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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2025


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

For the transition period from __________ to ________________

Commission File Number: 001-38371

One Stop Systems, Inc.

(Exact Name of Registrant as Specified in its Charter)

     Delaware

     33-0885351

     (State or other jurisdiction of
incorporation or organization)

     (I.R.S. Employer
Identification No.)

2235 Enterprise Street #110

Escondido, California 92029

(Address of principal executive offices including Zip Code

(760) 745-9883

(Registrant’s telephone number, including area code)

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

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


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

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

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

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

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

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

As of October 31, 2025, the registrant had 24,515,491 shares of common stock (par value $0.0001) outstanding.

Table of Contents

PART_1_FINANCIAL_INFORMATION


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5
	Consolidated Balance Sheets	6
	Unaudited Consolidated Statements of Operations	7
	Unaudited Consolidated Statements of Comprehensive Loss	8
	Unaudited Consolidated Statements of Stockholders’ Equity	9
	Unaudited Consolidated Statements of Cash Flows	11
	Notes to Unaudited Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
	Signatures	45

FORWARD-LOOKING STATEMENTS

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

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

•

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

•

our ability to remediate issues with volatile or recessionary conditions in the United States or abroad which could adversely affect our business and/or our access to capital markets in a material manner;

•

adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations;

•

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

•

changes in current legislation, regulations and economic conditions regarding federal governmental tariffs, the implementation of federal government budget cuts, a prolonged government shutdown and the potential that any of the foregoing disrupts our operations, and delays contract awards, funding under new or existing contracts and overall uncertainty regarding defense budgets and government spending;

•

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

•

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

•

our ability to achieve and sustain profitability;

•

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

•

estimates regarding market size;

•

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

•

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

•

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

•

our ability to retain and attract key personnel

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

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

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

PART I – 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 financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such 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 financial statements for the year ended December 31, 2024, included in our Annual Report on Form 10-K, filed with the SEC on March 19, 2025.

The results of operations for the three month and nine month periods ended September 30, 2025, are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2025.

ONE STOP SYSTEMS, INC. (OSS)

CONSOLIDATED BALANCE SHEETS


	Unaudited			Audited
	September 30,			December 31,
	2025			2024
ASSETS
Current assets
Cash and cash equivalents	$	6,508,020		$	6,794,093
Short-term investments (Note 3)		-			3,217,065
Accounts receivable, net (Note 4)		12,024,553			8,177,371
Inventories, net (Note 5)		15,326,919			13,176,156
Prepaid expenses and other current assets		2,138,861			836,364
Total current assets		35,998,353			32,201,048
Property and equipment, net		1,519,045			1,669,026
Operating lease right-of use assets		4,012,747			1,536,094
Deposits and other		38,093			38,093
Goodwill		1,489,722			1,489,722
Total Assets	$	43,057,960		$	36,933,982

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	6,033,999		$	2,068,017
Accrued expenses and other liabilities (Note 6)		4,145,292			4,806,675
Current portion of operating lease obligation (Note 9)		513,093			285,937
Borrowing on bank lines of credit (Note 7)		1,000,000			-
Current portion of notes payable (Note 7)		1,173,116			1,035,050
Total current liabilities		12,865,500			8,195,679
Deferred tax liability, net		39,781			52,574
Operating lease obligation, net of current portion (Note 9)		3,812,931			1,513,684
Total liabilities		16,718,212			9,761,937
Commitments and contingencies (Note 9)
Stockholders’ equity
Common stock, $0.0001 par value; 50,000,000 shares authorized; 22,008,583 and 21,148,810 shares issued and outstanding		2,201			2,115
Additional paid-in capital		51,168,618			49,082,737
Accumulated other comprehensive income		996,867			140,254
Accumulated deficit		(25,827,938	)		(22,053,061	)
Total stockholders’ equity		26,339,748			27,172,045
Total Liabilities and Stockholders' Equity	$	43,057,960		$	36,933,982

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2025			2024			2025			2024
Revenue:
Product	$	18,460,660		$	12,682,241		$	44,032,955		$	36,722,411
Customer funded development		295,539			1,018,856			1,090,916			2,831,802
		18,756,199			13,701,097			45,123,871			39,554,213
Cost of revenue:
Product		11,967,908			14,601,408			29,325,649			32,123,488
Customer funded development		95,919			817,427			696,580			2,091,907
		12,063,827			15,418,835			30,022,229			34,215,395
Gross profit (loss)		6,692,372			(1,717,738	)		15,101,642			5,338,818
Operating expenses:
General and administrative		2,344,776			2,057,092			7,097,346			6,558,807
Marketing and selling		2,328,973			2,008,824			6,872,293			6,184,065
Research and development		1,448,521			950,373			4,330,713			2,846,852
Total operating expenses		6,122,270			5,016,289			18,300,352			15,589,724
Income (loss) from operations		570,102			(6,734,027	)		(3,198,710	)		(10,250,906	)
Other (expense) income, net:
Interest income		36,433			116,596			159,240			376,940
Interest expense		(15,065	)		(16,465	)		(42,941	)		(70,910	)
Other (expense) income, net		(61,102	)		(14,402	)		(91,930	)		14,707
Total other (expense) income, net		(39,734	)		85,729			24,369			320,737
Income (loss) before income taxes		530,368			(6,648,298	)		(3,174,341	)		(9,930,169	)
Provision for income taxes		266,881			167,086			600,535			569,382
Net income (loss)	$	263,487		$	(6,815,384	)	$	(3,774,876	)	$	(10,499,551	)

Net income (loss) per share:
Basic	$	0.01		$	(0.32	)	$	(0.17	)	$	(0.50	)
Diluted	$	0.01		$	(0.32	)	$	(0.17	)	$	(0.50	)

Weighted average common shares outstanding:
Basic		21,952,963			21,049,270			21,675,802			20,897,324
Diluted		22,840,761			21,049,270			21,675,802			20,897,324

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2025			2024			2025			2024
Net income (loss)	$	263,487		$	(6,815,384	)	$	(3,774,876	)	$	(10,499,551	)
Other comprehensive income (loss):
Net unrealized (loss) gain on short-term investments		(2,226	)		7,855			(4,572	)		445
Currency translation adjustment		(386,112	)		482,779			861,185			301,955
Total other comprehensive (loss) income		(388,338	)		490,634			856,613			302,400
Comprehensive loss	$	(124,851	)	$	(6,324,750	)	$	(2,918,263	)	$	(10,197,151	)

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Nine Month Periods Ended September 30, 2025


	Common Stock							Accumulated Other			Accumulated			Total
	Shares		Amount		Additional Paid-in-Capital			Comprehensive income			(Deficit) Earnings			Stockholders' Equity
Balance, January 1, 2025		21,148,810	$	2,115	$	49,082,737		$	140,254		$	(22,053,061	)	$	27,172,045
Stock-based compensation		-		-		1,128,335			-			-			1,128,335
Exercise of stock options, RSUs and warrants		771,969		77		1,000,703			-			-			1,000,780
Taxes paid on net issuance of employee stock options		-		-		(303,477	)		-			-			(303,477	)
Currency translation adjustment		-		-		-			1,247,298			-			1,247,298
Net unrealized loss on short-term investments		-		-		-			(2,346	)		-			(2,346	)
Net loss		-		-		-			-			(4,038,364	)		(4,038,364	)
Balance, June 30, 2025		21,920,779		2,192		50,908,298			1,385,205			(26,091,425	)		26,204,271
Stock-based compensation		-		-		444,621			-			-			444,621
Exercise of stock options, RSUs and warrants		87,804		9		22,199			-			-			22,208
Taxes paid on net issuance of employee stock options		-		-		(206,500	)		-			-			(206,500	)
Currency translation adjustment		-		-		-			(386,112	)		-			(386,112	)
Net unrealized loss on short-term investments		-		-		-			(2,226	)		-			(2,226	)
Net income		-		-		-			-			263,487			263,487
Balance, September 30, 2025		22,008,583	$	2,201	$	51,168,618		$	996,867		$	(25,827,938	)	$	26,339,748

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three and Nine Month Periods Ended September 30, 2024


	Common Stock							Accumulated Other			Accumulated			Total
	Shares		Amount		Additional Paid-in-Capital			Comprehensive income			(Deficit) Earnings			Stockholders' Equity
Balance, January 1, 2024		20,661,341	$	2,066	$	47,323,673		$	675,310		$	(8,418,727	)	$	39,582,322
Stock-based compensation		-		-		965,938			-			-			965,938
Exercise of stock options, RSUs and warrants		336,042		33		219,315			-			-			219,348
Taxes paid on net issuance of employee stock options		-		-		(349,296	)		-			-			(349,296	)
Currency translation adjustment		-		-		-			(180,824	)		-			(180,824	)
Net unrealized loss on short-term investments		-		-		-			(7,410	)		-			(7,410	)
Net loss		-		-		-			-			(3,684,167	)		(3,684,167	)
Balance, June 30, 2024		20,997,383		2,099		48,159,630			487,076			(12,102,894	)		36,545,911
Stock-based compensation		-		-		458,011			-			-			458,011
Exercise of stock options, RSUs and warrants		117,151		12		18,388			-			-			18,400
Taxes paid on net issuance of employee stock options		-		-		(73,268	)		-			-			(73,268	)
Currency translation adjustment		-		-		-			482,779			-			482,779
Net unrealized gain on short-term investments		-		-		-			7,855			-			7,855
Net loss		-		-		-			-			(6,815,384	)		(6,815,384	)
Balance, September 30, 2024		21,114,534	$	2,111	$	48,562,761		$	977,710		$	(18,918,278	)	$	30,624,303

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Nine Months Ended September 30,
	2025			2024
Cash flows from operating activities:
Net loss	$	(3,774,876	)	$	(10,499,551	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Deferred income taxes		(534,594	)		(551,567	)
Loss on disposal of property and equipment		-			354
Provision for bad debt		48,375			40,000
Warranty reserves		30,000			(45,000	)
Depreciation		676,777			815,420
Amortization of right-of-use assets		154,509			312,396
Inventory reserves		(553,702	)		7,351,278
Stock-based compensation expense		1,572,956			1,423,949
Changes in operating assets and liabilities:
Accounts receivable		(3,334,841	)		(1,003,287	)
Inventories		(543,527	)		(888,972	)
Prepaid expenses and other current assets		(697,773	)		(348,364	)
Accounts payable		3,689,669			2,823,183
Accrued expenses and other liabilities		(1,551,215	)		2,993,729
Operating lease liabilities		(107,373	)		(280,023	)
Net cash (used in) provided by operating activities		(4,925,615	)		2,143,545

Cash flows from investing activities:
Redemption of short-term investment grade securities		3,212,492			4,592,052
Purchases of property and equipment, including capitalization of labor costs for test equipment and ERP		(467,879	)		(298,789	)
Net cash provided by investing activities		2,744,613			4,293,263

Cash flows from financing activities:
Proceeds from exercise of stock options and warrants		1,022,988			237,748
Payment of payroll taxes on net issuance of employee stock options		(509,977	)		(422,564	)
Proceeds (repayments) from bank lines of credit		1,000,000			(959,373	)
Net cash provided by (used in) financing activities		1,513,011			(1,144,189	)

Net change in cash and cash equivalents		(667,991	)		5,292,619
Effect of exchange rates on cash		381,918			61,041
Cash and cash equivalents, beginning of period		6,794,093			4,048,948
Cash and cash equivalents, end of period	$	6,508,020		$	9,402,608

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED


	For the Nine Months Ended September 30,
	2025		2024
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	39,023	$	69,376
Cash paid during the period for income taxes	$	458,833	$	353,876

Supplemental disclosure of non-cash flow transactions:
Reclassification of inventories to property and equipment	$	18,406	$	12,106
Capitalization of right-of-use assets and operating lease liabilities	$	2,495,918	$	-

See accompanying notes to unaudited consolidated financial statements.

ONE STOP SYSTEMS, INC. (OSS)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Month Periods Ended September 30, 2025 and 2024

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, 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 used for autonomous vehicles, medical, industrial, and military applications, with special focus on platforms that move, such as planes, 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”). In July 2016, the Company acquired Mission Technologies Group, Inc. (“Magma”) and its operations that complemented OSS' manufacture of custom high-performance compute servers.

On August 31, 2018, the Company acquired Concept Development Inc. (“CDI”) located in Irvine, California. CDI specialized in the design and manufacture of custom high-performance computing systems for airborne in-flight entertainment, flight safety equipment, and networking systems. CDI’s business was fully integrated into the core operations of the Company as of June 1, 2020.

On October 31, 2018, OSS GmbH acquired 100% of the outstanding equity of Bressner Technology GmbH, a limited liability company registered under the laws of Germany and located near Munich, Germany (“Bressner”). Bressner designs and manufactures standard and customized servers, panel PCs, and PCIe accelerator systems. It also operates as a systems integrator with standard and custom all in one hardware systems and components. In addition, Bressner serves as a channel to market for OSS ruggedized datacenter level compute and storage products to the European and Middle Eastern markets.

In 2023 and 2024, the Company increased its focus on the development and sale of edge computing solutions and increased efforts to penetrate the military and defense sectors in particular. A re-profiling of the board of directors and the executive team enabled further emphasis and focus on the pursuit of revenue opportunities with major defense contractors and the military.

Impacts resulting in part from tariffs and the threat of tariffs, ongoing military conflicts in Europe and Middle East, Federal Reserve and European Central Bank interest rate 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 economic uncertainty and capital markets volatility in the near term that have and could continue to negatively affect our operations. Weakness in the European and more specifically the German economy negatively affected our Bressner segment in 2024. Economic conditions have improved in 2025, but uncertainty, volatility, and the risk of recessionary conditions in Europe and North America remain. As of September 30, 2025, the U.S. Federal Government had entered a shutdown following expiration of the continuing resolution. Prolonged shutdowns could delay awards or funding for U.S. defense programs that involve our products or customers.

Tariffs and the threat of tariffs sanctioned by the United States have contributed to uncertainty and supply chain disruptions that could impact our operations. The Company's OSS segment conducts final assembly and test of products at our facility in California. However, we source components and subassemblies from both within and outside of the United States. While we attempt to pass on the cost of tariffs to our customers, our ability to do so is dependent upon many factors, including the predictability of tariff rates and market conditions for the Company's

products. Management is closely monitoring and managing impacts and potential impacts to our business from ongoing trade policy developments.

In recent years, we have experienced increased supplier pricing, long lead-times, unavailability or limited supplies of certain products, protracted delivery dates, changes in minimum order quantities to secure products, and/or shortages of certain parts and supplies that are necessary components for the products and services we offer to our customers. While these supply chain pressures have eased in recent quarters, recent geopolitical and trade policy developments and uncertainty have increased the risk of continued or increased impacts to our supply chain in the near-term.

These global issues and concerns regarding general economic uncertainty or recession may impact our business as well as some of our customers, who may experience downturns or uncertainty in their own business operations and revenue. As a result, these customers may need to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek to renegotiate their contracts.

These global issues and events may also have the effect of heightening many risks associated with our customers and supply chain. We may take further actions that alter our operations from time to time, or which we determine are in our best interests. In addition, we may decide to postpone or abandon planned investments in our business in response to changes in our business, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business.

As a result of these global issues, it has been difficult to accurately forecast our revenues or financial results, especially given the near and long-term impacts of the economic and geopolitical issues, inflation, the impact of tariffs, and uncertainty regarding the economic outlook. In addition, while the potential impact and duration of these issues on the economy and our business may be difficult to assess or predict, these world events have resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional capital, which could negatively affect our liquidity in the future. Our results of operations could be materially below our forecasts as well, which could adversely affect our results of operations, disappoint analysts and investors, or cause our stock price to decline.

Management’s plans with respect to the above are to continue their efforts towards responding to the changing economic landscape and to continue to control costs, conserve cash, and strengthen margins through the introduction of new products and solutions focusing on AI compute capabilities for military and industrial applications.

Basis of Presentation

The accompanying 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”).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of OSS, which include the acquisition of CDI, and its wholly owned subsidiary, OSS GmbH, which also includes the acquisition of Bressner. Intercompany balances and transactions have been eliminated in consolidation.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

There have been no changes to our accounting policies disclosed in our audited consolidated financial statements and the related notes for the period ended September 30, 2025.

Use of Estimates

The preparation of condensed 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 condensed 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, goodwill, 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.

Recent Accounting Pronouncements

On December 14, 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosure (Topic 740) which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. The Company must also further disaggregate income taxes paid. The objective of these disclosure requirements is for an entity, particularly an entity operating in multiple jurisdictions, to disclose sufficient information to enable users of financial statements to understand the nature and magnitude of factors contributing to the difference between the effective tax rate and the statutory tax rate. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This guidance applies to annual periods beginning after December 15, 2024. The Company does not expect adoption to have any material impact to our results of operations or consolidated financial statements.

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 footnotes 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. The Company 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 September 30, 2025, were as follows:

         Description

         Amortized
Cost

         Gross
Unrealized
Gains

         Gross
Unrealized
Losses

         Accrued
Interest

         Estimated
Fair Value

         Level 1: (1)

Cash alternatives

-

-

-

-

-

Certificates of deposit

-

-

-

-

-

-

-

-

-

-

(1)

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

The Company’s short-term investments by significant investment category as of December 31, 2024, were as follows:


Description	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Accrued Interest		Estimated Fair Value
Level 1: (1)
Cash alternatives	$	814,717	$	-	$	-	$	-	$	814,717
Certificates of deposit		2,349,000		4,572		-		48,776		2,402,348
	$	3,163,717	$	4,572	$	-	$	48,776	$	3,217,065

(1)

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

Cash alternatives represent cash balances in savings accounts and U.S. Treasury Bills that are temporarily on-hand that are immediately available for investments in accordance with the Company’s investment policy.

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

NOTE 4 -ACCOUNTS RECEIVABLE

Accounts receivable, net consisted of the following for the periods indicated:


	September 30,			December 31,
	2025			2024
Accounts receivable	$	10,840,823		$	8,310,178
Unbilled receivables		1,374,445			-
Accounts receivable		12,215,268			8,310,178
Less: allowance for credit losses		(190,715	)		(132,807	)
	$	12,024,553		$	8,177,371

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.

Provision for credit losses related to accounts receivable was $43,496 and $40,000 for the three month periods ended September 30, 2025 and 2024, respectively, and $48,375 and $40,000 for the nine month periods ended September 30, 2025 and 2024, respectively.

The following tables represent the changes in the allowance for credit losses associated with our trade receivables for the nine month periods ended September 30, 2025 and 2024.


	For the Nine Months Ended September 30,
Allowance for Credit Losses	2025			2024
Balance on January 1,	$	(132,807	)	$	(50,032	)
Provision charged to expense		(48,375	)		(40,000	)
Receivables written-off		100			-
Effects of change in exchange rates		(9,633	)		(103	)
	$	(190,715	)	$	(90,135	)

NOTE 5 – INVENTORIES

Inventories, net consisted of the following for the periods indicated:


	September 30,			December 31,
	2025			2024
Raw materials	$	10,136,685		$	11,038,609
Sub-assemblies		966,054			887,440
Work-in-process		663,330			543,207
Finished goods		10,830,899			8,406,258
		22,596,968			20,875,513
Less: allowances for obsolete and slow-moving inventories		(7,270,049	)		(7,699,357	)
	$	15,326,919		$	13,176,156

NOTE 6 – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following for the periods indicated:


	September 30,		December 31,
	2025		2024
Accrued compensation and related liabilities	$	1,699,921	$	1,008,278
Deferred revenue		123,041		218,499
Customer deposits		80,274		26,607
Warranty reserve		583,311		501,726
Trade and other taxes		872,201		495,105
Other accrued expenses		786,544		2,556,461
	$	4,145,292	$	4,806,675

The tables below present the deferred revenue and deposit balances along with the significant activity affecting balances during the nine month periods ended September 30, 2025 and 2024:


	September 30,			September 30,
Deferred revenue	2025			2024
Beginning balance	$	218,499		$	299,514
Deferral of revenue during the period		5,047,814			74,863
Recognition of unearned revenue from beginning of period		(185,716	)		(199,843	)
Recognition of unearned revenue from additions		(4,957,556	)		(12,881	)
Ending balance	$	123,041		$	161,653


	September 30,			September 30,
Customer deposits	2025			2024
Beginning balance	$	26,607		$	27,447
Additions during the period		916,186			11,427,311
Deposits recognized from beginning of period		(552	)		(10,155	)
Deposits recognized from additions		(861,967	)		(10,226,072	)
Ending balance	$	80,274		$	1,218,531

As of September 30, 2025, the Company had approximately $1,579,324 of remaining performance obligations under fully funded contracts for which the Company's performance obligations are satisfied over time and for which the customer receives benefits as the Company performs. These performance obligations are expected to be satisfied within 2025.

Revenue from customers with non-U.S. billing addresses represented approximately 53% and 55% of the Company’s revenue during the three month periods ended September 30, 2025 and 2024, respectively, and 59% and 59% for the nine month periods ended September 30, 2025 and 2024, respectively.

As of September 30, 2025, substantially all the Company’s long-lived assets are in the United States of America, except for assets of $668,746 located in Germany.

NOTE 7 – DEBT

Bank Lines of Credit

In April 2022, the Company obtained a domestic revolving line of credit of $2,000,000 at Torrey Pines Bank. To access this 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. Borrowings under the line of credit bear interest at a rate equal to the prime rate. The rate as of September 30, 2025 was 7.25%. The balance outstanding on the line of credit was $1,000,000 and $0 on September 30, 2025 and December 31, 2024 respectively.

Bressner has three revolving lines of credit with German institutions, including Uni Credit Bank AG, Commerzbank AG, and VR Bank, with total availability of up to €2,700,000 (US $3,167,413) as of September 30, 2025. Borrowings under the lines of credit bear interest at a variable rate of Euribor plus a stated rate. The rates as of September 30, 2025, for the lines of credit ranged from 3.75% to 6.55%, with the balances remaining open indefinitely or until occurrence of a defined change of control event. Bressner did not have any outstanding lines of credit balances as of September 30, 2025 or December 31, 2024.

Foreign Debt Obligations

Bressner had two term loans outstanding as of September 30, 2025, with an aggregate balance outstanding of €1,000,000 (US $1,173,116) as follows:

•

On December 31, 2024, Bressner had an outstanding note payable with UniCredit Bank for €500,000 with a maturity date of June 20, 2025 at an interest rate of 4.40%. On June 19, 2025, the note was extended to December 22, 2025 at an interest rate of 3.75%, with accrued interest having been paid as current. The balance outstanding on the note as of September 30, 2025 and December 31, 2024, was €500,000 (US $586,558) and €500,000 (US $517,525), respectively.

•

On December 31, 2024, Bressner had an outstanding note payable with Commerzbank AG for €500,000 with a maturity date of March 31, 2025 at an interest rate of 4.75%. On March 31, 2025, the note was extended through September 30, 2025, and the interest rate was reduced to 3.9%, with accrued interest having been paid current as of March 31, 2025. On September 30, 2025, the note was further extended through March 31, 2026 and the interest rate was further reduced to 3.5%, with accrued interest having been paid as current. The balance outstanding on the note as of September 30, 2025 and December 31, 2024, was €500,000 (US $586,558) and €500,000 (US$517,525), respectively.

A summary of outstanding debt obligations as of September 30, 2025, was as follows:


Loan Description	Current Interest Rate	Maturity Date	Balance (Euro)		Balance ($)		Current Portion
Domestic:
Torrey Pines Bank	7.25%					1,000,000		1,000,000
Total Domestic					$	1,000,000	$	1,000,000

Foreign:
Commerzbank AG	3.50%	March-26		500,000		586,558		586,558
Uni Credit Bank AG	3.75%	December-25		500,000		586,558		586,558
Total Foreign			€	1,000,000	$	1,173,116	$	1,173,116

Total Outstanding Debt Obligations					$	2,173,116	$	2,173,116

NOTE 8 – STOCKHOLDERS’ EQUITY

The Company’s amended and restated certificate of incorporation, filed with the Delaware Secretary of State on December 14, 2017, authorizes the Company to issue 10,000,000 shares of preferred stock and 50,000,000 shares of common stock.

2017 Equity Incentive Plan

On October 10, 2017, the Company’s board of directors approved and adopted the Company’s 2017 Equity Incentive Plan (as amended to date, the “2017 Plan”), subject to stockholder approval thereof. On December 18, 2017, the Company’s stockholders approved the 2017 Plan. The 2017 Plan allows for the grant of a variety of equity vehicles to provide flexibility in the grant and issuance of equity awards, including stock options, unrestricted stock grants, restricted stock units (“RSUs”), stock bonuses and performance-based awards. An aggregate of 1,500,000 shares of common stock were initially reserved for issuance under the 2017 Plan.

On June 24, 2020, the Company amended the 2017 Plan to increase the maximum number of shares of common stock with respect to one or more Stock Awards (as defined in the 2017 Plan) that may be granted to any one participant under the 2017 Plan during any calendar year from 500,000 shares to 1,000,000 shares. The amendment did not increase the total number of shares of common stock authorized for issuance under the 2017 Plan and did not require stockholder approval.

On May 19, 2021, the Company’s stockholders approved the Company’s proposal to increase the number of shares authorized for issuance under the 2017 Plan from 1,500,000 shares to 3,000,000 shares of common stock of the Company pursuant to the terms and conditions of the 2017 Plan. The amendment took effect upon receipt of stockholder approval.

On March 15, 2024, the Company’s board of directors unanimously approved, and on May 15, 2024, the Company’s stockholders approved, an amendment to the 2017 Plan to increase the number of shares of common stock authorized for issuance thereunder from 3,000,000 to 5,000,000 shares. The amendment took effect upon receipt of stockholder approval.

Executive Employment Agreements

On June 5, 2023, in connection with, and as a material inducement to, the appointment of Michael Knowles as the Company’s new chief executive officer and president, Mr. Knowles was granted (i) non-qualified stock options to purchase 400,000 shares of Company common stock (the “Inducement Options”), which Inducement Options

have an exercise price equal to $2.95 per share and will expire ten years from the date of the grant; and (ii) 400,000 restricted stock units (together with the Inducement Options, the “Inducement Grants”).

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

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

Stock Options

A summary of stock option activity under the Company’s current equity incentive plans during the nine month period ended September 30, 2025, was as follows:


	Stock Options Outstanding
	Number of Underlying Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding on January 1, 2025		1,140,550		$	2.49		3.85	$	1,019,680
Granted		-		$	-		-		-
Forfeited / Canceled		(26,000	)	$	2.96		-		62,340
Exercised		(493,011	)	$	2.08		-	$	1,619,560
Outstanding on September 30, 2025		621,539		$	2.80		5.73	$	1,591,895
Exercisable as of September 30, 2025		421,539		$	2.73		4.81	$	1,109,895

As of September 30, 2025, there was $334,358 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 0.84 years.

There were no options granted during the nine month periods ended September 30, 2025 and 2024. The following table presents the grant date fair value of options vested and the intrinsic value of options exercised:


	For the Nine Months Ended September 30,
	2025		2024
Grant date fair value of options vested	$	675,895	$	1,033,327
Intrinsic value of options exercised	$	528,143	$	132,083

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

Restricted Stock Units

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

fair value of the common stock on the grant date and is amortized to expense over the vesting period and is adjusted for estimated forfeitures.

The Company’s RSU activity for the nine months ended September 30, 2025, was as follows:


	Restricted Stock Units
	Number of Underlying Shares			Weighted Average Grant Date Fair Value
Unvested on January 1, 2025		1,128,427		$	3.04
Granted		653,539		$	3.83
Vested		(511,919	)	$	2.52
Canceled		(142,350	)	$	2.54
Unvested on September 30, 2025		1,127,697		$	3.31

As of September 30, 2025, there was $2,987,924 of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 0.98 years.

Stock-based compensation expense for the three and nine month periods ended September 30, 2025 and 2024, was comprised of the following:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Stock-based compensation classified as:	2025		2024		2025		2024
General and administrative	$	283,559	$	304,917	$	1,081,712	$	891,643
Production		22,420		12,654		65,747		128,760
Marketing and selling		40,742		37,322		121,601		84,894
Product and programs		48,778		57,521		149,001		160,235
Research and development		49,122		45,597		154,895		158,417
	$	444,621	$	458,011	$	1,572,956	$	1,423,949

Warrants

The Company did not have any outstanding warrants as of September 30, 2025 or December 31, 2024.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Legal

We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred, and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in our opinion, individually or in the aggregate, no such lawsuits are expected to have a material effect on our consolidated financial position or results of operations.

In the opinion of management, after consultation with legal counsel, the ultimate disposition of any such matters as of September 30, 2025, are not expected to have a materially adverse effect on the consolidated financial position or results of operations of the Company.

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 offices, manufacturing, and warehouse facility in San Diego County under a non-cancellable operating lease. Our corporate headquarters are in a leased space comprising of approximately 29,342 square feet in Escondido, California under a lease that was last modified and extended in September 2023 and expires in August 2030. The Company also leases a facility in Salt Lake City, Utah that houses our Ion software development team. This lease expired on June 30, 2025, and the Company extended the lease for an additional 12 months, with the lease commencing in July 2025 and expiring in June 2026. In the lease extension, the leased space was reduced from 3,208 square feet to 925 square feet. Additionally, we lease a 1,632 square foot facility located in Anaheim, California. This lease expired in July 31, 2025 and the company extended the lease through January 31, 2026.

Bressner leases space in Germany comprising of 11,836 square feet on a month-to-month basis. In June 2024, Bressner leased an additional 2,500 square feet of office space in Germany on a month-to-month basis with payments of approximately $5,950 per month, beginning in October 2024. In May 2025, Bressner entered into a lease agreement for approximately 15,629 square feet of office and warehouse space in Germany, with an initial lease term ending on June 30, 2030. The lease has an option to renew for additional five-year term that the Company is reasonably certain to exercise. Bressner is transitioning operations into the new facility; when such transition is complete, the month to month lease for the other facility will be discontinued.

Other information related to leases as of the three and nine month periods ended September 30, 2025 and 2024 was as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Operating lease expense	$	312,521	$	206,462	$	796,084	$	582,364
Total lease expense	$	312,521	$	206,462	$	796,084	$	582,364

Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	228,900	$	170,777	$	489,218	$	519,206

Weighted-average remaining lease term - operating leases					92.8 months		67.8 months
Weighted-average discount rate - operating leases

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

ONE STOP SYSTEMS, INC. 10-Q