ONE STOP SYSTEMS, INC.

Previous wording

Other income consists of miscellaneous income and income received for activities outside of our core business. Other expense includes expenses for activities outside of our core business.

Current wording

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.

Previous wording

The following tables set forth our results of operations for the three month periods ended March 31, 2026 and 2025, 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, 2026 and 2025, presented in dollars and as a percentage of revenue, respectively.

Previous wording

Comparison of the Three Month Periods Ended March 31, 2026 and 2025 from Continuing Operations:

Current wording

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

Previous wording

For the three months ended March 31, 2026, our total revenue increased $2,862,800, or 55%, as compared to the same period in 2025. This increase was driven by higher volume of production and development across multiple customers, including: 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; and 3) sales to a defense prime customer related to the design, development, and delivery of prototype compute systems for an enhanced vision system for combat vehicles.

Current wording

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.

Previous wording

Gross profit increased $1,798,349, or 75.9%, for the three months ended March 31, 2026 as compared to the same period in 2025. Gross margin percentage was 51.6% for the three months ended March 31, 2026, as compared to 45.5% for the same period in 2025. The improvement in gross margin was primarily driven by: 1) engineering efficiencies realized on certain of our customer-funded development programs; and 2) more favorable manufacturing absorption due to higher production volume.

Current wording

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.

Previous wording

General and administrative expense increased $536,362, or 28.1%, for the three months ended March 31, 2026, as compared to the same period in 2025. This increase was primarily attributable to higher employee incentive compensation expense and to higher fees paid for professional services. General and administrative expense decreased as a percentage of revenue to 30.3% for the three months ended March 31, 2026, as compared to 36.7% for the same period in 2025.

Current wording

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.

Previous wording

Marketing and selling expense decreased $29,914, or 1.9%, for the three months ended March 31, 2026, as compared to the same period in 2025. This decrease was primarily attributable to lower expenses related to demonstration materials. Marketing and selling expense decreased as a percentage of revenue to 19.5% for the three months ended March 31, 2026, as compared to 30.9% for the same period in 2025.

Current wording

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.

Previous wording

Research and development expense decreased $388,103, or 32.2%, for the three months ended March 31, 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 10.1% for the three months ended March 31, 2026, as compared to 23.1% for the same period in 2025.

Current wording

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.

Previous wording

Interest income increased $223,072 for the three months ended March 31, 2026, as compared to the same period in 2025. The increase is primarily attributable to higher investment and cash balances as a result of: 1) the sale of Bressner completed on December 30, 2025; 2) the proceeds from the registered direct offering of common stock completed on October 1, 2025; and 3) cash generated from operations in the three months ended March 31, 2026.

Current wording

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.

Previous wording

Other income (expense), for the three months ended March 31, 2026, resulted in net other income of $12,461, as compared to net other expense of $1,267 in the same period in 2025, for an increase in net other income of $13,728. This increase was primarily attributable to changes in foreign currency gains and losses, as well as higher rebates.

Current wording

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.

Previous wording

(Loss) income from discontinued operations, net of income taxes resulted in a loss of $157,274 in the three months ended March 31, 2026, compared to income of $261,759 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.

Current wording

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.

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. In December 2025, we also received cash from the sale of our Bressner subsidiary. As of March 31, 2026, we had total cash, cash equivalents, and restricted cash of $26,544,041; short-term investments of $10,033,654; and total working capital of $44,740,475.

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. 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.

Previous wording

The following table summarizes our cash flows for the three month periods ended March 31, 2026 and 2025:

Current wording

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

Previous wording

During the three month period ended March 31, 2026, we generated $4,041,908 in cash from continuing operating activities, compared to cash used in continuing operating activities of $1,505,184 for the same period in 2025.

Current wording

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.

Previous wording

Net cash provided by continuing operating activities during the three month period ended March 31, 2026 was the result of three components: 1) net loss from continuing operations of $362,588; 2) net adjustments to net loss from continuing operations for non-cash items of $1,022,815, of which the largest components were stock-based compensation expense of $655,128 and depreciation expense of $184,151; and 3) a decrease in net operating assets associated with continuing operations of $3,381,681.

Current wording

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.

Previous wording

During the three month period ended March 31, 2026, the Company used cash of $10,090,641 in continuing investing activities, as compared to $595,419 of cash provided by continuing investing activities during the same period in 2025. This change is primarily attributable to $10,075,640 of purchases of marketable securities during the three months ended March 31, 2026, as compared to $601,860 of sales of marketable securities in the same period in 2025.

Current wording

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.

Previous wording

During the three month period ended March 31, 2026, the Company used $782,202 in cash from continuing financing activities, compared to $129,656 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 three month period ended March 31, 2026 as compared to the same period in 2025, due to a lower number of options exercised in the period.

Current wording

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.

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, 2026, the Company had $5,018,562 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.

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, 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.

Previous wording

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.

Current wording

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.

Previous wording

Adjusted EBITDA associated with our continuing operations for the three month periods ended March 31, 2026 and 2025 was as follows:

Current wording

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

Previous wording

Adjusted EBITDA associated with discontinued operations for the three month periods ended March 31, 2026 and 2025 was as follows:

Current wording

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

Previous wording

Consolidated adjusted EBITDA from continuing and discontinued operations for the three month periods ended March 31, 2026 and 2025 was as follows:

Current wording

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

Previous wording

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. Adjusted EPS expresses adjusted income (loss) on a per share basis using weighted average diluted shares outstanding.

Current wording

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.

Previous wording

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:

Current wording

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:

Previous wording

The following table reconciles income from discontinued operations to non-GAAP adjusted net income from discontinued operations and basic and diluted earnings per share:

Current wording

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:

Previous wording

The following table reconciles net income to non-GAAP adjusted net income and basic and diluted earnings per share:

Current wording

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:

Previous wording

The following table reconciles cash provided by or used in continuing operating activities to free cash flow:

Current wording

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:

Previous wording

The following table reconciles cash provided by discontinued operating activities to free cash flow:

Current wording

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: