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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2025

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

For the transition period from to .

Commission File Number 0-10843

CSP Inc.

(Exact name of Registrant as specified in its charter)


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

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

(978)-954-5038

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻.

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



Large accelerated filer	◻	Accelerated filer	◻

Non-accelerated filer	⌧	Smaller reporting company	⌧

Emerging growth company	☐

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

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

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


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

As of May 9, 2025, the registrant had 9,863,101 shares of common stock issued and outstanding.

Table of Contents

INDEX

		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2025 (unaudited) and September 30, 2024	3

	Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2025 and 2024 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2025 and 2024 (unaudited)	5

	Condensed Consolidated Statement of Shareholders’ Equity for the three and six months ended March 31, 2025 and 2024 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2025 and 2024 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 5.	Other Information	43

Item 6.	Exhibits	43

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CSP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)


	March 31,		September 30,
	2025		2024
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	29,495	$	30,585
Accounts receivable, net of allowances of $131 and $147		13,645		14,494
Financing receivables, net of allowances of $18 and $12		2,727		4,384
Inventories		2,109		2,293
Refundable income taxes		468		—
Other current assets		1,898		3,093
Total current assets		50,342		54,849


Property, equipment and improvements, net		363		429
Operating lease right-of-use assets		486		489
Intangibles, net		47		50
Financing receivables due after one year, net of allowances of $71 and $25		3,664		2,922
Deferred income taxes, net		3,561		2,734
Cash surrender value of life insurance		5,696		5,589
Pension benefits assets		2,785		2,201
Other assets		178		173
Total assets	$	67,122	$	69,436

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	12,070	$	12,084
Line of credit		444		4,169
Deferred revenue and contract liabilities		2,468		2,171
Pension and retirement plans		76		76
Income taxes payable		—		182
Total current liabilities		15,058		18,682
Pension and retirement plans		1,275		1,306
Operating lease liabilities - noncurrent portion		210		117
Income taxes payable		403		447
Other noncurrent liabilities		2,723		1,614
Total liabilities		19,669		22,166

Shareholders’ equity:
Common stock, $.01 par value per share; authorized, 20,000 shares; issued and outstanding 9,863 and 9,776 shares, respectively		98		98
Additional paid-in capital		23,743		22,689
Retained earnings		29,235		29,848
Accumulated other comprehensive loss		(5,623)		(5,365)
Total shareholders’ equity		47,453		47,270
Total liabilities and shareholders’ equity	$	67,122	$	69,436

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

CSP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except for per share data)

(Unaudited)


	Three months ended				Six Months Ended
	March 31,		March 31,		March 31,		March 31,
	2025		2024		2025		2024
Sales:
Product	$	8,552	$	8,458	$	19,567	$	19,865
Services		4,595		5,248		9,250		9,216
Total sales		13,147		13,706		28,817		29,081

Cost of sales:
Product		6,879		5,416		15,998		14,644
Services		2,061		1,812		4,048		3,864
Total cost of sales		8,940		7,228		20,046		18,508

Gross profit		4,207		6,478		8,771		10,573

Operating expenses:
Engineering and development		763		726		1,549		1,426
Selling, general and administrative		4,438		4,518		8,570		8,256
Total operating expenses		5,201		5,244		10,119		9,682

Operating (loss) income		(994)		1,234		(1,348)		891

Other income (expense):
Foreign exchange (loss) gain		(132)		32		163		(142)
Interest expense		(77)		(46)		(154)		(95)
Interest income		414		478		903		974
Other (expense) income, net		(2)		25		2		35
Total other income, net		203		489		914		772
(Loss) income before income taxes		(791)		1,723		(434)		1,663
Income tax (benefit) expense		(683)		135		(798)		148
Net (loss) income	$	(108)	$	1,588	$	364	$	1,515
Net (loss) income attributable to common shareholders	$	(108)	$	1,482	$	341	$	1,417

Net (loss) income per common share - basic	$	(0.01)	$	0.16	$	0.04	$	0.16
Weighted average common shares outstanding - basic		9,343		9,070		9,232		8,967

Net (loss) income per common share - diluted	$	(0.01)	$	0.16	$	0.04	$	0.15
Weighted average common shares outstanding - diluted		9,343		9,455		9,614		9,366

See accompanying notes to unaudited condensed consolidated financial statements.

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CSP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)


	Three months ended				Six Months Ended
	March 31,		March 31,		March 31,		March 31,
	2025		2024		2025		2024
Net (loss) income	$	(108)	$	1,588	$	364	$	1,515
Foreign currency translation gain (loss) adjustments, net of tax effect		238		(67)		(258)		240
Total comprehensive income	$	130	$	1,521	$	106	$	1,755

See accompanying notes to unaudited condensed consolidated financial statements.

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CSP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the three months ended March 31, 2025 and 2024

(Amounts in thousands, except per share data)

(Unaudited)



								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
Three months ended March 31, 2025:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of December 31, 2024	9,880	$	98	$	23,196	$	30,023	$	(5,861)	$	47,456
Net loss	—		—		—		(108)		—		(108)
Other comprehensive income	—		—		—		—		238		238
Stock-based compensation	—		—		448		—		—		448
Restricted stock issuance	1		—		—		—		—		—
Issuance of shares under employee stock purchase plan	6		—		99		—		—		99
Purchase of common stock	(24)		—		—		(384)		—		(384)
Cash dividends paid on common stock ($0.03 per share)	—		—		—		(296)		—		(296)
Balance as of March 31, 2025	9,863	$	98	$	23,743	$	29,235	$	(5,623)	$	47,453

								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
Three months ended March 31, 2024:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of December 31, 2023	9,456	$	94	$	21,133	$	31,034	$	(5,787)	$	46,474
Net income	—		—		—		1,588		—		1,588
Other comprehensive loss	—		—		—		—		(67)		(67)
Stock-based compensation	—		—		409		—		—		409
Restricted stock issuance	285		3		—		—		—		3
Issuance of shares under employee stock purchase plan	13		1		83		—		—		84
Cash dividends paid on common stock ($0.025 per share)	—		—		—		(244)		—		(244)
Balance as of March 31, 2024	9,754	$	98	$	21,625	$	32,378	$	(5,854)	$	48,247

See accompanying notes to unaudited condensed consolidated financial statements.

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CSP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the six months ended March 31, 2025 and 2024

(Amounts in thousands, except per share data)

(Unaudited)


								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
Six months ended March 31, 2025:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of September 30, 2024	9,776	$	98	$	22,689	$	29,848	$	(5,365)	$	47,270
Net income	—		—		—		364		—		364
Other comprehensive loss	—		—		—		—		(258)		(258)
Stock-based compensation	—		—		955		—		—		955
Restricted stock issuance	105		—		—		—		—		—
Issuance of shares under employee stock purchase plan	6		—		99		—		—		99
Purchase of common stock	(24)		—		—		(384)		—		(384)
Cash dividends paid on common stock ($0.06 per share)	—		—		—		(593)		—		(593)
Balance as of March 31, 2025	9,863	$	98	$	23,743	$	29,235	$	(5,623)	$	47,453

								Accumulated
				Additional				other		Total
				Paid-in		Retained		comprehensive		Shareholders’
Six months ended March 31, 2024:	Shares	Amount		Capital		Earnings		loss		Equity
Balance as of September 30, 2023	9,456	$	94	$	20,837	$	31,311	$	(6,094)	$	46,148
Adoption of Accounting Standards Update 2016-13	—		—		—		(15)		—		(15)
Net income	—		—		—		1,515		—		1,515
Other comprehensive income	—		—		—		—		240		240
Stock-based compensation	—		—		705		—		—		705
Restricted stock issuance	285		3		—		—		—		3
Issuance of shares under employee stock purchase plan	13		1		83		—		—		84
Cash dividends paid on common stock ($0.045 per share)	—		—		—		(433)		—		(433)
Balance as of March 31, 2024	9,754	$	98	$	21,625	$	32,378	$	(5,854)	$	48,247

See accompanying notes to unaudited condensed consolidated financial statements.

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CSP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Six Months Ended
	March 31,		March 31,
	2025		2024
Operating activities
Net income	$	364	$	1,515

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		119		150
Amortization of intangibles		3		4
Loss on disposal of fixed assets, net		1		—
Foreign exchange (gain) loss		(163)		142
Provision (benefit) for credit losses - financing receivables		52		(12)
(Benefit) provision for credit losses - accounts receivable		(16)		40
Provision for obsolete inventory		46		106
Amortization of lease right-of-use assets		258		244
Stock-based compensation expense on restricted stock awards		955		705
Deferred income taxes		(828)		98
Increase in cash surrender value of life insurance		(54)		(68)

Changes in operating assets and liabilities:
Accounts receivable		866		204
Financing receivables		863		1,529
Inventories		137		965
Refundable income taxes		(468)		—
Other assets		1,182		611
Accounts payable and accrued expenses		91		(1,140)
Operating lease liabilities		(257)		(248)
Deferred revenue and contract liabilities		297		(230)
Pension and retirement plans liabilities		(679)		(67)
Income taxes payable		(226)		(994)
Other noncurrent liabilities		1,110		(230)
Net cash provided by operating activities		3,653		3,324

Investing activities
Life insurance premiums paid		(54)		(53)
Additions of intangible assets		—		(6)
Purchases of property, equipment and improvements		(54)		(134)
Net cash used in investing activities		(108)		(193)

Financing activities
Dividends paid		(593)		(433)
Net borrowing/repayment under line-of-credit agreement		(3,725)		(469)
Repayments on note payable		—		(427)
Repurchases of common stock		(384)		—
Proceeds from issuance of shares under equity compensation plans		99		83
Net cash used in financing activities		(4,603)		(1,246)
Effects of exchange rate on cash, net		(32)		17
Net (decrease) increase in cash and cash equivalents		(1,090)		1,902
Cash and cash equivalents beginning of period		30,585		25,217
Cash and cash equivalents end of period	$	29,495	$	27,119

Supplementary cash flow information:

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Cash paid for income taxes	$	724	$	1,085
Cash paid for interest	$	36	$	22

Supplementary non-cash financing activities:
Obtaining a right-of-use asset in exchange for a lease liability	$	247	$	—
Customer financing for inventory sold (see Note 5 Financing receivables, net for details)	$	2,006	$	1,742
Vendor financing for inventory purchased (see Note 8 Accounts payable and accrued expenses, and Other noncurrent liabilities for details)	$	1,833	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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CSP INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Organization and Business

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

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared by the Company and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, have been omitted.

Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the unaudited condensed consolidated financial statements should be read in conjunction with the notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024. The significant accounting policies and estimates used in preparing these Condensed Consolidated Financial Statements were applied on a basis consistent with those reflected in the September 30, 2024 Consolidated Financial Statements.

Significant Accounting Policies

There have been no significant changes to the Company's significant accounting policies described in PART II, Item 8, Note 1 Summary of Significant Accounting Policies, of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

Accounting Pronouncement Not Yet Adopted as of March 31, 2025

In November 2023, the Financing Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 2024-03, 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,

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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.

2. Revenue

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

We recognize revenue from hardware upon transfer of control, which is at a point in time typically upon shipment when title transfers. Revenue from software is recognized at a point in time when the license is granted with the exception of the Company’s own software ARIA Advanced Threat Detection and Response (“ADR”), which is recognized evenly over time that includes the contract term.

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

Revenue generated from managed services is recognized over the term of the contract. Certain managed services contracts include financing of hardware and software. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease component includes hardware, which is subject to ASC 842 Leases. The non-lease components are subject to ASC 606 Revenue from Contracts with Customers.

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

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

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

TS Segment Revenue

TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software.

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

HPP Segment Revenue

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

ARIA ADR revenue is derived from sale of software and hardware. There is one performance obligation in an ARIA ADR sale as the software and hardware are combined because they are inputs in the contract to deliver an output of

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threat protection. This combined performance obligation is recognized evenly over the contract term. The transaction price is fixed consideration.

ARIA Zero Trust Gateway (“AZT”) revenue contains two performance obligations: a perpetual or term software license and post-contract customer support (“PCS”). The transaction price is fixed consideration and allocated based on relative stand-alone selling price. The software license has a large majority of transaction price allocated to it. Software license revenue is recognized at a point in time, generally when the license is made available to the customer. PCS revenue is recognized ratably over the contractual period of generally one year. The PCS can be renewed and is sold on a standalone basis after the initial contract term expires.

Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products’ functionality, and PCS. PCS is considered immaterial in the context of the contract and therefore is not a separate performance obligation. Multicomputer revenue is derived from the sale of hardware, software, extended warranties, royalties, and repair services. See disaggregated revenues below by products/services and divisions/segments.

See details of timing of revenue recognition, whether CSPi acted as the principal or agent, and geography below. Geographic areas are based on which the products were shipped or services rendered.


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

	(Amounts in thousands)
2025
Timing of Revenue Recognition
Transferred at a point in time where CSPi is principal	$	276	$	417	$	7,845	$	8,262	$	8,538
Transferred at a point in time where CSPi is agent		—		24		1,444		1,468		1,468
Transferred over time where CSPi is principal		371		38		2,732		2,770		3,141
Total Revenue	$	647	$	479	$	12,021	$	12,500	$	13,147

Geography
United States	$	497	$	21	$	11,452	$	11,473	$	11,970
Americas (excluding United States)		1		—		372		372		373
Europe		—		458		197		655		655
Asia-Pacific		149		—		—		—		149
Total Revenue	$	647	$	479	$	12,021	$	12,500	$	13,147

2024
Timing of Revenue Recognition
Transferred at a point in time where CSPi is principal	$	2,254	$	70	$	6,433	$	6,503	$	8,757
Transferred at a point in time where CSPi is agent		—		—		2,320		2,320		2,320
Transferred over time where CSPi is principal		248		51		2,330		2,381		2,629
Total Revenue	$	2,502	$	121	$	11,083	$	11,204	$	13,706

Geography
United States	$	2,478	$	44	$	9,931	$	9,975	$	12,453
Americas (excluding United States)		3		(25)		1,099		1,074		1,077
Europe		3		98		53		151		154
Asia-Pacific		18		4		—		4		22
Total Revenue	$	2,502	$	121	$	11,083	$	11,204	$	13,706

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

	(Amounts in thousands)
2025
Timing of Revenue Recognition
Transferred at a point in time where CSPi is principal	$	358	$	550	$	18,760	$	19,310	$	19,668
Transferred at a point in time where CSPi is agent		—		24		3,248		3,272		3,272
Transferred over time where CSPi is principal		719		85		5,073		5,158		5,877
Total Revenue	$	1,077	$	659	$	27,081	$	27,740	$	28,817

Geography
United States	$	919	$	93	$	26,195	$	26,288	$	27,207
Americas (excluding United States)		4		—		616		616		620
Europe		—		566		270		836		836
Asia-Pacific		154		—		—		—		154
Total Revenue	$	1,077	$	659	$	27,081	$	27,740	$	28,817

2024
Timing of Revenue Recognition
Transferred at a point in time where CSPi is principal	$	2,757	$	382	$	17,208	$	17,590	$	20,347
Transferred at a point in time where CSPi is agent		—		4		3,515		3,519		3,519
Transferred over time where CSPi is principal		457		116		4,642		4,758		5,215
Total Revenue	$	3,214	$	502	$	25,365	$	25,867	$	29,081

Geography
United States	$	3,171	$	44	$	23,181	$	23,225	$	26,396
Americas (excluding United States)		3		—		1,683		1,683		1,686
Europe		4		454		147		601		605
Asia-Pacific		36		4		354		358		394
Total Revenue	$	3,214	$	502	$	25,365	$	25,867	$	29,081

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 5 Financing Receivables, net for more details. Revenue from these agreements in the three months ended March 31, 2025 was $142 thousand and CSPi acted as the agent. There was no revenue from this type of agreement in the three months ended March 31, 2024. Revenue from these agreements in the six months ended March 31, 2025 was $165 thousand and CSPi acted as the agent. Revenue from these agreements in the six months ended March 31, 2024 was $1,427 thousand, which nearly all of the revenue was with CSPi acting as the principal.

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 $0.9 million and $1.7 million as of March 31, 2025 and September 30, 2024, respectively. Current contract assets were $0.9 million as of September 30, 2023. The current portion is recorded in Other current assets on the condensed consolidated balance sheets. There were no noncurrent contract assets as of March 31, 2025 and September 30, 2024. There were no noncurrent contract assets as of September 30, 2023. The difference in the balances is due to regular timing differences between when work is performed and having an unconditional right to payment.

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Contract liabilities arise when payment is received before we transfer a good or service to the customer. Current contract liabilities were $2.5 million and $2.2 million as of March 31, 2025 and September 30, 2024, respectively. Current contract liabilities were $1.9 million as of September 30, 2023. The current portion of contract liabilities is recorded in Deferred revenue and contract liabilities on the condensed consolidated balance sheets. There were no long-term contract liabilities as of March 31, 2025 and September 30, 2024, respectively. There were no long-term contract liabilities as of September 30, 2023. Revenue recognized for the six months ended March 31, 2025 that was included in contract liabilities as of September 30, 2024 was $1.0 million.

Contract Costs

Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are equal to or less than a one year period, are expensed as incurred, utilizing the practical expedient in ASC 340-40-25-4. For a period greater than one year, incremental contract costs are capitalized if we expect to recover these costs. The costs are amortized over the contract term and expected renewal periods. The period of amortization is generally three years. Incremental costs are related to commissions in the TS portion of the business. Current capitalized contract costs are within the Other current assets on the condensed consolidated balance sheets as of March 31, 2025 and September 30, 2024. The portion of current capitalized costs were $23 thousand and $177 thousand as of March 31, 2025 and September 30, 2024, respectively. There are no noncurrent capitalized costs on the condensed consolidated balance sheets. The amount of incremental costs amortized for the three months ended March 31, 2025 and 2024 were $50 thousand and $121 thousand, respectively. The amount of incremental costs amortized for the six months ended March 31, 2025 and 2024 were $154 thousand and $229 thousand, respectively and is recorded in selling, general, and administrative expenses. There was no impairment related to incremental costs capitalized during the six months ended March 31, 2025 and 2024.

Other

Projects are typically billed upon completion or at certain milestones. Products and services are typically billed when shipped or as services are being performed. Payment terms are typically 30 days to pay in full except in Europe where it could be up to 90 days. Most of our contracts are less than one year. There are certain contracts that contain a financing component. See Note 5 Financing receivables, net to the condensed consolidated financial statements for additional information. We elected to use the optional exemption to not disclose the aggregate amount of the transaction price allocated to performance obligations that have an original expected duration of one year or less. This is due to a low number 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.

We have certain contracts that have an original term of more than one year. The royalty agreement is longer than one year, but not included in the table below as the royalties are sales-based. Managed service contracts are generally longer than one year and revenue is recognized ratably over the contract term. For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2025 is set forth in the table below:


Fiscal Year	(Amounts in thousands)
2025 (remaining 6 months)	$	658
2026		1,067
2027		961
2028		905
2029		222
	$	3,813

3. Earnings Per Share of Common Stock

Basic net income (loss) per common share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per share

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includes the dilutive effect of restricted stock, if any, calculated using the treasury stock method. For unvested restricted stock, assumed proceeds under the treasury stock method would include unamortized compensation cost.

We are required to present earnings per share (“EPS”), utilizing the two-class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities. Net losses are not allocated to these participating securities as there are no contractual obligations that require participation in the Company’s losses.

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


	Three months ended				Six Months Ended
	March 31,		March 31,		March 31,		March 31,
	2025		2024		2025		2024

	(Amounts in thousands except per share data)
Net (loss) income	$	(108)	$	1,588	$	364	$	1,515
Less: net income attributable to nonvested common stock		—		(106)		(23)		(98)
Net (loss) income attributable to common shareholders	$	(108)	$	1,482	$	341	$	1,417

Weighted average total shares outstanding - basic		9,343		9,719		9,851		9,586
Less: weighted average non–vested shares outstanding		—		(649)		(619)		(619)
Weighted average number of common shares outstanding - basic		9,343		9,070		9,232		8,967
Add: potential common shares from non-vested restricted stock awards		—		385		382		399
Weighted average common shares outstanding - diluted		9,343		9,455	$	9,614		9,366

Net (loss) income per common share - basic	$	(0.01)	$	0.16	$	0.04	$	0.16
Net (loss) income per common share - diluted	$	(0.01)	$	0.16	$	0.04	$	0.15

Anti-dilutive securities include restricted stock, which are excluded from the diluted income per share computation. Non-vested restricted stock awards of 269 thousand shares were excluded from net loss per share for the three months ended March 31, 2025 because their inclusion would have been anti-dilutive as there was a net loss for the period.

4. Accounts receivable, net

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the current expected credit losses. The estimation of the allowance is based on an analysis of historical loss experience, management’s assessment of current conditions and reasonable and supportable expectation of future conditions as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible including reviewing the current receivables aging. This results in a general reserve and a specific reserve. The Company assesses collectability by pooling receivables where similar characteristics exist and evaluates receivables individually when specific customer balances no longer share those risk characteristics and are considered at risk or uncollectible. The expense associated with the allowance for expected credit losses is recognized in Selling, general, and administrative expenses in the Consolidated Statements of Operations.

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The following tables present the changes in the allowance for accounts receivable for the periods indicated.


	Three months ended
		March 31, 2025		March 31, 2024

		(Amounts in thousands)
Allowance for credit losses for accounts receivable:
Balances at beginning of the period		$	153	$	61
(Benefit) provision for credit losses			(22)		12
Balances at end of the period		$	131	$	73


	Six months ended
		March 31, 2025		March 31, 2024

		(Amounts in thousands)
Allowance for credit losses for accounts receivable:
Balances at beginning of the period		$	147	$	100
Adjustment for adoption of new CECL standard			-		(67)
(Benefit) provision for credit losses			(16)		40
Balances at end of the period		$	131	$	73

5. Financing receivables, net

In the TS U.S. division, financing of goods and services is offered to certain customers. This involves amounts due reflecting sales whose payment terms exceed one year. This financing is separate from agreements with a leasing component, see Note 7 Leases for financing through leases. Determining whether to offer financing involves looking at the customer’s payment history, economic conditions, and capacity to pay.

The Company assigns an internal risk rating to each customer at inception, which groups customers into a portfolio based off this risk rating. A risk rating is assigned by analyzing a customer’s financial statements and the latest Fitch rating if publicly available as well as recent payment activity. The credit quality of customers is continually monitored by these items. Accounts rated low risk have the equivalent of a Fitch rating of BBB– or higher, moderate risk accounts have the equivalent of BB, and high risk accounts have the equivalent of B.

The risk characteristics of each customer are consistent with the Fitch rating or equivalent, which are defined by Fitch as the following:

'BBB' ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.

’BB' ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists that supports the servicing of financial commitments.

‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.

Financing receivables, net carry an average weighted interest rate of 9.7%, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

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The amount of interest income earned from sales whose payment terms exceed one year for the three months ended March 31, 2025 and 2024 was $113 thousand and $158 thousand, respectively. The amount of interest income earned from sales whose payment terms exceed one year for the six months ended March 31, 2025 and 2024 was $254 thousand and $351 thousand, respectively. Interest income from these agreements is recorded in Other (expense) income, net on the Condensed Consolidated Statements of Operations.

The following table presents the components of the Company’s Financing receivables, net segregated by portfolio (risk rating) for the periods indicated:


	As of March 31, 2025								As of September 30, 2024
	Risk Rating								Risk Rating
		Low		Moderate		High		Total		Low		Moderate		High		Total

	(Amounts in thousands)
Financing receivables, net:
Financing receivables, gross	$	5,173	$	648	$	1,290	$	7,111	$	7,153	$	874	$	-	$	8,027
Unearned interest income		(436)		(51)		(144)		(631)		(599)		(85)		-		(684)
Allowance for credit losses		(24)		(6)		(59)		(89)		(27)		(10)		-		(37)
Financing receivables, net	$	4,713	$	591	$	1,087	$	6,391	$	6,527	$	779	$	-	$	7,306
Short-term	$	1,977	$	401	$	349	$	2,727	$	4,013	$	371	$	-	$	4,384
Long-term	$	2,736	$	190	$	738	$	3,664	$	2,514	$	408	$	-	$	2,922

The following table presents the changes in Allowance for credit losses for Financing receivables, net for the periods indicated:


	Three months ended
	March 31, 2025								March 31, 2024
	Risk Rating								Risk Rating
	Low		Moderate		High		Total		Low		Moderate		High		Total

	(Amounts in thousands)								(Amounts in thousands)
Allowance for credit losses for financing receivables:
Balances at beginning of the period	$	21	$	8	$	6	$	35	$	16	$	61	$	-	$	77
Provision (benefit) charged to Consolidated Statements of Operations		3		(2)		53		54		-		(7)		-		(7)
Balances at end of the period	$	24	$	6	$	59	$	89	$	16	$	54	$	-	$	70


	Six months ended
	March 31, 2025								March 31, 2024
	Risk Rating								Risk Rating
	Low		Moderate		High		Total		Low		Moderate		High		Total

	(Amounts in thousands)
Allowance for credit losses for financing receivables:
Balances at beginning of the period	$	27	$	10	$	-	$	37	$	-	$	-	$	-	$	-
Adjustment for adoption of new accounting standard		-		-		-		-		27		55		-		82
(Benefit) provision charged to Consolidated Statements of Operations		(3)		(4)		59		52		(11)		(1)		-		(12)

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Balances at end of the period

The Company recognizes an allowance for credit losses for financing receivables in an amount equal to the probable losses net of recoveries. A probability method for calculating credit losses is used based on historical data of defaults of Fitch ratings and length of time. Various factors are also assessed in the allowance for credit losses including internal historical data as well as macroeconomic forecast assumptions and management judgments applicable to and through the expected life of the portfolios. Macroeconomic conditions include the level of gross domestic product (“GDP”) growth and unemployment rates, which directly correlate with our historical credit losses. The expense associated with the allowance for expected credit losses is recognized in Selling, general, and administrative expenses in the Consolidated Statements of Operations.

Financing receivables whose payment terms exceed one year are placed on non-accrual status, meaning interest income stops being recorded, when the customer has a past due amount in excess of 30 days or reasonable doubt exists in collecting all interest and principal. A payment due in excess of 30 days is considered delinquent. If a payment is received for a receivable on non-accrual status the payment is first applied to interest and then principal. Recording interest income resumes once no reasonable doubt exists regarding collecting all interest and principal. There were no financing receivables placed on non-accrual status as of March 31, 2025 or September 30, 2024.

The following table presents Financing receivables, gross, including accrued interest and excluding any allowance, by credit quality indicator segregated by risk rating and year of origination as of March 31, 2025:


	March 31, 2025
	Fiscal year of origination
Risk Rating	2025		2024		2023		Total

High	$	1,290	$	—	$	—	$	1,290
Moderate		—		410		238	$	648
Low		689		2,600		1,884		5,173
Total	$	1,979	$	3,010	$	2,122	$	7,111

Contractual maturities of outstanding financing receivables are as follows:


Fiscal year ending September 30:	(Amounts in thousands)
2025 (remaining 6 months)	$	2,528
2026		3,043
2027		1,482
2028		58
Total payments	$	7,111
Less: unearned interest income		(631)
Less: allowance for credit losses		(89)
Total, net of unearned interest income and allowance for credit losses	$	6,391

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6. Inventories

Inventories consist of the following:


	March 31,		September 30,
	2025		2024

	(Amounts in thousands)
Raw materials	$	60	$	77
Work-in-process		124		315
Finished goods		1,925		1,901
Total	$	2,109	$	2,293

7. Leases

Information related to both lessee and lessor

The components of lease costs for the three months ended March 31, 2025 and 2024 are as follows:


		Three months ended
	Consolidated Statements of Operations Location	March 31, 2025		March 31, 2024
		(Amounts in thousands)
Operating Lease:
Operating lease cost	Selling, general, and administrative	$	127	$	132
Short-term lease cost	Selling, general, and administrative		7		8
Total lease costs		$	134	$	140
Less sublease interest income	Revenue		(3)		(1)
Total lease costs, net of sublease interest income		$	131	$	139

The components of lease costs for the six months ended March 31, 2025 and 2024 are as follows:


		Six months ended
	Consolidated Statements of Operations Location	March 31, 2025		March 31, 2024
		(Amounts in thousands)
Finance Lease:
Operating Lease:
Operating lease cost	Selling, general, and administrative	$	266	$	264
Short-term lease cost	Selling, general, and administrative		16		17
Total lease costs		$	282	$	281
Less sublease interest income	Revenue		(4)		(1)
Total lease costs, net of sublease interest income		$	278	$	280

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Supplemental cash flow information related to leases for the six months ended March 31, 2025 and 2024 is below:


	Six months ended
	March 31, 2025		March 31, 2024
	(Amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	281	$	268
Operating cash flows paid for short-term leases		16		17
Operating cash flows paid for finance leases		—		1
Cash received from subleases		(21)		(7)
Lease assets obtained in exchange for new lease liabilities
Operating leases		247		—

In April 2025, a lease agreement for a new office space for the TS U.S. division was executed, which will commence in August of 2025 and have a term for 80 months with total rent payments of around $1.2 million. The division’s office in Deerfield Beach will move to Boca Raton, Florida.

8. Accounts payable and Other noncurrent liabilities

The TS US division enters into certain multi-year agreements with vendors when also entering into some of the multi-year financing contracts the Company enters into with customers. See Note 5 Financing receivables, net for further information related to the multi-year agreements with customers.

There was not an interest rate stated in the agreements and therefore interest was imputed under ASC 835 Interest as the payments in the exchange represented two elements: principal and interest. The average imputed interest rate for the agreements was determined to be 8.4% as of March 31, 2025. The rate was determined primarily based on the rate the Company could obtain by financing from other sources at the date of the transaction.

Interest expense related to these agreements for the three months ended March 31, 2025 and 2024 was $75 thousand and $35 thousand, respectively. Interest expense related to these agreements for the six months ended March 31, 2025 and 2024 was $150 thousand and $88 thousand, respectively.

The amounts owed for these agreements are in Accounts payable and accrued expenses and Other noncurrent liabilities because they are owed to vendors rather than banks or financial institutions for borrowings. See Note 9 Line of Credit for amounts due to financial institutions for borrowings.

Below are details of the agreements with the vendors that contain imputed interest:


	March 31, 2025		September 30, 2024
	(Amounts in thousands)
Current	$	2,883	$	2,553
Less: discount		(278)		(244)
Accounts payable and accrued expenses	$	2,605	$	2,309

Noncurrent	$	2,863	$	1,677
Less: discount		(140)		(146)
Other noncurrent liabilities	$	2,723	$	1,531

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The TS segment has many vendors it transacts with and does not have any specific agreement with this vendor that it must purchase certain products from the vendor. Management believes other suppliers could provide similar products on comparable terms.

9. Line of Credit

As of March 31, 2025 and September 30, 2024, the Company maintained an inventory line of credit with a borrowing capacity of $15.0 million. It may be used by the TS and HPP segments in the US to purchase inventory from approved vendors with payment terms which exceed those offered by the vendors. No interest accrues under the inventory line of credit when advances are paid within terms, however, late payments are subject to an interest charge of Prime plus 5%. The credit agreement for the inventory line of credit contains financial covenants which require the Company to maintain the following TS segment-specific financial ratios: (1) a minimum current ratio of 1.2, (2) tangible net worth of no less than $4.0 million, and (3) a maximum ratio of total liabilities to total net worth of less than 5.0:1. As of March 31, 2025 and September 30, 2024, Company borrowings, all from the TS segment, under the inventory line of credit were $0.4 million and $4.2 million, respectively, and the Company was in compliance with all financial covenants. As of March 31, 2025 and September 30, 2024, this line of credit also includes availability of a limited cash withdrawal of up to $1.0 million. As of March 31, 2025 and September 30, 2024 there were no cash withdrawals outstanding.

10. Pension and Retirement Plans

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

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

The Company’s pension plan in the U.K. is the only pension plan with plan assets. In October 2024 the company contributed approximately 0.6 million Great British Pounds to the U.K. pension plan and all of the plan assets were converted to cash. Also in October 2024, in connection with the planned termination of our defined benefit pension plan in the U.K., we paid 8.5 million Great British Pounds to enter into a buy-in contract. This payment is subject to adjustment as a result of subsequent data cleansing activities. Under the terms of this buy-in contract, the insurer is liable to pay the benefits of the plan, but the Company still retains full legal responsibility to pay the benefits to members using the insurance payments. In accordance with US GAAP, specifically ASC 715-30 Defined Benefit Plans – Pension, the buy-in contract does not qualify as a significant event and therefore remeasurement is not required. The buy-in contract will be treated as a plan asset. When the buy-in contract transitions to a buy-out contract the Company will no longer have legal responsibility to pay the benefits to the members. This transition is a significant event and the pension assets and liabilities will be remeasured at this time. If the transition does not occur before September 30, 2025, the pension assets and liabilities will be remeasured as of this date in accordance with our Pension and Retirement Plans accounting policy.

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The components of net periodic benefit costs related to the US and UK plans are as follows:


	Three Months Ended March 31,
	2025						2024
	U.K.		U.S.		Total		U.K.		U.S.		Total

	(Amounts in thousands)
Pension:
Interest cost	$	104	$	2	$	106	$	109	$	3	$	112
Expected return on plan assets		(122)		—		(122)		(146)		—		(146)
Amortization of past service costs		2		—		2		2		—		2
Amortization of net gain		—		(1)		(1)		—

CSP INC /MA/ 10-Q