| Basis of Presentation and Summary of Significant Accounting Policies | Organization and Business CSP Inc. ("CSPi" or "CSPI" or "the Company" or "we" or "our") was founded in 1968 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 two segments, its Technology Solutions ("TS") segment and its High Performance Products ("HPP") segment. 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying audited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America and the rules and regulations of the Securities and Exchange Commission. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Presentation – sales whose payment terms exceed one year Effective in fiscal year 2024 sales whose payment terms exceed one year is now presented as “Financing receivables, net of allowances” on the Consolidated Balance Sheets rather than being combined with Accounts receivable, net of allowances. The financial statement line item Long-term receivable is now labeled as “Financing receivables due after one year, net of allowances.” These changes are reflected retrospectively as of September 30, 2023. This change was made to provide more detail on the balance sheet related to these receivables and align with our notes to the consolidated financial statements. Presentation – two-for-one stock split On February 21, 2024, the Board of Directors of CSP Inc. approved an amendment to the Company’s Articles of Organization to increase the total number of its authorized shares of Common Stock, par value $0.01 , from 7,500,000 shares to 9,753,900 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 two -for-one stock split to be effected in the form of a 100% 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 two -for-one stock split in the form a 100% dividend in accordance with ASC 260 Earnings Per Share , specifically ASC 260-10-55-12 . On June 26, 2024, the stockholders of CSP, Inc. approved an amendment to the Company's Articles of Organization, as amended (the "Articles of Organization"), to increase the number of authorized shares of Common Stock from 9,753,900 to 20,000,000 (the "Amendment"). On June 26, 2024, the Company filed an Articles of Amendment to the Articles of Organization with the Secretary of the Commonwealth of Massachusetts to effect the Amendment, which became effective immediately upon such filing. Adopted Accounting Pronouncement in the Year Ended September 30, 2024 In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting standards update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) The Company adopted ASU 2016-13 (the “new CECL standard”) as of October 1, 2023 using the modified retrospective method, with a cumulative-effect adjustment to the opening balance of Shareholders’ equity as of October 1, 2023. The adoption primarily impacted the estimation of our Allowance for credit losses for Accounts receivable and Financing receivables. Additionally, it affected allowance for credit losses of contract assets with effects being immaterial. The total impact recorded on our initial adoption of ASU 2016-13 as of October 1, 2023 included an increase of Accounts receivable, net of $67k and a decrease of Financing receivables, net in the amount of $82k with the total adjustment decreasing retained earnings of $15k. For the accounting policies adopted and details of impacts from adoption refer to Note 2 - Accounts receivable, net 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. Foreign Currency Translation The U.S. Dollar is the reporting currency for all periods presented. The financial information for entities outside the United States is measured using the local currency as the functional currency. In consolidation, foreign transactions are remeasured into the functional currency, British Pounds, of our U.K. subsidiary. This non-cash remeasurement is included in the foreign exchange gain or loss on the Consolidated Statements of Operations. After this remeasurement, assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue and expenses are translated at average rates in effect during the period. The resulting translation adjustment is reflected as accumulated other comprehensive loss, a separate component of shareholders’ equity on the consolidated balance sheets. Currency transaction gains and losses are recorded as other income (expense) in the consolidated statements of operations. Cash Equivalents For purposes of the consolidated statements of cash flows, highly liquid investments with original maturities of three months or less at the time of acquisition are considered cash equivalents. The Company maintains its cash and cash equivalents with financial institutions and, at times, the balance may exceed the Federal Deposit Insurance Corporation federally insured limits (United States - $250,000 per depositer) or Financial Services Compensation Scheme (United Kingdom - £85,000 per depositer). The Company has never experienced any losses related to these balances. Employee Retention Tax Credit The Coronavirus Aid, Relief, and Economic Security Act provided an employee retention credit (“ERC”) which is a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act, 2021 extended and expanded the availability of the employee retention credit through December 31, 2021 including amending the employee retention credit to be equal to 70% of qualified wages paid to employees during the 2021 calendar year. 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 $2.8 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 $2.1 million represents the amount we were qualified to receive. There are no other amounts that will be received related to this credit. Research and Development Expense For the years ended September 30, 2024 and 2023, our expenses for research and development were approximately $3.0 million and $3.1 million, respectively. Expenditures for research and development are expensed as they are incurred. Impairment of Long-Lived Assets The Company reviews its long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management assesses the recoverability of the long-lived assets (intangibles) by comparing the estimated undiscounted cash flows associated with the related asset or group of assets against their respective carrying amounts. The amount of impairment, if any, is calculated based on the excess of the carrying amount over the fair value of those assets. Intangible assets that are not subject to amortization are also required to be tested annually, or more frequently if events or circumstances indicate that the asset may be impaired. We did not have intangible assets with indefinite lives any time during the two years ended September 30, 2024. Intangible assets subject to amortization are amortized on a straight-line basis over their estimated useful lives, generally three Leases as Lessee At the inception of an arrangement, the Company determines whether the arrangement contains a lease. This includes arrangements with goods and services to determine if there is an embedded lease. An arrangement containing a lease would allow the Company the right to control an implicitly or explicitly identified asset. If there is a lease in an arrangement, the classification is determined at inception of the arrangement. Certain leases may contain transfer of ownership or an option to purchase the underlying asset. The most relevant criterion for our lease classification is transfer of ownership, which if included in the arrangement makes the lease a finance lease rather than an operating lease. The discount rate used to assess classification is the incremental borrowing rate at the commencement date due to the implicit rate not being readily determinable. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The lease term includes periods when we are reasonably certain we will exercise the renewal option. The Company has elected not to apply Subtopic ASC 842-25 Note 10 Leases 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 one single lease component for all classes of assets. Lease expense is recognized on a straight-line basis over the lease term. Inventories Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. The recoverability of inventories is based upon the types and levels of inventories held, forecasted demand, pricing, competition and changes in technology. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. As of September 30, 2024, and September 30, 2023, the Company maintained inventory reserves of $1.1 million and $1.0 million, respectively. Property, Equipment and Improvements The components of property, equipment and improvements are stated at cost. The Company provides for depreciation by use of the straight-line method over the estimated useful lives of the related assets ( three Accounts Receivable, net of Allowance for Credit Losses Accounts receivable are recorded at the invoiced amount and are non-interest bearing. Accounts receivable are stated at their net realizable value, net of the allowance for credit losses. Allowances for credit losses are recorded for the estimated losses resulting from the inability of our customers to make required payments based on historical data as well as forecasted future conditions. 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. If the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required. Accounts receivable are charged off against the reserve when management has determined they are uncollectible. Financing Receivables, net of Allowance for Credit Losses Financing receivables are recorded at the invoiced amount and are interest bearing. Financing receivables are stated at their net realizable value, net of the allowance for credit losses. Allowances for credit losses are recorded for the estimated losses resulting from the inability of our customers to make required payments based on historical data as well as forecasted future conditions. 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 growth and unemployment rates, which directly correlate with our historical credit losses. If the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required. Financing receivables are charged off against the reserve when management has determined they are uncollectible. Pension and Retirement Plans The funded status of pension and other postretirement benefit plans is recognized on the consolidated balance sheets. Gains and losses, prior service costs and credits and any remaining transition amounts that have not yet been recognized through pension expense will be recognized in accumulated other comprehensive loss, net of tax, until they are amortized as a component of net periodic pension/postretirement benefits expense. Additionally, plan assets and obligations are measured as of our fiscal year-end balance sheet date (September 30). We have defined benefit and defined contribution plans in the United Kingdom (the “U.K.”) and in the U.S. In the U.K. the Company provides defined benefit pension plans for certain employees and former employees and defined contribution plans for the majority of the employees. The defined benefit plan in the U.K. is closed to newly hired employees and has been for the two years ended September 30, 2024. In the U.S., the Company also 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 two years 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. Pension expense is based on an actuarial computation of current future benefits using estimates for expected return on assets, expected compensation increases and applicable discount rates. Management has reviewed the discount rates and rates of return with our consulting actuaries and investment advisor and concluded they were reasonable. A decrease in the expected return on pension assets would increase pension expense. Expected compensation increases are estimated based on historical and expected increases in the future. Increases in estimated compensation increases would result in higher pension expense while decreases would lower pension expense. Discount rates are selected based upon rates of return on high quality fixed income investments currently available and expected to be available during the period to maturity of the pension benefit. A decrease in the discount rate would result in greater pension expense while an increase in the discount rate would decrease pension expense. 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. Segment Information We have two operating segments: (i) Technology Solutions ("TS") and (ii) High Performance Products ("HPP"). In the TS segment, we focus on value added reseller ("VAR") integrated solutions including third party hardware, software and technical computer-related consulting and managed services. In the HPP segment, we design, manufacture and deliver products and services to customers that require specialized cyber security services, networking and signal processing products. The operations and assets of our TS segment are located in the United States and the United Kingdom, which are the two divisions that make up the TS segment. The operations and assets of our HPP segment are located in the United States. Revenue Recognition We derive revenue from the sale of integrated hardware and software, third-party service contracts, professional services, managed services, financing of hardware and software, and other services. We recognize revenue from hardware upon transfer of control, which is at a point in time typically upon shipment when title transfers. Revenue from software is recognized at a point in time when the license is granted. We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether we are acting as the principal party to the transaction or acting as an agent or broker based on control and timing. We are the principal if we control the good or service before that good or service is transferred to the customer. For each identified performance obligation in a transaction, we evaluate the facts and circumstances present to determine whether or not we control the specified good or service prior to transfer to the customer. This evaluation includes, but is not limited to, assessing indicators such as whether: (i) we are primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) we have inventory risk before the specified good or service has been transferred to a customer and (iii) we have discretion in establishing the price for the specified good or service. When the evaluation indicates we control the specified good or service prior to transfer to the customer, we are acting as a principal. When the evaluation indicates we do not control the specified good or service prior to transfer to the customer, we are acting as an agent. We record revenue as gross when we are the principal party to the arrangement and net of cost when we are acting as a broker or agent for a third party. Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of sales. Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction. Third-party service contracts are sold in different combinations with hardware, software, and services. When we are an agent, revenue is typically recorded at a point in time. When we are the principal, revenue is recognized over the contract term. We have concluded we are the agent in sales of third-party maintenance, software or hardware support, and certain security software that is sold with integral third-party delivered software maintenance that includes critical updates. When CSPi sells goods and services with a financing component the strongest indicator is whether the Company has discretion in selling price as many of the agreements are brought to us at predetermined price by the manufacturer. 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 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. Some transactions include shipping as part of the contract. The Company records shipping billed to its customers as Product revenue and the related freight costs as Product cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as Product cst of sales. The Company considers shipping to be a fulfillment activity and not a separate performance obligation. 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 Guarantees. The following policies are applicable to our major categories of segment revenue transactions: TS Segment Revenue TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software. Financing revenue pertaining to the portion of an arrangement containing a lease is recognized in accordance with ASC 842. Financing revenue related to the lease is recorded in revenue as equipment leasing is part of our operations. Third-party service contracts are evaluated to determine whether such service revenue should be recorded as gross or net sales and whether over time or at point in time. HPP Segment Revenue HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the ARIA, Multicomputer, and Myricom product lines. ARIA revenue is derived from sale of hardware, software, and managed services. ARIA Zero Trust Gateway (“AZT”) revenue contains two performance obligations: a software license and post contract support. The transaction price is generally fixed consideration and allocated based on relative stand-alone selling price. Software license revenue is recognized at a point in time, generally when the license is made available to the customer. Post contract support revenue is recognized ratably over the contractual period of generally one year. Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products’ functionality, and post contract maintenance and support. Post contract maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation. Multicomputer revenue is derived from the sale of hardware, software, extended warranties, royalties, and repair services. See disaggregated revenues below by products/services and geography. Technology Solutions Segment High Performance Products United Consolidated Year ended September 30, 2024 Segment Kingdom U.S. Total Total (Amounts in thousands) 2024 Sales: Product $ 2,599 $ 594 $ 33,598 $ 34,192 $ 36,791 Service 1,555 260 16,611 16,871 18,426 Finance * — — 2 2 2 Total sales $ 4,154 $ 854 $ 50,211 $ 51,065 $ 55,219 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 $ 5,475 $ 734 $ 40,938 $ 41,672 $ 47,147 Service 1,398 288 15,812 16,100 17,498 Finance * — — 2 2 2 Total sales $ 6,873 $ 1,022 $ 56,752 $ 57,774 $ 64,647 * Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers ( ASC 606 See details of timing of revenue recognition and whether CSPi acted as the principal or agent below. Also see geographic areas based on the which the products were shipped or services rendered. Technology Solutions Segment High Performance Products United Consolidated Year ended September 30, Segment Kingdom U.S. Total Total (Amounts in thousands) 2024 Timing of Revenue Recognition Transferred at a point in time where CSPi is principal $ 3,098 $ 603 $ 33,921 $ 34,524 $ 37,622 Transferred at a point in time where CSPi is agent — 37 7,070 7,107 7,107 Transferred over time where CSPi is principal 1,056 214 9,220 9,434 10,490 Total Revenue $ 4,154 $ 854 $ 50,211 $ 51,065 $ 55,219 Geography United States $ 3,098 $ 75 $ 45,611 $ 45,686 $ 48,784 Americas (excluding United States) 714 — 3,810 3,810 4,524 Europe 6 775 344 1,119 1,125 Asia-Pacific 336 4 446 450 786 Total Revenue $ 4,154 $ 854 $ 50,211 $ 51,065 $ 55,219 2023 Timing of Revenue Recognition Transferred at a point in time where CSPi is principal $ 6,259 $ 741 $ 41,136 $ 41,877 $ 48,136 Transferred at a point in time where CSPi is agent — 68 5,994 6,062 6,062 Transferred over time where CSPi is principal 614 213 9,621 9,835 10,449 Total Revenue $ 6,873 $ 1,022 $ 56,752 $ 57,774 $ 64,647 Geography United States $ 6,069 $ 125 $ 51,587 $ 51,712 $ 57,781 Americas (excluding United States) 110 13 4,859 4,872 4,982 Europe 335 835 259 1,094 1,429 Asia-Pacific 359 49 47 96 455 Total Revenue $ 6,873 $ 1,022 $ 56,752 $ 57,774 $ 64,647 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 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 $1.7 million and $0.9 million as of September 30, 2024 and September 30, 2023, respectively. Current contract assets were $4.4 million as of September 30, 2022. The current portion is recorded in other current assets on the consolidated balance sheets. There were no noncurrent contract assets as of September 30, 2024 and September 30, 2023. There were no 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. Contract liabilities arise when payment is received before we transfer a good or service to the customer. Current contract liabilities were $2.2 million and $1.9 million as of September 30, 2024 and September 30, 2023, respectively. Current contract liabilities were $4.1 million as of September 30, 2022. The current portion of contract liabilities is recorded in Deferred revenue and contract liabilities on the consolidated balance sheets. There were no long-term contract liabilities as of September 30, 2024 and 2023, respectively. There were no long-term contract liabilities as of September 30, 2022. Revenue recognized for the year ended September 30, 2024 that was included in contract liabilities as of September 30, 2023 was $1.3 million. At times, customers delay projects that were supposed to be complete within a year, which is why the full balance of Deferred revenue and contract liabilities as of September 30, 2023 was not recognized in the twelve months ended S |
