ONE STOP SYSTEMS, INC. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 24, 2022. OSS designs and sells specialized high-performance computing and storage systems for edge deployments, including rugged AI and autonomous applications. Its business includes U.S. operations and Bressner Technology GmbH in Germany.
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $62.0 million | $51.9 million | Up 19.4% |
| Gross profit / margin | $19.6 million / 31.7% | $16.4 million / 31.7% | Margin flat; OSS margin was 36.9% and Bressner 23.1% |
| Operating income (loss) | $1.7 million | $(0.4) million | Improved to 2.8% of revenue |
| Net income (loss) | $2.3 million | $(6,544) | Includes $1.5 million PPP-loan forgiveness gain |
| Diluted EPS | $0.12 | $(0.00) | FY2021 diluted weighted-average shares: 19.5 million |
| Operating cash flow | $5.6 million | $(0.3) million | Free cash flow, a non-GAAP measure, was $5.1 million versus $(1.1) million |
| Cash and short-term investments | $19.6 million | $6.3 million cash; no short-term investments | Included $14.5 million of short-term investments |
| Working capital | $28.0 million | — | Company reported sufficient liquidity for at least 12 months |
Revenue growth reflected higher shipments to media and entertainment customers and government OEM suppliers, and Bressner’s recovery and large one-time orders in Europe. Marketing and selling expense rose 50.5%, while general and administrative expense declined 9.0% and research and development expense declined 6.6%. Adjusted EBITDA, a non-GAAP measure, was $4.9 million, compared with $1.8 million.
Liquidity, debt and capital
- At year-end, total liabilities were $9.6 million. Current debt, net of discounts, was approximately $3.7 million; all listed year-end debt maturities fell within 2022.
- The $2.6 million senior secured convertible note was due April 2022; it carried a 10% original issue discount and could be converted into shares. Bressner had two outstanding €500,000 term loans due March and June 2022.
- OSS raised $10.0 million gross, or approximately $9.2 million net, through a March 2021 registered stock offering. The PPP loan and accrued interest, totaling $1.5 million, were forgiven in May 2021.
- Short-term investments increased due primarily to investing proceeds from the offering in securities. Bressner’s cash balances were subject to debt-covenant restrictions on use by the parent.
- Contractual obligations included $3.7 million of notes payable and $2.1 million of operating lease commitments. Management said it might seek additional debt or equity financing if operating cash flow proves insufficient.
Material changes, outlook and risks
- In March 2021, OSS shifted its primary strategic focus toward “AI Transportables”—rugged, mobile high-performance computing for commercial, industrial and military uses. Management said this segment represented about 20% of business, targeted over 50% of revenue in coming years, and comprised about half of the unclosed prospect pipeline. These are strategic objectives, not formal financial guidance.
- OSS introduced its Rigel edge computing platform in November 2021 and planned to introduce PCIe Gen 5.0 products in 2022. Management’s stated priorities include growth in higher-margin applications, margin improvement, cost control and cash conservation.
- Supply-chain shortages and longer component lead times increased costs and prompted higher inventory, including work-in-process and finished goods. Inventory rose to $12.3 million from $9.6 million; management warned that shortages could delay shipments and pressure costs.
- COVID-19 continued to weigh on media and entertainment and commercial aerospace demand, although results improved versus 2020. Inflation, shipping and labor costs, semiconductor constraints, geopolitical disruption and potential customer spending changes were identified as uncertainties.
- Customer concentration increased: disguise and Raytheon together represented 36% of revenue, compared with 24% in 2020. Receivables were also concentrated, with three customers accounting for about 56% of trade receivables.
- The former CEO’s litigation and the company’s cross-claims were dismissed with prejudice in June 2021. The filing reports no recorded liability for indemnities and no other quantified material contingency in the provided text.
- The auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because OSS qualified for the emerging-growth-company exemption.
Investor facts to verify
- Reconcile earnings excluding the $1.5 million PPP forgiveness benefit, and assess recurring profitability alongside non-GAAP adjusted EBITDA.
- Confirm repayment or refinancing of the convertible note due April 2022 and Bressner loans due March and June 2022, including the February 2022 credit-line borrowing disclosed after year-end.
- Track whether the AI Transportables strategy converts its pipeline and design wins into recurring revenue and improved margins; management provided no quantified revenue or earnings guidance.
- Monitor component availability, inventory conversion and obsolescence exposure, and whether higher input costs can be passed through to customers.
- Assess the dependence on disguise and Raytheon, the concentration of receivables, and the effect of large or one-time Bressner orders on reported growth.
- Review share dilution from the 2021 offering and equity awards, and the realization of $3.6 million in net deferred tax assets amid uncertain future taxable income.