1、Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIESEXCHANGE ACT OF 1934For the Fiscal Year Ended September 30,2022.TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIESEXCHANGE ACT OF
2、 1934For the transition period from toCommission File Number 000-10843CSP Inc.(Exact name of Registrant as specified in its Charter)Massachusetts 04-2441294(State of incorporation)(I.R.S.Employer Identification No.)175 Cabot Street,Lowell,Massachusetts 01854(Address of principal executive offices)(9
3、78)954-5038(Registrants telephone number including area code)Securities Registered Pursuant to Section 12(b)of the Act:Securities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Y
4、es No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No 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 p
5、receding12 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 su
6、bmitted 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-accele
7、rated filer,a smaller reporting company,or an emerging growthcompany.See the definitions of“large accelerated filer”,“accelerated filer”,“smaller reporting company”,and emerging growth company in Rule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller R
8、eporting 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 financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by
9、check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financialreporting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued it
10、s audit report.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No The aggregate market value of the registrants common stock held by non-affiliates of the registrant was$27,097,563,based on the closing sale price of$7.88 as reported
11、onthe Nasdaq Global Market on March 31,2022.As of December 6,2022,we had outstanding 4,554,788 shares of common stock.DOCUMENTS INCORPORATED BY REFERENCECertain portions of the information required in Part III of this Form 10-K are incorporated by reference from our definitive proxy statement for ou
12、r 2023 annual meeting ofstockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended September 30,2022.Title of Each Class Trading Symbol(s)Name of each exchange on which registeredCommon Stock,par value$0.01 per shareCSPINasdaq Global M
13、arketTable of ContentsiTABLE OF CONTENTSPagePART I.Item 1.Business2Item 1A.Risk Factors8Item 2.Properties17Item 3.Legal Proceedings17Item 4.Mine Safety Disclosures17PART II.Item 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of EquitySecurities17Item 6.Reserv
14、ed18Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations18Item 8.Financial Statements and Supplementary Data29Item 9.Change in and Disagreements with Accountants on Accounting and Financial Disclosures30Item 9A.Controls and Procedures30Item 9B.Other Information
15、31Item 9C.Disclosure Regarding Foreign Jurisdiction that Prevent Inspections31PART III.Item 10.Directors,Executive Officers and Corporate Governance31Item 11.Executive Compensation31Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters31Item 13.Certai
16、n Relationships and Related Transactions and Director Independence32Item 14.Principal Accountant Fees and Services32PART IV.Item 15.Exhibits and Financial Statement Schedules32Item 16.Form 10-K Summary34Note:Items 1B and 7A are not required for Smaller Reporting Companies and therefore are not furni
17、shed.Table of Contents1Special Note Regarding Forward-Looking StatementsThis annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933,as amended,and Section 21E of the Securities Exchange Act of 1934,as amended.This informationmay
18、involve known and unknown risks,uncertainties and other factors that are difficult to predict and may cause our actualresults,performance or achievements to be materially different from future results,performance or achievements expressed orimplied by any forward-looking statements.The discussion be
19、low contains certain forward-looking statements related but notlimited to,among others,statements concerning future revenues and future business plans.Forward-looking statementsinclude statements in which we use words such as“expect,”“believe,”“anticipate,”“intend,”“estimate,”“should,”“could,”“may,”
20、“plan,”“potential,”“predict,”“project,”“will,”“would”and similar expressions.Although we believethe expectations reflected in such forward-looking statements are based on reasonable assumptions,the forward-lookingstatements are subject to significant risks and uncertainties,and thus we cannot assure
21、 you that these expectations will proveto be correct,and actual results may vary from those contained in such forward-looking statements.We discuss many of theserisks and uncertainties in Item 1A under the heading“Risk Factors”in this Annual Report.Factors that may cause such variances include,but a
22、re not limited to,our dependence on a small number ofcustomers for a significant portion of our revenue,our dependence on contracts with the U.S.federal government,ourreliance in certain circumstances on single sources for supply of key product components,and intense competition in themarket segment
23、s in which we operate.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 thisdocument.We have based the forward-looking statements included in this Annual Rep
24、ort on Form 10-K on informationavailable to us on the date of this Annual Report,and we assume no obligation to update any such forward-lookingstatements,other than as required by law.Table of Contents2PART IItem 1.BusinessCSP Inc.(CSPi or CSPI or the Company or we or our)was incorporated in 1968 an
25、d is based in Lowell,Massachusetts.To meet the diverse requirements of our commercial and defense customers worldwide,CSPi and itssubsidiaries develop and market IT integration solutions,advanced security products,managed IT services,cloud services,purpose built network adapters,and high-performance
26、 cluster computer systems.SegmentsCSPI operates in two segments:Technology Solutions(TS)and High Performance Products(HPP).TS SegmentThe TS segment consists of our wholly-owned Modcomp,Inc.subsidiary,which operates in the United States andthe United Kingdom.The TS segment generates product revenues
27、by reselling third-party computer hardware and software as a valueadded reseller(VAR).The TS segment generates service revenues by the delivery of professional services forcomplex IT solutions,including advanced security;unified communications and collaboration;wireless and mobility;data center solu
28、tions;and network solutions as well as managed IT services(MSP)that primarily serve the smalland mid-sized business market(SMB).Third party products and professional services are marketed and sold through the Companys direct sales force into avariety of vertical markets,including;automotive;defense;
29、health care;education;federal,state and localgovernment;and maritime.HPP SegmentThe HPP segment revenue comes from three distinct product lines:(i)a cybersecurity solution marketed as ARIASoftware-Defined Security(“SDS”),which is offered to commercial,original equipment manufacturers(OEM)and governm
30、ent customers;(ii)the Myricom network adapters for commercial,government and OEM customers;and(iii)the legacy Multicomputer product portfolio for digital signal processing(DSP)applications within thedefense markets.The ARIA SDS solution is a software portfolio starting with an underlying platform,ho
31、sted applications that reside on top,as well as any supporting hardware then deployed in turn-key security deployments.All are developed to secure an organizations network,enterprise-wide,to better protect critical devices,applications and high-value data from breaches or other disruptive attacks.Re
32、venue is derived from:(i)license sales of our software platform components,(ii)supporting hardware and(iii)any required support packages.The software licenses,as well as the support packages,are renewable on a recurring basis.The ARIA SDS platform and applications can also be deployed on customer pr
33、ovided virtual machines or on our Myricom SmartNIC adapters which can be directly inserted into our customers servers or integrated as part of our turn-key appliances.Either of these approaches can be deployed into a customers data center environments or within Cloud Platform services such as AWS an
34、d Azure to provide cybersecurity services.The ARIA portfolio is of value to regulated industries,such as financial services or healthcare,due to the rise of data-privacy regulations enforced at the federal,U.S.state,and international level,as well as industry entities.Due to the COVID-19 pandemic an
35、d the resulting increase in hybrid remote workforce models,we believe ARIA SDS will provide additional protection against exploits entering in from home-based computers and networks.In addition,due to the complexities and high-costs associated with enterprise-wide security,particularly in the creati
36、on and operation of Security Operation Centers(“SOCs”),we believe that ARIA will be attractive to organizations that desire SOC level protections without incurring the procurement of disparate Table of Contents3tools and the need to hire and retain highly-trained security analysts.We also have begun
37、 selling our unique,solution into Managed Security Service Providers(“MSSPs”)that want to offer a lower cost,more effective service at detecting todays widening range of cyber attacks.The ARIA SDS portfolio of software based products will continue to expand based on customer feedback during Fiscal 2
38、023.The Myricom SmartNIC adapters(“ARC Series”and Myricom Secure Intelligent Adapters or“SIA”)are optimized for and sold into markets that require high-bandwidth and low-latency including(i)packet capture,(ii)financial transactions,(iii)machine vision and(iv)network security.Our primary customers fo
39、r packet capture include government agencies that need to capture and/or analyze network traffic at line rate,and OEMs selling into vendors of computer security appliances.Financial institutions,such as banks and brokerage firms,use Myricom adapters to decrease transaction times.Our machine vision c
40、ustomers,primarily in the manufacturing industry,use our adapters and software for high fidelity video capture and processing.There was limited revenue for HPP products in fiscal 2022.This was primarily due to supply chain issues whichdelayed delivery of components used by our Myricom Hardware.We ho
41、pe to clear the majority of our backlogduring the first half of FY 2023.Multicomputer products for DSP applications are no longer actively developed but will continue to be sold intoestablished programs and supported for several years.Revenue flows come from servicing previously deployedproducts for
42、 a modest number of existing high-value defense customers.The revenue from these products,as apercentage of overall Company revenue,is expected to continue to decline over time.Sales Information by Industry SegmentThe following table details our sales by operating segment for fiscal years ending Sep
43、tember 30,2022 and 2021.Additional segment and geographical information are set forth in Note 18 Segment Information to the consolidated financialstatements.Segment 2022%2021%(Dollar amounts in thousands)TS$50,518 93%$44,585 91%HPP 3,843 7%4,623 9%Total Sales$54,361 100%$49,208 100%TS SegmentProduct
44、s and ServicesIntegration SolutionsThe TS segment is a value-added reseller(VAR)of third-party hardware and software technology solutions alongwith our,advanced technology consulting,professional IT,managed IT and Cloud services.Our value proposition is ourability to support the complete IT life cyc
45、le of planning,designing,implementing and optimizing a comprehensive solutioninto our customers IT environments,to help achieve their expected business outcomes.Third-Party Hardware and SoftwareWe sell third-party hardware,software,and information technology products,with a strategic focus on indust
46、rystandard servers and data center infrastructure solutions,midrange data storage infrastructure products,networking andmobility products,unified communications,and advanced IT security hardware and software solutions.Our key offeringsinclude products from Hewlett Packard(HPE)/Aruba,Cisco Systems,Pa
47、lo Alto Networks,Nutanix,DellEMC,JuniperNetworks,Citrix,Intel,VMWare,Fortinet,Microsoft and Barracuda.Through our business relationships with these vendors,we are able to offer competitively priced robust products to meet our diverse customers technology needs,Table of Contents4providing procurement
48、 and engineering expertise in server infrastructure,storage,security,unified communications,mobilityand networking,to the small-to-medium sized businesses(SMBs)and large enterprise businesses(LEBs)with uniqueand/or complex IT environments.Many of our SMB customers have unique technology needs and ma
49、y lack technicalpurchasing expertise or have very limited IT engineering resources on staff.We offer our customers a single point of contactfor complicated multi-vendor technology purchases.We also provide installation,integration,logistical assistance and othervalue-added services that customers ma
50、y require.We target SMB and LEB customers across all industries.Our currentcustomers are in web and infrastructure hosting,education,telecommunications,healthcare services,distribution,financialservices,professional services and manufacturing.Professional ServicesWe provide professional IT consultin
51、g services in the following areas:Assessments,planning,designing,implementation,migration,optimization services and project management.Hyper-Converged Infrastructure(HCI).We assist our clients with designing and implementing HCI solutions frommultiple vendors including DellEMC,Nutanix,HPE and Cisco.
52、HCI is a software-centric architecture that tightlyintegrates compute,storage and virtualization resources in a single system.The benefits of an HCI solution areimproved performance,scalability and flexibility all in a reduced footprint.Virtualization.We help our customers implement virtualization s
53、olutions using products from companies such asVMWare,Nutanix and Citrix that allow one computer to do the job of multiple computers by sharing resources of asingle computer across multiple environments.Virtualization eliminates physical and geographical limitations andenables users to host multiple
54、operating systems and applications on fewer servers.Benefits include energy costsavings,lower capital expenditure requirements,high availability of resources,better desktop management,increased security and improved disaster recovery.Enterprise security intrusion prevention,network access control an
55、d unified threat management.Using third-partyproducts from companies like Palo Alto,Aruba Networks,Juniper Networks,Fortinet,Barracuda and Cisco Systems,our services are designed to ensure data security and integrity through the establishment of virtual private networks,firewalls and other technolog
56、ies.IT security compliance services.We provide services for IT security compliance with personal privacy laws such asthe Payment Card Industry Data Security Standard(PCI DSS),the Health Insurance Portability and AccountabilityAct of 1996(HIPAA),and internal control regulations under the Sarbanes-Oxl
57、ey Act(SOX).Unified communications,using Cisco Systems and Microsoft solutions.We are Cisco Premier Partner approved forits Cloud and Managed Services Program for Managed Business Communications and a Microsoft Gold Partner withspecialties in Cloud,and Collaboration solutions.Wireless,routing,and sw
58、itching solutions using Juniper Networks and Aruba Networks products and services.Custom software applications and solutions development and support.We develop custom applications to customerspecifications using industry standard platforms such as Microsoft.Net,SharePoint and OnBase.We are a Microso
59、ftGold Partner.Managed IT services that include monitoring,reporting and management of alerts for the resolution and preventivegeneral IT and IT security support tasks.Optimization,maintenance and technical support for third-party products including hardware and software,operatingsystem and user sup
60、port.Table of Contents5Managed IT and Cloud ServicesAs consumption models continue to evolve in our industry,we have developed a robust managed and cloud servicesportfolio to provide alternative solutions to traditional capital expenditure investments in IT solutions and IT operations forour clients
61、.Our value is to provide an elastic offering that will allow the client to scale and consume these offeringswith monthly billing options that help control costs and provide economies of scale.We provide managed and cloud services in the following areas:Proactive monitoring and remote management of I
62、T Infrastructure that includes network(both wired and wireless),data center(which includes compute,storage and virtualization),desktops,unified communications platforms andsecurity.Managed and Hosted Unified Communication as a Service via a Cisco Communication and Collaboration solutionunder an annu
63、ity program.Managed Security(firewall,endpoint protection,malware,anti-virus Managed Detection&Response).Managed BackUp and Replication.Cloud services that include Microsoft 365,Azure,Azure Virtual Desktop,Greencloud,Amazon Web Services andGoogle Cloud Platform.Markets and MarketingWe are an IT syst
64、ems integrator and computer hardware and software VAR.We also provide technical services toachieve a value-add to our customers.We operate within the VAR sales channels of major computer hardware and softwareOEMs,primarily within the geographic areas of our sales offices and across the U.S.We provid
65、e innovative IT solutions,including a myriad of infrastructure products with customized professional IT consulting services and managed services tomeet the unique requirements of our customers.We market the products and services we sell through sales offices in the U.S.and the U.K.using our direct s
66、ales force.CompetitionOur primary competition in the TS segment are other VARs ranging from small companies that number in thethousands,to large enterprises such as CDW,PC Connection,Insight,Presidio,Dimension Data,and Computacenter Limited.In addition,we compete directly with many of the companies
67、that manufacture the third-party products we sell,includingCisco Systems,IBM,HPE,EMC(now part of Dell)and others.In the network management,security and storage systemsintegration services business,our competitors are extensive and vary to a certain degree in each of the geographical markets,but they
68、 also include such national competitors as HP/EDS,IBM and Cap Gemini.Nearly all of our product offerings are available through other channels.Favorable competitive factors for the TSsegment include procurement capability,product diversity which enables the delivery of complete and custom solutions t
69、o ourcustomers and the strength of our key business relationships with the major IT OEMs.We also consider our ability to meet theunique and/or specialized needs of the SMB and LEB markets and our strong knowledge of the IT products that we sell to be akey competitive advantage.Our ability to provide
70、 managed services through our network operations center and theprofessional IT services required to design and implement custom IT solutions to address our customers IT needs are distinctcompetitive advantages.Unfavorable competitive factors include low name recognition,limited geographic coverage a
71、ndpricing.Table of Contents6Sources and Availability of ProductSeveral components used in our HPP segment products are obtained from sole-source suppliers.We are dependent on key vendors such as Xilinx,NXP,NVIDIA,Marvel,and BCRM for a variety of processors for certain products.While we believe that
72、many of our competitors face similar supply chain risks,we continue to work closely with our long term suppliers in meeting our projected sales obligations;however,if a long term supplier is unable to provide sufficient components,and we are unable to find alternative suppliers,our projected sales m
73、ay be materially impacted.COVID-19 has adversely affected manufacturers,which has led to production disruptions,resulting in supplyshortages.We are working to clear the backlog in fiscal 2023,although,there can be no assurances that supply shortages willbe resolved or that our backlog will be timely
74、 cleared.BacklogThe gross backlog of customer orders and contracts for the TS segment was approximately$18.2 million atSeptember 30,2022,as compared to$8.7 million at September 30,2021.Our backlog can fluctuate greatly.These fluctuationscan be due to the timing of receiving large orders for third-pa
75、rty products and/or IT services.It is expected that all of thecustomer orders in backlog will ship and/or be provided during fiscal year 2023.HPP SegmentProducts and ServicesThe mission of the HPP team is to deliver a differentiated,smarter approach to cybersecurity.Our software-definedplatform make
76、s it easier for organizations to achieve enterprise-wide network security and protection of critical assets,applications and devices by improving their ability to find,stop,and prevent cyberattacks.Markets and MarketingCyber Security Products MarketThe ARIA SDS solution is targeted at organizations
77、that need to get additional functionality out of their currentcybersecurity solutions to find and stop attacks,while also reducing their operating costs.At the present time,our ARIA SDSsolutions are primarily offered through our direct sales channel,however,we have begun to add channel partners such
78、 asindependent resellers.OEM vendors in the cybersecurity market can benefit from integrating the ARIA applications and leveraging themas internal solutions to allow their applications to scale,add critical functionality.OEMs are interested in the MyricomAdapters including our SIA SmartNIC running o
79、ur ARIA SDS applications.As mentioned,MSSPs require simple,yet differentiated,solutions that can be deployed across their customer bases.The detection,and automation capabilities found in ARIA SDS are valuable as they allow these security service providers toscale their offerings while increasing th
80、e productivity of their security operation center staff.Aerospace&Defense MarketOur focus for fiscal 2023 and beyond is to continue our support of system deployments to be made by governmententities.Financial Transactions MarketMyricom network adapters with DBL application software address the need
81、for the ultra-low latency required in theworld of financial trading.Running DBL on the Myricom ARC Series provides acceleration for 10G EthernetTable of Contents7environments,with benchmarked application-to-application latency in the single digit microsecond range for Linux andMicrosoft Windows oper
82、ating systems.Packet Capture MarketMyricom Sniffer10G software,running on Myricom ARC adapters,provides enterprise and government customersand partners the ability to capture,inject,and analyze network traffic at line rate,with low CPU overhead.Machine Vision MarketMyricom ARC network adapters are u
83、sed by OEMs for machine vision camera systems network applications,TheseOEM customers require the high-performance,low latency 10G attributions our solutions support.CompetitionCSPis competition in the cybersecurity space comes primarily from the large,traditional security vendors likeSplunk,IBM,and
84、 McAfee.We also face competition from traditional network security solutions vendors such as Palo Altoand Cisco.Manufacturing,Assembly and TestingCurrently,products are shipped to our customers directly from our plant in Lowell,Massachusetts.Ourmanufacturing activities consist mainly of final assemb
85、ly and testing of printed circuit boards and systems that are designedby us and fabricated by outside third-party vendors,as well as integration of our software onto the Myricom NICs and turnkeyappliances.Sources and Availability of Raw MaterialsSeveral components used in our HPP segment products ar
86、e obtained from sole-source suppliers.We are dependent on key vendors such as Xilinx,NXP,NVIDIA,Marvel,and BCRM for a variety of processors for certain products.While we face the same supply chain risks as the rest of our competitors,we continue to work closely with our long term suppliers to meet o
87、ur projected sales obligations.COVID-19 has adversely affected manufacturers,which has led to production disruptions,resulting in supplyshortages.We are working to clear the backlog in fiscal 2023.Research and DevelopmentFor the year ended September 30,2022,our expenses for R&D were approximately$3.
88、1 million compared toapproximately$2.9 million for the year ended September 30,2021.Expenditures for R&D are expensed as they are incurred.Product development efforts in fiscal year 2022 and 2021 involved development of the ARIA SDS product set,ARIA ZeroTrust(AZT),and enhancements to our Myricom pro
89、ducts.We expect to continue to make investments related to thedevelopment of new hardware adapter products and new cybersecurity software applications.Intellectual PropertyWe rely on a combination of trademark and trade secret laws in the United States and other jurisdictions,as well asconfidentiali
90、ty procedures and contractual provisions to protect our intellectual property rights.We have newly issued as wellas pending patents for the ARIA SDS software and will be pursuing additional patent rights over time.BacklogThe gross backlog of customer orders and contracts in the HPP segment was$5.0 m
91、illion at September 30,2022 ascompared to$4.3 million at September 30,2021.Our backlog can fluctuate greatly.We can experience possible largeTable of Contents8fluctuations due to the timing of receipt of large orders often for purchases from prime contractors for sales to the government.It is expect
92、ed nearly all of the customer orders in backlog will ship and/or be provided through fiscal year 2023.Significant CustomersSee Note 18 Segment Information in the notes to the consolidated financial statements for detailed informationregarding customers which comprised more than 10%of consolidated re
93、venues for the years ended September 30,2022 and2021.EmployeesAs of September 30,2022,we had approximately 117 full time equivalent employees worldwide for our consolidatedoperations.None of our employees are represented by a labor union and we have had no work stoppages in the last threefiscal year
94、s.We consider relations with our employees to be good.Company WebsiteThe United States Securities and Exchange Commission(“SEC”)maintains an internet site(www.sec.gov)thatcontains reports,proxy and information statements,and other information regarding issuers that file electronically with theSEC.Th
95、e Companys internet address is http:/.Through that address,the Companys Annual Report onForm 10-K,quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports are available freeof charge as soon as reasonably practicable after they are filed with the SEC.The information
96、 contained on the Companyswebsite is not included in,nor incorporated by reference into,this annual report on Form 10-K.Financial Information about Geographic AreasInformation regarding our sales by geographic area and percentage of sales based on the location to which theproducts are shipped or ser
97、vices rendered are in Note 18 Segment Information of the notes to the consolidated financialstatements.Item 1A.Risk FactorsIf any of the risks and uncertainties set forth below actually materialize,our business,financial condition and/orresults of operations could be materially and adversely affecte
98、d,the trading price of our common stock could decline and astockholder could lose all or part of its,his or her investment.The risks and uncertainties set forth below are not the only oneswe face.Additional risks and uncertainties not presently known to us or that we currently consider immaterial ma
99、y alsoimpair our business operations.Economic,Industry,and Operational RisksWe depend on a small number of customers for a significant portion of our revenue and loss of any customer couldsignificantly affect our business.Both the HPP and TS segments are reliant upon a small number of significant cu
100、stomers,and the loss of orsignificant reduction in sales to any one of which could have a material adverse effect on our business.For the fiscal yearended September 30,2022,one customer accounted for$10.4 million,or 19%,of our total revenues for the fiscal year.For thefiscal year ended September 30,
101、2021,no one customer accounted for 10%or more of our total revenues for the fiscal year.Inaddition,our revenues are largely dependent upon the ability of our customers to continue to grow or need services or todevelop and sell products that incorporate our products.No assurance can be given that our
102、 customers will not experiencefinancial or other difficulties that could adversely affect their operations and,in turn,our results of operations.Table of Contents9We depend on key personnel and skilled employees and face competition in hiring and retaining qualified employees.We are largely dependen
103、t upon the skills and efforts of our senior management,managerial,sales and technicalemployees.None of our senior management personnel or other key employees are subject to any employment contracts exceptVictor Dellovo,our Chief Executive Officer and President.The loss of services of any of our exec
104、utives or other keypersonnel could have a material adverse effect on our business,financial condition and results of operations.Our futuresuccess will depend to a significant extent on our ability to attract,train,motivate and retain highly skilled technicalprofessionals.Our ability to maintain and
105、renew existing engagements and obtain new business depends,in large part,on ourability to hire and retain technical personnel with the skills that keep pace with continuing changes in our industry standardsand technologies.The inability to hire additional qualified personnel could impair our ability
106、 to satisfy or grow our client base.There can be no assurance that we will be successful in retaining current or future employees.Our success depends in part on our timely introduction of new products and technologies and our results can beimpacted by the effectiveness of our significant investments
107、 in new products and technologiesWe have made significant investments in our ARIA SDS cyber security products and services that may not achieveexpected returns.We will continue to make significant investments in research,development,and marketing for ARIAproducts,services,and technologies.Commercial
108、 success depends on many factors,including innovativeness,developersupport,and effective distribution and marketing.If customers do not perceive our latest offerings as providing significantnew functionality or other value,they may reduce their purchases of new software and hardware products or upgr
109、ades,unfavorably affecting revenue.We may not achieve significant revenue from new product,service,and distribution channelinvestments for several years.New products and services may not be profitable,and even if they are profitable,operatingmargins for some new products and businesses may not be as
110、 high as the margins we have experienced historically.Developing new technologies and products is complex.It can require long development and testing periods.Significant delaysin new releases or significant problems in creating new products or services could adversely affect our revenue.To be succes
111、sful,we must respond to the rapid changes in technology.If we are unable to do so on a timely basis ourbusiness could be materially adversely affected.Our future success will depend in large part on our ability to enhance our current products and to develop newcommercial products on a timely and cos
112、t-effective basis in order to respond to technological developments and changingcustomer needs.The design-in process is typically lengthy and expensive and there can be no assurance that we will be able tocontinue to meet the product specifications of our customers in a timely and adequate manner.In
113、 addition,if we fail toanticipate or to respond adequately to changes in technology and customer preferences,or if there is any significant delay inproduct developments or introductions,this could have a material adverse effect on our business,financial condition andresults of operations,including t
114、he risk of inventory obsolescence.Because of the complexity of our products,we haveexperienced delays from time to time in completing products on a timely basis.If we are unable to design,develop orintroduce competitive new products on a timely basis,our future operating results would be adversely a
115、ffected,particularly inour HPP segment.There can be no assurance that we will be successful in developing new products or enhancing our existingproducts on a timely or cost-effective basis,or that such new products or product enhancements will achieve marketacceptance.The complexity of our products,
116、particularly in the HPP segment,could result in unforeseen delays or expense orundetected defects or bugs,which could adversely affect the market acceptance of new products,damage our reputation withcurrent or prospective customers,and materially and adversely affect our operating costs.Highly compl
117、ex products,such as those we offer,may contain defects and bugs when they are first introduced or asnew versions,software documentation or enhancements are released,or their release may be delayed due to unforeseendifficulties during product development.If any of our products or third-party componen
118、ts used in our products,contain defectsor bugs,or have reliability,quality or compatibility problems,we may not be able to successfully design workarounds.Furthermore,if any of these problems are not discovered until after we have commenced commercial production ordeployment of a new product,we may
119、be required to incur additional development costs and product recall,Table of Contents10repair or replacement costs.Significant technical challenges also arise with our software products because our customerslicense and deploy our products across a variety of computer platforms and integrate them wi
120、th a number of third-partysoftware applications and databases.As a result,if there is system-wide failure or an actual or perceived breach of informationintegrity,security or availability occurs in one of our end-user customers system,it can be difficult to determine whichproduct is at fault and we
121、could ultimately be harmed by the failure of another suppliers product.Consequently,ourreputation may be damaged and customers may be reluctant to buy our products,which could materially and adversely affectour ability to retain existing customers and attract new customers.To resolve these problems,
122、we may have to investsignificant capital and other resources and we would likely lose,or experience a delay in,market acceptance of the affectedproduct or products.These problems may also result in claims against us by our customers or others.For example,if a delayin the manufacture and delivery of
123、our products causes the delay of a customers end-product delivery,we may be required,under the terms of our agreement with that customer,to compensate the customer for the adverse effects of such delays.As aresult,our financial results could be materially adversely affected.We rely on single sources
124、 for supply of certain components and our business may be seriously harmed if our supplyof any of these components or other components is disrupted.Several components used in our HPP products are currently obtained from sole-source suppliers.We are dependenton key vendors like NVIDIA for our high-sp
125、eed interconnect components and Marvel for Myricom components.Generally,suppliers may terminate our purchase orders without cause upon 30 days notice and may cease offering products to us upon180 days notice.To the extent our key vendors,such as NVIDIA and Marvel were to limit or reduce the sale of
126、suchcomponents to us,or if these or other component suppliers,some of which are small companies,experience future financialdifficulties or other problems which could prevent them from supplying the necessary components,such events could have amaterial adverse effect on our business,financial conditi
127、on and results of operations.These sole source and other suppliers areeach subject to quality and performance risks,materials shortages,excess demand,reduction in capacity and other factors thatmay disrupt the flow of goods to us or our customers,which thereby may adversely affect our business and c
128、ustomerrelationships.We have no guaranteed supply arrangements with our suppliers and there can be no assurance that our suppliers willcontinue to meet our requirements.If our supply arrangements are interrupted,there can be no assurance that we would beable to find another supplier on a timely or s
129、atisfactory basis.Any shortage or interruption in the supply of any of thecomponents used in our products,or the inability to procure these components from alternate sources on acceptable terms,could have a material adverse effect on our business,financial condition and results of operations.There c
130、an be no assurancethat severe shortages of components will not occur in the future.Such shortages could increase the cost or delay the shipmentof our products,which could have a material adverse effect on our business,financial condition and results of operations.Significant increases in the prices
131、of these components would also materially adversely affect our financial performance sincewe may not be able to adjust product pricing to reflect the increase in component costs.We could incur set-up costs and delaysin manufacturing should it become necessary to replace any key vendors due to work s
132、toppages,shipping delays,financialdifficulties,pandemics,government shutdowns or other factors and,under certain circumstances,these costs and delays couldhave a material adverse effect on our business,financial condition and results of operations.Our international operation is subject to a number o
133、f risks.We market and sell our products in certain international markets and we have established operations in the U.K.Foreign-based revenue is determined based on the location to which the product is shipped or services are rendered andrepresented 4%and 8%of our total revenue for the fiscal years e
134、nded September 30,2022 and 2021,respectively.If revenuesgenerated by foreign activities are not adequate to offset the expense of establishing and maintaining these foreign activities,our business,financial condition and results of operations could be materially adversely affected.In addition,there
135、are certainrisks inherent in transacting business internationally,such as changes in applicable laws and regulatory requirements,exportand import restrictions,export controls relating to technology,tariffs and other trade barriers,longer payment cycles,problemsin collecting accounts receivable,polit
136、ical instability,fluctuations in currency exchange rates,expatriation controls andpotential adverse tax consequences,any of which could adversely impact the success of our international activities.Inparticular,it is possible activity in the United Kingdom and the rest of Europe will be adversely imp
137、acted and that we will faceincreased regulatory and legal complexities,including those related to tax,trade,andTable of Contents11employee relations as a result of Brexit.A portion of our revenues are from sales to foreign entities,including foreigngovernments,which are primarily paid in the form of
138、 foreign currencies.There can be no assurance that one or more of suchfactors will not have a material adverse effect on our future international activities and,consequently,on our business,financial condition or results of operations.We face competition that could adversely affect our sales and pro
139、fitability.The markets for our products are highly competitive and are characterized by rapidly changing technology,frequentproduct performance improvements and evolving industry standards.Many of our competitors are substantially larger thanwe are and have greater access to capital and human resour
140、ces and in many cases price their products and services less thanours.In addition,due to the rapidly changing nature of technology,new competitors may emerge.Competitors may be able tooffer more attractive pricing or develop products that could offer performance features that are superior to our pro
141、ducts,resulting in reduced demand for our products.Such competitors could have a negative impact on our ability to win futurebusiness opportunities.There can be no assurance that a new competitor will not attempt to penetrate the various markets forour products and services.Their entry into markets
142、historically targeted by us could have a material adverse effect on ourbusiness,financial condition and results of operations.Pandemics,epidemics or disease outbreaks,such as the novel coronavirus(“COVID-19”),may materially adverselyaffect our business,results of operations,cash flows and financial
143、condition.Pandemics,epidemics,or disease outbreaks,such as COVID-19 may cause harm to us,our employees,our clients,our vendors and supply chain partners,and financial institutions,which could have a material adverse effect on our business,results of operations,cash flows,and financial condition.The
144、impact of a pandemic,epidemic,or other disease outbreak,such as COVID-19,may include,but would not be limited to:(i)disruption to operations due to the unavailability ofemployees due to illness,quarantines,risk of illness,travel restrictions or factors that limit our existing or potential workforce;
145、(ii)volatility in the demand for or availability of our products and services,(iii)inability to meet our customers needs due todisruptions in the manufacture,sourcing and distribution of our products and services,or(iv)failure of third parties on whichwe rely,including our suppliers,clients,and exte
146、rnal business partners,to meet their obligations to us,or significantdisruptions in their ability to do so.As a result of the World Health Organization characterizing the COVID-19 outbreak as apandemic on March 11,2021,national,state,and local governments have taken actions such as declaring a state
147、 ofemergency,establishing social distancing guidelines,and shutting down certain businesses which are not considered essentialin part or entirely.The Company has complied with such actions causing most employees to work remotely in all locations.Such measures could have a material adverse effect on
148、our business,financial condition and results of operations.Government Contracting RisksWe depend on contracts with the federal government,primarily with the Department of Defense(DoD),for aportion of our revenue,and our business could be seriously harmed if the government significantly decreased or
149、ceased doingbusiness with us.We derived 2%of our total revenue in fiscal year 2022 and 4%of our total revenue in fiscal year 2022 from the DoDas a subcontractor.We expect that the DoD contracts will continue to be important to our business for the foreseeable future.Ifwe were suspended or debarred f
150、rom contracting with the federal government generally,the General Services Administration,or any significant agency in the intelligence community or the DoD,if our reputation or relationship with governmentagencies were to be impaired,or if the government otherwise ceased doing business with us or s
151、ignificantly decreased theamount of business it does with us,our business,prospects,financial condition and operating results would be materially andadversely affected.Our business could be adversely affected by changes in budgetary priorities of the federal government.Because we derive a significan
152、t percentage of our revenue from contracts with the federal government,changes infederal government budgetary priorities could directly affect our financial performance.A significant decline in governmentexpenditures,a shift of expenditures away from programs that we support or a change in federal g
153、overnmentTable of Contents12contracting policies could cause federal government agencies to reduce their purchases under contracts,to exercise their rightto terminate contracts at any time without penalty or not to exercise options to renew contracts.In years when Congress does not complete its budg
154、et process before the end of its fiscal year(September 30),government operations are funded through a continuing resolution(CR)that temporarily funds federal agencies.Recent CRshave generally provided funding at the levels provided in the previous fiscal year and have not authorized new spendinginit
155、iatives.When the federal government operates under a CR,delays can occur in the procurement of products and services.Historically,such delays have not had a material effect on our business;however,should funding of the federal government byCR be prolonged or extended,it could have significant conseq
156、uences to our business and our industry.Additionally,our business could be seriously affected if changes in DoD priorities reduces the demand for ourservices on contracts supporting some operations and maintenance activities or if we experience an increase in set-asides forsmall businesses,which cou
157、ld result in our inability to compete directly for contracts.U.S.Federal government contracts contain numerous provisions that are unfavorable to us.U.S.Federal government contracts contain provisions and are subject to laws and regulations that give thegovernment rights and remedies,some of which a
158、re not typically found in commercial contracts,including allowing thegovernment to:cancel multi-year contracts and related orders if funds for contract performance for any subsequent year becomeunavailable;claim rights in systems and software developed by us;suspend or debar us from doing business w
159、ith the federal government or with a governmental agency;impose fines and penalties and subject us to criminal prosecution;andcontrol or prohibit the export of our data and technology.If the government terminates a contract for convenience,we may recover only our incurred or committed costs,settleme
160、nt expenses and profit on work completed prior to the termination.If the government terminates a contract for default,we may be unable to recover even those amounts,and instead may be liable for excess costs incurred by the government inprocuring undelivered items and services from another source.De
161、pending on the value of a contract,such termination couldcause our actual results to differ materially and adversely from those anticipated.As is common with government contractors,we have experienced and continue to experience occasionalperformance issues under certain of our contracts.Depending up
162、on the value of the matters affected,a performance problemthat impacts our performance of a program or contract could cause our actual results to differ materially and adversely fromthose anticipated.Intellectual Property and Systems RisksWe may be unsuccessful in protecting our intellectual propert
163、y rights which could result in the loss of a competitiveadvantage.Our ability to compete effectively against other companies in our industry depends,in part,on our ability to protectour current and future proprietary technology under patent,copyright,trademark,trade secret and unfair competition law
164、s.Wecannot assure that our means of protecting our proprietary rights in the United States or abroad will be adequate,or that otherswill not develop technologies similar or superior to our technology or design around our proprietary rights.In addition,wemay incur substantial costs in attempting to p
165、rotect our proprietary rights.Table of Contents13Also,despite the steps taken by us to protect our proprietary rights,it may be possible for unauthorized third partiesto copy or reverse-engineer aspects of our products develop similar technology independently or otherwise obtain and useinformation t
166、hat we regard as proprietary and we may be unable to successfully identify or prosecute unauthorized uses of ourtechnology.Furthermore,with respect to our issued patents and patent applications,we cannot assure that patents from anypending patent applications(or from any future patent applications)w
167、ill be issued,that the scope of any patent protection willinclude competitors or provide competitive advantages to us,that any of our patents will be held valid if subsequentlychallenged or that others will not claim rights in or ownership of the patents(and patent applications)and other proprietary
168、rights held by us.If we become subject to intellectual property infringement claims,we could incur significant expenses and could beprevented from selling specific products.We may become subject to claims that we infringe the intellectual property rights of others in the future.We cannotassure that,
169、if made,these claims will not be successful.Any claim of infringement could cause us to incur substantial costsdefending against the claim even if the claim is invalid and could distract management from other business.Any judgmentagainst us could require substantial payment in damages and could also
170、 include an injunction or other court order that couldprevent us from offering certain products.We need to continue to expend resources on research and development(R&D)efforts in our HPP segment,to meetthe needs of our customers.If we are unable to do so,our products could become less attractive to
171、customers and our businesscould be materially adversely affected.Our industry requires a continued investment in R&D.As a result of our need to maintain or increase our spendinglevels for R&D in this area and the difficulty in reducing costs associated with R&D,our operating results could be materia
172、llyharmed if our revenues fall below expectations.In addition,as a result of CSPis commitment to invest in R&D,spending asa percent of revenues may fluctuate in the future.Further,if we fail to invest sufficiently in R&D or our R&D does notproduce competitive results,our products may become less att
173、ractive to our customers or potential customers,which couldmaterially harm our business and results of operations.Our need for continued or increased investment in research and development may increase expenses and reduce ourprofitability.Our industry is characterized by the need for continued inves
174、tment in research and development.If we fail to investsufficiently in research and development,our products could become less attractive to potential customers and our businessand financial condition could be materially and adversely affected.As a result of the need to maintain or increase spendingl
175、evels in this area and the difficulty in reducing costs associated with research and development,our operating results could bematerially harmed if our research and development efforts fail to result in new products or if revenues fall below expectations.In addition,as a result of our commitment to
176、invest in research and development,spending levels of research and developmentexpenses as a percentage of revenues may fluctuate in the future.Our results of operations are subject to fluctuation from period to period and may not be an accurate indication offuture performance.We have experienced flu
177、ctuations in operating results in large part due to the sale of products and services inrelatively large dollar amounts to a relatively small number of customers.Customers specify delivery date requirements thatcoincide with their need for our products and services.Because these customers may use ou
178、r products and services inconnection with a variety of defense programs or other projects with different sizes and durations,a customers orders for onequarter generally do not indicate a trend for future orders by that customer.As such,we have not been able in the past toconsistently predict when ou
179、r customers will place orders and request shipments so that we cannot always accurately plan ourmanufacturing,inventory,and working capital requirements.As a result,if orders and shipments differ from what we predict,we may incur additional expenses and build excess inventory,which may require addit
180、ional reserves and allowances andreduce our working capital and operational flexibility.Any significant change in our customers purchasing patterns couldhave a material adverse effect on our operating results and reported earnings per share for a particularTable of Contents14quarter.Thus,results of
181、operations in any period should not be considered indicative of the results to be expected for anyfuture period.Our quarterly results may be subject to fluctuations resulting from a number of other factors,including:delays in completion of internal product development projects;delays in shipping har
182、dware and software;delays in acceptance testing by customers;a change in the mix of products sold to our served markets;changes in customer order patterns;production delays due to quality problems with outsourced components;inability to scale quick reaction capability products due to low product vol
183、ume;shortages and costs of components;the timing of product line transitions;declines in quarterly revenues from previous generations of products following announcement of replacementproducts containing more advanced technology;inability to realize the expected benefits from acquisitions and restruc
184、turings,or delays in realizing suchbenefits;potential asset impairment,including goodwill and intangibles,write-off of deferred tax assets or restructuringcharges;andchanges in estimates of completion on fixed price service engagements.In addition,from time to time,we have entered into contracts,ref
185、erred to as development contracts,to engineer aspecific solution based on modifications to standard products.Gross margins from development contract revenues aretypically lower than gross margins from standard product revenues.We intend to continue to enter into development contractsand anticipate t
186、hat the gross margins associated with development contract revenues will continue to be lower than grossmargins from standard product sales.Another factor contributing to fluctuations in our quarterly results is the fixed nature of expenditures on personnel,facilities and marketing programs.Expense
187、levels for these programs are based,in significant part,on expectations of futurerevenues.If actual quarterly revenues are below managements expectations,our results of operations will likely be adverselyaffected.Further,the preparation of financial statements in conformity with accounting principle
188、s generally accepted in theUnited States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues andexpenses during the re
189、porting periods.Actual results could differ from those estimates,and changes in estimates in subsequentperiods could cause our results of operations to fluctuate.Table of Contents15If we experience a disaster or other business continuity problem,we may not be able to recover successfully,whichcould
190、cause material financial loss,loss of human capital,regulatory actions,reputational harm,or legal liability.If we experience a local or regional disaster or other business continuity problem,such as a hurricane,earthquake,terrorist attack,pandemic or other natural or man-made disaster,our continued
191、success will depend,in part,on the availabilityof our personnel,our office facilities,and the proper functioning of our computer,telecommunication and other relatedsystems and operations.As we attempt to grow our operations,the potential for particular types of natural or man-madedisasters,political
192、,economic or infrastructure instabilities,or other country-or region-specific business continuity risksincreases.If we suffer any data breaches involving the designs,schematics,or source code for our products or other sensitiveinformation,our business and financial results could be adversely affecte
193、d.We securely store our designs,schematics,and source code for our products as they are created.A breach,whetherphysical,electronic or otherwise,of the systems on which this sensitive data is stored could lead to damage or piracy of ourproducts.If we are subject to data security breaches from extern
194、al sources or from an insider threat,we may have a loss insales or increased costs arising from the restoration or implementation of additional security measures,either of which couldadversely affect our business,financial condition,and results of operations.Other potential costs could include loss
195、of brandvalue,incident response costs,loss of stock market value,regulatory inquiries,litigation,and management distraction.Inaddition,a security breach that involved classified information could subject us to civil or criminal penalties,loss of agovernment contract,loss of access to classified info
196、rmation,or debarment as a government contractor.Similarly,a breachthat involved loss of customer-provided data could subject us to loss of a customer,loss of a contract,litigation costs and legaldamages,and reputational harm.Systems failures may disrupt our business and have an adverse effect on our
197、 results of operations.Any systems failures,including network,software or hardware failures,whether caused by us,a third party serviceprovider,unauthorized intruders and hackers,computer viruses,natural disasters,power shortages or terrorist attacks,couldcause loss of data or interruptions or delays
198、 in our business or that of our clients and reputational harm as a security provider.Like other companies,we have experienced cyber security threats to our data and systems,our company sensitive information,and our information technology infrastructure,including malware and computer virus attacks,un
199、authorized access,systemsfailures and temporary disruptions.We may experience similar security threats at customer sites that we operate and manageas a contractual requirement.Prior cyber attacks directed at us have not had a material adverse impact on our business or ourfinancial results,and we bel
200、ieve that our continuing commitment toward threat detection and mitigation processes andprocedures will help us minimize or avoid such impact in the future.Due to the evolving nature of these security threats,however,the impact of any future incident cannot be predicted.In addition,the failure or di
201、sruption of our email,communications or utilities could cause us to interrupt or suspendour operations or otherwise harm our business.Our property and business interruption insurance may be inadequate tocompensate us for all losses that may occur as a result of any system or operational failure or d
202、isruption and,as a result,ouractual results could differ materially and adversely from those anticipated.The systems and networks that we maintain for our clients,although highly redundant in their design,could also fail.If a system or network we maintain were to fail or experience service interrupt
203、ions,we might experience loss of revenue orface claims for damages or contract termination.Our errors and omissions liability insurance may be inadequate tocompensate us for all the damages that we might incur and,as a result,our actual results could differ materially and adverselyfrom those anticip
204、ated.Our business,financial condition and results of operations could be adversely affected by disruptions in the globaleconomy caused by the ongoing conflict between Russia and Ukraine.The global economy has been negatively impacted by the military conflict between Russia and Ukraine.Furthermore,go
205、vernments in the United States,United Kingdom and European Union have each imposed export controlsTable of Contents16on certain products and financial and economic sanctions on certain industry sectors and parties in Russia.Although we do nothave significant customers or suppliers in Russia or Ukrai
206、ne,we do have customers and suppliers in surrounding regionswhich may be affected.Further escalation of Russian-Ukraine military conflict and geopolitical tensions related to suchmilitary conflict,including increased trade barriers or restrictions on global trade,could result in,among other things,c
207、yberattacks,supply disruptions,lower consumer demand,and changes to foreign exchange rates and financial markets,any ofwhich may adversely affect our business,financial condition and results of operations.The effects of the ongoing conflictcould heighten many of our known risks described in section
208、entitled Risk Factors in Part I,Item 1A in this Annual Reporton Form 10-K for the fiscal year ended September 30,2022.Legal and Regulatory Risks.Changes in regulations could materially adversely affect us.Our business,results of operations,or financial condition could be materially adversely affecte
209、d if laws,regulations,or standards relating to us or our products are newly implemented or changed.In addition,our compliance with existingregulations may have a material adverse impact on us.Under applicable federal securities laws,we are required to evaluateand determine the effectiveness of our i
210、nternal control structure and procedures.If we have a material weakness in our internalcontrols,our results of operations or financial condition may be materially adversely affected,or our stock price may decline.Risks Related to Ownership of Our Common StockOur stock price may continue to be volati
211、le.Historically,the market for technology stocks has been extremely volatile.Our common stock has experienced andmay continue to experience substantial price volatility.The following factors could cause the market price of our commonstock to fluctuate significantly:loss of a major customer;loss of a
212、 major supplier;inflationary pressures;the addition or departure of key personnel;variations in our quarterly operating results;announcements by us or our competitors of significant contracts,new products or product enhancements;acquisitions,distribution partnerships,joint ventures or capital commit
213、ments;regulatory changes;sales of our common stock or other securities in the future;changes in market valuations of technology companies;andfluctuations in stock market prices and volumes.Table of Contents17In addition,the stock market in general and the NASDAQ Global Market and technology companie
214、s in particular,have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operatingperformance of such companies.These broad market and industry factors may materially adversely affect the market price ofour common stock,regardless of our actual
215、 operating performance.In the past,following periods of volatility in the marketprice of a companys securities,securities class action litigation has often been instituted against such companies.If anyshareholder were to issue a lawsuit,we could incur substantial costs defending the lawsuit and the
216、attention of managementcould be diverted.Item 2.PropertiesListed below are our principal facilities as of September 30,2022.Management considers all facilities listed below tobe suitable for the purpose(s)for which they are used,including manufacturing,research and development,sales,marketing,servic
217、e and administration.Owned orApproximateLocationPrincipal UseLeasedFloor AreaTS Segment Properties:Modcomp,Inc.Division HeadquartersLeased11,815 S.F.1182 East Newport Center DriveSales,Marketing and Deerfield Beach,FL 33442Administration Modcomp,Ltd.Sales,Marketing andLeased484 S.F.Indigo House,Mulb
218、erry Business ParkAdministration Wokingham,Berkshire RG41 2GY United Kingdom HPP Segment Properties:CSP Inc.Corporate HeadquartersLeased8,257 S.F.175 Cabot Street,Suite 210Manufacturing,Sales,Lowell,MA 01854Marketing and AdministrationItem 3.Legal ProceedingsWe are currently not a party to any mater
219、ial legal proceedings.Item 4.Mine Safety DisclosuresNot Applicable.PART IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket information.Our common stock is traded on the Nasdaq Global Market under the symbol CSPI.Thefollowing tabl
220、e provides the high and low sales prices of our common stock as reported on the Nasdaq Global Market for theperiods indicated.20222021Fiscal Year:High Low High Low1st Quarter$9.30$8.09$8.71$7.09Table of Contents182nd Quarter$8.94$6.99$12.76$7.963rd Quarter$9.68$6.81$11.60$8.474th Quarter$8.95$7.12$1
221、0.85$8.70Stockholders.We had approximately 72 holders of record of our common stock as of December 6,2022.Thisnumber does not include stockholders for whom shares were held in a“nominee”or“street”name.We believe the number ofbeneficial owners of our shares of common stock(including shares held in st
222、reet name)at that date was approximately 1,347.Purchases of equity securities.On February 8,2011,the Board of Directors authorized the Company to repurchase up to 250 thousand additionalshares of the Companys outstanding common stock at market price.The plan does not expire.As of May 14,2020,wesuspe
223、nded our stock repurchase program until further economic clarity.The Board of Directors approved the activation of thesuspended stock repurchase program on December 29,2021.Common stock of CSP Inc.may be repurchased on the open market at the discretion of management.Open marketrepurchases will be ma
224、de in compliance with the Securities and Exchanges Commissions Rule 10b-18 in addition tocomplying with applicable legal and other considerations.Below are the purchases that have been made for the three monthsended September 30,2022.PeriodTotal number ofshares purchasedAverage pricepaid per shareTo
225、tal number of sharespurchased as part of publiclyannounced plans(1)Maximum number thatmay yet be purchasedunder the repurchaseplanAugust 1-31,2022 1,300$8.10 1,300 173,327September 1-30,2022 1,600$8.02 1,600 171,727(1)On December 29,2021,the Company announced the commencement of purchases under our
226、stock repurchase program,whichwas originally authorized and announced February 8,2011.This program originally allowed the Company to purchase up to250,000 shares of its Common Stock.As of the December 29,2021 announcement,194,125 shares of Common Stock wereavailable to be repurchased under the stock
227、 repurchase program.The program does not expire.The stock repurchase program maybe suspended,terminated,or modified at any time for any reason.Dividends.As of May 14,2020,we suspended our stock repurchase program and the payment of quarterly cashdividends until further economic clarity.The dividend
228、was reinstated on August 10,2022.There were no dividends paid infiscal year 2021.For the fiscal year ended September 30,2022 the Company paid cash dividends as follows:Amount PaidFiscal YearDate DeclaredRecord DateDate PaidPer Share2022 8/10/20228/22/20229/9/2022$0.03Item 6.ReservedItem 7.Management
229、s Discussion and Analysis of Financial Condition and Results of OperationsThis managements discussion and analysis of financial condition and results of operations and other portions of thisfiling contain forward-looking information that involves risks and uncertainties.Our actual results could diff
230、er materiallyfrom those anticipated by the forward-looking information.You should review the“Special Note Regarding Forward LookingStatements”and“Risk Factors”sections of this annual report for a discussion of important factors that could cause actualresults to differ materially from the results des
231、cribed in or implied by the forward-looking statements contained in thefollowing discussion and analysis.The following discussion should be read in conjunction with our financial statements andthe related notes included elsewhere in this filing.Table of Contents19Observations on effects of novel cor
232、onavirus and Russia/Ukraine ConflictOn March 11,2020,the World Health Organization characterized the novel coronavirus outbreak as a pandemic.Theoutbreak has and continues to adversely affect the economies of the U.S.,U.K.,and other international markets and economiesin which we operate.As a result
233、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,implementingsocial distancing and other guidelines,and shutting down and/or limiting the opening or operat
234、ion of certain businesses whichare not considered essential.In these times of pandemic,our top priorities are to protect the health,well-being,and safety of our employees andpartners,while still focusing on the key drivers of our business.To that end,and to insure we continue to operate safely andca
235、utiously while also meeting our public health responsibilities,the Company has adopted flexible business practicesincluding allowing most employees to work remotely in all locations.COVID-19 has adversely affected the distribution channel leading to significantly longer lead times when orderingprodu
236、ct.Manufacturers are not producing as much product as prior to the pandemic due to disruptions,resulting in supplyshortages.Additionally,recent global shipping delays have exacerbated this problem.The TS segment has many vendors ittransacts with and supply shortages are pervasive with many of them.T
237、he HPP segment has and continues to experienceshortages with their vendors as well.If we are unable to successfully resolve these disruptions and shortages,the timing andamount of our future results may be materially impacted.The HPP segment secured a$1.8 million contract for real-timenetworking mon
238、itoring for cyber attack detection in the first quarter of fiscal year 2021,but due to the delays bymanufacturers the sale is anticipated to be recognized fully in revenue in fiscal year 2023 when we can obtain the productfrom the manufacturers.Related to the supply shortage and potentially inflatio
239、n,we have experienced price increases for ourproducts,which we try to pass on to the customer.We recognize the pandemic has created a dynamic and uncertain situation in the national economy,and we continueto closely monitor the latest information to make timely,informed business decisions and public
240、 disclosures regarding thepotential impact of the pandemic on our operations.Despite reduced infection rates and ever-increasing vaccination rates inthe United States,many nations and certain pockets within the United States are still battling various strains/variants of thenovel coronavirus,creatin
241、g ongoing uncertainties as to when economies will return to business as usual and what that willlook like,what regulatory measures or voluntary actions will be further implemented to limit the spread of COVID-19 and itsvariants and the duration of any such measures.The extent,severity and impact of
242、any further spread of COVID-19 variants orresurgence of COVID-19 in a given geographic region after it has hit its“peak,”and the extent to which herd immunity willbe achieved through the vaccination process is still uncertain.In summary,the scope of this pandemic and its effects areunprecedented,and
243、 we cannot at this time make a reasonable estimate on the extent or duration of the impacts on our business.As of September 30,2022,the Russian/Ukrainian military conflict has not had a direct significant impact on revenueas we do not have any recurring customers in either country.However,we do have
244、 customers and suppliers in surroundingregions which may be affected and further escalation of the Russian-Ukraine military conflict and geopolitical tensions relatedto such military conflict could adversely affect our business,financial condition and results of operations,by among otherthings,cyber
245、 attacks,supply disruptions,lower consumer demand,and changes to foreign exchange rates and financialmarkets.It is not possible at this time to predict the size of the impact or consequences of the conflict to the Company and ourcustomers and suppliers.Overview of Fiscal 2022 Results of OperationsRe
246、venue increased by approximately$5.2 million,or 10%,to$54.4 million for the fiscal year endedSeptember 30,2022 versus$49.2 million for the fiscal year ended September 30,2021.Gross profit margin percentage increased,from 33%of revenues for the fiscal year ended September 30,2021 to35%for the fiscal
247、year ended September 30,2022.Table of Contents20We generated an operating loss of$40 thousand for the fiscal year ended September 30,2022 as compared to anoperating loss of approximately$1.4 million for the fiscal year ended September 30,2021.Other income,(expense)net was$2.0 million for the fiscal
248、year ended September 30,2022 as compared to$2.0million for the prior year.A one-time gain of$465k occurred in fiscal year 2021,which was a purchase price adjustment of a subsidiary(Modcomp GmbH)that was sold in fiscal year 2018.This is classified as discontinued operations.There are no furtheramount
249、s to be received in connection with the purchase agreement from the original sale.The Company recorded an income tax provision of approximately$50 thousand for the fiscal year ended September30,2022,which reflected an effective tax rate of 3%for the year ended September 30,2022.The provision is prim
250、arily drivenby the state tax expense.For the fiscal year ended September 30,2021,the income tax provision was$444 thousand,whichreflected an effective tax rate of 39%.The provision is primarily driven by the recording of a partial valuation allowanceagainst US deferred tax assets that are not more-l
251、ikely-than-not to be realized partially offset by current year federal R&Dcredits and the benefit resulting from the carryback of federal net operating losses to years in which the statutory federal taxrate was 34%.The following table details our results of operations in dollars and as a percentage
252、of sales for the fiscal years ended:%September 30,2022 of sales September 30,2021 of sales(Dollar amounts in thousands)Sales$54,361 100%$49,208 100%Costs and expenses:Cost of sales 35,534 65%33,059 67%Engineering and development 3,084 6%2,887 6%Selling,general and administrative 15,783 29%14,624 30%
253、Total costs and expenses 54,401 100%50,570 103%Operating loss (40)-%(1,362)(3)%Other income,(expense)net 1,979 4%2,040 4%Income before income taxes 1,939 4%678 1%Income tax expense 50%444 1%Net income from continuing operations$1,889 3%$234%Gain on sale of discontinued operations%465 1%Net income$1,
254、889 3%$699 1%RevenuesRevenue increased by approximately$5.2 million,or approximately 10%,to$54.4 million for the fiscal year endedSeptember 30,2022 versus$49.2 million for the fiscal year ended September 30,2021.Our TS segment revenue increased byapproximately$5.9 million consisting of an increase o
255、f$7.1 million in our U.S.division,partially offset by a decrease of$1.2million in our U.K.division.Our HPP segment revenue decreased by approximately$0.8 million or 17%.TS segment revenue changes by products and services for the fiscal years ended September 30 were as follows:September 30,Increase 2
256、022 2021$%(Dollar amounts in thousands)Products$34,172$32,100$2,072 6%Services 16,346 12,485 3,861 31%Table of Contents21Total$50,518$44,585$5,933 13%The increase in TS segment product revenue of$2.1 million during the period was the result of a$3.1 millionincrease in the U.S.division,partially offs
257、et by a decrease of approximately$1.0 million in the U.K.division.As theeconomic environment returns to pre-pandemic levels it has led to customers budgets not being as constrained as prior yearleading to increased sales in the U.S.division.The increase in our U.S.division product revenue year over
258、year was primarilyassociated with several major customers,partially offset by a decrease with several other customers.The decrease in the U.K.division year over year was primarily associated with a decrease with one major customer.The increase in TS segment servicerevenue of$3.9 million as compared
259、to the prior year was due to a$4.0 million increase in the U.S.division,partially offsetwith a$0.1 million decrease in the U.K.division.In fiscal year 2022 as compared to the prior year,the U.S.division had anincrease of$1.5 million in managed services,an increase of$1.3 million in services provided
260、 by the Company and third partyservices,and an increase of$1.2 million in third party maintenance revenue.HPP segment revenue changes by product and services for the fiscal years ended September 30 were as follows:September 30,Decrease 2022 2021$%(Dollar amounts in thousands)Products$2,516$3,126$(61
261、0)(20)%Services 1,327 1,497 (170)(11)%Total$3,843$4,623$(780)(17)%The decrease in HPP product revenue of$0.6 million in the fiscal year ended September 30,2022 was primarily theresult of an approximately$0.6 million decrease in Multicomputer product line shipments for the fiscal year endedSeptember
262、30,2022 as compared to the fiscal year ended September 30,2021.The decrease in HPP service revenue ofapproximately$0.2 million for the fiscal year ended September 30,2022 period was primarily the result of a$0.4 milliondecrease in royalty revenues on high-speed processing boards related to the E2D p
263、rogram,partially offset with higher ARIAsales of$0.2 million as compared to the fiscal year ended September 30,2021.Our total revenues by geographic area based on the location to which the products were shipped or services renderedwere as follows:September 30,Increase(decrease)2022%2021%$%(Dollar am
264、ounts in thousands)Americas$52,486 96%$45,321 92%$7,165 16%Europe 1,407 3%3,203 7%(1,796)(56)%Asia 468 1%684 1%(216)(32)%Totals$54,361 100%$49,208 100%$5,153 10%The$7.2 million increase in the Americas revenue for the fiscal year ended September 30,2022 as compared to thefiscal year ended September
265、30,2021 was primarily due to increased revenue by our TS-US division of approximately$7.7million,partially offset with a decrease of$0.2 million attributable to the TS-UK division combined with decreased sales byour HPP segment of approximately$0.3 million.The$1.8 million decrease in Europe revenue
266、for the fiscal year endedSeptember 30,2022 as compared to the prior year period was primarily due to decreased sales by our TS-UK division ofapproximately$1.0 million,a decrease in sales by our TS-US division of approximately$0.5 million,and a decrease of$0.3million in our HPP segment.The$0.2 millio
267、n decrease in Asia revenue for the fiscal year ended September 30,2022 ascompared to the prior year period was the result of decreased revenue by our HPP segment of$0.1 million combined with a$0.1 million decrease in our TS-U.S.division.Gross MarginsOur gross margin(GM)increased by$2.7 million to$18
268、.8 million for fiscal year 2022 as compared to GM ofapproximately$16.1 million for fiscal year 2021.The total GM as a percentage of revenue increased to 35%for fiscalTable of Contents22year 2022 from 33%for fiscal year 2021.The increase in total GM as a percentage of revenue was primarily attributed
269、 to asignificantly higher increase in service revenue,which has a higher GM as a percentage of revenue,versus product revenue.The improved product GM as a percentage of revenue has been a focus in fiscal year 2022,particularly in the TS segment.The 8%decrease in HPP GM as a percentage of revenue fro
270、m prior year was due to decreased royalty sales,which are nearlyall margin.The following table summarizes GM changes by segment for fiscal years ended September 30:September 30,20222021Increase(decrease)(Dollar amounts in thousands)GM$GM%GM$GM%GM$GM%TS$16,879 33%$13,405 30%$3,474 3%HPP 1,948 51%2,74
271、4 59%(796)(8)%Total$18,827 35%$16,149 33%$2,678 2%The impact of product mix within our TS segment on gross margins for the fiscal years ended September 30 was asfollows:September 30,20222021Increase GM$GM%GM$GM%GM$GM%(Dollar amounts in thousands)Products$6,818 20%$5,898 18%$920 2%Services 10,061 62%
272、7,507 60%2,554 2%Total$16,879 33%$13,405 30%$3,474 3%The overall TS segment GM as a percentage of revenue increased to 33%in fiscal year 2022 from 30%in fiscal year2021.The increase in GM as a percentage of revenue was primarily attributed to increased GM as a percentage of revenue forboth product a
273、nd service revenue than in fiscal year 2021.The$0.9 million increase in our TS segment product GM in fiscalyear 2022 as compared to the prior year resulted from an increase in GM in the U.S.division.The$2.6 million increase in theTS segment service GM in fiscal year 2022 as compared to the prior yea
274、r primarily resulted from increased service GM of$2.7 million in the U.S.division,partially offset by a decrease of$0.1 million in the U.K.division.The impact of product mix on gross margins within our HPP segment for the fiscal years ended September 30 was asfollows:September 30,20222021Decrease(Do
275、llar amounts in thousands)GM$GM%GM$GM%GM$GM%Products$893 35%$1,304 42%$(411)(7)%Services 1,055 80%1,440 96%(385)(16)%Total$1,948 51%$2,744 59%$(796)(8)%The overall HPP segment GM as a percentage of revenue decreased to 51%in fiscal year 2022 from 59%infiscal year 2021.The 8%decrease in GM as a perce
276、ntage of sales in the HPP segment was primarily attributed to the impactof a decrease of$0.4 million in high margin Multicomputer royalty revenues,which is nearly all GM and recorded as servicerevenue.The GM as a percentage of sales from products decreased primarily due to product mix in fiscal year
277、 2022 ascompared to the prior year.Table of Contents23Engineering and Development ExpensesOur engineering and development expenses are only in our HPP segment.These expenses had an increase of$0.2million,primarily due to increased consulting costs,from$2.9 million in fiscal year 2021 to$3.1 million
278、for fiscal year 2022.Fiscal year 2022 and 2021 expenses were primarily for product engineering expenses incurred in connection with thedevelopment of the ARIA SDS cyber security products and ARIA Zero Trust(AZT).Selling,General and AdministrativeThe following table details our selling,general and ad
279、ministrative(“SG&A”)expenses by operating segment forthe years ended September 30,2022 and 2021:Year ended$%of%ofIncreaseIncrease 2022 Total 2021 Total (Decrease)(Decrease)(Dollar amounts in thousands)By Operating Segment:TS segment$12,032 76%$10,190 70%$1,842 18%HPP segment 3,751 24%4,434 30%(683)(
280、15)%Total$15,783 100%$14,624 100%$1,159 8%The TS segment SG&A spending increase of approximately$1.8 million for the fiscal year ended September 30,2022 when compared to the prior year was primarily due to an increase in variable compensation of$1.5 million and anincrease in salaries and other expen
281、ses of$0.3 million.The HPP segment SG&A spending decrease of$0.7 million for the fiscal year ended September 30,2022 whencompared to the prior year was primarily attributed to decreased headcount and consulting expenses.Other Income/ExpensesThe following table details our other income(expense)for th
282、e years ended September 30,2022 and 2021:Year endedIncrease September 30,2022 September 30,2021 (Decrease)(Amounts in thousands)Foreign exchange gain(loss)$1,692$(488)$2,180Interest expense(360)(350)(10)Interest income 650 575 75Gain on debt forgiveness 2,196(2,196)Other income(expense),net (3)107 (
283、110)Total other income(expense),net$1,979$2,040$(61)For the year ended September 30,2022 the largest change was the foreign exchange gain increase of$2.2 million dueto the U.S.dollar significantly strengthening against the British Pound and the largest change for the year ended September30,2021 was
284、a gain on debt forgiveness of$2.2 million for the Payroll Protection Program loans.These two items had a neteffect of nearly zero.The$0.1 million decrease to total other income(expense),net for the year ended September 30,2022 ascompared to the prior year period is due to a nonrecurring rebate we re
285、ceived in the prior year that originated several yearsago,which we did not anticipate receiving.The U.K.division has significant bank accounts with U.S.dollars and Euros.In consolidation,U.S.dollars and Eurosare remeasured into the functional currency,British Pounds,of our U.K.subsidiary.This non-ca
286、sh remeasurement is includedin foreign exchange gain or loss on the income statement and the foreign exchange gain or loss is primarily from a U.S.Dollarand Euro bank account.The US dollar and Euro strengthened relative to the British Pound when comparing the exchange rateas of September 30,2022 to
287、September 30,2021,which caused the foreign exchange gain.Table of Contents24Interest income is primarily related to agreements that have payment terms in excess of one year(see Note 3Accounts and Long-Term Receivable in Item 1 to this Annual Report on Form 10-K for details)from the TS-US segment asi
288、nterest income recognized in each agreement decreases as principal payments are made.There were three new agreements infiscal year 2022,which caused an increase in interest income.The interest expense increase of$10 thousand for the year ended September 30,2022 as compared to the prior yearperiod is
289、 related to three total new multi-year agreements with vendors in the TS U.S.division in the second and fourthquarters of fiscal year 2021.Payments on these agreements contain both principal and interest expense.In fiscal year 2022there was a full year of interest expense compared to less than three
290、 full quarters in the prior year.As principal payments aremade the interest expense decreases and this was slightly offset by the full year of interest expense from these agreements.SeeNote 9 Accounts payable and accrued expenses,and Other noncurrent liabilities in Item 1 to this Annual Report on Fo
291、rm 10-K.The other income decrease of$110 thousand for the year ended September 30,2022 as compared to the prior yearperiod is primarily related to a nonrecurring rebate we received in the prior year that originated several years ago,which wedid not anticipate receiving.Income TaxesThe Company record
292、ed an income tax provision of approximately$50 thousand for the fiscal year ended September30,2022,which reflected an effective tax rate of 2.6%for the year ended September 30,2022.The provision is primarilydriven by the state tax expense.For the fiscal year ended September 30,2021,the income tax pr
293、ovision was$444 thousand,which reflected an effective tax rate of 38.8%.The provision is primarily driven by the recording of a partial valuationallowance against US deferred tax assets that are not more-likely-than-not to be realized partially offset by current year federalR&D credits and the benef
294、it resulting from the carryback of federal net operating losses to years in which the statutory federaltax rate was 34%.During the period ended September 30,2022,management assessed the positive and negative evidence in the U.S.operations and concluded that it is more likely than not that the deferr
295、ed tax assets as of September 30,2022 will not berealized in light of recent results,the ongoing impacts of the coronavirus(“COVID-19”)pandemic,and the resultingeconomic fallout.In assessing the realizability of deferred tax assets,we consider taxable income in prior carryback years,aspermitted unde
296、r the tax law,our forecasted taxable earnings,tax planning strategies,and the expected timing of the reversal oftemporary differences.This determination requires significant judgment,including assumptions about future taxable incomethat are based on historical and projected information and is perfor
297、med on a jurisdiction-by-jurisdiction basis.We also continue to maintain a full valuation allowance against our U.K.deferred tax assets as we have experiencedcumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allowus to utilize
298、 much of our net operating loss carryforwards.To the extent that actual experience deviates from our assumptions,our projections would be affected and hence our assessment of realizability of our deferred tax assets may change.Gain on Discontinued OperationsCSPi sold all stock of Modcomp GmbH to Rep
299、ly AG on July 31,2018 for$14.4 million cash and a gain of$18.1million.This sale was recorded in fiscal year 2018.An additional 400 thousand was included in escrow as part of the SharePurchase and Assignment Agreement to potentially be received later as a purchase price adjustment in fiscal year 2021
300、.Thisamount was received in July 2021 and recorded as a gain from discontinued operations in the Consolidated Statements ofOperations.No income taxes were provided as the transaction was a tax-free exchange in the U.K.There are no other amountsthat will be received as part of the agreement.Table of
301、Contents25Liquidity and Capital ResourcesOur primary source of liquidity is our cash and cash equivalents,which increased by$4.0 million to$24.0 million asof September 30,2022 from$20.0 million as of September 30,2021.Our significant source of cash for the year ended September 30,2022 is primarily r
302、elated to the$2.9 million netchange between an increase in accounts receivable and long-term receivable of$4.1 million netted with an increase of$7.0million in accounts payable and accrued expenses,and other-long-term liabilities.We have multi-year agreements on both thereceivables(including long-te
303、rm)and payables(long-term portion in other long-term liabilities).During the fourth quarter offiscal year 2022 we entered into a$12.8 million sales agreement with a financing component,which includes receiving threepayments with the final payment due in fiscal year 2024.We received the first payment
304、 in the fourth quarter of fiscal year2022 of approximately$4.3 million.Our cost of sale for this agreement was paid in full in the first quarter of fiscal year 2023and significantly decreased our cash balance.This is the largest driver for the increase in accounts payable.The revenue forthis transac
305、tion was recorded net during the fourth quarter of fiscal year 2022.The other significant sources of cash were netborrowings of$2.2 million on our line of credit,tax refunds of approximately$0.6 million,and life insurance proceedsreceived of$0.3 million.Other significant uses of cash for the year en
306、ded September 30,2022 included paying$0.9 million of insurancepolicy loans back,payments for leases of$0.8 million,repayments on debt of$0.7 million,contributions to the pension anddefined contribution plans of$0.5 million,purchases of common stock of$0.2 million,purchases of property,equipment,andi
307、mprovements of$0.2 million,and dividends of$0.1 million.Our cash held by our foreign subsidiary in the United Kingdom totaled approximately$8.8 million as ofSeptember 30,2022,which consisted of 0.4 million Euros,0.2 million British Pounds,and 8.2 million U.S.Dollars.This cashis included in our total
308、 cash and cash equivalents reported within our financial statements.Due to the pension obligation in theU.K.,we maintain a large balance of cash in the U.K.,most of the cash is from the sale of Modcomp GmbH in fiscal year2018.Subsequent to September 30,2022 approximately 3.5 million U.S.Dollars was
309、transferred from the foreign subsidiaryin the U.K.to Modcomp,Inc.(TS-US)to use in operations.As of September 30,2022 and September 30,2021,the Company maintained a line of credit with a capacity of up to$15.0 million for inventory accessible to both the HPP and TS segments.This line of credit also i
310、ncludes availability of alimited cash withdrawal of up to$1.0 million.Amounts of$11.9 million and$14.1 million were available as of September 30,2022 and September 30,2021,respectively.As of September 30,2022 and September 30,2021 there were no cashwithdrawals outstanding.For a further discussion of
311、 the Companys line of credit,including its financial covenants,see Item1,Note 12 Line of Credit.On April 17,2021,the Company and Modcomp,Inc.,its wholly owned subsidiary each received a loan(“SBALoans”)in the form of a promissory note from Paragon Bank in the amounts of$827,000 and$1,353,600,respect
312、ively underthe Paycheck Protection Program,which was established under the recently enacted Coronavirus Aid,Relief,and EconomicSecurity Act(“CARES Act”)administered by the U.S.Small Business Administration.The SBA loans had a two-year termand carried an annual fixed interest rate of 1%.The SBA Loans
313、 were forgiven in full by the SBA in the first quarter of fiscalyear 2021.If cash generated from operations is insufficient to satisfy working capital requirements,we may need to access fundsthrough bank loans or other means.If we are unable to secure additional financing,we may not be able to compl
314、etedevelopment or enhancement of products,take advantage of future opportunities,respond to competition,retain keyemployees,or continue to effectively operate our business.Based on our current plans and business conditions,management believes that the Companys available cash andcash equivalents,the
315、cash received from the SBA loans,the cash generated from operations,and availability on our line ofcredit will be sufficient to provide for the Companys working capital and capital expenditure requirements for at least 12months from the date of this filing.Table of Contents26Critical Accounting Esti
316、mates and PoliciesOur discussion and analysis of our financial condition and results of operations are based upon our consolidatedfinancial statements,which have been prepared in accordance with accounting principles generally accepted in the UnitedStates.The preparation of these financial statement
317、s requires us to make estimates and judgments that affect the reportedamounts of assets,liabilities,revenues and expenses.On an on-going basis,we evaluate our estimates,including those relatedto uncollectible receivables,inventory valuation,goodwill and intangibles,income taxes,deferred compensation
318、,revenuerecognition,retirement plans,restructuring costs and contingencies.We base our estimates on historical performance and onvarious other assumptions that are believed to be reasonable under the circumstances,the results of which form the basis formaking judgments about the carrying values of a
319、ssets and liabilities that are not readily apparent from other sources.Actualresults may differ from these estimates under different assumptions or conditions.We believe the following critical accounting policies affect our more significant judgments and estimates used in thepreparation of our conso
320、lidated financial statements:revenue recognition,valuation allowances,specifically the allowance fordoubtful accounts and net deferred tax asset valuation allowance,inventory valuation,intangibles,and pension and retirementplans.Revenue RecognitionSee Note 1 Summary of Significant Accounting Policie
321、s,in the Consolidated Financial Statements for additionalinformation regarding our revenue recognition policies.The following areas involve significant judgment and estimates:Allocating transaction price with agreements with multiple components including leasing and/or a financingcomponentA financin
322、g component exists when at contract inception the period between the transfer of a promised good and/orservice to the customer differs from when the customer pays for the good and/or service.As a practical expedient,we haveelected not to adjust the amount of consideration for effects of a significan
323、t financing component when it is anticipated thepromised 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 hardwareand software.The interest rate used reflects
324、 the approximate interest rate consistent with a separate financing transaction withthe customer at the inception of the agreement.Revenues from arrangements which include financing are allocatedconsidering relative standalone selling prices of lease and non-lease components within the agreement.The
325、 lease componentincludes hardware,which is subject to ASC 842,Leases.The non-lease components are subject to ASC 606,Revenue fromContracts with Customers.When product and non-managed services are sold together,the allocation of the transaction price to eachperformance obligation is calculated based
326、on the estimated relative selling price or a budgeted cost-plus margin approach,asappropriate.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 involve
327、d to ensure estimates remainappropriate.For items sold separately,including hardware,software,professional services,maintenance contracts,otherservices,and third-party service contracts,there is no allocation as there is one performance obligation.Professional Services Sold Without ProductsThe input
328、 method using labor hours expended relative to the total expected hours is used to recognize revenue forprofessional services.Only the hours that depict our performance toward satisfying a performance obligation are used tomeasure progress.An estimate of hours for each professional service agreement
329、 is made at the beginning of each contractbased on prior experience and monitored throughout the performance of the services.This method is most appropriate as itdepicts the measure of progress towards satisfaction of the performance obligation.Table of Contents27Gross versus Net RevenueWe recognize
330、 revenue from third-party service contracts as either gross sales or net sales depending on whether weare acting as a principal party to the transaction or acting as an agent or broker based on control and timing.We are a principalif we control the good or service before that good or service is tran
331、sferred to the customer.We record revenue as gross whenwe are a principal party to the arrangement and net of cost when we are acting as a broker or agent for a third party.Undergross sales recognition,the entire selling price is recorded in revenue and our cost to the third-party service provider o
332、r vendoris recorded in cost of sales.Under net sales recognition,the cost to the third-party service provider or vendor is recorded as areduction to revenue resulting in net sales equal to the gross profit on the transaction.Third-party service contracts are sold indifferent combinations with hardwa
333、re,software,and services.When we are an agent,revenue is typically recorded at a pointin time.When we are the principal,revenue is recognized over the contract term.We have concluded we are the agent in salesof third-party maintenance,software or hardware support,and certain security software that is sold with integral third-partydelivered software maintenance that include critical updates.Product
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