One Stop Systems(OSS) - 2020 Q1 - Quarterly Report

Financial Performance - Revenue for the three months ended March 31, 2020, was $13,359,637, an increase of 32.8% compared to $10,057,899 for the same period in 2019[194] - Gross profit for the three months ended March 31, 2020, was $3,395,687, representing a gross margin of 25.4%, up from 24.0% in 2019[194] - The net loss attributable to common stockholders for the three months ended March 31, 2020, was $1,096,032, compared to a net loss of $944,729 in 2019[194] - Adjusted EBITDA for the three months ended March 31, 2020, was $(949,556), an improvement from $(1,423,782) in the same period of 2019[199] - Non-GAAP net loss attributable to common stockholders for Q1 2020 was $(713,746), compared to $(427,836) in Q1 2019, reflecting a significant increase in losses[203] - Free cash flow for the three months ended March 31, 2020 was $(921,822), an improvement of $81,438 compared to $(1,003,260) in the same period of 2019[206] Expenses and Costs - Operating expenses totaled $4,906,841 for the three months ended March 31, 2020, compared to $4,443,830 in 2019, reflecting an increase in general and administrative, marketing, and research and development costs[194] - Cost of revenue for the three months ended March 31, 2020, was $9,963,950, representing 74.6% of total revenue, down from 76.0% in 2019[195] - General and administrative expenses rose by $470,131 or 23.0% in Q1 2020 compared to Q1 2019, primarily due to severance benefits for the former CEO[211] - Research and development expenses decreased by $58,539 or 4.6% in Q1 2020 compared to the same period in 2019, with a decrease in OSS activities offset by increases at CDI[213] Cash Flow and Working Capital - As of March 31, 2020, the company's cash and cash equivalents were $3,038,006, with working capital of $11,938,554[221] - Net cash used in operating activities for Q1 2020 was $(721,773), an increase of $521,756 compared to $(200,017) in Q1 2019[230] - Working capital decreased by $1,145,361, primarily due to reductions in accounts receivable and inventories, offset by increased prepaids and reduced accounts payable[231] - Cash used in investing activities decreased to $(198,507) in Q1 2020 from $(802,193) in Q1 2019, a reduction of $603,686, as prior period costs for facility expansion and ERP implementation were not incurred[233] - Cash used in financing activities increased to $(1,214,119) in Q1 2020 from $(817,272) in Q1 2019, with $57,000 received from stock options exercised offset by a tax payment of $656,845[235] Acquisitions and Investments - The company acquired Concept Development Inc. for a total consideration of $4,841,432, enhancing its capabilities in high-performance computing systems for airborne entertainment[174] - The acquisition of Bressner Technology GmbH was completed for €4,725,000 (approximately $5,374,582) and stock consideration, expanding the company's market presence in Europe[175] - The company acquired Bressner Technology GmbH in October 2018, expanding its operations through OSS GmbH[273] Future Expectations and Strategies - The company expects an increase in research and development expenses as it continues to invest in new and existing products[190] - The company anticipates an increase in sales and marketing expenses as it expands its sales force and marketing resources[189] - Management expects cost reduction plans to yield savings of $2.5 to $3.0 million for the year ending 2020[226] - The company is closely monitoring the impact of COVID-19 on its operations and has implemented measures to manage cash flows and expenses[225] - The company anticipates no significant purchases of equipment beyond normal business activities[233] Tax and Financial Management - The company recorded an income tax benefit of $467,298 for Q1 2020, down from $1,101,911 in Q1 2019, due to projected annual taxable income and a tax rate of 28.2%[218] - The company uses a two-step approach to recognize and measure uncertain tax positions, reevaluating these positions quarterly[262] - The company recognizes deferred tax assets and liabilities based on the expected future tax consequences of events included in its consolidated financial statements[261] Risk Management - The company employs derivatives to manage market risks, specifically using foreign exchange forward contracts as cash flow hedges[274] - The company performs ongoing credit evaluations of customers' financial conditions to limit credit extended when necessary[270] - The company assesses the fair value of acquired assets and liabilities based on estimated future revenues and expenses, using a discounted cash flow model[264] - The company records adjustments to the valuation of intangible assets during the purchase price allocation period, which is generally no longer than one year[265]