One Stop Systems(US:OSS)2023-05-11 20:05Company Overview - One Stop Systems, Inc. focuses on high-performance compute and storage hardware for edge AI applications, targeting markets such as medical, industrial, and military[114]. - The company is undergoing internal organizational changes to align operations with its focus on the AI Transportables industry, including a reduction in force of 12 employees[120]. - The company has formed a strategic advisory board to accelerate its pursuit of the AI Transportables market, particularly in the military sector[118]. Economic and Market Conditions - The ongoing geopolitical instability and inflation have contributed to economic uncertainty, negatively affecting operations and customer spending[128]. - Management plans to continue monitoring economic conditions and may adjust strategies to address inflation and supply chain constraints[165]. - Inflation has impacted the company with increased product pricing and transportation costs, which are being managed to minimize effects on operations[188]. Financial Performance - Total revenue for the three months ended March 31, 2023, decreased by $270,783, or 1.6%, compared to the same period in 2022, with OSS experiencing an 18.4% decline in revenue[150]. - Gross profit margin for the three months ended March 31, 2023, was 30.2%, slightly up from 30.1% in the same period in 2022[152]. - General and administrative expenses increased by $510,412, or 28.8%, for the three months ended March 31, 2023, as a percentage of revenue rising to 13.6% from 10.4% in the prior year[154]. - Marketing and selling expenses rose by $314,961, or 21.4%, for the three months ended March 31, 2023, increasing as a percentage of revenue to 10.6% from 8.6%[155]. - Research and development expenses decreased by $48,787, or 3.9%, for the three months ended March 31, 2023, representing 7.1% of revenue compared to 7.3% in the same period in 2022[156]. - Net loss for the three months ended March 31, 2023, was $400,512, compared to a net income of $579,234 in the same period in 2022[146]. - Adjusted EBITDA for the same period was $529,911, a significant decrease from $1,404,871 in the prior year[207]. - Non-GAAP net income for Q1 2023 was $89,505, down from $977,871 in Q1 2022[211]. - The company reported a basic and diluted adjusted EPS of $0.00 for Q1 2023, compared to $0.05 for Q1 2022[211]. Cash Flow and Capital Management - For the three months ended March 31, 2023, the company generated $23,964 in cash from operating activities, a significant improvement compared to a cash outflow of $5,018,398 in the same period of 2022, representing a difference of $5,042,362[173]. - The company generated $833,524 in cash from investing activities during the three months ended March 31, 2023, down from $1,028,504 in the same period in 2022, a decrease of $194,980[177]. - Cash used in financing activities was $525,933 for the three months ended March 31, 2023, compared to cash generated from financing activities in the same period of 2022[179]. - The company has the potential to borrow up to $2,000,000 from its revolving line of credit to meet capital requirements if cash generated from operations is insufficient[171]. - Free cash flow for Q1 2023 was $(61,121), a notable improvement from $(5,104,239) in Q1 2022[214]. - Net cash provided by operating activities was $23,964 for Q1 2023, compared to $(5,018,398) in the same quarter of the previous year[214]. Demand and Market Trends - The transition to cloud technology by customers in the media and entertainment sector is leading to decreased demand for high-compute, ruggedized equipment[130]. - The company is experiencing a decrease in demand for high-compute, ruggedized media and entertainment equipment due to customer transitions to lower-cost solutions[183]. Leadership and Governance - The company has not yet identified a successor for the CEO position, and a search firm has been retained to assist in this process[121]. - The effective tax rate for the three months ended March 31, 2023, was 28.9%, compared to 20.7% in the prior period[161]. - The company does not have any off-balance sheet financing arrangements or liabilities, ensuring transparency in its financial condition[189].