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46
CSP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
and is based in Lowell, Massachusetts. To meet the diverse requirements of commercial and defense customers worldwide, CSPI and its subsidiaries develop and market IT integration solutions, advanced security products, managed IT services, purpose built network adapters, and high-performance cluster computer systems. The Company operates in segments, its Technology Solutions ("TS") segment and its High Performance Products ("HPP") segment.1. Basis of Presentation and Summary of Significant Accounting Policies
, from shares to shares (the “Amendment”). No shareholder approval was required under the Massachusetts Business Corporation Act with respect to the Amendment. The Amendment became effective upon filing with the Secretary of the Commonwealth of Massachusetts on February 21, 2024.
On February 21, 2024, the Company announced its Board of Directors approved and declared a -for-one stock split to be effected in the form of a % stock dividend. The stock dividend was paid on March 20, 2024 to shareholders of record as of the close of business on March 6, 2024. In accordance with ASC 505 Equity, specifically ASC 505-20-25-3 through ASC 505-20-25-6, we have determined this had a material effect on reducing share market value and therefore was treated this event as a stock split for accounting purposes.
All common shares and per share amounts contained in these financial statements and notes have been retrospectively restated to reflect this -for-one stock split in the form a % dividend in accordance with ASC 260 Earnings Per Share, specifically ASC 260-10-55-12.
47
k and a decrease of Financing receivables, net in the amount of $k with the total adjustment decreasing retained earnings of $k. For the accounting policies adopted and details of impacts from adoption refer to Note 2 - Accounts receivable, net and Note 3 - Financing receivables, net.
Accounting Pronouncement Not Yet Adopted as of September 30, 2024
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU expands existing income tax disclosures primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The ASU is effective for all public entities for annual periods beginning after December 15, 2024, with early adoption permitted. Entities should apply the amendments on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the impact this ASU will have on its disclosures.
In November 2024, the FASB issued ASU 2024-04, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires expanded disclosures in the notes to the financial statements about certain costs and expenses. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.
48
The TS-US division and HPP segment qualified for the ERC beginning in March 2021 for qualified wages through September 2021 and filed a cash refund claim during the fiscal year ended September 30, 2023. An amount of $ million, net of costs, was received in the fourth quarter of fiscal year 2023.
On the Company’s Consolidated Statements of Operations in Total other income, net the financial statement line item Employee retention tax credit, net of costs to collect for fiscal year ended September 30, 2023 of $ million represents the amount we were qualified to receive. There are no other amounts that will be received related to this credit.
We accounted for the ERC as a gain contingency in accordance with ASC 450-30 Gain Contingencies. Under this standard, the ERC was recognized only after the contingency was resolved and deemed realizable.
million and $ million, respectively. Expenditures for research and development are expensed as they are incurred.49
Operating leases
The Company has operating leases for office space, data centers, and other information technology equipment under various leases. Operating lease right-of-use assets and liabilities are recognized at the commencement date using the present value of the fixed lease payments over the lease term. We do not have leases with variable consideration. The incremental borrowing rate is used in determining present value. Certain operating leases, primarily office space and IT equipment, have an option to extend the lease. Renewal periods related to certain lease agreements related to office buildings are included in the lease term for lease accounting.
The Company has operating lease agreements with lease components (e.g. fixed payments including rent, real estate taxes, and insurance costs) as well as nonlease components (e.g. common-area maintenance, colocation services). The Company has elected to account for lease and nonlease components as single lease component for all classes of assets. Lease expense is recognized on a straight-line basis over the lease term.
million and $ million, respectively.50
51
52
$
$
$
$
Service
Finance *
Total sales
$
$
$
$
$
Technology Solutions Segment
High
Performance
Products
United
Consolidated
Year ended September 30, 2023
Segment
Kingdom
U.S.
Total
Total
(Amounts in thousands)
2023
Sales:
Product
$
$
$
$
$
Service
Finance *
Total sales
$
$
$
$
$
* Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers (ASC 606).
54
$
$
$
$
Transferred at a point in time where CSPi is agent
—
Transferred over time where CSPi is principal
Total Revenue
$
$
$
$
$
Geography
United States
$
$
$
$
$
Americas (excluding United States)
—
Europe
Asia-Pacific
Total Revenue
$
$
$
$
$
2023
Timing of Revenue Recognition
Transferred at a point in time where CSPi is principal
$
$
$
$
$
Transferred at a point in time where CSPi is agent
—
Transferred over time where CSPi is principal
Total Revenue
$
$
$
$
$
Geography
United States
$
$
$
$
$
Americas (excluding United States)
Europe
Asia-Pacific
Total Revenue
$
$
$
$
$
In the TS US division financing of goods and services is offered to certain customers. This involves amounts due reflecting sales whose payment terms exceed one year. See Note 3 Financing Receivables, net for more details. Revenue from these agreements in fiscal year 2024 was $ million, which consisted of $ million with CSPi acting as the principal and $ million with CSPi acting as the agent. Revenue from these agreements in fiscal year 2023 was $ million with CSPi acting as the agent.
Contract Assets and Liabilities
When we have performed work but do not have an unconditional right to payment, a contract asset is recorded. When we have the right to bill a customer, accounts receivable is recorded as an unconditional right exists. Current contract assets were $ million and $ million as of September 30, 2024 and September 30, 2023, respectively. Current contract assets were $ million as of September 30, 2022. The current portion is recorded in other current assets on the consolidated balance sheets. There were noncurrent contract assets as of September 30, 2024 and September 30, 2023. There were noncurrent contract assets as of September 30, 2022. The difference in the balances is due to regular timing differences between when work is performed and having an unconditional right to payment.
55
Contract Costs
of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are equal to or less than a one year period, are expensed as incurred, utilizing the practical expedient in ASC 340-40-25-4. Incremental costs are related to commissions in the TS portion of the business. Current capitalized contract costs are within the other current assets on the consolidated balance sheets as of September 30, 2024 and 2023. The portion of current capitalized costs were $ thousand and $ thousand as of September 30, 2024 and 2023, respectively. There were noncurrent capitalized costs on the consolidated balance sheets as these commissions are paid annually even when the contract extends beyond a one year period. The amount of incremental costs amortized for the years ended September 30, 2024 and 2023 were $ thousand and $ thousand, respectively. This is recorded in selling, general, and administrative expenses. There was impairment related to incremental costs capitalized for the years ended September 30, 2024 and 2023, respectively.
Costs to fulfill a contract are capitalized when the costs are related to a contract or anticipated contract, generate or enhance resources that will be used in satisfying performance obligations in the future, and costs are recoverable. Costs to fulfill a contract are related to the TS portion of the business and involve activities performed before managed services can be completed. Current capitalized fulfillment costs are in the other current assets and noncurrent costs are in other assets on the consolidated balance sheets. There were current capitalized costs as of September 30, 2024 and $ thousand as of September 30, 2023, respectively. There were noncurrent capitalized costs as of September 30, 2024 and 2023, respectively. The amount of fulfillment costs amortized year ended September 30, 2024 and 2023 were $ thousand and $ thousand, respectively. These costs amortized were recorded in cost of sales. There was impairment related to fulfillment costs capitalized for the year ended and 2023.
Other
Projects are typically billed upon completion or at certain milestones. Product and services are typically billed when shipped or as services are being performed. Payment terms are typically s to pay in full except in Europe where it could be up to s. Most of our contracts are less than one year. There are certain contracts that contain a financing component. See Note 1 Summary of Significant Accounting Policies to the consolidated financial statements for additional information. We elected to use the to not disclose the aggregate amount of the transaction price allocated to performance obligations that have an original expected duration of one year or less. This is due to a low amount of performance obligations, which are less than one year from being unsatisfied at each period end. Most of these contracts are related to product sales.
56
57
$
Less: net income attributable to nonvested common stock
—
()
Net (loss) income attributable to common shareholders
$
()
$
Weighted average total shares outstanding - basic(1)
Less: weighted average non–vested shares outstanding(1)
—
()
Weighted average number of common shares outstanding - basic(1)
Add: potential common shares from non-vested stock awards(1)
—
Weighted average common shares outstanding - diluted(1)
$
Net (loss) income per common share - basic(1)
$
()
$
Net (loss) income per common share - diluted(1)
$
()
$
(1) Retroactively adjusted for the effects of a for one stock split effected in the form of a % stock dividend for fiscal year 2023 (see Note 1)
All anti-dilutive securities, including restricted stock awards, are excluded from the diluted (loss) income per share computation. Non-vested restricted stock awards of thousand shares were excluded from net loss per share for the year ended September 30, 2024 because their inclusion would have been anti-dilutive as there was a net loss for the period. Non-vested restricted stock awards of thousand shares were excluded from net income per share for the year ended September 30, 2023 because their inclusion would have been anti-dilutive.
58
Stock-based compensation expense recognized in the consolidated statements of operations for the fiscal years ended September 30, 2024 and 2023 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Stock-based compensation expense recognized for the fiscal years ended September 30, 2024 and 2023 consisted of restricted stock granted pursuant to the Company’s stock incentive and employee stock purchase plans of approximately $ million and $ million, respectively.
%
$
%
Customer B
$
%
$
%
Customer C
$
%
$
%
We do not believe we have a significant credit risk with respect to accounts receivable or financing receivables.
59
$
Adjustment for adoption of new CECL standard
()
Charge-offs
()
Provision for credit losses
Balances at end of the period
$
$
60
Financing receivables, net carry an average weighted average interest rate of %, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.
The amount of interest income earned from sales whose payment terms exceed one year for the years ended September 30, 2024 and 2023 was $ thousand and $ thousand, respectively. Interest income from these agreements is recorded in Other income (expense), net on the Consolidated Statements of Operations.
Amounts disclosed below as of September 30, 2024 reflect adoption of the new CECL standard and the amounts disclosed as of September 30, 2023 reflect superseded guidance.
The following table presents the components of the Company’s Financing receivables, net segregated by portfolio (risk rating) for the periods indicated:
$
$
$
$
$
Unearned interest income
()
()
()
()
()
()
Allowance for credit losses
()
()
()
Financing receivables, net
$
$
$
$
$
$
Short-term
$
$
$
$
$
$
Long-term
$
$
$
$
$
$
Amounts disclosed below for the year ended September 30, 2024 reflect adoption of the new CECL standard and the amounts for the year ended September 30, 2023 reflect superseded guidance.
The following table presents the changes in Allowance for credit losses for Financing receivables, net for the periods indicated:
$
$
$
$
$
Adjustment for adoption of new CECL standard
Recovery charged to Consolidated Statements of Operations
()
()
Balances at end of the period
$
$
$
$
$
$
Upon adoption of the new CECL standard as described in Note 1 Basis of Presentation and New Significant Accounting Policy, the Company recognizes an allowance for credit losses for financing receivables in an amount equal
61
62
$
()
$
()
Change in period
Tax effect of change in period
Balance as of September 30, 2023
$
()
$
()
$
()
Change in period
()
Tax effect of change in period
Balance as of September 30, 2024
$
()
$
()
$
()
The changes in the minimum pension liability are net of an amortization gain of $ thousand in 2024 and a gain of $ thousand in 2023 included in net periodic pension cost.
63
$
Foreign
()
()
$
()
$
Income tax expense:
Current:
Federal
$
$
State
$
$
Deferred:
Federal
$
()
$
()
State
()
()
$
()
$
()
Total income tax benefit
$
()
$
()
)
%
$
%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal tax benefit
()
%
%
Foreign rate differential
()
%
%
Employee Retention Credit
%
()
()
%
RSA Windfall
()
%
()
()
%
Permanent differences
()
%
%
Change in valuation allowance
()
%
()
()
%
Research and development credit
()
%
()
()
%
Deferred Tax True Ups
()
%
%
FIN 48 Reserves
()
%
%
Return to Provision Adjustments
()
%
()
()
%
Other items
()
%
()
()
%
Income tax benefit
$
()
%
$
()
()
%
64
$
Capitalized research and development expenses
Other reserves and accruals
Inventory reserves and other
Federal and state tax credits
Federal and state net operating loss carryforwards
—
Foreign net operating loss carryforwards
Lease Liability
Gross deferred tax assets
Less: valuation allowance
()
()
Realizable deferred tax asset
Deferred tax liabilities:
Depreciation and amortization
()
()
ROU Asset
()
()
Pension
()
()
Intangibles
—
()
Realizable deferred tax liabilities
()
()
Net deferred tax assets
$
$
The Company undertakes a review of its valuation allowance at each financial statement period, reviewing the positive and negative evidence to help determine whether it is more likely than not that the Company will realize the future tax benefits from its deferred tax balances. The Company has determined that it is more likely than not that substantially all of its net deferred tax assets in the U.S. jurisdiction will be utilized and that associated valuation allowances should not be reversed at September 30, 2024 or 2023. The Company separately analyzed the realizability of its federal and state credits and determined $ thousand (net of federal benefit) of state credits are expected to expire unutilized and kept a valuation allowance against these credits. The Company will continue to maintain a valuation allowance against certain state tax credits in the U.S. and a full valuation allowance against the net deferred tax assets in the U.K. jurisdiction.
As of September 30, 2024, and 2023, the Company had no U.S. net operating loss or tax credit carryforwards for federal purposes.
As of September 30, 2024, and 2023, the Company had U.S. net operating loss carryforwards for state purposes of approximately $ thousand and $ thousand, respectively, which are available to offset future taxable income through 2035. As of September 30, 2024, the Company had state tax credit carryforwards of $ million available to reduce future state tax expense, of which $ thousand has unlimited carryover status and the remainder of the credits are available through FY 2038.
As of September 30, 2024, the Company had U.K. net operating loss carryforwards of approximately $ million that have an indefinite life with no expiration.
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $ million and $ million as of September 30, 2024 and 2023, respectively. The Company is considering cash distribution of undistributed foreign earnings in the future and will continue to assess the potential impact of any future distributions on U.S. taxes. The state tax impact of a distribution of foreign earnings and profits would not be material.
65
$
Additions for tax positions of current year
Additions for tax positions of prior years
()
()
Reduction for lapse of the applicable statute of limitations
()
—
Accrued penalties and interest
—
Balance, end of period
$
$
The unrecognized tax benefits of $ thousand as of September 30, 2024, if recognized, would reduce our annual effective tax rate, subject to the valuation allowance. The Company does not expect our unrecognized tax benefits to change significantly over the next 12 months.
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company has reviewed the tax positions taken on returns filed domestically and in its foreign jurisdictions for all open years, generally fiscal 2021 through 2024, and believes that any tax adjustments not currently reserved in any audited year will not be material.
$
Equipment
Automobiles
Property, equipment and improvements, gross
Less accumulated depreciation and amortization
()
()
Property, equipment and improvements, net
$
$
The Company uses the straight-line method over the estimated useful lives of the assets to record depreciation expense. Depreciation expense was $ thousand and $ thousand for the years ended September 30, 2024 and 2023, respectively.
66
$
—
$
—
$
$
$
()
$
Patent
$
$
()
$
$
$
()
$
Amortization expense on these intangible assets was $ thousand and $ thousand for the years ended September 30, 2024 and 2023, respectively. There were additions of $ and $ thousand for the years ended Septembe 30, 2024 and 2023. These additions were at our HPP segment related to our ARIA cybersecurity products.
2026
2027
2028
2028
Thereafter
Total
$
$
Vendor financing agreements
Commissions
Compensation and fringe benefits
Professional fees
Taxes, other than income
Director fees
—
Operating lease liability
Employee Retention Tax Credit Payable
Product warranty
Total
$
$
The TS US division enters into certain multi-year agreements with vendors when also entering into some of the multi-year contracts the Company enters into with customers. The caption “Vendor financing agreements” above represents the interest-bearing amounts due to vendors, which are current. See Note 3 Financing Receivables, net for further information related to the multi-year agreements with customers.
67
Interest expense related to these agreements was $ thousand and $ thousand for the years ended September 30, 2024 and 2023, respectively.
The amounts owed for these agreements are within the Consolidated balance sheets in accounts payable and other noncurrent liabilities because they are owed to a vendor rather than banks or financial institutions for borrowings. See Note 12 Line of Credit and Note 13 Note Payable for amounts due to banks and other financial institutions for borrowings.
$
Less: discount
()
()
Accounts payable and accrued expenses
$
$
Noncurrent
$
$
Less: discount
()
()
Other noncurrent liabilities
$
$
The TS US division has many vendors it transacts with and does not have any specific agreement with any vendor that it must purchase certain products. Management believes other suppliers could provide similar products with comparable terms.
$
Lease receivable - current
Other current assets
$
$
Lease receivable - noncurrent
Other assets
Total lease receivable
$
$
Liabilities
Current operating lease liabilities
Accounts payable and accrued expenses
$
$
Non-current operating lease liabilities
Operating lease liabilities - noncurrent portion
Total operating lease liabilities
$
$
68
Operating Lease:
Operating lease cost
Selling, general, and administrative
Short-term lease cost
Selling, general, and administrative
Total lease costs
$
$
Less sublease interest income
Revenue
()
()
Total lease costs, net of sublease interest income
$
$
$
2026
2027
Total
$
$
Less imputed interest
()
()
Total
$
$
$
Operating cash flows paid for short-term leases
Operating cash flows paid for finance leases
Financing cash flows paid for finance leases
—
Cash received from subleases
()
()
Lease assets obtained in exchange for new lease liabilities
Operating leases
69
Weighted-average discount rate
September 30, 2024
Operating leases
%
$
Usage for warranties for products sold in the period
()
Fulfillment of warranty obligations
—
()
Balance at the end of the year
$
$
These amounts are within Accounts payable and accrued expenses on the Consolidated Balance Sheets.
million. It may be used by the TS or HPP segment in the U.S. to purchase inventory from approved vendors with payment terms which exceed those offered by the vendors. interest accrues under the inventory line of credit when advances are paid within terms, however, late payments are subject to an interest charge of the rate published in the Wall Street Journal as the “prime rate” plus %. The prime rate was % as of September 30, 2024. There is no expiration date or minimum principal payment. However, the credit agreement for the inventory line of credit contains financial covenants which require the Company to maintain the following TS segment-specific financial ratios: (1) a minimum current ratio of , (2) tangible net worth of no less than $ million, and (3) a maximum ratio of total liabilities to total net worth of less than :1. As of September 30, 2024 and September 30, 2023, Company borrowings, all from the TS segment, under the inventory line of credit were $ million and $ million, respectively, and the Company was in compliance with all covenants. There is unused commitment fee. As of September 30, 2024 and September 30, 2023, this line of credit also included availability of a limited cash withdrawal option of up to $ million. As of September 30, 2024 and 2023, there were cash withdrawals outstanding. million with a % rate of interest related to a multi-year agreement with a customer. This note payable was paid in full as of September 30, 2024.
70
$
Less: note discount
Note payable - current portion
$
$
ended September 30, 2024. In the U.S., the Company provides defined contribution plans that cover most employees and supplementary retirement plans to certain employees and former employees who are now retired. These supplementary retirement plans are also closed to newly hired employees and have been for the ended September 30, 2024. These supplementary plans are funded through whole life insurance policies. The Company expects to recover all insurance premiums paid under these policies in the future, through the cash surrender value of the policies and any death benefits or portions thereof to be paid upon the death of the participant. These whole life insurance policies are carried on the balance sheet at their cash surrender values as they are owned by the Company and not assets of the defined benefit plans. In the U.S., the Company also provides for officer death benefits and post-retirement health insurance benefits through supplemental post-retirement plans to certain officers. The Company also funds these supplemental plans’ obligations through whole life insurance policies on the officers.Defined Benefit Plans
The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheets. If the liabilities are below funding levels an asset is recorded.
The domestic supplemental retirement plans have life insurance policies which are not considered plan assets but were purchased by the Company as a vehicle to fund the costs of the plan. These insurance policies are included in the balance sheet in the financial statement line item “Cash surrender value of life insurance” at their cash surrender value, net of policy loans aggregating $ million and $ million as of September 30, 2024 and 2023, respectively. The loans against the policies have been taken out by the Company to pay the premiums. The costs and benefit payments for these plans are paid through operating cash flows of the Company to the extent that they cannot be funded through the use of the cash values in the insurance policies. The Company expects that the recorded value of the insurance policies will be sufficient to fund all of the Company’s obligations under these plans.
71
%
%
%
%
Expected return on plan assets:
%
%
%
%
%
%
Expected return on plan assets:
%
%
For domestic plans, the discount rate was determined by comparison against the FTSE pension liability index for AA rated corporate instruments. The Company monitors other indices to assure that the pension obligations are fairly reported on a consistent basis. The international discount rates were determined by comparison against country specific AA corporate indices, adjusted for duration of the obligation.
The periodic benefit cost and the actuarial present value of projected benefit obligations are based on actuarial assumptions that are reviewed on an annual basis. The Company revises these assumptions based on an annual evaluation of long-term trends, as well as market conditions, that may have an impact on the cost of providing retirement benefits.
For the supplementary domestic plan, medical benefits are assumed to be increasing based on the Long Term Healthcare Cost Trends Getzen Model commencing with % per year with such increase decreasing by % per year over the next several years and decreasing in accordance with the model pre 65 and % post 65. Life expectancy for medical benefits is based on the PRI-2012 White Collar for Males and Females Pre and Post retirement, Adjusted to 2006 projected using scale MP-2021.
72
$
$
$
$
$
Expected return on plan assets
()
()
()
()
Amortization of past service costs
Amortization of net gain
()
()
()
()
Net periodic (benefit) cost
$
()
$
$
()
$
()
$
$
()
Post Retirement:
Service cost
$
$
$
$
$
$
Interest cost
Amortization of net gain
()
()
()
()
Net periodic benefit
$
$
()
$
()
$
$
()
$
()
Pension:
(Decrease) increase in minimum liability included in other comprehensive income
$
()
$
$
()
$
()
$
()
$
()
Post Retirement:
Increase in minimum liability included in other comprehensive income
Total:
(Decrease) increase in minimum liability included in other comprehensive income
$
()
$
$
$
()
$
$
()
73
$
$
$
$
$
Interest cost
Changes in actuarial assumptions
()
()
()
Foreign exchange impact
Benefits paid
()
()
()
()
()
()
Projected benefit obligation at end of year
$
$
$
$
$
$
Changes in fair value of plan assets:
Fair value of plan assets at beginning of year
$
$
$
$
$
$
Actual gain (loss) on plan assets
Company contributions
—
Foreign exchange impact
Administrative expenses
()
—
()
Benefits paid
()
()
()
()
()
()
Fair value of plan assets at end of year
$
$
$
$
$
$
Funded status \ net amount recognized
$
$
()
$
$
$
()
$
Post Retirement:
Change in projected benefit obligation (“PBO”):
Balance beginning of year
$
$
$
$
$
$
Service cost
Interest cost
Changes in actuarial assumptions
()
()
()
()
Projected benefit obligation at end of year
$
$
$
$
$
$
Funded status \ net amount recognized
$
$
()
$
()
$
$
()
$
()
74
$
()
$
$
$
()
$
Deferred tax
Accumulated other comprehensive income
Net amount recognized
$
$
()
$
$
$
()
$
Post Retirement:
Accrued benefit liability
$
$
()
$
()
$
$
()
$
()
Deferred tax
Accumulated other comprehensive loss
()
()
()
()
Net amount recognized
$
$
()
$
()
$
$
()
$
()
Total pension and post retirement:
Accrued benefit asset (liability)
$
$
()
$
$
$
()
$
Deferred tax
Accumulated other comprehensive income (loss)
()
()
Net amount recognized
$
$
()
$
$
$
()
$
Accumulated Benefit Obligation:
Pension
$
()
$
()
$
()
$
()
$
()
$
()
Post Retirement
()
()
()
()
Total accumulated benefit obligation
$
()
$
()
$
()
$
()
$
()
$
()
Plans with projected benefit obligations in excess of plan assets are attributable to unfunded domestic supplemental retirement plans.
$
Current accrued benefit liability
$
$
Non-current accrued benefit liability
Total accrued benefit liability
$
$
As of September 30, 2024 and 2023, the amounts included in accumulated other comprehensive income, consisted of deferred net gains totaling approximately $ million and $ million, respectively.
The amount of net deferred gain expected to be recognized as a component of net periodic benefit cost for the year ending September 30, 2024, is approximately $ thousand.
75
Estimated Future Benefit Payments
2026
$
2027
$
2028
$
2029
$
Thereafter
$
Plan Assets
As of September 30, 2024, our pension plan in the U.K. was the only plan with assets, holding investments of approximately $ million. Pension plan assets are managed by a fiduciary committee. The Company’s investment strategy for pension plan assets is to maximize the long-term rate of return on plan assets within an acceptable level of risk while maintaining adequate funding levels. Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment process. In deciding on the investments to be held, the trustees take into account the risk of possible fluctuations in income from, and market values of, the assets as well as the risk of departing from an asset profile which broadly matches the liability profile. The committee has invested the plan assets in a single pooled fund with an authorized investment company (the “Fund”). The Fund selected by the trustees is consistent with the plan’s overall investment principles and strategy described herein. There are no specific targets as to asset allocation other than those contained within the Fund that is managed by the authorized investment company.
$
$
$
$
$
$
$
Fixed income
Equity
Total plan assets
$
$
$
$
$
$
$
$
The expected long-term rates of return on plan assets are equal to the yields to maturity of appropriate indices for government and corporate bonds and by adding a premium to the government bond return for equities. The expected rate of return on cash is the Bank of England base rate in force at the effective date.
Level 1 investments represent mutual funds for which a quoted market price is available on an active market. These investments primarily hold stocks or bonds, or a combination of stocks and bonds.
Level 2 investment represents a mutual fund, which a quoted market price is not available on an active market. Significant observable inputs that reflect quoted prices for similar assets or liabilities in active markets are used. This investment primarily holds stocks within developed global equity markets, excluding the UK.
76
Defined Contribution Plans
The Company has defined contribution plans in domestic and international locations under which the Company matches a portion of the employee’s contributions and may make discretionary contributions to the plans. The Company’s contributions were $ thousand and $ thousand for the years ended September 30, 2024 and 2023, respectively.
(adjusted for stock split in fiscal year 2024, see Note 1 for details) shares of common stock to be reserved for issuance pursuant to the 2015 Plan. During fiscal year 2019 an additional (adjusted for stock split in fiscal year 2024, see Note 1 for details) shares of common stock were authorized to be reserved for issuance pursuant to the 2015 Plan. During fiscal year 2023 an additional (number of shares adjusted for stock split which occurred in fiscal year 2024, see Note 1 for details) shares of common stock were authorized to be reserved for issuance pursuant to the 2015 Plan. As of September 30, 2024, there were shares available to be granted under the 2015 Plan. Under the 2015 Plan, incentive and non-qualified stock options and restricted stock awards may be granted to officers, key employees and other persons providing services to the Company. The 2015 Plan has a life.Awards issued under the 2015 Plan are not affected by termination of the plan. The Company had awarded stock options outstanding as of September 30, 2024 or 2023. The Company issues restricted stock awards at their fair value on the date of grant. Vesting of restricted stock awards granted pursuant to the 2015 Plan is determined by the Company’s compensation committee. In fiscal years 2020 through 2024, the Company granted certain officers including its Chief Executive Officer and non-employee directors, and key employees shares of nonvested common stock. The vesting period for the officers’ and the Chief Executive Officer’s restricted stock awards is . The vesting for non-employee directors’ restricted stock awards is . The vesting period for the key employees’ restricted stock awards is typically or immediately in the case of a sales commission for the ARIA cybersecurity products.
We measure and recognize compensation expense for nonvested stock-based payment awards made to employees and directors based on the closing market price of our common stock as quoted on the Nasdaq Global Market on the date of grant over the requisite service period. The Company recognizes stock compensation expense, net of actual forfeitures. Stock-based compensation expense incurred and recognized for the years ended September 30, 2024 and 2023 related to nonvested stock granted to employees and non-employee directors under the Company’s stock incentive and employee stock purchase plans totaled approximately $ million and $ million, respectively. The classification of the cost of stock-based compensation, in the consolidated statements of operations, is consistent with the nature of the services being rendered in exchange for the share-based payment.
$
Engineering and development
Selling, general and administrative
Total
$
$
77
For the year ended September 30, 2024, the Company granted nonvested shares to certain key employees, nonvested shares to certain officers including shares granted to the Chief Executive Officer, and nonvested shares to its non-employee directors. For the year ended September 30, 2023, the Company granted nonvested shares to certain key employees, nonvested shares to certain officers including shares granted to the Chief Executive Officer, and nonvested shares to its non-employee directors. These numbers for the fiscal year 2023 were retroactively adjusted for the effects of a for one stock split effected in the form of a % stock dividend (see Note 1 Summary of Significant Accounting Policies).
cash was used to settle equity instruments granted under share-base payment arrangements in any of the years in the two-year period ended September 30, 2024.
$
Years
$
Activity in fiscal year 2023:
Granted
$
—
—
Vested
()
$
—
—
Nonvested shares outstanding as of September 30, 2023
$
Years
$
Activity in fiscal year 2024:
Granted
$
—
—
Vested
()
$
—
—
Forfeited
()
$
—
—
Nonvested shares outstanding as of September 30, 2024
$
Years
$
As of September 30, 2024, there was $ million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements (nonvested stock awards) granted under the Company’s stock incentive plans. This cost is expected to be expensed over a weighted average period of approximately years. The total fair value of shares vested during the years ended September 30, 2024 and 2023 was $ million and $ million, respectively.
shares (all shares adjusted for stock split, see Note 1) of Common Stock, which was ratified by a vote of the Company’s shareholders in February 2014. An additional shares of common stock were approved by stockholders in fiscal year 2024. Under the ESPP, the Company’s employees may purchase shares of common stock at a price per share that is currently % of the lesser of the fair value as of the beginning or end of semi-annual option periods. Pursuant to the ESPP, the Company issued and shares for the years ended September 30, 2024 and September 30, 2023, respectively. As of September 30, 2024, shares remain authorized to be issued under the Employee Stock Purchase Plan. thousand (adjusted retrospectively for stock split, see Note 1) additional shares of the Company's outstanding common stock at market price. The plan does not expire. The Company repurchased shares of its outstanding common stock on the open market during fiscal year 2024 and this is the total shares of treasury stock owned with a cost basis of $ thousand as of September 30, 2024. As of September 30, 2024, shares remain authorized to repurchase under the stock repurchase program.78
$
$
$
$
Service
Total sales
$
$
$
$
$
Operating (loss) income
$
()
$
()
$
$
$
()
Interest expense
$
()
$
$
()
$
()
$
()
Interest income
$
$
$
$
$
Stock compensation expense
$
()
$
$
()
$
()
$
()
Total assets
$
$
$
$
$
Capital expenditures
$
()
$
$
()
$
()
$
()
Depreciation and amortization
$
()
$
$
()
$
()
$
()
2023
Sales:
Product
$
$
$
$
$
Service
Total sales
$
$
$
$
$
Operating (loss) income
$
()
$
()
$
$
$
Interest expense
$
()
$
$
()
$
()
$
()
Interest income
$
$
$
$
$
Stock compensation expense
$
()
$
$
()
$
()
$
()
Total assets
$
$
$
$
$
Capital expenditures
$
()
$
$
()
$
()
$
()
Depreciation and amortization
$
()
$
$
()
$
()
$
()
Operating (loss) income from operations is sales less cost of sales, engineering and development, selling, general and administrative expenses but is not affected by either non-operating charges/income or by income taxes. Non-operating charges/income consists principally of foreign exchange gain (loss), investment income, and interest expense. In fiscal year 2023 the Employee Retention Tax Credit was the largest non-operating income item, which did not occur in fiscal year 2023. All intercompany transactions have been eliminated. Our long-lived assets are located in North America.
79
$
$
$
%
HPP
%
Total
$
$
$
$
%
% of Total
%
%
%
%
2023
TS
$
$
$
$
%
HPP
%
Total
$
$
$
$
%
% of Total
%
%
%
%
assets or liabilities measured at fair value on a recurring (except our pension plan assets, see Note 14 Pension and Retirement Plan) or non-recurring basis as of September 30, 2024 or September 30, 2023.80
$
$
$
1
Consolidated Balance Sheets
Accounts receivable, net
2
Note 2
Financing receivables, net
3
Note 3
Liabilities:
Accounts payable and accrued expenses and other long-term liabilities*
3
Note 9
Line of Credit
2
Note 12
Note payable
—
—
3
Note 13
*Original maturity over
Cash and cash equivalents
Carrying amount approximated fair value.
Accounts receivable and accounts payable with original maturity of less than
Fair value was not materially different from their carrying values as of September 30, 2024, and 2023
Financing receivables. net
Fair value was estimated by discounting future cash flows based on the current rate with similar terms.
Line of credit
The fair value of our line of credit is based on borrowing rates currently available to a market participant for loans with similar terms or maturity. The carrying amount of our outstanding revolving line of credit approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. No interest accrues under the inventory line of credit when advances are paid within terms.
Notes Payable
Fair value was estimated by discounting future cash flows based on the current rate the Company could get in another transaction with similar terms based on historical information.
81
2023(1)
2/8/2023
2/24/2023
3/14/2023
$
2023(1)
5/10/2023
5/25/2023
6/13/2023
$
2023(1)
8/9/2023
8/23/2023
9/12/2023
$
2024(1)
12/12/2023
12/22/2023
1/9/2024
$
2024(1)
2/14/2024
2/26/2024
3/8/2024
$
2024
5/8/2024
5/24/2024
6/12/2024
$
2024
8/13/2024
8/23/2024
9/10/2024
$
(1)Amounts above are retroactively adjusted for the effects of a for one stock split effected in the form of a % stock dividend February 21, 2024.
thousand and $ thousand of purchases from this vendor for the fiscal year ended September 30, 2024 and 2023, respectively. There were amounts due to the vendor as of September 30, 2024 or 2023.
from the date of these consolidated financial statements are issued.
82