CSP (US:CSPI)2025-05-15 14:04Part I Item 1. Financial Statements 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 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 systems23 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 million5864 - 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 asset82 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Analyzes Q2 and H1 2025 financial performance, liquidity, and capital resources, confirming sufficient funds Results of Operations - Three Months Ended March 31, 2025 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 million113114 - 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 recur115 Results of Operations - Six Months Ended March 31, 2025 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 UK130131 - 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 repeat132 Liquidity and Capital Resources 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 million147 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, 2025154 Item 4. Controls and Procedures 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, 2025159 - 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 process160161165 - Remediation efforts are underway, including updating policies, enhancing review processes, and hiring a new, more expert third-party tax provider166169 Part II Item 1A. Risk Factors 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 nations173174 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 plan177 Item 5. Other Information 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, 2026178179 Item 6. Exhibits Lists exhibits filed with Form 10-Q, including Stock Incentive Plan, CEO/CFO certifications, and XBRL financials