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Item 1. Business

2020-12-28 compared with 2019-12-10 · 118 added, 126 removed, 134 unchanged (65% of the section changed)

("CSPi" or "CSPI" or "the Company" or "we" or "our") was incorporated in 1968 and is based in Lowell, Massachusetts.

("CSPi"

or "CSPI"

or "the Company"

or "we"

or "our") was incorporated in 1968 and is based in Lowell, Massachusetts.

To meet the diverse requirements of our commercial and defense customers worldwide, CSPi and its subsidiaries develop and market IT integration solutions, advanced security products, managed IT services, cloud services, purpose built network adapters, and high-performance cluster computer systems.

On July 31, 2018, CSPi LTD sold all of the outstanding stock of Modcomp GmbH for $14.4 million cash, and recognized a gain of $16.8 million.

The divestiture of our German operations and our increased cash position enables us to focus time and resources on our higher-margin and greater-potential growth opportunities.

We are encouraged by the traction of our managed services business in the U.S.

and we intend to continue to invest and focus on our new ARIA SDS cyber security products and to capitalize on the proliferation of our wireless service business.

CSPI operates in two segments:

Technology Solutions ("TS") and High Performance Products ("HPP").

● The TS segment consists of our wholly-owned Modcomp subsidiary, which operates in the United States and the United Kingdom.

The TS segment generates product revenues by reselling third-party computer hardware and software as a value added reseller ("VAR").

● The TS segment generates product revenues by reselling third-party computer hardware and software as a value added reseller ("VAR").

The TS segment generates service revenues by the delivery of integration services for complex IT environments, including advanced security;

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data center solutions;

and network solutions as well as managed IT services ("MSP") that primarily serve the small and mid-sized business market ("SMB").

Third party products and professional services are marketed and sold through the Company’s direct sales force into a variety of vertical markets, including;

and network solutions as well as managed IT services ("MSP") that primarily serve the small and mid-sized business market ("SMB").

● Third party products and professional services are marketed and sold through the Company’s direct sales force into a variety of vertical markets, including;

federal, state and local government;

and maritime.

CSPi sold all of the outstanding stock of Modcomp GmbH to Reply AG on July 31, 2018 for total cash consideration of $14.4 million.

CSPi recognized a one-time gain of $16.8 million.

The Company determined the German subsidiary met the criteria for discontinued operations under ASC 205.

The Consolidated Balance Sheets and Consolidated Statements of Operations reflect the results of Modcomp GmbH classified as discontinued operations at and as of September 30, 2018.

See Note 2 to the consolidated financial statements for additional information.

● The HPP segment revenue comes from four distinct product lines:

(i) a cybersecurity solution marketed as ARIA™

Software-Defined Security (“SDS”), which is offered to commercial, original equipment manufacturers ("OEM") and government customers;

(ii) the Myricom ®

network adapters for commercial, government and OEM customers;

(iii) the ARIA nVoy Series of appliances for Managed Security Service Providers (“MSSPs”) and end-user customers;

and (iv) the legacy Multicomputer product portfolio for digital signal processing ("DSP") applications within the defense markets.

The ARIA SDS solution is a software portfolio starting with the underlying platform (orchestrator, light-weight instances), and hosted applications, as well as supporting hardware (turn-key security appliances), all developed to secure an organization’s network, enterprise-wide, to better protect critical devices, applications and high-

value data, such as personally identifiable information ("PII"), from breaches.

Revenue will come from the sale of licenses of our software platform components, hosted applications, turnkey appliances and the required support packages.

The software licenses are renewable on an annual basis.

The ARIA SDS platform and applications can be deployed on our separately sold Myricom adapters that can be deployed within our customers servers, or via our turn-key appliances that can be deployed in data centers or within the customers network to provide network security services.

Alternatively, with future releases, organizations will be able deploy ARIA SDS on cloud infrastructure as a service to protect this portion of their IT environment.

We had our first sale in the last half of fiscal year 2019 and the pipeline has started to build up for fiscal year 2020.

We expect to have additional revenue starting in the second quarter of fiscal year 2020, which we expect will increase throughout the year.

(i) a cybersecurity solution marketed as ARIA™ Software-Defined Security (“SDS”), which is offered to commercial, original equipment manufacturers ("OEM") and government customers;

(ii) the Myricom ® network adapters for commercial, government and OEM customers;

(iii) the nVoy Series of appliances for Managed Security Service Providers (“MSSPs”) and end-user customers;

and (iv) the legacy Multicomputer product portfolio for digital signal processing ("DSP") applications within the defense markets.

● The ARIA SDS solution is a software portfolio starting with an underlying platform, comprised of an orchestrator (“SDSo”) and light-weight instances (“SDSi”), and hosted applications that reside on top, as well as supporting hardware, such as turn-key security appliances.

All are developed to secure an organization’s network, enterprise-wide, to better protect critical devices, applications and high-value data, such as personally identifiable information ("PII"), from breaches.

Revenue is derived from:

(i) license sales of our software platform components, (ii) hosted applications, (iii) supporting hardware and (iv) the required support packages.

The software licenses, as well as the support packages, are renewable on an annual basis.

The ARIA SDS platform and applications can also be deployed on our Myricom SmartNIC adapters which can be directly inserted into our customers servers or integrated as part of our turn-key appliances.

Either of these approaches can be deployed into a customer’s data center environments or on-premise servers to provide network security services.

● We anticipate that the ARIA SDS portfolio will be of value to regulated industries, such as financial services or healthcare, due to the rise of data-privacy regulations enforced at the federal, U.S.

state, and international level, as well as industry entities.

We also believe the unique, patent-pending approach will be attractive to managed security services providers (MSSP) and OEMs that pursue differentiated security services for their customers.

Due to the COVID-19 pandemic and the dramatic increase in remote workforce ARIA SDS will provide additional protection against exploits entering in from home-based computers and

In addition, due to the complexities and high-costs associated with enterprise-wide security, particularly in the creation and operation of Security Operation Centers (“SOCs”), we believe that ARIA will be attractive to organizations that desire SOC level protections without incurring the procurement of disparate tools and the need to hire and retain highly-trained security analysts.

We also believe the unique, patent-pending approach will be attractive to MSSPs and OEMs that pursue differentiated security services for their customers.

While our initial offerings of the ARIA SDS portfolio are available now, the number of offerings will continue to expand over time.

The Myricom network adapters (ARC Series and SIA) are optimized for and sold into markets that require high bandwidth and low latency including (i) packet capture, (ii) financial transactions, and (iii) storage interconnect.

And with our SIA organizations that require advanced security features added to their production server deployments.

● There was limited revenue for ARIA in fiscal year 2020.

This was primarily due to COVID-19 limiting our ability to access prospect’s data centers for trials and deployments;

however, our pipeline continues to build for FY 2021.

As such, we expect to have additional revenue from ARIA starting in fiscal year 2021.

● The Myricom SmartNIC adapters (“ARC Series” and Myricom Secure Intelligent Adapters or “SIA”) are optimized for and sold into markets that require high-bandwidth and low-latency including (i) packet capture, (ii) financial transactions, (iii) machine vision and (iv) network security monitoring.

Our SIA allow organizations to add advanced cybersecurity features to their production server deployments.

Our primary customers for packet capture include government agencies that need to capture, inject, and analyze network traffic at line rate, and OEMs selling into vendors of computer security appliances.

Financial institutions, such as banks, and brokerage firms use Myricom adapters to decrease transaction times.

Our storage interconnect customers, primarily in the film industry, use our adapters for video capture and film editing.

Organizations that run advanced network security features benefit from the ability to run such applications safely on our adapter preserving server performance for production applications.

The nVoy Series of appliances (Packet Recorder and Packet Broker) can be deployed as part of an organization’s data security structure as a new component to complement existing systems and provides data breach verification and notification as well as compliance reporting.

Our machine vision customers, primarily in the manufacturing industry, use our adapters and software for high fidelity video capture and processing.

Organizations across all verticals can benefit from the network monitoring software that allows threats to be found within network data at wire rate on our SmartNICs.

● The ARIA SDS software applications run on our SIA adapters and on Intel X86 based servers, as well as cloud instances.

These applications are primarily focused on helping security tools, such as security information and event management (“SIEM”), which are heavily used by today's SOC deployments, to find missed network-borne threats.

We have integrated our ARIA Packet Intelligence (“PI”) with SIEM solutions from Splunk and Sumo Logic SIEM, and it assists our own advanced threat detection application ARIA Advanced Detection and Response (“ADR”).

● The nVoy Series of appliances (“Packet Recorder” and “Packet Broker”) can be deployed as part of an organization’s data security structure as a new component to complement existing systems and provides data breach verification and notification, as well as compliance reporting.

The primary customers will be OEMs or MSSPs that are looking to expand their product and services offerings of industry regulation compliance and breach response solutions.

Multicomputer products for DSP applications are no longer being actively developed but will continue to be sold for deployment and supported for several years.

● Multicomputer products for DSP applications are no longer actively developed but will continue to be sold into established programs and supported for several years.

Revenue flows come from servicing previously deployed products for a modest number of existing high-value defense customers.

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The following table details our sales by operating segment for fiscal years ending September 30, 2020 and 2019.

Additional segment and geographical information is set forth in Note 18 to the consolidated financial statements.

Additional segment and geographical information are set forth in Note 17 Segment Information to the consolidated financial statements.

(Dollar amounts in thousands)

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Integration Solutions

In the TS segment, we focus on value-added reseller ("VAR") integrated solutions including third-party hardware, software and technical computer-related consulting services and managed services.

Our value proposition is our ability to integrate diverse third-party components together into a complete solution to install the system at the customer site and to offer high value IT consulting services to deliver solutions.

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We sell third-party hardware and software products in the information technology market, with a strategic focus on industry standard servers and data center infrastructure solutions, midrange data storage infrastructure products, network products, unified communications, and IT security hardware and software solutions.

Our key offerings include products from HPE/Aruba, Cisco Systems, Palo Alto Networks, DellEMC, Juniper Networks, Citrix, Intel, VMWare, Fortinet, Microsoft and Checkpoint.

Through our business relationships with these vendors, we are able to offer competitively priced robust products to meet our customers’

diverse technology needs, providing procurement and engineering expertise in server infrastructure, storage, security, unified communications and networking, to the small-to-medium sized businesses ("SMBs") and large enterprise businesses ("LEBs") with complex IT environments.

Our key offerings include products from Hewlett Packard (HPE)/Aruba, Cisco Systems, Palo Alto Networks, DellEMC, Juniper Networks, Citrix, Intel, VMWare, Fortinet, Microsoft and Checkpoint.

Through our business relationships with these vendors, we are able to offer competitively priced robust products to meet our customers’ diverse technology needs, providing procurement and engineering expertise in server infrastructure, storage, security, unified communications and networking, to the small-to-medium sized businesses ("SMBs") and large enterprise businesses ("LEBs") with complex IT environments.

We offer our customers a single point of contact for complex multi-vendor technology purchases.

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Our current customers are in web and infrastructure hosting, education, telecommunications, healthcare services, distribution, financial services, professional services and manufacturing.

We target SMBs and LEB customers across all industries.

We target SMB and LEB customers across all industries.

Professional Services

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● Implementation, integration, migration, configuration, installation services and project management.

Hyper-Converged Infrastructure ("HCI") - We assist our clients with designing and implementing HCI solutions from multiple vendors including DellEMC, Nutanix, HPE and Cisco.

● Hyper-Converged Infrastructure ("HCI") - We assist our clients with designing and implementing HCI solutions from multiple vendors including DellEMC, Nutanix, HPE and Cisco.

HCI is a software-centric architecture that tightly integrates compute, storage and virtualization resources in a single system.

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● IT security compliance services.

We provide services for IT security compliance with personal privacy laws such as the Payment Card Industry Data Security Standard ("PCI DSS"), t he Health Insurance Portability and

Accountability Act of 1996 (" HIPAA"), and internal control regulations under the Sarbanes-Oxley Act ("SOX").

We provide services for IT security compliance with personal privacy laws such as the Payment Card Industry Data Security Standard ("PCI DSS"), t he Health Insurance Portability and

Accountability Act of 1996 ("

HIPAA"), and internal control regulations under the Sarbanes-Oxley Act ("SOX").

● Unified communications, wireless and routing and switching solutions using Cisco Systems and Aruba Networks products and services.

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Managed and Cloud Services

As consumption models continue to evolve in our industry, we have developed a robust managed & cloud services offering to provide alternative solutions to traditional capital expenditure investments in IT solutions and IT operations for our clients.

As consumption models continue to evolve in our industry, we have developed a robust managed and cloud services offering to provide alternative solutions to traditional capital expenditure investments in IT solutions and IT operations for our clients.

Our value is to provide an elastic offering that will allow the client to scale and consume these offerings with monthly billing options that help control costs and provide economies of scale.

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Our primary competition in the TS segment is other VARs ranging from small companies that number in the thousands, to large enterprises such as CDW, PC Connection, Insight, Presidio, Dimension Data, and Computacenter Limited.

In addition, we compete directly with many of the companies that manufacture the third-party products we sell, including Cisco Systems, IBM, Hewlett Packard (HPE), EMC (now part of Dell) and others.

In the network

management, security and storage systems integration services business, our competitors are extensive and vary to a certain degree in each of the geographical markets, but they also include such national competitors as HP/EDS, IBM and Cap Gemini.

In addition, we compete directly with many of the companies that manufacture the third-party products we sell, including Cisco Systems, IBM, HPE, EMC (now part of Dell) and others.

In the network management, security and

storage systems integration services business, our competitors are extensive and vary to a certain degree in each of the geographical markets, but they also include such national competitors as HP/EDS, IBM and Cap Gemini.

Nearly all of our product offerings are available through other channels.

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Our software-defined platform makes it easier for organizations to achieve enterprise-wide network security and protection of critical assets, applications and devices by improving their network visibility capabilities and accelerating their incident response.

The ARIA SDS solution will give organizations an automated, central, and coordinated way to accelerate cyber threat detection and response, implement and enforce security polices, control which applications can access critical assets, and to protect applications and the associated data.

The ARIA Orchestrator ("SDSo") and instances ("SDSi"), provide the foundation of the ARIA platform, so that a series of lightweight advanced security applications can be deployed, provisioned and managed uniformly across any sized organization.

These instances can be deployed in a variety of scenarios including bare metal servers, virtual machines ("VMs"), and container-based compute environments.

The ARIA SDSo will automatically detect any instances and will programmatically execute the specified applications security feature set strengthening an organization's security posture.

The ARIA SDS solution provides organizations an automated, central, and coordinated way to accelerate cyber threat detection and response, implement and enforce security policies, control which applications can access critical assets, and to protect applications and the associated data.

The ARIA SDSo and SDSi, provide the foundation of the ARIA platform, so that a series of lightweight advanced security applications can be deployed, provisioned and managed uniformly across any sized organization.

These instances can be deployed in a variety of scenarios including bare metal servers, virtual machines ("VMs"), and container-based computing environments, as well as on our own turn-key security appliances.

The ARIA SDSo will automatically detect any instances and programmatically execute the specified applications security feature set strengthening an organization's security posture.

For customers that desire a turnkey solution, a bundled offering can be created for deployment and opens the possibility for professional services and integration services offerings to our channel.

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Application availability will expand over time as new products are released.

However, the current offerings we believe have significant market potential.

1) ARIA SDS Packet Intelligence:

The ARIA Packet Intelligence ("PI") application directs all of an organization’s network traffic to existing intrusion detection systems (“IDS”) security tools such as security information and event management solutions ("SIEMs"), user and entity behavior analytics ("UEBA"), or network intrusion protection systems ("NIPS”

or “IPS"), and making these tools more effective at detecting network-born threats.

The ARIA PI application will be available as licensed functionality within a low-cost high-availability ("HA") security appliance, or probe, that taps into an organization’s network infrastructure, as well as on the Myricom Secure Intelligent Adapter ("SIA").

The probe will be able to mine data at 10-25G line rates and perform remedial actions to stop threats on a per-traffic stream basis while minimizing impact on network traffic performance.

Built-in APIs allow compatible 3 rd party threat detection tools to take actions to stop detected threats.

It is our belief that competing solutions currently do not provide this mix and level of capability.

We will be able to provide a packaged solution by installing 3 rd party IPS/IDS applications, onto ARIA hardware appliances that run alongside and are fed by ARIA SDS applications, such as Packet Intelligence.

We believe our current offerings have significant market potential.

1) ARIA Advanced Detection and Response :

The newest ARIA SDS, ARIA ADR, offering was released in the fourth quarter of fiscal year 2020 and provides organizations with the ability to deploy SOC capabilities without the need for costly security tools or the skilled human resources.

ARIA ADR is a single-platform solution driven by artificial intelligence (“AI”) and machine learning (“ML”) to enable automated, comprehensive threat detection and response.

ARIA ADR is an attractive option for mid-sized organizations that need a complete cybersecurity solution.

It can be deployed on customers’ premises as well as in the public cloud infrastructure.

The ARIA ADR solution is offered as a SaaS service with multi-year monthly or annual subscription contracts for both the software and hardware components.

The solution can be deployed through a turn-key security appliance in premises network, and data centers, and in virtual cloud instances.

2) ARIA Packet Intelligence:

The ARIA Packet Intelligence ("PI") application directs an organization’s network traffic to existing intrusion detection systems (“IDS”) security tools such as SIEMs, Intrusion Prevention Systems or (“IPS"), as well as our ARIA ADR solution to make these tools effective at detecting network-borne threats.

The ARIA PI application is available as a licensed functionality within a low-cost high-availability ("HA") security appliance, or probe, that taps into an organization’s network infrastructure, as well as on the Myricom SIA adapter.

The probe mines data at 10-25G line rates and performs remedial actions to stop threats on a per-traffic stream basis while minimizing impact on network traffic performance.

Built-in APIs allow compatible third party threat detection tools to take actions in order to stop detected threats.

The ARIA PI application will be able to improve IPS or IDS performance by preprocessing the data feeds, allowing such solutions to run effectively at higher line rates.

2) ARIA SDS Packet Capture:

Our Sniffer10G ("SNF") software is used by intelligence agencies for packet capture, network surveillance applications, and to perform detailed cyber-threat analysis.

It’s a recommended solution to increase the Zeek IDS (formerly known as Bro) to support 10G line rates rather than the standard 1G.

With the introduction of ARIA SDS and the Myricom SIA, SNF will be upgraded to support a 25G line-rate.

When used in conjunction with the Packet Intelligence application, the SNF application can provide the details required to determine the exact type of threat and/or identify the compromised data records.

3) ARIA SDS KMS (Key Management Server):

The ARIA KMS application will make it easier to add encryption and decryption capabilities to applications which leverage a standards-based key management interoperability protocol ("KMIP") client.

For example, each of VMware’s vSphere and vSAN instances leverage a KMIP client to encrypt their application data output.

3) ARIA Packet Capture:

Our Sniffer10G ("SNF") software is used by intelligence agencies for packet capture, network surveillance applications, and to perform detailed cyber-threat analysis.

It’s a recommended solution to increase the Zeek IDS (formerly known as Bro) to support 10G line rates rather than the standard 1G.

4) ARIA Key Management Server:

The ARIA KMS application makes it easier to add encryption and decryption capabilities to those applications which leverage a standards-based key management interoperability protocol ("KMIP") client.

For example, each of VMware’s vSphere and vSAN instances leverage a KMIP client to encrypt their application data output.

As such, they need to be fed KMIP compatible keys to perform encryption.

Depending upon the size of the environment, this could require hundreds of keys per minute.

Our KMS key management server solution provides such KMIP keys securely and rapidly at scale while ensuring that the key servers are highly available at all times.

Our ARIA KMS application provides such KMIP keys securely and at rapid scale while ensuring that the key servers are highly available at all times.

Our application was designed to solve the deployment complexity challenges currently associated with key management.

4) ARIA AIR (Automated Investigative Response) The ARIA AIR and Packet Recorder applications will make it easier to detect data breaches and exfiltrated data from critical data applications.

Used in conjunction with threat intelligence tools which will alert if an internal system is accessing a bad site, we ingest the alert use it to trigger a search our recordings of the traffic flowing from the critical applications to determine if there is a match.

This indicates a breach and provides a record of all the records that have been exfiltrated.

MYRICOM NETWORK ADAPTERS

Myricom ARC Series product line includes a portfolio of Ethernet adapters and specialized software, which is branded as DBL for financial institutions and Sniffer10G ("SNF") for network monitoring.

MYRICOM SmartNIC ADAPTERS

Myricom ARC Series product line includes a portfolio of SmartNIC ethernet adapters, as well as specialized software, which is branded as DBL for financial institutions and SNF for network monitoring.

Both are compatible with Linux, Windows, Mac OS X, and VMware ESX.

Our adapters act as stand-alone Network Interface Cards ("NIC”) and support purpose-built for applications that provide high bandwidth, low latency and line-rate packet capture, and processing off load for high-frequency financial trading and network traffic analysis applications.

Myricom Secure Intelligent Adapter ("SIA") is our next-generation adapter and will provide additional compute capabilities and specialized hardware to run the ARIA SDS platform and applications.

A 25G version of SNF is being developed to deliver higher line rates as required by enterprise and government customers.

This will also let these organizations achieve lossless packet capture and packet inspection, which is required for network surveillance use cases and tools, such as lawful intercept, deep packet inspection, forensic tools, and threat detection applications.

Other customers for the SIA include OEMs and MSSP partners to run their own applications upon.

Myricom Secure Intelligent Adapter ("SIA") is our next-generation adapter and provides additional compute capabilities and the specialized hardware necessary to optimally operate the ARIA SDS platform and applications.

These advanced features allow organizations to achieve lossless packet inspection and policy based actions on network traffic at wire rate, which is required for network surveillance use cases and tools, such as lawful intercept, deep packet inspection, forensic tools, and threat detection applications.

Customer verticals for the Myricom SIA include service providers, OEMs and MSSPs.

ARIA SECURITY APPLIANCES

ARIA Security Appliances provides a standalone solution that can be either deployed in line to provide network security or within a data center to provide security services.

These appliances are built with one or multiple built in SIA adapters.

This allows for broader options to deploy our services in a turnkey fashion.

nVoy Series is comprised of a 100G Packet Broker and a 10G Packet Recorder appliance optimized to run our ARIA software.

These tools assist customers in the deployment of our ARIA solution into higher speed networks, as well as provide the compute and storage intensive functions needs to provide some of our services such as Packet recording.

ARIA Security Appliances provide a standalone solution that can be either deployed in-line to provide network security, or within a data center to provide security services.

These appliances are built with one or multiple integrated Myricom SIA adapters.

This allows for broader options to deploy our services in a turn-key fashion.

nVoy Series is comprised of a 100G Packet Broker and a 10G Packet Recorder appliance optimized to run our ARIA applications.

These tools assist customers in the deployment of our ARIA solution into higher speed networks, as

well as provide the compute and storage intensive functions needs to provide some of our services such as packet recording.

MULTICOMPUTER PRODUCTS

Multicomputer products portfolio includes the 2000 SERIES VME and 3000 SERIES VXS systems.

The 2000 SERIES products, based on PowerPC RISC processors with AltiVec™

technology, high-speed memory, and Myrinet-2000™

cluster interconnect, are currently is use by customers in the aerospace, commercial, and defense markets.

The 3000 SERIES VXS product line, incorporating the Freescale QorIQ PowerPC processors with AltiVec technology, targets high-performance DSP, signal intelligence ("SIGINT"), and radar and sonar applications in airborne, shipboard, and unmanned aerial vehicle ("UAV") platforms where space, power, and cooling are at a premium.

Multicomputer products portfolio includes the 2000 SERIES VME and the 3000 SERIES VXS systems.

The 2000 SERIES products, based on PowerPC RISC processors with AltiVec™ technology, high-speed memory, and Myrinet-2000™ cluster interconnect, are currently in use by customers in the aerospace, commercial, and defense markets.

The HPP segment will continue to ship and repair existing Multicomputer products to its customer base and support an installed base of DSP systems.

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Packet Capture Market

Myricom Sniffer10G, and in development, the 25G software, running on Myricom Ethernet adapters, provides enterprise and government customers and partners the ability to capture, inject, and analyze network traffic at line rate for all Ethernet packet sizes, with low-cost CPU overhead.

Myricom Sniffer software, running on Myricom ARC adapters, provides enterprise and government customers and partners the ability to capture, inject, and analyze network traffic at line rate for all Ethernet packet sizes, with low-cost CPU overhead.

Sniffer10G serves the following market segments:

network surveillance, monitoring and analysis, testing, measurement, and packet generation, as well as a technology component within intrusion detection systems ("IDS"), forensic tools, and threat detection and response solutions.

Storage Interconnect Market

Myricom ARC Series network adapters are used in a wide range of networked applications, including those that connect to storage subsystems using Ethernet.

Many of these customers are using content-creation applications requiring high-performance networking from the storage system to video-editing workstations.

Machine Vision Market

Myricom ARC network adapters are used in a wide range of network applications, including those that connect machine vision camera systems using Ethernet.

Many of these OEM customers require high-performance, low latency 10G networked video processing systems, which include our SmartNICs and software to assist with the video transmission.

Cyber Security Products Market

The ARIA SDS solution is targeted at organizations that need to get additional functionality out of their current cyber security solutions to find and stop intrusion threats, while also reducing their operating costs.

While our ARIA SDS solutions will be offered through our direct sales channel, it is more likely that sales will come through via independent software vendor channels to the end customers.

These value added resellers will find ARIA appealing to expand their portfolio of security products and services and replace less-effective tools and processes in their customer environments.

OEMs in the cyber security segments will be candidates for ARIA SDS deployments.

These vendors can benefit from integrating the ARIA applications as internal solution toolsets to allow their application to scale, add critical functionality, or solve particular problems, such as poor performance.

The ARIA SDS solution is targeted at organizations that need to get additional functionality out of their current cybersecurity solutions to find and stop intrusion threats, while also reducing their operating costs.

At the present time, our ARIA SDS solutions are primarily offered through our direct sales channel, however, it is likely that future sales will come through channel partners such as independent reseller and MSSPs.

These value added resellers will find the ARIA offerings an appealing way to expand their portfolio of security products and services while replacing less-effective tools and processes in their customer environments.

OEM vendors in the cybersecurity market can benefit from integrating the ARIA applications and leveraging them as internal solutions to allow their applications to scale, add critical functionality, or solve particular problems, such as poor performance.

OEMs are interested in the Myricom Adapters including our SIA running our ARIA SDS applications, for use as Smart NICs within their appliances.

We believe this will be a large growing market we can participate in in the coming years.

Another target for the ARIA solution will be the managed security services providers, as these providers’

desire simple, yet differentiated, solutions that can be deployed across their customer bases.

The orchestration and automation capabilities found in ARIA SDS are valuable as they allow these security service providers to scale their offerings while increasing the productivity of their security operation center staff.

CSPi’s competition in the cybersecurity space comes primarily from the large, traditional security vendors like Dell, IBM, and Intel.

Due to the ARIA’s approach to network and data security, we also face competition from traditional security tools and current approaches to finding network based attacks.

As mentioned, MSSPs require simple, yet differentiated, solutions that can be deployed across their customer bases.

The detection, orchestration and automation capabilities found in ARIA SDS are valuable as they allow these security service providers to scale their offerings while increasing the productivity of their security operation center staff.

CSPi’s competition in the cybersecurity space comes primarily from the large, traditional security vendors like Dell, IBM, and McAfee.

Due to the ARIA’s approach to network and data security, we also face competition from traditional security tools and current approaches to finding network based attacks.

The competition includes common firewall manufacturers with broad portfolios such as Palo Alto or Cisco, and in the case of data packet brokers, Gigamon and Ixia.

Competitors for ARIA SDS encryption include applications and appliances provided by Thales, HPE’s Voltaic group, and other smaller market players.

In the crowded security products market, our history of supporting defense and government military programs, strong security application expertise, and the ability to develop optimized products for OEMs will help set us apart.

However, we must continually develop new features and solutions to stay abreast of evolving customer requirements and leverage advances in technology.

One example is Intel’s chip-level roadmap that may provide additional functionality for our ARIA SDS solution but our competitors could also attempt to leverage this.

Competitors for ARIA SDS encryption include applications and appliances provided by Thales, HPE’s Voltaic group, and other smaller market players.

We must continually develop new features and solutions to stay abreast of evolving customer requirements and leverage advances in technology.

One example is Intel’s chip-level roadmap that may provide additional functionality for our ARIA SDS solution, but our competitors could also attempt to leverage this.

Some of these competitors may also be potential go-to-market partners or OEM customers looking to integrate our capabilities within their products and solutions.

Customers who need a combination of advanced data protection features and who require optimized application performance are best suited to the ARIA solution.

Security adapter products will also leverage previous generation Myricom ARC Series network adapter capabilities that include advanced filtering, support for kernel bypass technologies, lossless packet capture, and precision time stamping.

These new capabilities will offer a variety of security service combinations that our customers can put to use.

Manufacturing, Assembly and Testing

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During manufacture and assembly, both sub-assemblies and completed systems are subjected to extensive testing, including burn-in and environmental stress screening designed to minimize equipment failure at delivery and over the useful service life of the system.

We also use diagnostic programs to detect and isolate

potential component failures.

We also use diagnostic programs to detect and isolate potential component failures.

A comprehensive log is maintained of past failures to monitor the ongoing reliability of our products and improve design standards.

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The packet recorder and packet broker appliances are sourced from third-party partners, integrated with CSPi software and resold under the CSPi brand.

Our network adapters are designed in-house and fabricated by outside third party vendors.

Our network adapters are primarily designed and specified in-house and fabricated and sourced from outside third party vendors.

Material and components received from outside suppliers are inspected by our quality assurance technicians.

The ARIA SDS solution (platform and applications) will be downloaded and licensed from servers or content-delivery services directly controlled by CSPi.

The ARIA SDS solution (platform and applications) is licensed from servers or content-delivery services directly controlled by CSPi.

The ARIA software can be sold in conjunction with the Myricom SIA, or our appliances, which may be preloaded with the appropriate images.

Licensing will be handled by the ARIA SDSo which will be accessible by CSPi’s licensing severs to allow proper flexible services feature set activation and payment.

We provide a warranty covering defects arising from the sale of Multicomputer and Myricom products, which varies from 90 days to three years, depending upon the particular unit in question.

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Several components used in our HPP segment products are obtained from sole-source suppliers.

We are dependent on key vendors such as Xilinx or NXP for a variety of processors for certain products and Wind River Systems, Inc.

We are dependent on key vendors such as Xilinx, NXP, and BCRM for a variety of processors for certain products and Wind River Systems, Inc.

for VxWorks operating system software.

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Research and Development

For the year ended September 30, 2019, our expenses for R&D were approximately $2.8 million compared to approximately $3.3 million for fiscal year 2018.

For the year ended September 30, 2020, our expenses for R&D were approximately $2.8 million compared to approximately $2.8 million for the year ended September 30, 2019.

Expenditures for R&D are expensed as they are incurred.

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We rely on a combination of trademark and trade secret laws in the United States and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect our intellectual property rights.

We have two pending patents for the ARIA SDS software and will be pursuing additional patent rights over time.

We have pending patents for the ARIA SDS software and will be pursuing additional patent rights over time.

The backlog of customer orders and contracts in the HPP segment was approximately $0.6 million at September 30, 2020 as compared to $0.5 million at September 30, 2019.

Our backlog can fluctuate greatly.

These possible large fluctuations can be due to the timing of receipt of large orders often for purchases from prime contractors for sales to the government.

It is expected that all of the customer orders in backlog will ship within the next twelve months from September 30, 2019.

We can experience possible large fluctuations due to the timing of receipt of large orders often for purchases from prime contractors for sales to the government.

It is expected that all of the customer orders in backlog will ship and/or be provided during fiscal year 2021.

Significant Customers

See Note 18 in the notes to the consolidated financial statements for detailed information regarding customers which comprised 10% or more of consolidated revenues for the years ended September 30, 2019 and 2018.

See Note 17 in the notes to the consolidated financial statements for detailed information regarding customers which comprised more than 10% of consolidated revenues for the years ended September 30, 2020 and 2019.

As of September 30, 2020, we had approximately 112 full time equivalent employees worldwide for our consolidated operations.

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Company Website

The Company’s internet address is http://www.cspi.com.

Through that address, the Company’s Annual Report on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the United States Securities and Exchange Commission (Securities and Exchange Commission or Commission).

The information contained on the Company’s website is not included in, nor incorporated by reference into, this annual report on Form 10‑K.

The United States Securities and Exchange Commission (“SEC”) maintains an internet site (www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Company’s internet address is http://www.cspi.com.

Through that address, the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the SEC.

The information contained on the Company’s website is not included in, nor incorporated by reference into, this annual report on Form 10-K.

Financial Information about Geographic Areas

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business