ONE STOP SYSTEMS, INC.

Previous wording

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, system input/output ("I/O") expansion systems, as well as edge optimized industrial and panel PCs, tablets, and handheld compute devices. 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.

Current wording

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, system input/output expansion systems, as well as edge optimized industrial and panel PCs, tablets, and handheld compute devices. 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.

Previous wording

The following tables set forth our results of operations for the three month period ended March 31, 2025 and 2024, presented in dollars and as a percentage of revenue, respectively.

Current wording

The following tables set forth our results of operations for the three and six month periods ended June 30, 2025 and 2024, presented in dollars and as a percentage of revenue, respectively.

Previous wording

Comparison of the Three Month Periods Ended March 31, 2025 and 2024:

Current wording

Comparison of the Three and Six Month Periods Ended June 30, 2025 and 2024:

Previous wording

For the three months ended March 31, 2025, our total revenue decreased $392,698, or 3.1%, as compared to the same period in 2024. OSS saw a decrease in revenue of $327,062, or 5.9%, as compared to the same period in 2024. The primary contributor to this decrease was lower volume of shipments to a commercial aerospace customer, partially offset by higher volume of shipments to a defense customer. Bressner experienced a decrease of $65,637, or 0.9%, as compared to the same period in 2024.

Current wording

For the six months ended June 30, 2025, our total revenue increased $514,556, or 2%, as compared to the same period in 2024. The OSS segment saw a decrease in revenue of $88,385, or 0.8%. This decrease was primarily driven by lower volume of revenue to a commercial aerospace customer, partially offset by higher volume of revenue to a defense customer and a medical devices customer. Bressner experienced an increase in revenue of $602,941, or 4.1%, as compared to the same period in 2024, due to higher book-and-ship revenue in the period, as well as the impact of foreign exchange rates.

Previous wording

Cost of revenue decreased by $666,397, or 7.5%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS saw an decrease in cost of revenue of $803,495, or 22.1%, as compared to the same period in 2024. This decrease in cost of revenue was mainly due to a more profitable mix of products shipped in the quarter. Bressner’s cost of revenue increased $137,098, or 2.6%, as compared to the same period in 2024, due to a less profitable mix of products shipped in the quarter.

Current wording

Cost of revenue decreased by $171,760, or 1.7%, for the three months ended June 30, 2025, as compared to the same period in 2024. The OSS segment saw a decrease in cost of revenue of $767,128, or 18.5%, as compared to the same period in 2024. This decrease in cost of revenue was due to the non-recurrence of a $428,270 inventory charge recognized in the prior year quarter, as well as a more profitable mix of products shipped in the quarter. Bressner’s cost of revenue increased $595,368, or 10.4%, as compared to the same period in 2024, due primarily to higher revenue volume and the impact of foreign exchange rates.

Previous wording

The overall gross margin percentage was 32.6% for the three months ended March 31, 2025. OSS’ gross margin percentage for the three months ended March 31, 2025, was 45.5%, an increase of 11.3% as compared to the prior year period in 2024 of 34.2%. The increase was primarily due to higher volume of certain higher margin data storage units and componentry shipped in the quarter. OSS gross margins also benefited from a $211,830 reduction in OSS segment inventory reserves, due primarily to the usage of certain previously-reserved inventory items to satisfy a new customer order received in the quarter. Bressner contributed gross margin at a rate of 23.1%, as compared to the same period in 2024 of 25.7%, a decrease of 2.6 percentage points, due to product mix.

Current wording

The overall gross margin percentage was 31.3% for the three months ended June 30, 2025, an increase of 6.1 percentage points as compared to the prior year period in 2024 of 25.2%. OSS segment gross margin percentage for the three months ended June 30, 2025, was 41.3%, an increase of 16.4 percentage points as compared to the prior year period in 2024 of 24.9%. This increase was due to the non-recurrence of an inventory charge recognized in the prior year quarter, as well as a more profitable mix of products shipped in the quarter. Bressner contributed gross margin at a rate of 24.3%, as compared to the same period in 2024 of 25.5%, a decrease of 1.2 percentage points, due primarily to product mix.

Previous wording

General and administrative expense increased $272,052, or 13%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS experienced an increase of $211,994, or 12.5%. The increase in general and administrative expense is primarily attributable to increased stock compensation expense due to a higher grant date fair value of employee restricted stock units recognized as expense in the period. Bressner had an increase of $60,058, or 15.1%, as a result of higher salary and personnel costs. Overall, total general and administrative expense increased as a percentage of revenue to 19.3% for the three months ended March 31, 2025, as compared to 16.6% during the same period in 2024.

Current wording

General and administrative expense increased $250,856, or 5.6%, for the six months ended June 30, 2025, as compared to the same period in 2025. OSS segment general and administrative expense increased $110,130, or 3%, due primarily to increased stock compensation expense due to a higher grant date fair value of employee restricted stock units recognized as expense in the period, partially offset by a reduction in general corporate expenses. Bressner segment general and administrative expense increased $140,726, or 17.7%, primarily due to higher salary and personnel costs and higher lease cost due to overlapping lease periods during the transition to a new facility, as well as the impact of foreign exchange rates. Overall, total general and administrative expense increased as a percentage of revenue to 18% for the six months ended June 30, 2025, as compared to 17.4% during the same period in 2024.

Previous wording

Marketing and selling expense increased $298,077, or 15.5%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS had an increase of $280,552, or 21.2%, due to an increase in personnel costs resulting from additions in headcount made during the course of 2024. Bressner had an increase of $17,525, or 3%. Overall, total marketing and selling expense increased as a percentage of revenue to 18.1% during the three months ended March 31, 2025, as compared to 15.2% during the same period in 2024.

Current wording

Marketing and selling expense increased $70,002, or 3.1%, for the three months ended June 30, 2025, as compared to the same period in 2024. OSS had an increase of $32,167, or 2%, due to an increase in personnel costs. Bressner had an increase of $37,835, or 6%, due primarily to higher personnel costs and the impact of foreign exchange rates. Overall, total marketing and selling expense decreased as a percentage of revenue to 16.5% during the three months ended June 30, 2025, as compared to 17.1% during the same period in 2024.

Previous wording

Research and development expense increased $386,416, or 39.8%, for the three months ended March 31, 2025, as compared to the same period in 2024. OSS saw an increase of $380,586, or 46.2%. The increase was driven by higher engineering labor to support new product development. Bressner experienced an increase of $5,830, or 4%, due to additional personnel and overhead costs. Overall, total research and development expense as a percentage of revenue increased to 11.1% during the three months ended March 31, 2025, as compared to 7.7% during the same period in 2024.

Current wording

Research and development expense increased $599,298, or 64.7%, for the three months ended June 30, 2025, as compared to the same period in 2024. OSS segment research and development expense increased $591,528, or 76.8%, due to higher engineering costs to support targeted investments in new product development. Bressner segment research and development expense increased $7,770, or 5%. Overall, total research and development expense as a percentage of revenue increased to 10.8% for the three months ended June 30, 2025, as compared to 7% during the same period in 2024.

Previous wording

Interest income decreased $69,214 for the three months ended March 31, 2025, as compared to the same period in 2024. The decrease is primarily attributable to lower investment balances due to the company's usage of cash for operations and debt repayment.

Current wording

Interest income decreased $68,323 for the three months ended June 30, 2025, as compared to the same period in 2024. The decrease is primarily attributable to lower investment balances due to the company's usage of cash for operations and debt repayment.

Previous wording

Interest expense decreased $21,156 for the three months ended March 31, 2025, as compared to the same period in 2024 due to declining borrowing balances as a result of the repayment of debt.

Current wording

Interest expense decreased $5,413 for the three months ended June 30, 2025, as compared to the same period in 2024. The decrease is attributable to declining borrowing balances due to the repayment of debt, as well as lower interest rates on outstanding notes payable.

Previous wording

Other income (expense), for the three months ended March 31, 2025, resulted in net other expense of $21,633 as compared to net other income of $7,278, in the same period in 2024, for a net decrease in other income of $28,911 attributable to changes in foreign currency gain and losses.

Current wording

Other income (expense), for the three months ended June 30, 2025, resulted in net other expense of $9,195, as compared to net other income of $21,831 in the same period in 2024, for a net decrease in other income of $31,026, attributable primarily to changes in foreign currency gain and losses.

Previous wording

We have recorded an income tax provision of $109,466 and $191,269 for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate for the three months ended March 31, 2025 and 2024 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 foreign and state tax liabilities for the year. The tax provision is predominately attributable to profit on operations in Germany.

Current wording

We have recorded an income tax provision of $224,188 and $211,027 for the three months ended June 30, 2025 and 2024, respectively, and $333,654 and $402,296 for the six months ended June 30, 2025 and 2024, respectively. The effective tax rate for the six months ended June 30, 2025 and 2024 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 foreign and state tax liabilities for the year. The tax provision is predominately attributable to profit on operations in Germany.

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 March 31, 2025, we had total cash and cash equivalents of $6,498,468, with short-term investments of $2,620,169, and total net working capital of $23,084,187. Cash and cash equivalents held by Bressner totaled US$3,230,526 on March 31, 2025. Bressner’s debt covenants limit 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 June 30, 2025, we had total cash and cash equivalents of $8,458,920, with short-term investments of $1,030,416, and total net working capital of $23,171,142. Cash and cash equivalents held by Bressner totaled $4,354,279 on June 30, 2025. Bressner’s debt covenants limit the use of those funds by its parent company.

Previous wording

During the three month period ended March 31, 2025, we had a loss from operations of $1,944,860, with net cash used in operating activities of $1,135,596. During the year ended December 31, 2024, we had a loss from operations of $13,356,813, with net cash used in operating activities of $108,098.

Current wording

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

Previous wording

As of March 31, 2025, there is an elevated level of uncertainty regarding the economic outlook. We intend to continue to monitor the effects of trade and tariff policy, inflation, global supply chain disruptions, and economic conditions, and, if appropriate, we may alter our plans to address such concerns as they may arise.

Current wording

As of June 30, 2025, there remains an elevated level of uncertainty regarding the economic outlook. We intend to continue to monitor the effects of trade and tariff policy, inflation, global supply chain disruptions, and economic conditions, and, if appropriate, we may alter our plans to address such concerns as they may arise.

Previous wording

The following table summarizes our cash flows for the three month periods ended March 31, 2025 and 2024:

Current wording

The following table summarizes our cash flows for the six month periods ended June 30, 2025 and 2024:

Previous wording

During the three month period ended March 31, 2025, we used $1,135,596 in cash from operating activities, compared to cash generated from operating activities of $2,043,378 in the same period in 2024.

Current wording

During the six month period ended June 30, 2025, we used $1,504,300 in cash from operating activities, compared to cash generated from operating activities of $1,226,742 in the same period in 2024.

Previous wording

Net cash used in operating activities during the three month period ended March 31, 2025 was the result of three components: (i) net loss $2,017,634 in the current period; (ii) net favorable adjustments in the current period for non-cash items of $768,670, which were comprised of $914,970 of favorable non-cash items, offset by $146,300 of negative non-cash items that did not affect operating cash flow; and (iii) cash provided by changes in working capital items of $113,368. Cash provided by net changes in working capital was $113,368 for the three months ended March 31, 2025, compared to cash provided by net changes in working capital of $2,693,831 in the same period of 2024. The change in cash provided by working capital from the prior year period was primarily due to the timing of inventory material receipts to support customer orders expected to be fulfilled within the year, the timing of payments to suppliers for material received in the prior year, and the timing of cash disbursements related to accrued expenses for a contract loss and for supplier material received on non-cancellable purchase orders. In the three month period ended March 31, 2025, the cash provided by changes in working capital was primarily due to a reduction in accounts receivable due to receipt of customer payments for products shipped in Q4 2024 and an increase in accounts payable driven by receipt of materials in the quarter, partially offset by cash usage from changes in inventories, prepaid expenses and other current assets, accrued expenses and other liabilities, and operating lease liabilities.

Current wording

Cash provided by net changes in operating assets and liabilities for the six month period ended June 30, 2025 was $1,439,587, compared to $2,647,568 for the same period in 2024. The change in cash provided by net changes in working capital from the prior year period was primarily due to cash disbursements in 2025 related to accrued expenses for a contract loss and for accrued losses related to supplier material received on non-cancellable purchase orders.

Previous wording

During the three month period ended March 31, 2025, the Company generated cash of $584,495 from investing activities, as compared to $1,644,196 provided by investing activities during the prior year period in 2024, a net reduction of $1,059,701. This change is attributable to a decrease in the number of short-term investments redeemed in the current period as compared to the prior period, partially offset by lower capital expenditures.

Current wording

During the six month period ended June 30, 2025, the Company generated cash of $2,010,973 from investing activities, as compared to $2,541,086 provided by investing activities during the prior year period in 2024, a net reduction of $530,113. This change is attributable to a decrease in the number of short-term investments redeemed in the current year period as compared to the prior year period, partially offset by lower capital expenditures.

Previous wording

During the three month period ended March 31, 2025, the Company generated $129,656 in cash from the exercise of options, net of payments of payroll taxes on the net issuance of employee stock. During the same period in 2024, the Company used $927,324 in cash for debt payments on Bressner borrowings and payment of tax on the net exercise of vested RSUs, while generating $129,656 from the exercise of options, net of associated payroll tax payments, for a net cash provided by financing activities of $799,974.

Current wording

During the six month period ended June 30, 2025, the Company generated $697,303 in cash from the exercise of options, net of payments of payroll taxes on the net issuance of employee stock. During the same period in 2024, cash used in financing activities was $1,014,840, which was driven by a usage of $884,892 for the repayment of debt and a usage of $349,296 for payment of tax on the net exercise of vested RSUs and employee stock options, partially offset by $219,348 of cash generated from the exercise of options.

Previous wording

We are experiencing delays in funding for customer projects, delays in delivery schedules based upon customer requirements and an extended sales cycle. Additionally, certain of our customers are experiencing downturns or uncertainty in their own business operations and revenue. During the three month period ended March 31, 2025, the Company experienced delays and postponements of committed purchases and orders due to certain customers’ funding or program delays. Such delays could negatively impact the Company’s results of operations for the year ending December 31, 2025. If such delays in orders continue in the future, our operating results will be further impacted, and our revenues may decline in future periods.

Current wording

We are experiencing delays in funding for customer projects, delays in delivery schedules based upon customer requirements, and an extended sales cycle. Such delays could negatively impact the Company’s results of operations for the year ending December 31, 2025. If such delays in orders continue in the future, our operating results will be further impacted, and our revenues may decline in future periods.

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”), both of which provide basic deposit coverage with limits up to $250,000 per owner. As of March 31, 2025, the Company had $2,767,942 of 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. 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 €2,638,560 (US$2,848,326) 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”), both of which provide basic deposit coverage with limits up to $250,000 per owner. As of June 30, 2025, the Company had $2,782,190 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. 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 €3,328,868 (US$3,918,290) with banks in excess of the insurance limits.