Note: Items 1B, 6 and 7A are not required for smaller reporting companies and therefore not furnished.
2
Explanatory Note
Overview of Restatement
In this Annual Report on Form 10-K, CSP Inc.:
1.
Restates its Consolidated Statement of Operations for the year ended September 30, 2010, and the related disclosures in Notes to Consolidated Financial Statements; and
2.
Restates its Unaudited Quarterly Statements of Operations for the first three quarters in the year ended September 30, 2011;
Background on the Restatement
As previously disclosed in the Company’s press release dated December 14, 2011 the Company announced that it was postponing its fourth quarter and fiscal-year 2011 financial results announcement and related conference call originally scheduled for Wednesday, December 14, 2011, because the Company and its independent accounting firm required additional time to complete the review and audit of the Company’s fiscal 2011 financial results.
In the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on January 6, 2012, as amended by Form 8-K/A filed January 11, 2012, the Company announced that the Audit Committee of its Board of Directors, upon the recommendation of management, had determined that its previously issued financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2010 and its Quarterly Reports on Forms 10-Q for the quarters ended December 31, 2010, March 31, 2011 and June 30, 2011, should no longer be relied upon as a result of the re-evaluation of certain technical accounting guidance affecting the classification of revenues and costs of revenues.
The restatements of the financial statements referred to above resulted from the identification of sales that are maintenance and support services provided by third parties where the Company is not the primary obligor for the service, which requires presentation of the revenue reported by the Company net of the cost of the services as opposed to recognition as the gross sales value of the services. In addition, the Company identified certain other services provided pursuant to third party contracts for which the Company is primary obligor and reported these services correctly at the gross sales value; however these services were reported as product revenue and should have been included as service revenue. We have therefore, reclassified both the revenue and cost of sales for these services from product revenue and product cost of sales to service revenue and service cost of sales.
The adjustments made to the restated financial statements referred to above did not affect gross profit, income before taxes, net income, cash flow, total assets, total liabilities, retained earnings or total shareholder equity.
The adjustments made as a result of the restatement are more fully discussed in Note 16, Restatement of Previously Issued Financial Statements, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report. For a description of the control deficiencies identified by management as a result of our internal reviews, and management’s plan to remediate those deficiencies, see Part II, Item 9A, Controls and Procedures.
Previously filed Annual Reports on Form 10-K and quarterly reports on Form 10-Q for quarterly and annual periods ended prior to December 31, 2010 have not been and will not be amended. Accordingly, investors should no longer rely upon the Company’s previously released financial statements for those periods ended prior to December 31, 2010 and any earnings releases or other communications relating to those periods. The Company will file amendments to the Forms 10-Q for the quarters ended December 31, 2010, March 31, 2011 and June 30, 2011 no later than March 2, 2012.
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Item 1. Business
CSP Inc. (“CSPI” or “the Company” or “we” or “our”) was incorporated in 1968 and is based in Billerica, Massachusetts, just off Route 128 in the Boston computer corridor. To meet the diverse requirements of our industrial, commercial, and defense customers worldwide, CSPI and its subsidiaries develop and market IT integration solutions and high-performance cluster computer systems.
Segments
CSPI operates in two segments, the Systems segment and the Service and System Integration segment.
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The Systems segment consists primarily of CSPI’s MultiComputer Division (the “MultiComputer Division”) which designs and manufactures commercial high-performance computer signal processing systems for a variety of complex real time applications in defense and commercial markets. MultiComputer Division products are based on an architectural solution that is open, standards-based, vendor independent, easily integrated with third-party products and compatible with future product offerings. The MultiComputer Division’s products are known as multicomputers or cluster computers, which use multiple microprocessors linked together with a high performance network to achieve very high performance processing capabilities. Our MultiComputer systems utilize “blades” (self-contained, high-density computer boards) to achieve a high level of compute processing per-cubic-foot-per-watt. The blades and other components that make up the system can be housed in commercially available air-cooled chassis or in ruggedized chassis, designed to withstand physically demanding environments. In addition, CSPI’s MultiComputer products are designed to operate in environments that require low power, or have limited cooling and/or space available. These systems have traditionally been utilized for sonar and radar digital signal processing (“DSP”), image recognition and simulation, image processing for medical and machine vision, and seismic data acquisition applications. The MultiComputer Division sells all its products through its own direct sales force in the United States and via distributors and authorized resellers in Europe and the Asia-Pacific region.