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Core Viewpoint - CSPI reported strong revenue growth in its fiscal third quarter, driven by the Technology Solutions segment and the AZT PROTECT cybersecurity solution, despite facing margin pressures and a modest net loss [12]. Revenue & Earnings Performances - CSPI generated revenues of $15.4 million for the quarter ended June 30, 2025, an 18% increase from $13.1 million in the same period last year [2]. - Product sales rose 29% to $10.2 million, while service revenues increased marginally to $5.3 million [2]. - Gross profit decreased to $4.5 million from $4.6 million, with margins contracting to 29% from 34% due to a higher mix of product revenues and increased component costs [2]. - The company reported a net loss of $0.3 million, or 3 cents per share, compared to a net loss of $0.2 million, or 2 cents per share, a year earlier [2]. Other Key Business Metrics - The Technology Solutions segment achieved a 20% year-over-year revenue increase, driven by strong demand for cloud services and activity in the maritime sector [3]. - The TS division secured a significant Microsoft Azure project for a Florida-based healthcare provider, highlighting CSPI's strength in managed cloud offerings [3]. High-Performance Products (HPP) - The AZT PROTECT cybersecurity solution saw momentum, with new customer deployments in the steel, concrete, and lumber industries, and follow-up contracts in South Africa [4]. - Management noted that reseller partnerships with leading Rockwell Automation distributors are transitioning from early adoption to revenue acceleration, setting the stage for broader penetration in fiscal 2026 [4]. Management Commentary - CEO Victor Dellovo emphasized a land and expand strategy, where initial deployments of AZT PROTECT serve as proof points for broader rollouts across enterprise networks [5]. - Customers reported measurable operational benefits, such as preventing system outages in critical industrial environments, indicating potential for recurring contracts as the installed base grows [5]. Financial Overview - CFO Gary Levine explained that gross margin pressure was due to product mix and higher costs, while operating expenses increased from higher sales and marketing expenditures [6]. - The company ended the quarter with $26.3 million in cash and continued share repurchases, reflecting financial flexibility despite near-term earnings softness [6]. Factors Influencing Performance - Revenue growth was strong, but profitability was limited by a higher weighting of lower-margin product revenues and additional engineering and consulting expenses for AZT PROTECT [7][8]. - Modest service revenue growth tempered the recurring revenue contribution that typically supports margin stability [8]. Future Outlook - Management expressed optimism for the fourth quarter and fiscal 2025, noting momentum in both TS and HPP segments [10]. - There is accelerating interest from resellers and international partners, which could lead to larger contract opportunities [10]. Other Developments - CSPI was added to the Russell 3000 Index, increasing its exposure to institutional investors [11]. - The company authorized a quarterly dividend of $0.03 per share, reflecting a commitment to shareholder returns [11]. - CSPI repurchased over 19,000 shares for $0.3 million, with additional shares available under the 2021 repurchase program [11].

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2025, compared to the same periods in 2024, including balance sheets, statements of operations, comprehensive income, shareholders' equity, cash flows, and related notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $26,308 | $30,585 | ($4,277) | | Accounts receivable, net | $13,453 | $14,494 | ($1,041) | | Inventories | $3,532 | $2,293 | $1,239 | | Total assets | $66,784 | $69,436 | ($2,652) | | Line of credit | $1,141 | $4,169 | ($3,028) | | Total liabilities | $19,300 | $22,166 | ($2,866) | | Total shareholders' equity | $47,484 | $47,270 | $214 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2025 (in thousands) | Q3 2024 (in thousands) | YTD 2025 (in thousands) | YTD 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total sales | $15,448 | $13,105 | $44,265 | $42,186 | | Gross profit | $4,453 | $4,582 | $13,224 | $15,155 | | Operating (loss) income | ($1,223) | ($720) | ($2,571) | $171 | | Net (loss) income | ($264) | ($185) | $100 | $1,330 | | Net (loss) income per share - diluted | ($0.03) | ($0.02) | $0.01 | $0.13 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $370 | $5,721 | | Net cash used in investing activities | ($174) | ($238) | | Net cash used in financing activities | ($4,454) | ($1,824) | | Net (decrease) increase in Cash | ($4,277) | $3,674 | [Note 2. Revenue](index=14&type=section&id=Note%202.%20Revenue) Revenue is derived from Technology Solutions (TS) and High Performance Products (HPP) segments, with detailed breakdowns by segment, geography, and recognition timing Total Revenue by Segment (in thousands) | Segment | Q3 2025 (in thousands) | Q3 2024 (in thousands) | YTD 2025 (in thousands) | YTD 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Technology Solutions (TS) | $15,064 | $12,526 | $42,804 | $38,393 | | High Performance Products (HPP) | $384 | $579 | $1,461 | $3,793 | | **Consolidated Total** | **$15,448** | **$13,105** | **$44,265** | **$42,186** | - For the nine months ended June 30, 2025, revenue from the United States constituted the vast majority of sales, totaling **$39.0 million** out of a consolidated total of **$44.3 million**[44](index=44&type=chunk) - As of June 30, 2025, the company has **$3.6 million** in unsatisfied performance obligations for contracts with terms longer than one year, with revenue expected to be recognized through fiscal year 2029[51](index=51&type=chunk) [Note 5. Financing Receivables, Net](index=24&type=section&id=Note%205.%20Financing%20receivables%2C%20net) The company's TS U.S. division offers financing to customers with payment terms exceeding one year, categorizing receivables by risk ratings, totaling **$6.9 million** net as of June 30, 2025 Financing Receivables, Net by Risk Rating (in thousands) | Risk Rating | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :--- | :--- | :--- | | Low | $4,209 | $6,527 | | Moderate | $1,604 | $779 | | High | $1,125 | $0 | | **Total, Net** | **$6,938** | **$7,306** | - Interest income from these financing agreements was **$0.4 million** for the nine months ended June 30, 2025, down from **$0.5 million** in the prior-year period[66](index=66&type=chunk) [Note 10. Pension and Retirement Plans](index=34&type=section&id=Note%2010.%20Pension%20and%20Retirement%20Plans) The company maintains U.K. and U.S. pension plans, having entered a **£8.5 million** buy-in contract for its U.K. defined benefit plan in October 2024 as part of a planned termination - In October 2024, the company paid **£8.5 million** to enter a buy-in contract for its U.K. pension plan, transferring the payment liability to an insurer, though legal responsibility remains with the company until a full buy-out[86](index=86&type=chunk) - The buy-in contract is classified as a Level 3 fair value asset, valued at **$8.8 million** as of March 31, 2025, with its value sensitive to changes in the 20-year U.K. gilt yield[89](index=89&type=chunk)[91](index=91&type=chunk) [Note 14. Segment Information](index=42&type=section&id=Note%2014.%20Segment%20Information) This note details the financial performance of Technology Solutions (TS) and High Performance Products (HPP) segments, with TS generating **$2.5 million** operating income on **$42.8 million** sales, and HPP incurring a **$5.1 million** operating loss on **$1.5 million** sales for the nine months ended June 30, 2025 Segment Performance - Nine Months Ended June 30, 2025 (in thousands) | Segment | Total Sales (in thousands) | Operating (Loss) Income (in thousands) | | :--- | :--- | :--- | | Technology Solutions (TS) | $42,804 | $2,497 | | High Performance Products (HPP) | $1,461 | ($5,068) | | **Consolidated Total** | **$44,265** | **($2,571)** | - The HPP segment's operating loss significantly widened from **($2.7) million** in YTD 2024 to **($5.1) million** in YTD 2025, contributing to the consolidated operating loss[106](index=106&type=chunk) - The company has significant customer concentration in its financing receivables, with five customers (A, B, C, D, E) representing **75%** of the total balance as of June 30, 2025[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, noting an **18%** Q3 2025 sales increase but gross margin decline, and for the nine-month period, **5%** sales growth with a swing to a **$2.6 million** operating loss from **$0.2 million** income, primarily due to HPP segment performance and reduced operating cash flow [Results of Operations](index=47&type=section&id=Results%20of%20Operations) For the nine months ended June 30, 2025, consolidated sales increased **5%** to **$44.3 million**, driven by **11%** TS growth offset by **61%** HPP decline, resulting in a gross margin drop from **36%** to **30%** and an operating loss of **$2.6 million** - TS segment sales increased by **$4.4 million** (**11%**) for the nine months ended June 30, 2025, primarily due to higher product sales to existing major customers[138](index=138&type=chunk) - HPP segment sales decreased by **$2.3 million** (**61%**) for the nine months ended June 30, 2025, mainly because a large **$2.0 million** ARIA AZT order from the prior year did not recur[139](index=139&type=chunk) - The overall HPP segment gross margin percentage dropped from **73%** to **49%** year-over-year for the nine-month period, significantly impacting consolidated profitability[143](index=143&type=chunk) - Selling, General and Administrative (SG&A) expenses increased by **$0.6 million** (**5%**) year-over-year, driven by higher stock compensation, salaries, and costs related to the U.K. pension plan termination[146](index=146&type=chunk) [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased by **$4.3 million** to **$26.3 million** due to a sharp decline in operating cash flow to **$0.4 million** and increased financing activities, though management believes current liquidity is sufficient for the next 12 months Summary of Cash Flows (in thousands) | Activity | Nine Months Ended June 30, 2025 (in thousands) | Nine Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Operating Activities | $370 | $5,721 | | Investing Activities | ($174) | ($238) | | Financing Activities | ($4,454) | ($1,824) | | **Net Change in Cash** | **($4,277)** | **$3,674** | - The significant decrease in operating cash flow was primarily due to decreased collections of Accounts Receivable (**$2.5 million**) and increased payments for Inventories (**$1.2 million**)[157](index=157&type=chunk) - The company maintains a **$15.0 million** line of credit, with **$13.9 million** available as of June 30, 2025[162](index=162&type=chunk) [Item 4. Controls and Procedures](index=64&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to two un-remediated material weaknesses from fiscal year 2024 related to corporate credit card expenses and income tax reporting, with active remediation plans underway - Disclosure controls and procedures were deemed ineffective as of June 30, 2025, because two material weaknesses identified in fiscal 2024 have not yet been fully remediated[166](index=166&type=chunk)[167](index=167&type=chunk) - Material Weakness 1 pertains to control deficiencies in the business expense reimbursement policy and a legacy credit card program, which led to inadequate review and undisclosed compensation for a C-level executive[169](index=169&type=chunk) - Material Weakness 2 relates to internal controls over financial reporting for income taxes, stemming from a lack of competency from a former third-party provider and the need for a more comprehensive management review[172](index=172&type=chunk) - Remediation efforts include updating the credit card policy, implementing internal audits, and hiring a new global accounting firm to assist with tax provisions and enhance internal controls[173](index=173&type=chunk)[180](index=180&type=chunk) PART II. OTHER INFORMATION [Item 1A. Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) This section notes no material changes to prior risk factors, except for a new risk addressing potential adverse effects from significant political, trade, and regulatory developments, including new U.S. tariffs - A new risk factor was added concerning significant political, trade, or regulatory developments that are beyond the company's control[181](index=181&type=chunk) - The company specifically highlights the uncertainty around new U.S. tariffs on imports from China and other countries, and potential retaliatory measures, which could adversely affect its business, results of operations, and financial condition[182](index=182&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details its stock repurchase program, authorized on February 8, 2011, under which **19,000** shares of common stock were repurchased on the open market during the three months ended June 30, 2025 Share Repurchases for the Quarter Ended June 30, 2025 | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | April 2025 | 0 | $ - | | May 2025 | 3,300 | $15.07 | | June 2025 | 15,700 | $12.83 | | **Total** | **19,000** | **$13.95** | - As of June 30, 2025, a maximum of **291,854** shares may still be purchased under the existing repurchase plan[185](index=185&type=chunk) [Item 5. Other Information](index=70&type=section&id=Item%205.%20Other%20Information) During the quarter ended June 30, 2025, no director or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer of the Company made changes to any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the third fiscal quarter of 2025[186](index=186&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley Act, and financial statements in XBRL format - Exhibits filed include Rule 13(a)-14(a) / 15d-14(a) certifications for the CEO and CFO[187](index=187&type=chunk) - Section 1350 certifications for the CEO and CFO are also included[189](index=189&type=chunk) - The financial statements and notes are provided in eXtensible Business Reporting Language (XBRL) format[193](index=193&type=chunk)

Financial Data and Key Metrics Changes - For Q3 2025, the company reported revenue of $15.4 million, an 18% increase compared to $13.1 million in Q3 2024, and an 18% sequential increase from the previous quarter [5][19] - Product revenue grew by 29% year-over-year, while service revenue was slightly higher at $5.3 million [19] - Gross profit for the quarter was $4.5 million, representing 29% of sales, down from 35% in the same quarter last year due to a change in sales mix and higher component costs [19] Business Line Data and Key Metrics Changes - The Technology Solutions (TS) segment is driving revenue growth, particularly through the Managed Cloud business, which has gained traction in niche markets like container shipping [6][8] - The High Performance Products (HPP) segment is seeing momentum with the ADT Protect cybersecurity offering, particularly in operational technology markets [8][10] Market Data and Key Metrics Changes - The company has established a strong presence in the operational technology marketplace, with successful deployments in industries such as steel, concrete, and lumber [8][10] - The company is expanding its cloud portfolio, which reflects a strategic focus on delivering secure and scalable cloud solutions [6][7] Company Strategy and Development Direction - The company is focused on a "land and expand" sales approach, aiming to build long-term relationships with customers by initially deploying solutions at individual sites and then expanding within the organization [9][10] - CSPi aims to maximize returns from the AZT Protect product line through prudent investments in marketing and participation in industry events [17][65] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to grow both top and bottom lines for the full fiscal year if current trends continue [5] - The company is optimistic about the momentum heading into the end of the fiscal year, driven by recent contract wins and increased reseller activity [65] Other Important Information - CSPi ended the quarter with over $26 million in cash and cash equivalents, allowing for continued investment in growth and a quarterly cash dividend of $0.03 per share [17][21] - The company was added to the Russell 3000 Index, enhancing visibility among institutional investors [18] Q&A Session Summary Question: Can you expand on the consulting expenses mentioned? - Management indicated that the consulting expenses were for additional engineers conducting high-level testing of product enhancements, and this is expected to be a recurring expense for another quarter [26][27] Question: Can you disclose the location of the lumber mill? - The management confirmed that the lumber mill is located in the Pacific Northwest [30] Question: What features have been added to the AZT Protect software since its release? - The software has evolved significantly, now supporting Windows and Linux with 14 countermeasures against various cyber threats, compared to just one in the initial release [40][41] Question: Are there any updates on the water facilities project with UFT? - Management stated that progress is being made with UFT, but specific details are limited due to NDA restrictions [60] Question: What are the projections for ACT revenues in the coming years? - Management declined to share specific projections but confirmed that internal forecasts exist [62]

[Overview of Q3 FY2025 Performance](index=1&type=section&id=Overview%20of%20Q3%20FY2025%20Performance) CSPi reported strong Q3 FY2025 operational momentum with 20% TS revenue growth and new customer acquisitions, alongside an 18% increase in total revenue to $15.4 million, despite a net loss [Key Achievements and Operating Highlights](index=1&type=section&id=Key%20Achievements%20and%20Operating%20Highlights) CSPi reported significant operational momentum in Q3 FY2025, highlighted by a 20% revenue growth in the Technology Solutions (TS) segment. The company secured new customers for its AZT PROTECT™ offering in key industrial sectors and expanded its relationship with a South African client. These achievements, coupled with its inclusion in the Russell 3000® Index, are expected to enhance market awareness and drive future growth - Technology Solutions (TS) revenue grew **20% year-over-year**, driven by demand for cloud-based services and from maritime customers[4](index=4&type=chunk) - The company is experiencing strong momentum with its AZT PROTECT™ offering, signing new customers in the steel, concrete, and lumber industries through its reseller and distribution strategy[3](index=3&type=chunk)[4](index=4&type=chunk) - Internationally, the High-Performance Products (HPP) segment secured a follow-up, multi-year contract with a South African cell tower company to deploy AZT PROTECT™[3](index=3&type=chunk)[4](index=4&type=chunk) - The company was added to the Russell 3000® Index, which is anticipated to increase awareness among institutional investors[3](index=3&type=chunk)[4](index=4&type=chunk) - The Board of Directors declared a quarterly dividend of **$0.03 per share**[1](index=1&type=chunk)[4](index=4&type=chunk) [Financial Performance Summary](index=1&type=section&id=Financial%20Performance%20Summary) For the third quarter of fiscal 2025, CSPi's total revenue increased by 18% year-over-year to $15.4 million, primarily driven by a 29% rise in product revenue. However, gross margin declined from 34% to 29% due to the revenue mix, resulting in a net loss of $0.3 million, or $0.03 per share. For the nine-month period, revenue grew to $44.3 million, but net income fell sharply to $0.1 million from $1.3 million in the prior year. The company maintained a strong balance sheet with $26.3 million in cash and equivalents Q3 FY2025 vs Q3 FY2024 Financial Results (in millions) | Metric | Q3 FY2025 | Q3 FY2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $15.4 | $13.1 | +18% | | Product Revenue | $10.2 | $7.8 | +29% | | Service Revenue | $5.3 | $5.3 | Flat | | Gross Profit | $4.5 | $4.6 | -2.2% | | Gross Margin | 29% | 34% | -5 p.p. | | Net Loss | $(0.3) | $(0.2) | Increased Loss | | Diluted EPS | $(0.03) | $(0.02) | Increased Loss | Nine Months FY2025 vs FY2024 Financial Results (in millions) | Metric | Nine Months FY2025 | Nine Months FY2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $44.3 | $42.2 | +5.0% | | Gross Profit | $13.2 | $15.2 | -13.2% | | Gross Margin | 30% | 36% | -6 p.p. | | Net Income | $0.1 | $1.3 | -92.3% | | Diluted EPS | $0.01 | $0.13 | -92.3% | - The company maintained a robust balance sheet with **$26.3 million** in cash and cash equivalents as of June 30, 2025[7](index=7&type=chunk) - During the quarter, the company repurchased over **19,000 shares** for a total cost of **$0.3 million**, with approximately **0.3 million shares** remaining under the current repurchase authorization[7](index=7&type=chunk) [Detailed Financial Statements](index=6&type=section&id=Detailed%20Financial%20Statements) This section provides a detailed breakdown of CSPi's financial position and performance, showing a decrease in total assets and cash, alongside a widened operating loss and significant drop in nine-month net income [Condensed Unaudited Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Unaudited%20Consolidated%20Balance%20Sheets) As of June 30, 2025, CSPi's total assets were $66.8 million, a decrease from $69.4 million at the end of fiscal year 2024. The decline was primarily driven by a reduction in cash and cash equivalents from $30.6 million to $26.3 million. Total liabilities also decreased to $19.3 million from $22.2 million, while shareholders' equity remained stable at $47.5 million Balance Sheet Summary (in thousands) | Account | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,308 | $30,585 | | Total current assets | $49,504 | $54,849 | | Total assets | $66,784 | $69,436 | | Total current liabilities | $15,366 | $18,682 | | Total liabilities | $19,300 | $22,166 | | Shareholders' equity | $47,484 | $47,270 | [Condensed Unaudited Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Unaudited%20Consolidated%20Statements%20of%20Operations) The statement of operations for Q3 2025 shows a year-over-year revenue increase to $15.4 million, but a decline in gross profit to $4.5 million. Operating expenses rose to $5.7 million, widening the operating loss to $(1.2) million from $(0.7) million in the prior-year quarter. The net loss attributable to common shareholders was $(264) thousand. For the nine-month period, net income dropped significantly to $94 thousand from $1.24 million a year earlier Statement of Operations - Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Total sales | $15,448 | $13,105 | | Gross profit | $4,453 | $4,582 | | Operating (loss) income | $(1,223) | $(720) | | Net (loss) income | $(264) | $(185) | Statement of Operations - Nine Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Total sales | $44,265 | $42,186 | | Gross profit | $13,224 | $15,155 | | Operating (loss) income | $(2,571) | $171 | | Net income | $100 | $1,330 | [Corporate Information and Outlook](index=3&type=section&id=Corporate%20Information%20and%20Outlook) This section provides an overview of CSPi's business segments, details for the upcoming financial results conference call, and a cautionary statement regarding forward-looking projections [About CSPi](index=3&type=section&id=About%20CSPi) CSPi operates through two distinct segments. The High Performance Product segment, featuring ARIA Cybersecurity Solutions, focuses on protecting critical assets with solutions like AZT for application shielding and ARIA ADR for threat detection. The Technology Solutions segment provides innovative IT solutions, professional services, and managed IT services across key technology areas like security, data center, and networking, by partnering with leading technology providers - The High Performance Product segment (ARIA Cybersecurity) provides solutions to shield critical applications (AZT solution), monitor internal traffic for threat detection (ARIA ADR), and interrogate network packets (AZT Gateway Software)[10](index=10&type=chunk) - The Technology Solutions segment offers managed IT services (24x365 proactive support) and professional services in five key areas: Advanced Security, Communication, Data Center, Networking, and Wireless & Mobility[11](index=11&type=chunk) [Conference Call Information](index=3&type=section&id=Conference%20Call%20Information) CSPi management, including CEO Victor Dellovo and CFO Gary W. Levine, will host a conference call to discuss the financial results and provide a business update. The call is scheduled for 10:00 a.m. (ET) on the day of the release - A conference call with CEO Victor Dellovo and CFO Gary W. Levine is scheduled for **10:00 a.m. (ET)** to review financial results. A live webcast and telephone dial-in options are available[9](index=9&type=chunk) [Forward-Looking Statements (Safe Harbor)](index=5&type=section&id=Forward-Looking%20Statements%20%28Safe%20Harbor%29) The company has issued a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. This statement cautions that forward-looking projections regarding business performance, revenue, and strategic actions are subject to risks and uncertainties. Actual results may differ materially due to economic, market, and competitive factors as detailed in the company's SEC filings - The company's forward-looking statements include expectations of growing top and bottom lines for the full fiscal year and leveraging its Russell 3000® Index inclusion to attract new customers and investors[12](index=12&type=chunk) - The company warns that actual results could differ materially from these statements due to various risks, including general economic conditions, market factors, and competitive pressures[13](index=13&type=chunk)

Core Insights - CSP Inc. (CSPI) experienced a 6% decline in shares following the earnings report for Q2 fiscal 2025, contrasting with a 1.4% gain in the S&P 500 index during the same period [1] - Revenue for the quarter was reported at $13.1 million, a decrease of 4.1% from $13.7 million year-over-year, primarily due to a 74% drop in the High Performance Products (HPP) segment [2] - The company reported a net loss of $108,000, or 1 cent per diluted share, compared to a net income of $1.6 million, or 16 cents per diluted share, in the same quarter last year [3] Revenue and Profitability - Gross profit fell to $4.2 million from $6.5 million, with gross margin narrowing to 32% from 47% [4] - The HPP segment's gross margin decreased to 57% from 86%, while the Technology Solutions (TS) segment's gross margin declined to 31% from 39% [4] - Operating loss was reported at $994,000, compared to operating income of $1.2 million in the same quarter last year [5] Balance Sheet and Capital Allocation - As of March 31, 2025, CSP held $29.5 million in cash and cash equivalents, repurchased approximately $384,000 worth of common stock, and declared a quarterly dividend of 3 cents per share [6] Management Commentary - CEO Victor Dellovo noted that revenue performance was in line with internal expectations, highlighting a modest increase in product sales and a dip in service revenue due to the absence of a repeat multi-million-dollar contract [7] - CFO Gary Levine attributed gross margin compression to higher component costs and the lack of a high-margin sale from the previous year [8] Factors Influencing Performance - The significant revenue drop in the HPP segment was due to the absence of a large ARIA AZT PROTECT order that had boosted last year's results [9] - Foreign exchange losses of $132,000 and a $64,000 decrease in interest income also contributed to the net loss [10] Future Outlook - Management expressed confidence in the AZT PROTECT pipeline and ongoing investments in marketing and reseller partnerships, with an expanding backlog of cloud-based projects [11] - A new reseller partnership with Rexel USA and a significant agreement with Oryx Industries in South Africa were announced, potentially leading to growth in cybersecurity protection for cell towers [12] - Overall, CSP faced challenges in Q2 but is positioned for potential growth in the latter half of fiscal 2025, largely dependent on the success of its AZT PROTECT offerings [13]

Part I [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents CSP Inc.'s unaudited condensed consolidated financial statements as of March 31, 2025, with detailed notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $29,495 | $30,585 | | Total current assets | $50,342 | $54,849 | | Total assets | $67,122 | $69,436 | | **Liabilities & Equity** | | | | Total current liabilities | $15,058 | $18,682 | | Total liabilities | $19,669 | $22,166 | | Total shareholders' equity | $47,453 | $47,270 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total sales | $13,147 | $13,706 | $28,817 | $29,081 | | Gross profit | $4,207 | $6,478 | $8,771 | $10,573 | | Operating (loss) income | $(994) | $1,234 | $(1,348) | $891 | | Net (loss) income | $(108) | $1,588 | $364 | $1,515 | | Net (loss) income per share - diluted | $(0.01) | $0.16 | $0.04 | $0.15 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,653 | $3,324 | | Net cash used in investing activities | $(108) | $(193) | | Net cash used in financing activities | $(4,603) | $(1,246) | | Net (decrease) increase in cash | $(1,090) | $1,902 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies and financial items, including segment revenue, EPS, and pension plans - The company operates in two segments: Technology Solutions (TS), which provides IT integration solutions and managed services, and High Performance Products (HPP), which offers advanced security products and high-performance computer systems[23](index=23&type=chunk) Disaggregated Revenue by Segment (Six Months Ended Mar 31, in thousands) | Segment | 2025 Revenue | 2024 Revenue | | :--- | :--- | :--- | | High Performance Products | $1,077 | $3,214 | | Technology Solutions | $27,740 | $25,867 | | **Consolidated Total** | **$28,817** | **$29,081** | - The company offers financing to certain customers in its TS U.S. division for sales with payment terms exceeding one year. As of March 31, 2025, net financing receivables totaled **$6.4 million**[58](index=58&type=chunk)[64](index=64&type=chunk) - In October 2024, the company entered into a buy-in contract for its U.K. defined benefit pension plan by paying **£8.5 million** to an insurer, which now covers the liability to pay benefits. This contract is treated as a plan asset[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes Q2 and H1 2025 financial performance, liquidity, and capital resources, confirming sufficient funds [Results of Operations - Three Months Ended March 31, 2025](index=44&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20March%2031%2C%202025) Q2 2025 sales decreased 4% to $13.1M due to HPP decline, leading to an operating loss Q2 Performance Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total Sales | $13,147 | $13,706 | -4% | | Gross Profit | $4,207 | $6,478 | -35% | | Gross Margin % | 32% | 47% | -15 pts | | Operating (Loss) Income | $(994) | $1,234 | N/A | | Net (Loss) Income | $(108) | $1,588 | N/A | - **TS Segment:** Sales increased by **$1.3 million (12%)**, driven by a **$1.9 million** rise in product sales to existing customers, though service sales decreased by **$0.6 million**[113](index=113&type=chunk)[114](index=114&type=chunk) - **HPP Segment:** Sales plummeted by **$1.9 million (74%)**, mainly because a **$2.0 million** ARIA Zero Trust Gateway sale from the prior year did not recur[115](index=115&type=chunk) [Results of Operations - Six Months Ended March 31, 2025](index=50&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20March%2031%2C%202025) H1 2025 sales slightly decreased 1% to $28.8M, resulting in an operating loss Six-Month Performance Summary (in thousands) | Metric | 6M 2025 | 6M 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total Sales | $28,817 | $29,081 | -1% | | Gross Profit | $8,771 | $10,573 | -17% | | Gross Margin % | 30% | 36% | -6 pts | | Operating (Loss) Income | $(1,348) | $891 | N/A | | Net Income | $364 | $1,515 | -76% | - **TS Segment:** Sales grew by **$1.9 million (7%)**, led by a **$1.9 million** increase in product sales to existing customers in the US and UK[130](index=130&type=chunk)[131](index=131&type=chunk) - **HPP Segment:** Sales fell by **$2.1 million (66%)**, primarily due to a **$2.0 million** ARIA AZT order in the prior year that did not repeat[132](index=132&type=chunk) [Liquidity and Capital Resources](index=58&type=section&id=Liquidity%20and%20Capital%20Resources) Cash decreased by $1.1M to $29.5M; operations generated cash, financing used funds; liquidity sufficient - Cash and cash equivalents decreased by **$1.1 million** during the six-month period, ending at **$29.5 million**[147](index=147&type=chunk) Summary of Cash Flows (Six Months Ended Mar 31, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Operating Activities | $3,653 | $3,324 | | Investing Activities | $(108) | $(193) | | Financing Activities | $(4,603) | $(1,246) | - The company has a **$15.0 million** line of credit for inventory, with **$14.6 million** available as of March 31, 2025[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective due to un-remediated material weaknesses in credit card and tax controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2025[159](index=159&type=chunk) - The ineffectiveness is due to two ongoing material weaknesses identified as of September 30, 2024: 1. **Corporate Credit Cards:** Deficiencies in the review process and supporting documentation for business expenses and credit card charges 2. **Income Taxes:** Lack of competency from a third-party provider and insufficient management review of the tax provision process[160](index=160&type=chunk)[161](index=161&type=chunk)[165](index=165&type=chunk) - Remediation efforts are underway, including updating policies, enhancing review processes, and hiring a new, more expert third-party tax provider[166](index=166&type=chunk)[169](index=169&type=chunk) Part II [Item 1A. Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) New risk factor highlights potential adverse effects of political, trade, and regulatory developments - A new risk factor was added regarding the potential material adverse effects of significant political, trade, and regulatory developments, such as new U.S. tariffs on imports from China, the EU, and other nations[173](index=173&type=chunk)[174](index=174&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Company repurchased 23,800 shares in Q2 2025; 310,854 shares remain available for repurchase Share Repurchases in Q2 2025 | Period | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | February 2025 | 3,000 | $16.68 | | March 2025 | 20,800 | $16.06 | - As of March 31, 2025, a maximum of **310,854** shares may yet be purchased under the company's repurchase plan[177](index=177&type=chunk) [Item 5. Other Information](index=69&type=section&id=Item%205.%20Other%20Information) Executive officers adopted Rule 10b5-1 trading plans on March 14, 2025, for stock sales - On March 14, 2025, CEO Victor Dellovo, CFO Gary W. Levine, and other key executives adopted Rule 10b5-1 trading plans for the potential sale of company stock. The plans are effective from June 16, 2025, to June 16, 2026[178](index=178&type=chunk)[179](index=179&type=chunk) [Item 6. Exhibits](index=69&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including Stock Incentive Plan, CEO/CFO certifications, and XBRL financials

Financial Data and Key Metrics Changes - For the second quarter ended March 31, 2025, the company reported revenue of $13.1 million, a decrease from $13.7 million in the prior year [5][13] - Service revenue was $4.6 million compared to $5.2 million in the same period last year, reflecting a decline due to a significant multimillion-dollar deal not being repeated [5][13] - Gross profit for the quarter was $4.2 million, representing 32% of sales, down from $6.2 million or 45.3% of sales in the previous year, attributed to higher component costs [13][14] - The company reported a loss of $108,000 or $0.01 per diluted share for the quarter, while for the six months, revenue was $28.5 million compared to $29.1 million in the first half of the previous fiscal year [15][16] Business Line Data and Key Metrics Changes - The technology solutions (TS) business generated $12 million in revenue and remains profitable, with ongoing contracts in the cruise line and ocean freighter markets [10][11] - The AZT Protect product line is gaining traction, with six new customers signed during the quarter, indicating a growing pipeline and potential for future sales [6][9] Market Data and Key Metrics Changes - The company has established a new reseller partnership with Rexel USA, enhancing its market presence in the industrial equipment sector [7] - The South African market is being targeted with a new contract that could generate seven-figure sales, indicating expansion into new geographic areas [10] Company Strategy and Development Direction - The company is focused on expanding its AZT Protect product line and enhancing its sales team to build brand recognition in the operational technology (OT) market [9] - Continued investments in marketing and partnerships are aimed at increasing market awareness and driving future sales growth [8] Management's Comments on Operating Environment and Future Outlook - Management acknowledged potential challenges in the operating environment, including price increases and reduced customer spending, but remains optimistic about the growth prospects for AZT Protect [12] - The company is entering the second half of the fiscal year with momentum from recent contracts and an expanding customer base [11][35] Other Important Information - The company finished the quarter with over $29 million in cash and cash equivalents, allowing for continued investment and a quarterly cash dividend of $0.03 per share [11][15] - The Board of Directors has authorized a cash dividend payable on June 11, 2025, indicating a commitment to returning value to shareholders [16] Q&A Session Summary Question: Inquiry about the backlog for AZT - Management indicated that the pipeline is growing but refrained from providing specific numbers, stating that deals are at different stages of the sales process [20] Question: Status of the cruise ship business - Management confirmed that the cruise ship business remains steady, with ongoing modifications and contracts being fulfilled as ships become available [22][23] Question: Uniqueness of the cell tower contract - Management highlighted the unique advantages of their solution for cell towers, including space efficiency and compatibility with Linux, which differentiates them from competitors [28] Question: Backlog of cloud-based projects - Management confirmed that the backlog of cloud-based projects has increased and is currently in the twenties, indicating strong demand [31]

Financial Data and Key Metrics Changes - For the second quarter ended March 31, 2025, the company reported revenue of $13.1 million, a decrease from $13.7 million in the prior year [5][13] - Service revenue was $4.6 million compared to $5.2 million in the same period last year, reflecting a decline due to a single multimillion-dollar deal not being repeated [5][13] - Gross profit for the quarter was $4.2 million, representing 32% of sales, down from $6.2 million or 45.3% of sales in the prior year, attributed to higher component costs and the absence of a high-margin contract [13] - The company reported a loss of $108,000 or $0.01 per diluted share for the quarter, while for the six months, revenue was $28.5 million compared to $29.1 million in the previous year [14][15] Business Line Data and Key Metrics Changes - The technology solutions (TS) business generated $12 million in revenue and remains profitable, with ongoing contracts in the cruise line and ocean freighter markets [10][11] - The AZT Protect product line is gaining traction, with six new customers signed during the quarter, indicating a growing pipeline and potential for future sales [6][9] Market Data and Key Metrics Changes - The company is expanding its relationships with AZT Protect resellers, particularly with Rexel USA, enhancing its market presence in the industrial equipment sector [7][8] - A new contract in South Africa for AZT Protect could generate seven-figure sales over the next 18 months, indicating potential growth in the cell tower protection market [10] Company Strategy and Development Direction - The company is focused on enhancing its sales team and building brand recognition for AZT Protect in the operational technology (OT) market [9] - Continued investments in marketing and partnerships are aimed at expanding revenue relationships and increasing market share [8][9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged potential challenges in the operating environment, including price increases and reduced customer spending, but remains optimistic about the growth prospects for AZT Protect [12] - The company entered the second half of the fiscal year with momentum from recent contracts and is focused on maximizing opportunities [11][34] Other Important Information - The company finished the quarter with over $29 million in cash and cash equivalents and repurchased $384,000 worth of common shares [11][15] - The Board of Directors approved a $0.03 cash dividend for shareholders, reflecting the company's robust balance sheet [15] Q&A Session Summary Question: Inquiry about the backlog for AZT - Management indicated that the pipeline is growing but refrained from providing specific numbers on backlog or contract sizes [18][19] Question: Status of the cruise ship business - Management confirmed that the cruise ship business remains steady, with ongoing modifications and contracts [20][21] Question: Uniqueness of the cell tower contract - Management highlighted the unique space and CPU requirements of cell towers as a competitive advantage, noting that they are reaching out to similar companies [25][26][28] Question: Backlog of cloud-based projects - Management confirmed that the backlog of cloud-based projects has increased and is currently in the twenties [29][30]

[CSPi Fiscal 2025 Second Quarter Financial Highlights](index=1&type=section&id=CSPi%20Fiscal%202025%20Second%20Quarter%20Financial%20Highlights) This report details CSPi's fiscal 2025 second quarter and six-month financial results, highlighting core business growth, AZT PROTECT market traction, and a strong financial position [Overview and Business Highlights](index=1&type=section&id=Overview%20and%20Business%20Highlights) CSPi achieved double-digit core business sales growth in Q2 FY2025, excluding a prior-year large deal, while expanding its AZT PROTECT global pipeline, securing new clients, and declaring a quarterly dividend - Excluding a large one-time deal in the prior year, the business achieved **double-digit sales growth** in Q2 FY2025[3](index=3&type=chunk) - The AZT PROTECT product line is gaining market traction, evidenced by an increasing number of new customers and an expanding business pipeline through reseller and distribution channels[3](index=3&type=chunk)[5](index=5&type=chunk) - A global pharmaceutical client renewed its customer support for AZT PROTECT with a **six-figure, twelve-month contract**[3](index=3&type=chunk)[5](index=5&type=chunk) - The company secured a new contract in April to protect equipment for one of South Africa's largest cell tower providers, a relationship with potential for significant expansion[3](index=3&type=chunk)[5](index=5&type=chunk) - The Board of Directors declared a quarterly dividend of **$0.03 per share**, payable on June 11, 2025[1](index=1&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) CSPi's Q2 and H1 FY2025 financial performance saw revenue, gross profit, and net income declines, primarily due to the absence of a significant prior-year comparable deal [Fiscal 2025 Second Quarter Results](index=1&type=section&id=Fiscal%202025%20Second%20Quarter%20Results) CSPi reported a net loss for Q2 FY2025, with declines in total revenue and gross profit largely attributed to the non-recurrence of a significant prior-year deal Q2 Fiscal 2025 vs. Q2 Fiscal 2024 Performance | Metric | Q2 FY2025 | Q2 FY2024 | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $13.1 million | $13.7 million | -4.4% | | Product Revenue | $8.6 million | $8.5 million | +1.2% | | Services Revenue | $4.6 million | $5.2 million | -11.5% | | **Gross Profit** | $4.2 million | $6.5 million | -35.5% | | Gross Margin | 32% | 47% | -15 p.p. | | **Net (Loss) Income** | $(0.1) million | $1.6 million | N/A | | Diluted EPS | $(0.01) | $0.16 | N/A | - The decline in revenue, gross profit, and net income was primarily due to a **multi-million dollar agreement** with a global pharmaceutical company in the second quarter of fiscal 2024, which was not repeated[4](index=4&type=chunk) - The company recorded an income tax benefit of **$683 thousand** in the quarter, mainly from the vesting of restricted stock awards[6](index=6&type=chunk) [Fiscal 2025 Six-Month Results](index=3&type=section&id=Fiscal%202025%20Six-Month%20Results) For the first six months of fiscal 2025, CSPi experienced a slight revenue decrease and significant declines in gross profit and net income compared to the prior year Six Months Fiscal 2025 vs. Six Months Fiscal 2024 Performance | Metric | H1 FY2025 | H1 FY2024 | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $28.8 million | $29.1 million | -1.0% | | **Gross Profit** | $8.8 million | $10.6 million | -17.0% | | Gross Margin | 30% | 36% | -6 p.p. | | **Net Income** | $0.36 million | $1.5 million | -76.0% | | Diluted EPS | $0.04 | $0.15 | -73.3% | - The company reported an income tax benefit of **$798 thousand** for the six-month period, primarily from restricted stock awards[9](index=9&type=chunk) [Financial Position and Shareholder Returns](index=1&type=section&id=Financial%20Position%20and%20Shareholder%20Returns) CSPi maintains a strong, debt-free balance sheet with $29.5 million in cash, supporting AZT PROTECT investments and demonstrating shareholder commitment through share repurchases and dividends - As of March 31, 2025, the company had a robust balance sheet with **$29.5 million in cash and cash equivalents** and **no long-term debt**[8](index=8&type=chunk)[17](index=17&type=chunk) - The company repurchased **23,800 shares** of its common stock for a total of **$384 thousand** during the fiscal second quarter[5](index=5&type=chunk)[8](index=8&type=chunk) - Approximately **311 thousand shares** remain available for repurchase under the existing authorization from 2011[8](index=8&type=chunk) [Corporate Information](index=3&type=section&id=Corporate%20Information) This section outlines the financial results conference call details, CSPi's operational divisions including ARIA Cybersecurity and Technology Solutions, and a standard Safe Harbor statement for forward-looking information - A conference call to review financial results was scheduled for **10:00 a.m. (ET)** on the day of the release[10](index=10&type=chunk) - CSPi operates two divisions: High Performance Products (ARIA Cybersecurity) and Technology Solutions (Managed IT and Professional Services)[11](index=11&type=chunk)[12](index=12&type=chunk) - The report contains a Safe Harbor statement, cautioning that forward-looking statements are subject to risks and uncertainties[13](index=13&type=chunk)[14](index=14&type=chunk) [Condensed Unaudited Consolidated Financial Statements](index=6&type=section&id=Condensed%20Unaudited%20Consolidated%20Financial%20Statements) This section presents CSPi's detailed unaudited consolidated financial statements, including balance sheets and statements of operations for the specified periods [Condensed Unaudited Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Unaudited%20Consolidated%20Balance%20Sheets) This table provides a snapshot of CSPi's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2025, and September 30, 2024 Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $29,495 | $30,585 | | Total current assets | $50,342 | $54,849 | | **Total assets** | **$67,122** | **$69,436** | | Total current liabilities | $15,058 | $18,682 | | **Total liabilities** | **$19,669** | **$22,166** | | **Total shareholders' equity** | **$47,453** | **$47,270** | [Condensed Unaudited Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Unaudited%20Consolidated%20Statements%20of%20Operations) This table summarizes CSPi's financial performance, presenting sales, gross profit, operating income, and net income for the three and six-month periods ended March 31, 2025, and 2024 Statement of Operations Summary (in thousands) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total sales | $13,147 | $13,706 | $28,817 | $29,081 | | Gross profit | $4,207 | $6,478 | $8,771 | $10,573 | | Operating (loss) income | $(994) | $1,234 | $(1,348) | $891 | | Net (loss) income | $(108) | $1,588 | $364 | $1,515 |