ONE STOP SYSTEMS, INC. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. OSS designs and manufactures specialized high-performance computing systems and components for edge deployments; its reportable segments are OSS and Bressner Technology GmbH.
Financial performance
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $14.91 million | $11.63 million | $28.22 million | $24.98 million |
| Gross profit / margin | $4.65 million / 31.2% | $3.33 million / 28.6% | $9.09 million / 32.2% | $6.72 million / 26.9% |
| Operating income (loss) | $0.52 million | $(0.41) million | $0.79 million | $(1.92) million |
| Net income (loss) | $1.70 million | $(0.01) million | $1.74 million | $(1.11) million |
| Operating cash flow | Not separately presented for the quarter | $2.79 million | $(2.94) million |
Q2 revenue rose 28.2% year over year; H1 revenue increased 12.9%. Management attributed growth to higher shipments to media and entertainment customers and government OEM suppliers, and improved European business at Bressner. Gross margin gains reflected product mix improvements at both segments. H1 adjusted EBITDA, a non-GAAP measure, was $2.45 million versus $(0.88) million; reported H1 net income included $1.51 million of PPP loan and interest forgiveness.
Liquidity, debt and capital
At June 30, 2021, cash and cash equivalents were $3.98 million and short-term investments were $14.52 million; working capital was $26.95 million. H1 investing cash use of $14.72 million largely reflected purchases of short-term securities, while financing provided $9.63 million, principally from a March registered offering. Free cash flow, as defined by the company, was $2.59 million for H1.
Debt carrying value was approximately $4.29 million, all classified as current: $2.52 million net carrying value for the senior secured convertible note and $1.78 million of Bressner term loans. The foreign term loans mature September through December 2021; the convertible note matures April 2022. Bressner had no outstanding revolving credit balances. The company raised $10.0 million gross through a March 2021 registered direct offering, receiving approximately $9.2 million net, and issued 1,497,006 shares. The PPP loan and accrued interest were fully forgiven in May 2021.
Changes, outlook and risks
- Profitability and operating cash flow improved substantially versus the prior-year periods. General and administrative and R&D expenses declined, while marketing and selling expense increased with added product marketing/project management staff and reopening-related activity.
- Management said cost-reduction actions—including workforce reductions, a limited hiring freeze, reduced work week, and control of overtime, travel and contractor costs—were intended to conserve cash and strengthen margins. The earlier plan was estimated to save approximately $2.5 million annually.
- Management believed available liquidity and cash forecasts were sufficient for anticipated needs for at least 12 months. No specific revenue or earnings guidance was provided. Management cautioned that forecasts and cost savings are uncertain and additional financing might not be available on acceptable terms.
- COVID-19 continued to create uncertainty around demand, customer spending, operations and access to capital. The company reported component shortages and higher prices causing longer lead times; lower or delayed customer orders could affect future revenue. Customer and supplier concentration also warrant attention: three customers represented approximately 42% of Q2 revenue in aggregate under the filing’s concentration disclosure, and three customers accounted for approximately 68% of receivables.
- On June 28, 2021, litigation between the company and its former CEO, including the company’s cross-claims, was dismissed with prejudice pursuant to an agreement resolving the disputes.
- Management stated disclosure controls and procedures were effective at a reasonable assurance level; no material change in internal control over financial reporting was reported during the quarter.
Key investor verification points
- Assess the sustainability of revenue growth and gross-margin improvement, including the contribution of product mix and major customers.
- Separate recurring operating performance from the $1.51 million PPP forgiveness benefit when evaluating reported earnings.
- Confirm near-term debt repayment and refinancing capacity, particularly the September–December 2021 Bressner maturities and the convertible note’s terms.
- Review the availability and restrictions on subsidiary cash: the filing gives differing Bressner cash figures—$1.345 million in the notes and $1.288 million in MD&A—and says debt covenants restrict parent-company access.
- Monitor supply availability, component costs, customer concentration, and whether management’s 12-month liquidity assessment remains supportable.