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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.08pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.11pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.05pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
disruptions+6
discontinued+4
negatively+2
conflicts+2
disrupt+2
Positive rising
profitability+3
effective+1
enabled+1
achieved+1
Risk Factors (Item 1A)
16,363 words
Risk Factors Summary
Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this “Risk Factors Summary” section, and other risks that we face, can be found below and should be carefully considered, together with other information included in this Annual Report.
Economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, could harm our financial condition and results of operations.
Volatile or recessionary conditions in the United States or abroad could adversely affect our business and/or our access to capital markets in a material manner.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could affect our current and projected business operations and our financial condition and results of operations.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
discontinued+29
loss+5
closing+5
restated+4
closed+3
Positive rising
gain+13
favorable+3
satisfied+1
gains+1
enhancement+1
MD&A (Item 7)
8,869 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .
You should read the following discussion and analysis of our financial condition and operating results together with our financial statements and related notes included elsewhere in this Annual Report. This discussion and analysis contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report.
Overview
The Company designs, manufactures, and markets specialized enterprise class high-performance compute, high speed switch fabrics, and storage hardware and software, which are designed to target edge applications for AI/ML, sensor processing, sensor fusion, and autonomy. Edge computing is a form of computing that is done on platform or on site, connected with the data source or the user, rather than in the cloud, minimizing the need for data to be processed remotely. This growing trend increases computing performance and security, as the data does not have to travel to distant datacenter locations. Edge computing is most recognizable in applications such as sensor processing, sensor fusion, autonomy, and AI/ML. To meet the demands at the edge, we offer specialized products and system solutions that consist of computers, switch fabrics, and storage products that incorporate the latest state-of-the art components with embedded proprietary software. Such products and systems allow us to offer high-end solutions to be integrated into edge platforms in our target markets.
We may be adversely affected by the effects of inflation.
The market for our products is developing and may not develop as we expect.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our products are subject to competition, including competition from the customers to whom we sell and from new entrants, and the introduction of other distribution models in our markets may harm our competitive position.
Cybersecurity risks and cyber incidents, as well as other significant disruptions of our information technology networks and related systems and resources, could adversely affect our business, disrupt operations and expose us to significant liabilities.
Changes in U.S. government priorities and/or delays or reductions in defense spending could negatively impact our financial position, results of operations, liquidity and overall business.
Changing procurement policies could adversely affect our business and financial results.
If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged.
A limited number of customers represents a significant portion of our sales, and the loss of any key customers could cause our sales to decrease significantly.
We rely on a limited number of parts suppliers to support our manufacturing and design processes.
Supply chain disruptions, including those which may impact our ability to obtain critical parts at reasonable prices, could adversely affect our business, disrupt operations, and impact our profitability.
Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers, as well as our ability to maintain our production schedule.
Unsuccessful government programs or OEM contracts could lead to reduced revenues.
Our inventory may rapidly become obsolete.
We offer an extended product warranty to cover defective products at no cost to the customer. If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share.
If we fail to achieve design wins for our products, our business will be harmed.
Business disruptions could harm our business, lead to a decline in revenues and increase our costs.
If we cannot retain, attract, and motivate key personnel, we may be unable to effectively implement our business plan.
Any future acquisitions could require significant management attention, disrupt our business, result in dilution to our stockholders, deplete our cash reserves, and adversely affect our financial results.
The continuing commoditization of HPC hardware and software has resulted in increased pricing pressure.
If we are unable to protect our proprietary design and intellectual property rights and/or the confidentiality of our trade secrets, our competitive position could be harmed, or we could be required to incur significant expenses to enforce our rights.
Many of our proprietary designs are in digital form and the breach of our computer systems could result in these designs being stolen.
Our proprietary designs are susceptible to reverse engineering by our competitors.
Claims by others that we, our channel partners or our end-customers infringe their intellectual property or trade secret rights could harm our business, including as a result of our contractual indemnification obligations to certain channel partners and end customers.
Privacy concerns relating to our products and services could damage our reputation, deter current and potential users from using our products and services, result in liability, or result in legal or regulatory proceedings.
Our international operations subject us to a variety of risks and challenges.
New regulations or standards or changes in existing regulations or standards, in the United States or internationally related to our suppliers’ products may result in unanticipated costs or liabilities, and could place additional burdens on the operations of our business.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
The price of our common stock may be volatile, and the price could decline if securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our company or if there are substantial future sales of shares of our common stock, amongst other things.
Our directors and principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and expand our operations. We have never paid, and do not expect to pay, any cash dividends to holders of our common stock for the foreseeable future.
We are a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
Risks Related to Our Business and Industry
Business disruptions could harm our business, lead to a decline in revenues, and increase our costs.
Our worldwide operations could be disrupted by earthquakes, telecommunications failures, power or water shortages, outages at cloud service providers, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, cyber-attacks, terrorist attacks, war or military conflicts (such as the ongoing military conflict between Russia and Ukraine and the more recent conflicts in the Middle East), medical epidemics or pandemics and other natural or man-made disasters, catastrophic events or climate change. The occurrence of any of these disruptions could harm our business and result in significant losses, a decline in revenue and an increase in our costs and expenses. Any of these business disruptions could require substantial expenditure and recovery time in order to fully resume operations.
Our corporate headquarters, and a portion of our research and development activities, are located in California, and and some of our suppliers are located in Europe and Asia, near major earthquake faults known for seismic activity. The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including California. Geopolitical change or changes in government regulations and policies in the United States or abroad may result in changing regulatory requirements, economic sanctions (such as those recently imposed by the United States and other countries on Russia), trade policies, import duties (such as recent tariffs applied on many imports) and economic disruptions that could impact our operating strategies, product demand, access to global markets, hiring, and profitability. In particular, revisions to laws or regulations or their interpretation and enforcement could result in increased taxation, trade sanctions, the imposition of additional import duties or tariffs, restrictions and controls on imports or exports, or other retaliatory actions, which could have an adverse effect on our business plans.
For example, regulations to implement the Export Control Reform Act of 2018 could have an adverse effect on our business plans. Additionally, tariffs and the threat of tariffs, including both United States sanctioned tariffs and the potential for retaliatory tariffs, have contributed to uncertainty and supply chain disruptions that could impact our operations. We conduct final assembly and test of products at our facility in California. However, we source components and subassemblies from both within and outside of the United States. While we attempt to pass on the cost of tariffs to our customers, our ability to do so is dependent upon many factors, including the predictability of tariff rates and market conditions for the Company's products. Potential changes in trade policy and tariff rates could result in increased costs, decreased revenue, or other negative effects to our financial condition.
Catastrophic events can also have an impact on third-party vendors who provide us with critical infrastructure services for IT and research and development systems and personnel. In addition, geopolitical and domestic political developments, such as existing and potential trade wars, political or social unrest, military conflicts, elections and post-election developments, and other events beyond our control, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. Political instability or adverse political developments in or around any of the major countries in which we do business could also harm our business, financial condition, and results of operations. The ultimate impact on us, our third-party vendors and other suppliers and our general infrastructure of being located near major earthquake faults and being consolidated in certain geographical areas is unknown. In the event a major earthquake or other disaster or catastrophic event affects us or the third-party systems on which we rely, our business could be harmed as a result of declines in revenue, increases in expenses, substantial expenditures and time spent to fully resume operations. All of these risks and conditions could materially adversely affect our future sales and operating results.
We are currently operating in a period of economic uncertainty and geopolitical instability. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from military conflicts or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions in multiple regions of the world. Recently, international relations between the U.S. and Russia, certain Middle Eastern nations as well as certain other countries, has been strained, and they may continue to deteriorate further. Although the length and impact of the ongoing military conflicts are highly unpredictable, the conflicts in Ukraine and the Middle East could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine, the Middle East, and globally, and assessing its potential impact on our business.
Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine, Israel and Hamas or other geopolitical instability to date, it is impossible to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which these conflicts may impact our business. The extent and duration of military actions, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Annual Report.
Volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.
Worsening economic and market conditions, downside shocks, or a return to recessionary economic conditions could severely reduce demand for our products and adversely affect our operating results. These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand. Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy. An economic downturn may cause uncertainty in the capital and credit markets and could have a material adverse effect on us. We could also be adversely affected by such factors as changes in foreign currency rates, weak economies, and political conditions in each of the countries in which we sell our products.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.
Actual events involving reduced or limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, in March 2023, Silicon Valley Bank and Signature Bank were closed and taken over by the Federal Deposit Insurance Corporation ("FDIC") as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank or Signature Bank, similar events in the future could negatively affect investor confidence, the availability of credit, and overall market liquidity. Disruptions in the financial markets could result in higher interest rates, more restrictive lending terms, tighter financial covenants, or reduced access to capital. If we are unable to obtain financing on acceptable terms, or if access to our cash or liquidity resources is restricted, our ability to fund operations, meet financial obligations, or execute our business strategy could be adversely affected. Any of these developments could have a material adverse effect on our liquidity, business operations, financial condition, and results of operations.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition, and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. Additionally, higher tariffs and the potential for higher tariffs may impact our product pricing or the cost of inputs to our production. The existence of inflation in the domestic and global economies may result in higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. If inflation increases for a prolonged period of time, or the rate of inflation in our markets were to increase, or if a global recession were to occur, our expenses could increase substantially. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.
The market for our products is developing and may not develop as we expect.
The market for cutting-edge, high-performance computing products is characterized by rapid advances in technologies. We believe our future success will depend in large part on our ability to develop products, new business initiatives and create innovative and custom designs for our customers. The growth of server clusters, specialized or high-performance applications, and hosted software solutions which require fast and efficient data processing, is crucial to our success. It is difficult to predict the development of the demand for high-performance computing, supercomputers, and related hardware solutions, the size and growth rate for this market, the entry of competitive
products, or the success of existing competitive products. Any expansion in our market depends on several factors, including the demand, cost, performance, and perceived value associated with our products. If our products are not adopted or there is a reduction in demand for our products caused by a lack of customer acceptance, a slowdown in demand for computational power, an overabundance of unused computational power, technological challenges, competing technologies and products, decreases in corporate spending, weakening economic conditions, or otherwise, it could result in reduced customer orders, early order cancellations, the loss of customers, or decreased sales, any of which would adversely affect our business, operating results, and financial condition.
Governmental policies and regulations may also impact the development of the market for our products. For example, regulations around the use of AI may negatively impact certain of our customers and may affect the adoption of AI in certain of our target markets. The European Union Parliament adopted the EU AI Act, which introduces regulations and restrictions around the use of AI technologies. Additionally, Colorado has passed a bill introducing certain regulations around the use of AI. These and other regulatory or legislative actions related to the development and deployment of AI technologies could impact our business and our growth prospects.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. The timing and size of sales of our products are variable and difficult to predict and can result in fluctuations in our net sales from period to period. This has been particularly challenging for us in connection with our recent transition to focus more heavily on the military and defense markets, as the sales cycles in this space tend to be longer and subject to additional variables that are outside of our control. In addition, our budgeted expense levels depend in part on our expectation of future sales. Any substantial adjustment to expenses to account for lower levels of sales is difficult and takes time, thus we may not be able to reduce our costs sufficiently to compensate for a shortfall in net sales, and even a small shortfall in net sales could disproportionately and adversely affect our operating margin and operating results for a given quarter.
Our operating results may also fluctuate due to a variety of other factors, many of which are outside of our control, including the changing and volatile local, national, and international economic environments, any of which may cause our stock price to fluctuate. Besides the other risks in this “Risk Factors” section, factors that may affect our operations include, without limitation:
Fluctuations in demand for our products and services;
The inherent complexity, length, and associated unpredictability of product development windows and product lifecycles;
Changes in customers’ budgets for technology purchases and delays in their purchasing cycles;
Changing market conditions;
Any significant changes in the competitive dynamics of our markets, including new entrants, or further consolidation;
Our ability to continue to broaden our customer base beyond our traditional customers;
The timing of product releases or upgrades by us or our competitors; and
Our ability to develop, introduce, and ship in a timely manner new products and product enhancements and anticipate future market demands that meet our customers’ requirements.
Each of these factors individually, or the cumulative effect of two or more of these factors, could result in large fluctuations in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of future performance.
Our products are subject to competition, including competition from the customers to whom we sell.
Servers, computer accelerators, flash storage arrays, PCIe expansion products, and other products that we design, manufacture, and sell or license are subject to competition. The computer hardware and technology fields are well established with limited, and in many cases no, intellectual property and technological barriers to entry. The markets in which we operate are competitive and we expect competition to increase in the future from established competitors and
new market entrants. The markets are influenced by, among others, brand awareness and reputation, price, strength and scale of sales and marketing efforts, professional services and customer support, product features, reliability and performance, scalability of products, and breadth of product offerings. Due to the nature of our products, competition occurs at the design, performance, and sales stages. A design or sales win by us does not limit further competition and our customers may purchase competitive products from third parties at any time. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failure to increase, or loss of, market share, any of which would likely seriouslyharm our business, operating results, or financial condition. From a cost and control perspective, our products are specialized and thus generally cost more than our competitors’ products. If our ability to design specialized solutions is deemed to be on par or of lesser value than competing solutions, we could lose our customers and prospects.
Many of our customers and competitors, often with substantially more resources or larger economies of scale, produce products that are competitive with our products. Many of these third parties mass-produce hardware solutions and have not heavily invested in or allocated resources to the smaller scale specialized products and solutions we design. A decrease in the cost of general mass-produced hardware solutions, which can serve as a substitute for our products, or the entrance or additional allocation of resources by one of these customers or competitors into the production of specialized systems which compete with our products could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.
New entrants and the introduction of other distribution models in our markets may harm our competitive position.
The markets for development, distribution, and sale of our high-performance computing solutions are rapidly evolving. New entrants seeking to gain market share by introducing new technology, new products and new server configurations may make it more difficult for us to sell our products and earn design wins, which could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.
Large computer hardware and equipment manufacturers and suppliers have traditionally designed, produced, and sold general purpose servers, and storage arrays and related products and equipment. Our customers supplement these general-purpose systems by purchasing our specialized or customized systems or supplemental products, which improve the speed, efficiency, or performance of such systems. If the speed, efficiency, or computational power of such general purpose systems increases such that supplemental or specialized products become unnecessary, or the cost of such general purpose systems declines such that it is more cost effective for prospective customers to add general-purpose equipment rather than specialized or supplemental equipment, we could experience a significant decline in demand for the products which may significantly harm to our business, operating results and financial condition.
Our products compete with and supplement general purpose servers, storage systems and related equipment. If the producers of general-purpose equipment implement proprietary standards, software, interfaces, or other interoperability restrictions, including controls which restrict the equipment’s compatibility with third party systems, we could experience a significant decline in sales because our products would not be interoperable with such systems, resulting in significant harm to our business, operating results and financial condition.
In our marketplace, general-purpose equipment is traditionally mass-produced and available to order, while specialized equipment and custom bulk-order equipment is subject to a bid-based purchase system. If one or more large manufacturers of general or standard server storage arrays, or related products and equipment, provide specialized, customized, or supplementary equipment on a made-to-order or generally available basis, we could be forced to reduce our prices or change our selling model to remain competitive, which would significantly harm to our business, operating results and financial condition.
Cybersecurity risks and cyber incidents, as well as other significant disruptions of our information technology networks and related systems and resources, could adversely affect our business, disrupt operations and expose us to liabilities to employees, customers, governmental regulators, and other third parties.
We use information technology and other computer resources to carry out important operational activities and to maintain our business records. As part of our normal business activities, we permit certain employees to perform some or all of their business activities remotely, we collect and store certain personal identifying and/or confidential information relating to our employees, customers, vendors and suppliers, and we maintain operational and financial information related to our business. Furthermore, we rely on products and services provided by third-party suppliers to
operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, email, and other functions, which exposes us to supply-chain attacks or other business disruptions. Our systems are often deployed in environments supporting AI workloads and large-scale data processing. Unathorized access to such systems could expose sensitive operational or training data belonging to our customers.
We face risks associated with security breaches through cyber-attacks or cyber-intrusions, malware, computer viruses and malicious codes, ransomware, attachments to e-mail, unauthorized access attempts, denial of service attacks, phishing, social engineering, persons with access to systems inside our organization, and other significant disruptions of our information technology networks and related systems. The risk of a security breach has generally increased as the frequency, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques, tools and tactics used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers, disaster recovery or other preventative or corrective measures, and thus it is impossible for us to entirely counteract this risk or fully mitigate the harms after such an attack.
We have implemented certain systems and processes intended to address ongoing and evolving cybersecurity risks, secure our information technology, applications and computer systems, and prevent unauthorized access to or loss of sensitive, confidential and personal data. Our security measures may not be sufficient for all possible situations and may be vulnerable to, among other things, fraud, hacking, employee error, system error, and faulty password management.
Our ability to conduct our business may be impaired if our or our services providers’ information technology networks, systems or resources, including our and their websites or e-mail systems, are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, fraud, intentional penetration or disruption of our or their information technology resources by:
a third party,
natural disaster,
a failure of hardware or software due to a design or programmatic flaw,
a failure of hardware or software security controls,
telecommunications system failure,
service provider error or failure,
fraudulent transactions,
intentional or unintentional personnel actions,
lost connectivity to our networked resources, or
a failure of disaster recovery system.
A significant and extended disruption could damage our business or reputation and cause, amongst other things, loss of revenue or customer relationships, unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information, and us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues.
The release of confidential information may also lead to litigation or other proceedings against us by affected individuals, business partners and/or regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings and cause us reputational harm and/or could have a material and adverse effect on our business, financial position or results of operations.
Our business may be impacted by evolving regulations and market developments relating to artificial intelligence.
Our products are frequently deployed in systems used for AI and machine learning applications, including defense, autonomy, and data analytics. The regulatory environment governing AI technologies is evolving rapidly in the United States and internationally. For example, the European Union has adopted the EU Artificial Intelligence
Act and other jurisdictions are considering legislation governing the development and deployment of AI systems. While we do not develop AI models, our products may be incorporated into AI-enabled platforms. Changes in regulatory frameworks, export restrictions, or customer requirements related to AI technologies could impact demand for our products or require modifications to our systems.
Changes in U.S. government priorities and/or delays or reductions in defense spending could negatively impact our financial position, results of operations, liquidity and overall business.
We expect that sales to prime contractors and U.S. governmental entities will constitute an increasingly significant portion of our future sales. We expect that our U.S. government revenues will largely result from contracts awarded under various U.S. government programs, primarily defense-related programs with the DOD, and other departments and agencies. Changes in U.S. government priorities and/or delays or reductions in defense spending for various reasons, including as a result of potential changes in policy, administration, or budgetary positions, priorities, and protracted lead times could negatively impact our results of operations, financial condition and liquidity. The sale of our products to such defense customers are subject to U.S. government priorities, policies, budget decisions and appropriation processes, which are driven by numerous factors that are out of our control, including U.S. domestic and broader geopolitical events, macroeconomic conditions, and the ability of the U.S. government to enact relevant legislation.
In recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation, and the U.S. government has been unable to complete its budget process before the end of its fiscal year, resulting in both governmental shutdowns and continuing resolutions providing only enough funds for U.S. government agencies to continue operating at prior-year levels. If appropriations are delayed or a government shutdown were to occur and continue for an extended period of time, we could be at risk of reduced orders, program cancellations and other disruptions and nonpayment. When the U.S. Government operates under a continuing resolution, new contract and program starts are restricted and funding for our programs may be unavailable, reduced or delayed. Additionally, changes in the DOD’s funding priorities also could reduce opportunities in our existing or future programs or initiatives where we have made investments.
Our contracts with the U.S. government are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal year basis, even though contract performance may extend over many years. Consequently, contracts are sometimes partially funded initially, and additional funds are committed only as Congress makes further appropriations over time. To the extent we incur costs in excess of funds obligated on a contract or in advance of a contract award or contract definitization, we are at risk of not being reimbursed for those costs unless and until additional funds are obligated under the contract or the contract is successfully awarded, definitized and funded, which could adversely affect our results of operations, financial condition and cash flows.
The current administration has been evaluating government spending and enacting cost reduction policies. The effect of these policies on defense procurement and on the defense programs which the Company is executing or pursuing is uncertain. Changes in priorities or policies, reductions of funding, or a reduction in government personnel could impact our business, results of operations, financial condition, and growth prospects.
As a result of the foregoing, U.S. government defense spending levels are subject to a wide range of outcomes and are difficult to predict beyond the near-term due to numerous factors, including the external threat environment, future governmental priorities and the state of governmental finances. Significant changes in U.S. government defense spending or changes in U.S. government priorities, policies and requirements could have a material adverse effect on our current business strategy and results of operations, financial condition and liquidity.
To the extent that we contract with the U.S. Government, we are subject to certain procurement laws and regulations, including those that enable the U.S. Government to terminate contracts for convenience.
To the extent that we contract with the U.S. Government, we must comply with laws and regulations relating to the award, administration and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business with certain of our customers and impose certain risks and costs on our business. A violation of these laws and regulations by us, our employees, others working on our behalf, a supplier or a joint venture partner could harm our reputation and result in the imposition of fines and penalties, the termination of our contracts, suspension or debarment from bidding on or being awarded contracts, loss of our ability to export products or perform services and civil or criminalinvestigations or proceedings. Also, elements of certain of contracts and/or programs are
classified by the U.S. Government, which imposes security requirements that limit our ability to discuss our performance on these contracts and programs, including any specific risks, disputes and claims.
The U.S. Government may terminate any of our government contracts at its convenience or for default based on our performance, either of which could adversely affect our business and financial performance. Generally, prime contractors have similar termination rights under subcontracts related to government contracts. If a contract is terminated for convenience, we generally are protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs. However, to the extent insufficient funds have been appropriated by the U.S. Government to cover our costs upon a termination for convenience, the U.S. Government may assert that it is not required to appropriate additional funding. Additionally, the U.S. Government could terminate a prime contract under which we are a subcontractor, notwithstanding the fact that our performance and/or the quality of the products or services we delivered were consistent with our contractual obligations as a subcontractor.
Changing procurement policies could adversely affect our business and financial results.
The U.S. Government has increasingly relied on competitive contract award types, including indefinite-delivery, indefinite-quantity and other multi-award contracts, which have the potential to create pricing pressure and to increase our costs by requiring us to submit multiple bids and proposals when targeting them for sales. Multi-award contracts require us to make sustained efforts to obtain task orders under the contract. Additionally, procurements that do not evaluate whether the cost assumptions in the bids are realistic can lead to bidders taking aggressive pricing positions, which could result in the winner realizing a loss upon contract award or an increased risk of lower margins or realizing a loss over the term of the contract. Competitors may be willing to accept more risk or lower profitability in competing for contracts than we are.
U.S. Government procurement policies and procedures, and the application thereof, change on a regular basis and such changes could adversely affect our ability to win new business or maintain or increase profitability. For example, an increase in the use of contract structures that shift risk to the contractor, such as fixed-price development contracts and incentive-based fee arrangements, or the U.S. Government using different award fee criteria than historically used could adversely affect our profits or make it more difficult to win new contracts.
Changes in regulations or interpretations of what constitute allowable costs under our government contracts could adversely impact our profitability, and changes in contract financing policy for fixed-price contracts, such as changes in performance and progress payments policies, could significantly affect the timing of our cash flows.
If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged.
We have expanded our operations significantly since inception and anticipate that further significant expansion will be required to achieve our business objectives. The growth and expansion of our business and product offerings, as well as the need for innovation in order to maintain our competitive advantage, places a continuous and significant strain on our management, operational and financial resources. Any such future growth or change in focus or strategy would also add complexity to and require effective coordination throughout our organization. To manage any future growth effectively, we must continue to innovate and improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner. We may not be able to successfully implement improvements to these systems and processes in a timely or efficient manner, which could result in additional operating inefficiencies and could cause our costs to increase more than planned. If we do increase our operating expenses in anticipation of the growth of our business and this growth does not meet our expectations, our operating results may be negatively impacted. If we are unable to manage future expansion, our ability to provide high quality products and services could be harmed, which could damage our reputation and brand, and may have a material adverse effect on our business, operating results and financial condition.
A limited number of customers represents a significant portion of our sales. If we were to lose any of these customers, our sales could decrease significantly.
In the year ended December 31, 2025, an aggregate of 61% of our total revenues were attributable to our top three customers. In the year ended December 31, 2024, an aggregate of 40% of our total revenues were attributable to our top three customers. Customer concentration figures represent continuing operations and exclude customer activity within discontinued operations.
Loss of significant customers in the future could materially harm the Company’s business, financial position and/or results of operations. In addition, a few products comprise a significant amount of our sales, and the discontinuation, modification, or obsolescence of such products could materially and adversely affect our sales and results of operations.
We rely on a limited number of parts suppliers to support our manufacturing and design processes.
We rely on a limited number of suppliers to provide us with the necessary devices, parts, and systems to allow us to build, design and manufacture our products, and the failure to manage our relationships with these parties successfully, or disruptions to our suppliers’ businesses caused by supply chain constraints, inflation, human capital issues, and/or other factors, could adversely affect our ability to market and sell our products. Particularly, many of our products rely on high-performance processors, GPUs, and other specialized components used in AI workloads. Supply constraings affecting these components, particularly those produced by NVIDIA, AMD, or other semiconductor suppliers, could limit our ability to manufacture and deliver systems designed for AI applications.
In the years ended December 31, 2025 and 2024, suppliers for which purchases represent greater than 10% of our total parts purchases accounted for approximately 34% and 68%, respectively, of materials purchased. Vendor concentration figures represent continuing operations and exclude vendor purchases within discontinued operations.
Although we do believe we could locate additional suppliers to fulfill our needs in the event that our relationship with these or any of our other suppliers terminated or they are unable to fulfill our manufacturing needs, any significant change in our relationship with these suppliers could have a material adverse effect on our business, operating results, and financial condition unless and until we are able to find suitable replacements. We make substantially all of our purchases from our contract suppliers on a purchase order basis. Our suppliers are generally not required to supply our raw materials for any specific period or at any specific quantity or price.
Global pandemics or other disasters or public health concerns in regions of the world where we have operations or source material or sell products could result in the disruption of our business. These or any governmental developments or health concerns in countries in which we operate could result in social, economic, or labor instability. Any disruption resulting from these or similar events could cause significant delays in shipments of our products until we are able to resume normalized operations, and this could have a material negative impact on our results of operations and cash flows. Although the COVID 19 pandemic has subsided, we are continuing to experience unavailability of certain products and limited supplies, protracted delivery dates for componentry, increasing product costs, and changes in minimum order quantities to secure product.
Supply chain disruptions could adversely affect our business, disrupt operations, and impact our profitability.
We rely on a global network of suppliers for key components used in our products. These suppliers are subject to quality and performance issues, excess demand, raw materials shortages, and other factors which could impact their ability to supply us with critical components, or could lead to price inflation and extended lead times. Disruptions in availability of these components, increases in lead times, or price increases could negatively impact our ability to deliver products to our customers and could impact our profitability on the products we deliver. Supply chain disruptions could be caused by tariffs and trade policy, global macroeconomic conditions, the global demand for certain materials or components, or other economic, geopolitical, or market dynamics.
In late 2025, a global shortage of certain memory products resulting from datacenter build-out demand led to significant increases in lead times, pricing volatility, and significant price increases. We have worked with our suppliers to secure availability of supply, including through the negotiation of long-term agreements. While we attempt to pass on component cost increases to our customers, our ability to do so is dependent upon many factors, including market conditions for the Company's products.
Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers.
Our sales depend on our ability to anticipate our existing and prospective customers’ needs and develop products that address those needs. Our future success will depend on our ability to design new products, anticipate technological improvements and enhancements, and to develop products that are competitive in the rapidly changing computer hardware and software industry, and in the edge computing space in particular. Introduction of new products and
product enhancements will require coordination of our efforts with those of our customers, suppliers, and manufacturers to develop products that offer performance features desired by our customers and performance and functionality superior or more cost effective than solutions offered by our competitors. If we fail to coordinate these efforts, develop product enhancements, or introduce new products that meet the needs of our customers as scheduled, our operating results will be materially and adversely affected, and our business and prospects will be harmed. We cannot assure that product introductions will meet our anticipated release schedules or that our products will be competitive in the market. Furthermore, given the rapidly changing nature of the computer equipment market, there can be no assurance our products and technology will not be rendered obsolete by alternative or competing technologies.
Delays in our production cycle could result in outdated equipment or decreased purchases of our products.
The design and manufacture of our products can take several months to several years. The length of such process depends on the complexity and purpose of the system or equipment being designed, and may be affected by factors such as the development and design of unique or specialized systems; the fabrication, availability, and supply of parts; the customization of parts, as applicable; the manufacture and/or assembly of the units, quality control testing; and the development and incorporation of new technologies. If our products are outdated upon completion of this process, our sales could materially decline, and it may be necessary to sell products at a loss.
Unsuccessful government programs or OEM contracts could lead to reduced revenues.
We design and manufacture certain products to fit the specifications of government programs or OEM contracts. These programs may take months or years to complete and involve significant investment of our time, money, and resources. We generally receive upfront fees for these programs, but there is often little or no obligation on the part of our customer to purchase large volumes of products at the time of final product launch. Unsuccessful product launches could lead to reduced revenues and/or potential returns of products, which could have a material adverse effect on our financial condition and operating results. We may be forced to sell products at a loss or spend a significant amount of resources to find additional customers for these products if these programs do not fit the future needs of our intended customers.
Our inventory may rapidly become obsolete.
Sales cycles for some of our products can take several months or longer. In addition, it can take time from the bid to the development and manufacture of the equipment. We maintain inventory based in large part on our forecasts of the volume and timing of orders. The varying length of the sales cycles makes accurate forecasting difficult. The delays inherent in our sales cycles raise the risk that the inventory we have on hand will become obsolete or impaired prior to its use or sale. If our forecasted demand does not materialize into purchase orders, we may be required to write off our inventory balances or reduce the value of our inventory, based on a reduced sales price. A write off of the inventory, or a reduction in the inventory value due to a sales price reduction, could have an adverse effect on our financial condition and operating results.
If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share.
Our products are complex and may contain defects or security vulnerabilities, or experience failures or unsatisfactory performance due to any number of issues in design, fabrication, packaging, materials and/or use within a system. These risks may increase as our products are introduced into new devices, markets, technologies and applications, or as new versions are released. Some errors in our products or services may only be discovered after a product or service has been shipped or used by customers or the end users of such product. Undiscovered vulnerabilities in our products or services could expose our customers or end users, including the U.S. Government and military, to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attack our products or services. Failure of our products to perform to specifications, or other product defects, could lead to substantial damage to the products we sell directly to customers, the end product in which our device has been integrated by OEMs and to the user of such end product. Any such defect may cause us to incur significant warranty, support and repair or replacement costs, write off the value of related inventory, cause us to lose customers and/or market share, and divert the attention of our personnel from our product development efforts to find and correct the issue. In addition, an error or defect in new products or releases or related software drivers after commencement of commercial shipments could result in failure to achieve market acceptance or loss of design wins, harm our relationships with customers and partners and harm consumers’ perceptions of our brand. Also, we may be required to reimburse our customers, partners or consumers, including costs to repair or replace products in the field. A
product recall, including a recall due to a bug in our products, or a significant number of product returns could be expensive, damage our reputation, harm our ability to attract new customers or maintain our current customers, result in the shifting of business to our competitors and/or result in litigationagainst us, such as product liability suits. If a product liability claim is brought against us, the cost of defending the claim could be significant and would divert the efforts of our technical and management personnel, and harm our business. Further, our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results.
We offer an extended product warranty to cover defective products at no cost to the customer. An unexpected change in failure rates of our products could have a material adverse impact on our business.
We offer product warranties that generally extend for one or two years from the date of sale that require us to repair or replace defective products returned by the customer during the warranty period at no cost to the customer. Our product warranties are in addition to warranties we receive from our vendors. Existing and future product guarantees and warranties place us at risk of incurring future returns and repair and/or replacement costs.
While we engage in product quality programs and processes, including monitoring and evaluating the quality of our components sourced from our suppliers, our warranty obligation is affected by actual product defect rates, parts and equipment costs and service labor costs incurred in correcting a product defect. We record an estimate for anticipated warranty-related costs based on historical and estimated future product return rates and expected repair or replacement costs. Although such costs have historically been within management’s expectations and our warranty reserves (when coupled with warranty coverage provided by our vendors) have been sufficient to cover such costs, our reserves set aside to cover warranty returns may be inadequate due to an unanticipated number of customer returns, undetected product defects, unanticipated component failures or changes in estimates for material, labor and other costs we may incur to replace projected product defects. As a result, if actual customer returns, product defect rates, parts and equipment costs or service labor costs exceed our estimates, or we experience unexpected changes in failure rates, we could experience a material adverse effect on our business, financial condition and results of operations.
If we fail to achieve design wins for our products, our business will be harmed.
Achieving design wins is an important success factor for our business. We work closely with OEMs and end users to ensure the customer gets the product they want in the specific configuration, size and weight required for the application. We have participated in many design wins based upon our ability to interpret technical specifications and proceed rapidly through prototyping, development, and delivery. This approach and expertise are two of the factors driving our growth. Failure to maintain our expertise and ability to deliver custom, specific design systems could harm our business. In order to achieve design wins, we must:
anticipate the features and functionality that OEMs, customers and consumers will demand;
incorporate those features and functionalities into products that meet the exacting design requirements of our customers; and
price our products competitively.
Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers. Further, if our products are not in compliance with prevailing industry standards, our customers may not incorporate our products into their design strategies.
If we cannot retain, attract, and motivate key personnel, we may be unable to effectively implement our business plan.
Our success depends in large part upon our ability to retain, attract and motivate highly skilled management, development, marketing, sales, and service personnel. The loss of, and failure to replace, key technical management and personnel could adversely affect multiple development efforts.
We have entered into employment agreements with most of our executive officers, though they may terminate employment with us at any time, for any reason and with no advance notice. We may lose key personnel to other high technology companies or to other larger companies with significantly greater resources than us who may recruit our key personnel. The replacement of members of our senior management team or other key personnel may involve
significant time and costs, and the loss of these employees could significantly delay or prevent the achievement of our business objectives.
Recruitment and retention of senior management and skilled technical, sales and other personnel is very competitive, and we may not be successful in either attracting or retaining such personnel. As part of our strategy to attract and retain key personnel, we may offer equity compensation through grants of stock options, restricted stock awards or restricted stock units. Although we may issue equity awards outside of our shareholder approved equity incentive plan to potential employees, they may not perceive our equity incentives as attractive enough. In addition, due to the intense competition for qualified employees, we may be required to, and have had to, increase the level of compensation paid to existing and new employees, which could and has materially increased our operating expenses.
We have made in the past, and may make in the future, acquisitions which could require significant management attention, disrupt our business, result in dilution to our stockholders, deplete our cash reserves and adversely affect our financial results.
Acquisitions involve numerous risks, including, without limitation, the following:
difficulties in successfully integrating the operations, systems, technologies, products, offerings and personnel of the acquired company or companies;
insufficient revenue to offset increased expenses associated with acquisitions;
diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;
potential difficulties in completing projects associated with in-process research and development intangibles;
difficulties in entering markets in which we have no or limited prior direct experience and where competitors in such markets have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners; and
the potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans.
Acquisitions may also cause us to:
use a substantial portion of our cash reserves or incur debt;
issue equity securities or grant equity incentives to acquired employees that would dilute our current stockholders’ percentage ownership;
assume liabilities, including potentially unknown liabilities;
record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur large and immediate write-offs and restructuring and other related expenses; or
become subject to intellectual property litigation or other litigation.
Acquisitions of high-technology companies and assets are inherently risky and subject to many factors outside of our control and no assurance can be given that our completed or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results.
The continuing commoditization of HPC hardware and software has resulted in increased pricing pressure and may adversely affect our operating results.
The continuing commoditization of HPC hardware, such as processors, interconnects, flash storage and other infrastructure, and the growing commoditization of software, including plentiful building blocks and more capable
open source software, as well as the potential for integration of differentiated technology into already-commoditized components, has resulted in, and may result in increased pricing pressure that may cause us to reduce our pricing in order to remain competitive, which can negatively impact our gross margins and adversely affect our operating results.
Risks Relating to Intellectual Property
If we are unable to protect our proprietary design and intellectual property rights, our competitive position could be harmed, or we could be required to incur significant expenses to enforce our rights.
Our ability to compete effectively is dependent in part upon our ability to protect our proprietary technology, including our proprietary software, designs and know-how. We rely on trademarks, trade secret laws, patents, confidentiality procedures, and licensing arrangements to protect our intellectual property rights. There can be no assurance these protections will be available in all cases or will be adequate to prevent our competitors from copying, reverse engineering or otherwise obtaining and using our technology, proprietary rights or products. For example, the laws of certain countries in which our products are manufactured or licensed do not protect our proprietary rights to the same extent as the laws of the United States. In addition, third parties may seek to challenge, invalidate, or circumvent our trademarks, copyrights and trade secrets, or applications for any of the foregoing. There can be no assurance that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology or design around our proprietary rights. In each case, our ability to compete could be significantly impaired.
To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our trade secrets and/or proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management’s attention, and there can be no assurance we will be successful in such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our trade secrets and/or intellectual property.
Many of our proprietary designs are in digital form and the breach of our computer systems could result in these designs being stolen.
If our cybersecurity measures are breached or unauthorized access to private or proprietary data is otherwise obtained, our proprietary designs could be stolen. Because we hold many of these designs in digital form on our servers, there exists an inherent risk that an unauthorized third party could conduct a cybersecurity breach resulting in the theft of our proprietary information. While we have taken steps to protect our proprietary information, because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any or all of these issues could negatively impact our competitive edge and our ability to obtain new customers thereby adversely affecting our financial results.
Our proprietary designs are susceptible to reverse engineering by our competitors.
Much of the value of our proprietary rights is derived from our vast library of design specifications. While we consider our design specifications to be protected by various proprietary, trade secret and intellectual property laws, such information is susceptible to reverse engineering by our competitors. We may not be able to prevent our competitors from developing competing design specifications and the cost of enforcing these rights may be significant. If we are unable to adequately protect our proprietary designs our financial condition and operating results could suffer.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We consider trade secrets, including confidential and unpatented know-how and designs, important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatented know-how, in part, by customarily entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, outside technical and commercial collaborators, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Claims by others that we infringe their intellectual property or trade secret rights could harm our business.
Our industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. Third parties may in the future assert claims of infringement of intellectual property rights against us or against our customers or channel partners for which we may be liable. As the number of products and competitors in our market increases and overlaps occur, infringementclaims may increase.
Intellectual property or trade secret claimsagainst us, and any resulting lawsuits, may result in us incurring significant expenses and could subject us to significant liability for damages and invalidate what we currently believe are our proprietary rights. Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how could have a material adverse effect on our business. Adverse determinations in any litigation could subject us to significant liabilities to third parties, require us to seek licenses from third parties and prevent us from manufacturing and selling our products. Any of these situations could have a material adverse effect on our business. These claims, regardless of their merits or outcome, would likely be time consuming and expensive to resolve and could divert management’s time and attention.
We are generally obligated to indemnify our channel partners and end-customers for certain expenses and liabilities resulting from intellectual property infringementclaims regarding our products, which could force us to incur substantial costs.
We have agreed, and expect to continue to agree, to indemnify our channel partners and end-customers for certain intellectual property infringementclaims regarding our products. As a result, in the case of infringementclaimsagainst these channel partners and end-customers, we could be required to indemnify them for losses resulting from such claims or to refund amounts they have paid to us. Our channel partners and other end-customers in the future may seek indemnification from us in connection with infringementclaims brought against them regarding our products. These claims, regardless of their merits or outcome, would likely be time consuming and expensive to resolve, and could divert management’s time and attention from managing our business.
Privacy concerns relating to our products and services could damage our reputation, deter current and potential users from using our products and services, result in liability, or result in legal or regulatory proceedings.
Our products and services may provide us with access to sensitive, confidential, or personal data or information that is subject to privacy and security laws and regulations. Concerns about our practices with regard to the collection, use, retention, security or disclosure of personal information or other privacy-related matters, even if unfounded, could damage our reputation and adversely affect our operating results. The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business or by one of our partners could result in significantly increased security costs, damage to our reputation, regulatory proceedings, disruption of our business activities or increased costs related to defending legal claims.
Worldwide regulatory authorities are considering and have approved various legislative proposals concerning data protection, which continue to evolve and apply to our business. For example, the European Union adopted the General Data Protection Regulation (“GDPR”), which took effect in May 2018 and requires companies to meet requirements regarding the handling of personal data, including its use, protection, and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet GDPR requirements, to the extent applicable, could result in penalties of up to 4% of worldwide revenue. In addition, the interpretation and application of consumer and data protection laws in the United States, Europe and elsewhere are often uncertain and fluid, and may be interpreted and applied in a manner that is inconsistent with our data practices. If so, we may be ordered to change our data practices and/or be fined.
In addition, California enacted the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breachlitigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent state privacy, data protection, and data security legislation in the U.S., which could increase our potential liability and adversely affect our business. The CCPA was expanded substantially on January 1, 2023, when the California Privacy Rights Act of 2020 (“CPRA”) became fully operative. The CPRA, among other things, gives California residents the ability to limit use of
certain sensitive personal information, further restricts the use of cross-contextual advertising, establishes restrictions on the retention of personal information, expands the types of data breaches subject to the CCPA’s private right of action, provides for increased penalties for CPRA violations concerning California residents under the age of 16, and establishes a new California Privacy Protection Agency to implement and enforce the new law.
Complying with these changing laws could cause us to incur substantial costs, which could have an adverse effect on our business and results of operations. Further, failure to comply with existing or new rules may result in significant penalties or orders to stop the allegednoncompliant activity.
Risks Related to Our International Operations
Our international sales and operations subject us to additional risks that can adversely affect our operating results and financial condition.
We sell our products in a number of international jurisdictions. Additionally, our supply chain includes a number of international vendors. Our international operations subject us to a variety of risks and challenges, including, without limitation, exposure to fluctuations in foreign currency exchange rates; inflationary pressures and the possibility of recession; increased management, travel, infrastructure and legal compliance costs associated with having international operations; reliance on channel partners; compliance with foreign laws and regulations, which are subject to change; compliance with U.S. laws and regulations for foreign operations; conflicts between U.S. laws and regulations and foreign laws and regulations; import and export licensing requirements; and reduced protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad. Inflation, volatility, recessionary risk, and regulatory and legal compliance risks in any of the countries that we operate or sell our products in could adversely affect our business and results of operations.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
Our products are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws and regulations. Certain of our high-performance computing systems may incorporate advanced processors or accelerators that are subject to U.S. export controls related to advanced computing technologies and AI. Changes in export regulations or restrictions on the shipment of such components could affect our ability to sell systems into certain markets. If we violate these laws and regulations, we and certain of our employees, could be subject to substantial civil or criminalpenalties, including the possible loss of export or import privileges, fines, which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers. In addition, if our channel partners, agents, or consultants fail to obtain appropriate import, export or re-export licenses or authorizations, we may also be adversely affected through reputational harm and penalties. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. Changes in our products or changes in applicable export or import laws and regulations may also create delays in the introduction and sale of our products in international markets, prevent our end-customers with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons or technologies targeted by such laws and regulations, could also result in decreased use of our products, or in our decreased ability to export or sell our products to existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and operating results.
New regulations or standards or changes in existing regulations or standards in the United States or internationally related to our suppliers’ products may result in unanticipated costs or liabilities, which could have a material adverse effect on our business, operating results, and future sales, and could place additional burdens on the operations of our business.
Our suppliers’ products are subject to governmental regulations in many jurisdictions. To achieve and maintain market acceptance, our suppliers’ products must continue to comply with these regulations and many industry standards. As these regulations and standards evolve, and if new regulations or standards are implemented, our suppliers may have to modify their products. The failure of their products to comply, or delays in compliance, with the
existing and evolving industry regulations and standards could prevent or delay introduction of our products, which could harm our business. Supplier uncertainty regarding future policies may also affect demand for HPC products, including our products. Moreover, channel partners or customers may require us, or we may otherwise deem it necessary or advisable, to alter our products to address actual or anticipated changes in the regulatory environment. Our inability to alter our products to address these requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Practices in the local business communities of many countries outside the United States have a level of government corruption that is greater than that found in the developed world. Our policies mandate compliance with these anti-bribery laws and we have established policies and procedures designed to monitor compliance with these anti-bribery law requirements; however, we cannot assure that our policies and procedures will protect us from potential reckless or criminal acts committed by individual employees or agents. If we are found to be liable for anti-bribery law violations, we could suffer from criminal or civil penalties or other sanctions that could have a material adverse effect on our business.
Risks Related to Our Securities
The price of our common stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock may fluctuate substantially. The trading price of our common stock will depend on several factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our securities if you are unable to sell them at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include, amongst other things:
price and volume fluctuations in the overall stock market from time to time;
volatility in the market prices and trading volumes of technology stocks;
changes in operating performance and stock market valuations of other technology companies generally, or particularly, those companies in our industry;
sales of shares of our common stock or other securities by us or our stockholders;
failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow the Company, or our failure to meet these estimates or the expectations of investors;
the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships or capital commitments;
the public’s reaction to our press releases, other public announcements and filings with the SEC;
rumors and market speculation involving us or other companies in our industry;
actual or anticipated changes in our operating results or fluctuations in our operating results;
actual or anticipated developments in our business, our competitors’ businesses, or the competitive landscape generally;
litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
developments or disputes concerning our intellectual property or other proprietary rights;
announced or completed acquisitions of businesses or technologies by us or our competitors;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
changes in accounting standards, policies, guidelines, interpretations or principles;
any major change in our management;
general economic conditions and slow or negative growth of our markets; and
other events or factors, including those resulting from war, incidents of terrorism or responses to these events.
In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the relevant companies. Broad market and industry factors, as well as general economic, political and market conditions, such as recessions or interest rate changes, may seriously affect the market price of our common stock, regardless of our actual operating performance.
In the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigation has often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatenedlitigation could require that we make significant payments.
Our directors and principal stockholders own a percentage of our stock and will be able to influence matters subject to stockholder approval.
Our directors, executive officers and significant stockholders influence the Company and could delay or prevent a change in corporate control. Our directors, executive officers, and holders of more than 5% of our common stock, together with their affiliates, beneficially own, in the aggregate, approximately 12% of our outstanding common stock, based on the number of shares outstanding as of March 5, 2026. As a result, these stockholders, acting together, would have the ability to exert influence over the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to exert influence over the management and affairs of the Company. Accordingly, this concentration of ownership might adversely affect the market price of our common stock by:
delaying, deferring or preventing a change in control of the Company;
impeding a merger, consolidation, takeover, or other business combination involving the Company; or
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company.
If securities or industry analysts issue an adverse opinion regarding our securities or do not publish research or reports about our Company, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that equity research analysts publish about us and our business. We have no control over such analysts or the content and opinions in their reports. Securities analysts may elect not to provide research coverage of our Company and such lack of research coverage may adversely affect the market price of our common stock. The price of our common stock could also decline if one or more equity research analysts downgrade our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. If one or more equity research analysts cease coverage of our Company, we could lose visibility in the market, which in turn could cause our stock price to decline.
Substantial future equity issuances and/or sales of shares of our common stock could cause the market price of our common stock to decline.
The market price of shares of our common stock could decline as a result of substantial equity issuances and/or sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale, or the perception in the market that holders of a large number of shares intend to sell their shares. As of March 5, 2026, we had 24,737,191 shares of our common stock outstanding. We may issue or sell a significant number of shares of our common stock or other securities to raise
capital in the future or in connection with a strategic transaction, which would result in significant dilution to our current shareholders. Additionally, historically, a significant portion of the compensation that we pay to our executive officers, employees and directors has been in the form of equity awards. We believe that this structure incentivizes such individuals to both join and remain with the Company, and also serves to further the growth, development and financial success of the Company by providing a means by which such persons can personally benefit through the ownership of capital stock of the Company. However, the issuance of securities to our executive officers, employees and directors also results in dilution to our current shareholders, and substantial sales of such securities could cause the market price of our securities to decline and/or could depress the growth of the market price of our securities.
We have the right to designate and issue shares of preferred stock. If we were to designate and/or issue additional preferred stock, it is likely to have rights, preferences and privileges that may adversely affect the common stock.
We are authorized to issue 10,000,000 shares of blank-check preferred stock, with such rights, preferences and privileges as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to issue preferred stock in one or more series, and to fix for any series the dividend rights, dissolution or liquidation preferences, redemption prices, conversion rights, voting rights, and other rights, preferences, and privileges for the preferred stock. Currently, we do not have any series of preferred stock designated or shares of preferred stock issued and outstanding.
The issuance of shares of preferred stock, depending on the rights, preferences, and privileges attributable to the preferred stock, could reduce the voting rights and powers of the common stock and the portion of our assets allocated for distribution to common stockholders in a liquidation event, and could also result in dilution in the book value per share of the common stock. The preferred stock could also be utilized, under certain circumstances, as a method for raising additional capital or discouraging, delaying or preventing a change in control of the Company, to the detriment of the investors in the common stock offered hereby. We cannot assure that we will not, under certain circumstances, issue shares of our preferred stock.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of the Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Some of these provisions:
authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock and up to 50,000,000 shares of authorized common stock;
require that any action to be taken by our stockholders be affected at a duly called annual or special meeting, and not by written consent;
specify that special meetings of our stockholders can be called only by our board of directors, the chairman of the board of directors, the chief executive officer or the president;
establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;
provide that our directors may be removed only for cause; and
provide that vacancies on our board of directors may, except as otherwise required by law, be filled only by a majority of directors then in office, even if less than a quorum.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Furthermore, our certificate of incorporation specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action
brought against us, a court could find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable in such action.
These anti-takeover provisions and other provisions in our certificate of incorporation and amended and restated bylaws make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and expand our operations.
If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, due to lower demand for our products as a result of other risks described in this “Risk Factors” section, we may seek to raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements. We may also consider raising additional capital in the future to expand our business, pursue strategic investments, take advantage of financing opportunities, or other reasons.
Additional funding may not be available to us on acceptable terms, or at all. If we raise funds by issuing equity securities, dilution to our stockholders could result. Any equity securities issued also may provide for rights, preferences, or privileges senior to those of holders of our common stock. The terms of debt securities issued, or borrowings, could impose significant restrictions on our operations. The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or to grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay or reduce the scope of our development programs. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations. Any of these actions could harm our business, operating results, and financial condition.
We have never paid, and do not expect to pay, any cash dividends to holders of our common stock for the foreseeable future.
We have never paid, and do not expect to pay, cash dividends to holders of our common stock at any time in the foreseeable future. Anyone considering investing in shares of our common stock should not rely on such investment to provide dividend income. Instead, we plan to retain any earnings to establish, maintain and expand our operations and product offerings. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our stock. Accordingly, investors must rely on sales of their shares of common stock after price appreciation, which may never occur, as the only way to realize any return on their investment.
We are a “smaller reporting company,” and the reduced public company reporting and disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We currently qualify as a “smaller reporting company,” as defined in the Exchange Act. For as long as we continue to be a smaller reporting company, we may choose to take advantage of certain exemptions from various reporting requirements or scaled disclosure requirements applicable to other public companies but not to smaller reporting companies, which includes, among other things:
being permitted to have only two years of audited financial statements and only two years of management discussion and analysis of financial condition and results of operations disclosure;
an exemption from the auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation;
reduced disclosure obligations regarding executive compensation, amongst other things, in our periodic reports and proxy statements; and
exemption from the requirements of holding non-binding stockholder votes on executive compensation arrangements and stockholder approval of any golden parachute payments not previously approved.
We will continue to be a “smaller reporting company” if, as of the last business day of our most recently completed second fiscal quarter, (i) our public float is less than $250 million, or (ii) our annual revenues for the most recently completed fiscal year are less than $100 million and we either have no public float or a public float of less than $700 million.
As a result of the foregoing, the information we provide may be different than the information that is available with respect to other public companies. We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
ITEM 1B. UNRES OLVED STAFF COMMENTS.
Not applicable.
ITEM 1C. CYBERSECURITY.
Risks Related to Cybersecurity Incidents
We face significant risks related to cybersecurity threats, which could adversely affect our business, financial condition, and results of operations. Cybersecurity incidents, including unauthorized access, data breaches, and other malicious activities, could result in the loss or theft of sensitive information, disruption of our operations, and damage to our reputation. While we have implemented measures to protect our information systems, there can be no assurance that these measures will effectively prevent all cybersecurity incidents.
Specific risks include:
Data Breaches: A breach of our information systems could lead to unauthorized access to customer or employee data, resulting in reputational harm and legal liabilities.
Operational Disruption: Cybersecurity incidents could disrupt our operations, leading to delays in production, delivery, or fulfillment of customer orders.
Intellectual Property Theft: Unauthorized access to our proprietary information could result in intellectual property theft, which would impact our competitive position in the market.
Regulatory and Legal Compliance: Cybersecurity incidents may subject us to regulatory investigations, legal claims, and penalties, affecting our compliance with applicable laws and regulations.
Third-Party Relationships: Our reliance on third-party vendors and service providers exposes us to additional cybersecurity risks, and a security breach affecting these entities could impact our operations.
Our systems are often deployed in environments supporting AI workloads and large-scale data processing. Unauthorized access to such systems could expose sensitive operational or training data belonging to our customers.
Although cybersecurity incidents have not materially impacted our business strategy, results of operations, or financial condition to date, there can be no assurance that they will not do so in the future.
Risk Management and Strategy
Assessing, Identifying, and Managing Material Cyber Threats
We have implemented infrastructure, systems, policies, and procedures designed to proactively and reactively address cybersecurity incidents. These include processes for assessing, identifying, and managing material risks from cybersecurity threats. We consult with external parties, such as cybersecurity firms and risk management experts, on our risk management strategy. We engage outside vendors and utilize government services specializing in IT and cybersecurity that provide expertise, tools, and methodologies to identify and assess vulnerabilities and potential threats. Automated tools and AI-based user behavior analytics support our efforts to identify and manage cyber threats.
When a cyber incident is detected through our 24/7 monitoring software or employee notification, our IT and cybersecurity provider performs a detailed assessment, identifies the source of the problem, and resolves the issue as appropriate. If resolution cannot be achieved, the problem is escalated to our cybersecurity monitoring and detection software provider. Events that our IT and cybersecurity providers do not routinely resolve are brought to the Board's attention.
Critical business and operational data are backed up nightly and securely stored offsite to mitigate the risks of cybersecurity incidents or equipment failure. We provide cybersecurity awareness training to our employees, incident response personnel, and senior management.
Governance
Our management team, including our Vice President of Technology , is primarily responsible for assessing and managing our material risks from cybersecurity threats. Management supervises our internal cybersecurity and IT personnel and our retained external cybersecurity consultants and vendors. They oversee efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through briefings from internal or external security personnel, threat intelligence obtained from governmental, public, or private sources, and alerts and reports produced by security tools deployed in our IT environment.
Our Board of Directors, through its Audit & Risk Committee, provides oversight of management processes for identifying and mitigating risks, including cybersecurity risks, to help align our risk exposure with our strategic objectives. Management, including our Vice President of Technology and our Audit & Risk Committee members, regularly brief our Board on our cybersecurity and information security posture and cybersecurity incidents deemed to have a moderate or higher business impact.
As cyber threats evolve and become more sophisticated, the Board's involvement in cybersecurity governance ensures that we adequately focus resources to protect the Company's assets and reputation.
Key aspects of our cybersecurity governance include:
Governance and Strategy: Management, the Audit & Risk Committee, and the Board ensure that our cybersecurity strategy is aligned with our business strategy.
Risk Management and Oversight: Our Audit & Risk Committee and the Board actively oversee our cybersecurity risk management framework as part of enterprise risk management oversight, ensuring that material risks are identified, assessed, and mitigated.
Resource Allocation: The Board reviews and approves cybersecurity budgets and resource allocations to ensure adequate resources are available to implement and maintain effective cybersecurity measures. The Board evaluates and approves significant investments in cybersecurity technologies, training, and talent based on recommendations from management and our external vendors and consultants.
Compliance and Legal Obligations: Management and the Board oversee compliance with relevant cybersecurity regulations and legal requirements and ensure we have appropriate legal counsel to address cybersecurity-related issues, including incident notification requirements. Management has identified the need to further comply with government Cybersecurity Maturity Model Certification (CMMC) requirements that became effective on November 9, 2025, which will include formal external assessment of cybersecurity controls and policies used to manage Controlled Unclassified Information (CUI) within the Company. We anticipate increased demands from government and government prime contractor customers who entrust CUI to us during the normal course of business. The initial and ongoing cost of this compliance will be an additional budgeted IT expense in future years.
Education and Awareness: Management and the Board stay informed about cybersecurity trends, threats, and best practices through ongoing education and training. Management reviews Company employee training programs to ensure employees receive appropriate training and updates on evolving cyber trends. Certain Board members have received training to understand cybersecurity risks and their role in overseeing cybersecurity.
Reporting and Communication: The Board receives periodic updates from management, responsible staff, and the Audit & Risk Committee regarding the Company's cybersecurity posture, incidents, and risk management efforts. Management and the Board maintain a communication strategy for addressing cybersecurity disclosures with stakeholders, including customers, employees, and the public.
Performance Evaluation: The Board's annual evaluation of the Chief Executive Officer's performance includes assessing the effectiveness of cybersecurity policy implementation and ensuring that cybersecurity policies and practices are effective and aligned with organizational goals.
Cybersecurity Culture: The Board fosters a cybersecurity-aware culture throughout the organization, supporting management's efforts to integrate risk management, including cybersecurity, into the operating culture.
Ongoing Initiatives
Management and the Board are evaluating and intend to implement further cybersecurity-related measures throughout 2026 and beyond, including developing a more robust internal policy framework, incident response plan, crisis management planning, and third-party vendor assessments and contractual obligations. Despite these efforts, the rapidly evolving nature of cybersecurity threats requires ongoing vigilance, and there can be no assurance that our efforts will prevent all incidents.
ITEM 2. PRO PERTIES.
The Company leases its offices, manufacturing, and warehouse facility in San Diego County under a non-cancelable operating lease that expires in August 2030. This approximately 29,342 square foot space in Escondido, California houses our headquarters. The Company also leases a facility in Salt Lake City, Utah that houses our Ion software development team. This lease expired on June 30, 2025, and the Company extended the lease for an additional 12 months, with the lease commencing in July 2025 and expiring in June 2026. In the lease extension, the leased space was reduced from 3,208 square feet to 925 square feet. Additionally, we leased a 1,632 square foot facility located in Anaheim, California. This lease expired on July 31, 2025, and the Company extended the lease through January 31, 2026. Upon expiration of the lease on January 31, 2026, the Company did not renew the lease and vacated the facility.
The Bressner business, which has been classified as discontinued operations and was sold on December 30, 2025, leased an 11,836 square foot space in Germany on a month-to-month basis. In June 2024, Bressner leased an additional 2,500 square feet of office space in Germany on a month-to-month basis with payments of approximately $5,950 per month, beginning in October 2024. In May 2025, Bressner entered into a lease agreement for approximately 15,629 square feet of office and warehouse space in Germany, with an initial lease term ending on June 30, 2030. The lease has an option to renew for an additional five-year term that the Company was reasonably certain to exercise. Upon transition of operations into the new facility in December 2025, the month-to-month lease on the other facility was discontinued. All lease commitments related to the Bressner business transferred to the buyer upon sale of the business on December 30, 2025 and are no longer an obligation of the Company.
We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of our business.
ITEM 3. LEG AL PROCEEDINGS.
We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business. See footnote No. 12 “Commitments and Contingencies” in the accompanying consolidated financial statements.
The global increase in load on cloud infrastructure and increase in AI applications are the primary factors driving the growth of the edge computing market. We market our products to manufacturers of automated equipment used for medical, industrial, and military applications. Our customer applications often require connection to a wide array of data sources and sensors, ultra-fast processing power, and the ability to quickly access and store large and ever-growing data sets at their physical location (rather than in the cloud). This equipment requires datacenter class performance optimized for deployment at the edge in challenging environments. Many of these edge applications have unique requirements, including special and compact form factors ruggedized for harsh conditions, which cannot be accommodated by traditional controlled air-conditioned datacenters.
We believe that we are uniquely positioned as a specialized provider to address the needs of this market, providing custom servers, data acquisition platforms, compute accelerators, solid-state storage arrays, and system I/O expansion systems. Our systems also offer industry leading capabilities that occupy less physical space and require less power consumption. We deliver this high-end technology to our customers through the sale of equipment and embedded software.
Recent Developments
Sale of Bressner Technology GmbH
On December 30, 2025, the Company signed and closed a Shares Purchsase Agreement (“SPA”) pursuant to which the Company sold 100% of the issued and outstanding limited liability company interests of OSS GmbH, the sole owner of Bressner GmbH, to Hiper Euro GmbH (“Buyer”). The consummation of this transaction represented a strategic shift and prioritization of the Company's core business developing and manufacturing deployable edge computing systems for mission critical applications. At closing, the Company recognized a gain of $6,707,021.This gain is net of transaction costs that were determined to be directly attributable to the sale transaction. The base purchase price and associated gain is subject to adjustment for (i) a comparison of actual closing net working capital to a target amount, (ii) closing cash relative to a minimum cash amount (iii) closing indebtedness and (iv) seller transaction expenses. The Buyer is required to deliver a closing statement within 90 days following the closing. Any disputes regarding the adjustment are subject to resolution by an independent accounting firm. Any amounts payable to the Buyer will be satisfied first from the escrow account, with any remaining escrow balance released to the Company following final determination of the adjustment. All operations, assets, and liabilities of the divested business - including the gain recognized on the sale - have been classified as discontinued operations.
Registered Direct Offering of Common Stock
On September 29, 2025, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors in a registered direct offering (the “Offering”) 2,500,000 shares of the Company’s Common Stock (the “Common Stock”), par value $0.0001 per share. The Common Stock was sold pursuant to a prospectus supplement, filed on October 1, 2025 to the Registration Statement on Form S-3, originally filed on August 18, 2023 with the SEC (File No. 333-274073), and declared effective by the SEC on August 25, 2023. Net proceeds of the offering were $11,565,146, which is comprised of gross proceeds of $12,500,000 less Offering expenses of $934,854. The Offering closed on October 1, 2025.
Management and Board Changes
During 2025, the composition of the Company's Board of Directors changed. On April 12, 2025, Ms. Gioia Messinger notified the board of directors of her resignation from and decision to not stand for re-election for the board of directors, effective as of the date of the Annual Meeting on May 14, 2025 ("2025 Annual Meeting"). Her decision to resign from the board of directors was not related to any disagreement with the Company on any matter relating to its operations, policies, or practices.
On April 16, 2025, Mr. Joe Manko submitted a letter to the board of directors, resigning from the board of directors, effective April 16, 2025. In the resignation letter, Mr. Manko cited certain disagreements with the Company's governance practices and the composition and leadership of the board.
On May 7, 2025, Mr. Ken Potashner notified the board of directors of his intent to not stand for re-election to the board of directors. He continued to serve until the end of his term at the 2025 Annual Meeting. Mr. Potashner's decision to not stand for re-election was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies, or practices.
At the 2025 Annual Meeting, the Company's stockholders elected Mitch Herbets, Mike Dumont, Greg Matz, David Bassett, and Mike Knowles to serve on the board of directors.
Following these changes, the Board continues to focus on governance practices, strategic oversight, and alignment with stockholder interests.
Other Changes and Developments
In August 2024, the Company amended its bylaws to provide that, although directors shall be elected by a plurality of votes cast at a meeting of stockholders of the Company, in an uncontested election of directors, any director nominee who receives a greater number of votes "against” than votes "for” (excluding abstentions) his or her election must promptly tender his or her resignation. Following receipt of such resignation, the Nominations and Corporate Governance Committee of the Company's Board of Directors will consider the resignation and recommend to the Board whether to accept such tendered resignation. Except in special circumstances, the Committee will be expected to accept and recommend acceptance of the resignation by the Board. The Board shall make a decision with respect to whether to accept or reject the director’s resignation within 90 days following the applicable meeting of stockholders, which decision, once made by the Board, shall promptly be disclosed via a press release.
On March 13, 2025, the board of directors adopted the Second Amended and Restated Bylaws of the Company (the "Amended and Restated Bylaws"). The Amended and Restate Bylaws (1) consolidate the amendments to the first amended and restate bylaws (the "Previous Bylaws") dated April 7, 2023 and August 9, 2024; and (ii) the first sentence of Section 2.8 was amended and restated to read:
"Unless otherwise provided by law, the certificate of incorporation or these bylaws, the holders of the majority of the voting power of the capital stock issued and outstanding and entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders."
A copy of the Amended and Restated Bylaws is filed as Exhibit 3.1, which is incorporated by reference.
Components of Results of Operations
Revenue
The Company recognizes revenue under accounting standard ASC 606. Revenue is primarily generated from the sale of computer hardware and engineering services, and, to a minimal extent, revenue is also generated from the sale of software and sales of software maintenance and support contracts. The Company’s performance obligations are satisfied over time as work is performed or at a specific point in time. The majority of the Company’s revenue is recognized at that point in time when products ship and control is deemed to be transferred to the customer. The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.
Cost of revenue
Cost of revenue primarily consists of costs of materials, costs paid to third-party contract manufacturers (which may include the costs of components), and personnel costs associated with manufacturing and support operations. Personnel costs consist of wages, bonuses, benefits, and stock-based compensation expenses. Cost of revenue also includes freight, allocated overhead costs and inventory write-offs and changes to our inventory and warranty reserves. Allocated overhead costs consist of certain facilities and utility costs.
Operating expenses
Our operating expenses consist of general and administrative, sales and marketing, and research and development expenses. Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities and utility costs.
General and Administrative
General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, and fees for third-party professional services, as well as certain overhead expenses which are allocated to general and administrative expense. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing the business.
Marketing and Selling
Marketing and Selling expense consists primarily of employee compensation and related expenses for marketing and sales functions, sales commissions, marketing programs, travel, and entertainment expenses, as well as certain overhead expenses which are allocated to marketing and selling expense. Marketing programs consist of advertising, tradeshows, events, corporate communications, and brand-building activities. We expect marketing and selling expenses to increase in absolute dollars as we expand our sales force, increase marketing resources, and further develop sales channels.
Research and Development
Research and development expense consists primarily of employee compensation and related expenses for research and development functions, certain prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering and contractor support costs, as well as certain overhead expenses which are allocated to research and development expense. We expect variability in our research and development expenses due to the timing of new product development and introductions.
Other Income (Expense), net
Other income consists of miscellaneous income and income received for activities outside of our core business. Other expense includes expenses for activities outside of our core business.
Provision for Income Taxes
Provision for income taxes consists of estimated income taxes due to the United States and foreign governments, as well as state tax authorities in jurisdictions in which we conduct business, along with the change in our deferred income tax assets and liabilities.
Income from discontinued operations
Income from discontinued operations consists of income from our Bressner Technologies subsidiary, which was sold on December 30, 2025. Income from discontinued operations also includes the gain recognized on the sale.
Results of Operations
The following tables set forth our results of operations for the years ended December 31, 2025 and 2024, respectively, presented in dollars and as a percentage of revenue.
For the Year Ended December 31,
Revenue:
Product
Customer funded development
Cost of revenue:
Product
Customer funded development
Gross profit
Operating expenses:
General and administrative
Marketing and selling
Research and development
Total operating expenses
Loss from operations
Other income (expense), net:
Interest income
Interest expense
Other income, net
Total other income, net
Loss from continuing operations before income taxes
Provision for income taxes
Loss from continuing operations
Income from discontinued operations, net of income taxes
Net income (loss)
For the Year Ended December 31,
Revenue:
Product
Customer funded development
Cost of revenue:
Product
Customer funded development
Gross profit
General and administrative
Marketing and selling
Research and development
Total operating expenses
Loss from operations
Other income (expense), net:
Interest income
Interest expense
Other income, net
Total other income, net
Loss from continuing operations before income taxes
Provision for income taxes
Loss from continuing operations
Income from discontinued operations, net of income taxes
Net income (loss)
Comparison of the Years Ended December 31, 2025 and 2024 from Continuing Operations:
Revenue
For the year ended December 31, 2025, our revenue increased $7,656,691, or 31.2%, as compared to the same period in 2024. This increase is primarily attributable to: 1) higher sales to the US Navy and a defense prime customer of data storage products to support the P-8A Poseidon Reconnaissance Aircraft; 2) higher sales to a defense end customer of custom server products, PCIe accelerators, and expansion products for a classified mobile intelligence platform; and 3) higher sales to a medical imaging OEM of liquid-cooled server products to support a breast cancer screening application. These increases were partially offset by lower sales to commercial aerospace customers as compared to the prior year.
Gross Profit and Gross Margin
Gross profit increased $15,359,559 for the year ended December 31, 2025 as compared to the same period in 2024. Gross margin percentage was 49.6% for 2025, compared to 2.5% for 2024. The improvement in gross margin was driven by 1) a more favorable mix of products shipped within 2025 and favorable pricing on new contracts entered into during 2025; 2) the non-recurrence of $7,088,114 of inventory adjustments and allowances recognized in 2024; 3) the non-recurrence of a $1,222,085 contract loss provision recognized in 2024 related to a customer-funded development contract entered into in 2022; and 3) more favorable manufacturing absorption within 2025 due to both production headcount reductions and a higher volume of production revenue.
Operating expenses
General and administrative expense
General and administrative expense increased $153,729, or 2.1%, for the year ended December 31, 2025, as compared to the same period in 2024. This increase was primarily attributable to higher incentive compensation
expense, partially offset by a reduction in board compensation associated with the reduction in the size of the board. General and administrative expense decreased as a percentage of revenue to 22.8% in 2025, as compared to 29.3% in 2024.
Marketing and selling expense
Marketing and selling expense increased $949,997, or 16.9%, for the year ended December 31, 2025, as compared to the same period in 2024. The increase was primarily attributable to higher incentive compensation expense, as well as higher salary and contract labor expenses. Marketing and selling expense decreased as a percentage of revenue to 20.4% in 2025, as compared to 22.9% in 2024.
Research and development expense
Research and development expense increased $1,971,460, or 56.9%, for the year ended December 31, 2025, as compared to the same period in 2024. The increase was primarily attributable to higher engineering labor costs to support targeted investments in new product development, including costs associated with the development of our PCIe Gen 6.0 offerings, the expansion and enhancement of our U-BMC offerings, and the development of other proprietary products. Research and development expense as a percentage of revenue increased to 16.9% for the year ended December 31, 2025, as compared to 14.1% for the same period in 2024.
Interest income
Interest income decreased $198,957 for the year ended December 31, 2025, as compared to the same period in 2024. The decrease is primarily attributable to lower investment balances throughout the year.
Interest expense
Interest expense decreased $1,504 for the year ended December 31, 2025, as compared to the same period in 2024. This was primarily due to interest expense related to taxes due in 2024 that did not recur in 2025, partially offset by interest expense incurred from borrowings on the domestic line of credit in 2025.
Other income (expense), net
Other income (expense), for the year ended December 31, 2025, resulted in net other income of $16,309, as compared to net other income of $24,040 in the same period in 2024, for a net decrease of $7,731. The decrease was primarily driven by lower credit card rebates associated with certain rewards programs.
Provision for income taxes
The tax provision for the year ended December 31, 2025 associated with continuing operations was $11,310, compared to $2,560 for the same period in the prior year. The effective tax rate for the years ended December 31, 2025 and 2024 differed from the statutory rate mainly due to changes in the valuation allowance, deductions related to expenses of OSS stock options, research and development credits, and changes in reserves for uncertain tax positions, as well as projecting federal and state tax liabilities.
Income from discontinued operations, net of income taxes
Income from discontinued operations, net of income taxes, was $8,185,542 for the year ended December 31, 2025, compared to $1,533,954 for the same period in 2024. The increase of $6,651,588 was primarily due to a $6,707,021 pre-tax gain on sale associated with the divestiture of the Bressner business.
Liquidity and capital resources
Historically, our primary sources of liquidity have been provided by public and private offerings of our securities and revenues generated from our business operations. In 2025, we also received cash from the sale of our Bressner subsidiary. As of December 31, 2025, we had total cash, cash equivalents, and restricted cash of $33,374,976 and total working capital $45,252,401.
During the year ended December 31, 2025, we had loss from operations related to continuing operations of $3,379,112, with cash used in continuing operating activities of $6,551,087.
During the year ended December 31, 2024, we had a loss from operations related to continuing operations of $15,663,485, with cash used in continuing operating activities of $2,596,232.
Our sources of liquidity and cash flows are used to fund ongoing operations, fund research and development projects for new products technologies, and provide ongoing support services for our customers. Over the next year, we anticipate that we will use our liquidity and cash flows from our operations to fund our business. In addition, as part of our business strategy, we are evaluating potential acquisitions of businesses, products and technologies or other strategic acquisitions. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, successfully integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot provide assurances that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all.
As discussed elsewhere in this Annual Report, there are multiple risks that could result in economic uncertainty and volatility in the capital markets in the near term and could negatively affect our operations. We intend to continue to monitor the effects of inflation, global supply chain shortages, and general economic conditions, and, if appropriate, we may alter our plans to address such concerns as they may arise.
Management’s plans are to focus on acquiring new customer orders, to further grow and expand our business in both commercial and military markets, and to respond to the changing economic landscape by continuing to contlrol hiring and operating costs, conserve cash, and focus on growth and margin expansion. Management is committed to conserving cash and securing debt and/or equity financing, as required, for liquidity to meet our near-term cash requirements.
In April 2022, the Company obtained a domestic revolving line of credit of $2,000,000 at Torrey Pines Bank (the "Line of Credit"). To access the Line of Credit, the Company must maintain a minimum cash balance of $2,500,000 with the bank and maintain a maximum debt to tangible net worth of ratio of 1.00. The Line of Credit is also collateralized by the assets of the Company. The maturity and renewal date for the Line of Credit is September 11, 2026. No balance was outstanding on December 31, 2025 or 2024.
Additionally, in August 2023, we filed a new registration statement on Form S-3 (Registration No. 333-274073) with the SEC, which became effective on August 25, 2023, and allows us to offer and sell up to an aggregate of $100,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities, in any combination, together or separately, in one or more offerings, in amounts, at prices and on the terms that we will determine at the time of the offering and which will be set forth in a prospectus supplement and any related free writing prospectus. In the event that we need additional financing, we may choose to consummate an offering of our securities under the registration statement on S-3 in order to raise capital.
On September 29, 2025, the Company entered into a Securities Purchase Agreement with certain institutional investors, pursuant to which the Company agreed to issue and sell to the investors in a registered direct offering 2,500,000 shares of the Company's common stock, par value $0.0001 per share. The common stock was sold pursuant to a prospectus supplement, filed October 1, 2025, supplementing the Registration Statement on Form S-3. Net proceeds of the offering were $11,565,146, which is comprised of gross proceeds of $12,500,000 less Offering expenses of $934,854. The offering closed on October 1, 2025.
Management believes that we have sufficient liquidity to satisfy our anticipated working capital requirements for our ongoing operations and obligations for at least the next twelve months. However, there can be no assurance that management’s efforts will be effective or the forecasted cash flows will be achieved. Furthermore, we will continue to evaluate our capital expenditure needs based upon various factors, including but not limited to, our sales from operations, growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing efforts, the timing of new product introductions, and the continuing market acceptance of our products and services.
If cash generated from operations is insufficient to satisfy our capital requirements, we may borrow up to $2,000,000 from the Line of Credit (subject to satisfaction of certain borrowing conditions). Additionally, we may have to sell additional equity or debt securities, or may obtain expanded credit facilities to fund our operating expenses, pay
our obligations, diversify our geographical reach, and grow the Company. In the event such financing is needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected. However, if cash flows from operations become insufficient to continue operations at the current level, and if no additional financing were obtained, then management would consider restructuring the Company in a way to preserve its business while maintaining expenses within operating cash flows.
The following table summarizes our cash flows for the years ended December 31, 2025 and 2024:
For the Year Ended December 31,
Cash flows:
Net cash used in continuing operating activities
Net cash provided by continuing investing activities
Net cash provided by (used in) continuing financing activities
Net cash provided by discontinued operations
Cash from Continuing Operating Activities
During the year ended December 31, 2025, we used $6,551,087 in cash from continuing operating activities, compared to $2,596,232 in cash used in continuing operating activities in the year ended December 31, 2024.
Net cashed used in continuing operating activities for the year ended December 31, 2025 was the result of three components: i) net loss from continuing operations of $3,097,848, ii) net adjustments to net loss from continuing operations for non-cash items of $2,505,081, of which the largest components were stock based compensation expense of $1,820,705 and depreciation of $771,552, and iii) a net increase in working capital associated with continuing operations of $5,958,321.
Cash used from net changes in working capital associated with continuing operations for the year ended December 31, 2025 was $5,958,321, compared to cash provided by net changes in working capital associated with continuing operations of $2,489,623 in 2024. The change in cash from net changes in working capital was primarily due to an increase in accounts receivable associated with ramping revenue, as well as cash disbursements in 2025 related to accrued expenses for a contract loss and for accrued losses related to supplier material received on non-cancellable purchase orders.
Our ability to generate cash from operations in future periods will depend in large part on our profitability, the rate and timing of collections of our accounts receivable, our inventory turns, and our ability to manage other areas of working capital, including accounts payable and accrued expenses.
Cash from Continuing Investing Activities
During the year ended December 31, 2025, the Company generated cash of $3,028,561 from continuing investing activities, as compared to $4,325,278 provided by continuing investing activities during 2024, a net decrease of $1,296,717. This change is attributable to a decrease in the number of short-term investments redeemed in the current year as compared to the prior year and to cash expenditures related to patent filing costs, partially offset by lower capital expenditures for demonstration assets and test equipment.
Cash from Continuing Financing Activities
During the year ended December 31, 2025, the Company generated $11,933,200 of cash from continuing financing activities, as compared to a cash usage of $229,013 from continuing financing activities in 2024. This change was due to i) $11,565,146 of proceeds net of transaction costs from a registered direct offering of common stock completed on October 1, 2025, ii) higher proceeds from the exercise of stock options, due to a higher number of options exercised in 2025, partially offset by iii) higher payments of withholding taxes on stock-based awards.
Cash from Discontinued Operations
Cash provided by discontinued operations was $17,866,932 for the year ended December 31, 2025. This was driven by:
Cash provided by discontinued operating activities was $260,706 in 2025, compared to cash provided by discontinued operating activities of $2,488,134 in 2024. The change from 2024 was primarily driven by increases in inventory and accounts receivable in 2025, compared to decreases in 2024.
Cash provided by discontinued investing activities was $17,470,077 in 2025, compared to cash used in discontinued investing activities of $134,491 in 2024. The change from 2024 was primarily driven by cash proceeds from the divestiture of Bressner, partially offset by transaction costs paid in cash and higher capital expenditures.
Cash provided by discontinued financing activities was $136,149 in 2025, compared to cash used in discontinued financing activities of $954,939 in 2024. The change from 2024 was primarily driven by repayments of outstanding debt in 2024.
Contractual obligations and commitments
The following table sets forth our non-cancellable contractual obligations as of December 31, 2025:
Contractual Obligations:
Total
< 1 year
1-3 years
3-5 years
> 5 Years
Operating leases
Non-cancellable purchase orders
Total
We have made certain indemnities, under which we may be required to make payments to an indemnified party, in relation to certain transactions. We indemnify our directors, officers, employees, and agents to the maximum extent permitted under the laws of the State of Delaware. In connection with our facilities leases, we indemnify our lessors for certain claims arising from the use of our facilities. The duration of the indemnities varies, and in many cases is indefinite. These indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities.
Known trends or uncertainties
During fiscal year 2024, we experienced delays in funding for customer projects, delays in delivery schedules based upon customer requirements, and an extended sales cycle. If such delays recur in the future, our operating results could be impacted.
With our shifted focus to the development and sale of edge computing products, we have significantly increased our efforts to penetrate the military and defense sectors in particular. These sectors typically have protracted sales cycles, significant contracting requirements, and multi-year deliverables. Our pipeline is effected by the procurement habits and timing of the military and defense sector.
Tariffs and the threat of tariffs, ongoing military conflicts, macroeconomic conditions and policy, inflation and the risk of inflation, and uncertainty about the timing and substance of U.S. government budgets and policy actions have contributed to uncertainty and capital markets volatility overall, which could negatively impact our operations.
We have received notifications from certain of our suppliers of extended lead times for certain components used in our products. In late 2025, a global shortage of certain memory products resulting from datacenter build-out demand led to significant increases in lead times, pricing volatility, and significant price increases. We have worked with our suppliers to secure availability of supply, including through the negotiation of long-term agreements. While we attempt to pass on component cost increases to our customers, our ability to do so is dependent upon many factors, including market conditions for the Company's products.
Inflation
We have recently experienced and continue to experience effects from inflation. Although the Company attempts to pass on increases in raw material, labor, energy and fuel-related costs to our customers, the Company’s ability to do so is dependent upon the rate and magnitude of any increase, competitive pressures, and market conditions for the Company’s products. There have been in the past, and may be in the future, periods of time during which increases in these costs cannot be fully recovered. These increasing costs are being aggressively managed by the Company and actions are being taken to minimize the impact to the Company. Inflation affects the Company’s manufacturing costs, distribution costs, and operating expenses.
U.S. Government Budget Environment
In recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation, and the U.S. government has been unable to complete its budget process before the end of its fiscal year, resulting in both governmental shutdowns and continuing resolutions providing only enough funds for U.S. government agencies to continue operating at prior-year levels. Our business and results of operations could be impacted by future disruptions to U.S. government operations, and these impacts could include delays in contract awards and new program starts. A prolongedshutdown could delay new awards and funding for defense-related projects involving U.S. government agencies and prime contractor customers. These delays could temporarily affect the timing of our revenue recognition, increase our working capital requirements, or reduce near-term liquidity.
Off balance sheet arrangements
Other than lease commitments incurred in the normal course of business and certain indemnification provisions, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity.
We do not have any majority-owned subsidiaries that are not consolidated in the financial statements. Additionally, we do not have an interest in, or relationships with, any special purpose entities.
Stockholder transactions
See Note 10 to the accompanying financial statements for a discussion regarding our stockholder transactions for the relevant periods.
Critical accounting policies and estimates
In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.
Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. We periodically re-evaluate and adjust our critical accounting policies as circumstances change.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s performance obligations are satisfied over time as work is performed or at a point in time. The majority of the Company’s revenue is recognized at a point in time when products ship and control is transferred to the customer. The Company determines revenue recognition through the following steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, a performance obligation is satisfied.
The Company’s contracts are executed through a combination of written agreements along with purchase orders with all customers including certain general terms and conditions. Generally, purchase orders entail products, quantities
and prices, which define the performance obligations of each party and are approved and accepted by the Company. The Company’s contracts with customers do not include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from invoice. Additionally, taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, which are collected by the Company from a customer and deposited with the relevant government authority, are excluded from revenue.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration, if any. Variable consideration may include discounts, rights of return, refunds, and other similar obligations. The Company allocates the transaction price to each distinct product and service based on its relative standalone selling price. The standalone selling price for products and services primarily involves the cost to produce the deliverable plus the anticipated margin and is estimated based on the Company’s approved list price.
In the normal course of business, the Company does not accept product returns unless the items are defective as manufactured. The Company establishes provisions for estimated returns and warranties. In addition, the Company does not typically provide customers with the right to a refund and does not transact for noncash consideration.
Revenues on certain fixed-price contracts where we provide engineering services, prototypes and completed products are recognized based upon milestones delivered that are provided during the period and compared to milestone goals to be provided over the entire contract. These services require that we perform significant, extensive, and complex design, development, modification or implementation of our customers’ systems. Performance will often extend over long periods of time, and our right to receive future payment depends on our future performance in accordance with the agreement.
The percentage-of-completion methodology involves recognizing probable and reasonably estimable revenue using the percentage of services completed, on a current cumulative cost to estimated total cost basis, using a reasonably consistent profit margin over the performance period. Due to the long-term nature of these projects, developing the estimates of costs often requires significant judgment. Factors that must be considered in estimating the progress of work completed and ultimate cost of the projects include, but are not limited to, the availability of labor and labor productivity, the nature and complexity of the work to be performed and the impact of delayed performance. If changes occur in delivery, productivity or other factors used in developing the estimates of costs or revenues, we revise our cost and revenue estimates, which may result in increases or decreases in revenues and costs, and such revisions are reflected in earnings in the period in which the revision becomes known.
The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.
On certain contracts with several of the Company’s significant customers, the Company receives payments in advance of manufacturing. Advanced payments are recorded as deferred revenue until the revenue recognition criteria described above has been met. Related billings that are in excess of revenue earned are deferred and recorded as a liability on the consolidated balance sheet until the related services are provided.
Inventory Valuation
We value our inventory at the lower of cost or its estimated net realizable value. We use the average cost method for purposes of determining cost, which approximates the first-in, first-out method. We write down inventory for excess and obsolescence based upon a review of historical usage and assumptions about future demand, product mix and possible alternative uses. Actual demand, product mix and alternative usage may be lower than those that we project, and this difference could have a material adverse effect on our gross margin if inventory write-downs beyond those initially recorded become necessary. Alternatively, if actual demand, product mix and alternative usage are more favorable than those we estimated at the time of such a write-down, our gross margin could be favorably impacted in future periods.
Income Taxes
The determination of income tax expense requires us to make certain estimates and judgments concerning the calculation of deferred tax assets and liabilities, as well as the deductions and credits that are available to reduce taxable income. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates for the year in which the differences are expected to reverse.
In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results, our forecast of future earnings, future taxable income, and tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment. We record a valuation allowance against deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. If it becomes more likely than not that a tax asset will be used for which a reserve has been provided, we reverse the related valuation allowance. If our actual future taxable income by tax jurisdiction differs from estimates, additional allowances or reversals of reserves may be necessary.
We use a two-step approach to recognize and measure uncertain tax positions. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. We reevaluate our uncertain tax positions on a quarterly basis and any changes to these positions as a result of tax audits, tax laws or other facts and circumstances could result in additional charges to operations.
Recent accounting pronouncements
Management has evaluated recent accounting pronouncements through the date of the consolidated financial statements included in this Annual Report and believes that the recent accounting pronouncements as disclosed in Note 2 to the financial statements included elsewhere in this Annual Report, will not have a material impact on the Company's consolidated financial statements.
Interest rate risk
Our exposure to interest rate risk is primarily associated with borrowing on revolving lines of credit. We are exposed to the impact of interest rate changes primarily through our borrowing activities for our variable rate borrowings.
Concentration of credit risk
At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”), of which both provide basic deposit coverage with limits up to $250,000 per owner. As of December 31, 2025, the Company had $33,124,976 of cash in our accounts that exceeded the insurance limits. The Company has not experienced any such losses in these accounts, and believes that the financial institutions at which such amounts are held are stable; however, no assurances can be provided.
We provide credit to our customers in the normal course of business. We perform ongoing credit evaluations of our customers’ financial condition and limit the amount of credit extended when deemed necessary.
Foreign currency risk
We operate primarily in the United States. Foreign sales of products and services are primarily denominated in U.S. dollars. We have also conducted business outside the United States, primarily through Bressner, our foreign subsidiary in Germany, which was sold on December 30, 2025 and is classified as discontinued operations. Bressner's business was largely transacted in non-U.S. dollar currencies, particularly the Euro, which is subject to fluctuations due to changes in foreign currency exchange rates. Accordingly, we have been subject to exposure from changes in the exchange rates of local currencies. Foreign currency transaction gains and losses associated with continuing operations are recorded in other income (expense), net in the consolidated statements of operations. Foreign currency transaction gains and losses associated with discontinued operations are recorded in income from discontinued operations, net of income taxes in the consolidated statements of operations.
The functional currency for the Bressner business was the Euro. Transactions denominated in currencies other than the functional currency are remeasured to the functional currency at the average exchange rate in effect during the period. At the end of each reporting period, monetary assets and liabilities are remeasured using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Consequently, changes in the exchange rates of the currencies may impact the translation of the foreign subsidiaries’ statements of operations into U.S. dollars, which may in turn affect our consolidated statement of operations. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in the consolidated balance sheets. With the divestiture of the Bressner business in 2025, cumulative currency translation adjustments associated with our Bressner business were released from accumulated other comprehensive income (loss) and recorded within income from discontinued operations, net of income taxes.
Derivative financial instruments
We may employ derivatives to manage certain currency market risks through the use of foreign exchange forward contracts. We do not use derivatives for trading or speculative purposes. Our derivatives are designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). We hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we enter into foreign exchange contracts to provide currency at a fixed rate.
Non-GAAP financial measures
Adjusted EBITDA
We believe that the use of adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, is helpful for an investor to assess the performance of the Company. The Company defines adjusted EBITDA as income (loss) before interest, taxes, depreciation, amortization, acquisition expense, impairment of long-lived assets, financing costs, government funded programs, fair value adjustments from purchase accounting, stock-based compensation expense, and expenses related to discontinued operations.
Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States, or GAAP. Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash operating expenses, we believe that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between our core business operating results and those of other companies, as well as providing us with an important tool for financial and operational decision making and for evaluating our own core business operating results over different periods of time.
Our adjusted EBITDA measure may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring and unusual items. Our adjusted EBITDA is not a measurement of financial performance under GAAP, and should not be considered as an alternative to operating income or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. We do not consider adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.
Adjusted EBITDA associated with our continuing operations for the years ended December 31, 2025 and 2024 was as follows:
For the Year Ended December 31,
Loss from continuing operations
Depreciation
Amortization of right-of-use assets net of change in lease liability
Stock-based compensation expense
Interest expense
Interest income
Provision for income taxes
Adjusted EBITDA
Adjusted EBITDA associated with discontinued operations, excluding the impact of the gain on sale net of transaction costs, for the years ended December 31, 2025 and 2024 was as follows:
For the Year Ended December 31,
Income from discontinued operations, net of income taxes
Gain on sale, net of transaction expenses
Depreciation
Amortization of right-of-use assets net of change in lease liability
Stock-based compensation expense
Interest expense
Interest income
Provision for income taxes
Adjusted EBITDA
Consolidated adjusted EBITDA from continuing and discontinued operations, excluding the impact of the gain of sale net of transaction costs, for the years ended December 31, 2025 and 2024 was as follows:
For the Year Ended December 31,
Net income (loss)
Gain on sale, net of transaction expenses
Depreciation
Amortization of right-of-use assets net of change in lease liability
Stock-based compensation expense
Interest expense
Interest income
Provision for income taxes
Adjusted EBITDA
Adjusted EPS
Adjusted EPS excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. We believe that exclusion of certain selected items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry. We use this measure along with the corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. The Company defines non-GAAP income (loss) as income or (loss) before amortization, government funded programs, impairment of long lived assets, stock-based compensation, expenses related to discontinued operations, and acquisition costs. Adjusted EPS expresses adjusted income (loss) on a per share basis using weighted average diluted shares outstanding.
Adjusted EPS is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the adjusted income from continuing operations and adjusted EPS financial adjustments described above, and investors should not infer from our presentation of these non-GAAP financial measures that these costs are unusual, infrequent or non-recurring.
The following table reconciles loss from continuing operations to adjusted EPS and diluted earnings per share:
For the Year Ended December 31,
Loss from continuing operations
Stock-based compensation expense
Non-GAAP net loss
Non-GAAP net loss per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
The following table reconciles loss from discontinued operations, net of income taxes to adjusted EPS and diluted earnings per share, which excludes the impact of the gain on sale net of transaction costs:
For the Year Ended December 31,
Income from discontinued operations, net of income taxes
Gain on sale, net of transaction expenses
Stock-based compensation expense
Non-GAAP net income
Non-GAAP net income per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
The following table reconciles consolidated net income (loss) to adjusted EPS and diluted earnings per share, which excludes the impact of the gain on sale net of transaction costs:
For the Year Ended December 31,
Net income (loss)
Gain on sale, net of transaction expenses
Stock-based compensation expense
Non-GAAP net income (loss)
Non-GAAP net income (loss) per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Free Cash Flow
Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs. We believe free cash flow provides investors with an important perspective on cash available for investments and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. We believe that trends in our free cash flow can be valuable indicators of our operating performance and liquidity.
Free cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.
We expect to continue to incur expenditures similar to the free cash flow adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash.
The following table reconciles net cash used in continuing operating activities to free cash flow:
For the Year Ended December 31,
Cash flow:
Net cash used in continuing operating activities
Capital expenditures in continuing operations
Free cash flow from continuing operations
The following table reconciles net cash used in discontinued operating activities to free cash flow:
For the Year Ended December 31,
Cash flow:
Net cash used in discontinued operating activities
