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One Stop Systems Inc.

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08/05/2026 | Press release | Distributed by Public on 08/05/2026 07:54

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2026


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ________________

Commission File Number: 001-38371

One Stop Systems, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

33-0885351

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2235 Enterprise Street #110

Escondido , California 92029

(Address of principal executive offices including Zip Code)

( 760 ) 745-9883

(Registrant's telephone number, including area code)

(Former Name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of exchange on which registered
Common Stock, $0.0001 par value per share	OSS	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes X  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X

As of June 30, 2026, the registrant had 24,940,130 shares of common stock (par value $0.0001) outstanding.

Table of Contents

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q ("Quarterly Report"), contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." All statements, other than statements of historical facts, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. Words such as, but not limited to, "anticipate," "aim," "believe," "contemplate," "continue," "could," "design," "estimate," "expect," "intend," "may," "might," "plan," "possible," "potential," "predict," "project," "seek," "should," "suggest," "strategy," "target," "will," "would," and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

•

our ability to adjust to economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, and could harm our financial condition and results of operations;

•

our ability to remediate issues with volatile or recessionary conditions in the United States or abroad which 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 adversely affect our current and projected business operations and our financial condition and results of operations;

•

cybersecurity incidents or data breaches that could disrupt operations or compromise proprietary information;

•

changes in current legislation, regulations, trade policies and tariffs, federal budget levels and priorities and the potential that any of the foregoing disrupts our operations and delays contract awards;

•

our ability to file Annual and Quarterly Reports on a timely basis;

•

our ability to raise additional capital to fund our operations if and as needed;

•

our ability to achieve and sustain profitability;

•

our estimates regarding our future performance including, without limitation, any estimates of potential future revenues;

•

estimates regarding market size;

•

our estimates regarding expenses, revenues, financial performance, and capital requirements, including the length of time our capital resources will sustain our operations;

•

our dependence on third parties for the supply and manufacture of our products;

•

our ability to expand our organization to accommodate potential growth; and

•

our ability to retain and attract key personnel.

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should read this Quarterly Report and the documents that we have filed as exhibits to this Quarterly Report and incorporated by reference herein completely and with the understanding that our actual results may be materially different from the plans, intentions and expectations disclosed in the forward-looking statements we make. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Unless the context requires otherwise, references in this Quarterly Report to "OSS," "Company," "we," "us" and "our" refer to One Stop Systems, Inc. and its subsidiaries.

One Stop Systems, the One Stop Systems logo, and other trademarks or service marks of One Stop Systems appearing in this Quarterly Report are the property of One Stop Systems, Inc. This Quarterly Report also includes trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this Quarterly Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names.

PART I - FINANC IAL INFORMATION

Item 1. Financi al Statements.

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have presented consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Therefore, such consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these unaudited consolidated financial statements, management has evaluated events and transactions for potential recognition or disclosure through the date the unaudited consolidated financial statements were issued by filing with the SEC.

This Quarterly Report should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2025, included in our Annual Report on Form 10-K, filed with the SEC on March 18, 2026.

The results of operations for the three month and six month periods ended June 30, 2026, are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2026.

ONE STOP SYSTEMS, INC. (OSS)

CONSOLIDA TED BALANCE SHEETS


	Unaudited			Audited
	June 30,			December 31,
	2026			2025
ASSETS
Current assets
Cash and cash equivalents	$	17,279,139		$	31,174,880
Restricted cash		-			2,200,096
Short-term investments (Note 3)		14,128,617			-
Accounts receivable, net (Note 4)		8,343,042			11,549,718
Inventories, net (Note 5)		13,864,197			5,420,439
Prepaid expenses and other current assets		557,124			472,884
Total current assets		54,172,119			50,818,017
Property and equipment, net		427,145			674,654
Operating lease right-of-use assets		1,125,198			1,216,871
Deposits and other		35,073			38,093
Intangible assets, net (Note 7)		80,195			73,908
Total assets	$	55,839,730		$	52,821,543

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	6,175,505		$	1,716,389
Accrued expenses and other current liabilities (Note 6)		9,669,622			3,630,130
Current portion of operating lease liabilities (Note 10)		244,859			219,097
Total current liabilities		16,089,986			5,565,616
Operating lease liabilities, net of current portion (Note 10)		1,122,275			1,249,862
Total liabilities		17,212,261			6,815,478
Commitments and contingencies (Note 10)		-			-
Stockholders' equity
Common stock, $ 0.0001 par value; 50,000,000 shares authorized; 24,940,130 and 24,583,775 shares issued and outstanding		2,494			2,458
Additional paid-in capital		63,476,602			62,968,973
Accumulated other comprehensive loss		( 46,739	)		-
Accumulated deficit		( 24,804,888	)		( 16,965,367	)
Total stockholders' equity		38,627,469			46,006,064
Total liabilities and stockholders' equity	$	55,839,730		$	52,821,543

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEM ENTS OF OPERATIONS


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Revenue:
Product	$	8,405,014		$	5,375,709		$	15,469,262		$	10,172,145
Customer funded development		943,537			385,002			1,948,900			795,376
		9,348,551			5,760,711			17,418,162			10,967,521
Cost of revenue:
Product		4,994,499			3,127,961			8,630,081			5,615,780
Customer funded development		703,014			250,879			969,484			600,661
		5,697,513			3,378,840			9,599,565			6,216,441
Gross profit		3,651,038			2,381,871			7,818,597			4,751,080
Operating expenses:
General and administrative		2,453,864			1,907,425			4,898,609			3,815,809
Legal settlement		6,250,000			-			6,250,000			-
Marketing and selling		1,765,955			1,658,753			3,342,917			3,265,629
Research and development		853,100			1,362,070			1,670,139			2,567,212
Total operating expenses		11,322,919			4,928,248			16,161,665			9,648,650
Loss from operations		( 7,671,881	)		( 2,546,377	)		( 8,343,068	)		( 4,897,570	)
Other income (expense), net:
Interest income		314,690			50,296			610,828			123,362
Other income, net		37,532			21,930			49,993			20,663
Total other income, net		352,222			72,226			660,821			144,025
Loss before income taxes		( 7,319,659	)		( 2,474,151	)		( 7,682,247	)		( 4,753,545	)
Provision for income taxes		-			-			-			-
Loss from continuing operations		( 7,319,659	)		( 2,474,151	)		( 7,682,247	)		( 4,753,545	)
Income (loss) from discontinued operations, net of income taxes		-			453,421			( 157,274	)		715,181
Net loss		( 7,319,659	)		( 2,020,730	)		( 7,839,521	)		( 4,038,364	)

Per share basis:
Basic:
Continuing operations	$	( 0.29	)	$	( 0.11	)	$	( 0.31	)	$	( 0.22	)
Discontinued operations	$	-		$	0.02		$	( 0.01	)	$	0.03
Basic loss per share	$	( 0.29	)	$	( 0.09	)	$	( 0.32	)	$	( 0.19	)

Diluted:
Continuing operations	$	( 0.29	)	$	( 0.11	)	$	( 0.31	)	$	( 0.22	)
Discontinued operations	$	-		$	0.02		$	( 0.01	)	$	0.03
Diluted loss per share	$	( 0.29	)	$	( 0.09	)	$	( 0.32	)	$	( 0.19	)

Weighted average common shares outstanding:
Basic		24,841,334			21,687,808			24,761,553			21,534,925
Diluted		24,841,334			21,951,955			24,761,553			22,022,039

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Net loss	$	( 7,319,659	)	$	( 2,020,730	)	$	( 7,839,521	)	$	( 4,038,364	)
Other comprehensive (loss) income:
Net unrealized loss on short-term investments		( 25,746	)		( 2,740	)		( 46,739	)		( 2,346	)
Currency translation adjustment		-			1,094,358			-			1,247,298
Total other comprehensive (loss) income		( 25,746	)		1,091,618			( 46,739	)		1,244,952
Comprehensive loss	$	( 7,345,405	)	$	( 929,112	)	$	( 7,886,260	)	$	( 2,793,412	)

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Three and Six Month Periods Ended June 30, 2026


	Common Stock							Accumulated Other			Accumulated Deficit			Total
	Shares		Amount		Additional Paid-in-Capital			Comprehensive Loss			Accumulated Deficit			Stockholders' Equity
Balance, January 1, 2026		24,583,775	$	2,458	$	62,968,973		$	-		$	( 16,965,367	)	$	46,006,064
Stock-based compensation		-		-		655,128			-			-			655,128
Exercise of stock options, RSUs and warrants		185,242		19		47,946			-			-			47,965
Taxes paid on net issuance of employee stock options		-		-		( 830,148	)		-			-			( 830,148	)
Net unrealized loss on short-term investments		-		-		-			( 20,993	)		-			( 20,993	)
Net loss		-		-		-			-			( 519,862	)		( 519,862	)
Balance, March 31, 2026		24,769,017	$	2,477	$	62,841,899		$	( 20,993	)	$	( 17,485,229	)	$	45,338,154
Stock-based compensation		-		-		861,213			-			-			861,213
Exercise of stock options and RSUs		171,113		17		140,222			-			-			140,239
Taxes paid on net issuance of employee stock options		-		-		( 366,732	)		-			-			( 366,732	)
Net unrealized loss on short-term investments		-		-		-			( 25,746	)		-			( 25,746	)
Net loss		-		-		-			-			( 7,319,659	)		( 7,319,659	)
Balance, June 30, 2026		24,940,130	$	2,494	$	63,476,602		$	( 46,739	)	$	( 24,804,888	)	$	38,627,469

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Three and Six Month Periods Ended June 30, 2025


	Common Stock							Accumulated Other			Accumulated			Total
	Shares		Amount		Additional Paid-in-Capital			Comprehensive income			Deficit			Stockholders' Equity
Balance, January 1, 2025		21,148,810	$	2,115	$	49,082,737		$	140,254		$	( 22,053,062	)	$	27,172,045
Stock-based compensation		-		-		612,561			-			-			612,561
Exercise of stock options, RSUs and warrants		433,386		43		373,267			-			-			373,310
Taxes paid on net issuance of employee stock options		-		-		( 243,654	)		-			-			( 243,654	)
Currency translation adjustment		-		-		-			152,940			-			152,940
Net unrealized gain on short-term investments		-		-		-			393			-			393
Net loss		-		-		-			-			( 2,017,634	)		( 2,017,634	)
Balance, March 31, 2025		21,582,196	$	2,158	$	49,824,911		$	293,587		$	( 24,070,695	)	$	26,049,961
Stock-based compensation		-		-		515,774			-			-			515,774
Exercise of stock options, RSUs and warrants		338,583		34		627,436			-			-			627,470
Taxes paid on net issuance of employee stock options		-		-		( 59,823	)		-			-			( 59,823	)
Currency translation adjustment		-		-		-			1,094,358			-			1,094,358
Net unrealized loss on short-term investments		-		-		-			( 2,740	)		-			( 2,740	)
Net loss		-		-		-			-			( 2,020,730	)		( 2,020,730	)
Balance, June 30, 2025		21,920,779	$	2,192	$	50,908,298		$	1,385,205		$	( 26,091,425	)	$	26,204,270

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEM ENTS OF CASH FLOWS


	For the Six Months Ended June 30,
	2026			2025
Cash flows from continuing operating activities:
Loss from continuing operations	$	( 7,682,247	)	$	( 4,753,545	)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) continuing operating activities:
Depreciation		366,616			390,437
Provision for (recovery from) credit losses		30,000			( 100	)
Amortization of right-of-use assets		91,673			123,909
Stock-based compensation expense		1,516,341			1,061,755
Change in warranty reserves		40,000			-
Change in inventory reserves		( 212,939	)		( 394,386	)
Changes in operating assets and liabilities:
Accounts receivable		3,176,676			449,564
Inventories		( 8,230,819	)		588,495
Prepaid expenses and other current assets		( 84,240	)		1,556
Security deposits		3,019			-
Accounts payable		4,459,116			1,466,737
Accrued expenses and other current liabilities		5,999,492			( 1,580,362	)
Operating lease liabilities		( 101,826	)		( 127,974	)
Net cash used in continuing operating activities		( 629,138	)		( 2,773,914	)

Cash flows from continuing investing activities:
Purchases of property and equipment		( 125,393	)		( 56,197	)
(Purchase) sale of marketable securities		( 14,175,356	)		2,184,302
Net cash (used in) provided by continuing investing activities		( 14,300,749	)		2,128,105

Cash flows from continuing financing activities:
Proceeds from exercise of stock options		188,204			1,000,780
Payment of withholding taxes on stock-based awards		( 1,196,880	)		( 303,477	)
Net cash (used in) provided by continuing financing activities		( 1,008,676	)		697,303

Net change in cash, cash equivalents, and restricted cash from continuing operations		( 15,938,563	)		51,494

Net cash flow from discontinued operating activities		( 157,274	)		1,269,614
Net cash flow from discontinued investing activities		-			( 117,132	)
Net cash flow from discontinued financing activities		-			-
Net change in cash, cash equivalents, and restricted cash from discontinued operations		( 157,274	)		1,152,482
Effect of exchange rate changes on cash					460,851
Net change in cash, cash equivalents, and restricted cash		( 16,095,837	)		1,664,827
Cash, cash equivalents, and restricted cash, beginning of period:		33,374,976			6,794,093
Cash, cash equivalents, and restricted cash, end of period	$	17,279,139		$	8,458,920

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED


	For the Six Months Ended June 30,
	2026		2025
Supplemental disclosure of cash flow information (continuing operations):
Cash paid during the period for interest	$	-	$	-
Cash paid during the period for income taxes	$	12,930	$	8,400

Supplemental disclosure of cash flow information (discontinued operations):
Cash paid during the period for interest	$	-	$	26,793
Cash paid during the period for income taxes	$	-	$	270,354

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Month Periods Ended June 30, 2026 and 2025

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION

Nature of Operations

One Stop Systems, Inc. ("we," "our," "OSS," or the "Company") was originally incorporated as a California corporation in 1999, after initially being formed as a California limited liability company in 1998. On December 14, 2017, the Company was reincorporated as a Delaware corporation in connection with its initial public offering. The Company designs, manufactures, and markets specialized rugged high-performance compute ("HPC"), high speed switch fabrics, and storage systems, which are designed to target edge applications for artificial intelligence ("AI") / machine learning ("ML"), sensor processing, sensor fusion, and autonomy. The Company markets its products to manufacturers of equipment and platforms used for autonomous vehicles, medical, industrial, aerospace, and defense applications, with special focus on platforms that move, such as planes, unmanned aerial vehicles (UAVs), trucks, ships, submarines, and mobile datacenters or command posts where sensor processing, sensor fusion, AI, and ML are integrated to support such applications.

During the year ended December 31, 2015, the Company formed a wholly owned subsidiary in Germany, One Stop Systems, GmbH ("OSS GmbH"). On October 31, 2018, OSS GmbH acquired 100 % of the outstanding stock of Bressner Technology GmbH, a limited liability company registered under the laws of Germany and located near Munich, Germany ("Bressner"). On December 30, 2025, the Company entered into and completed a Shares Purchase Agreement with Hiper Euro GmbH, pursuant to which the Company sold 100 % of the issued and outstanding equity interests of One Stop Systems, GmbH ("OSS GmbH"), the Company's German subsidiary and the sole owner of Bressner. The transaction represents a strategic shift in the Company's operations, as the Company exited its European distribution and integration business and is now focused on its core high-performance edge computing solutions.

Following the transaction, the Company has continued to focus on the development and sale of proprietary and differentiated edge computing solutions and has enhanced its efforts to penetrate the military and defense sectors.

Basis of Presentation

The accompanying consolidated financial statements have been prepared on an accrual basis of accounting in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"), as set forth in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC").

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation. All operations, assets, and liabilities of the Bressner business, which was divested on December 30, 2025, have been classified as discontinued operations in all periods presented. Unless otherwise noted, amounts and disclosures in these Notes to Unaudited Consolidated Financial Statements pertain to the Company's continuing operations. See Note 13, Discontinued Operations, for further details on Discontinued Operations.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of OSS and its wholly owned subsidiaries. The accounts of OSS GmbH, which include Bressner, have been classified as discontinued operations. Intercompany balances and transactions have been eliminated in consolidation.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

There have been no changes to our accounting policies disclosed in our audited consolidated financial statements and the related notes for the year ended December 31, 2025.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

On an ongoing basis, our management evaluates these estimates and assumptions, including those related to determination of standalone selling prices of our products and services, allowance for credit losses and sales reserves, income tax valuations, stock-based compensation, intangible assets and inventory valuations and recoverability. We base our estimates on historical data and experience, as well as various other factors that our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities.

We are not aware of any specific event or circumstance that would require an update to our estimates or assumptions or a revision of the carrying value of our assets or liabilities that has not been properly reflected in the consolidated financial statements. These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions .

Recently Issued Accounting Pronouncements

Issued

On November 4, 2024, the FASB issued ASU 2024-03 "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses" which requires disaggregated disclosure of certain income statement expenses. This amendment introduces enhanced guidance regarding presentation of certain income statement expense items and requires disclosure of certain types of expenses in the notes to the financial statements. This guidance applies to annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Management does not expect adoption to have any material impact to our results of operations or consolidated financial statements.

NOTE 3 - SHORT-TERM INVESTMENTS

The Company's short-term investments by significant investment category as of June 30, 2026, were as follows:


Description	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Accrued Interest		Estimated Fair Value
Level 1: (1)
Cash alternatives	$	117,601	$	-	$	-		$	-	$	117,601
Certificates of deposit		13,370,883		-		( 38,858	)	$	121,265		13,453,290
U.S. government securities		559,303		-		( 1,577	)		-		557,726
	$	14,047,787	$	-	$	( 40,435	)	$	121,265	$	14,128,617

(1)

Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.

The Company did no t have any short term investments as of December 31, 2025.

Cash alternatives represent cash balances in savings accounts and U.S. Treasury Bills that are held temporarily and are immediately available for use in accordance with the Company's investment policy.

The Company typically invests in low risk securities and its investment policy limits the amount of credit exposure to any one issuer. The policy requires investments in fixed income instruments denominated and payable in U.S. dollars only and requires investments to have an investment grade credit rating, with a primary objective of minimizing the potential risk of principal loss.

NOTE 4 -ACCOUNTS RECEIVABLE

Accounts receivable, net consisted of the following as-of the dates indicated:


	June 30,			December 31,
	2026			2025
Accounts receivable	$	7,960,072		$	11,628,636
Unbilled receivables		491,888			-
Accounts receivable		8,451,960			11,628,636
Less: allowance for credit losses		( 108,918	)		( 78,918	)
	$	8,343,042		$	11,549,718

Unbilled receivables include amounts associated with percentage of completion and milestone billing accounting, which includes cost and gross profit earned in excess of billing, not currently billable due to contractual provisions.

The following tables represent the changes in the allowance for credit losses associated with our trade receivables for the six month periods ended June 30, 2026 and 2025:


	For the Six Months Ended June 30,
Allowance for Credit Losses	2026		2025
Balance on January 1,	$	78,918	$	79,018
Provision charged to expense		30,000		-
Receivables written-off		-		( 100	)
	$	108,918	$	78,918

NOTE 5 - INVENTORIES

Inventories, net consisted of the following as-of the dates indicated:


	June 30,			December 31,
	2026			2025
Raw materials	$	11,672,375		$	10,037,429
Sub-assemblies		1,019,567			977,376
Work-in-process		776,427			95,134
Finished goods		7,025,328			1,152,939
		20,493,697			12,262,878
Less: allowances for obsolete and slow-moving inventories		( 6,629,500	)		( 6,842,439	)
	$	13,864,197		$	5,420,439

NOTE 6 - ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following as-of the dates indicated:


	June 30,		December 31,
	2026		2025
Legal settlement	$	6,250,000	$	-
Accrued compensation and related liabilities		1,432,480		2,234,445
Deferred revenue		841,523		339,239
Customer deposits		124,062		83,448
Warranty reserve		250,000		210,000
Trade and other taxes		12,229		25,695
Other accrued expenses		759,328		737,303
	$	9,669,622	$	3,630,130

The tables below present the deferred revenue and deposit balances along with the significant activity affecting balances during the six month periods ended June 30, 2026 and 2025:


	June 30,			June 30,
Deferred revenue	2026			2025
Beginning balance	$	339,239		$	218,499
Deferral of revenue during the period		2,608,331			1,477,190
Recognition of unearned revenue from beginning of period		( 720,710	)		( 173,193	)
Recognition of unearned revenue from additions		( 1,385,337	)		( 1,370,242	)
Ending balance	$	841,523		$	152,254


	June 30,			June 30,
Customer deposits	2026			2025
Beginning balance	$	83,448		$	26,607
Additions during the period		546,504			768,856
Deposits recognized from beginning of period		( 89,025	)		-
Deposits recognized from additions		( 416,865	)		( 795,463	)
Ending balance	$	124,062		$	-

As of June 30, 2026, the Company had approxi mately $ 809,508 of remaining performance obligations under fully funded contracts for wh ich the Company's performance obligations are satisfied over time and for which the customer receives benefits as the Company performs. These performance obligations are expected to be satisfied within 2026 .

NOTE 7 - LONG LIVED INTANGIBLE ASSETS

Intangible assets on the Company's consolidated balance sheets as of June 30, 2026 and December 31, 2025 consist of patents pending for internally developed technology. In 2025, the Company capitalized costs of $ 73,908 related to patent applications and filing fees, and in the six month period ended June 30, 2026, the Company capitalized additional costs of $ 6,287 related to patent applications and filing fees. Finite-lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the economic benefits are consumed. The estimated useful lives for the patents pending are 10 years . No amortization expense related to long-lived intangible assets was recognized in the three or six month periods ended June 30, 2026 or 2025.

The balances outstanding for long-lived intangible assets as of June 30, 2026 and December 31, 2025 were $ 80,195 and $ 73,908 , respectively.

NOTE 8 - DEBT

The Company did no t have any outstanding debt obligations as of June 30, 2026 or December 31, 2025.

Bank Lines of Credit

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 Line of Credit matures September 11, 2026 and is subject to renewal thereafter. No balance was outstanding on June 30, 2026 or December 31, 2025.

NOTE 9 - STOCKHOLDERS' EQUITY

The Company's amended and restated certificate of incorporation, filed with the Delaware Secretary of State on February 2, 2018, authorizes the Company to issue 10,000,000 shares of preferred stock and 50,000,000 shares of common stock.

2017 Equity Incentive Plan

On October 10, 2017, the Company's board of directors approved and adopted the Company's 2017 Equity Incentive Plan (as amended to date, the "2017 Plan"), subject to stockholder approval thereof. On December 18, 2017, the Company's stockholders approved the 2017 Plan. The 2017 Plan allows for the grant of a variety of equity vehicles to provide flexibility in the grant and issuance of equity awards, including stock options, unrestricted stock grants, restricted stock units ("RSUs"), stock bonuses and performance-based awards. An aggregate of 1,500,000 shares of common stock were initially reserved for issuance under the 2017 Plan. The number of shares authorized for issuance under the 2017 Plan was increased to 3,000,000 shares on May 19, 2021; increased to 5,000,000 shares on May 15, 2024; and further increased to 7,000,000 shares on May 13, 2026.

As of June 30, 2026, 2,617,779 shares remain available for future issuance under the 2017 Plan.

Executive Employment Agreements

On June 5, 2023, in connection with, and as a material inducement to, the appointment of Michael Knowles as the Company's new chief executive officer and president, Mr. Knowles was granted (i) non-qualified stock options to purchase 400,000 shares of Company common stock (the "Inducement Options"), which Inducement Options have an exercise price equal to $ 2.95 per share and will expire ten years from the date of the grant; and (ii) 400,000 restricted stock units (together with the Inducement Options, the "Inducement Grants").

Both of the Inducement Grants shall vest over a four-year period as follows: 25 % on the one-year anniversary of the date of the grant, and the remaining 75 % will vest in six equal installments, commencing six months after the one-year anniversary of the date of grant and every six months thereafter until fully vested, subject to Mr. Knowles' continued employment by the Company.

The Inducement Grants were granted outside of the Company's 2017 Plan and any other equity incentive plans, and in reliance on the employment inducement exemption provided under the Nasdaq Listing Rule 5635(c)(4).

Stock Options

A summary of stock option activity under the Company's current equity incentive plans during the six month period ended June 30, 2026, was as follows:


	Stock Options Outstanding
	Number of Underlying Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding on January 1, 2026		621,539		$	2.81		5.37	$	9,705,525
Granted		-		$	-		-		-
Forfeited / Canceled		( 9,315	)	$	1.19		-		( 328,112	)
Exercised		( 60,649	)	$	3.13		-	$	( 912,698	)
Outstanding on June 30, 2026		551,575		$	2.83		5.39	$	8,464,716
Exercisable as of June 30, 2026		451,575		$	2.81		5.05	$	6,941,716

As of June 30, 2026, there was $ 185,033 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 0.47 years.

There were no options granted during the three or six month periods ended June 30, 2026 or 2025. The following table presents the grant date fair value of options vested and the intrinsic value of options exercised:


	For the Six Months Ended June 30,
	2026		2025
Grant date fair value of options vested	$	760,142	$	688,212
Intrinsic value of options exercised	$	912,698	$	479,040

If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase, or cancel any remaining unearned stock-based compensation expense or calculate and record additional expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional common stock options or other stock-based awards.

Restricted Stock Units

RSUs may be granted at the discretion of the compensation committee of the Company's board of directors under the 2017 Plan in connection with the hiring and retention of personnel and are subject to certain conditions. RSUs generally vest quarterly or semi-annually over a period of one to three years and are typically forfeited if employment is terminated before the RSUs vest. The compensation expense related to the RSUs is calculated as the fair value of the common stock on the grant date and is amortized to expense over the vesting period and is adjusted for forfeitures.

The Company's RS U activity for the six months ended June 30, 2026, was as follows:


	Restricted Stock Units
	Number of Underlying Shares			Weighted Average Grant Date Fair Value
Unvested on January 1, 2026		997,647		$	3.32
Granted		484,743		$	10.34
Vested		( 410,070	)	$	3.19
Canceled		( 26,136	)	$	3.18
Unvested on June 30, 2026		1,046,184		$	6.62

As of June 30, 2026, there was $ 5,904,932 of unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.06 years.

Stock-based compensation expense associated with continuing operations for the three and six month periods ended June 30, 2026 and 2025, was comprised of the following:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Stock-based compensation classified as:	2026		2025		2026		2025
General and administrative	$	557,051	$	323,327	$	962,411	$	731,573
Production		53,304		21,906		92,744		43,327
Marketing and selling		179,704		89,312		325,141		181,082
Research and development		71,154		48,805		136,045		105,773
	$	861,213	$	483,350	$	1,516,341	$	1,061,755

Stock-based compensation expense associated with discontinued operations for the three month periods ended June 30, 2026 and 2025 was $ 0 and $ 32,424 , respectively. Stock-based compensation expense associated with discontinued operations for the six month periods ended June 30, 2026 and 2025 was $ 0 and $ 66,580 , respectively.

Warrants

The Company did no t have any outstanding warrants as of June 30, 2026 or December 31, 2025.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Legal

A mediation was held on July 30, 2026 with Disguise Systems Limited, a United Kingdom company, and Disguise Technologies Limited, a United Kingdom company (collectively, "Disguise") to resolve Disguise Systems Limited and Disguise Technologies Limited v. One Stop Systems, Inc. pending in the United States District Court for the District of Delaware, C.A. No. 24-536-JHS, initiated by Disguise in 2024. As a result of the mediation the Company entered into a settlement agreement term sheet with Disguise on August 4, 2026 (the "Term Sheet") whereby the Company will, without any admission of wrongdoing or liability, pay or cause to be paid to Disguise a net monetary payment of $ 6,250,000 US, in a single lump sum payment by the Company, due and owing to Disguise, within thirty (30) days of a fully executed definitive settlement agreement. The Term Sheet also sets forth a mutual release of claims and provides that the parties will document the definitive settlement agreement no later than August 19, 2026. As the settlement provides additional evidence of a condition that existed as of June 30, 2026, the Company has recognized the $ 6,250,000 liability and recorded this settlement in the operational results of the current fiscal quarter. The Company had previously characterized this matter as a customer dispute arising in the

ordinary course of business and, prior to the mediation on July 30, 2026, did not believe the matter was material to the Company's financial condition, results of operations, or cash flows. The Company is including this description of the litigation in this Quarterly Report because it has determined that the amount of the settlement renders the matter material to the Company for purposes of this disclosure, notwithstanding the Company's prior assessment that the underlying dispute, standing alone, was in the Company's ordinary course of business and not material prior to the mediation on July 30, 2026.

Guarantees and Indemnities

The Company has made certain indemnities, under which it may be required to make payments to an indemnified party, in relation to certain transactions. The Company indemnifies its directors, officers, employees, and agents to the maximum extent permitted under the laws of the State of Delaware. In connection with its facility lease, the Company has indemnified its lessor for certain claims arising from the use of the 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 the Company could be obligated to make. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities in the accompanying consolidated balance sheets.

Leases

The Company leases its corporate headquarters, manufacturing, and warehouse facility in San Diego County, under a non-cancelable operating lease. The facility is approximately 29,342 square feet in Escondido, California with a lease that expires in August 2030 . The Company also leases a 925 square foot facility in Salt Lake City, Utah, which houses its Ion software development team, under a lease that was last modified and extended in June 2026 and expires in June 2027. Additionally, the Company 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 exited the facility.

Other information related to leases for the three and six month periods ended June 30, 2026 and 2025 was as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2026		2025		2026			2025
Operating lease expense	$	147,127	$	153,781	$	291,904		$	307,755
Total lease expense	$	147,127	$	153,781	$	291,904		$	307,755

Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	99,599	$	113,068	$	202,218		$	226,135

Weighted-average remaining lease term - operating leases					51.0 months			62.9 months
Weighted-average discount rate - operating leases						13.66	%		13.66	%

The following table presents the maturity of the Company's operating lease liabilities as of June 30, 2026:


Year	Operating Leases
Remaining 2026	$	196,675
2027		403,771
2028		419,922
2029		436,719
2030		298,809
Total lease payments		1,755,896
Less: Amount representing interest		( 388,762	)
Present value of lease payments		1,367,134
Less: current portion of operating lease obligation		( 244,859	)
Operating lease obligation, net of current portion	$	1,122,275

Purchase Commitments

In the normal course of business, the Company may enter into purchase commitments for inventory components to be delivered based upon non-cancellable, pre-established delivery schedules that are over a period that may exceed one year. Total non-cancellable purchase orders as of June 30, 2026 were $ 2,696,608 .

Customer Concentration

During the three month periods ended June 30, 2026 and 2025, the Company had three and two customers, respectively, that accounted for (in the aggregate) approximately 39 % and 41 % of revenue, respectively. No other customers represented greater than 10% of our revenue in these periods. During the six month periods ended June 30, 2026 and 2025, the Company had two customers, in each period, that accounted for (in the aggregate) approximately 43 % and 39 % of revenue, respectively. No other customers represented greater than 10% of our revenue in these periods.

As of June 30, 2026 and December 31, 2025, the Company had three customers, at each date, that accounted for (in the aggregate) approximately 40 % and 77 %, respectively, of trade accounts receivables for which each of such customer's balances represented 10% or greater of our consolidated trade accounts receivable balance.

During the three month periods ended June 30, 2026 and 2025, the Company had approximately 77 % and 40 %, respectively, of aggregate purchases from three suppliers, in each period, for which each represents greater than 10% of our consolidated purchases. During the six month periods ended June 30, 2026 and 2025, the Company had approximately 59 % and 40 %, respectively, of aggregate purchases from three and two suppliers, respectively, for which each represents greater than 10% of our consolidated purchases.

NOTE 11 - NET LOSS PER SHARE

Basic and diluted net loss per share were calculated as follows for the three and six month periods ended June 30, 2026 and 2025:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Basic and diluted net income (loss) per share:
Numerator:
Loss from continuing operations	$	( 7,319,659	)	$	( 2,474,151	)	$	( 7,682,247	)	$	( 4,753,545	)
(Loss) income from discontinued operations		-			453,421			( 157,274	)		715,181
Net loss	$	( 7,319,659	)	$	( 2,020,730	)	$	( 7,839,521	)	$	( 4,038,364	)

Denominator:
Weighted average common shares outstanding - basic		24,841,334			21,687,808			24,761,553			21,534,925
Effect of dilutive securities		-			264,147			-			487,115
Weighted average common shares outstanding - diluted		24,841,334			21,951,955			24,761,553			22,022,039

Net loss per common share:
Basic:
Continuing operations	$	( 0.29	)	$	( 0.11	)	$	( 0.31	)	$	( 0.22	)
Discontinued operations	$	-		$	0.02		$	( 0.01	)	$	0.03
Basic loss per share	$	( 0.29	)	$	( 0.09	)	$	( 0.32	)	$	( 0.19	)

Diluted:
Continuing operations	$	( 0.29	)	$	( 0.11	)	$	( 0.31	)	$	( 0.22	)
Discontinued operations	$	-		$	0.02		$	( 0.01	)	$	0.03
Diluted loss per share	$	( 0.29	)	$	( 0.09	)	$	( 0.32	)	$	( 0.19	)

NOTE 12 - SEGMENT AND GEOGRAPHIC INFORMATION

The Company's continuing operations comprise a single reportable segment. Operating segments are identified based on the manner in which the Chief Operating Decision Maker ("CODM") evaluates financial performance and allocates resources.

The Company's Chief Executive Officer has been identified as the CODM. The CODM reviews financial information for purposes of assessing performance and making decisions regarding resource allocation. The CODM evaluates performance using gross profit and operating profit.

Although the Company generates revenue from multiple products and serves customers across various geographical regions, its products are designed and manufactured using similar processes and supported by centralized functions, including sales, marketing, finance, and human resources. Additionally, the Company's long-lived assets and capital expenditures related to continuing operations are deployed and managed on a consolidated basis.

The Company, through its single reportable segment, designs, manufactures, and markets specialized enterprise class high-performance compute, high speed switch fabrics, and storage hardware and software to target edge applications.

Segment details for the Company's single reportable segment are the same as those for the Company's continuing operations, as reported in the consolidated financial statements.

Revenue from customers with non-U.S. billing addresses represented approximate ly 14 % and 9 % of th e Company's revenue during the three month periods ended June 30, 2026 and 2025, respectively, and 12 % and 11 % of the Company's revenue during the six month periods ended June 30, 2026 and 2025, respectively.

As of June 30, 2026, all the Company's long-lived assets are in the United States of America.

NOTE 13 - DISCONTINUED OPERATIONS

Divestiture

On December 30, 2025, the Company entered into and completed a Shares Purchase Agreement (the "SPA") with Hiper Euro GmbH (the "Buyer"), pursuant to which the Buyer acquired 100 % of the issued and outstanding equity interests of One Stop Systems, GmbH ("OSS GmbH"), the Company's German subsidiary and the sole owner of Bressner Technology GmbH ("Bressner") (the "Transaction"). These entities represented the entirety of the Company's former European distribution and integration operations. The Transaction represented a strategic shift in the Company's operations, as the Company exited its European distribution and integration business and is now focused on its core high-performance edge computing solutions. As a result, OSS GmbH met the criteria for classification as discontinued operations as of the date of divestiture, and the historical results of OSS GmbH and Bressner have been classified as discontinued operations in the Company's consolidated financial statements. The Company does not have any significant continuing involvement in the operations of OSS GmbH or Bressner following the divestiture.

Pursuant to the SPA, the Company sold OSS GmbH for a base purchase price of $ 22,000,000 , subject to customary post-closing adjustments for net working capital, cash, indebtedness, and transaction expenses. At closing, the Company received total estimated purchase consideration of $ 22,417,422 based on preliminary working capital and other closing estimates. Post-closing adjustments for final working capital, cash, indebtedness, and transaction-related items resulted in a reduction to the purchase price of $ 157,274 . As a result of these adjustments, total purchase consideration was $ 22,260,148 . The adjustment to the purchase price was recorded during the six months ended June 30, 2026 as a reduction to the gain on sale and is reflected within discontinued operations in the consolidated statements of operations.

Financial Results of Discontinued Operations

For the six month period ended June 30, 2026, loss from discontinued operations, net of tax on the consolidated statements of operations is comprised of the post-transaction adjustments to the purchase consideration. For the three and six month periods ended June 30, 2025, income from discontinued operations, net of tax on the consolidated statements of operations reflects Bressner's financial results for the period.

The following table presents the major components of Bressner's financial results for the periods presented:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2026		2025			2026			2025
Total revenue	$	-	$	8,347,874		$	-		$	15,400,151
Total cost of revenue		-		6,317,467			-			11,741,962
Operating expenses		-		1,307,983			-			2,529,432
Other expense, net		-		( 44,815	)		-			( 79,921	)
Post-closing adjustments to gain on sale		-		-			( 157,274	)		-
Income (loss) from discontinued operations		-		677,609			( 157,274	)		1,048,836
Tax provision for discontinued operations		-		224,188			-			333,655
Income (loss) from discontinued operations, net of tax	$	-	$	453,421		$	( 157,274	)	$	715,181

Assets and Liabilities of Discontinued Operations

There were no assets or liabilities associated with discontinued operations as of June 30, 2026 or December 31, 2025.

NOTE 14 - SUBSEQUENT EVENTS

The Company's management has evaluated subsequent events after the consolidated balance sheet dated as of June 30, 2026 through the date of filing of this Quarterly Report. For a description of material pending legal proceedings that constitute a subsequent event, please see Note 10, Commitments and Contingencies.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .

The terms "we," "us," "our," "OSS" or the "Company" refer collectively to One Stop Systems, Inc. and its wholly-owned subsidiaries, unless otherwise stated. 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 Quarterly Report on Form 10-Q (this "Quarterly 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 Quarterly Report. In evaluating our business, you should carefully consider the information set forth under the heading "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 18, 2026. Readers are cautioned not to place undue reliance on these forward-looking statements.

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.

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.

Components of Results of Operations

Revenue

The Company's revenues are recognized in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is primarily generated from the sale of computer hardware and engineering services. The Company's performance obligations are satisfied over time as work is performed or at a point in time. Revenues on certain fixed-price contracts where we provide engineering services, prototypes, and completed products are recognized over time as the Company progresses toward fulfilling its performance obligations. 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 shared 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.

Legal Settlement

Legal settlement consists of the Company's obligations under the settlement agreement term sheet entered into with Disguise Systems Limited and Disguise Technologies Limited.

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 shared 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 shared 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 (expense), net consists of miscellaneous income and expense associated with activities outside of our core business, including interest income on our investment balances.

Provision for Income Taxes

Provision for income taxes consists of estimated income taxes due to the United States, 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.

(Loss) 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, as well as post-closing adjustments for net working capital, cash, and indebtedness.

Results of Operations

The following tables set forth our results of operations for the three and six month periods ended June 30, 2026 and 2025, presented in dollars and as a percentage of revenue, respectively.


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Revenue:
Product	$	8,405,014		$	5,375,709		$	15,469,262		$	10,172,145
Customer funded development		943,537			385,002			1,948,900			795,376
		9,348,551			5,760,711			17,418,162			10,967,521
Cost of revenue:
Product		4,994,499			3,127,961			8,630,081			5,615,780
Customer funded development		703,014			250,879			969,484			600,661
		5,697,513			3,378,840			9,599,565			6,216,441
Gross profit		3,651,038			2,381,871			7,818,597			4,751,080
Operating expenses:
General and administrative		2,453,864			1,907,425			4,898,609			3,815,809
Legal settlement		6,250,000			-			6,250,000			-
Marketing and selling		1,765,955			1,658,753			3,342,917			3,265,629
Research and development		853,100			1,362,070			1,670,139			2,567,212
Total operating expenses		11,322,919			4,928,248			16,161,665			9,648,650
Loss from operations		(7,671,881	)		(2,546,377	)		(8,343,068	)		(4,897,570	)
Other income (expense), net:
Interest income		314,690			50,296			610,828			123,362
Other income, net		37,532			21,930			49,993			20,663
Total other income, net		352,222			72,226			660,821			144,025
Loss before income taxes		(7,319,659	)		(2,474,151	)		(7,682,247	)		(4,753,545	)
Provision for income taxes		-			-			-			-
Loss from continuing operations		(7,319,659	)		(2,474,151	)		(7,682,247	)		(4,753,545	)
Income (loss) from discontinued operations, net of income taxes		-			453,421			(157,274	)		715,181
Net loss		(7,319,659	)		(2,020,730	)		(7,839,521	)		(4,038,364	)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Revenue:
Product		89.9	%		93.3	%		88.8	%		92.7	%
Customer funded development		10.1	%		6.7	%		11.2	%		7.3	%
		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue:
Product		53.4	%		54.3	%		49.5	%		51.2	%
Customer funded development		7.5	%		4.4	%		5.6	%		5.5	%
		60.9	%		58.7	%		55.1	%		56.7	%
Gross profit		39.1	%		41.3	%		44.9	%		43.3	%
Operating expenses:
General and administrative		26.2	%		33.1	%		28.1	%		34.8	%
Legal settlement		66.9	%		0.0	%		35.9	%		0.0	%
Marketing and selling		18.9	%		28.8	%		19.2	%		29.8	%
Research and development		9.1	%		23.6	%		9.6	%		23.4	%
Total operating expenses		121.1	%		85.5	%		92.8	%		88.0	%
Loss from operations		-82.1	%		-44.2	%		-47.9	%		-44.7	%
Other income (expense), net:
Interest income		3.4	%		0.9	%		3.5	%		1.1	%
Other income, net		0.4	%		0.4	%		0.3	%		0.2	%
Total other income, net		3.8	%		1.3	%		3.8	%		1.3	%
Loss before income taxes		-78.3	%		-42.9	%		-44.1	%		-43.3	%
Provision for income taxes		0.0	%		0.0	%		0.0	%		0.0	%
Loss from continuing operations		-78.3	%		-42.9	%		-44.1	%		-43.3	%
Income (loss) from discontinued operations, net of income taxes		0.0	%		7.9	%		-0.9	%		6.5	%
Net loss		-78.3	%		-35.1	%		-45.0	%		-36.8	%

Comparison of the Three and Six Month Periods Ended June 30, 2026 and 2025 from Continuing Operations:

Revenue

For the three month period ended June 30, 2026, our total revenue increased $3,587,840, or 62%, as compared to the same period in 2025. This increase was driven by revenue generated from new customers in 2026 and from higher revenue with existing customers as certain programs ramped from prototypes into initial production. Key drivers of the revenue increase included: 1) higher sales to a medical imaging OEM of liquid-cooled server products to support a breast cancer screening application, as the customer moved from initial prototypes in 2025 to production in 2026; 2) sales with a new customer for short-depth server products engineered for military applications onboard naval vessels and aircraft; 3) sales with a new customer for compute products to support autonomous construction and mining equipment; and 4) higher revenue from customer-funded development programs.

For the six month period ended June 30, 2026, our total revenue increased $6,450,641, or 59%, as compared to the same period in 2025. This increase was driven by revenue generated from new customers in 2026 and from higher production volume with certain existing customers. Key drivers of the revenue increase included: 1) higher sales to a defense prime customer of data storage products to support the P-8A Poseidon reconnaissance aircraft; 2) higher sales to a medical imaging OEM of liquid-cooled server products to support a breast cancer screening application, as the customer moved from initial prototypes in 2025 to production in 2026; 3) sales with a new customer for short-depth server products engineered for military applications onboard naval vessels and aircraft; and 4) higher revenue from customer-funded development programs.

Gross Profit and Gross Margin

Gross profit increased $1,269,167, or 53%, for the three months ended June 30, 2026 as compared to the same period in 2025. Gross margin percentage was 39.1% for the three months ended June 30, 2026, as compared to 41.3% for the same period in 2025. The decrease in gross margin percentage was primarily driven by product mix, including a higher volume of customer-funded development programs in the current year period. This was partially offset by more favorable manufacturing absorption due to higher production volume and higher usage of reserved inventory to fulfill customer orders.

Gross profit increased $3,067,517, or 65%, for the six months ended June 30, 2026, as compared to the same period in 2025. Gross margin percentage was 44.9% for the six months ended June 30, 2026, as compared to 43.3% for the same period in 2025. The increase in gross margin percentage was primarily driven by engineering efficiencies realized on certain of our customer-funded development programs and more favorable manufacturing absorption due to higher production volume.

Operating expenses

General and administrative expense

General and administrative expense increased $546,439, or 28.6%, for the three months ended June 30, 2026, as compared to the same period in 2025. This increase was primarily attributable to higher stock-based compensation expense due a higher grant date fair value of RSUs expensed in the current year period. The increase was also driven by higher fees associated with increased usage of professional services. General and administrative expense decreased as a percentage of revenue to 26.2% for the three months ended June 30, 2026, as compared to 33.1% for the same period in 2025.

General and administrative expense increased $1,082,800, or 28.4%, for the six months ended June 30, 2026, as compared to the same period in 2025. This increase was attributable to higher stock-based compensation expense due to a higher grant date fair value of RSUs expensed in the current year period, as well as higher fees associated with increased usage of professional services. General and administrative expense decreased as a percentage of revenue to 28.1% for the six months ended June 30, 2026, as compared to 34.8% for the same period in 2025.

Legal settlement

Legal settlement expense for the three and six month periods ended June 30, 2026 consists of the company's obligations under a settlement agreement term sheet entered into with Disguise Systems Limited and Disguise Technologies Limited. Pursuant to the Term Sheet, the Company will, without any admission of wrongdoing or liability, pay or cause to be paid to Disguise a net monetary payment of $6,250,000 US, in a single lump sum payment by the Company, due and owing to Disguise, within thirty (30) days of a fully executed definitive settlement agreement. The value of this settlement was accrued as an expense in the three month period ended June 30, 2026.

Marketing and selling expense

Marketing and selling expense increased $107,202, or 6.5%, for the three months ended June 30, 2026, as compared to the same period in 2025. This increase was primarily attributable to higher trade show and marketing expenses, as well as higher personnel expenses. Marketing and selling expense decreased as a percentage of revenue to 18.9% for the three months ended June 30, 2026, as compared to 28.8% for the same period in 2025.

Marketing and selling expense increased $77,288, or 2.4%, for the six months ended June 30, 2026, as compared to the same period in 2025. This increase was primarily attributable to higher trade show and marketing expenses, as well as higher personnel expenses, partially offset by lower expenses related to demonstration materials. Marketing and selling expense decreased as a percentage of revenue to 19.2% for the six months ended June 30, 2026, as compared to 29.8% for the same period in 2025.

Research and development expense

Research and development expense decreased $508,970, or 37.4%, for the three months ended June 30, 2026, as compared to the same period in 2025. This decrease was primarily attributable to the deployment of engineering labor onto customer-funded development programs in 2026 and the non-recurrence of certain targeted investments in internal new product development, as well as engineering headcount reductions. Research and development expense decreased as a percentage of revenue to 9.1% for the three months ended June 30, 2026, as compared to 23.6% for the same period in 2025.

Research and development expense decreased $897,073, or 34.9%, for the six months ended June 30, 2026, as compared to the same period in 2025. This decrease was primarily attributable to the deployment of engineering labor onto customer-funded development programs in 2026 and the non-recurrence of certain targeted investments in internal new product development, as well as engineering headcount reductions. Research and development expense decreased as a percentage of revenue to 9.6% for the six months ended June 30, 2026, as compared to 23.4% for the same period in 2025.

Interest income

Interest income increased $264,394 for the three months ended June 30, 2026, as compared to the same period in 2025. This increase is primarily attributable to higher investment and cash balances as a result of: 1) the sale of Bressner completed on December 30, 2025 and 2) the proceeds from the registered direct offering of common stock completed on October 1, 2025.

Interest income increased $487,466 for the six months ended June 30, 2026, as compared to the same period in 2025. This increase is primarily attributable to higher investment and cash balances as a result of: 1) the sale of Bressner completed on December 30, 2025 and 2) the proceeds from the registered direct offering of common stock completed on October 1, 2025.

Other income (expense), net

Other income (expense), for the three months ended June 30, 2026 resulted in net other income of $37,532, as compared to net other income of $21,930 in the same period in 2025, for an increase in net other income of $15,602. This increase was primarily attributable to changes in foreign currency gains and losses, as well as higher rebates.

Other income (expense), for the six months ended June 30, 2026 resulted in net other income of $49,993, as compared to net other income of $20,663 in the same period in 2025, for an increase in net other income of $29,330. This increase was primarily attributable to changes in foreign currency gains and losses, as well as higher rebates.

(Loss) income from discontinued operations, net of income taxes

There was no income or loss from discontinued operations, net of income taxes in the three months ended June 30, 2026. Income from discontinued operations, net of income taxes was $453,421 for the three months ended June 30, 2025. Income in the prior year period resulted from the operations of the Bressner business, which was divested on December 30, 2025.

Loss from discontinued operations, net of income taxes was $157,274 in the six months ended June 30, 2026, compared to income of $715,181 for the same period in 2025. The loss in the current year period was due to post-transaction adjustments to the gain on sale of the Bressner business for final net working capital balances. Income in the prior year period resulted from the operations of the Bressner business, which was divested on December 30, 2025.

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 December 2025, we also received cash from the sale of our Bressner subsidiary. As of June 30, 2026, we had total cash and cash equivalents of $17,279,139; short-term investments of $14,128,617; and total working capital of $38,082,133.

During the six month period ended June 30, 2026, we had a loss from operations of $8,343,068, with cash used in continuing operating activities of $629,138.

During the six month period ended June 30, 2025, we had a loss from operations of $4,897,570, with cash used in continuing operating activities of $2,773,914.

During the year ended December 31, 2025, we had a loss from operations related to continuing operations of $3,379,112, with cash used in continuing operating activities of $6,551,087.

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.

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 control 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 Line of Credit matures on September 11, 2026 and is subject to renewal thereafter. No balance was outstanding on either June 30, 2026 or December 31, 2025.

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.

The following table summarizes our cash flows for the six month periods ended June 30, 2026 and 2025:


	For the Six Months Ended June 30,
Cash flows:	2026			2025
Net cash used in continuing operating activities	$	(629,138	)	$	(2,773,914	)
Net cash (used in) provided by continuing investing activities	$	(14,300,749	)	$	2,128,105
Net cash (used in) provided by continuing financing activities	$	(1,008,676	)	$	697,303
Net cash (used in) provided by discontinued operations	$	(157,274	)	$	1,152,482

Cash from Continuing Operating Activities

During the six month period ended June 30, 2026, we used $629,138 in cash from continuing operating activities, compared to cash used in continuing operating activities of $2,773,914 for the same period in 2025.

Net cash used in continuing operating activities during the six month period ended June 30, 2026 was the result of three components: 1) net loss from continuing operations of $7,682,247; 2) net adjustments to net loss from

continuing operations for non-cash items of $1,831,691, of which the largest components were stock-based compensation expense of $1,516,341 and depreciation expense of $366,616; and 3) an decrease in net operating assets associated with continuing operations of $5,221,418. The decrease in net operating assets associated with continuing operations was primarily driven by an an accrual of $6,250,000 for a legal settlement, an increase in accounts payable due to the timing of payment to suppliers for inventory material, and a decrease in accounts receivable due to collections of billings from 2025. This was partially offset by increases in inventory to support deliveries planned in the second half of 2026.

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 six month period ended June 30, 2026, the Company used cash of $14,300,749 in continuing investing activities, as compared to $2,128,105 of cash provided by continuing investing activities during the same period in 2025. This change is primarily attributable to $14,175,356 of purchases of marketable securities during the six months ended June 30, 2026, as compared to $2,184,302 of sales of marketable securities in the same period in 2025.

Continuing Financing Activities

During the six month period ended June 30, 2026, the Company used $1,008,676 in cash from continuing financing activities, compared to $697,303 of cash generated from continuing financing activities for the same period in 2025. The change was due to higher payments of withholding taxes on stock-based awards, driven primarily by a higher share price on the vesting date for employee restricted stock units which vested in the period. Additionally, the Company received lower proceeds from the exercise of stock options in the six month period ended June 30, 2026 as compared to the same period in 2025, due to a lower number of options exercised in the period.

Known Trends or Uncertainties

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 generally affected 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 prolonged shutdown 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

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 9 to the accompanying consolidated 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. See further discussion of our critical accounting policies under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2025.

Interest rate risk

Our exposure to interest rate risk is primarily associated with borrowing on revolving lines of credit denominated in U.S. dollars. We are exposed to the impact of interest rate changes primarily through our borrowing activities for our variable rate borrowings. We did not have any outstanding balances on our line of credit as of June 30, 2026 or December 31, 2025.

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"), both of which provide basic deposit coverage with limits up to $250,000 per owner. As of June 30, 2026, the Company had $2,836,333 in cash in our accounts that exceeded the insurance limits. The Company has not experienced any losses in these accounts and believes that the financial institutions at which such amounts are held are stable; however, no assurances can be provided as to such.

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 previously conducted business outside the United States, primarily through Bressner, our former 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.

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 expenses, impairment of long-lived assets, financing costs, fair value adjustments from purchase accounting, stock-based compensation expense and expenses related to discontinued operations. Adjusted EBITDA also excludes the impact of the legal settlement agreement.

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, 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 three and six month periods ended June 30, 2026 and 2025 was as follows:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Loss from continuing operations	$	(7,319,659	)	$	(2,474,151	)	$	(7,682,247	)	$	(4,753,545	)
Legal settlement		6,250,000			-			6,250,000			-
Depreciation		182,465			195,657			366,616			390,437
Amortization of right-of-use assets net of change in operating lease liability		(4,946	)		(2,033	)		(10,153	)		(4,065	)
Stock-based compensation expense		861,213			483,350			1,516,341			1,061,755
Interest income		(314,690	)		(50,296	)		(610,828	)		(123,362	)
Adjusted EBITDA	$	(345,617	)	$	(1,847,473	)	$	(170,271	)	$	(3,428,780	)

Adjusted EBITDA associated with discontinued operations for the three and six month periods ended June 30, 2026 and 2025 was as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2026		2025		2026			2025
Income (loss) from discontinued operations, net of income taxes	$	-	$	453,421	$	(157,274	)	$	715,181
Post-closing adjustments to gain on sale		-		-		157,274			-
Depreciation		-		31,504		-			60,572
Amortization of right-of-use assets net of change in operating lease liability		-		53,909					53,909
Stock-based compensation expense		-		32,424		-			66,580
Interest expense		-		13,690		-			27,876
Interest income		-		-		-			555
Provision for income taxes		-		224,188		-			333,654
Adjusted EBITDA	$	-	$	809,137	$	-		$	1,258,327

Consolidated adjusted EBITDA from continuing and discontinued operations for the three and six month periods ended June 30, 2026 and 2025 was as follows:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Net loss	$	(7,319,659	)	$	(2,020,730	)	$	(7,839,521	)	$	(4,038,364	)
Legal settlement		6,250,000			-			6,250,000			-
Post-closing adjustments to gain on sale		-			-			157,274			-
Depreciation		182,465			227,161			366,616			451,009
Amortization of right-of-use assets net of change in operating lease liability		(4,946	)		51,876			(10,153	)		49,844
Stock-based compensation expense		861,213			515,774			1,516,341			1,128,335
Interest expense		-			13,690			-			27,876
Interest income		(314,690	)		(50,296	)		(610,828	)		(122,807	)
Provision for income taxes		-			224,188			-			333,654
Adjusted EBITDA	$	(345,617	)	$	(1,038,336	)	$	(170,271	)	$	(2,170,453	)

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, stock-based compensation, expenses related to discontinued operations, impairment of long-lived assets and non-recurring acquisition costs. Non-GAAP income (loss) also excludes the impact of the legal settlement agreement. 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 non-GAAP adjusted net income (loss) from continuing operations and basic and diluted earnings per share for the three and six month periods ended June 30, 2026 and 2025:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Loss from continuing operations	$	(7,319,659	)	$	(2,474,151	)	$	(7,682,247	)	$	(4,753,545	)
Legal settlement		6,250,000			-			6,250,000			-
Stock-based compensation expense		861,213			483,350			1,516,341			1,061,755
Non-GAAP net (loss) income from continuing operations	$	(208,446	)	$	(1,990,801	)	$	84,094		$	(3,691,790	)
Non-GAAP net (loss) income from continuing operations per share:
Basic	$	(0.01	)	$	(0.09	)	$	0.00		$	(0.17	)
Diluted	$	(0.01	)	$	(0.09	)	$	0.00		$	(0.17	)
Weighted average common shares outstanding:
Basic		24,841,334			21,687,808			24,761,553			21,534,925
Diluted		24,841,334			21,687,808			25,920,480			21,534,925

The following table reconciles income from discontinued operations to non-GAAP adjusted net income from discontinued operations and basic and diluted earnings per share for the three and six month periods ended June 30, 2026 and 2025:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2026		2025		2026			2025
Income (loss) from discontinued operations, net of income taxes	$	-	$	453,421	$	(157,274	)	$	715,181
Post-closing adjustments to gain on sale		-		-		157,274			-
Stock-based compensation expense		-		32,424		-			66,580
Non-GAAP net income from discontinued operations	$	-	$	485,845	$	-		$	781,761

Non-GAAP net income from discontinued operations per share:
Basic	$	-	$	0.02	$	-		$	0.04
Diluted	$	-	$	0.02	$	-		$	0.04
Weighted average common shares outstanding:
Basic		24,841,334		21,687,808		24,761,553			21,534,925
Diluted		25,999,867		21,951,955		25,920,480			22,022,039

The following table reconciles net income to non-GAAP adjusted net income and basic and diluted earnings per share for the three and six month periods ended June 30, 2026 and 2025:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2026			2025			2026			2025
Net loss	$	(7,319,659	)	$	(2,020,730	)	$	(7,839,521	)	$	(4,038,364	)
Legal settlement		6,250,000			-			6,250,000			-
Post-closing adjustments to gain on sale		-			-			157,274			-
Stock-based compensation expense		861,213			515,774			1,516,341			1,128,335
Non-GAAP net (loss) income	$	(208,446	)	$	(1,504,956	)	$	84,094		$	(2,910,029	)

Non-GAAP net (loss) income per share:
Basic	$	(0.01	)	$	(0.07	)	$	0.00		$	(0.14	)
Diluted	$	(0.01	)	$	(0.07	)	$	0.00		$	(0.14	)
Weighted average common shares outstanding:
Basic		24,841,334			21,687,808			24,761,553			21,534,925
Diluted		24,841,334			21,687,808			25,920,480			21,534,925

Free Cash Flow

Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by or used in operating activities, less capital expenditures for property and equipment. 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.

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 cash provided by or used in continuing operating activities to free cash flow for the six month periods ended June 30, 2026 and 2025:


	For the Six Months Ended June 30,
Cash flow:	2026			2025
Net cash used in continuing operating activities	$	(629,138	)	$	(2,773,914	)
Capital expenditures in continuing operations		(125,393	)		(56,197	)
Free cash flow from continuing operations	$	(754,531	)	$	(2,830,111	)

The following table reconciles cash provided by discontinued operating activities to free cash flow for the six month periods ended June 30, 2026 and 2025:


	For the Six Months Ended June 30,
Cash flow:	2026			2025
Net cash (used in) provided by discontinued operating activities		(157,274	)	$	1,269,614
Capital expenditures in discontinued operations		-			(117,132	)
Free cash flow from discontinued operations		(157,274	)		1,152,482

Item 3. Quantitative and Qualitati ve Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Limitation on Effectiveness of Controls

The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals. The inherent limitations in any control system include the realities that judgments related to decision-making can be faulty and that reduced effectiveness in controls can occur because of simple errors or mistakes. Due to the inherent limitations in a cost-effective control system, misstatements due to error may occur and may not be detected.

Evaluation of Disclosure Controls and Procedures

Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Disclosure controls and procedures are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on our management's evaluation (based upon 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2026, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings.

For a description of any material pending legal proceedings, please see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

Item 1A. Ri sk Factors.

Please carefully consider the information set forth in this Quarterly Report and the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, which could materially affect our business, financial condition, or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

There have not been any material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2025, as filed with the SEC.

Item 2. Unregistered Sales of Equit y Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Saf ety Disclosures.

Not Applicable.

Item 5. Other Information.

(a) None.

(b) None.

During the six months ended June 30, 2026, none of our directors or officers entered into, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," that were intended to satisfy the affirmative defense conditions of Rule 10b5-1, in each case, as defined in Item 408 of Regulation S-K.

Item 6. E xhibits.

Exhibit Index

Exhibit

Number

Exhibit Description

Incorporated by Reference Form Type

File No.

Exhibit

Filing Date

Filed

Herewith

3.1

Amended and Restated Certificate of Incorporation (currently in effect).

8-K

001-38371

3.1

March 15, 2025

10.1

Securities Purchase Agreement, dated September 29, 2025

8-K

001-38371

10.1

September 29, 2025

10.2

Lock-Up Agreement dated September 29, 2025

8-K

001-38371

10.2

September 29, 2025

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 INS

Inline XBRL Instance Document with Embedded Linkbase Documents

101 SCH

Inline XBRL Taxonomy Extension Schema Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments)

* Furnished herewith

** The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

SIGNA TURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	One Stop Systems, Inc.

Date: August 5, 2026	By:	/s/ Michael Knowles
		Michael Knowles
		President and Chief Executive Officer (Principal Executive Officer)

Date: August 5, 2026	By:	/s/ Daniel Gabel
		Daniel Gabel
		Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Knowles, certify that:

I have reviewed this Quarterly Report on Form 10-Q of One Stop Systems, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 5, 2026	By:	/s/ Michael Knowles
		Michael Knowles
		President and Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Gabel, certify that:

I have reviewed this Quarterly Report on Form 10-Q of One Stop Systems, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 5, 2026	By:	/s/ Daniel Gabel
		Daniel Gabel
		Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of One Stop Systems, Inc. (the "Company") for the period ended June 30, 2026, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Knowles, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


Date: August 5, 2026	By:	/s/ Michael Knowles
		Michael Knowles
		President and Chief Executive Officer (Principal Executive Officer)

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of One Stop Systems, Inc. (the "Company") for the period ended June 30, 2026, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Gabel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


Date: August 5, 2026	By:	/s/ Daniel Gabel
		Daniel Gabel
		Chief Financial Officer (Principal Accounting and Financial Officer)

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