This management's discussion and analysis of financial condition and results of
operations and other portions of this filing contain forward-looking information
that involves risks and uncertainties. Our actual results could differ
materially from those anticipated by the forward-looking information. You should
review the "Special Note Regarding Forward Looking Statements" and "Risk
Factors" sections of this annual report for a discussion of important factors
that could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following
discussion and analysis. The following discussion should be read in conjunction
with our financial statements and the related notes included elsewhere in this
filing.

Observations on the effects of the new coronavirus (COVID-19)

On March 11, 2020, the World Health Organization characterized the novel
coronavirus outbreak as a pandemic. The outbreak has and continues to adversely
affect the economies of the U.S., U.K., and other international markets and
economies in which we operate. As a result of the World Health Organization
characterizing the COVID-19 outbreak as a pandemic, national, state, and local
governments have and continue to take actions such as declaring states of
emergency, implementing social distancing and other guidelines, and shutting
down and/or limiting the opening or operation of certain businesses which are
not considered essential.

In these times of pandemic, our top priorities are to protect the health,
well-being, and safety of our employees and partners, while still focusing on
the key drivers of our business. To that end, and to insure we continue to
operate safety and cautiously while also meeting our public health
responsibilities, the Company has adopted flexible business practices including
allowing most employees to work remotely in all locations. Our sales decreased
significantly for the year ended September 30, 2021, which we believe is
primarily due to the pandemic. This is largely the result of customers reducing
their budgets. The pandemic has also had an adverse effect on our ability to
transact one-on-one business, which we believe is important when rolling out new
IT and security products.

During fiscal year 2021 COVID-19 has adversely affected the distribution channel
leading to significantly longer lead times when ordering product. Manufacturers
are not producing as much product as prior to the pandemic due to disruptions,
resulting in supply shortages. Additionally, recent global shipping delays have
exacerbated this problem. The TS segment has many vendors it transacts with and
supply shortages are pervasive with many of them. The HPP segment has also
experienced shortages with their vendors as well. Related to the supply shortage
and potentially inflation, we have experienced price increases for our products,
which we try to pass on to the customer.



We recognize the pandemic has created a dynamic and uncertain situation in the
national economy, and we continue to closely monitor the latest information to
make timely, informed business decisions and public disclosures regarding the
potential impact of the pandemic on our operations. Despite reduced infection
rates and ever-increasing vaccination rates in the United States, many nations
and certain pockets within the United States are still battling various

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strains/variants of the novel coronavirus, creating ongoing uncertainties as to
when economies will return to business as usual and what that will look like,
what regulatory measures or voluntary actions will be further implemented to
limit the spread of COVID-19 and its variants and the duration of any such
measures. The extent, severity and impact of any further spread of COVID-19
variants or resurgence of COVID-19 in a given geographic region after it has hit
its "peak," and the extent to which herd immunity will be achieved through the
vaccination process is still uncertain. In summary, the scope of this pandemic
and its effects are unprecedented, and we cannot at this time make a reasonable
estimate on the extent or duration of the impacts on our business.

Please refer to Section 1A Risk Factors located in Part I of this Annual Report on Form 10-K for a discussion of the risks associated with COVID-19 on our business, financial condition and results of operations.

Overview of the 2021 operating results

Turnover decreased by approximately $ 12.6 million, or 20%, to $ 49.2 million for the year ended September 30, 2021 versus $ 61.8 million for the year ended September 30, 2020.

Increase in gross margin percentage from 28% of revenues for the year ended September 30, 2020 at 33% for the year ended
September 30, 2021.

We generated an operating loss of approximately $1.4 million for the fiscal year
ended September 30, 2021 as compared to an operating loss of approximately $1.4
million for the fiscal year ended September 30, 2020.

Other income, (expense) net was $2.0 million for the fiscal year ended September
30, 2021 as compared to $0.4 million for the prior year. The increase of $1.6
million from prior year is due to a large one time gain on debt forgiveness of
$2.2 million which did not occur in the prior year, partially offset by an
increase in foreign exchange loss of $0.5 million and increase of interest
expense of $0.1 million.

A unique gain of $ 465,000 that occurred during fiscal year 2021, which was an adjustment to the purchase price of a subsidiary (Modcomp GmbH) which was sold during fiscal year 2018. This is classified as discontinued operations. There are no other amounts receivable under the purchase agreement from the initial sale.

The Company recorded an income tax provision of approximately $444 thousand,
which reflected an effective tax rate of 39%, for the year ended September 30,
2021. The provision is primarily driven by the recording of a full valuation
allowance against US deferred tax assets that are not more-likely-than-not to be
realized partially offset by the exclusion of income from the forgiveness of
Paycheck Protection Program loans, the exclusion of the gain of the discontinued
German entity under UK tax law, current year federal research and development
credits, and the benefit resulting from the carryback of federal net operating
losses to years in which the statutory federal tax rate was 34%.















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The following table details our operating results in dollars and as a percentage of sales for the years ended:

                                                                           %                                   %
                                                 September 30, 2021     of sales     September 30, 2020     of sales

                                                                   (Dollar amounts in thousands)
Sales                                           $             49,208         100 %  $             61,793         100 %
Costs and expenses:
Cost of sales                                                 33,059          67 %                44,626          71 %

Engineering and development                                    2,887           6 %                 2,798           5 %
Selling, general and administrative                           14,624       

  30 %                15,793          26 %
Total costs and expenses                                      50,570         103 %                63,217         102 %
Operating loss                                               (1,362)         (3) %               (1,424)         (2) %
Other income, (expense) net                                    2,040           4 %                   362           - %

Income (loss) before income taxes                                678           1 %               (1,062)         (2) %
Income tax expense                                               444           1 %                   384           - %
Net income (loss) from continuing operations                     234           - %               (1,446)         (2) %
Gain on sale of discontinued operations                          465       

   1 %                     -           - %
Net income (loss)                               $                699           1 %  $            (1,446)         (2) %




Revenues

Revenue decreased by approximately $12.6 million, or 20%, to $49.2 million for
the fiscal year ended September 30, 2021 versus $61.8 million for the
fiscal year ended September 30, 2020. Our TS segment revenue decreased by
approximately $11.3 million consisting of a decrease of $11.9 million in our
U.S. division, partially offset by an increase of $0.6 million in our U.K.
division. Our HPP segment revenue decreased by approximately $1.3 million, or
21%, primarily due to decreased product revenue of $0.3 million combined with
decreased service revenue of $1.0 million.

Change in turnover for the TS segment by product and service for the financial years ended
September 30 were as follows:

                                     Increase (decrease)
              2021        2020            $            %

                    (Dollar amounts in thousands)
Products    $ 32,100    $ 44,588    $     (12,488)    (28) %
Services      12,485      11,329             1,156      10 %
Total       $ 44,585    $ 55,917    $     (11,332)    (20) %




The decrease in TS segment product revenue of $12.5 million during the period
was the result of a $13.1 million decrease in the U.S. division, partially
offset by an increase of $0.6 million in the U.K. division. Customers' budgets
have been cut or put on hold in the short term due to the pandemic leading to
significantly decreased sales. The decrease in our U.S. division product revenue
year over year was primarily associated with several major customers, partially
offset by a significant increase with several other customers. The increase in
the U.K. division year over year was primarily associated with an increase with
one major customer. The increase in TS segment service revenue of $1.2 million
as compared to the prior year was due to a $1.2 million increase in the U.S.
division. In fiscal year 2021 as compared to the prior year, the U.S. division
had an increase of $1.4 million in third party maintenance and an increase of
$0.8 million in managed services, partially offset by a decrease of $1.0 million
in internal and third party services revenue.



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Variations in HPP segment sales by product and service for the years ended
September 30 were as follows:

                                      Decrease
             2021       2020          $         %

                 (Dollar amounts in thousands)
Products    $ 3,126    $ 3,401    $   (275)     (8) %
Services      1,497      2,475        (978)    (40) %
Total       $ 4,623    $ 5,876    $ (1,253)    (21) %




The decrease in HPP product revenue of $0.3 million in the fiscal year ended
September 30, 2021 was primarily the result of an approximately $0.6 million
decrease in Myricom product line shipments, partially offset with a $0.3 million
increase in Multicomputer product line shipments for the fiscal year ended
September 30, 2021 as compared to the fiscal year ended September 30, 2020. This
is primarily due to the pandemic affecting customers' budgets. The decrease in
HPP service revenue of approximately $1.0 million for the period was primarily
the result of a $0.6 million decrease in royalty revenues on high-speed
processing boards related to the E2D program combined with a $0.4 million
decrease of Multicomputer repairs for the fiscal year ended September 30, 2021
as compared to the fiscal year ended September 30, 2020.

Our total revenues by geographic area based on where products were shipped or services rendered were as follows:

                                                   Increase (decrease)
              2021       %       2020       %           $            %

                           (Dollar amounts in thousands)
Americas    $ 45,321     92 %  $ 59,178     95 %  $     (13,857)    (23) %
Europe         3,203      7 %     2,282      4 %             921      40 %
Asia             684      1 %       333      1 %             351     105 %
Totals      $ 49,208    100 %  $ 61,793    100 %  $     (12,585)    (20) %




The $13.9 million decrease in the Americas revenue for the fiscal year ended
September 30, 2021 as compared to the fiscal year ended September 30, 2020 was
primarily due to decreased revenue by our TS segment of approximately $12.4
million attributable to the U.S. division, combined with decreased sales by our
HPP segment of approximately $1.5 million. The $0.9 million increase in Europe
revenue for the fiscal year ended September 30, 2021 as compared to the prior
year period was primarily due to increased sales by our TS-UK division of
approximately $0.6 million combined with an increase in sales by our TS-US
division of approximately $0.3 million. The $0.4 million increase in Asia
revenue for the fiscal year ended September 30, 2021 as compared to the prior
year period was primarily the result of increased revenue by our HPP segment of
$0.2 million combined with a $0.2 million increase in our TS-U.S. division.

Gross margins

Our gross margin ("GM") decreased by approximately $1.1 million to $16.1 million
for fiscal year 2021 as compared to GM of approximately $17.2 million for
fiscal year 2020. The GM as a percentage of revenue increased to 33% for fiscal
year 2021 from 28% for fiscal year 2020. The increase in GM as a percentage of
revenue was primarily attributed to a higher percentage of service revenue
relative to product revenue in the TS segment and a significant increase in TS
segment product GM as a percentage of revenue. Additionally, the product mix,
amount of net revenue recorded, and overall margin in products contributed to
this increase from prior year. The improved product GM margin as a percentage of
revenue has been a focus in fiscal year 2021, particularly in the TS segment.











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The following table summarizes GM changes by segment for fiscal years ended
September 30:


              2021               2020           Increase (Decrease)

                        (Dollar amounts in thousands)
           GM$       GM%      GM$       GM%         GM$           GM%
TS       $ 13,405     30 %  $ 13,553     24 %  $        (148)       6 %
HPP         2,744     59 %     3,614     62 %           (870)     (3) %
Total    $ 16,149     33 %  $ 17,167     28 %  $      (1,018)       5 %

The impact of the product mix within our TS segment on gross margins for the years ended September 30 was as follows:

                 2021               2020            Increase (decrease)
              GM$       GM%      GM$       GM%        GM$            GM%

                            (Dollar amounts in thousands)
Products    $  5,898     18 %  $  6,842     15 %  $      (944)           3 %
Services       7,507     60 %     6,711     59 %           796           1 %
Total       $ 13,405     30 %  $ 13,553     24 %  $      (148)           6 %




The overall TS segment GM as a percentage of revenue increased to 30% in fiscal
year 2021 from 24% in fiscal year 2020. The increase in GM as a percentage of
revenue was primarily attributed to a large relative decrease in TS segment
product revenue compared to a significant increase in service revenue in fiscal
year 2020 from the prior year. Additionally, both product and service GM as a
percentage of revenue increased from prior year. The $0.9 million decrease in
our TS segment product GM in fiscal year 2021 as compared to the prior year
resulted from a decrease in GM in the U.S. division of $0.8 million combined
with a decrease in the U.K division of $0.1 million. The $0.8 million increase
in the TS segment service GM in fiscal year 2021 as compared to the prior year
primarily resulted from increased service revenue as well as a slight increase
in GM as a percentage of revenue in the U.S. division.

The impact of the product mix on the gross margins of our HPP segment for the years ended September 30 was as follows:

                 2021              2020           Increase (Decrease)

                           (Dollar amounts in thousands)
              GM$      GM%      GM$      GM%        GM$            GM%
Products    $ 1,304     42 %  $ 1,240     36 %  $         64           6 %
Services      1,440     96 %    2,374     96 %         (934)           - %
Total       $ 2,744     59 %  $ 3,614     62 %  $      (870)         (3) %




The overall HPP segment GM as a percentage of revenue decreased to 59% in
fiscal year 2021 from 62% in fiscal year 2020. The 3% decrease in GM as
a percentage of sales in the HPP segment was primarily attributed to the impact
of a decrease of $0.6 million in high margin Multicomputer royalty revenues,
which is all GM. The GM as a percentage of sales from products increased
primarily due to product mix in fiscal year 2021 as compared to the prior year.

Engineering and development costs

Our engineering and development expenses are only in our HPP segment. These
expenses had a slight increase of $0.1 million from $2.8 million in fiscal year
2020 to $2.9 million for fiscal year 2021. Fiscal year 2021 and 2020 expenses
were primarily for product engineering expenses incurred in connection with the
development of the ARIA SDS cyber security products.

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Selling, general and administrative expenses

The following table details our selling, general and administrative ("SG&A")
expenses by operating segment for the years ended September 30, 2021 and 2020:


                             For the year ended September 30,             $          %
                                       % of                 % of       Decrease   Decrease
                            2021       Total      2020      Total

                                           (Dollar amounts in thousands)
By Operating Segment:
TS segment               $   10,190       70 %  $ 11,247       71 %  $  (1,057)        (9) %
HPP segment                   4,434       30 %     4,546       29 %       (112)        (2) %
Total                    $   14,624      100 %  $ 15,793      100 %  $  (1,169)        (7) %

For fiscal 2021 compared to fiscal 2020, SG&A expenses of the TS segment decreased by approximately $ 1.0 million is mainly explained by a decrease in variable compensation and the salaries of $ 1.0 million and a decrease in $ 0.1 million for travel expenses.

For fiscal year 2021 compared to fiscal year 2020, the HPP segment SG&A spending
decrease of $0.1 million was primarily attributed to decreased headcount in

the
sales department.

Other Income/Expenses

The following table details our other income (expenses) for the years ended
September 30, 2021 and 2020:


                                                               For the year ended
                                                                                                   $ Increase
                                                   September 30, 2021      September 30, 2020      (Decrease)

                                                                     (Amounts in thousands)
Interest expense                                   $             (350)     $             (228)    $      (122)
Interest income                                                    575                     582             (7)
Foreign exchange (loss) gain                                     (488)     

               (2)           (486)
Gain on debt forgiveness                                         2,196                       -           2,196
Other income, net                                                  107                      10              97

Total other income (expense), net                  $             2,040    

$               362    $      1,678

The $1.7 million increase to total other income (expense), net for the year
ended September 30, 2021 as compared to the prior year period is primarily
driven by a gain on debt forgiveness of $2.2 million, partially offset by an
increase in foreign exchange loss of $0.5 million. The U.K. division has
significant bank accounts with U.S. dollars and Euros. In consolidation, U.S.
dollars and Euros are remeasured into the functional currency, British Pounds,
of our U.K. subsidiary. This non-cash remeasurement is included in foreign
exchange gain or loss on the income statement and the foreign exchange loss is
primarily from a U.S. Dollar and Euro bank account. The US dollar and Euro
weakened relative to the British Pound when comparing the exchange rate as of
September 30, 2021 to September 30, 2020, which caused the foreign exchange
loss.

Interest income is primarily related to agreements that have payment terms in
excess of one year (see Note 3 Accounts and Long-Term Receivable in Item 1 to
this Annual Report on Form 10-K for details) from the TS-US segment as interest
income recognized in each agreement decreases as principal payments are made.

The interest expense increase of $122 thousand for the year ended September 30,
2021 as compared to the prior year period is related to three new multi-year
agreements with vendors in the TS U.S. division in fiscal year 2021. Payments on
these agreements contain both principal and interest expense. See Note 9
Accounts payable and accrued expenses, and Other noncurrent liabilities in Item
1 to this Annual Report on Form 10-K.

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The other increase in income from $ 97,000 for the year ended September 30, 2021
compared to the period of the previous fiscal year, is mainly related to a non-recurring discount that we received and which started several years ago, and which we did not expect to receive.

Income taxes

The Company recorded an income tax provision of approximately $444 thousand,
which reflected an effective tax rate of 39%, for the year ended September 30,
2021. The provision is primarily driven by the recording of a full valuation
allowance against US deferred tax assets that are not more-likely-than-not to be
realized partially offset by the exclusion of income from the forgiveness of
Paycheck Protection Program loans, the exclusion of the gain of the discontinued
German entity under UK tax law, and current year federal R&D credits and the
benefit resulting from the carryback of federal net operating losses to years in
which the statutory federal tax rate was 34%.

For the year ended September 30, 2020, the income tax provision was
approximately $384 thousand, which reflected an effective tax rate of 36%. The
provision is primarily driven by the recording of a partial valuation allowance
against US deferred tax assets that are not more-likely-than-not to be realized
partially offset by current year federal R&D credits and the benefit resulting
from the carryback of federal net operating losses to years in which the
statutory federal tax rate was 34%.

During the period ended September 30, 2021, management assessed the positive and
negative evidence in the U.S. operations, and concluded that it is more likely
than not that the deferred tax assets as of September 30, 2021 will not be
realized in light of recent results, the ongoing impacts of COVID-19, and the
resulting economic fallout. In assessing the realizability of deferred tax
assets, we consider taxable income in prior carryback years, as permitted under
the tax law, our forecasted taxable earnings, tax planning strategies, and the
expected timing of the reversal of temporary differences. This determination
requires significant judgment, including assumptions about future taxable income
that are based on historical and projected information and is performed on a
jurisdiction-by-jurisdiction basis.

We also continue to maintain a full valuation allowance against our U.K.
deferred tax assets as we have experienced cumulative losses and do not have any
indication that the operation will be profitable in the future to an extent that
will allow us to utilize much of our net operating loss carryforwards. To the
extent that actual experience deviates from our assumptions, our projections
would be affected and hence our assessment of realizability of our deferred tax
assets may change.

Gain on discontinued operations

CSPi sold all stock of Modcomp GmbH to Reply AG on July 31, 2018 for $14.4
million cash and a gain of $18.1 million. This sale was recorded in fiscal year
2018. An additional €400 thousand was included in escrow as part of the Share
Purchase and Assignment Agreement to potentially be received later as a purchase
price adjustment in fiscal year 2021. This amount was received in July 2021 and
recorded as a gain from discontinued operations in the Consolidated Statements
of Operations. No income taxes were provided as the transaction was a tax-free
exchange in the U.K. There are no other amounts that will be received as part of
the agreement.

Liquidity and capital resources

Our main source of liquidity is our cash and cash equivalents, which have increased by approximately $ 0.7 million To $ 20.0 million from September 30, 2021 of $ 19.3 million from September 30, 2020.

Our significant sources of cash for the year ended September 30, 2021 are
primarily related to the $1.5 million net change between a increase in accounts
receivable and long-term receivable of $9.3 million netted with an increase of
$10.8 million in accounts payable and accrued expenses, and other-long-term
liabilities. We have multi-year agreements on both the receivables (including
long-term) and payables (long-term portion in other long-term liabilities).
During fiscal year 2021 we entered into agreements with customers, which
contained a significant financing component totaling payments of $16.7 million
including interest due to the Company over the next four years. It was
determined we were acting as the agent in the transactions and recorded net
revenue of approximately $0.9 million during fiscal year 2021

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from these contracts. For some of these agreements, we entered into agreements
with vendors to pay for product over the next 4 years. These payments totaled
$9.2 million including interest. Additionally, deferred revenue increased $0.9
million primarily due to a large upfront payment we received for one managed
services contract.

Our significant uses of cash for the year ended September 30, 2021 including debt repayments of $ 0.8 million, the net payments under the line of credit agreement of $ 0.6 million, and principal payments on finance leases of $ 0.3 million.

Our cash held by our foreign subsidiary in the United Kingdom totaled
approximately $10.0 million as of September 30, 2021, which consisted of 0.5
million Euros, 0.2 million British Pounds, and 9.2 million U.S. Dollars. This
cash is included in our total cash and cash equivalents reported within our
financial statements. Due to the large pension obligation in the U.K., we
maintain a large balance of cash in the U.K., most of the cash is from the sale
of Modcomp GmbH in fiscal year 2018.

As of September 30, 2021 and September 30, 2020, the Company maintained a line
of credit with a capacity of up to $15.0 million for inventory accessible to
both the HPP and TS segments. This line of credit also includes availability of
a limited cash withdrawal of up to $1.0 million. An amount of $14.1 million and
$13.4 million were available as of September 30, 2021 and September 30, 2020,
respectively. As of September 30, 2021 and September 30, 2020 there were no cash
withdrawals outstanding. For a further discussion of the Company's line of
credit, including its financial covenants, see Item 1, Note 12 Line of Credit.

On April 17, 2020, the Company and Modcomp, Inc., its wholly owned subsidiary
each received a loan ("SBA Loans") in the form of a promissory note from Paragon
Bank in the amounts of $827,000 and $1,353,600, respectively under the Paycheck
Protection Program, which was established under the recently enacted Coronavirus
Aid, Relief, and Economic Security Act ("CARES Act") administered by the U.S.
Small Business Administration. The SBA loans had a two-year term and carried an
annual fixed interest rate of 1%. The SBA Loans were forgiven in full by the SBA
in the first quarter of fiscal year 2021.



If cash generated from operations is insufficient to satisfy working capital
requirements, we may need to access funds through bank loans or other means. If
we are unable to secure additional financing, we may not be able to complete
development or enhancement of products, take advantage of future opportunities,
respond to competition, retain key employees, or continue to effectively operate
our business.

Based on our current plans and business conditions, management believes that the
Company's available cash and cash equivalents, the cash received from the SBA
loans, the cash generated from operations, and availability on our line of
credit will be sufficient to provide for the Company's working capital and
capital expenditure requirements for at least 12 months from the date of this
filing.

Critical accounting estimates and policies

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. On an on-going basis, we evaluate our estimates,
including those related to uncollectible receivables, inventory valuation,
goodwill and intangibles, income taxes, deferred compensation, revenue
recognition, retirement plans, restructuring costs and contingencies. We base
our estimates on historical performance and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements: revenue recognition, valuation allowances, specifically
the

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provision for doubtful accounts and provision for loss net of deferred taxes, valuation of inventories, intangible assets and retirement and retirement plans.

Revenue recognition

See note 1 Summary of significant accounting policies in the consolidated financial statements for more information on our revenue recognition policies. The following areas require significant judgment and estimation:

Allocation of the transaction price with multi-component agreements, including lease and / or a finance component

A financing component exists when at contract inception the period between the
transfer of a promised good and/or service to the customer differs from when the
customer pays for the good and/or service. As a practical expedient, we have
elected not to adjust the amount of consideration for effects of a significant
financing component when it is anticipated the promised good or service will be
transferred and the subsequent payment will be one year or less.



Certain contracts contain a financing component including managed services
contracts with financing of hardware and software. The interest rate used
reflects the approximate interest rate consistent with a separate financing
transaction with the customer at the inception of the agreement. Revenues from
arrangements which include financing are allocated considering relative
standalone selling prices of lease and non-lease components within the
agreement. The lease component includes hardware, which is subject to ASC 842,
Leases. The non-lease components are subject to ASC 606, Revenue from Contracts
with Customers.

When product and non-managed services are sold together, the allocation of the
transaction price to each performance obligation is calculated based on the
estimated relative selling price or a budgeted cost-plus margin approach, as
appropriate. Due to the complex nature of these contracts, there is significant
judgment in allocating the transaction price. These estimates are periodically
reviewed by project managers, engineers, and other staff involved to ensure
estimates remain appropriate. For items sold separately, including hardware,
software, professional services, maintenance contracts, other services, and
third-party service contracts, there is no allocation as there is one
performance obligation.

Professional services sold without products

The input method using labor hours expended relative to the total expected hours
is used to recognize revenue for professional services. Only the hours that
depict our performance toward satisfying a performance obligation are used to
measure progress. An estimate of hours for each professional service agreement
is made at the beginning of each contract based on prior experience and
monitored throughout the performance of the services. This method is most
appropriate as it depicts the measure of progress towards satisfaction of the
performance obligation.

Gross versus Net Revenue

We recognize revenue from third-party service contracts as either gross sales or
net sales depending on whether we are acting as a principal party to the
transaction or acting as an agent or broker based on control and timing. We are
a principal if we control the good or service before that good or service is
transferred to the customer. We record revenue as gross when we are a 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 include critical updates.

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  Table of Contents

Product Warranty Accrual

Our product sales generally include a 90-day to three-year hardware warranty. At
time of product shipment, we accrue for the estimated cost to repair or replace
potentially defective products. Estimated warranty costs are based upon prior
actual warranty costs for substantially similar products.

Engineering and development costs

Engineering and development expenses include payroll, benefits, stock-based compensation, and other workforce-related expenses associated with product development. Engineering and development costs also include third party development and programming costs. We believe that the technological feasibility of our software products is achieved upon release of the software, therefore, no internal software development costs have been capitalized.

Income taxes

We use the asset and liability method of accounting for income taxes whereby
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. We also reduce deferred tax assets by a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some
portion or all of the recorded deferred tax assets will not be realized in
future periods. This methodology requires estimates and judgments in the
determination of the recoverability of deferred tax assets and in the
calculation of certain tax liabilities. Valuation allowances are recorded
against the gross deferred tax assets that management believes, after
considering all available positive and negative objective evidence, historical
and prospective, with greater weight given to historical evidence, that it is
more likely than not that these assets will not be realized.

In addition, we are required to recognize in the consolidated financial
statements, those tax positions determined to be more-likely-than-not of being
sustained upon examination, based on the technical merits of the positions as of
the reporting date. If a tax position is not considered more-likely-than-not to
be sustained based solely on its technical merits, no benefits of the position
are recognized.

In addition, the calculation of the Company's tax liabilities involves dealing
with uncertainties in the application of complex tax regulations in a multitude
of jurisdictions. The Company records liabilities for estimated tax obligations
in the U.S. and other tax jurisdictions. These estimated tax liabilities include
the provision for taxes that may become payable in the future.

Intangible 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
at any time during the two years ended September 30, 2021. Intangible assets
subject to amortization are amortized over their estimated useful lives,
generally three to ten years, and are carried at net book value. The remaining
useful lives of intangible assets are evaluated on an annual basis. Intangible
assets subject to amortization are also tested for recoverability whenever
events or changes in circumstances indicate that their carrying amount may not
be recoverable. If the fair value of an intangible asset subject to amortization
is determined to be less than its carrying value, then an impairment charge is
recorded to write down that asset to its fair value.

Inventories

Inventories are valued at the lower of cost or market, cost being determined using the first in, first out method. Collectability of inventory is based on the types and levels of inventory held, expected demand, prices,

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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.

Retirement and pension plans

The funded status of pension and other post-retirement benefit plans is
recognized prospectively on the consolidated balance sheet. 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/post-retirement 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 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 plans in the U.K. are closed to newly
hired employees and have been for the two years ended September 30, 2021. In the
U.S., the Company provides defined contribution plans that cover most employees
and supplementary retirement plans to certain employees and former employees who
are now retired. These supplementary retirement plans are also closed to newly
hired employees and have been for the two years ended September 30, 2021. 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 advisers 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 out in applicable employee benefit laws and local tax laws. Liabilities for amounts exceeding these funding levels are recognized and presented on the Consolidated Balance Sheets.

Inflation and price development

Management does not believe that inflation and changing prices had significant
impact on sales, revenues or income during fiscal years 2021 or 2020. However,
we have seen a trend of significantly increasing prices, specifically with
integrated circuit vendors. We try to pass these price increases to our
customers, but certain economic factors and technological advances have placed
downward pressure on pricing. There is no assurance that the Company's business
will not be materially and adversely affected by inflation and changing prices
in the future.

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