What changed in this filing

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Item 1. Business

2022-12-08 compared with 2021-12-08 · 37 added, 45 removed, 144 unchanged (36% of the section changed)

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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 consists of our wholly-owned Modcomp, Inc.

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").

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and maritime.

● 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.

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

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and (iii) 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, and hosted applications that reside on top, as well as supporting hardware then deployed in turn-key security deployments.

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.

● The ARIA SDS solution is a software portfolio starting with an underlying platform, hosted applications that reside on top, as well as any supporting hardware then deployed in turn-key security deployments.

All are developed to secure an organization’s network, enterprise-wide, to better protect critical devices, applications and high-value data from breaches or other disruptive attacks.

Revenue is derived from:

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The software licenses, as well as the support packages, are renewable on a recurring 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.

The ARIA SDS platform and applications can also be deployed on customer provided virtual machines or 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 within Cloud Platform services such as AWS and Azure to provide cybersecurity services.

● The ARIA portfolio is 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.

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

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 Managed Security Service Providers (“MSSPs”) and OEMs that pursue differentiated security services for their customers.

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

● There was limited revenue for ARIA SDS in fiscal 2021.

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

however, our customer pipeline recovered in the second half of FY 2021.

As such, we saw an increase in recorded revenue from ARIA SDS during the second half of FY 2021.

Due to the COVID-19 pandemic and the resulting increase in hybrid remote workforce models, we believe ARIA SDS will provide additional protection against exploits entering in from home-based computers and networks.

tools and the need to hire and retain highly-trained security analysts.

We also have begun selling our unique, solution into Managed Security Service Providers (“MSSPs”) that want to offer a lower cost, more effective service at detecting todays widening range of cyber attacks.

The ARIA SDS portfolio of software based products will continue to expand based on customer feedback during Fiscal 2023.

● 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.

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.

Our primary customers for packet capture include government agencies that need to capture and/or 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 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.

● There was limited revenue for HPP products in fiscal 2022.

This was primarily due to supply chain issues which delayed delivery of components used by our Myricom Hardware.

We hope to clear the majority of our backlog during the first half of FY 2023.

● 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.

Therefore, the revenue from these products, as a percentage of overall Company revenue, is expected to decline over time.

The revenue from these products, as a percentage of overall Company revenue, is expected to continue to decline over time.

Sales Information by Industry Segment

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The TS segment is a value-added reseller ("VAR") of third-party hardware and software technology solutions along with our, advanced technology consulting, professional IT, managed IT and Cloud services.

Our value proposition

is our ability to support the complete IT life cycle of planning, designing, implementing and optimizing a comprehensive solution into our customer’s IT environments, to help achieve their expected business outcomes.

Our value proposition is our ability to support the complete IT life cycle of planning, designing, implementing and optimizing a comprehensive solution into our customer’s IT environments, to help achieve their expected business outcomes.

Third-Party Hardware and Software

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

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

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

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

Many of our SMB customers have unique technology needs and may lack technical purchasing expertise or have very limited IT engineering resources on staff.

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

Favorable competitive factors for the TS segment include procurement capability, product diversity which enables the delivery of complete and custom

solutions to our customers and the strength of our key business relationships with the major IT OEMs.

Favorable competitive factors for the TS segment include procurement capability, product diversity which enables the delivery of complete and custom solutions to our customers and the strength of our key business relationships with the major IT OEMs.

We also consider our ability to meet the unique and/or specialized needs of the SMB and LEB markets and our strong knowledge of the IT products that we sell to be a key competitive advantage.

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Sources and Availability of Product

COVID-19 has adversely affected the distribution channel leading to significantly longer lead times when the TS segment orders 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.

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

We are dependent on key vendors such as Xilinx, NXP, NVIDIA, Marvel, and BCRM for a variety of processors for certain products.

While we believe that many of our competitors face similar supply chain risks, we continue to work closely with our long term suppliers in meeting our projected sales obligations;

however, if a long term supplier is unable to provide sufficient components, and we are unable to find alternative suppliers, our projected sales may be materially impacted.

COVID-19 has adversely affected manufacturers, which has led to production disruptions, resulting in supply shortages.

We are working to clear the backlog in fiscal 2023, although, there can be no assurances that supply shortages will be resolved or that our backlog will be timely cleared.

The gross backlog of customer orders and contracts for the TS segment was approximately $18.2 million at September 30, 2022, as compared to $8.7 million at September 30, 2021.

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

At the present time, our ARIA SDS solutions are primarily offered through our direct sales channel, however, we have begun to add channel partners such as independent resellers 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.

At the present time, our ARIA SDS solutions are primarily offered through our direct sales channel, however, we have begun to add channel partners such as independent resellers.

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.

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Myricom network adapters with DBL application software address the need for the ultra-low latency required in the world of financial trading.

Running DBL on the Myricom ARC Series provides acceleration for 10G Ethernet environments, with benchmarked application-to-application latency in the single digit microsecond range for Linux and Microsoft Windows operating systems.

Running DBL on the Myricom ARC Series provides acceleration for 10G Ethernet

environments, with benchmarked application-to-application latency in the single digit microsecond range for Linux and Microsoft Windows operating systems.

Packet Capture Market

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Currently, products are shipped to our customers directly from our plant in Lowell, Massachusetts.

Our manufacturing activities consist mainly of final assembly and testing of printed circuit boards and systems that are designed by us and fabricated by outside third-party vendors.

Upon our receipt of material and components from outside suppliers, our quality assurance technicians inspect these products and components.

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 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.

Our manufacturing activities consist mainly of final assembly and testing of printed circuit boards and systems that are designed by us and fabricated by outside third-party vendors, as well as integration of our software onto the Myricom NICs and turnkey appliances.

Sources and Availability of Raw Materials

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

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

We are dependent on key vendors such as Xilinx, NXP, NVIDIA, Marvel, and BCRM for a variety of processors for certain products.

While we face the same supply chain risks as the rest of our competitors, we continue to work closely with our long term suppliers to meet our projected sales obligations.

COVID-19 has adversely affected manufacturers, which has led to production disruptions, resulting in supply shortages.

Additionally, recent global shipping delays have exacerbated this problem.

We are working to clear the backlog in fiscal 2023.

Research and Development

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

Product development efforts in fiscal year 2021 and 2020 involved development of the ARIA SDS product set, and enhancements to our Myricom products.

Product development efforts in fiscal year 2022 and 2021 involved development of the ARIA SDS product set, ARIA Zero Trust (AZT), and enhancements to our Myricom products.

We expect to continue to make investments related to the development of new hardware adapter products and new cybersecurity software applications.

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

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

The gross backlog of customer orders and contracts in the HPP segment was $5.0 million at September 30, 2022 as compared to $4.3 million at September 30, 2021.

Our backlog can fluctuate greatly.

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 the customer orders in backlog will ship and/or be provided through fiscal year 2023.

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 nearly all of the customer orders in backlog will ship and/or be provided through fiscal year 2023.

Significant Customers

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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