One Stop Systems, Inc 10-Q for FY2025 Q1
One Stop Systems, Inc. (OSS)
About this 10-Q
One Stop Systems, Inc filed this 10-Q on May 7, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $12.26M
- down 3.1% from $12.65M a year earlier
- Net loss
- $2.02M
- compared with a net loss of $1.34M a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.06 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ________________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices including Zip Code
(
(Registrant’s telephone number, including area code)
(Former Name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol |
Name of exchange on which registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 2, 2025, the registrant had
Table of Contents
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Item 1. |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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39 |
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FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (“Quarterly Report”), contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements, other than statements of historical facts, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. Words such as, but not limited to, “anticipate,” “aim,” “believe,” “contemplate,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “suggest,” “strategy,” “target,” “will,” “would,” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements include, among other things, statements about:
2
Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should read this Quarterly Report and the documents that we have filed as exhibits to this Quarterly Report and incorporated by reference herein completely and with the understanding that our actual results may be materially different from the plans, intentions and expectations disclosed in the forward-looking statements we make. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Unless the context requires otherwise, references in this Quarterly Report to “OSS,” “Company,” “we,” “us” and “our” refer to One Stop Systems, Inc. and its subsidiaries.
One Stop Systems, the One Stop Systems logo, and other trademarks or service marks of One Stop Systems appearing in this Quarterly Report are the property of One Stop Systems, Inc. This Quarterly Report also includes trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this Annual Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names.
3
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have presented financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these unaudited consolidated financial statements, management has evaluated events and transactions for potential recognition or disclosure through the date the unaudited consolidated financial statements were issued by filing with the SEC.
This Quarterly Report should be read in conjunction with our audited financial statements for the year ended December 31, 2024, included in our Annual Report on Form 10-K, filed with the SEC on March 19, 2025.
The results of operations for the three month period ended March 31, 2025, are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2025.
4
ONE STOP SYSTEMS, INC. (OSS)
CONSOLIDATED BALANCE SHEETS
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Unaudited |
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Audited |
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March 31, |
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December 31, |
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2025 |
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2024 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments (Note 3) |
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Accounts receivable, net (Note 4) |
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Inventories, net (Note 5) |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of use assets |
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Deposits and other |
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Goodwill |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other liabilities (Note 6) |
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Current portion of operating lease obligation (Note 9) |
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Current portion of notes payable (Note 7) |
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Total current liabilities |
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Deferred tax liability, net |
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Operating lease obligation, net of current portion (Note 9) |
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Total liabilities |
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Stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total Liabilities and Stockholders' Equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
5
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Revenue: |
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Product |
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$ |
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$ |
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Customer funded development |
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Cost of revenue: |
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Product |
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Customer funded development |
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Gross profit |
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Operating expenses: |
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General and administrative |
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Marketing and selling |
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Research and development |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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Other (expense) income, net: |
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Interest income |
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Interest expense |
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( |
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( |
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Other (expense) income, net |
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( |
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Total other income, net |
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Loss before income taxes |
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( |
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( |
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Provision for income taxes |
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Net loss |
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$ |
( |
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$ |
( |
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Net loss per share: |
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Basic |
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$ |
( |
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$ |
( |
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Diluted |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to unaudited consolidated financial statements.
6
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Net unrealized income (loss) on short-term investments |
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( |
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Currency translation adjustment |
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( |
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Total other comprehensive income (loss) |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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See accompanying notes to unaudited consolidated financial statements.
7
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2025
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Common Stock |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Additional |
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Comprehensive |
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(Deficit) Earnings |
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Stockholders' |
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Balance, January 1, 2025 |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Exercise of stock options, RSUs and warrants |
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- |
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- |
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Taxes paid on net issuance of employee stock options |
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- |
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- |
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( |
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- |
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- |
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( |
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Currency translation adjustment |
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- |
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- |
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- |
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- |
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Net unrealized gain on short-term investments |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Balance, March 31, 2025 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
8
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2024
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Common Stock |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Additional |
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Comprehensive |
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(Deficit) Earnings |
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Stockholders' |
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Balance, January 1, 2024 |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Exercise of stock options, RSUs and warrants |
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- |
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- |
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Taxes paid on net issuance of employee stock options |
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- |
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- |
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( |
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- |
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- |
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( |
) |
Currency translation adjustment |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net unrealized loss on short-term investments |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balance, March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
9
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Deferred income taxes |
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( |
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Loss on disposal of property and equipment |
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- |
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Provision for bad debt |
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( |
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- |
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Warranty reserves |
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- |
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( |
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Depreciation |
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Amortization of right-of-use assets |
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Inventory reserves |
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( |
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Stock-based compensation expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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( |
) |
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( |
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Prepaid expenses and other current assets |
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( |
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( |
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Accounts payable |
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Accrued expenses and other liabilities |
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( |
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Operating lease liabilities |
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( |
) |
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( |
) |
Net cash (used in) provided by operating activities |
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( |
) |
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Cash flows from investing activities: |
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Redemption of short-term investment grade securities |
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Purchases of property and equipment, including capitalization of labor |
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( |
) |
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( |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options and warrants |
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Payment of payroll taxes on net issuance of employee stock options |
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( |
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( |
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Repayments on notes payable |
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- |
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( |
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Net cash provided by (used in) financing activities |
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( |
) |
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Net change in cash and cash equivalents |
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( |
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Effect of exchange rates on cash |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
10
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest |
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$ |
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$ |
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Cash paid during the period for income taxes |
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$ |
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$ |
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Supplemental disclosure of non-cash flow transactions: |
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Reclassification of inventories to property and equipment |
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$ |
- |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
11
ONE STOP SYSTEMS, INC. (OSS)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2025 and 2024
NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION
Nature of Operations
One Stop Systems, Inc. (“we,” “our,” “OSS,” or the “Company”) was originally incorporated as a California corporation in 1999, after initially being formed as a California limited liability company in 1998. On December 14, 2017, the Company was reincorporated as a Delaware corporation in connection with its initial public offering. The Company designs, manufactures, and markets specialized rugged high-performance compute, high speed switch fabrics and storage systems, which are designed to target edge applications for artificial intelligence (“AI”)/machine learning (“ML”), sensor processing, sensor fusion and autonomy. The Company markets its products to manufacturers of equipment used for autonomous vehicles, medical, industrial, and military applications, with special focus on platforms that move, such as planes, trucks, ships, submarines and mobile datacenters or command posts where sensor processing, sensor fusion, AI and ML are integrated to support such applications.
During the year ended December 31, 2015, the Company formed a wholly owned subsidiary in Germany, One Stop Systems, GmbH (“OSS GmbH”). In July 2016, the Company acquired Mission Technologies Group, Inc. (“Magma”) and its operations that complemented OSS' manufacture of custom high-performance compute servers.
On August 31, 2018, the Company acquired Concept Development Inc. (“CDI”) located in Irvine, California. CDI specialized in the design and manufacture of custom high-performance computing systems for airborne in-flight entertainment, flight safety equipment, and networking systems. CDI’s business was fully integrated into the core operations of the Company as of June 1, 2020.
On October 31, 2018, OSS GmbH acquired
In 2023 and 2024, the Company increased its focus on the development and sale of edge computing solutions and increased efforts to penetrate the military and defense sectors in particular. A re-profiling of the board of directors and the executive team enabled further emphasis and focus on the pursuit of revenue opportunities with major defense contractors and the military.
Impacts resulting in part from tariffs and the threat of tariffs, ongoing military conflicts in Europe and Middle East, Federal Reserve and European Central Bank interest rate policy, inflation and the risk of inflation, and uncertainty about the timing and substance of U.S. government budgets and policy actions have contributed to economic uncertainty and capital markets volatility in the near term that have and could continue to negatively affect our operations. Weakness in the European and more specifically the German economy negatively affected our Bressner segment in 2024. Economic uncertainty, volatility, and the risk of recessionary conditions in Europe and North America remain elevated.
Tariffs and the threat of tariffs sanctioned by the United States have contributed to uncertainty and supply chain disruptions that could impact our operations. The Company's OSS segment conducts final assembly and test of products at our facility in California. However, we source components and subassemblies from both within and outside of the United States. While we attempt to pass on the cost of tariffs to our customers, our ability to do so is dependent upon the many factors, including the predictability of tariff rates and market conditions for the Company's products. Management is closely monitoring and managing impacts and potential impacts to our business from ongoing trade policy developments.
12
In recent years, we experienced increased supplier pricing, long lead-times, unavailability or limited supplies of certain products, protracted delivery dates, changes in minimum order quantities to secure products, and/or shortages of certain parts and supplies that are necessary components for the products and services we offer to our customers. While these supply chain pressures have eased in recent quarters, recent geopolitical and trade policy developments and uncertainty have increased the risk of continued or increased impacts to our supply chain in the near-term.
These global issues and concerns regarding general economic uncertainty or recession may impact our business as well as some of our customers, who may experience downturns or uncertainty in their own business operations and revenue. As a result, these customers may need to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek to renegotiate their contracts.
These global issues and events may also have the effect of heightening many risks associated with our customers and supply chain. We may take further actions that alter our operations from time to time, or which we determine are in our best interests. In addition, we may decide to postpone or abandon planned investments in our business in response to changes in our business, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business.
As a result of these global issues, it has been difficult to accurately forecast our revenues or financial results, especially given the near and long-term impacts of the economic and geopolitical issues, inflation, the impact of tariffs, and uncertainty regarding the economic outlook. In addition, while the potential impact and duration of these issues on the economy and our business may be difficult to assess or predict, these world events have resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional capital, which could negatively affect our liquidity in the future. Our results of operations could be materially below our forecasts as well, which could adversely affect our results of operations, disappoint analysts and investors, or cause our stock price to decline.
Management’s plans with respect to the above are to continue their efforts towards responding to the changing economic landscape and to continue to control costs, conserve cash, and strengthen margins through the introduction of new products and solutions focusing on AI compute capabilities for military and industrial applications.
Basis of Presentation
The accompanying financial statements have been prepared on an accrual basis of accounting in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”), as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of OSS, which include the acquisition of CDI, and its wholly owned subsidiary, OSS GmbH, which also includes the acquisition of Bressner. Intercompany balances and transactions have been eliminated in consolidation.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
There have been no changes to our accounting policies disclosed in our audited consolidated financial statements and the related notes for the year ended December 31, 2024.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.
13
On an ongoing basis, our management evaluates these estimates and assumptions, including those related to determination of standalone selling prices of our products and services, allowance for credit losses and sales reserves, income tax valuations, stock-based compensation, goodwill, intangible assets and inventory valuations and recoverability. We base our estimates on historical data and experience, as well as various other factors that our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities.
Recent Accounting Pronouncements
On December 14, 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosure (Topic 740) which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. The Company must also further disaggregate income taxes paid. The objective of these disclosure requirements is for an entity, particularly an entity operating in multiple jurisdictions, to disclose sufficient information to enable users of financial statements to understand the nature and magnitude of factors contributing to the difference between the effective tax rate and the statutory tax rate. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This guidance applies to annual periods beginning after December 15, 2024.
On November 27, 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to reportable segment disclosures." This amendment enhanced disclosures about significant segment expenses.” In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. Additionally, the amendments require the disclosure of the title and position of the chief operating decision maker (CODM) and an explanation of the segment profit or loss measures used to evaluate segment performance. Our segment disclosures comply with the requirements. See "Note 11: Segment and Geographic Information."
On November 4, 2024, the FASB issued ASU 2024-03 "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses" which requires disaggregated disclosure of certain income statement expenses. This amendment introduces enhanced guidance regarding presentation of certain income statement expense items and requires disclosure of certain types of expenses in the footnotes to the financial statements. This guidance applies to annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.
NOTE 3 - SHORT-TERM INVESTMENTS
The Company’s short-term investments by significant investment category as of March 31, 2025, were as follows:
Description |
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Amortized |
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Gross |
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Gross |
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Accrued |
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Estimated |
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Level 1: (1) |
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Cash alternatives |
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$ |
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
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||
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- |
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$ |
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$ |
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$ |
- |
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$ |
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$ |
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14
The Company’s short-term investments by significant investment category as of December 31, 2024, were as follows:
Description |
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Amortized |
|
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Gross |
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Gross |
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Accrued |
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Estimated |
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Level 1: (1) |
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Cash alternatives |
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$ |
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
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||
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- |
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$ |
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$ |
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$ |
- |
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$ |
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$ |
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Cash alternatives represent cash balances in savings accounts and U.S. Treasury Bills that are temporarily on-hand that are immediately available for investments in accordance with the Company’s investment policy.
The Company typically invests in highly rated securities and its investment policy limits the amount of credit exposure to any
NOTE 4 -ACCOUNTS RECEIVABLE
Accounts receivable, net consisted of the following for the periods indicated:
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March 31, |
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December 31, |
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||
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2025 |
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2024 |
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||
Accounts receivable |
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$ |
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$ |
|
||
Less: allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Provision for bad debt expense related to accounts receivable was $
The following tables represent the changes in the allowance for credit losses associated with our trade receivables for the three month periods ended March 31, 2025 and 2024.
|
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For the Three Months Ended March 31, |
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|||||
Allowance for Credit Losses |
|
2025 |
|
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2024 |
|
||
Balance on January 1, |
|
$ |
( |
) |
|
$ |
( |
) |
Provision charged to expense |
|
|
- |
|
|
|
- |
|
Receivables written-off |
|
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|
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- |
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|
Recoveries of receivables previously written-off |
|
|
- |
|
|
|
- |
|
Effects of change in exchange rates |
|
|
( |
) |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
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|
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||
15
NOTE 5 – INVENTORIES
Inventories, net consisted of the following for the periods indicated:
|
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March 31, |
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December 31, |
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||
|
|
2025 |
|
|
2024 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Sub-assemblies |
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Work-in-process |
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Finished goods |
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Less: allowances for obsolete and slow-moving inventories |
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( |
) |
|
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( |
) |
|
|
$ |
|
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$ |
|
||
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NOTE 6 – ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following for the periods indicated:
|
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March 31, |
|
|
December 31, |
|
||
|
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2025 |
|
|
2024 |
|
||
Accrued compensation and related liabilities |
|
$ |
|
|
$ |
|
||
Deferred revenue |
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Customer deposits |
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Warranty reserve |
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Trade and other taxes |
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Other accrued expenses |
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|
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|
||
|
|
$ |
|
|
$ |
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The table below presents the deferred revenue, warranties and deposit balances along with the significant activity affecting balances during the three month periods ended March 31, 2025 and 2024:
|
|
March 31, |
|
|
March 31, |
|
||
Deferred revenue |
|
2025 |
|
|
2024 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Deferral of revenue during the period |
|
|
|
|
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||
Recognition of unearned revenue from beginning of period |
|
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( |
) |
|
|
( |
) |
Recognition of unearned revenue from additions |
|
|
( |
) |
|
|
- |
|
Ending balance |
|
$ |
|
|
$ |
|
||
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||
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March 31, |
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March 31, |
|
||
Customer deposits |
|
2025 |
|
|
2024 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Additions during the period |
|
|
|
|
|
|
||
Deposits recognized from beginning of period |
|
|
- |
|
|
|
( |
) |
Deposits recognized from additions |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
16
As of March 31, 2025, the Company had approximately $
Revenue from customers with non-U.S. billing addresses represented approximately
As of March 31, 2025, substantially all the Company’s long-lived assets are in the United States of America, except for assets of $
NOTE 7 – DEBT
Bank Lines of Credit
In April 2022, the Company obtained a domestic revolving line of credit of $
Bressner has
Foreign Debt Obligations
Bressner had
17
A summary of outstanding debt obligations as of March 31, 2025, was as follows:
Loan Description |
|
Current |
|
Maturity |
|
Balance |
|
|
Balance ($) |
|
|
Current |
|
|||
Foreign: |
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Commerzbank AG |
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Uni Credit Bank AG |
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|||||
|
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€ |
|
|
$ |
|
|
$ |
|
|||
|
|
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|
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|
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NOTE 8 – STOCKHOLDERS’ EQUITY
The Company’s amended and restated certificate of incorporation, filed with the Delaware Secretary of State on December 14, 2017, authorizes the Company to issue
2017 Equity Incentive Plan
On October 10, 2017, the Company’s board of directors approved and adopted the Company’s 2017 Equity Incentive Plan (as amended to date, the “2017 Plan”), subject to stockholder approval thereof. On December 18, 2017, the Company’s stockholders approved the 2017 Plan. The 2017 Plan allows for the grant of a variety of equity vehicles to provide flexibility in the grant and issuance of equity awards, including stock options, unrestricted stock grants, restricted stock units (“RSUs”), stock bonuses and performance-based awards. An aggregate of
On June 24, 2020, the Company amended the 2017 Plan to increase the maximum number of shares of common stock with respect to one or more Stock Awards (as defined in the 2017 Plan) that may be granted to any one participant under the 2017 Plan during any calendar year from
On May 19, 2021, the Company’s stockholders approved the Company’s proposal to increase the number of shares authorized for issuance under the 2017 Plan from
On March 15, 2024, the Company’s board of directors unanimously approved, and on May 15, 2024, the Company’s stockholders approved, an amendment to the 2017 Plan to increase the number of shares of common stock authorized for issuance thereunder from
Executive Employment Agreements
On June 5, 2023, in connection with, and as a material inducement to, the appointment of Michael Knowles as the Company’s new chief executive officer and president, Mr. Knowles was granted (i) non-qualified stock options
18
to purchase
Both of the Inducement Grants shall vest over a four-year period as follows:
The Inducement Grants were granted outside of the Company’s 2017 Plan and any other equity incentive plans, and in reliance on the employment inducement exemption provided under the Nasdaq Listing Rule 5635(c)(4).
Stock Options
A summary of stock option activity under the Company’s current equity incentive plans during the three month period ended March 31, 2025, was as follows:
|
|
Stock Options Outstanding |
|
|||||||||||||
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding on January 1, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Forfeited / Canceled |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Exercised |
|
|
( |
) |
|
$ |
|
|
|
- |
|
|
$ |
|
||
Outstanding on March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of March 31, 2025, there was $
There were
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Grant date fair value of options vested |
|
$ |
|
|
$ |
|
||
Intrinsic value of options exercised |
|
$ |
|
|
$ |
|
||
|
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|
|
|
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|
||
If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase, or cancel any remaining unearned stock-based compensation expense or calculate and record additional expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional common stock options or other stock-based awards.
Restricted Stock Units
RSUs may be granted at the discretion of the compensation committee of the Company's board of directors under the 2017 Plan in connection with the hiring and retention of personnel and are subject to certain conditions. RSUs generally vest quarterly or semi-annually over a period of to
19
fair value of the common stock on the grant date and is amortized to expense over the vesting period and is adjusted for estimated forfeitures.
The Company’s RSU activity for the three months ended March 31, 2025, was as follows:
|
|
Restricted Stock Units |
|
|||||
|
|
Number of |
|
|
Weighted |
|
||
Unvested on January 1, 2025 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Canceled |
|
|
( |
) |
|
$ |
|
|
Unvested on March 31, 2025 |
|
|
|
|
$ |
|
||
As of March 31, 2025, there was $
Stock-based compensation expense for the three month periods ended March 31, 2025 and 2024, was comprised of the following:
|
|
For the Three Months Ended March 31, |
|
|||||
Stock-based compensation classified as: |
|
2025 |
|
|
2024 |
|
||
General and administrative |
|
$ |
|
|
$ |
|
||
Production |
|
|
|
|
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|
||
Marketing and selling |
|
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|
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Product and programs |
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|
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Research and development |
|
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|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Warrants
The Company did
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal
We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred, and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in our opinion, individually or in the aggregate,
In the opinion of management, after consultation with legal counsel, the ultimate disposition of any such matters as of March 31, 2025, are not expected to have a materially adverse effect on the consolidated financial position or results of operations of the Company.
Guarantees and Indemnities
The Company has made certain indemnities, under which it may be required to make payments to an indemnified party, in relation to certain transactions. The Company indemnifies its directors, officers, employees, and agents to the maximum extent permitted under the laws of the State of Delaware. In connection with its facility
20
lease, the Company has indemnified its lessor for certain claims arising from the use of the facilities. The duration of the indemnities varies, and in many cases is indefinite. These indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities in the accompanying consolidated balance sheets.
Leases
The Company leases its offices, manufacturing, and warehouse facility in San Diego County under a non-cancelable operating lease. Our corporate headquarters are in a leased space comprising of approximately
Other information related to leases as of the three month periods ended March 31, 2025 and 2024 was as follows:
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
|
2025 |
|
|
2024 |
|
||
Operating lease expense |
|
|
$ |
|
|
$ |
|
||
Total lease expense |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
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|
||
Weighted-average remaining lease term - operating leases |
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|
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Weighted-average discount rate - operating leases |
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||
The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2025:
Year |
Operating Leases |
|
|
Remaining 2025 |
$ |
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
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|
2029 |
|
|
|
Thereafter |
|
|
|
Total lease payments |
|
|
|
Less: Amount representing interest |
|
( |
) |
Present value of lease payment |
|
|
|
Less: current portion of operating lease obligation |
|
( |
) |
Operating lease obligation, net of current portion |
$ |
|
|
|
|
|
|
21
Purchase Commitments
Customer Concentration
During the three month periods ended March 31, 2025 and 2024, the Company had
As of March 31, 2025 and December 31, 2024, the Company had
During the three month period ended March 31, 2025, the Company had approximately
NOTE 10 – NET LOSS PER SHARE
Basic and diluted net loss per share were calculated as follows for the three month period ended March 31, 2025 and 2024:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Basic and diluted net loss per share: |
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
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|
||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
||
Effect of dilutive securities |
|
|
- |
|
|
|
- |
|
Weighted average common shares outstanding - diluted |
|
|
|
|
|
|
||
Net loss per common share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
22
NOTE 11 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in
Segment Information
The accounting policies of the segments are the same as those described in the summary of significant accounting policies of the Company. Intersegment sales are generally recorded at cost plus a specified fee or at a negotiated fixed price. Intersegment sales are eliminated in consolidation and segment results are presented net of eliminations.
The Company's chief operating decision maker (CODM) is our .
Segment detail for the three months ended March 31, 2025 and 2024, is as follows:
|
For the Three Months Ended March 31, 2025 |
|
|
For the Three Months Ended March 31, 2024 |
|
||||||||||||||
|
OSS |
|
Bressner |
|
Total |
|
|
OSS |
|
Bressner |
|
Total |
|
||||||
Revenues |
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
||||||
Cost of revenues |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross margin % |
|
% |
|
% |
|
% |
|
|
% |
|
% |
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research & development |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
Other segment operating expenses |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
Total operating expenses |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
(Loss) income from operations |
$ |
( |
) |
$ |
|
$ |
( |
) |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
For the Three Months Ended March 31, 2025 |
|
|
For the Three Months Ended March 31, 2024 |
|
||||||||||||||
|
OSS |
|
Bressner |
|
Total |
|
|
OSS |
|
Bressner |
|
Total |
|
||||||
Interest income |
$ |
|
$ |
( |
) |
$ |
|
|
$ |
|
$ |
- |
|
$ |
|
||||
Interest expense |
|
- |
|
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
Depreciation |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
Stock based compensation expense |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
Capital expenditures |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
( |
) |
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||||||
|
OSS |
|
Bressner |
|
Total |
|
|
OSS |
|
Bressner |
|
Total |
|
||||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
NOTE 12 – SUBSEQUENT EVENTS
The Company’s management has evaluated subsequent events after the consolidated balance sheet dated as of March 31, 2025, through the date of filing of this Quarterly Report. Based upon the evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying consolidated financial statements or disclosure in the notes thereto.
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The terms “we,” “us,” “our,” “OSS” or the “Company” refer collectively to One Stop Systems, Inc.. and its wholly-owned subsidiaries, unless otherwise stated. You should read the following discussion and analysis of our financial condition and operating results together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). This discussion and analysis contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 19, 2025. Readers are cautioned not to place undue reliance on these forward-looking statements.
Overview
The Company designs, manufactures, and markets specialized enterprise class high-performance compute, high speed switch fabrics and storage hardware and software, which are designed to target edge applications for artificial intelligence ("AI")/machine learning "ML", sensor processing, sensor fusion and autonomy. Edge computing is a form of computing that is done on platform or on site, connected with the data source or the user, rather than in the cloud, minimizing the need for data to be processed remotely. This growing trend increases computing performance and security, as the data does not have to travel to distant datacenter locations. Edge computing is most recognizable in applications such as sensor processing, sensor fusion, autonomy, and AI/ML. To meet the demands at the edge we offer specialized products and system solutions that consist of computers, switch fabrics and storage products that incorporate the latest state-of-the art components with embedded proprietary software. Such products and systems allow us to offer high-end solutions to be integrated into edge platforms in our target markets.
The global increase in load on cloud infrastructure and increase in AI applications are the primary factors driving the growth of the edge computing market. We market our products to manufacturers of automated equipment used for medical, industrial, and military applications. Our customer applications often require connection to a wide array of data sources and sensors, ultra-fast processing power, and the ability to quickly access and store large and ever-growing data sets at their physical location (rather than in the cloud). This equipment requires datacenter class performance optimized for deployment at the edge in challenging environments. Many of these edge applications have unique requirements, including special and compact form factors ruggedized for harsh conditions, which cannot be accommodated by traditional controlled air-conditioned datacenters.
We believe that we are uniquely positioned as a specialized provider to address the needs of this market, providing custom servers, data acquisition platforms, compute accelerators, solid-state storage arrays, system input/output ("I/O") expansion systems, as well as edge optimized industrial and panel PCs, tablets, and handheld compute devices. Our systems also offer industry leading capabilities that occupy less physical space and require less power consumption. We deliver this high-end technology to our customers through the sale of equipment and embedded software.
Recent Developments
Management and Board Changes
On April 12, 2025, Ms. Gioia Messinger notified the board of directors of her resignation from and decision to not stand for re-election for the board of directors, effective as of the date of the Annual Meeting on May 14, 2025. Ms. Messinger was appointed to the board of directors in July 2020. Her decision to resign from the board of directors was not related to any disagreement with the Company on any matter relating to its operations, policies, or practices.
On April 16, 2025, Mr. Joe Manko submitted a letter to the board of directors, resigning from the board of directors, effective April 16, 2025. In the resignation letter, Mr. Manko cited certain disagreements with the Company's governance practices and the composition and leadership of the board.
24
Second Amended and Restated Bylaws
On March 13, 2025, the board of directors adopted the Second Amended and Restated Bylaws of the Company (the “Amended and Restated Bylaws”). The Amended and Restated Bylaws (i) consolidate the amendments to the first amended and restated bylaws (the “Previous Bylaws”) dated April 7, 2023 and August 9, 2024; and (ii) the first sentence of Section 2.8 was amended and restated to read:
“Unless otherwise provided by law, the certificate of incorporation or these bylaws, the holders of the majority of the voting power of the capital stock issued and outstanding and entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders”
Components of Results of Operations
Revenue
The Company recognizes revenue under accounting standard ASC 606. Revenue is primarily generated from the sale of computer hardware and engineering services, and, to a minimal extent, revenue is also generated from the sale of software and sales of software maintenance and support contracts. The Company’s performance obligations are satisfied over time as work is performed or at a specific point in time. The majority of the Company’s revenue is recognized at that point in time when products ship and control is deemed to be transferred to the customer. The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.
Cost of revenue
Cost of revenue primarily consists of costs of materials, costs paid to third-party contract manufacturers (which may include the costs of components), and personnel costs associated with manufacturing and support operations. Personnel costs consist of wages, bonuses, benefits, and stock-based compensation expenses. Cost of revenue also includes freight, allocated overhead costs and inventory write-offs and changes to our inventory and warranty reserves. Allocated overhead costs consist of certain facilities and utility costs. We expect cost of revenue to increase in absolute dollars as product revenue increases.
Operating expenses
Our operating expenses consist of general and administrative, sales and marketing, and research and development expenses. Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities and utility costs.
General and Administrative
General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, and fees for third-party professional services, as well as certain overhead expenses which are allocated to general and administrative expense. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing the business.
Marketing and Selling
Marketing and Selling expense consists primarily of employee compensation and related expenses for marketing and sales functions, sales commissions, marketing programs, travel, and entertainment expenses, as well as certain overhead expenses which are allocated to marketing and selling expense. Marketing programs consist of advertising, tradeshows, events, corporate communications, and brand-building activities. We expect marketing and selling expenses to increase in absolute dollars as we expand our sales force, increase marketing resources, and further develop sales channels.
25
Research and Development
Research and development expense consists primarily of employee compensation and related expenses for research and development functions, certain prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering and contractor support costs, as well as certain overhead expenses which are allocated to research and development expense. We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products.
Other Income (Expense), net
Other income consists of miscellaneous income and income received for activities outside of our core business. Other expense includes expenses for activities outside of our core business.
Provision for Income Taxes
Provision for income taxes consists of estimated income taxes due to the United States and German governments, as well as state tax authorities in jurisdictions in which we conduct business, along with the change in our deferred income tax assets and liabilities.
Results of Operations
The following tables set forth our results of operations for the three month period ended March 31, 2025 and 2024, presented in dollars and as a percentage of revenue, respectively.
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Revenue: |
|
|
|
|
|
|
||
Product |
|
$ |
11,848,713 |
|
|
$ |
12,287,046 |
|
Customer funded development |
|
|
410,375 |
|
|
|
364,740 |
|
|
|
|
12,259,088 |
|
|
|
12,651,786 |
|
Cost of revenue: |
|
|
|
|
|
|
||
Product |
|
|
7,912,314 |
|
|
|
8,818,756 |
|
Customer funded development |
|
|
349,782 |
|
|
|
109,737 |
|
|
|
|
8,262,096 |
|
|
|
8,928,493 |
|
Gross profit |
|
|
3,996,992 |
|
|
|
3,723,293 |
|
Operating expenses: |
|
|
|
|
|
|
||
General and administrative |
|
|
2,366,369 |
|
|
|
2,094,317 |
|
Marketing and selling |
|
|
2,218,190 |
|
|
|
1,920,113 |
|
Research and development |
|
|
1,357,293 |
|
|
|
970,877 |
|
Total operating expenses |
|
|
5,941,852 |
|
|
|
4,985,307 |
|
Loss from operations |
|
|
(1,944,860 |
) |
|
|
(1,262,014 |
) |
Other (expense) income, net: |
|
|
|
|
|
|
||
Interest income |
|
|
72,511 |
|
|
|
141,725 |
|
Interest expense |
|
|
(14,186 |
) |
|
|
(35,342 |
) |
Other (expense) income, net |
|
|
(21,633 |
) |
|
|
7,278 |
|
Total other income, net |
|
|
36,692 |
|
|
|
113,661 |
|
Loss before income taxes |
|
|
(1,908,168 |
) |
|
|
(1,148,353 |
) |
Provision for income taxes |
|
|
109,466 |
|
|
|
191,269 |
|
Net loss |
|
$ |
(2,017,634 |
) |
|
$ |
(1,339,622 |
) |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
26
|
|
For the Three Months Ended March 31, |
||
|
|
2025 |
|
2024 |
Revenue: |
|
|
|
|
Product |
|
96.7% |
|
97.1% |
Customer funded development |
|
3.3% |
|
2.9% |
|
|
100.0% |
|
100.0% |
Cost of revenue: |
|
|
|
|
Product |
|
64.5% |
|
69.7% |
Customer funded development |
|
2.9% |
|
0.9% |
|
|
67.4% |
|
70.6% |
Gross profit |
|
32.6% |
|
29.4% |
Operating expenses: |
|
|
|
|
General and administrative |
|
19.3% |
|
16.6% |
Marketing and selling |
|
18.1% |
|
15.2% |
Research and development |
|
11.1% |
|
7.7% |
Total operating expenses |
|
48.5% |
|
39.4% |
Loss from operations |
|
-15.9% |
|
-10.0% |
Other income (expense), net: |
|
|
|
|
Interest income |
|
0.6% |
|
1.1% |
Interest expense |
|
-0.1% |
|
-0.3% |
Other (expense) income, net |
|
-0.2% |
|
0.1% |
Total other income, net |
|
0.3% |
|
0.9% |
Loss before income taxes |
|
-15.6% |
|
-9.1% |
Provision for income taxes |
|
0.9% |
|
1.5% |
Net loss |
|
-16.5% |
|
-10.6% |
|
|
|
|
|
Comparison of the Three Month Periods Ended March 31, 2025 and 2024:
Revenue, cost of revenue and gross profit:
|
|
For the Three Months Ended March 31, 2025 |
|
|
For the Three Months Ended March 31, 2024 |
|
||||||||||||||||||||
Entity: |
|
Revenue |
|
Cost of |
|
Gross (loss) profit |
|
Gross |
|
|
Revenue |
|
Cost of |
|
Gross |
|
Gross |
|
||||||||
OSS |
|
$ |
5,206,810 |
|
$ |
(2,837,600 |
) |
$ |
2,369,210 |
|
|
45.5 |
% |
|
$ |
5,533,872 |
|
$ |
(3,641,095 |
) |
$ |
1,892,777 |
|
|
34.2 |
% |
Bressner |
|
|
7,052,277 |
|
|
(5,424,495 |
) |
|
1,627,782 |
|
|
23.1 |
% |
|
|
7,117,914 |
|
|
(5,287,397 |
) |
|
1,830,515 |
|
|
25.7 |
% |
|
|
$ |
12,259,088 |
|
$ |
(8,262,096 |
) |
$ |
3,996,992 |
|
|
32.6 |
% |
|
$ |
12,651,786 |
|
$ |
(8,928,493 |
) |
$ |
3,723,293 |
|
|
29.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Revenue
For the three months ended March 31, 2025, our total revenue decreased $392,698, or 3.1%, as compared to the same period in 2024. OSS saw a decrease in revenue of $327,062, or 5.9%, as compared to the same period in 2024. The primary contributor to this decrease was lower volume of shipments to a commercial aerospace customer, partially offset by higher volume of shipments to a defense customer. Bressner experienced a decrease of $65,637, or 0.9%, as compared to the same period in 2024.
Cost of revenue and gross profit
Cost of revenue decreased by $666,397, or 7.5%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS saw an decrease in cost of revenue of $803,495, or 22.1%, as compared to the same period in 2024. This decrease in cost of revenue was mainly due to a more profitable mix of products shipped in the
27
quarter. Bressner’s cost of revenue increased $137,098, or 2.6%, as compared to the same period in 2024, due to a less profitable mix of products shipped in the quarter.
The overall gross margin percentage was 32.6% for the three months ended March 31, 2025. OSS’ gross margin percentage for the three months ended March 31, 2025, was 45.5%, an increase of 11.3% as compared to the prior year period in 2024 of 34.2%. The increase was primarily due to higher volume of certain higher margin data storage units and componentry shipped in the quarter. OSS gross margins also benefited from a $211,830 reduction in OSS segment inventory reserves, due primarily to the usage of certain previously-reserved inventory items to satisfy a new customer order received in the quarter. Bressner contributed gross margin at a rate of 23.1%, as compared to the same period in 2024 of 25.7%, a decrease of 2.6 percentage points, due to product mix.
Operating expenses
General and administrative expense
General and administrative expense increased $272,052, or 13%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS experienced an increase of $211,994, or 12.5%. The increase in general and administrative expense is primarily attributable to increased stock compensation expense due to a higher grant date fair value of employee restricted stock units recognized as expense in the period. Bressner had an increase of $60,058, or 15.1%, as a result of higher salary and personnel costs. Overall, total general and administrative expense increased as a percentage of revenue to 19.3% for the three months ended March 31, 2025, as compared to 16.6% during the same period in 2024.
Marketing and selling expense
Marketing and selling expense increased $298,077, or 15.5%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS had an increase of $280,552, or 21.2%, due to an increase in personnel costs resulting from additions in headcount made during the course of 2024. Bressner had an increase of $17,525, or 3%. Overall, total marketing and selling expense increased as a percentage of revenue to 18.1% during the three months ended March 31, 2025, as compared to 15.2% during the same period in 2024.
Research and development expense
Research and development expense increased $386,416, or 39.8%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS saw an increase of $380,586, or 46.2%. The increase was driven by higher engineering labor to support new product development. Bressner experienced an increase of $5,830, or 4%, due to additional personnel and overhead costs. Overall, total research and development expense as a percentage of revenue increased to 11.1% during the three months ended March 31, 2025, as compared to 7.7% during the same period in 2024.
Interest income
Interest income decreased $69,214 for the three months ended March 31, 2025, as compared to the same period in 2024. The decrease is primarily attributable to lower investment balances due to the company's usage of cash for operations and debt repayment.
Interest expense
Interest expense decreased $21,156 for the three months ended March 31, 2025, as compared to the same period in 2024 due to declining borrowing balances as a result of the repayment of debt.
28
Other income (expense), net
Other income (expense), for the three months ended March 31, 2025, resulted in net other expense of $21,633 as compared to net other income of $7,278, in the same period in 2024, for a net decrease in other income of $28,911 attributable to changes in foreign currency gain and losses.
Provision for income taxes
We have recorded an income tax provision of $109,466 and $191,269 for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate for the three months ended March 31, 2025 and 2024 differed from the statutory rate mainly due to permanent non-deductible goodwill amortization for Bressner, change in valuation allowance, deductions related to expenses of OSS stock options, research and development credits, and changes in reserves for uncertain tax positions, as well as projecting foreign and state tax liabilities for the year. The tax provision is predominately attributable to profit on operations in Germany.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been provided by public and private offerings of our securities and revenues generated from our business operations. As of March 31, 2025, we had total cash and cash equivalents of $6,498,468, with short-term investments of $2,620,169, and total net working capital of $23,084,187. Cash and cash equivalents held by Bressner totaled US$3,230,526 on March 31, 2025. Bressner’s debt covenants limit the use of those funds by its parent company.
During the three month period ended March 31, 2025, we had a loss from operations of $1,944,860, with net cash used in operating activities of $1,135,596. During the year ended December 31, 2024, we had a loss from operations of $13,356,813, with net cash used in operating activities of $108,098.
Our sources of liquidity and cash flows are used to fund ongoing operations, to fund research and development projects for new products and technologies, and to provide ongoing support services for our customers. Over the next year, we anticipate that we will use our liquidity and cash flows from our operations to fund our business. In addition, as part of our business strategy, we occasionally evaluate potential acquisitions of businesses, products, and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, successfully integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot provide assurances that additional financing will be available to us at any required time and on commercially reasonable terms, if at all.
As of March 31, 2025, there is an elevated level of uncertainty regarding the economic outlook. We intend to continue to monitor the effects of trade and tariff policy, inflation, global supply chain disruptions, and economic conditions, and, if appropriate, we may alter our plans to address such concerns as they may arise.
Management’s plans are to focus on acquiring new customer orders, to further grow and expand our business in both commercial and military markets, and to respond to the changing economic landscape by continuing to control hiring and operating costs, conserve cash and focus on growth and margin expansion. Management is committed to conserving cash and securing debt and/or equity financing, as required, for liquidity to meet our near-term cash requirements.
In April 2022, the Company obtained a domestic revolving line of credit of $2,000,000 at Torrey Pines Bank. To access this line of credit, the Company must maintain a minimum cash balance of $2,500,000 with the bank and maintain a maximum debt to tangible net worth of ratio of 1.00. The line of credit is also collateralized by the assets of the Company. No balance was outstanding on March 31, 2025 or December 31, 2024.
Additionally, in August 2023, we filed a new registration statement on Form S-3 (Registration No. 333-274073) with the SEC, which became effective on August 25, 2023, and allows us to offer and sell up to an aggregate of $100,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common
29
stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities, in any combination, together or separately, in one or more offerings, in amounts, at prices and on the terms that we will determine at the time of the offering and which will be set forth in a prospectus supplement and any related free writing prospectus. In the event that we need additional financing, we may choose to consummate an offering of our securities under the registration statement on S-3 in order to raise capital.
Management believes that we have sufficient liquidity to satisfy our anticipated working capital requirements for our ongoing operations and obligations for at least the next twelve months. However, there can be no assurance that management’s efforts will be effective or the forecasted cash flows will be achieved. Furthermore, we will continue to evaluate our capital expenditure needs based upon various factors, including but not limited to, our sales from operations, growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing efforts, the timing of new product introductions, and the continuing market acceptance of our products and services.
If cash generated from operations is insufficient to satisfy our capital requirements, we may borrow up to $2,000,000 from our revolving line of credit with our bank (subject to satisfaction of certain borrowing conditions), may have to sell additional equity or debt securities, or may obtain expanded credit facilities to fund our operating expenses, pay our obligations, diversify our geographical reach, and grow the Company. In the event such financing is needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected. However, if cash flows from operations become insufficient to continue operations at the current level, and if no additional financing were obtained, then management would consider restructuring the Company in a way to preserve its business while maintaining expenses within operating cash flows.
The following table summarizes our cash flows for the three month periods ended March 31, 2025 and 2024:
|
|
For the Three Months Ended March 31, |
|
|||||
Cash flows: |
|
2025 |
|
|
2024 |
|
||
Net cash (used in) provided by operating activities |
|
$ |
(1,135,596 |
) |
|
$ |
2,043,378 |
|
Net cash provided by investing activities |
|
$ |
584,495 |
|
|
$ |
1,644,196 |
|
Net cash provided by (used in) financing activities |
|
$ |
129,656 |
|
|
$ |
(799,974 |
) |
|
|
|
|
|
|
|
||
Operating Activities
During the three month period ended March 31, 2025, we used $1,135,596 in cash from operating activities, compared to cash generated from operating activities of $2,043,378 in the same period in 2024.
Net cash used in operating activities during the three month period ended March 31, 2025 was the result of three components: (i) net loss $2,017,634 in the current period; (ii) net favorable adjustments in the current period for non-cash items of $768,670, which were comprised of $914,970 of favorable non-cash items, offset by $146,300 of negative non-cash items that did not affect operating cash flow; and (iii) cash provided by changes in working capital items of $113,368. Cash provided by net changes in working capital was $113,368 for the three months ended March 31, 2025, compared to cash provided by net changes in working capital of $2,693,831 in the same period of 2024. The change in cash provided by working capital from the prior year period was primarily due to the timing of inventory material receipts to support customer orders expected to be fulfilled within the year, the timing of payments to suppliers for material received in the prior year, and the timing of cash disbursements related to accrued expenses for a contract loss and for supplier material received on non-cancellable purchase orders. In the three month period ended March 31, 2025, the cash provided by changes in working capital was primarily due to a reduction in accounts receivable due to receipt of customer payments for products shipped in Q4 2024 and an increase in accounts payable driven by receipt of materials in the quarter, partially offset by cash usage from changes in inventories, prepaid expenses and other current assets, accrued expenses and other liabilities, and operating lease liabilities.
30
Our ability to generate cash from operations in future periods will depend in large part on our profitability, the rate and timing of collections of our accounts receivable, our inventory turns and our ability to manage other areas of working capital, including accounts payable and accrued expenses.
Investing Activities
During the three month period ended March 31, 2025, the Company generated cash of $584,495 from investing activities, as compared to $1,644,196 provided by investing activities during the prior year period in 2024, a net reduction of $1,059,701. This change is attributable to a decrease in the number of short-term investments redeemed in the current period as compared to the prior period, partially offset by lower capital expenditures.
Financing Activities
During the three month period ended March 31, 2025, the Company generated $129,656 in cash from the exercise of options, net of payments of payroll taxes on the net issuance of employee stock. During the same period in 2024, the Company used $927,324 in cash for debt payments on Bressner borrowings and payment of tax on the net exercise of vested RSUs, while generating $129,656 from the exercise of options, net of associated payroll tax payments, for a net cash provided by financing activities of $799,974.
Known Trends or Uncertainties
Although we have not seen any significant reduction in revenues to date due to consolidations, we have seen some consolidation in our industry during economic downturns. These consolidations have not had a negative effect on our total sales; however, should consolidations and downsizing in the industry continue to occur, those events could adversely impact our revenues and earnings going forward.
We are experiencing delays in funding for customer projects, delays in delivery schedules based upon customer requirements and an extended sales cycle. Additionally, certain of our customers are experiencing downturns or uncertainty in their own business operations and revenue. During the three month period ended March 31, 2025, the Company experienced delays and postponements of committed purchases and orders due to certain customers’ funding or program delays. Such delays could negatively impact the Company’s results of operations for the year ending December 31, 2025. If such delays in orders continue in the future, our operating results will be further impacted, and our revenues may decline in future periods.
With the Company's shifted focus to the development and sale of edge computing, we have significantly increased our efforts to penetrate the military and defense sectors in particular, which typically have protracted sales cycles, significant contracting requirements, and multi-year deliverables. Our pipeline reflects the procurement habits and timing of the military and defense sector.
Impacts resulting in part from tariffs and the threat of tariffs, ongoing military conflicts in Europe and Middle East, Federal Reserve and European Central Bank interest rate policy, inflation and the risk of inflation, and uncertainty about the timing and substance of U.S. government budgets and policy actions have contributed to economic uncertainty and capital markets volatility in the near term that could negatively affect our operations. Weakness in the European and more specifically the German economy negatively affected our Bressner segment in 2024. Economic uncertainty, volatility, and the risk of recessionary conditions in Europe and North America remain elevated.
Inflation
We have recently experienced some and, continue to feel, the effects due to inflation in both the U.S. and Europe. Although the Company attempts to pass on increases in raw material, labor, energy and fuel-related costs to our customers, the Company’s ability to do so is dependent upon the rate and magnitude of any increase, competitive pressures and market conditions for the Company’s products. There have been in the past, and may be in the future, periods of time during which increases in these costs cannot be fully recovered. These increasing costs
31
are being aggressively managed by the Company and actions are being taken to minimize the impact to the Company. Inflation affects the Company’s manufacturing costs, distribution costs and operating expenses.
Tariffs
Tariffs and the threat of tariffs, including both United States sanctioned tariffs and the potential for retaliatory tariffs, have contributed to uncertainty and supply chain disruptions that could impact our operations. The Company's OSS segment conducts final assembly and test of products at our facility in California. However, we source components and subassemblies from both within and outside of the United States. While we attempt to pass on the cost of tariffs to our customers, our ability to do so is dependent upon the many factors, including the predictability of tariff rates and market conditions for the Company's products. Management is closely monitoring and managing impacts and potential impacts to our business from ongoing trade policy developments.
Off balance sheet arrangements
We do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity.
We do not have any majority-owned subsidiaries that are not consolidated in the financial statements. Additionally, we do not have an interest in, or relationships with, any special purpose entities.
Stockholder transactions
See Note 8 to the accompanying consolidated financial statements for a discussion regarding our stockholder transactions for the relevant periods.
Critical accounting policies and estimates
In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.
Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. See further discussion of our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Interest rate risk
Our exposure to interest rate risk is primarily associated with borrowing on revolving lines of credit denominated in both U.S. dollars and Euros. We are exposed to the impact of interest rate changes primarily through our borrowing activities for our variable rate borrowings.
Concentration of credit risk
At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”), both of which provide basic deposit coverage with limits up to $250,000 per owner. As of March 31, 2025, the Company had $2,767,942 of cash in our accounts that exceeded the insurance limits. The Company has not experienced any losses in these accounts and believes that the financial institutions at which such amounts are held are stable; however, no assurances can be provided. In Germany, the deposit insurance is €100,000 per bank, per customer. Bressner has
32
funds on deposit in both Euro and U.S. dollar denominations of €2,638,560 (US$2,848,326) with banks in excess of the insurance limits.
We provide credit to our customers in the normal course of business. We perform ongoing credit evaluations of our customers’ financial condition and limit the amount of credit extended when deemed necessary.
Foreign currency risk
We operate in the United States and Germany. Our primary reporting currency is the United States dollar. Foreign sales of products and services are primarily denominated in U.S. dollars. We also conduct business outside the United States through Bressner, our foreign subsidiary in Germany, where business is largely transacted in non-U.S. dollar currencies, particularly the Euro, which is subject to fluctuations due to changes in foreign currency exchange rates. Accordingly, we are subject to exposure from changes in the exchange rates of local currencies. Foreign currency transaction gains and losses are recorded in other income (expense), net in the consolidated statements of operations.
OSS GmbH operates as an extension of OSS’ domestic operations and acquired Bressner in October 2018. The functional currency of OSS GmbH is the Euro. Transactions denominated in currencies other than the functional currency are remeasured in the functional currency at the average exchange rate in effect during the period. At the end of each reporting period, monetary assets and liabilities are translated using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Consequently, changes in the exchange rates of the currencies may impact the translation of the foreign subsidiaries’ statements of operations into U.S. dollars, which may in turn affect our consolidated statement of operations. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income in the consolidated statement of comprehensive income.
Derivative Financial Instruments
We employ derivatives on a periodic basis to manage certain market risks through the use of foreign exchange forward contracts. We do not use derivatives for trading or speculative purposes. Our derivatives are designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). We hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we may enter into foreign exchange contracts to provide currency at a fixed rate. The Company is currently not a party to any of these types of transactions.
Non-GAAP Financial Measures
Adjusted EBITDA
We believe that the use of adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, is helpful for an investor to assess the performance of the Company. The Company defines adjusted EBITDA as income (loss) before interest, taxes, depreciation, amortization, acquisition expenses, impairment of long-lived assets, financing costs, fair value adjustments from purchase accounting, stock-based compensation expense and expenses related to discontinued operations.
Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States, or GAAP. Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash operating expenses, we believe that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between our core business operating results and those of other companies, as well as providing us with an important tool for financial and operational decision making and for evaluating our own core business operating results over different periods of time.
33
Our adjusted EBITDA measure may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. Our adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating income or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. We do not consider adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.
|
For the Three Months Ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Net loss |
$ |
(2,017,634 |
) |
|
$ |
(1,339,622 |
) |
Depreciation |
|
223,847 |
|
|
|
289,547 |
|
Amortization of right-of-use assets net of change in lease liability |
|
(2,032 |
) |
|
|
55,997 |
|
Stock-based compensation expense |
|
612,561 |
|
|
|
408,740 |
|
Interest expense |
|
14,186 |
|
|
|
35,342 |
|
Interest income |
|
(72,511 |
) |
|
|
(141,725 |
) |
Provision for income taxes |
|
109,466 |
|
|
|
191,269 |
|
Adjusted EBITDA |
$ |
(1,132,116 |
) |
|
$ |
(500,452 |
) |
|
|
|
|
|
|
||
Adjusted EPS
Adjusted EPS excludes the impact of certain items, and therefore, has not been calculated in accordance with GAAP. We believe that exclusion of certain selected items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry. We use this measure along with the corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. The Company defines non-GAAP income (loss) as income or (loss) before amortization, stock-based compensation, expenses related to discontinued operations, impairment of long-lived assets and non-recurring acquisition costs. Adjusted EPS expresses adjusted income (loss) on a per share basis using weighted average diluted shares outstanding.
Adjusted EPS is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the adjusted income from continuing operations and adjusted EPS financial adjustments described above, and investors should not infer from our presentation of these non-GAAP financial measures that these costs are unusual, infrequent or non-recurring.
The following table reconciles non-GAAP net loss and basic and diluted earnings per share:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Net loss |
|
$ |
(2,017,634 |
) |
|
$ |
(1,339,622 |
) |
Stock-based compensation expense |
|
|
612,561 |
|
|
|
408,740 |
|
Non-GAAP net loss |
|
$ |
(1,405,073 |
) |
|
$ |
(930,882 |
) |
Non-GAAP net loss per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
(0.07 |
) |
|
$ |
(0.04 |
) |
Diluted |
|
$ |
(0.07 |
) |
|
$ |
(0.04 |
) |
Weighted average common shares outstanding: |
|
|
|
|
|
|
||
Basic |
|
|
21,384,599 |
|
|
|
20,709,234 |
|
Diluted |
|
|
21,384,599 |
|
|
|
20,709,234 |
|
|
|
|
|
|
|
|
||
34
Free Cash Flow
Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by or used in operating activities, less capital expenditures for property and equipment. We believe free cash flow provides investors with an important perspective on cash available for investments and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. We believe that trends in our free cash flow can be valuable indicators of our operating performance and liquidity.
Free cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.
Investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash. The following table reconciles cash provided by or used in operating activities, the most directly comparable GAAP financial measure, to free cash flow:
|
|
For the Three Months Ended March 31, |
|
|||||
Cash flow: |
|
2025 |
|
|
2024 |
|
||
Net cash (used in) provided by operating activities |
|
$ |
(1,135,596 |
) |
|
$ |
2,043,378 |
|
Capital expenditures |
|
|
(12,793 |
) |
|
|
(167,168 |
) |
Free cash flow |
|
$ |
(1,148,389 |
) |
|
$ |
1,876,210 |
|
|
|
|
|
|
|
|
||
35
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Limitation on Effectiveness of Controls
The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals. The inherent limitations in any control system include the realities that judgments related to decision-making can be faulty and that reduced effectiveness in controls can occur because of simple errors or mistakes. Due to the inherent limitations in a cost-effective control system, misstatements due to error may occur and may not be detected.
Evaluation of Disclosure Controls and Procedures
Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on our management’s evaluation (based upon 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2025, which were identified in connection with management's evaluation required by paragraph (d) Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
36
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of any material pending legal proceedings, please see Note 9, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
Item 1A. Risk Factors.
Please carefully consider the information set forth in this Quarterly Report and the risk factors discussed in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect our business, financial condition, or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
There have not been any material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2024, as filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
(a) None.
(b) None.
(c) Rule 10b5-1 Trading Plans
During the three months ended March 31, 2025, none of our directors or officers entered into,
Item 6. Exhibits.
37
Exhibit Index
Exhibit Number |
|
Exhibit Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
|
Filed Herewith |
3.1 |
|
Amended and Restated Certificate of Incorporation (currently in effect). |
|
8-K/A |
|
001-38371 |
|
3.1 |
|
March 21, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 INS |
|
Inline XBRL Instance Document with Embedded Linkbase Documents |
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
101 SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments) |
|
|
|
|
|
|
|
|
|
** |
* Furnished herewith
** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
One Stop Systems, Inc. |
|
|
|
|
|
Date: May 7, 2025 |
|
By: |
/s/ Michael Knowles |
|
|
|
Michael Knowles |
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: May 7, 2025 |
|
By: |
/s/ Daniel Gabel |
|
|
|
Daniel Gabel |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
39
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Knowles, certify that:
Date: May 7, 2025 |
|
By: |
|
/s/ Michael Knowles |
|
|
|
|
Michael Knowles |
|
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel Gabel, certify that:
Date: May 7, 2025 |
|
By: |
|
/s/ Daniel Gabel |
|
|
|
|
Daniel Gabel |
|
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of One Stop Systems, Inc. (the “Company”) for the period ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Knowles, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 7, 2025 |
|
By: |
/s/ Michael Knowles |
|
|
|
Michael Knowles |
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of One Stop Systems, Inc. (the “Company”) for the period ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Gabel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 7, 2025 |
|
By: |
/s/ Daniel Gabel |
|
|
|
Daniel Gabel |
|
|
|
Chief Financial Officer (Principal Accounting and Financial Officer) |