One Stop Systems(OSS) - 2024 Q2 - Quarterly Report

Financial Performance - For the three months ended June 30, 2024, total revenue was $17,211,532, a decrease from$33,993,426 for the same period in 2023, representing a decline of approximately 49.3%[98]. - Total revenue for the three months ended June 30, 2024, decreased by $4,010,202, or 23.3$8,140,310, or 23.9%, with OSS down by $5,852,776, or 34.6$(2,399,496), compared to a net loss of $(2,800,008) for the same period in 2023, showing a reduction in losses[99]. - Management reported a net loss of$3,684,167 for the six months ended June 30, 2024, an increase of $884,159 from a net loss of$2,800,008 in the prior year[132]. - The company reported a net loss of $2,344,545 for the three months ended June 30, 2024, compared to a net loss of$2,399,496 for the same period in 2023[157]. - Adjusted EBITDA for the six months ended June 30, 2024, was $(1,751,783), a decrease from$1,152,192 for the same period in 2023[157]. - Free cash flow for the six months ended June 30, 2024, was $1,022,648, down from$1,749,043 for the same period in 2023[162]. Revenue Composition - Product revenue accounted for 89.0% of total revenue in Q2 2024, down from 97.7% in Q2 2023, indicating a shift in revenue composition[100]. - OSS revenue decreased by $2,756,062, or 33.3$1,254,140, or 14.0%[102]. - The company recognizes revenue primarily from the sale of computer hardware and engineering services, with a minor contribution from software sales and maintenance contracts[92]. Cost Management - Operating expenses totaled $8,211,495 for Q2 2024, which is 42.3$2,545,527, or 20.5%, with OSS seeing a decrease of $1,718,005, or 29.3$665,482, or 21.7%, for the three months ended June 30, 2024, but increased as a percentage of revenue to 18.2%[108]. - Marketing and selling expenses increased by $771,163, or 52.0$29,048, or 3.0%, for the three months ended June 30, 2024, but increased as a percentage of revenue to 7.0%[113]. Cash and Investments - As of June 30, 2024, total cash and cash equivalents were $6,751,771, with short-term investments of$5,019,230[122]. - The company generated $1,226,742 in cash from operating activities for the six months ended June 30, 2024, a decrease of$822,192 compared to $2,048,934 in the same period of 2023[132]. - Cash generated from investing activities increased to$2,541,086 in the six months ended June 30, 2024, compared to $503,054 in the prior year, reflecting a net increase of$2,038,032[134]. - The company used $1,014,840 in cash for financing activities during the six months ended June 30, 2024, compared to generating$413,575 in the same period of 2023, resulting in a difference of $1,428,415[135]. - The company has a revolving line of credit of$2,000,000, which was renewed in June 2024 and will expire in September 2026, with no outstanding balance as of June 30, 2024[126]. - The company filed a registration statement allowing it to offer and sell up to $100,000,000 of various securities, which may be utilized for additional financing if needed[127]. Market and Strategic Focus - The edge computing market is driven by the global increase in load on cloud infrastructure and the rise in AI applications, positioning the company favorably in a growing sector[88]. - The company expects to increase its research and development expenses as it continues to invest in new and existing products, indicating a focus on innovation[95]. - The company has made strategic acquisitions, including Bressner Technology GmbH, to enhance its product offerings and market reach in Europe, the Middle East, and Africa[90][91]. - The company is focusing on acquiring new customer orders to replace lost revenue and is committed to controlling costs and conserving cash for liquidity over the next twelve months[125]. - The company is increasing efforts to penetrate the military and defense sectors, which involves significant contracting requirements and protracted sales cycles[138]. Economic and Risk Factors - The company anticipates continued economic uncertainty and volatility in capital markets, particularly due to inflation and potential recessions in the U.S. and Germany[124]. - The company is subject to foreign currency risk due to operations in Germany, with transactions primarily in Euros, impacting financial results due to exchange rate fluctuations[151][152]. - The company employs derivatives to manage market risks but is currently not a party to any foreign exchange contracts[153]. - The effective tax rate for the six months ended June 30, 2024, was 29.1$557,198 for the three months ended June 30, 2024, compared to $898,008 for the same period in 2023[157]. - The company has not experienced any losses in accounts exceeding insurance limits and believes the financial institutions are stable[149].