ONE STOP SYSTEMS, INC.

Previous wording

The Company designs, manufactures, and markets specialized high-performance compute, high speed switch fabrics and storage hardware and software, which are designed to target edge AI Transportable deployments. Edge computing is a form of computing that is done on site, near a particular data source or the user, rather than in the cloud, minimizing the need for data to be processed in a remote datacenter. This growing trend increases computing performance and security, as the data does not have to travel to a distant datacenter location. 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 modules and systems that consist of computers, switch fabrics and storage products that incorporate the latest state-of-the art components with embedded proprietary software. Such modules and systems allow us to offer high-end solutions to target markets to be integrated into, platforms, vehicles and applications.

Current wording

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.

Previous wording

The global increase in load on the 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.

Current wording

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.

Previous wording

In November 2023, our board of directors unanimously adopted resolutions to temporarily increase the size of the board from seven members to nine members, and to subsequently decrease the size of the board back down to seven members, effective as of the Company’s 2024 annual meeting of stockholders (the “2024 Annual Meeting”). The board also appointed Joseph Manko and Mitchell Herbets as directors of the Company, to fill the vacancies created by the board expansions implemented in November 2023. Mr. Manko serves as a managing member and senior principal at Horton Capital Management, LLC, a significant shareholder of the Company, and has significant public company board and corporate governance experience. Mr. Herbets has extensive strategic and technical experience as an executive serving the technology and defense industries, as well as public and private company board experience. These combined efforts to reprofile the board in 2023 have advanced the Company's strategic efforts to grow our business in the rugged edge computing market and in supporting our overall focus on governance, capital markets and organizational growth and execution.

Current wording

In November 2023, our board of directors unanimously adopted resolutions to temporarily increase the size of the board from seven members to nine members and to subsequently decrease the size of the board back down to seven members, effective as-of the Company’s 2024 annual meeting of stockholders (the “2024 Annual Meeting”). The reduction of the size of the board from nine to seven members went into effect upon closing of the polls for voting on the election of directors at the 2024 Annual Meeting, in May 2024.

Previous wording

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, 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. We expect cost of revenue to increase in absolute dollars with an improvement in margin, as product revenue increases.

Current wording

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. We expect cost of revenue to increase in absolute dollars with an improvement in margin, as product revenue increases.

Previous wording

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 allocated overhead. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing the business.

Current wording

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 allocated overhead. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing the business.

Previous wording

Impairment of Goodwill - Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment at least annually and when we deem that a triggering event has occurred that has impaired the value of goodwill a write-down in value is recorded.

Current wording

Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment at least annually; when we deem that a triggering event has occurred that has impaired the value of goodwill, a write-down in value is recorded.

Previous wording

Marketing and Selling –Marketing and Selling expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel, and entertainment expenses as well as allocated overhead. 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.

Current wording

Marketing and Selling expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel, and entertainment expenses as well as allocated overhead. 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.

Previous wording

For the year December 31, 2023, the Company received a government provided Employee Retention Credit ("ERC") for the retention of employees during the COVID-19 pandemic during the years of 2020 and 2021, in the amount of $2,004,382 less commission of $287,655, respectively.

Current wording

For the year ended December 31, 2023, the Company received a government provided Employee Retention Credit ("ERC") for the retention of employees during the COVID-19 pandemic during the years of 2020 and 2021, in the amount of $2,004,382 less commission of $287,655.

Previous wording

Research and Development -Research and development expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering, and contractor support costs, as well as allocated overhead. We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products.

Current wording

Research and development expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering and contractor support costs, as well as allocated overhead. We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products.

Previous wording

During year, the Company took a write-down of goodwill of $5,630,788 as a result of the overall financial performance of OSS as compared to plan, the transition of and focus on our product strategy on AI Transportables and the defense industry deferment of certain orders. There was no such impairment charge in 2022.

Current wording

During the year 2023, the Company took a write-down of goodwill of $5,630,788 as a result of the overall financial performance of OSS as compared to plan, the transition of our product strategy to focus on AI applications at the edge, and the deferment of certain orders in our military and defense end markets. There was no such impairment charge in 2024.

Previous wording

Marketing and selling expense decreased $154,790, or 2.3%, for the year ended December 31, 2023, as compared to the same period in 2022. OSS had a decrease of $399,092, or 7.4%, which was mainly attributable to a reduction in employee costs resulting from our organizational restructuring. Bressner had an increase of $244,302, or 17.2%, primarily resulting from the addition of new marketing personnel and sales collateral material. Overall, total marketing and selling expense increased as a percentage of revenue to 10.9% during the year ended December 31, 2023, as compared to 9.4% during the same period in 2022.

Current wording

Marketing and selling expense increased $1,354,466, or 20.4%, for the year ended December 31, 2024, as compared to the same period in 2023. OSS had an increase of $630,129, or 12.6%, which was primarily due to increased costs for personnel and for tradeshow participation. Bressner had an increase of $724,337, or 43.5%, primarily resulting from the addition of new marketing personnel and sales collateral material. Overall, total marketing and selling expense increased as a percentage of revenue to 14.6% during the year ended December 31, 2024, as compared to 10.9% during the same period in 2023.

Previous wording

Research and development expense decreased $412,550, or 8.7%, for the year ended December 31, 2023, as compared to the same period in 2022. OSS saw a decrease of $495,531, or 11.5%. The decrease was largely driven by engineering resources being deployed on chargeable projects, which costs are reclassified as a component of costs of sales. Bressner experienced an increase of $82,981, or 19.1%. This increase was attributable to increased testing of product to support the increase in revenue. Overall, total research and development expense as a percentage of revenue increased as a percentage of revenue to 7.1% during the year ended December 31, 2023, as compared to 6.5% during the same period in 2022.

Current wording

Research and development expense decreased $233,794, or 5.4%, for the year ended December 31, 2024, as compared to the same period in 2023. OSS saw a decrease of $347,383, or 9.1%. The decrease was driven by the timing of certain new product introduction activities and the deployment of engineering resources onto customer funded development efforts, which costs as classified as a component of cost of sales. Bressner experienced an increase of $113,588, or 21.9% due to increased personnel and overhead costs. Overall, total research and development expense as a percentage of revenue increased to 7.5% during the year ended December 31, 2024, as compared to 7.1% during the same period in 2023.

Previous wording

Interest expense decreased $44,617 for the year ended December 31, 2023, as compared to the same period in 2022, as a result of the paydown of approximately $1,300,000 in outstanding debt.

Current wording

Interest expense decreased $43,658 for the year ended December 31, 2024, as compared to the same period in 2023, as a result of the paydown of outstanding debt.

Previous wording

Employee Retention Credit -For the year ended December 31, 2023, the Company received a government provided Employee Retention Credit ("ERC") for the retention of employees during the COVID-19 pandemic during the years of 2020 and 2021, in the amount of $2,004,382 less commission of $287,655.

Current wording

For the year December 31, 2023, the Company received a government provided Employee Retention Credit ("ERC") for the retention of employees during the COVID-19 pandemic during the years of 2020 and 2021, in the amount of $2,004,382 less commission of $287,656, respectively.

Previous wording

Other income (expense), for the year ended December 31, 2023, resulted in net other expense of $9,806, as compared to net other income of $550,854, in the same period in 2022, for a net decrease of $560,660. The most significant contributions to the year-over-year change include $500,320 reversal of a settlement accrual for previous contract disputes and the sale of a URL for Magma.com in 2022 for $125,000 and translation gain, net.

Current wording

Other income (expense), for the year ended December 31, 2024, resulted in net other income of $45,353, as compared to net other expense of $9,807 in the same period in 2023, for a net change of $55,160. This change was primarily due to a net foreign currency translation gain of $17,276 in the year ended December 31, 2024, as compared to a net foreign current translation loss of $40,933 in the comparable period of 2023.

Previous wording

We have recorded an income tax provision of $927,128 and $4,423,597, respectively, for the years ended December 31, 2023 and 2022. The effective tax rate for the years ended December 31, 2023 and 2022 differed from the statutory rate mainly due to permanent non-deductible goodwill amortization for Bressner, change in valuation allowance, deductions related to expenses of OSS stock options, research and development credits, and changes in reserves for uncertain tax positions, as well as projecting federal, foreign and state tax liabilities for the year. Additionally, during 2023, the Company recorded an impairment of goodwill attributable to OSS that impacted the effective tax rate.

Current wording

We have recorded an income tax provision of $726,502 and $927,128, respectively, for the years ended December 31, 2024 and 2023. The effective tax rate for the years ended December 31, 2024 and 2023 differed from the statutory rate mainly due to permanent non-deductible goodwill amortization for Bressner, change in valuation allowance, deductions related to expenses of OSS stock options, research and development credits, and changes in reserves for uncertain tax positions, as well as projecting federal, foreign and state tax liabilities for the year. Additionally, during 2023, the Company recorded an impairment of goodwill attributable to OSS that impacted the effective tax rate.

Previous wording

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022. The mandatory capitalization requirement increases our deferred tax assets and the related valuation allowance and may have an impact on payment of tax liabilities. The effective tax rate for the year ended December 31, 2023, is (16.0%), as compared to 201.4% in the prior year 2022. The change in the effective tax rate is primarily related to the effect of the valuation allowance for deferred tax assets initially recorded in 2022.

Current wording

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2023. The mandatory capitalization requirement increases our deferred tax assets and the related valuation allowance and may have an impact on payment of tax liabilities. The effective tax rate for the year ended December 31, 2024, is (5.6%), as compared to (16.0%) in the prior year 2023. The change in the effective tax rate is primarily related to the effect of the valuation allowance for deferred tax assets initially recorded in 2024.

Previous wording

Historically, our primary sources of liquidity have been provided by public and private offerings of our securities and revenues generated from our business operations. As of December 31, 2023, we had total cash and cash equivalents of $4,048,948, with short-term investments of $7,771,820, and total working capital of $35,571,708. Cash and cash equivalents held by Bressner totaled US$1,505,980 on December 31, 2023. Bressner’s debt covenants do not permit the use of those funds by its parent company.

Current wording

Historically, our primary sources of liquidity have been provided by public and private offerings of our securities and revenues generated from our business operations. As of December 31, 2024, we had total cash and cash equivalents of $6,794,093, with short-term investments of $3,217,065, and total working capital of $23,528,638. Cash and cash equivalents held by Bressner totaled $2,751,092 on December 31, 2024. Bressner’s debt covenants limit the use of those funds by its parent company.

Previous wording

During the year ended December 31, 2023, we had loss from operations of $7,923,153, with cash used in operating activities of $620,784. During the year ended December 31, 2022, we had income from operations of $1,568,328, with cash used in operating activities of $7,806,025. The year over year difference is primarily a result of the $1,985,046 increase in general and administrative expense and changes in working capital for accounts receivable and inventories.

Current wording

During the year ended December 31, 2024, we had loss from operations of $13,356,813, with cash used in operating activities of $108,098.

Previous wording

As discussed elsewhere in this Annual Report, during the year 2023, economists continued to suggest that an elevated risk of economic downturn in the U.S. and Germany will continue for the foreseeable future, which could result in further 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 the economic conditions, and, if appropriate, we may alter our plans to address such concerns as they may arise.

Current wording

As discussed elsewhere in this Annual Report, risks to the U.S. and German economies could result in further economic uncertainty and volatility in the capital markets in the near term and could negatively affect our operations.

Previous wording

Management’s plans are to focus on acquiring new customer orders to replace lost revenue attributable to our previous media customer, to continue our efforts towards responding to the changing economic landscape, including significant inflation, both domestically and internationally, foreign currency exchange rates, a potential recession in the U.S. and/or Germany, the high Federal Reserve and European Central Bank interest rates, supply chain constraints and international conflicts, by continuing to control hiring and operating costs, conserve cash, and continual focus on improving margin.

Current wording

Management’s plans are to focus on acquiring new customer orders to replace lost revenue attributable to our previous media customer, 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.Our results of operations for the years ended December 31, 2024 and 2023, partially benefited from such actions, particularly those resulting from a reduction in force in April 2023. Management is also committed to conserving cash and securing debt and/or equity financing, as required, for liquidity to meet our near-term cash requirements.

Previous wording

As a result of management’s implementation of our cost reduction plans, our potential sources of liquidity and management’s most recent cash flow forecasts, 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 cost reduction 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.

Current wording

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.

Previous wording

During the year ended December 31, 2023, we used $439,679 in cash for operating activities, a difference of $7,366,346 when compared to the cash used in operating activities of $7,806,025 during the same period in 2022.

Current wording

During the year ended December 31, 2024, we used $108,098 in cash from operating activities, a reduction of $331,581 when compared to the cash used by operating activities of $439,679 during the same period in 2023.

Previous wording

With the Company's shifted focus to the development and sale of AI Transportables, we have significantly increased our efforts to penetrate the military and defense sectors in particular, which typically have protracted sales cycles, significant contracting requirements, and multi-year deliverables. With the recent hiring of a new president and chief executive officer and new vice president of sales, each of whom has extensive experience in contracting in the defense industry, we have further increased our emphasis and focus on the pursuit of revenue opportunities with major defense contractors and the military. We have recently reviewed our existing pipeline and have made adjustments to reflect the procurement habits and timing of the military and defense sector. As discussed elsewhere in this Annual Report, we have also added relevant defense market experience to our board of directors through the appointment of Mr. Knowles, Vice Admiral Dumont and Mitch Herbets as directors.

Current wording

With the Company's shifted focus to the development and sale of edge computing, we have significantly increased our efforts to penetrate the military and defense sectors in particular, which typically have protracted sales cycles, significant contracting requirements, and multi-year deliverables. With the hiring of a new president and chief executive officer and new vice president of sales, each of whom has extensive experience in contracting in the defense industry, we have further increased our emphasis and focus on the pursuit of revenue opportunities with major defense contractors and the military. We have reviewed our existing pipeline and have made adjustments to reflect the procurement habits and timing of the military and defense sector. As discussed elsewhere in this Annual Report, we have also added relevant defense market experience to our board of directors through the appointment of Mr. Knowles, Vice Admiral Dumont, and Mitch Herbets as directors.

Previous wording

During 2023, the Company implemented certain internal organizational changes to align our US-based operations with, and to further support and accelerate our strategy to focus on, the AI Transportables industry and our military business. In furtherance of this strategy and our goals, on June 5, 2023, David Raun, then the Company’s president and chief executive officer, stepped down from such roles and Michael Knowles was appointed to serve in such roles. Mr. Raun currently continues to serve as a member of the Company’s board of directors. Additionally, on July 17, 2023, we hired a new vice president of sales with significant relevant experience. Furthermore, we added two new members with extensive defense experience to our board of directors during the year. We believe that these changes will allow us to further penetrate the defense sector and enhance our business strategies with respect to this target market.

Current wording

During 2023, the Company implemented certain internal organizational changes to align our US-based operations with, and to further support and accelerate our strategy to focus on, the edge computing industry and our military business. In furtherance of this strategy and our goals, on June 5, 2023, David Raun, then the Company’s president and chief executive officer, stepped down from such roles and Michael Knowles was appointed to serve in such roles. Mr. Raun continued to serve as a member of the Company’s board of directors until May 2024. Additionally, on July 17, 2023, we hired a new vice president of sales with significant relevant experience. Furthermore, we added two new members with extensive defense experience to our board of directors during the year. We believe that these changes will allow us to further penetrate the defense sector and enhance our business strategies with respect to this target market.

Previous wording

The world continues to be affected by the lingering effects of the COVID-19 pandemic, the ongoing conflicts between Russia and Ukraine and Israel and Hamas, and economic uncertainty, amongst other things. Inflation has risen both domestically and internationally, Federal Reserve and European Central Bank interest rates have increased significantly over the last year, though economists are now suggesting that we should expect to see a soft-landing in the U.S. in the foreseeable future. Germany was in a recession for most of 2023, largely due to persistent high inflation and falling household spending. Volatility and recessionary conditions in Europe, and in particular in Germany, are expected to remain a concern for the near term. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations.

Current wording

The world continues to be affected by the ongoing conflicts between Russia and Ukraine and Israel and Hamas, and economic uncertainty, amongst other things. Germany was in a recession for most of 2024, largely due to persistent high inflation and falling household spending. Volatility and recessionary conditions in Europe, and in particular in Germany, are expected to remain a concern for the near term. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations.

Previous wording

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. We periodically re-evaluate and adjust our critical accounting policies as circumstances change.

Current wording

Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. We periodically re-evaluate and adjust our critical accounting policies as circumstances change.

Previous wording

Customer agreements include one vendor managed inventory program. The Company recognizes revenue under this arrangement when all of the following criteria are met: (i) the goods have been identified separately as belonging to the customer; (ii) the goods are ready for physical shipment to the customer; (iii) the Company does not have the ability to direct the goods to another customer; and (iv) the arrangement was requested by the customer and that the customer has sufficiently explained a substantial business purpose for the arrangement. Management also considers whether the customer's custodial risks are insured and whether modifications to the Company's normal billing and credit terms were required.

Current wording

Customer agreements include one vendor managed inventory program, which was discontinued in 2023. The Company recognizes revenue under this arrangement when all of the following criteria are met: (i) the goods have been identified separately as belonging to the customer; (ii) the goods are ready for physical shipment to the customer; (iii) the Company does not have the ability to direct the goods to another customer; and (iv) the arrangement was requested by the customer and that the customer has sufficiently explained a substantial business purpose for the arrangement. Management also considers whether the customer's custodial risks are insured and whether modifications to the Company's normal billing and credit terms were required.

Previous wording

In June 2016, the FASB issued ASU 2016-13, which sets out the principles for the recognition of measurement of credit losses on financial instruments. This standard provides guidance on the impairment of financial instruments that is based on expected losses rather than probable or incurred losses. Under this new guidance, the Company will recognize, as an allowance, our estimate of expected credit losses based upon historical and current information, and reasonable and supportable forecasts of future events and circumstances, as well as estimates of prepayments. Under this model, we are required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset.

Current wording

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, which sets out the principles for the recognition of measurement of credit losses on financial instruments. This standard provides guidance on the impairment of financial instruments that is based on expected losses rather than probable or incurred losses. Under this new guidance, the Company will recognize, as an allowance, our estimate of expected credit losses based upon historical and current information, and reasonable and supportable forecasts of future events and circumstances, as well as estimates of prepayments. Under this model, we are required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset.

Previous wording

Our exposure to interest rate risk is primarily associated with borrowing on revolving lines of credit denominated in both U.S. dollars and Euros. We are exposed to the impact of interest rate changes primarily through our borrowing activities for our variable rate borrowings. Both the Federal Reserve and European Central Bank interest rates have increased significantly recently.

Current wording

Our exposure to interest rate risk is primarily associated with borrowing on revolving lines of credit denominated in both U.S. dollars and Euros. We are exposed to the impact of interest rate changes primarily through our borrowing activities for our variable rate borrowings.

Previous wording

At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”), of which both provide basic deposit coverage with limits up to $250,000 per owner. As of December 31, 2023, the Company had $250,000 of cash in our accounts that exceeded the insurance limits. The Company has not experienced any such losses in these accounts, and believes that the financial institutions at which such amounts are held are stable; however, no assurances can be provided. In Germany, the deposit insurance is €100,000 per bank, per customer. Bressner has funds on deposit in both Euro and U.S. dollar denominations of €919,664 (US$1,015,214) with banks in excess of the insurance limits.

Current wording

At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”), of which both provide basic deposit coverage with limits up to $250,000 per owner. As of December 31, 2024, the Company had $2,815,399 of cash in our accounts that exceeded the insurance limits. The Company has not experienced any such losses in these accounts, and believes that the financial institutions at which such amounts are held are stable; however, no assurances can be provided. In Germany, the deposit insurance is €100,000 per bank, per customer. Bressner has funds on deposit in both Euro and U.S. dollar denominations of €2,215,188 ($2,292,831) with banks in excess of the insurance limits.