	(14)	%
Total	$	15,531	$	16,954	$	(1,423)	(8)	%	$	9,832	$	15,817	$	(5,985)	(38)	%

The decrease in TS segment product revenues of ~~$1.5~~approximately $5.6 million during the period ~~was~~is primarily the result of a decrease ~~in product revenues~~ of ~~$0.3~~$6.4 million in our U.S. division, ~~combined with a $1.2 million decrease~~partially offset by an increase in the U.K. division of ~~product revenue in our U.K. division.~~$0.8 million. The ~~$0.3~~$6.4 million decrease in the U.S. division ~~was~~is primarily the result of ~~a few~~decreased sales to several major customers ~~decreased sales~~ during the ~~period partially offset with a few major customers with increased sales.~~period. The ~~$1.2~~$0.8 million ~~decrease~~increase in the U.K. division product revenues ~~was~~is primarily the result of ~~lower~~higher sales volume ~~with~~to one major customer during the period as compared to the prior year period. There was ~~an increase~~a decrease in TS segment service revenues of ~~$0.1~~$0.4 million during the period as compared to the prior year period, which ~~was~~is primarily due to ~~approximately~~ a ~~$0.1 million increase~~decrease in the U.S. division service ~~revenues. The U.S. division~~revenues consisting of a decrease of $0.6 million in internal service and third party service revenues, ~~increase of $0.1 million was substantially the result of~~partially offset by a $0.1 million increase in managed service ~~contracts, an~~contract revenues and a $0.1 million increase in third party maintenance ~~and services revenues of $0.3 million, partially offset by a $0.3 million decrease in internal services.~~

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revenues.

HPP segment revenue change was as follows for the three months ended December 31, ~~2019~~2020 and ~~2018:~~2019:


													Increase
									2020		2019		$		%

					Decrease
	2019		2018		$		%
	(Dollar amounts in thousands)
									(Dollar amounts in thousands)
Products	$	767	$	1,733	$	(966)	(56)	%	$	1,176	$	767	$	409	53	%
Services		274		293		(19)	(6)	%		380		274		106	39	%
Total	$	1,041	$	2,026	$	(985)	(49)	%	$	1,556	$	1,041	$	515	49	%

The HPP product revenues ~~decreased~~increased by ~~$1.0~~$0.4 million for the three months ended December 31, ~~2019~~2020 as compared to the three months ended December 31, ~~2018,~~2019, primarily as a result of a ~~decrease~~$0.4 million increase in ~~Myricom~~Multicomputer product ~~sales of $0.5 million and a decrease in sales of $0.5 million of Multicomputer products.~~sales. The HPP services revenues ~~remained relatively stable~~increased $0.1 million for the three months ended December 31, ~~2019~~2020 as compared to the three months ended December 31, ~~2018.~~2019 due to $0.3 million of increased royalties on high-speed processing boards related to the E2D program, partially offset by a decrease of $0.2 million from repairs from the prior year period.

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 31, ~~2019~~2020 and ~~December 31, 2018:~~2019:


																					Increase (decrease)
													2020		%		2019		%		$		%

									Increase (Decrease)
	2019		%		2018		%		$		%
	(Dollar amounts in thousands)
													(Dollar amounts in thousands)
Americas	$	15,839	96	%	$	17,406	92	%	$	(1,567)	(9)	%	$	9,750	85	%	$	16,125	96	%	$	(6,375)	(40)	%
Europe		663	4	%		1,156	6	%		(493)	(43)	%		1,541	14	%		663	4	%		878	132	%
Asia		70	—	%		418	2	%		(348)	(83)	%		97	1	%		70	—	%		27	39	%
Totals	$	16,572	100	%	$	18,980	100	%	$	(2,408)	(13)	%	$	11,388	100	%	$	16,858	100	%	$	(5,470)	(32)	%

The ~~$1.6~~$6.4 million decrease in revenue to the Americas is primarily the result of decreased sales by our TS segment division of ~~$0.8~~$6.9 million, ~~combined with decreased sales~~partially offset by ~~our~~an increase in the HPP segment of ~~$0.8~~$0.5 million. The ~~$0.5~~$0.9 million ~~decrease~~increase in

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revenue to Europe is primarily the result of ~~decreased~~increased sales by our TS segment consisting of ~~$0.3~~$0.8 million ~~combined with a decrease in revenue by our HPP segment of $0.2 million.~~from the U.K. division and $0.1 million from the U.S. division. The ~~$0.3 million decrease in~~ revenue to Asia ~~is primarily~~remained stable from the ~~result of decreased sales by our U.K. division.~~prior period.

Gross Margins

Our gross margin ("GM") decreased by ~~$0.3~~approximately $0.6 million to $3.4 million for the three months ended December 31, 2020 as compared to a gross margin of approximately $4.0 million for the three months ended December 31, ~~2019 as compared to a gross margin of approximately $4.3 million for the three months ended December 31, 2018.~~2019. The GM as a percentage of revenue increased to 30% for the three months ended December 31, 2020, from 24% for the three months ended December 31, ~~2019, from 23% for~~2019. The increase in GM as a percentage of revenue is primarily attributed the ~~three months ended December 31, 2018.~~HPP segment.


													2020				2019				Increase (decrease)
													GM$		GM%		GM$		GM%		GM$		GM%

	2019				2018				Increase (Decrease)
	GM$		GM%		GM$		GM%		GM$		GM%
	(Dollar amounts in thousands)
													(Dollar amounts in thousands)
TS	$	3,524	23	%	$	3,380	20	%	$	144	3	%	$	2,436	25	%	$	3,524	22	%	$	(1,088)	3	%
HPP		507	49	%		969	48	%		(462)	1	%		942	61	%		507	52	%		435	9	%
Total	$	4,031	24	%	$	4,349	23	%	$	(318)	1	%	$	3,378	30	%	$	4,031	24	%	$	(653)	6	%

The impact of product mix within our TS segment on gross margin for the three months ended December 31, ~~2019~~2020 and ~~2018~~2019 was as follows:


													2020				2019				Increase (decrease)
													GM$		GM%		GM$		GM%		GM$		GM%

	2019				2018				Increase (Decrease)
	GM$		GM%		GM$		GM%		GM$		GM%
	(Dollar amounts in thousands)
													(Dollar amounts in thousands)
Products	$	1,627	13	%	$	1,808	13	%	$	(181)	—	%	$	885	12	%	$	1,678	13	%	$	(793)	(1)	%
Services		1,897	62	%		1,572	53	%		325	9	%		1,551	60	%		1,846	62	%		(295)	(2)	%
Total	$	3,524	23	%	$	3,380	20	%	$	144	3	%	$	2,436	25	%	$	3,524	23	%	$	(1,088)	2	%

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The overall TS segment ~~gross margin~~GM as a percentage of sales increased to 25% for the three month period ended December 31, 2020 from 23% for the three month period ended December 31, ~~2019 from 20% for the three month period ended December 31, 2018. The overall TS segment~~2019. This is due to a significant increase of services gross margin relative to products gross margin. However, individually both product and service GM as a percentage of ~~sales increase was primarily due to an increased service~~ revenue ~~relative to product revenue.~~slightly decreased.

The impact of product mix within our HPP segment on gross margin for the three months ended December 31, ~~2019~~2020 and ~~2018~~2019 was as follows:


													2020				2019				Increase
													GM$		GM%		GM$		GM%		GM$		GM%

	2019				2018				Decrease
	GM$		GM%		GM$		GM%		GM$		GM%
	(Dollar amounts in thousands)
													(Dollar amounts in thousands)
Products	$	277	36	%	$	691	40	%	$	(414)	(4)	%	$	575	49	%	$	277	36	%	$	298	13	%
Services		230	84	%		278	95	%		(48)	(11)	%		367	97	%		230	84	%		137	13	%
Total	$	507	49	%	$	969	48	%	$	(462)	1	%	$	942	61	%	$	507	49	%	$	435	12	%

The overall HPP segment ~~gross margin~~GM as a percentage of sales increased to 61% for the three months ended December 31, 2020 from 49% for the three months ended December 31, ~~2019 from 48% for the three months ended December 31, 2018.~~2019. The 1%12% increase in gross margin as a percentage of sales in the HPP segment ~~was primarily~~for the three months ended December 31, 2020 as compared to the prior year period is attributed to ~~the gross margin~~increased GM from increased services ~~increasing relative to products.~~revenue including a $280 thousand increase of royalty revenues, which is all margin. The ~~overall margin~~GM as a percentage of sales from products ~~decreased~~increased primarily due to increased E2D parts sold, which carry a higher GM as a percentage of revenue ~~decrease.~~than other products sold.

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Operating Expenses

Engineering and Development Expenses

The engineering and development expenses incurred by our HPP segment remained ~~consistent~~stable at $0.7 million for the three months ended December 31, ~~2019 and 2018.~~2020 when compared to the three months ended December 31, 2019. The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA SDS cyber security products.

Selling, General and Administrative Expenses

The following table details our selling, general and administrative (“SG&A”) expense by operating segment for the three months ended December 31, ~~2019~~2020 and ~~2018:~~2019:


													For the three months ended December 31,
															% of				% of		$ Decrease		% Decrease
													2020		Total		2019		Total

	For the three months ended December 31,
			% of				% of		$ Increase		% Increase
	2019		Total		2018		Total		(Decrease)		(Decrease)
	(Dollar amounts in thousands)
													(Dollar amounts in thousands)
By Operating Segment:
TS segment	$	2,663	71	%	$	2,538	71	%	$	125	5	%	$	2,119	67	%	$	2,663	71	%	$	(544)	(20)	%
HPP segment		1,098	29	%		1,051	29	%		47	4	%		1,067	33	%		1,098	29	%		(31)	(3)	%
Total	$	3,761	100	%	$	3,589	100	%	$	172	5	%	$	3,186	100	%	$	3,761	100	%	$	(575)	(15)	%

SG&A expenses ~~increased $0.2~~overall decreased approximately $0.6 million for the three months ended December 31, ~~2019~~2020 as compared to the three months ended December 31, ~~2018.~~2019. The approximate $0.6 million decrease in TS segment SG&A expenses compared to the prior year period is primarily the result of a decrease of variable compensation of $0.2 million and a decrease of payroll related expenses of $0.4 million. The HPP segment SG&A expenses for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019 remained relatively stable with increases in payroll expenses, partially offset by legal, audit and consulting related expenses. The $0.1 million increase in TS segment SG&A expenses was primarily the result of an increase in variable compensation of $0.1 million in the U.S. division.

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stable.

Other Income/Expenses

The following table details other income (expense) for the ~~three months~~year ended December 31, ~~2018~~2020 and ~~2018:~~2019:


							For the three months ended
											Increase
							December 31, 2020		December 31, 2019		(Decrease)

	For the three months ended
					Increase
	December 31, 2019		December 31, 2018		(Decrease)
	(Amounts in thousands)
							(Amounts in thousands)
Interest expense	$	(57)	$	(27)	$	(30)	$	(38)	$	(57)	$	19
Interest income		173		55		118		98		173		(75)
Foreign exchange (loss) gain		(335)		7		(342)
Foreign exchange loss								(467)		(335)		(132)
Gain on debt forgiveness								2,196		—		2,196
Other income, net		11		2		9		9		11		(2)
Total other income (expense), net	$	(208)	$	37	$	(245)	$	1,798	$	(208)	$	2,006

The ~~decrease~~$2.0 million increase in total other income (expense), net ~~of $245 thousand~~ for the three months ended December 31, ~~2019~~2020 as compared to the three months ended December 31, ~~2018 was~~2019 is primarily driven by a gain on debt forgiveness of $2.2 million, which did not occur in the prior year. This debt forgiveness is related to two loans (one at each operating segment) taken out under the Payroll Protection Program. The largest offset was an increase in ~~the~~expense of $0.1 million in a foreign exchange loss, partially offset by an increase in interest income. From September 30, 2019 to December 31, 2019 the British Pound significantly increased in strength relative to both the U.S. Dollar and the Euro.loss. 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 ~~nearly all of~~ the foreign exchange loss is primarily from a Euro and U.S. Dollar bank account. ~~We converted 200 thousand Euros into British Pounds and no U.S. Dollars were converted during~~

The interest income decrease of $0.1 million for the three months ended December 31, ~~2019.~~

~~The increase in interest income of $118 thousand~~2020 as compared to the three months ended December 31, 2020 is primarily related to agreements that have payment terms in excess of one year (see Note 6)6 in Item 1 to this Quarterly Report on Form 10-Q) from the TS-US segment. ~~These agreements were not present for the three month period ended December 31, 2018.~~

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Income Taxes

~~Our provision for~~The income tax provision was ~~a tax benefit of $70 thousand~~$0.1 million for the three months ended December 31, ~~2019~~2020, as compared to aincome tax ~~expense~~benefit of ~~$2 thousand~~$0.1 million for the three months ended December 31, ~~2018.~~2019. The effective tax ~~benefit~~ rate for the current quarter ~~is 11.5%~~was 8.7%. The effective tax ~~benefit~~expense rate was ~~low due~~primarily driven by an increase in ~~part~~tax expense. This is primarily related to nothe write off of a deferred tax ~~benefit recorded~~asset as a result of the change in tax law, allowing for the ~~U.K.~~immediate deduction of covered expenses incurred through the Paycheck Protection Program (“PPP”) loan along with the associated change in valuation allowance against deferred tax assets from the prior period, offset by the forgiveness of the PPP Loans for which the ~~foreign exchange loss.~~ income is excluded for tax purposes. This additional expense was recorded discretely during the quarter. In the prior period, the Company established a deferred tax asset for these expenses that were expected to be deductible in a future period.

Generally, fluctuations in the effective tax rate are primarily due to changes in our geographic pretax income resulting from our business mix and changes in the 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.

Liquidity and Capital Resources

Our primary source of liquidity is our cash and cash equivalents, which ~~decreased~~increased by ~~$0.5~~$0.6 million to ~~$17.6~~$19.9 million as of December 31, ~~2019~~2020 from ~~$18.1~~$19.3 million as of September 30, ~~2019.~~2020.

Our significant sources of cash for the ~~three months~~year ended December 31, ~~2019~~2020 included a decrease in accounts receivable of ~~$2.7~~$1.3 million, ~~a decrease~~an increase in ~~inventories~~accounts payable and accrued expenses of ~~$2.2~~$0.4 million, and ~~proceeds from debt~~an increase in deferred revenue of ~~$2.0~~$0.3 million.

Our significant uses of cash for the ~~three months~~year ended December 31, ~~2019~~2020 included ~~a decrease of accounts payable and accrued expenses of $6.5 million,~~ net payment on our line of credit ~~$1.6~~of $0.8 million and ~~repayment~~an increase in inventories of ~~debt of $0.5~~$0.6 million.

~~Cash~~Our cash held by our foreign subsidiary in the United Kingdom totaled approximately ~~$9.0~~$8.9 million as of December 31, ~~2019 consists~~2020 consisted of ~~2.6~~0.8 million Euros, ~~0.2~~0.3 million British Pounds, and ~~5.9~~7.4 million U.S. Dollars. This cash is included in our total cash and cash equivalents reported within the financial statements.

As of December 31, 2020 and September 30, ~~2019 and 2018~~2020 the Company maintained a line of credit ~~primarily~~with a capacity of up to $15.0 million for inventory accessible to both to the HPP and TS segments. This line of credit also includes availability of a limited cash ~~withdrawal.~~

~~Table~~withdrawal of ~~Contents~~

up to $1.0 million. An amount of $14.2 million and $13.4 million were available as of December 31, 2020 and September 30, 2020, respectively. As of December 31, 2020 and September 30, 2020 there were no cash withdrawals outstanding.

If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans ~~the equity markets,~~ 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 development or enhancement of 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 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 report.

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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 31, ~~2019.~~2020. 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)~~13a-15(e) and ~~15d‑15(e)~~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~~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~~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 31, ~~2019,~~2020, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ~~effective.~~not effective, due to the fact that we are not yet able to conclude that the material weakness described 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, 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 internal controls over the revenue recognition process, specifically the failure to properly identify whether the Company was to be considered the principal or the agent in certain 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 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. 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 changes and upgrade systems and processes throughout fiscal year 2021.

Changes in Internal Control over Financial Reporting.

During the ~~three months~~year ended December 31, ~~2019,~~2020, there ~~were no~~was a significant change in internal controls related to the material weakness discussed above. Internal controls around classifying whether the 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
31.1*		Rule 13(a)~~‑14(a)~~-14(a) / ~~15d‑14(a)~~15d-14(a) Certification of Chief Executive Officer

31.2*		Rule 13(a)~~‑14(a)~~-14(a) / ~~15d‑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, ~~2019~~2020 and September 30, ~~2019,~~2020, (b) our Consolidated Statements of Income for the three months ended December 31, ~~2019~~2020 and ~~2018,~~2019, (c) our Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) for the three months ended December 31, ~~2019~~2020 and ~~2018,~~2019, (d) our Consolidated Statement of Shareholders’ Equity for the three months ended December 31, ~~2019~~2020 and ~~2018,~~2019, (e) our Consolidated Statements of Cash Flows for the three months ended December 31, ~~2019~~2020 and ~~2018~~2019 and (f) the Notes to such Consolidated Financial Statements.

* Filed Herewith

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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.

February ~~12, 2020~~11, 2021	By:	/s/ Victor Dellovo
		Victor Dellovo
		Chief Executive Officer,
		President and Director

February ~~12, 2020~~11, 2021	By:	/s/ Gary W. Levine
		Gary W. Levine
		Chief Financial Officer

3128


								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the three months ended December 31, 2018:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of September 30, 2018	4,017	$	40	$	14,661	$	29,926	$	(10,825)	$	33,802
Adoption of ASU 2014-09*	—		—		—		158		—		158
Net income	—		—		—		50		—		50
Other comprehensive loss	—		—		—		—		(170)		(170)
Exercise of stock options	1		1		3		—		—		4
Stock-based compensation	—		—		178		—		—		178
Cash dividends declared on common stock ($0.15 per share)	—		—		—		(603)		—		(603)
Balance as of December 31, 2018	4,018	$	41	$	14,842	$	29,531	$	(10,995)	$	33,419

								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
For the three months ended December 31, 2019:	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	—		—		—		(540)		—		(540)
Other comprehensive gain	—		—		—		—		326		326
Exercise of stock options	—		—		2		—		—		2
Stock-based compensation	—		—		205		—		—		205
Cash dividends declared on common stock ($0.15 per share)	—		—		—		(623)		—		(623)
Balance as of December 31, 2019	4,154	$	42	$	15,940	$	26,083	$	(12,267)	$	29,798


	As reported		ASC 842		As of
	September 30, 2019		Adjustment		October 1, 2019
	(In thousands)
Assets:
Operating lease right-of-use assets	$	—	$	2,448	$	2,448
Liabilities:
Accounts payable and accrued expenses		16,175		665		16,840
Operating lease liabilities - noncurrent portion		—		1,783		1,783


	Consolidated Balance Sheets Location	December 31, 2019		October 1, 2019
		(Amounts in thousands)		(Amounts in thousands)
Assets
Operating leases	Operating lease right-of-use assets	$	2,288	$	2,448

Lease receivable - current	Investment in lease, net-current portion	$	383	$	367
Lease receivable - noncurrent	Investment in lease, net-less current portion		319		417
Total lease receivable		$	702	$	784

Liabilities
Current operating lease liabilities	Accounts payable and accrued expenses	$	685	$	746
Non-current operating lease liabilities	Operating lease liabilities - noncurrent portion		1,679		1,783
Total operating lease liabilities		$	2,364	$	2,529

Current finance lease liabilities	Accounts payable and accrued expenses	$	338	$	333
Non-current finance lease liabilities	Other noncurrent liabilities		240		326
Total finance lease liabilities		$	578	$	659


	Operating lease		Finance lease		Sublease
Fiscal year ending September 30:	Costs		Costs		Payments received
	(Amounts in thousands)
2020 (remaining 9 months)	$	574	$	273	$	342
2021		619		285		356
2022		520		51		67
2023		439		5		12
2024		240		—		3
Thereafter		182		—		—
Total	$	2,574	$	614	$	780
Less Imputed interest		(210)		(36)		(78)
Total	$	2,364	$	578	$	702


Fiscal year ending September 30:	(Amounts in thousands)
2020 (full year)	$	475
2021		173
2022		58
2023		43
Total	$	749


	September 30, 2019
	(Amounts in thousands)
Investment in lease, gross	$	889
Unearned income		(105)
Total investment in lease, net	$	784
Current portion	$	367
Noncurrent portion	$	417


	Three Months Ended December 31,
	2019						2018
	U.K.		U.S.		Total		U.K.		U.S.		Total
	(Amounts in thousands)
Pension:
Interest cost	$	66	$	4	$	70	$	91	$	6	$	97
Expected return on plan assets		(74)		—		(74)		(77)		—		(77)
Amortization of past service costs		1		—		1
Amortization of net gain		48		1		49		38		(1)		37
Net periodic benefit cost	$	41	$	5	$	46	$	52	$	5	$	57

Post Retirement:
Service cost	$	—	$	10	$	10	$	—	$	9	$	9
Interest cost		—		12		12		—		13		13
Amortization of net gain		—		6		6		—		(5)		(5)
Net periodic cost	$	—	$	28	$	28	$	—	$	17	$	17