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What changed in ONE STOP SYSTEMS, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ONE STOP SYSTEMS, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+399 added−456 removedSource: 10-K (2025-03-19) vs 10-K (2024-03-21)

Top changes in ONE STOP SYSTEMS, INC.'s 2024 10-K

399 paragraphs added · 456 removed · 317 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

211 edited+37 added−52 removed320 unchanged
Biggest changeWhen combined with our execution and knowledge for deploying these systems in challenging environments, we bring the latest commercially available datacenter level technology and products to this market. 5 Business Strategy We continue to execute our strategic commitment to the AI Transportable and rugged edge HPC market, and we believe that our engagement over the past two years in the markets and with customers and our current portfolio of business are validating this approach.
Biggest changeBusiness Strategy We continue to execute our strategic commitment to the rugged edge HPC market, and we believe that our engagement in the markets and with customers, supported by our portfolio of products and solutions, are validating this approach. In this portfolio, we are witnessing some of our highest margins, repeat business, and expanding levels of interest.
Expertise in power, cooling, and mechanical design are required to address the requirements of the high-performance computing customers, especially while meeting the constrained time requirements of rugged edge deployments. We have developed leadership design capability in high-power design and distribution within large rack enclosures as well as edge optimized configurations.
Expertise in power, cooling, and mechanical design are required to address the requirements of high-performance computing customers, especially while meeting the constrained time requirements of rugged edge deployments. We have developed leadership design capability in high-power design and distribution within large rack enclosures as well as edge optimized configurations.
With U-BMC, we provide “single pane of glass” management of complex systems, even if the server is in a separate enclosure, and an open-source Redfish API for easy integration with industry-standard management tools. We expect to continue to expand and enhance our licensable software to create additional value, barriers of entry and stickiness with our program wins.
With U-BMC, we provide “single pane of glass” management of complex systems, even if the server is in a separate enclosure, and an open-source Redfish API for easy integration with industry-standard management tools. We expect to continue to expand and enhance our licensable software to create additional value, barriers to entry, and stickiness with our program wins.
Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the military conflicts or any other geopolitical tensions.
Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from military conflicts or any other geopolitical tensions.
We offer product warranties that generally extend for one or two years from date of sale that require us to repair or replace defective products returned by the customer during the warranty period at no cost to the customer. Our product warranties are in addition to warranties we receive from our vendors.
We offer product warranties that generally extend for one or two years from the date of sale that require us to repair or replace defective products returned by the customer during the warranty period at no cost to the customer. Our product warranties are in addition to warranties we receive from our vendors.
Acquisitions involve numerous risks, including, without limitation, the following: • difficulties in successfully integrating the operations, systems, technologies, products, offerings and personnel of the acquired company or companies; • insufficient revenue to offset increased expenses associated with acquisitions; • diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions; • potential difficulties in completing projects associated with in-process research and development intangibles; • difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions; • initial dependence on unfamiliar supply chains or relatively small supply partners; and • the potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans.
Acquisitions involve numerous risks, including, without limitation, the following: • difficulties in successfully integrating the operations, systems, technologies, products, offerings and personnel of the acquired company or companies; • insufficient revenue to offset increased expenses associated with acquisitions; • diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions; • potential difficulties in completing projects associated with in-process research and development intangibles; • difficulties in entering markets in which we have no or limited prior direct experience and where competitors in such markets have stronger market positions; • initial dependence on unfamiliar supply chains or relatively small supply partners; and • the potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans.
Continued inflation, volatility or recessionary risks in Germany or other countries that we operate of sell our products in could adversely affect or business and results of operations.
Continued inflation, volatility or recessionary risks in Germany or other countries that we operate or sell our products in could adversely affect our business and results of operations.
If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share. • If we fail to achieve design wins for our products, our business will be harmed. 26 • Business disruptions could harm our business, lead to a decline in revenues and increase our costs. • If we cannot retain, attract, and motivate key personnel, we may be unable to effectively implement our business plan. • Any future acquisitions could require significant management attention, disrupt our business, result in dilution to our stockholders, deplete our cash reserves, and adversely affect our financial results. • The continuing commoditization of HPC hardware and software has resulted in increased pricing pressure. • If we are unable to protect our proprietary design and intellectual property rights and/or the confidentiality of our trade secrets our competitive position could be harmed, or we could be required to incur significant expenses to enforce our rights. • Many of our proprietary designs are in digital form and the breach of our computer systems could result in these designs being stolen. • Our proprietary designs are susceptible to reverse engineering by our competitors. • Claims by others that we, our channel partners or our end-customers infringe their intellectual property or trade secret rights could harm our business, including as a result of our contractual indemnification obligations to certain channel partners and end customers. • Privacy concerns relating to our products and services could damage our reputation, deter current and potential users from using our products and services, result in liability, or result in legal or regulatory proceedings. • Our international operations, and in particular Bressner's operations in Germany, subject us to a variety of risks and challenges. • New regulations or standards or changes in existing regulations or standards, in the United States or internationally related to our suppliers’ products may result in unanticipated costs or liabilities, and could place additional burdens on the operations of our business. • We could be adversely affected by violations of the U.S.
If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share. • If we fail to achieve design wins for our products, our business will be harmed. • Business disruptions could harm our business, lead to a decline in revenues and increase our costs. • If we cannot retain, attract, and motivate key personnel, we may be unable to effectively implement our business plan. • Any future acquisitions could require significant management attention, disrupt our business, result in dilution to our stockholders, deplete our cash reserves, and adversely affect our financial results. • The continuing commoditization of HPC hardware and software has resulted in increased pricing pressure. • If we are unable to protect our proprietary design and intellectual property rights and/or the confidentiality of our trade secrets, our competitive position could be harmed, or we could be required to incur significant expenses to enforce our rights. • Many of our proprietary designs are in digital form and the breach of our computer systems could result in these designs being stolen. • Our proprietary designs are susceptible to reverse engineering by our competitors. • Claims by others that we, our channel partners or our end-customers infringe their intellectual property or trade secret rights could harm our business, including as a result of our contractual indemnification obligations to certain channel partners and end customers. • Privacy concerns relating to our products and services could damage our reputation, deter current and potential users from using our products and services, result in liability, or result in legal or regulatory proceedings. • Our international operations, and in particular Bressner's operations in Germany, subject us to a variety of risks and challenges. • New regulations or standards or changes in existing regulations or standards, in the United States or internationally related to our suppliers’ products may result in unanticipated costs or liabilities, and could place additional burdens on the operations of our business. • We could be adversely affected by violations of the U.S.
Foreign Corrupt Practices Act and similar worldwide anti-bribery laws. • The price of our common stock may be volatile, and the price could decline if securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our company or if there are substantial future sales of shares of our common stock, amongst other things. • Our directors and principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. • Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock. • Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and expand our operations.
Foreign Corrupt Practices Act and similar worldwide anti-bribery laws. • The price of our common stock may be volatile, and the price could decline if securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our company or if there are substantial future sales of shares of our common stock, amongst other things. 25 • Our directors and principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. • Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock. • Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and expand our operations.
Some of these provisions: • authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock and up to 50,000,000 shares of authorized common stock; • require that any action to be taken by our stockholders be affected at a duly called annual or special meeting, and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairman of the board of directors, the chief executive officer or the president; • establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors; • provide that our directors may be removed only for cause; and • provide that vacancies on our board of directors may, except as otherwise required by law, be filled only by a majority of directors then in office, even if less than a quorum.
Some of these provisions: • authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock and up to 50,000,000 shares of authorized common stock; • require that any action to be taken by our stockholders be affected at a duly called annual or special meeting, and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairman of the board of directors, the chief executive officer or the president; 42 • establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors; • provide that our directors may be removed only for cause; and • provide that vacancies on our board of directors may, except as otherwise required by law, be filled only by a majority of directors then in office, even if less than a quorum.
Within these product areas, the approach implies that we: • Anticipate trends in these markets and do not hesitate to share our vision with customers to create thought leadership and deeper engagement; • Swiftly deploy resources in engineering and sales to bring innovative products to market before our competitors; • Leverage strategic relationships to get early access to future products and technologies; • Hunt for early program wins with market leaders and leverage close relationships; • Continuously monitor and influence the market for next generation technologies for which a new concepts and solutions may be forming; and • Establish leadership in the fast-growing AI Transportable portion of edge computing.
Within these product areas, the approach implies that we: • Anticipate trends in these markets and do not hesitate to share our vision with customers to create thought leadership and deeper engagement; • Swiftly deploy resources in engineering and sales to bring innovative products to market before our competitors; • Leverage strategic relationships to get early access to future products and technologies; • Hunt for early program wins with market leaders and leverage close relationships; • Continuously monitor and influence the market for next generation technologies for which new concepts and solutions may be forming; and • Establish leadership in the fast-growing AI Transportable portion of edge computing.
Additional discussion of the risks summarized in this “Risk Factors Summary” section, and other risks that we face, can be found below and should be carefully considered, together with other information included in this Annual Report. • Economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, could harm our financial condition and results of operations. • Volatile or recessionary conditions in the United States or abroad could adversely affect our business and/or our access to capital markets in a material manner. • Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations. • We may be adversely affected by the effects of inflation. • The market for our products is developing and may not develop as we expect. • Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance. • Our products are subject to competition, including competition from the customers to whom we sell, and new entrants and the introduction of other distribution models in our markets may harm our competitive position. • Cybersecurity risks and cyber incidents, as well as other significant disruptions of our information technology networks and related systems and resources, could adversely affect our business, disrupt operations and expose us to significant liabilities. • Changes in U.S. government priorities and/or delays or reductions in defense spending could negatively impact our financial position, results of operations, liquidity and overall business. • Changing procurement policies could adversely affect our business and financial results. • If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged. • A limited number of customers represent a significant portion of our sales, and the loss of any key customers could cause our sales to decrease significantly. • We rely on a limited number of parts suppliers to support our manufacturing and design processes. • Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers, as well as our ability to maintain our production schedule. • Unsuccessful government programs or OEM contracts could lead to reduced revenues. • Our inventory may rapidly become obsolete. • We offer an extended product warranty to cover defective products at no cost to the customer.
Additional discussion of the risks summarized in this “Risk Factors Summary” section, and other risks that we face, can be found below and should be carefully considered, together with other information included in this Annual Report. • Economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, could harm our financial condition and results of operations. • Volatile or recessionary conditions in the United States or abroad could adversely affect our business and/or our access to capital markets in a material manner. • Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations. • We may be adversely affected by the effects of inflation. • The market for our products is developing and may not develop as we expect. • Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance. • Our products are subject to competition, including competition from the customers to whom we sell and from new entrants, and the introduction of other distribution models in our markets may harm our competitive position. • Cybersecurity risks and cyber incidents, as well as other significant disruptions of our information technology networks and related systems and resources, could adversely affect our business, disrupt operations and expose us to significant liabilities. 24 • Changes in U.S. government priorities and/or delays or reductions in defense spending could negatively impact our financial position, results of operations, liquidity and overall business. • Changing procurement policies could adversely affect our business and financial results. • If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged. • A limited number of customers represents a significant portion of our sales, and the loss of any key customers could cause our sales to decrease significantly. • We rely on a limited number of parts suppliers to support our manufacturing and design processes. • Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers, as well as our ability to maintain our production schedule. • Unsuccessful government programs or OEM contracts could lead to reduced revenues. • Our inventory may rapidly become obsolete. • We offer an extended product warranty to cover defective products at no cost to the customer.
We periodically update our website to capture new products, as well as align with new applications and emerging markets. • Social Media – OSS regularly uses Facebook, LinkedIn, and Twitter to instantly alert the Company’s followers to new events, products, services, and customer stories. • Publications – We periodically publish white papers, customer success stories, and other demand generation technology articles in printed and electronic periodicals and newsletters, including, but not 20 limited to, Autonomous Vehicle International, Military Embedded Systems, Edge Industry Review, Aerospace and Defense and Auto News.
We periodically update our website to capture new products, as well as align with new applications and emerging markets. • Social Media – OSS regularly uses Facebook, LinkedIn, and Twitter to instantly alert the Company’s followers to new events, products, services, and customer stories. • Publications – We periodically publish white papers, customer success stories, and other demand generation technology articles in printed and electronic periodicals and newsletters, including, but not limited to, Autonomous Vehicle International, Military Embedded Systems, Edge Industry Review, Aerospace and Defense and Auto News.
If our products are not adopted or there is a reduction in demand for our products caused by a lack of customer acceptance, a slowdown in demand for computational power, an overabundance of unused computational power, technological challenges, competing technologies and products, decreases in corporate spending, weakening economic conditions, or otherwise, 29 it could result in reduced customer orders, early order cancellations, the loss of customers, or decreased sales, any of which would adversely affect our business, operating results, and financial condition.
If our products are not adopted or there is a reduction in demand for our products caused by a lack of customer acceptance, a slowdown in demand for computational power, an overabundance of unused computational power, technological challenges, competing technologies and products, decreases in corporate spending, weakening economic conditions, or otherwise, it could result in reduced customer orders, early order cancellations, the loss of customers, or decreased sales, any of which would adversely affect our business, operating results, and financial condition.
We achieve this by: • Offering cutting-edge modular product lines: Fan-less Embedded Box PCs, Panel PCs as well as Industrial Rack Mount Servers, focused on individual client requirements. • Precisely addressing client requirements: Ensuring ROI maximization and repeat business through tailored solutions. • Optimizing system integrations: Delivering cost-effective, performance-driven systems that boost sales through value propositions.
We achieve this by: • Offering cutting-edge modular product lines: Fan-less Embedded Box PCs, Panel PCs as well as Industrial Rack Mount Servers, focused on individual client requirements. • Precisely addressing client requirements: Ensuring ROI maximization and repeat business through tailored solutions. 18 • Optimizing system integrations: Delivering cost-effective, performance-driven systems that boost sales through value propositions.
New entrants seeking to gain market share by introducing new technology, new products and new server configurations may make it more difficult for us to sell our products and earn design wins, which could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.
New entrants seeking to gain market share by introducing new technology, new products and new server configurations may make it more difficult for us to sell our products and earn design wins, which could create 29 increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.
This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which would likely seriously harm our business, operating results, or financial condition. From a cost and control perspective, our products are specialized and thus generally cost more than our competitors’ products.
This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failure to increase, or loss of, market share, any of which would likely seriously harm our business, operating results, or financial condition. From a cost and control perspective, our products are specialized and thus generally cost more than our competitors’ products.
For example, an increase in the use of contract structures that shift risk to the contractor, such as fixed-price development 33 contracts and incentive-based fee arrangements, or the U.S. Government using different award fee criteria than historically used could adversely affect our profits or make it more difficult to win new contracts.
For example, an increase in the use of contract structures that shift risk to the contractor, such as fixed-price development contracts and incentive-based fee arrangements, or the U.S. Government using different award fee criteria than historically used could adversely affect our profits or make it more difficult to win new contracts.
Although the COVID 19 pandemic has subsided we are continuing to experience unavailability of certain products and limited supplies, protracted delivery dates for componentry, increasing product costs, and changes in minimum order quantities to secure product. Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers.
Although the COVID 19 pandemic has subsided we are 33 continuing to experience unavailability of certain products and limited supplies, protracted delivery dates for componentry, increasing product costs, and changes in minimum order quantities to secure product. Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers.
To the extent we incur costs in excess of funds obligated on a contract or in advance of a contract award or contract definitization, we are at risk of not being reimbursed for those costs unless and until additional funds are obligated under the contract or the contract is successfully awarded, definitized and funded, which could adversely affect our results of operations, financial condition and cash flows.
To the extent we incur costs in excess of funds 31 obligated on a contract or in advance of a contract award or contract definitization, we are at risk of not being reimbursed for those costs unless and until additional funds are obligated under the contract or the contract is successfully awarded, definitized and funded, which could adversely affect our results of operations, financial condition and cash flows.
We have worked with serial switching technology, starting with the first generation of PCIe, and have been an innovator in creating unique and flexible topologies to meet the specific needs of customers. Creating custom solutions for unique customer solutions is a core competency at OSS, and we rely on this deep knowledge of switch capabilities and limitations.
We have worked with serial switching technology, starting with the first generation of PCIe, and have been an innovator in creating unique and flexible topologies to meet the specific needs of customers. Creating custom solutions for unique customer requirements is a core competency at OSS, and we rely on this deep knowledge of switch capabilities and limitations.
OSS leverages the latest technology to build complete storage and data logging systems, including all the software to provide the highest density and performance in a compact form factor ideal for vehicles of all types. This, combined with our hot swappable canisters, has enabled many autonomous truck and military aircraft applications.
OSS leverages the latest technology to build complete storage and data logging systems, including all the software to provide the highest density and performance in a compact form factor ideal for vehicles of all types. This, combined with our hot swappable canisters, has enabled autonomous truck and military aircraft applications.
We currently offer what we believe to be the largest 16 PCIe acceleration product line, with chassis and backplanes that offer expansion from one to 64 slots. Due to its greater data throughput, lower latency and flexibility of design, we believe this is a growing market, and we intend to maintain our leadership role.
We currently offer what we believe to be the largest PCIe acceleration product line, with chassis and backplanes that offer expansion from one to 64 slots. Due to its greater data throughput, lower latency, and flexibility of design, we believe this is a growing market, and we intend to maintain our leadership role.
OSS is currently expanding its footprint within in the military market with multiple new engagements with other prime contractors and the DOD directly. Much of this activity addresses the needs of AI, sensor fusion, and autonomy required in the battlefield. Current applications include land vehicles, aircraft, drones, ships, and submersibles.
OSS is currently expanding its footprint within the military market with multiple new engagements with other prime contractors and the DOD directly. Much of this activity addresses the needs of AI, 16 sensor fusion, and autonomy required in the battlefield. Current applications include land vehicles, aircraft, drones, ships, and submersibles.
A write off of the inventory, or a reduction in the inventory value due to a sales price reduction, could have an adverse effect on our financial condition and operating results. 35 If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share.
A write off of the inventory, or a reduction in the inventory value due to a sales price reduction, could have an adverse effect on our financial condition and operating results. If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share.
Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how could have a material adverse effect on our business. Adverse determinations in any litigation could subject us to significant liabilities to third parties, require us to seek licenses from third parties and 39 prevent us from manufacturing and selling our products.
Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how could have a material adverse effect on our business. Adverse determinations in any litigation could subject us to significant liabilities to third parties, require us to seek licenses from third parties and prevent us from manufacturing and selling our products.
We provide the current Torc Robotics truck fleet with several OSS products, including multiple 3U SDS models for the autonomous driving functionality and our Centauri 17 data logging system that provides high-speed sensor recording and fast data transport using our removable NVMe drive canister technology.
We provide the current Torc Robotics truck fleet with several OSS products, including multiple 3U SDS models for autonomous driving functionality and our Centauri data logging system that provides high-speed sensor recording and fast data transport using our removable NVMe drive canister technology.
As the demand for AI on the edge and autonomous vehicles grew, so did the need for high-performance solutions to operate in harsh environments and reduce risk of loss of connectivity to the cloud. Edge computing is one of the fastest growing markets in the computing space, driven by the need to do more at the edge.
As the 6 demand for AI on the edge and autonomous vehicles grew, so did the need for high-performance solutions to operate in harsh environments and reduce risk of loss of connectivity to the cloud. Edge computing is one of the fastest growing markets in the computing space, driven by the need to do more at the edge.
The more GPUs and flash devices available to a server, the faster that system can process and store data. The capabilities and speed of GPU accelerated computers are driving significant advances in AI and machine learning. Massive amounts of data are collected, stored, and analyzed by today’s sophisticated algorithms.
The more GPUs and flash devices available to a server, the faster that system can process and store data. 7 The capabilities and speed of GPU accelerated computers are driving significant advances in AI and machine learning. Massive amounts of data are collected, stored, and analyzed by today’s sophisticated algorithms.
Main markets serviced by NVIDIA GPUs include, without limitation: • Autonomous navigation; • Computational finance; • Climate, weather and ocean modeling; • Computational chemistry and biology; • Data science and analytics; • Deep learning and machine learning; • Federal defense and intelligence; • Genomics; • Manufacturing; 11 • Media and entertainment; • Medical imaging; • Robotics; • Oil and gas; and • Safety and security.
Main markets serviced by NVIDIA GPUs include, without limitation: • Autonomous navigation; • Computational finance; • Climate, weather and ocean modeling; • Computational chemistry and biology; • Data science and analytics; • Deep learning and machine learning; • Federal defense and intelligence; • Genomics; • Manufacturing; • Media and entertainment; • Medical imaging; • Robotics; • Oil and gas; and • Safety and security.
Interestingly, it appears that when these large companies cut back on their workforce or have limited funding, such events tend to bolster our position, as we may become these companies’ only option to get their desired product or service deployed within a reasonable period.
Interestingly, it appears that when these large companies cut back on their workforce 20 or have limited funding, such events tend to bolster our position, as we may become these companies’ only option to get their desired product or service deployed within a reasonable period.
These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure 28 product to meet our customers’ demand. Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy.
These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand. Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy.
We believe we are one of the leading designers and suppliers of PCIe host bus adapters that extend PCIe signals from the host motherboard across copper or optical cables to expansion enclosures, which provide application acceleration through scale. Our adapters provide both ends of the external cable connection.
We believe we are one of the leading designers and suppliers of PCIe host bus adapters that extend PCIe signals from the host motherboard across copper or optical cables to expansion enclosures, which provide application acceleration through scale. Our adapters provide both ends of the external cable 12 connection.
We believe that our operations are in compliance with all material applicable laws and regulations and that we hold all necessary permits to operate our business in each jurisdiction in which our facilities are located. Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments.
We believe that our operations are in compliance with all material applicable laws and regulations and that we hold all necessary permits to operate our business in each jurisdiction in which our facilities are located. Our 23 worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers, 31 disaster recovery or other preventative or corrective measures, and thus it is impossible for us to entirely counteract this risk or fully mitigate the harms after such an attack.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers, disaster recovery or other preventative or corrective measures, and thus it is impossible for us to entirely counteract this risk or fully mitigate the harms after such an attack.
While we consider our design specifications to be protected by various proprietary, trade secret and intellectual property laws, such information is susceptible to reverse engineering by our competitors. We may not be able to prevent our competitors from developing competing design specifications and the cost of enforcing these rights may be significant.
While we consider our design specifications to be protected by various proprietary, trade secret and intellectual property laws, such information is susceptible to reverse engineering by our competitors. We may not be able to prevent our 37 competitors from developing competing design specifications and the cost of enforcing these rights may be significant.
In our current systems, 12 PCIe Gen 5.0 signals are propagated across multiple PCBs, connectors, as well as both copper and fiber optic cabling, while maintaining the ability to recognize digital signal transitions at 32 billion times per second.
In our current systems, PCIe Gen 5.0 signals are propagated across multiple PCBs and connectors, as well as both copper and fiber optic cabling, while maintaining the ability to recognize digital signal transitions at 32 billion times per second.
We build these products with the intent of shipping in volume later. We are dedicated to quality and customer satisfaction. Our continuous improvement efforts require us to review products, services, and processes with the idea that minor changes can lead to greater outcomes for our customers.
We build these products with the intent of shipping in volume later. 21 We are dedicated to quality and customer satisfaction. Our continuous improvement efforts require us to review products, services, and processes with the idea that minor changes can lead to greater outcomes for our customers.
If securities or industry analysts issue an adverse opinion regarding our securities or do not publish research or reports about our Company, our stock price and trading volume could decline. The trading market for our common stock will depend in part on the research and reports that equity research analysts publish about us and our business.
If securities or industry analysts issue an adverse opinion regarding our securities or do not publish research or reports about our Company, our stock price and trading volume could decline. 41 The trading market for our common stock will depend in part on the research and reports that equity research analysts publish about us and our business.
In most of these applications, available space is limited and the number of inputs from sensors and other data sources are significant, thus, requiring high speed switch fabrics like the latest in PCI Express, for which OSS is a recognized expert in the market.
In most of these edge applications, available space is limited and the number of inputs from sensors and other data sources are significant, thus, requiring high speed switch fabrics like the latest in PCI Express, for which OSS is a recognized expert in the market.
In 2022, we introduced the U-BMC, which is included in our Rigel edge supercomputer and PCIe Gen 5 4UPro products. In 2023, we expanded the platforms that include the U-BMC to the PCIe Gen5 SDS rugged server for commercial and military edge applications with more platforms to come.
In 2022, we introduced the U-BMC, which is included in our Rigel edge supercomputer and PCIe Gen 5 4UPro products. In 2023 and 2024, we expanded the platforms that include the U-BMC to the PCIe Gen5 SDS rugged server for commercial and military edge applications with more platforms to come.
Instead, we plan to retain any earnings to establish, maintain and expand our operations and product offerings. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our stock.
Instead, we plan to retain any earnings to establish, maintain and expand our operations and 43 product offerings. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our stock.
In the fourth quarter of 2023, the 3U SDS was upgraded to the latest PCIe 5.0 performance levels and launched as a standard product and two original equipment manufacturer ("OEM") customer configurations that accounted for two new program wins.
In the fourth quarter of 2023, the 3U SDS was upgraded to the latest PCIe 5.0 performance levels and launched as a standard product, with two original equipment manufacturer ("OEM") customer configurations that accounted for two new program wins.
First, products like our 4UPro and EB line of PCIe expansion systems are not servers or workstations, but instead, they provide scale-out expansion of high-performance GPUs, FPGAs, NVMe drives and edge I/O devices to a server.
First, products like our 4UPro and EB line of PCIe high density expansion systems are not servers or workstations, but instead, they provide scale-out expansion of high-performance GPUs, FPGAs, NVMe drives and edge I/O devices to a server.
Our government sales team has the knowledge and expertise to identify major program opportunities in the emerging AI/ML, sensor processing, sensor fusion and autonomy markets, and to provide the extensive technical and business development processes to take these programs from concept to successful completion.
Our government sales team has the knowledge and expertise to identify major program opportunities in the emerging AI/ML, sensor processing, sensor fusion, and autonomy markets, and to provide the extensive technical and business development processes required to take these programs from concept to successful completion.
In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company. 25 ITEM 1 A. RISK FACTORS Investing in our common stock involves a high degree of risk.
In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company. ITEM 1 A. RISK FACTORS Investing in our common stock involves a high degree of risk.
Changes in our products or changes in applicable export or import laws and regulations may also create delays in the introduction and sale of our products in international markets, prevent our end-customers with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether.
Changes in our products or changes in applicable export or import laws and regulations may also create delays in the introduction and sale of our products in international markets, prevent our end-customers with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries, 39 governments or persons altogether.
If appropriations are delayed or a government 32 shutdown were to occur and continue for an extended period of time, we could be at risk of reduced orders, program cancellations and other disruptions and nonpayment. When the U.S.
If appropriations are delayed or a government shutdown were to occur and continue for an extended period of time, we could be at risk of reduced orders, program cancellations and other disruptions and nonpayment. When the U.S.
Current engagements for our products in the military space cover various autonomy, sensor fusion and AI/ML applications, including for multiple aircraft, drones, ships, helicopters, and land vehicles, as the Pentagon prioritizes incorporating advanced technologies into their equipment.
Current engagements for our products in the military space cover various autonomy, sensor fusion and AI/ML applications, including for aircraft, drones, ships, helicopters, and land vehicles, as the Pentagon prioritizes incorporating advanced technologies into their equipment.
Our engineers are experts in design for regulatory testing for FCC (Federal Communications Commission), CE (European Conformity), UL (Underwriters Laboratories), and Mil-STD (Military Standard) 13 standards. Additionally, we have expertise in rapid prototyping, design for manufacturability, and design for serviceability.
Our engineers are experts in design for regulatory testing for FCC (Federal Communications Commission), CE (European Conformity), UL (Underwriters Laboratories), and Mil-STD (Military Standard) standards. Additionally, we have expertise in rapid prototyping, design for manufacturability, and design for serviceability.
We use our best efforts to manage the business carefully to minimize any material impact to financial performance. For more information, see the section titled, “Risk Factors” found in Part I, Item1A, of this Annual Report.
We use our best efforts to manage the business carefully to minimize any material impact on financial performance. For more information, see the section titled, “Risk Factors” found in Part I, Item1A, of this Annual Report.
Our ability to compete effectively is dependent in part upon our ability to protect our proprietary technology, including our proprietary software, designs and know-how. We rely on trademarks, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights.
Our ability to compete effectively is dependent in part upon our ability to protect our proprietary technology, including our proprietary software, designs and know-how. We rely on trademarks, trade secret laws, patents, confidentiality procedures, and licensing arrangements to protect our intellectual property rights.
A standard datacenter server BMC needs to conform to the basic agency requirements of electrical interference and personal safety regulated by agencies such as the FCC or CE and administered by testing companies such as UL and TüV.
A standard datacenter server BMC needs to conform to the basic agency requirements of electrical interference and personal safety regulated by agencies such as 13 the FCC or CE and administered by testing companies such as UL and TüV.
In combination, these three fundamental technologies, underpinned by PCI Express, are changing the economics of computing, bringing high-performance computing within the grasp of a wide 10 range of new industries and commercial applications on the edge.
In combination, these three fundamental technologies, underpinned by PCI Express, are changing the economics of computing, bringing high-performance computing within the grasp of a wide range of new industries and commercial applications on the edge.
In order to achieve design wins, we must: • anticipate the features and functionality that OEMs, customers and consumers will demand; 36 • incorporate those features and functionalities into products that meet the exacting design requirements of our customers; and • price our products competitively.
In order to achieve design wins, we must: • anticipate the features and functionality that OEMs, customers and consumers will demand; • incorporate those features and functionalities into products that meet the exacting design requirements of our customers; and • price our products competitively.
Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, or result in breaches of our financial and/or contractual obligations.
Any decline in available 27 funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, or result in breaches of our financial and/or contractual obligations.
There can be no assurance these protections will be available in all cases or will be adequate to prevent our competitors from copying, reverse 38 engineering or otherwise obtaining and using our technology, proprietary rights or products.
There can be no assurance these protections will be available in all cases or will be adequate to prevent our competitors from copying, reverse engineering or otherwise obtaining and using our technology, proprietary rights or products.
We are currently expanding our international sales efforts to address additional focus on Canada, and Oceania. • OEM Focused Sales – Our direct outside sales team, which consists of OSS employees as well as third-party manufacture representatives, is organized to best identify, target, and develop the top potential commercial OEM and government program customers in the datacenter class, rugged AI, compute and storage space.
We are currently expanding our international sales efforts to address additional focus on Canada and Oceania. • OEM Focused Sales – Our direct outside sales team, which consists of OSS employees as well as third-party manufacturer representatives, is organized to best identify, target, and develop the top potential commercial OEM and government program customers in the datacenter class, rugged AI, compute and storage space.
Many of these third parties mass-produce hardware solutions 30 and have not heavily invested in or allocated resources to the smaller scale specialized products and solutions we design.
Many of these third parties mass-produce hardware solutions and have not heavily invested in or allocated resources to the smaller scale specialized products and solutions we design.
Political instability or adverse political developments in or around any of the major countries in which we do business could also harm our business, financial condition, and results of operations.
Political instability or adverse political developments in or around any of the major countries in which we do business could also harm our business, financial 26 condition, and results of operations.
Government and military, to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attack our products or services.
Government and 34 military, to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attack our products or services.
In all cases at the edge there is a demanding operational environment that requires ruggedized solutions to ensure assured and continued operation, which must be balanced with size weight and power (“SWAP”) requirements. Solutions in this space must not only be light and fit into small volumes, but must also survive drops, g-forces and vibration.
In all cases, at the edge there is a demanding operational environment that requires ruggedized solutions to deliver assured and continued operation, which must be balanced with size weight and power (“SWAP”) requirements. Solutions in this space must not only be light and fit into small volumes, but must also survive drops, g-forces, and vibration.
Depending on the application, data can be generated from a wide array of sensors and inputs. In many cases, such as autonomous driving or mobile weapon system platforms data is generated through arrays of video, Light Detection and Ranging (“LIDAR ” ), radar, Forward Looking Infrared (“FLIR”), Radio Frequency (“RF”), and other computationally intensive sensors.
Depending on the application, data can be generated from a wide array of sensors and inputs. In many cases, such as autonomous driving or a mobile weapon system, platform data is generated through arrays of video, Light Detection and Ranging (“LIDAR ” ), radar, Forward Looking Infrared (“FLIR”), Radio Frequency (“RF”), and other computationally intensive sensors.
Business Strategy We have consistently followed a strategy of being first-to-market in leading edge deployment technologies by designing and developing products that are delivered before our competitors. We currently have products spanning the spectrum of high-performance computing, including servers, flash storage, GPU acceleration, networking, and PCIe data acquisition I/O expansion.
We have consistently followed a strategy of being first-to-market in leading edge deployment technologies by designing and developing products that are delivered before our competitors. We currently have products spanning the 8 spectrum of high-performance computing, including servers, flash storage, GPU acceleration, networking, and PCIe data acquisition I/O expansion.
Alcon – Alcon is a market leader in the production of computer assisted medical equipment. Bressner provides several rugged, purpose-built, high-performance workstations used in performing these AI assisted surgeries. Bressner works directly with Alcon engineers to co-design and assist in securing medical certifications for the products that doctors and patient trust for pinpoint accuracy and speed.
Alcon – Alcon is a market leader in the production of computer assisted medical equipment. Bressner provides several rugged, purpose-built, high-performance workstations used in performing these AI assisted surgeries. Bressner works directly with Alcon engineers to co-design and assist in securing medical certifications for the products that doctors and patients trust for pinpoint accuracy and speed.
The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including California, Germany, and China.
The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including California and Germany.
We leverage our proven track-record of delivering first-to-market advanced technologies and technical strength, working with the latest high-speed networks like PCI Express 5.0 and NVIDIA’s NVLink ® . This is in addition to our expertise with rugged servers, compute acceleration and high-performance flash array storage systems.
We leverage our proven track-record of delivering first-to-market advanced technologies and technical strength, working with the latest high-speed networks like PCI Express and NVIDIA’s NVLink ® . This is in addition to our expertise with rugged servers, compute acceleration, and high-performance flash array storage systems.
We provide several PCI Express-based interface cards, PCI Express switches, NVME controllers, and host buss adaptors that are used in Teledyne’s test bed applications and end devices. We act as an extension to Teledyne’s engineering group, allowing Teledyne to complete their product roadmap in a timely and cost-effective manner.
We provide several PCI Express-based interface cards, PCI Express switches, NVME controllers, and host bus adaptors that are used in Teledyne’s test bed applications and end devices. We act as an extension to Teledyne’s engineering group, allowing Teledyne to complete their product roadmap in a timely and cost-effective manner.
In 2022 and 2023, we continued to experience unavailability of certain critical products and some limited supplies, protracted delivery dates for components, increasing product costs, and changes in minimum order quantities, which creates limitations on our ability to secure product. Shortages have ranged from semiconductors to packing materials for shipping.
In 2023 and 2024, we continued to experience unavailability of certain critical products and some limited supplies, protracted delivery dates for components, increasing product costs, and changes in minimum order quantities, which creates limitations on our ability to secure product. Shortages have ranged from semiconductors to packing materials for shipping.
If we are unable to manage future expansion, our ability to provide high quality products and services could be harmed, which could damage our reputation and brand, and may have a material adverse effect on our business, operating results and financial condition. A limited number of customers represent a significant portion of our sales.
If we are unable to manage future expansion, our ability to provide high quality products and services could be harmed, which could damage our reputation and brand, and may have a material adverse effect on our business, operating results and financial condition. A limited number of customers represents a significant portion of our sales.
While OSS primarily utilizes lean principles to drive our manufacturing and assembly process, we recognize the importance of smooth builds and strategic inventory in this current climate of sustained supply chain shortages. One of the key aspects of utilizing lean principles is our application of just-in-time principles to ensure effective ordering and utilization of inventory.
While OSS primarily utilizes lean principles to drive our manufacturing and assembly processes, we recognize the importance of smooth builds and strategic inventory in this current climate of sustained supply chain shortages. One of the key aspects of utilizing lean principles is our application of just-in-time principles to ensure effective ordering and utilization of inventory.
A significant and extended disruption could damage our business or reputation and cause, amongst other things, loss of revenues or customer relationships, unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information, and us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues.
A significant and extended disruption could damage our business or reputation and cause, amongst other things, loss of revenue or customer relationships, unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information, and us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues.
We respond swiftly to customer needs with tailored solutions, thanks to the 19 expertise of our highly skilled sales and engineering teams.
We respond swiftly to customer needs with tailored solutions, thanks to the expertise of our highly skilled sales and engineering teams.
We believe our core competency in large-scale, high-speed design, and layout will allow us to remain on the forefront of this growing industry. Complex System Design In addition to low-level signal integrity design expertise, we have amassed expertise and intellectual property in high-performance system architecture design and software.
We believe our core competency in large-scale, high-speed design and layout will allow us to remain at the forefront of this growing industry. Complex System Design In addition to low-level signal integrity design expertise, we have amassed expertise and intellectual property in high-performance system architecture design and software.
GPU Compute Acceleration When GPU technology and solid-state flash were first introduced, we began designing systems that maximized the effectiveness of these technologies. We now produce compute-systems with large numbers of GPUs and flash memory that communicate over PCIe and allow faster processing, data storage, and data retrieval.
GPU Compute Acceleration When GPU technology and solid-state flash were first introduced, we began designing systems that maximize the effectiveness of these technologies. We now produce compute-systems with large numbers of GPUs and flash memory that communicate over PCIe and allow faster processing, data storage, and data retrieval.
In addition, these stockholders, acting together, would have the ability to exert significant control the management and affairs of the Company.
In addition, these stockholders, acting together, would have the ability to exert significant control over the management and affairs of the Company.
Rugged Edge Servers While simple AI applications, such as facial recognition to open a door to a secure area, may run on traditional low power embedded processor, the needs of the AI Transportable applications require datacenter-class server performance brought to a mobile platform.
Rugged Edge Servers While simple AI applications, such as facial recognition to open a door to a secure area, may run on traditional low power embedded processor, the needs of edge computing applications require datacenter-class server performance brought to a mobile platform.
This massive amount of mission data can then be easily off-loaded upon landing the aircraft and sent to the traditional government datacenter, which is a significant development given that satellite network links are too slow to handle transmitting that amount of data.
This massive amount of mission data can then be easily off-loaded upon landing the aircraft and sent to the traditional government datacenter, which is a significant development given that satellite network links are too slow to handle transmission of that amount of data.
Additional Compute Products Through Bressner, we provide small form factor IoT and high-performance industrial and panel PCs compute-platforms customizable to meet needs in commercial applications on the edge where space constraint is a fundamental consideration.
Additional Compute Products Through Bressner, we provide small form-factor IoT and high-performance industrial and panel PC compute-platforms customizable to meet needs in commercial applications on the edge where space constraint is a fundamental consideration.
Existing and future product guarantees and warranties place us at the risk of incurring future returns and repair and/or replacement costs.
Existing and future product guarantees and warranties place us at risk of incurring future returns and repair and/or replacement costs.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeVital aspects of our cybersecurity governance that are currently in process or have been implemented include the following: • Governance and Strategy: Management, the Audit & Risk Committee and the board ensure that our cybersecurity strategy is aligned with our business strategy. • Risk Management and Oversight: Our Audit & Risk Committee and the board, as part of the board’s enterprise risk management oversight, actively oversee our cybersecurity risk management framework, ensuring that material risks are identified, assessed, and mitigated. • Resource Allocation: o Budget Approval: The board reviews and approves cybersecurity budgets and resource allocations to ensure we have adequate resources to implement and maintain effective cybersecurity measures. o Investment Decisions: The board, based upon recommendation of management or our external vendors and consultants, evaluates and approves significant investments in cybersecurity technologies, training, and talent. • Compliance and Legal Obligations: o Regulatory Compliance: Management and the board both play a role in overseeing compliance with relevant cybersecurity regulations and legal requirements. o Legal Oversight: Management and the board ensure we have appropriate legal counsel to address cybersecurity-related issues, including breach notification requirements. • Education and Awareness: 47 o Training and Awareness: Members of management and members of our board take reasonable steps to stay informed about cybersecurity trends, threats, and best practices through ongoing education and training.
Biggest changeVital aspects of our cybersecurity governance that are currently in process or have been implemented include the following: 45 • Governance and Strategy: Management, the Audit & Risk Committee, and the Board ensure that our cybersecurity strategy is aligned with our business strategy. • Risk Management and Oversight: Our Audit & Risk Committee and the Board, as part of the board’s enterprise risk management oversight, actively oversee our cybersecurity risk management framework, ensuring that material risks are identified, assessed, and mitigated. • Resource Allocation: o Budget Approval: The Board reviews and approves cybersecurity budgets and resource allocations to ensure we have adequate resources to implement and maintain effective cybersecurity measures. o Investment Decisions: The Board evaluates and approves significant investments in cybersecurity technologies, training, and talent based on the recommendations of management or our external vendors and consultants. • Compliance and Legal Obligations: o Regulatory Compliance: Management and the Board oversee compliance with relevant cybersecurity regulations and legal requirements. o Legal Oversight: Management and the Board ensure we have appropriate legal counsel to address cybersecurity-related issues, including incident notification requirements. • Education and Awareness: o Training and Awareness: Management and the Board take reasonable steps to stay informed about cybersecurity trends, threats, and best practices through ongoing education and training. o Management reviews Company employee training programs to ensure employees are trained appropriately and updated on evolving cyber trends. o Board Training: Certain board members have received training to understand cybersecurity risks and their role in overseeing cybersecurity. • Reporting and Communication: o Periodic Updates: The Board receives periodic updates from management, responsible staff, and the Audit & Risk Committee regarding the Company’s cybersecurity posture, incidents, and risk management efforts. o Communication Strategy: Management and the Board have a communication strategy for addressing cybersecurity disclosures with stakeholders, including customers, employees, and the public. • Performance Evaluation: The Board’s annual evaluation of the Chief Executive Officer's performance includes assessing the effectiveness of implementing cybersecurity policy and measures and ensuring that cybersecurity policies and practices are effective and aligned with organizational goals. • Cybersecurity Culture: The Board fosters a cybersecurity-aware culture throughout the organization, supporting management’s efforts to integrate risk management, including cybersecurity, into the operating culture.
Specific risks include, but are not limited to: 1. Data Breaches: A breach of our information systems could lead to unauthorized access to customer or employee data, resulting in reputational harm and legal liabilities. 2. Operational Disruption: Cybersecurity incidents could disrupt our operations, leading to delays in production, delivery, or fulfillment of customer orders. 3.
Specific risks include, but are not limited to: 1. Data Breaches: A breach of our information systems could lead to unauthorized access to customer or employee data, resulting in reputational harm and legal liabilities. 2. Operational Disruption: Cybersecurity incidents could disrupt our operations, leading to delays in production, delivery, or fulfillment of customer orders. 44 3.
Third-Party Relationships: Our reliance on third-party vendors and service providers exposes us to additional cybersecurity risks, and a security breach affecting these entities could impact our operations. Although, to date, cybersecurity incidents have not materially impacted our business strategy, results of operations, or financial condition, there can be no assurances that they will not do so in the future.
Third-Party Relationships: Our reliance on third-party vendors and service providers exposes us to additional cybersecurity risks, and a security breach affecting these entities could impact our operations. Although cybersecurity incidents have not materially impacted our business strategy, results of operations, or financial condition to date, there can be no assurance that they will not do so in the future.
Our board of directors, through its Audit & Risk Committee, provides oversight and oversees management’s processes for identifying and mitigating risks, including cybersecurity risks, to help align our risk exposure with our strategic objectives.
Our Board of Directors, through its Audit & Risk Committee, provides oversight and oversees management processes for identifying and mitigating risks, including cybersecurity risks, to help align our risk exposure with our strategic objectives.
Despite these efforts, the rapidly evolving nature of cybersecurity threats requires ongoing vigilance, and there can be no assurance that our efforts will prevent all incidents.
The rapidly evolving nature of cybersecurity threats requires ongoing vigilance, and there can be no assurance that our efforts will prevent all incidents.
Governance Our management team, including our vice president of technology, is primarily responsible for assessing and managing our material risks from cybersecurity threats. Management supervises both our internal cybersecurity and IT personnel, as well as our retained external cybersecurity consultants and vendors.
Governance Our management team, including our Vice President of Technology , is primarily responsible for assessing and managing our material risks from cybersecurity threats. Management supervises our internal cybersecurity and IT personnel and our retained external cybersecurity consultants and vendors.
Intellectual Property Theft: Unauthorized access to our proprietary information could result in intellectual property theft, impacting our competitive position in the market. 4. Regulatory and Legal Compliance: Cybersecurity incidents may subject us to regulatory investigations, legal claims, and penalties, affecting our compliance with applicable laws and regulations. 5.
Intellectual Property Theft: Unauthorized access to our proprietary information could result in intellectual property theft, which would impact our competitive position in the market. 4. Regulatory and Legal Compliance: Cybersecurity incidents may subject us to regulatory investigations, legal claims, and penalties, affecting our compliance with applicable laws and regulations. 5.
In addition to the foregoing, management and the board are evaluating, and intend to implement, further cybersecurity related measures, including without limitation developing a more robust internal policy framework, incident response plan, crisis management planning, and third-party vendor assessments and contractual obligations for third parties that the Company engages with. The Company intends to progress these efforts throughout 2024.
Management and the Board are evaluating and intend to implement further cybersecurity-related measures, including, without limitation, developing a more robust internal policy framework, incident response plan, crisis management planning, third-party vendor assessments, and contractual obligations for third parties that the Company engages with.
Management, including our vice president of technology, and our Audit & Risk Committee members, of which two members of our committee have received training and certifications on cyber risk governance for public companies, regularly brief our board of directors on our cybersecurity and information security posture as well as cybersecurity incidents deemed to have a moderate or higher business impact, even if viewed as immaterial to us.
Management, including our Vice President of Technology and our Audit & Risk Committee members, regularly brief our board of directors on our cybersecurity and information security posture and cybersecurity incidents deemed to have a moderate or higher business impact, even if viewed as immaterial to us.
As cyber threats evolve and become more sophisticated, we believe that the board's involvement in cybersecurity governance ensures that we are adequately focused on resources and protecting the Company’s assets and reputation.
As cyber threats evolve and become more sophisticated, we believe that the Board's involvement in cybersecurity governance ensures that we adequately focus resources to protect the Company’s assets and reputation.
In the event of a detected cyber incident by 24/7 monitoring software or employee notification, our IT and cybersecurity provider performs a detailed assessment of the incident, identifies the source of the problem, and resolves the issue as appropriate.
In the event of a detected cyber incident by 24/7 monitoring software or employee notification, our IT and cybersecurity provider performs a detailed assessment of the incident, identifies the source of the problem, and resolves the issue as appropriate. If they cannot resolve the issue, the problem is escalated to our cybersecurity monitoring and detection software provider for resolution.
Security personnel and members of our management are alerted when cyber threats or anomalies are detected. Persistent threats or issues that, in the opinion of management, are material are immediately brought to the attention of our board of directors.
Persistent threats or issues that, in the opinion of management, are material are immediately brought to the attention of our board of directors.
Refer to “Item 1A. Risk factors” in this Annual Report for additional information about cybersecurity-related risks. Risk Management and Strategy Assessing, Identifying, and Managing Material Cyber Threats We have in place certain infrastructure, systems, policies, and procedures that are designed to proactively and reactively address circumstances that arise when unexpected events such as a cybersecurity incident occur.
Risk Management and Strategy Assessing, Identifying, and Managing Material Cyber Threats We have specific infrastructure, systems, policies, and procedures designed to proactively and reactively address circumstances that arise when unexpected events such as a cybersecurity incident occur. These include processes for assessing, identifying, and managing material risks from cybersecurity threats.
In order to mitigate risks of cybersecurity incidents, critical business and operational data are backed up at night and stored offsite for security purposes and to restore data in the event of a breach. Additionally, we provide cybersecurity awareness training of our employees, incident response personnel, and senior management.
Events that our IT and cybersecurity providers do not routinely resolve are brought to the Board's attention. Critical business and operational data are backed up nightly and securely stored offsite to mitigate the risks of cybersecurity incidents or equipment failure. We provide cybersecurity awareness training to our employees, incident response personnel, and senior management.
We use a team of outside vendors and government services specializing in IT and cybersecurity that provide expertise, tools, and methodologies to identify and assess vulnerabilities and potential threats. Automated tools and 46 AI-based user behavior analytics also support identification and management of cyber threats. Response to a broad category of threats is immediate and automatic.
We consult with external parties, such as cybersecurity firms and risk management and governance experts, on risk management and strategy. We use a team of outside vendors and government services specializing in IT and cybersecurity that provide expertise, tools, and methodologies to identify and assess vulnerabilities and potential threats.
Removed
These include processes for assessing, identifying, and managing material risks from cybersecurity threats. We consult with external parties, such as cybersecurity firms and risk management and governance experts, on risk management and strategy.
Added
Automated tools and AI-based user behavior analytics also support identifying and managing cyber threats. Response to a broad category of threats is immediate and automatic. Security personnel and members of our management are alerted when cyber threats or anomalies are detected.
Removed
If they are unable to resolve the issue, the problem is escalated to our cybersecurity monitoring and detection software provider for resolution. Events which are not routinely resolved by our IT and cybersecurity provider are brought to the attention of the board.
Added
Despite these efforts, the rapidly evolving nature of cybersecurity threats requires ongoing vigilance, and there can be no assurance that our efforts will prevent all incidents. 46 In addition to the foregoing, management and the board are evaluating, and intend to implement, further cybersecurity related measures, including without limitation developing a more robust internal policy framework, incident response plan, crisis management planning, and third-party vendor assessments and contractual obligations for third parties that the Company engages with.
Removed
Management reviews Company employee training programs to ensure employees are being trained appropriately and kept up to date on evolving cyber trends. o Board Training: Certain of our board members have received training to understand cybersecurity risks and their role in overseeing cybersecurity. • Reporting and Communication: o Periodic Updates: The board receives periodic updates from management, responsible staff and the Audit & Risk Committee regarding the Company’s cybersecurity posture, incidents, and risk management efforts. o Communication Strategy: Management, together with the board, are in the process of establishing a communication strategy for addressing cybersecurity disclosures with stakeholders, including customers, employees, and the public. • Performance Evaluation: Included in the board’s annual evaluation of the performance of the Company’s chief executive officer is the effectiveness of implementing cybersecurity policy and measures, ensuring that cybersecurity policies and practices are effective and aligned with organizational goals. • Cybersecurity Culture: The board fosters a cybersecurity-aware culture throughout the organization, supporting management’s efforts to build risk management including cyber into the fabric of the operating culture.
Added
The Company intends to progress these efforts throughout 2024.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditionally, we lease a 1,632 square foot facility located in Anaheim, California, with the lease expiring in June 2025. Bressner leases space comprising of 11,836 square feet on a month-to-month lease. We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of our business.
Biggest changeThe Company also leases a 3,208 square foot facility in Salt Lake City, Utah, under a lease expiring in June 2025, that houses our Ion software development team. Additionally, we lease a 1,632 square foot facility located in Anaheim, California, with the lease expiring in June 2025. Bressner leases space in Germany comprising 11,836 square feet on a month-to-month basis.
ITEM 2. PRO PERTIES. Our corporate headquarters are in a leased space comprising of approximately 29,342 square feet in Escondido, California under a lease that expires in August 2030. We also lease a 3,208 square foot facility in Salt Lake City, Utah that expires in June 2025, that houses our Ion software development team.
ITEM 2. PRO PERTIES. 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 approximately 29,342 square feet in Escondido, California under a lease that was last modified and extended in September 2023 and expires in August 2030.
Added
In June 2024, Bressner leased an additional 2,500 square feet of office space in Germany on a month-to-month basis with payments of approximately $5,950 per month, beginning in October 2024. We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of our business.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEG AL PROCEEDINGS. We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business. See footnote No. 12 “Commitments and Contingencies” in the accompanying consolidated financial statements. ITEM 4. MINE SAFETY DISCLOSURES. Not Applicable 48 PART II
Biggest changeITEM 3. LEG AL PROCEEDINGS. We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business. See footnote No. 12 “Commitments and Contingencies” in the accompanying consolidated financial statements. ITEM 4. MINE SAFETY DISCLOSURES. Not Applicable 47 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed7 unchanged
Biggest changeHigh Low First Quarter (through March 8, 2024) $ 4.03 $ 1.79 * * On March 8, 2024, the closing price was $3.54 per share. 2023 2022 Year ended December 31, 2023 and 2022: High Low High Low First Quarter $ 3.71 $ 2.44 $ 5.19 $ 3.75 Second Quarter $ 3.42 $ 2.33 $ 4.95 $ 3.80 Third Quarter $ 3.40 $ 1.56 $ 4.19 $ 3.13 Fourth Quarter $ 2.34 $ 1.82 $ 3.40 $ 2.69 Holders As of March 8, 2024, there were 20,700,435 shares of our common stock outstanding held by approximately 5,800 holders of record of our common stock.
Biggest changeHigh Low First Quarter (through March 5, 2025) $ 4.39 $ 2.82 * * On March 5, 2025, the closing price was $2.92 per share. 2024 2023 Year ended December 31, 2024 and 2023: High Low High Low First Quarter $ 4.58 $ 1.79 $ 3.71 $ 2.44 Second Quarter $ 3.50 $ 2.00 $ 3.42 $ 2.33 Third Quarter $ 3.09 $ 1.82 $ 3.40 $ 1.56 Fourth Quarter $ 3.80 $ 2.20 $ 2.34 $ 1.82 Holders As of March 5, 2025, there were 21,323,261 shares of our common stock outstanding held by approximately 5,800 holders of record of our common stock.
Unregistered Sales of Equity Securities During the year ended December 31, 2023, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K or our Quarterly Reports on Form 10-Q. Issuer Repurchases of Equity Securities None. ITEM 6. [R ESERVED]. 49
Unregistered Sales of Equity Securities During the year ended December 31, 2024, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K or our Quarterly Reports on Form 10-Q. Issuer Repurchases of Equity Securities None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

86 edited+41 added−84 removed67 unchanged
Biggest changeFor the Year Ended December 31, 2023 2022 Revenue $ 60,896,797 $ 72,421,345 Cost of revenue 42,942,175 52,023,736 Gross profit 17,954,622 20,397,609 Operating expenses: General and administrative 9,264,447 7,279,401 Impairment of goodwill 5,630,788 - Marketing and selling 6,651,516 6,806,306 Research and development 4,331,024 4,743,574 Total operating expenses 25,877,775 18,829,281 (Loss) income from operations (7,923,153 ) 1,568,328 Other income (expense): Interest income 544,958 237,751 Interest expense (117,774 ) (162,391 ) Employee retention credit 1,716,727 - Other (expense) income, net (9,806 ) 550,854 Total other income (expense), net 2,134,105 626,214 (Loss) income before taxes (5,789,048 ) 2,194,542 Provision for income taxes 927,128 4,423,597 Net loss $ (6,716,176 ) $ (2,229,055 ) 53 For the Year Ended December 31, 2023 2022 Revenue 100.0 % 100.0 % Cost of revenue 70.5 % 71.8 % Gross profit 29.5 % 28.2 % Operating expenses: General and administrative 15.2 % 10.1 % Impairment of goodwill 9.2 % 0.0 % Marketing and selling 10.9 % 9.4 % Research and development 7.1 % 6.5 % Total operating expenses 42.5 % 26.0 % (Loss) income from operations -13.0 % 2.2 % Other income (expense): Interest income 0.9 % 0.3 % Interest expense -0.2 % -0.2 % Employee retention credit 2.8 % 0.0 % Other income (expense), net 0.0 % 0.8 % Total other income (expense), net 3.5 % 0.9 % (Loss) income before taxes -9.5 % 3.0 % Provision for income taxes 1.5 % 6.1 % Net loss -11.0 % -3.1 % Comparison of the Years Ended December 31, 2023 and 2022: For The Year Ended December 31, 2023 For The Year Ended December 31, 2022 Entity: Revenue Cost of Revenue Gross Profit Gross Margin % Revenue Cost of Revenue Gross Profit Gross Margin % OSS $ 28,809,887 $ (18,544,901 ) $ 10,264,986 35.6 % $ 43,286,715 $ (29,142,852 ) $ 14,143,863 32.7 % Bressner 32,086,910 (24,397,274 ) 7,689,636 24.0 % 29,134,630 (22,880,884 ) 6,253,746 21.5 % $ 60,896,797 $ (42,942,175 ) $ 17,954,622 29.5 % $ 72,421,345 $ (52,023,736 ) $ 20,397,609 28.2 % Revenue For the year ended December 31, 2023, our total revenue decreased $11,524,548, or 15.9%, as compared to the same period in 2022.
Biggest changeFor the Year Ended December 31, 2024 2023 Revenue: Product $ 51,003,350 $ 59,200,580 Customer funded development 3,691,009 1,696,217 54,694,358 60,896,797 Cost of revenue: Product 42,953,344 41,907,604 Customer funded development 4,022,707 1,034,571 46,976,051 42,942,175 Gross (loss) profit 7,718,307 17,954,622 Operating expenses: General and administrative 8,971,909 9,264,447 Impairment of goodwill - 5,630,788 Marketing and selling 8,005,982 6,651,516 Research and development 4,097,229 4,331,024 Total operating expenses 21,075,120 25,877,775 Loss from operations (13,356,813 ) (7,923,153 ) Other income (expense), net: Interest income 477,745 544,958 Interest expense (74,116 ) (117,774 ) Employee retention credit (ERC) (Note 2) - 1,716,727 Other income (expense), net 45,353 (9,806 ) Total other income, net 448,982 2,134,105 Loss before income taxes (12,907,831 ) (5,789,048 ) Provision for income taxes 726,502 927,128 Net loss $ (13,634,333 ) $ (6,716,176 ) 53 For the Year Ended December 31, 2024 2023 Revenue: Product 93.3% 97.2% Customer funded development 6.7% 2.8% 100.0% 100.0% Cost of revenue: Product 78.5% 68.8% Customer funded development 7.4% 1.7% 85.9% 70.5% Gross (loss) profit 14.1% 29.5% Operating expenses: General and administrative 16.4% 15.2% Impairment of goodwill 0.0% 9.2% Marketing and selling 14.6% 10.9% Research and development 7.5% 7.1% Total operating expenses 38.5% 42.5% Loss from operations -24.4% -13.0% Other income (expense), net: Interest income 0.9% 0.9% Interest expense -0.1% -0.2% Employee retention credit (ERC) (Note2) 0.0% 2.8% Other (expense) income, net 0.1% 0.0% Total other income, net 0.8% 3.5% Loss before income taxes -23.6% -9.5% Provision for income taxes 1.3% 1.5% Net loss -24.9% -11.0% Comparison of the Years Ended December 31, 2024 and 2023: For the Year Ended December 31, 2024 For the Year Ended December 31, 2023 Entity: Revenue Cost of Revenue Gross (loss) profit Gross Margin % Revenue Cost of Revenue Gross Profit Gross Margin % OSS $ 24,558,809 $ 23,935,886 $ 622,923 2.5 % $ 28,809,888 $ 18,544,902 $ 10,264,986 35.6 % Bressner 30,135,550 23,040,166 7,095,384 23.5 % 32,086,910 24,397,274 7,689,636 24.0 % $ 54,694,358 $ 46,976,051 $ 7,718,307 14.1 % $ 60,896,797 $ 42,942,175 $ 17,954,622 29.5 % Revenue For the year ended December 31, 2024, our total revenue decreased $6,202,440, or 10.2%, as compared to the same period in 2023.
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, stock-based compensation expenses.
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.
Additionally, during 2023, the Company recorded an impairment of goodwill attributable to OSS that impacted the effective tax rate. Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022.
Additionally, during 2023, the Company recorded an impairment of goodwill attributable to OSS that impacted the effective tax rate. Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2023.
We have recently reviewed our existing pipeline and have made adjustments to reflect the procurement habits and timing of the military and defense sector. As discussed elsewhere in this Annual Report, we have also added relevant defense market experience to our board of directors through the appointment of Mr. Knowles, Vice Admiral Dumont and Mitch Herbets as directors.
We have reviewed our existing pipeline and have made adjustments to reflect the procurement habits and timing of the military and defense sector. As discussed elsewhere in this Annual Report, we have also added relevant defense market experience to our board of directors through the appointment of Mr. Knowles, Vice Admiral Dumont, and Mitch Herbets as directors.
Impairment of Goodwill - Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment at least annually and when we deem that a triggering event has occurred that has impaired the value of goodwill a write-down in value is recorded.
Impairment of Goodwill Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment at least annually; when we deem that a triggering event has occurred that has impaired the value of goodwill, a write-down in value is recorded.
With the recent hiring of a new president and chief executive officer and new vice president of sales, each of whom has extensive experience in contracting in the defense industry, we have further increased our emphasis and focus on the pursuit of revenue opportunities with major defense contractors and the military.
With the hiring of a new president and chief executive officer and new vice president of sales, each of whom has extensive experience in contracting in the defense industry, we have further increased our emphasis and focus on the pursuit of revenue opportunities with major defense contractors and the military.
A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation. 61 On certain contracts with several of the Company’s significant customers, the Company receives payments in advance of manufacturing.
A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation. On certain contracts with several of the Company’s significant customers, the Company receives payments in advance of manufacturing.
Foreign currency transaction gains and losses are recorded in other income (expense), net in the consolidated statements of operations. 65 OSS GmbH operates as an extension of OSS’ domestic operations and acquired Bressner Technology GmbH in October 2018. The functional currency of OSS GmbH is the Euro.
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 Technology GmbH in October 2018. The functional currency of OSS GmbH is the Euro.
Marketing and Selling – Marketing and Selling expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel, and entertainment expenses as well as allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications, and brand-building activities.
Marketing and Selling 51 Marketing and Selling expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel, and entertainment expenses as well as allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications, and brand-building activities.
The effective tax rate for the years ended December 31, 2023 and 2022 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 federal, foreign and state tax liabilities for the year.
The effective tax rate for the years ended December 31, 2024 and 2023 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 federal, foreign and state tax liabilities for the year.
Additionally, certain of our customers are experiencing downturns or uncertainty in their own business operations and revenue, including one customer that declared bankruptcy in 2023, and as a result there is an increased risk that these customers may need to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek to renegotiate their contracts.
Additionally, certain of our customers are experiencing downturns or uncertainty in their own business operations and revenue, including one customer that declared bankruptcy in 2024, and as a result there is an increased risk that these customers may need to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek to renegotiate their contracts.
The change in the effective tax rate is primarily related to the effect of the valuation allowance for deferred tax assets initially recorded in 2022. 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.
The change in the effective tax rate is primarily related to the effect of the valuation allowance for deferred tax assets initially recorded in 2024. 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.
In November 2023, our board of directors unanimously adopted resolutions to temporarily increase the size of the board from seven members to nine members, and to subsequently decrease the size of the board back down to seven members, effective as of the Company’s 2024 annual meeting of stockholders (the “2024 Annual Meeting”).
Management and Board Changes In November 2023, our board of directors unanimously adopted resolutions to temporarily increase the size of the board from seven members to nine members and to subsequently decrease the size of the board back down to seven members, effective as-of the Company’s 2024 annual meeting of stockholders (the “2024 Annual Meeting”).
Such delays, postponements and cancellations negatively impacted the Company’s results of operations for the year ended December 31, 2023. If such decreases in orders, postponements or cancellations continue in the future, our operating results will be further impacted, and our revenues may decline in future periods.
Such delays, postponements and cancellations negatively impacted the Company’s results of operations for the year ended December 31, 2024. If such decreases in orders, postponements or cancellations continue in the future, our operating results will be further impacted, and our revenues may decline in future periods.
During the year ended December 31, 2023, the Company experienced delays and postponements of committed purchases and orders due to certain customers’ funding or program delays. We have also experienced cancellations of orders due to disruptions in our customers’ businesses or changes in their business plans.
During the year ended December 31, 2024, the Company experienced delays and postponements of committed purchases and orders due to 58 certain customers’ funding or program delays. We have also experienced cancellations of orders due to disruptions in our customers’ businesses or changes in their business plans.
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 modules and systems that consist of computers, switch fabrics and storage products that incorporate the latest state-of-the art components with embedded proprietary software.
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 modules and systems allow us to offer high-end solutions to target markets to be integrated into, platforms, vehicles and applications. The global increase in load on the cloud infrastructure and increase in AI applications are the primary factors driving the growth of the edge computing market.
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.
However, there can be no assurance that management’s cost reduction efforts will be effective or the forecasted cash flows will be achieved.
However, there can be no assurance that management’s efforts will be effective or the forecasted cash flows will be achieved.
With the Company's shifted focus to the development and sale of AI Transportables, 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.
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.
During 2023, the Company implemented certain internal organizational changes to align our US-based operations with, and to further support and accelerate our strategy to focus on, the AI Transportables industry and our military business.
During 2023, the Company implemented certain internal organizational changes to align our US-based operations with, and to further support and accelerate our strategy to focus on, the edge computing industry and our military business.
In furtherance of this strategy and our goals, on June 5, 2023, David Raun, then the Company’s president and chief executive officer, stepped down from such roles and Michael Knowles was appointed to serve in such roles. Mr. Raun currently continues to serve as a member of the Company’s board of directors.
In furtherance of this strategy and our goals, on June 5, 2023, David Raun, then the Company’s president and chief executive officer, stepped down from such roles and Michael Knowles was appointed to serve in such roles. Mr. Raun continued to serve as a member of the Company’s board of directors until May 2024.
The mandatory capitalization requirement increases our deferred tax assets and the related valuation allowance and may have an impact on payment of tax liabilities. The effective tax rate for the year ended December 31, 2023, is (16.0%), as compared to 201.4% in the prior year 2022.
The mandatory capitalization requirement increases our deferred tax assets and the related valuation allowance and may have an impact on payment of tax liabilities. The effective tax rate for the year ended December 31, 2024, is (5.6%), as compared to (16.0%) in the prior year 2023.
Recently implemented accounting pronouncements Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued ASU 2016-13, which sets out the principles for the recognition of measurement of credit losses on financial instruments. This standard provides guidance on the impairment of financial instruments that is based on expected losses rather than probable or incurred losses.
Measurement of Credit Losses on Financial Instruments In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, which sets out the principles for the recognition of measurement of credit losses on financial instruments. This standard provides guidance on the impairment of financial instruments that is based on expected losses rather than probable or incurred losses.
As of December 31, 2023, the Company had $250,000 of cash in our accounts that exceeded the insurance limits. The Company has not experienced any such losses in these accounts, and believes that the financial institutions at which such amounts are held are stable; however, no assurances can be provided.
As of December 31, 2024, the Company had $2,815,399 of cash in our accounts that exceeded the insurance limits. The Company has not experienced any such losses in these accounts, and believes that the financial institutions at which such amounts are held are stable; however, no assurances can be provided.
Overall, total general and administrative expense increased as a percentage of revenue to 15.2% for the year ended December 31, 2023, as compared to 10.1% during the same period in 2022.
Overall, total general and administrative expense increased as a percentage of revenue to 16.4% for the year ended December 31, 2024, as compared to 15.2% during the same period in 2023.
In the normal course of business, the Company does not accept product returns unless the items are defective as manufactured. The Company establishes provisions for estimated returns and warranties. In addition, the Company does not typically provide customers with the right to a refund and does not transact for noncash consideration. Customer agreements include one vendor managed inventory program.
In the normal course of business, the Company does not accept product returns unless the items are defective as manufactured. The Company establishes provisions for estimated returns and warranties. In addition, the Company does not typically provide customers with the right to a refund and does not transact for noncash consideration.
Edge computing is a form of computing that is done on site, near a particular data source or the user, rather than in the cloud, minimizing the need for data to be processed in a remote datacenter. This growing trend increases computing performance and security, as the data does not have to travel to a distant datacenter location.
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.
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.
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. We periodically re-evaluate and adjust our critical accounting policies as circumstances change.
In Germany, the deposit insurance is €100,000 per bank, per customer. Bressner has funds on deposit in both Euro and U.S. dollar denominations of €919,664 (US$1,015,214) with banks in excess of the insurance limits. We provide credit to our customers in the normal course of business.
In Germany, the deposit insurance is €100,000 per bank, per customer. Bressner has funds on deposit in both Euro and U.S. dollar denominations of €2,215,188 ($2,292,831) with banks in excess of the insurance limits. We provide credit to our customers in the normal course of business.
Bressner had an increase of $244,302, or 17.2%, primarily resulting from the addition of new marketing personnel and sales collateral material. Overall, total marketing and selling expense increased as a percentage of revenue to 10.9% during the year ended December 31, 2023, as compared to 9.4% during the same period in 2022.
Bressner had an increase of $724,337, or 43.5%, primarily resulting from the addition of new marketing personnel and sales collateral material. Overall, total marketing and selling expense increased as a percentage of revenue to 14.6% during the year ended December 31, 2024, as compared to 10.9% during the same period in 2023.
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.
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.
Advanced payments are recorded as deferred revenue until the revenue recognition criteria described above has been met. Related billings that are in excess of revenue earned are deferred and recorded as a liability on the consolidated balance sheet until the related services are provided. Leases On January 1, 2022, the Company adopted ASC 842 using the Transition method.
Advanced payments are recorded as deferred revenue until the revenue recognition criteria described above has been met. Related billings that are in excess of revenue earned are deferred and recorded as a liability on the consolidated balance sheet until the related services are provided.
The Company’s performance obligations are satisfied over time as work is performed or at a point in time. The majority of the Company’s revenue is recognized at a point in time when products ship and control is transferred to the customer.
Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s performance obligations are satisfied over time as work is performed or at a point in time. The majority of the Company’s revenue is recognized at a point in time when products ship and control is transferred to the customer.
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.
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. 63 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 and unusual items.
These indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make.
These indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities.
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”), of which both provide basic deposit coverage with limits up to $250,000 per owner.
We are exposed to the impact of interest rate changes primarily through our borrowing activities for our variable rate borrowings. 62 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”), of which both provide basic deposit coverage with limits up to $250,000 per owner.
Impairment of goodwill During year, the Company took a write-down of goodwill of $5,630,788 as a result of the overall financial performance of OSS as compared to plan, the transition of and focus on our product strategy on AI Transportables and the defense industry deferment of certain orders. There was no such impairment charge in 2022.
Impairment of goodwill During the year 2023, the Company took a write-down of goodwill of $5,630,788 as a result of the overall financial performance of OSS as compared to plan, the transition of our product strategy to focus on AI applications at the edge, and the deferment of certain orders in our military and defense end markets.
This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. 67 We expect to continue to incur expenditures similar to the free cash flow adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash.
We expect to continue to incur expenditures similar to the free cash flow adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash.
Additionally, taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, which are collected by the Company from a customer and deposited with the relevant government authority, are excluded from revenue.
Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from invoice. Additionally, taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, which are collected by the Company from a customer and deposited with the relevant government authority, are excluded from revenue.
Should we issue shares of our common stock in an acquisition, we will be required to estimate the fair value of the shares issued. 64 Recent accounting pronouncements Management has evaluated recent accounting pronouncements through the date of the consolidated financial statements included in this Annual Report and believes that the recent accounting pronouncements as disclosed in Note 2 to the financial statements included elsewhere in this Annual Report, will not have a material impact on the Company's consolidated financial statements.
Recent accounting pronouncements Management has evaluated recent accounting pronouncements through the date of the consolidated financial statements included in this Annual Report and believes that the recent accounting pronouncements as disclosed in Note 2 to the financial statements included elsewhere in this Annual Report, will not have a material impact on the Company's consolidated financial statements.
Overview The Company designs, manufactures, and markets specialized high-performance compute, high speed switch fabrics and storage hardware and software, which are designed to target edge AI Transportable deployments.
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 AI/ML, sensor processing, sensor fusion and autonomy.
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 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.
Research and Development - Research and development expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, 52 third-party engineering, and contractor support costs, as well as allocated overhead.
Research and Development Research and development expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering and contractor support costs, as well as allocated overhead. We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products.
The following table reconciles cash provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow: For the Year Ended December 31, Cash flow: 2023 2022 Cash used in operating activities $ (439,679 ) $ (7,806,025 ) Capital expenditures (821,753 ) (529,908 ) Free cash flow $ (1,261,432 ) $ (8,335,933 ) 68 ITEM 7A.
The following table reconciles cash provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow: For the Year Ended December 31, Cash flow: 2024 2023 Net cash used in operating activities $ (108,098 ) $ (439,679 ) Capital expenditures (362,748 ) (821,753 ) Free cash flow $ (470,846 ) $ (1,261,432 ) 65 ITEM 7A.
The Company determines revenue recognition through the following steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, a performance obligation is satisfied. 60 The Company’s contracts are executed through a combination of written agreements along with purchase orders with all customers including certain general terms and conditions.
The Company determines revenue recognition through the following steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, a performance obligation is satisfied.
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.
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.
These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations.
Volatility and recessionary conditions in Europe, and in particular in Germany, are expected to remain a concern for the near term. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations.
Investing Activities During the year ended December 31, 2023, the Company generated cash of $1,520,799 in investing activities, as compared to $3,908,323 provided by investing activities during the prior year period in 2022, a net decrease of $2,387,524.
Investing Activities During the year ended December 31, 2024, the Company generated cash of $4,190,787 from investing activities, as compared to $1,520,799 provided by investing activities during the prior year period in 2023, a net increase of $2,669,988.
Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities. 58 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.
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.
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.
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. 52 Results of Operations The following tables set forth our results of operations for the years ended December 31, 2024 and 2023, respectively, presented in dollars and as a percentage of revenue.
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 10 to the accompanying financial statements for a discussion regarding our stockholder transactions for the relevant periods.
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.
The following table summarizes our cash flows for the years ended December 31, 2023 and 2022: For the Year Ended December 31, Cash flows: 2023 2022 Net cash (used in) operating activities $ (439,679 ) $ (7,806,025 ) Net cash provided by investing activities $ 1,520,799 $ 3,908,323 Net cash (used in) provided by financing activities $ (171,344 ) $ 1,946,553 Operating Activities During the year ended December 31, 2023, we used $439,679 in cash for operating activities, a difference of $7,366,346 when compared to the cash used in operating activities of $7,806,025 during the same period in 2022.
The following table summarizes our cash flows for the years ended December 31, 2024 and 2023: For the Year Ended December 31, Cash flows: 2024 2023 Net cash used in operating activities $ (108,098 ) $ (439,679 ) Net cash provided by investing activities $ 4,190,787 $ 1,520,799 Net cash used in financing activities $ (1,183,952 ) $ (171,344 ) Operating Activities During the year ended December 31, 2024, we used $108,098 in cash from operating activities, a reduction of $331,581 when compared to the cash used by operating activities of $439,679 during the same period in 2023.
In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.
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.
The following table reconciles net loss to adjusted EPS and diluted earnings per share: For the Year Ended December 31, 2023 2022 Net loss $ (6,716,176 ) $ (2,229,055 ) Amortization of intangibles 42,154 63,231 Stock-based compensation expense 2,345,358 1,991,117 Employee retention credit (ERC) (1,716,727 ) - Impairment of goodwill 5,630,788 Non-GAAP net (loss) income $ (414,603 ) $ (174,707 ) Non-GAAP net (loss) income per share: Basic $ (0.02 ) $ (0.01 ) Diluted $ (0.02 ) $ (0.01 ) Weighted average common shares outstanding: Basic 20,854,777 19,730,698 Diluted 20,854,777 19,730,698 Free Cash Flow Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs.
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. 64 The following table reconciles net loss to adjusted EPS and diluted earnings per share: For the Year Ended December 31, 2024 2023 Net loss $ (13,634,333 ) $ (6,716,176 ) Amortization of intangibles - 42,154 Impairment of goodwill - 5,630,788 Employee retention credit (ERC) - (1,716,727 ) Stock-based compensation expense 1,988,125 2,345,358 Non-GAAP net loss $ (11,646,208 ) $ (414,603 ) Non-GAAP net loss per share: Basic $ (0.56 ) $ (0.02 ) Diluted $ (0.56 ) $ (0.02 ) Weighted average common shares outstanding: Basic 20,953,397 20,854,777 Diluted 20,953,397 20,854,777 Free Cash Flow Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs.
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.
Stockholder transactions See Note 10 to the accompanying financial statements for a discussion regarding our stockholder transactions for the relevant periods. 59 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.
Employee Retention Credit For the year December 31, 2023, the Company received a government provided Employee Retention Credit ("ERC") for the retention of employees during the COVID-19 pandemic during the years of 2020 and 2021, in the amount of $2,004,382 less commission of $287,655, respectively. 55 Other income (expense), net Other income (expense), for the year ended December 31, 2023, resulted in net other expense of $9,806, as compared to net other income of $550,854, in the same period in 2022, for a net decrease of $560,660.
Employee Retention Credit For the year December 31, 2023, the Company received a government provided Employee Retention Credit ("ERC") for the retention of employees during the COVID-19 pandemic during the years of 2020 and 2021, in the amount of $2,004,382 less commission of $287,656, respectively.
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.
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.
Generally, purchase orders entail products, quantities and prices, which define the performance obligations of each party and are approved and accepted by the Company. The Company’s contracts with customers do not include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from invoice.
The Company’s contracts are executed through a combination of written agreements along with purchase orders with all customers including certain general terms and conditions. Generally, purchase orders entail products, quantities and prices, which define the performance obligations of each party and are approved and accepted by the Company. The Company’s contracts with customers do not include extended payment terms.
Germany was in a recession for most of 2023, largely due to persistent high inflation and falling household spending. Volatility and recessionary conditions in Europe, and in particular in Germany, are expected to remain a concern for the near term.
The risk of a recession in the U.S. remains, and volatility and recessionary conditions in Europe, and in Germany in particular, are expected to remain a concern for the near term.
Alternatively, if actual demand, product mix and alternative usage are more 63 favorable than those we estimated at the time of such a write-down, our gross margin could be favorably impacted in future periods.
Alternatively, if actual demand, product mix and alternative usage are more favorable than those we estimated at the time of such a write-down, our gross margin could be favorably impacted in future periods. 61 Income Taxes The determination of income tax expense requires us to make certain estimates and judgments concerning the calculation of deferred tax assets and liabilities, as well as the deductions and credits that are available to reduce taxable income.
The percentage-of-completion methodology involves recognizing probable and reasonably estimable revenue using the percentage of services completed, on a current cumulative cost to estimated total cost basis, using a reasonably consistent profit margin over the performance period. Due to the long-term nature of these projects, developing the estimates of costs often requires significant judgment.
Performance will often extend over long periods of time, and our right to receive future payment depends on our future performance in accordance with the agreement. 60 The percentage-of-completion methodology involves recognizing probable and reasonably estimable revenue using the percentage of services completed, on a current cumulative cost to estimated total cost basis, using a reasonably consistent profit margin over the performance period.
Bressner experienced an increase of $82,981, or 19.1%. This increase was attributable to increased testing of product to support the increase in revenue. Overall, total research and development expense as a percentage of revenue increased as a percentage of revenue to 7.1% during the year ended December 31, 2023, as compared to 6.5% during the same period in 2022.
Overall, total research and development expense as a percentage of revenue increased to 7.5% during the year ended December 31, 2024, as compared to 7.1% during the same period in 2023. Interest income Interest income decreased $67,213 for the year ended December 31, 2024, as compared to the same period in 2023.
Contractual obligations and commitments The following table sets forth our non-cancellable contractual obligations as of December 31, 2023: Contractual Obligations: Total Less than 1 year 1-3 years 3-5 years More than 5 Years Notes payable $ 2,077,895 $ 2,077,895 $ - $ - $ - Operating leases 2,156,462 390,926 782,989 696,001 286,546 Total $ 4,234,357 $ 2,468,821 $ 782,989 $ 696,001 $ 286,546 We have made certain indemnities, under which we may be required to make payments to an indemnified party, in relation to certain transactions.
Contractual obligations and commitments The following table sets forth our non-cancellable contractual obligations as of December 31, 2024: Contractual Obligations: Total 1-3 years 3-5 years > 5 Years Notes payable $ 1,035,050 $ 1,035,050 $ - $ - $ - Operating leases 1,799,621 285,937 851,101 662,583 Non-cancellable purchase orders 2,822,062 2,822,062 Total $ 5,656,733 $ 4,143,049 $ 851,101 $ 662,583 $ - We have made certain indemnities, under which we may be required to make payments to an indemnified party, in relation to certain transactions.
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.
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.
We intend to continue to monitor the effects of inflation, global supply chain shortages and the economic conditions, and, if appropriate, we may alter our plans to address such concerns as they may arise.
As discussed elsewhere in this Annual Report, risks to the U.S. and German economies could result in further economic uncertainty and volatility in the capital markets in the near term and could negatively affect our operations. 56 We intend to continue to monitor the effects of inflation, global supply chain shortages, and general economic conditions, and, if appropriate, we may alter our plans to address such concerns as they may arise.
For the Year Ended December 31, 2023 2022 Net loss $ (6,716,176 ) $ (2,229,055 ) Depreciation and amortization 1,077,516 1,050,299 Stock-based compensation expense 2,345,358 1,991,117 Interest income (544,958 ) (237,751 ) Interest expense 117,774 162,391 Employee retention credit (ERC) (1,716,727 ) - Impairment of goodwill 5,630,788 - Provision for income taxes 927,128 4,423,597 Adjusted EBITDA $ 1,120,703 $ 5,160,598 66 Adjusted EPS Adjusted EPS excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP.
For the Year Ended December 31, 2024 2023 Net loss $ (13,634,333 ) $ (6,716,176 ) Depreciation 1,041,837 1,035,362 Amortization of intangibles - 42,154 Amortization of right-of-use assets net of change in lease liability 29,885 22,592 Stock-based compensation expense 1,988,125 2,345,358 Interest expense 74,116 117,774 Interest income (477,745 ) (544,958 ) Impairment of goodwill - 5,630,788 Employee retention credit (ERC) - (1,716,727 ) Provision for income taxes 726,502 927,128 Adjusted EBITDA $ (10,251,613 ) $ 1,143,296 Adjusted EPS Adjusted EPS excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP.
Management is also committed to conserving cash and securing debt and/or equity financing, as required, for liquidity to meet our cash requirements through at least a period of the next twelve months.
Management is also 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.
During the year ended December 31, 2023, we had loss from operations of $7,923,153, with cash used in operating activities of $620,784. During the year ended December 31, 2022, we had income from operations of $1,568,328, with cash used in operating activities of $7,806,025.
During the year ended December 31, 2024, we had loss from operations of $13,356,813, with cash used in operating activities of $108,098. During the year ended December 31, 2023, we had a loss from operations of $7,923,152, with cash used in operating activities of $439,679.
Cost of revenue and gross profit Cost of revenue decreased $9,081,561, or 17.5%, for the year ended December 31, 2023, as compared to the prior year in 2022. OSS saw a decrease in cost of revenue of $10,597,951, or 36.4%, as compared to the prior year period in 2022.
Research and development expense Research and development expense decreased $233,794, or 5.4%, for the year ended December 31, 2024, as compared to the same period in 2023. OSS saw a decrease of $347,383, or 9.1%.
Bressner’s cost of revenue increased $1,516,390, or 6.6%, as compared to the prior year in 2022, due to a general economic improvement in Europe in the business environment and procuring large, one-time orders. The overall gross margin percentage was 29.5% for the 2023 period as compared to 28.2% in the same period in 2022.
Bressner’s cost of revenue decreased $1,357,108, or 5.6%, as compared to the prior year, due to the reduction in revenue volume. The overall gross margin percentage was 14.1% for the 2024 period as compared to 29.5% in the same period in 2023.
Interest expense Interest expense decreased $44,617 for the year ended December 31, 2023, as compared to the same period in 2022, as a result of the paydown of approximately $1,300,000 in outstanding debt.
The decrease is attributable to lower investment balances, partially offset by higher interest rates. Interest expense 55 Interest expense decreased $43,658 for the year ended December 31, 2024, as compared to the same period in 2023, as a result of the paydown of outstanding debt.
As of December 31, 2023, we had total cash and cash equivalents of $4,048,948, with short-term investments of $7,771,820, and total working capital of $35,571,708. Cash and cash equivalents held by Bressner totaled US$1,505,980 on December 31, 2023. Bressner’s debt covenants do not permit the use of those funds by its parent company.
As of December 31, 2024, we had total cash and cash equivalents of $6,794,093, with short-term investments of $3,217,065, and total working capital of $23,528,638. Cash and cash equivalents held by Bressner totaled $2,751,092 on December 31, 2024. Bressner’s debt covenants limit the use of those funds by its parent company.
The year over year difference is primarily a result of the $1,985,046 increase in general and administrative expense and changes in working capital for accounts receivable and inventories. Our sources of liquidity and cash flows are used to fund ongoing operations, fund research and development projects for new products technologies and provide ongoing support services for our customers.
Our sources of liquidity and cash flows are used to fund ongoing operations, fund research and development projects for new products technologies, and 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.
The world continues to be affected by the lingering effects of the COVID-19 pandemic, the ongoing conflicts between Russia and Ukraine and Israel and Hamas, and economic uncertainty, amongst other things.
The world continues to be affected by the ongoing conflicts between Russia and Ukraine and Israel and Hamas, and economic uncertainty, amongst other things. Germany was in a recession for most of 2024, largely due to persistent high inflation and falling household spending.
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.
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.
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. Both the Federal Reserve and European Central Bank interest rates have increased significantly recently.
See "Note 17: Segment and Geographic Information." The adoption of the standard did not have an impact on our financial position, results of operations, or liquidity. 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.
During the year ended December 31, 2023, the Company used $171,344 resulting from funds received in conjunction with the ERC program offset by debt service payments on Bressner borrowings and payment of tax on the net exercise of vested RSUs. During the same period in 2022, the Company generated cash through proceeds from new borrowings for inventory at Bressner.
Financing Activities During the twelve month period ended December 31, 2024, the Company used $1,421,701 in cash for debt payments on Bressner borrowings and payment of tax on the net exercise of vested RSUs, while generating $237,749 from the exercise of options.
As discussed elsewhere in this Annual Report, during the year 2023, economists continued to suggest that an elevated risk of economic downturn in the U.S. and Germany will continue for the foreseeable future, which could result in further economic uncertainty and volatility in the capital markets in the near term and could negatively affect our operations.
As a result of the foregoing, there is continued economic uncertainty and volatility in the capital markets in the near term that could negatively affect our operations.
Net working capital uses for the year ended December 31, 2023, were $1,943,406, as compared to the prior year period uses of working capital of $13,317,430, a reduction in the use of working capital of $11,374,024. The sources of working capital of $3,202,082 were attributable to changes in accounts receivables, accrued expenses and other liabilities for the comparable period.
Cash provided by net changes in working capital for the year ended December 31, 2024 was $2,736,756, as compared to cash usage of $3,184,851 from net changes in working capital in the prior year. In 2024, the working capital reduction was due to changes in inventory levels, accounts payable, and accrued expenses and other liabilities.
Marketing and selling expense Marketing and selling expense decreased $154,790, or 2.3%, for the year ended December 31, 2023, as compared to the same period in 2022. OSS had a decrease of $399,092, or 7.4%, which was mainly attributable to a reduction in employee costs resulting from our organizational restructuring.
There was no such impairment charge in 2024. Marketing and selling expense Marketing and selling expense increased $1,354,466, or 20.4%, for the year ended December 31, 2024, as compared to the same period in 2023. OSS had an increase of $630,129, or 12.6%, which was primarily due to increased costs for personnel and for tradeshow participation.

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