What changed in this filing

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Item 1. Business

2023-12-13 compared with 2022-12-08 · 39 added, 57 removed, 124 unchanged (44% of the section changed)

20 unchanged sentences

(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;

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

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, 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.

● The ARIA SDS solution is a software portfolio comprised of 3 products:

ARIA Packet Intelligence software which is used by customers for its high-speed wire-rate in-line packet filtering, steering and policy enforcement functions.

ARIA Advanced Detection and Response solution used by customers to find and stop threats in real-time by monitoring their entire network, device and services footprint.

It is used as the basis of MDR (Managed Detection and Response) services offered by ARIA and its MSSP partners who provide it as part of a 24x7 managed SOC (Security Operations Center) offering.

The product automates the MITRE ATT&CK™ framework to find threats up to 100 times faster with fewer human resources than other solutions.

● In July of 2023 ARIA Zero Trust (AZT) PROTECT was introduced to the market.

ARIA AZT PRTOECT™ was designed to fill a gap in the market – stopping the most sophisticated attacks that are used to attack critical infrastructure applications before harm can be done.

It compliments other protection technologies already in place and can stop some of the most well-known attacks including the SolarWinds attack, and the recent Russian sponsored Sandworm attacks used on utilities and energy infrastructure.

The product is already deployed and generating revenue from its initial contracts.

● Revenue is derived from:

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

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 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.

(i) license sales of our software platform components, (ii) support packages and (iii) any required supporting services.

The software licenses, the support packages, as well as supporting services

are renewable on a recurring basis.

● The ARIA portfolio is of value to regulated industries, such as manufacturing, pharmaceuticals, financial services, energy production, utilities, transport and healthcare, due to the rise of critical infrastructure regulations enforced at the federal, U.S.

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

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.

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 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.

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 today’s widening range of cyber-attacks.

● 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 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.

● 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.

The ARC series has reached end of life due to ASIC supplier problems which will significantly reduce its contribution to the HPP line of business.

The focus is now supporting its applications on 3rd party provided intelligent network interface cards.

● Multicomputer products for DSP applications are no longer actively developed but will continue to be sold into established programs through FY2024 and supported for several years via our repair services offering.

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

9 unchanged sentences

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

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.

Our key offerings include products from Hewlett Packard (HPE)/Aruba, Cisco Systems, Palo Alto Networks, Nutanix, Dell EMC, 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.

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

53 unchanged sentences

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.

We are dependent on key vendors such as Xilinx, NXP, NVIDIA, 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 $7.5 million at September 30, 2023, as compared to $18.2 million at September 30, 2022.

Our backlog can fluctuate greatly.

Our backlog can fluctuate greatly and in the prior year there were supply chain issues which caused a relatively large backlog compared to historical years.

These fluctuations can be due to the timing of receiving large orders for third-party products and/or IT services.

2 unchanged sentences

The mission of the HPP team is to deliver a differentiated, smarter approach to cybersecurity.

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 ability to find, stop, and prevent cyberattacks.

Our software-defined platform makes it easier for organizations to achieve enterprise-wide network security with a focus on the protection of critical assets, applications and devices from cyberattacks.

Markets and Marketing

1 unchanged sentence

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.

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.

OEMs are interested in the Myricom Adapters including our SIA SmartNIC running our ARIA SDS applications.

At the present time, our ARIA solutions are primarily offered through our direct sales channel, however with ARIA AZT PROTECT’s introduction 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, and add critical functionality.

OEMs are interested in running our ARIA SDS applications on their SmartNIC and other ARM-core based platforms.

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

The detection, 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.

Aerospace & Defense Market

Our focus for fiscal 2023 and beyond is to continue our support of system deployments to be made by government entities.

Financial Transactions Market

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.

Packet Capture Market

Myricom Sniffer10G 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, with low CPU overhead.

Machine Vision Market

Myricom ARC network adapters are used by OEMs for machine vision camera systems network applications, These OEM customers require the high-performance, low latency 10G attributions our solutions support.

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

We also face competition from traditional network security solutions vendors such as Palo Alto and Cisco.

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

Manufacturing Market

Our focus for fiscal 2024 and beyond is to expand from our initial successes more broadly into this market and its various sub segments.

Energy/Utility Market

We believe our AZT PROTECT product is well suited to address a critical security gap in this market.

Noting that sales cycles can be up to 1 year.

CSPi’s competition in the cybersecurity space comes primarily from the large, traditional security vendors like Palo Alto, VMWare and security services providers like Artic Wolf.

Manufacturing, Assembly and Testing

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, 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, 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.

We are working to clear the backlog in fiscal 2023.

Research and Development

1 unchanged sentence

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

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.

Product development efforts in fiscal year 2022 and 2023 involved development of the ARIA product set, ARIA Zero Trust (AZT), and enhancements to our ADR product offering.

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

1 unchanged sentence

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 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.

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

The gross backlog of customer orders and contracts in the HPP segment was $1.8 million as of September 30, 2023 as compared to $5.0 million as of September 30, 2022.

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.

We can experience 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 2024.

12 unchanged sentences

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