OSS 10-Q
One Stop Systems, Inc. (OSS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices including Zip Code)
(
(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 |
The |
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.
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).
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.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of June 30, 2026, the registrant had
Table of Contents
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Item 1. |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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:
2
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.
3
PART I – FINANCIAL INFORMATION
Item 1. Financial 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.
4
ONE STOP SYSTEMS, INC. (OSS)
CONSOLIDATED BALANCE SHEETS
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Unaudited |
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Audited |
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June 30, |
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December 31, |
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2026 |
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2025 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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- |
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Short-term investments (Note 3) |
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- |
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Accounts receivable, net (Note 4) |
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Inventories, net (Note 5) |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Deposits and other |
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Intangible assets, net (Note 7) |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities (Note 6) |
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Current portion of operating lease liabilities (Note 10) |
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Total current liabilities |
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Operating lease liabilities, net of current portion (Note 10) |
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Total liabilities |
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- |
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- |
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Stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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- |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
5
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
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For the Three Months Ended June 30, |
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For the Six Months Ended June 30, |
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2026 |
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2025 |
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2026 |
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2025 |
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Revenue: |
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Product |
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$ |
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$ |
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$ |
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$ |
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Customer funded development |
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Cost of revenue: |
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Product |
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Customer funded development |
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Gross profit |
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Operating expenses: |
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General and administrative |
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Legal settlement |
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- |
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- |
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Marketing and selling |
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Research and development |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other income (expense), net: |
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Interest income |
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Other income, net |
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Total other income, net |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Provision for income taxes |
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- |
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- |
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- |
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- |
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Loss from continuing operations |
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( |
) |
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( |
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( |
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( |
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Income (loss) from discontinued operations, net of income taxes |
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( |
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Net loss |
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( |
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( |
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( |
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( |
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Per share basis: |
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Basic: |
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Continuing operations |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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Discontinued operations |
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$ |
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$ |
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$ |
( |
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$ |
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Basic loss per share |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted: |
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Continuing operations |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Discontinued operations |
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$ |
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$ |
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$ |
( |
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$ |
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Diluted loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to unaudited consolidated financial statements.
6
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
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For the Three Months Ended June 30, |
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For the Six Months Ended June 30, |
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2026 |
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2025 |
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2026 |
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2025 |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Other comprehensive (loss) income: |
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Net unrealized loss on short-term investments |
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( |
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( |
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( |
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( |
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Currency translation adjustment |
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Total other comprehensive (loss) income |
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( |
) |
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( |
) |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
) |
See accompanying notes to unaudited consolidated financial statements.
7
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three and Six Month Periods Ended June 30, 2026
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Common Stock |
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Accumulated |
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Accumulated Deficit |
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Total |
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Shares |
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Amount |
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Additional |
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Comprehensive |
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Stockholders' |
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Balance, January 1, 2026 |
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$ |
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$ |
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$ |
- |
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$ |
( |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Exercise of stock options, RSUs and warrants |
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- |
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- |
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Taxes paid on net issuance of employee stock options |
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- |
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- |
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( |
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- |
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- |
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( |
) |
Net unrealized loss on short-term investments |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balance, March 31, 2026 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Exercise of stock options and RSUs |
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- |
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- |
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Taxes paid on net issuance of employee stock options |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
Net unrealized loss on short-term investments |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balance, June 30, 2026 |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
8
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three and Six Month Periods Ended June 30, 2025
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Common Stock |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Additional |
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Comprehensive |
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Deficit |
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Stockholders' |
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Balance, January 1, 2025 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Exercise of stock options, RSUs and warrants |
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- |
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- |
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Taxes paid on net issuance of employee stock options |
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- |
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- |
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( |
) |
|
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- |
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- |
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( |
) |
Currency translation adjustment |
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- |
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- |
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- |
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- |
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Net unrealized gain on short-term investments |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balance, March 31, 2025 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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- |
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- |
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- |
|
|
|
- |
|
|
|
|
||
Exercise of stock options, RSUs and warrants |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Taxes paid on net issuance of employee stock options |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net unrealized loss on short-term investments |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance, June 30, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
See accompanying notes to unaudited consolidated financial statements.
9
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Cash flows from continuing operating activities: |
|
|
|
|
|
|
||
Loss from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile loss from continuing operations to net cash provided |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Provision for (recovery from) credit losses |
|
|
|
|
|
( |
) |
|
Amortization of right-of-use assets |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Change in warranty reserves |
|
|
|
|
|
|
||
Change in inventory reserves |
|
|
( |
) |
|
|
( |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Inventories |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
|
|
Security deposits |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
|
|
|
|
( |
) |
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in continuing operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Cash flows from continuing investing activities: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
(Purchase) sale of marketable securities |
|
|
( |
) |
|
|
|
|
Net cash (used in) provided by continuing investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Cash flows from continuing financing activities: |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Payment of withholding taxes on stock-based awards |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by continuing financing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Net change in cash, cash equivalents, and restricted cash from continuing operations |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Net cash flow from discontinued operating activities |
|
|
( |
) |
|
|
|
|
Net cash flow from discontinued investing activities |
|
|
|
|
|
( |
) |
|
Net cash flow from discontinued financing activities |
|
|
|
|
|
|
||
Net change in cash, cash equivalents, and restricted cash from discontinued operations |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
||
Net change in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period: |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
See accompanying notes to unaudited consolidated financial statements.
10
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 |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of cash flow information (discontinued operations): |
|
|
|
|
|
|
||
Cash paid during the period for interest |
|
$ |
- |
|
|
$ |
|
|
Cash paid during the period for income taxes |
|
$ |
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
See accompanying notes to unaudited consolidated financial statements.
11
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
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.
12
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 |
|
|
Gross |
|
|
Gross |
|
|
Accrued |
|
|
Estimated |
|
|||||
Level 1: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash alternatives |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
( |
) |
|
$ |
|
|
|
|
|||||
U.S. government securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
13
The Company did
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
NOTE 4 -ACCOUNTS RECEIVABLE
Accounts receivable, net consisted of the following as-of the dates indicated:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Unbilled receivables |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Less: allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
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, |
|
$ |
|
|
$ |
|
||
Provision charged to expense |
|
|
|
|
|
|
||
Receivables written-off |
|
|
|
|
|
( |
) |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
NOTE 5 – INVENTORIES
Inventories, net consisted of the following as-of the dates indicated:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Sub-assemblies |
|
|
|
|
|
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: allowances for obsolete and slow-moving inventories |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
14
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 |
|
$ |
|
|
$ |
- |
|
|
Accrued compensation and related liabilities |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Customer deposits |
|
|
|
|
|
|
||
Warranty reserve |
|
|
|
|
|
|
||
Trade and other taxes |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
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 |
|
$ |
|
|
$ |
|
||
Deferral of revenue during the period |
|
|
|
|
|
|
||
Recognition of unearned revenue from beginning of period |
|
|
( |
) |
|
|
( |
) |
Recognition of unearned revenue from additions |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
June 30, |
|
|
June 30, |
|
||
Customer deposits |
|
2026 |
|
|
2025 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Additions during the period |
|
|
|
|
|
|
||
Deposits recognized from beginning of period |
|
|
( |
) |
|
|
|
|
Deposits recognized from additions |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
As of June 30, 2026, the Company had approximately $
NOTE 7 - LONG LIVED INTANGIBLE ASSETS
15
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 $
The balances outstanding for long-lived intangible assets as of June 30, 2026 and December 31, 2025 were $
NOTE 8 – DEBT
The Company did
Bank Lines of Credit
In April 2022, the Company obtained a domestic revolving line of credit of $
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
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
As of June 30, 2026,
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
Both of the Inducement Grants shall vest over a four-year period as follows:
16
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 |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding on January 1, 2026 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
Forfeited / Canceled |
|
|
( |
) |
|
$ |
|
|
|
- |
|
|
|
( |
) |
|
Exercised |
|
|
( |
) |
|
$ |
|
|
|
- |
|
|
$ |
( |
) |
|
Outstanding on June 30, 2026 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of June 30, 2026 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of June 30, 2026, there was $
There were
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Grant date fair value of options vested |
|
$ |
|
|
$ |
|
||
Intrinsic value of options exercised |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
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 to
17
The Company’s RSU activity for the six months ended June 30, 2026, was as follows:
|
|
Restricted Stock Units |
|
|||||
|
|
Number of |
|
|
Weighted |
|
||
Unvested on January 1, 2026 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Canceled |
|
|
( |
) |
|
$ |
|
|
Unvested on June 30, 2026 |
|
|
|
|
$ |
|
||
As of June 30, 2026, there was $
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Production |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketing and selling |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Stock-based compensation expense associated with discontinued operations for the three month periods ended June 30, 2026 and 2025 was $
Warrants
The Company did
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 $
18
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
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 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total lease expense |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average remaining lease term - operating leases |
|
|
|
|
|
|
|
|
|
|
|
||||||
Weighted-average discount rate - operating leases |
|
|
|
|
|
|
|
|
|
% |
|
|
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
19
The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2026:
Year |
Operating Leases |
|
|
Remaining 2026 |
$ |
|
|
2027 |
|
|
|
2028 |
|
|
|
2029 |
|
|
|
2030 |
|
|
|
Total lease payments |
|
|
|
Less: Amount representing interest |
|
( |
) |
Present value of lease payments |
|
|
|
Less: current portion of operating lease obligation |
|
( |
) |
Operating lease obligation, net of current portion |
$ |
|
|
|
|
|
|
Purchase Commitments
Customer Concentration
During the three month periods ended June 30, 2026 and 2025, the Company had
As of June 30, 2026 and December 31, 2025, the Company had
During the three month periods ended June 30, 2026 and 2025, the Company had approximately
20
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 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(Loss) income from discontinued operations |
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Weighted average common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Discontinued operations |
|
$ |
- |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Basic loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Discontinued operations |
|
$ |
- |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Diluted loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
NOTE 12 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company's continuing operations comprise a 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'shas been identified as the CODM. The CODM reviews financial information for purposes of assessing performance and making decisions regarding resource allocation.
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.
21
Revenue from customers with non-U.S. billing addresses represented approximately
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
Pursuant to the SPA, the Company sold OSS GmbH for a base purchase price of $
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:
22
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other expense, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Post-closing adjustments to gain on sale |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Income (loss) from discontinued operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Tax provision for discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from discontinued operations, net of tax |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets and Liabilities of Discontinued Operations
There were
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.
23
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.
24
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.
25
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
26
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
27
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.
28
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.
29
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.
30
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
31
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.
32
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.
33
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.
34
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
35
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.
36
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
37
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:
38
|
|
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 |
|
|
|
|
|
|
|
|
||
39
Item 3. Quantitative and Qualitative 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.
40
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. Risk 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 Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
(a) None.
(b) None.
(c) Rule 10b5-1 Trading Plans
During the six months ended June 30, 2026, none of our directors or officers
Item 6. Exhibits.
41
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 |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
42
** 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.
43
SIGNATURES
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) |
44