One Stop Systems(US:OSS)2022-03-24 20:07Business Impact and Risks - The ongoing COVID-19 pandemic continues to impact the company's business, leading to operational challenges and potential adverse effects on financial condition and results of operations [132]. - Economic uncertainty and capital markets disruption, significantly influenced by the military conflict between Russia and Ukraine, could materially affect the company's financial condition and results of operations [144]. - Supply chain disruptions have resulted in longer lead times and increased product costs, impacting the company's ability to meet customer demands [135]. - A limited number of customers represent a significant portion of sales, and the loss of key customers could lead to a substantial decrease in revenue [132]. - The company faces increased pricing pressure due to the commoditization of HPC hardware and software, which may harm its competitive position [134]. - The company has not developed a specific contingency plan to address the challenges posed by the COVID-19 pandemic, which may hinder its ability to mitigate potential adverse effects [137]. - The company relies on a limited number of parts suppliers, and any disruptions could adversely affect manufacturing and design processes [132]. - The ongoing COVID-19 pandemic has led to increased product costs, limited supplies, and protracted delivery dates, which could materially impact business operations and financial results [164]. - Inflation has increased overall cost structures, potentially affecting liquidity and financial condition if price increases to customers do not keep pace [148]. - The company has experienced fluctuations in operating results, making future predictions challenging and potentially leading to operating results falling below expectations [150]. - Competition in the market is expected to increase, with established competitors and new entrants posing risks to market share and profit margins [152]. - The company faces risks from unsuccessful product launches, which could lead to reduced revenues and potential returns of products, adversely affecting financial condition and operating results [168]. - Inventory may become obsolete due to varying sales cycles, leading to potential write-offs or reduced inventory value, impacting financial results [169]. - Significant defects in products could incur high remediation costs, damage reputation, and result in loss of market share, affecting overall business performance [170]. - The company offers extended product warranties, which could lead to unexpected costs if failure rates change, impacting financial stability [171]. - Achieving design wins is crucial for growth; failure to do so could harm the company's business and market position [174]. - Retaining key personnel is essential; loss of executives could delay business objectives and affect development efforts [175]. Financial Position and Capital Structure - The company has never paid, and does not expect to pay, any cash dividends to common stockholders for the foreseeable future, which may limit attractiveness to investors [144]. - As of February 28, 2022, the company has 18,878,183 shares of common stock outstanding, and substantial future sales could lead to a decline in stock price [202]. - The company's directors and significant stockholders collectively own 26.7% of outstanding common stock, allowing them to exert significant control over corporate matters [200]. - The company may seek to raise additional capital through equity offerings, debt financings, collaborations, or licensing arrangements if cash balances and anticipated cash flow are insufficient [210]. - The company qualifies as an "emerging growth company" and a "smaller reporting company," which may make its common stock less attractive to investors due to reduced reporting requirements [213][215]. - The company could remain an emerging growth company until December 31, 2023, or until it meets certain revenue or debt thresholds [214]. - If the company raises funds by issuing equity securities, it may result in dilution to stockholders and could impose significant restrictions on operations [211]. - The issuance of additional equity securities may cause the market price of the company's common stock to decline [211]. - The company may have to liquidate assets or reduce the scope of development programs if it is unable to raise adequate funds [211]. - The company may continue to qualify as a "smaller reporting company" until it has more than $250 million in public float or annual revenues exceeding $100 million [215]. - The company’s reliance on exemptions from various reporting requirements may lead to less active trading and increased stock price volatility [216]. - Any delay or prevention of a change of control transaction could cause the market price of the company's common stock to decline [209]. Regulatory and Compliance Risks - The company is subject to various risks related to international operations, including regulatory changes and geopolitical instability, which could adversely affect business plans [143]. - Privacy concerns regarding data handling could damage reputation and result in legal or regulatory issues, adversely affecting operating results [189]. - The European Union's GDPR imposes penalties of up to 4% of worldwide revenue for non-compliance, affecting the company's data handling practices [190]. - The California Consumer Privacy Act (CCPA) took effect on January 1, 2020, expanding rights for California residents and potentially increasing compliance costs and liabilities for the company [191]. - The California Privacy Rights Act (CPRA) will expand the CCPA significantly on January 1, 2023, introducing stricter regulations on personal information usage and retention [191]. - Compliance with evolving data protection laws may incur substantial costs, adversely impacting the company's business and operational results [192]. - International operations expose the company to risks such as foreign currency fluctuations, increased compliance costs, and political instability, which could negatively affect financial performance [193]. - The company is subject to U.S. export and import controls, and violations could lead to significant penalties and loss of business opportunities [194]. - Changes in regulations affecting suppliers' products may result in unexpected costs or liabilities, impacting the company's market acceptance and sales [195]. - The company faces risks related to anti-bribery laws, with potential penalties that could adversely affect its business if violations occur [196]. Supply Chain and Product Development - The complexity and unpredictability of product development cycles may result in delays, leading to outdated products and decreased sales [166]. - The introduction of new products and enhancements is critical for future success, requiring effective coordination with customers and suppliers [165]. - Suppliers representing over 10% of total parts purchases accounted for approximately 12.6% and 18.3% of materials purchased in 2021 and 2020, respectively, highlighting reliance on a limited number of suppliers [162].