Economic and Market Conditions - Economic uncertainty and capital markets disruption significantly impacted by geopolitical instability could harm the company's financial condition and results of operations [150]. - The company may be adversely affected by inflation, which has increased overall cost structure and could lead to higher interest rates and capital costs [164]. - The market for high-performance computing products is developing and may not grow as expected, affecting demand and sales [165]. - Business disruptions from natural disasters or geopolitical conflicts could lead to significant losses and increased costs [153]. - Changes in U.S. government priorities and defense spending could negatively impact the company's financial position and results [151]. - The company has not been materially impacted by ongoing geopolitical conflicts to date, but future effects remain unpredictable [160]. Customer and Supplier Risks - The company relies on a limited number of parts suppliers, and any disruption could impact manufacturing and design processes [151]. - A limited number of customers represent a significant portion of sales, and losing key customers could lead to a substantial decrease in revenue [151]. - In the year ended December 31, 2024, 20.2% of total consolidated revenues were attributable to the top three customers, including Raytheon, Alcon Gps, and Torc Robotics [193]. - In the year ended December 31, 2024, 39.7% of OSS segment revenues were attributable to the top three customers, indicating a significant reliance on a limited customer base [193]. - Approximately 37% of materials purchased in 2024 came from suppliers that accounted for more than 10% of total parts purchases, highlighting supply chain concentration risks [195]. - The company relies on a limited number of parts suppliers, and disruptions could adversely affect product marketing and sales [195]. Competition and Market Position - The company faces competition from new entrants and existing customers, which could harm its competitive position [150]. - The competitive landscape is evolving, with new entrants and distribution models potentially harming the company's market position [171]. - The company’s products face competition from mass-produced hardware solutions, which could create pricing pressure and reduce profit margins [170]. - The ongoing commoditization of HPC hardware and software is leading to increased pricing pressure, potentially reducing gross margins and adversely affecting operating results [213]. Government and Regulatory Risks - Changes in U.S. government priorities and potential reductions in defense spending could negatively impact the company's financial position and growth prospects [185]. - The U.S. government may terminate contracts at its convenience, which could adversely affect the company's business and financial performance [188]. - The company is subject to procurement laws and regulations that could impose risks and costs on its business [187]. - Compliance with evolving data protection regulations, such as GDPR and CCPA, could result in penalties of up to 4% of worldwide revenue and increased compliance costs [224][226]. - The company is subject to governmental export and import controls that could impair its ability to compete internationally and result in significant penalties for non-compliance [229][230]. - Changes in regulations or standards related to suppliers' products may lead to unanticipated costs or liabilities, adversely affecting business operations and future sales [231]. Cybersecurity and Intellectual Property Risks - The company faces risks associated with cybersecurity incidents that could disrupt operations and expose it to liabilities [176]. - The company has implemented systems to address cybersecurity risks, but these measures may not be sufficient for all possible situations [178]. - Cybersecurity breaches pose a risk of theft of proprietary designs, which could negatively impact competitive edge and financial results [216]. - The company faces significant risks related to intellectual property protection, including potential costs and resource diversion from enforcing proprietary rights against competitors [214][215]. - The company is obligated to indemnify channel partners and end-customers for certain intellectual property infringement claims, which could lead to substantial costs [222]. Financial and Operational Challenges - The company’s operating results may fluctuate significantly due to various factors, including longer sales cycles in military and defense markets [167]. - The sales cycles for some products can take several months or longer, increasing the risk of inventory becoming obsolete [202]. - The company offers extended product warranties, which could lead to significant costs if failure rates unexpectedly increase [205]. - Achieving design wins is critical for success, and failure to do so could harm the company's business [207]. - Acquisitions may require significant management attention and could disrupt operations, leading to potential financial dilution [211]. - The company anticipates that future growth will require significant expansion of operations and innovation, which may strain management and financial resources [192]. Stock and Ownership Structure - Directors, executive officers, and significant stockholders own approximately 40% of the outstanding common stock, allowing them to exert significant control over corporate matters [237]. - As of March 5, 2025, there are 21,323,261 shares of common stock outstanding, with potential future equity issuances causing dilution to current shareholders [241]. - The company has the right to issue up to 10,000,000 shares of blank-check preferred stock, which could adversely affect common stock rights and preferences [242]. - The company has never paid cash dividends and does not expect to do so in the foreseeable future, relying on share price appreciation for returns [250]. - The company qualifies as a "smaller reporting company," which may make its common stock less attractive to investors due to reduced reporting requirements [252]. - The market price of common stock could decline if equity research analysts downgrade the stock or cease coverage [240]. - Anti-takeover provisions in the company's charter could delay or prevent changes in control, potentially affecting stock price [244]. - The concentration of ownership among major stockholders may adversely affect the market price of common stock [237]. - The company may face challenges in raising additional capital on acceptable terms, impacting its ability to develop new technologies and expand operations [248].
One Stop Systems(OSS) - 2024 Q4 - Annual Report