OSS 10-K & 10-Q changes, risk factors and insider trading

Our international operations, and in particular Bressner's operations in Germany, subject us to a variety of risks and challenges.

Our worldwide operations could be disrupted by earthquakes, telecommunications failures, power or water shortages, outages at cloud service providers, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, cyber-attacks, terrorist attacks, war or military conflicts (such as the ongoing military conflict between Russia and Ukraine and the more recent conflictconflicts betweenin Israelthe andMiddle HamasEast), medical epidemics or pandemics and other natural or man-made disasters, catastrophic events or climate change. The occurrence of any of these disruptions could harm our business and result in significant losses, a decline in revenue and an increase in our costs and expenses. Any of these business disruptions could require substantial expenditure and recovery time in order to fully resume operations.

Our corporate headquarters, and a portion of our research and development activities, are located in California, and other critical business operations, finished goods inventory, and some of our suppliers are located in Europe and Asia, near major earthquake faults known for seismic activity. The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including California and Germany.California. Geopolitical change or changes in government regulations and policies in the United States or abroad may result in changing regulatory requirements, economic sanctions (such as those recently imposed by the United States and other countries on Russia), trade policies, import duties (such as recent tariffs applied on many imports) and economic disruptions that could impact our operating strategies, product demand, access to global markets, hiring, and profitability. In particular, revisions to laws or regulations or their interpretation and enforcement could result in increased taxation, trade sanctions, the imposition of additional import duties or tariffs, restrictions and controls on imports or exports, or other retaliatory actions, which could have an adverse effect on our business plans.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from military conflicts or any other geopolitical tensions.

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions,tensions includingin asmultiple a resultregions of the continuing military conflict between Russia and Ukraine and the more recent conflict between Israel and Hamas.world. Recently, international relations between the U.S. and Russia, certain Middle Eastern nations as well as certain other countries, has been strained, and they may continue to deteriorate further. Although the length and impact of the ongoing military conflicts are highly unpredictable, the conflicts in Ukraine and Israel/Palestinethe Middle East could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine, Israel/Palestinethe Middle East, and globallyglobally, and assessing its potential impact on our business.

Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine, Israel and Hamas or other geopolitical instability to date, it is impossible to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which thethese conflictconflicts may impact our business. The extent and duration of the military action,actions, sanctionssanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Annual Report.

Actual events involving reduced or limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, in March 2023, Silicon Valley Bank and Signature Bank were closed and taken over by the Federal Deposit Insurance Corporation ("FDIC") as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank or Signature Bank, investorsimilar concernsevents regardingin the U.S.future orcould internationalnegatively affect investor confidence, the availability of credit, and overall market liquidity. Disruptions in the financial systemsmarkets could result in less favorable commercial financing terms, including higher interest ratesrates, ormore costsrestrictive andlending terms, tighter financial and operating covenants, or systemic limitations onreduced access to creditcapital. andIf liquiditywe sources,are thereby making it more difficult for usunable to acquireobtain financing on acceptable termsterms, or at all. Any decline in available funding orif access to our cash andor liquidity resources could,is among other risks, adversely impactrestricted, our ability to fund operations, meet our operating expenses, financial obligations or fulfill our other obligations, or result in breaches ofexecute our financialbusiness and/orstrategy contractualcould obligations.be adversely affected. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above,developments could have a material adverse impactseffect on our liquidity and our current and/or projectedliquidity, business operations andoperations, financial conditioncondition, and results of operations.

Inflation has the potential to adversely affect our liquidity, business, financial conditioncondition, and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The United States and Germany both experienced inflation in the years ended December 31, 2024 and 2023. Additionally, higher tariffs and the potential for higher tariffs may impact our product pricing or the cost of inputs to our production. The existence of inflation in the domestic and global economies has resulted in, and may continue to result in,in higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. If inflation continues to increase in the U.S. and/or Germanyincreases for a prolonged period of time, or the rate of inflation in our markets were to increase, or if a global recession were to occur, our expenses could increase substantially. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.

Governmental policies and regulations may also impact the development of the market for our products. For example, regulations around the use of AI may negatively impact certain of our customers and may affect the adoption of AI in certain of our target markets. The European Union Parliament recently adopted the EU AI Act, which introduces regulations and restrictions around the use of AI technologies. Additionally, Colorado has passed a bill introducing certain regulations around the use of AI. These and other regulatory or legislative actions related to the development and deployment of AI technologies could impact our business and our growth prospects.

We use information technology and other computer resources to carry out important operational activities and to maintain our business records. As part of our normal business activities, we permit certain employees to perform some or all of their business activities remotely, we collect and store certain personal identifying and/or confidential information relating to our employees, customers, vendors and suppliers, and we maintain operational and financial information related to our business. Furthermore, we rely on products and services provided by third-party suppliers to operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, email, and other functions, which exposes us to supply-chain attacks or other business disruptions. Our systems are often deployed in environments supporting AI workloads and large-scale data processing. Unathorized access to such systems could expose sensitive operational or training data belonging to our customers.

We have implemented certain systems and processes intended to address ongoing and evolving cybersecurity risks, secure our information technology, applications and computer systems, and prevent unauthorized access to or loss of sensitive, confidential and personal data. Although we and our service providers employ what we believe are adequate security, disaster recovery and other preventative and corrective measures, ourOur security measures, taken as a whole,measures may not be sufficient for all possible situations and may be vulnerable to, among other things, fraud, hacking, employee error, system error, and faulty password management.

Our contracts with the U.S. government are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal year basis, even though contract performance may extend over many years. Consequently, contracts are oftensometimes partially funded initially, and additional funds are committed only as Congress makes further appropriations over time. To the extent we incur costs in excess of funds obligated on a contract or in advance of a contract award or contract definitization, we are at risk of not being reimbursed for those costs unless and until additional funds are obligated under the contract or the contract is successfully awarded, definitized and funded, which could adversely affect our results of operations, financial condition and cash flows.

We rely on a limited number of suppliers to provide us with the necessary devices, parts, and systems to allow us to build, design and manufacture our products, and the failure to manage our relationships with these parties successfully, or disruptions to our suppliers’ businesses caused by supply chain constraints, inflation, human capital issues, and/or other factors, could adversely affect our ability to market and sell our products. InParticularly, the years ended December 31, 2024 and 2023, suppliers for which purchases represent greater than 10%many of our totalproducts partsrely purchaseson accountedhigh-performance processors, GPUs, and other specialized components used in AI workloads. Supply constraings affecting these components, particularly those produced by NVIDIA, AMD, or other semiconductor suppliers, could limit our ability to manufacture and deliver systems designed for approximatelyAI 37% of materials purchased. In 2024, this concentration was with Super Micro Computer and Digi International.applications.

Although we do believe we could locate additional suppliers to fulfill our needs in the event that our relationship with these or any of our other suppliers terminated or they are unable to fulfill our manufacturing needs, any significant change in our relationship with these suppliers could have a material adverse effect on our business, operating results, and financial condition unless and until we are able to find suitable replacements. We make substantially all of our purchases from our contract suppliers on a purchase order basis. Our suppliers are generally not required to supply our raw materials for any specific period or at any specific quantity or price.

Global pandemics or other disasters or public health concerns in regions of the world where we have operations or source material or sell products, such as outbreaks of COVID-19 or H1N1 flu,products could result in the disruption of our business. These or any governmental developments or health concerns in countries in which we operate could result in social, economic, or labor instability. Any disruption resulting from these or similar events could cause significant delays in shipments of our products until we are able to resume normalized operations, and this could have a material negative impact on our results of operations and cash flows. Although the COVID 19 pandemic has subsidedsubsided, we are continuing to experience unavailability of certain products and limited supplies, protracted delivery dates for componentry, increasing product costs, and changes in minimum order quantities to secure product.

We have agreed, and expect to continue to agree, to indemnify our channel partners and end-customers for certain intellectual property infringement claims regarding our products. As a result, in the case of infringement claims against these channel partners and end-customers, we could be required to indemnify them for losses resulting from such claims or to refund amounts they have paid to us. Our channel partners and other end-customers in the future may seek indemnification from us in connection with infringement claims brought against them regarding our products. These claims, regardless of their merits or outcome, would likely be time consuming and expensive to resolve, and could divert management’s time and attention from managing our business.

Our international sales and operations, and in particular Bressner's operations in Germany, subject us to additional risks that can adversely affect our operating results and financial condition.

DuringWe thesell yearour endedproducts Decemberin 31,a 2024, we derived as significant portionnumber of international jurisdictions. Additionally, our consolidatedsupply revenueschain fromincludes a number of international sales and operations.vendors. Our international operations subject us to a variety of risks and challenges, including, without limitation, exposure to fluctuations in foreign currency exchange rates; inflationary pressures and the possibility of recession; increased management, travel, infrastructure and legal compliance costs associated with having international operations; reliance on channel partners; increased financial accounting and reporting burdens and complexities; compliance with foreign laws and regulations, which are subject to change; compliance with U.S. laws and regulations for foreign operations; conflicts between U.S. laws and regulations and foreign laws and regulations; import and export licensing requirements; and reduced protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad. TheInflation, impactvolatility, ofrecessionary macroeconomic declinesrisk, and higher interest rates has been particularly apparent in Germany. Our Bressner segment in Germany accounted for 55% of the Company’s consolidated sales for the year ended December 31, 2024. Germany was in a recession for most of 2024regulatory and 2023,legal largely due to persistent high inflation and falling household spending. Continued inflation, volatility or recessionarycompliance risks in Germanyany orof otherthe countries that we operate or sell our products in could adversely affect our business and results of operations.

Our products are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws and regulations. Certain of our high-performance computing systems may incorporate advanced processors or accelerators that are subject to U.S. export controls related to advanced computing technologies and AI. Changes in export regulations or restrictions on the shipment of such components could affect our ability to sell systems into certain markets. If we violate these laws and regulations, we and certain of our employees, could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines, which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers. In addition, if our channel partners, agents, or consultants fail to obtain appropriate import, export or re-export licenses or authorizations, we may also be adversely affected through reputational harm and penalties. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. Changes in our products or changes in applicable export or import laws and regulations may also create delays in the introduction and sale of our products in international markets, prevent our end-customers with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons or technologies targeted by such laws and regulations, could also result in decreased use of our products, or in our decreased ability to export or sell our products to existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and operating results.

Our directors and principal stockholders own a significant percentage of our stock and will be able to exert significant control overinfluence matters subject to stockholder approval.

Our directors, executive officers and significant stockholders have substantial control overinfluence the Company and could delay or prevent a change in corporate control. Our directors, executive officers, and holders of more than 5% of our common stock, together with their affiliates, beneficially own, in the aggregate, approximately 40%12% of our outstanding common stock, based on the number of shares outstanding as of March 5, 2024.2026. As a result, these stockholders, acting together, would have the ability to exert significant controlinfluence over the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to exert significant controlinfluence over the management and affairs of the Company. Accordingly, this concentration of ownership might adversely affect the market price of our common stock by:

The market price of shares of our common stock could decline as a result of substantial equity issuances and/or sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale, or the perception in the market that holders of a large number of shares intend to sell their shares. As of March 5, 2025,2026, we havehad 21,323,26124,737,191 shares of our common stock outstanding. We may issue or sell a significant number of shares of our common stock or other securities to raise capital in the future or in connection with a strategic transaction, which would result in significant dilution to our current shareholders. Additionally, historically, a significant portion of the compensation that we pay to our executive officers, employees and directors has been in the form of equity awards. We believe that this structure incentivizes such individuals to both join and remain with the Company, and also serves to further the growth, development and financial success of the Company by providing a means by which such persons can personally benefit through the ownership of capital stock of the Company. However, the issuance of securities to our executive officers, employees and directors also results in dilution to our current shareholders, and substantial sales of such securities could cause the market price of our securities to decline and/or could depress the growth of the market price of our securities.

We will continue to be a “smaller reporting company” until we have more than $250 million in public float (based on our common stock) measuredif, as of the last business day of our most recently completed second fiscal quarterquarter, or,(i) in the event we have noour public float is less than $250 million, or (based onii) our common stock), annual revenues of more than $100 million duringfor the most recently completed fiscal year.year are less than $100 million and we either have no public float or a public float of less than $700 million.

The Company designs, manufactures, and markets specialized enterprise class high-performance compute, high speed switch fabricsfabrics, and storage hardware and software, which are designed to target edge applications for AI/ML, sensor processing, sensor fusionfusion, 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 edgeedge, we offer specialized products and system solutions that consist of computers, switch fabricsfabrics, 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.

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, as well as edge optimized industrial and panel PCs, tablets, and handheld compute devices.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.

Cost of revenue primarily consists of costs of materials, costs paid to third-party contract manufacturers (which may include the costs of components), and personnel costs associated with manufacturing and support operations. Personnel costs consist of wages, bonuses, benefits, and stock-based compensation expenses. Cost of revenue also includes freight, allocated overhead costs and inventory write-offs and changes to our inventory and warranty reserves. Allocated overhead costs consist of certain facilities and utility costs. We expect cost of revenue to increase in absolute dollars with an improvement in margin, as product revenue increases.

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,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 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 overhead expenses which are allocated overhead.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.

Marketing and Selling expense consists primarily of employee compensation and related expenses,expenses for marketing and sales functions, sales commissions, marketing programs, travel, and entertainment expensesexpenses, as well as certain overhead expenses which are allocated overhead.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 expense consists primarily of employee compensation and related expenses,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 overhead expenses which are allocated overhead.to research and development expense. We expect variability in our research and development expenses to increase in absolute dollars as we continuedue to investthe intiming of new product development and existing products.introductions.

Provision for income taxes consists of estimated income taxes due to the United States and Germanforeign governments, 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.

Comparison of the Years Ended December 31, 20242025 and 20232024 from Continuing Operations:

Marketing and selling expense increased $1,354,466,$949,997, or 20.4%,16.9%, for the year ended December 31, 2024,2025, as compared to the same period in 2023.2024. OSS had anThe increase of $630,129, or 12.6%, which was primarily dueattributable to increasedhigher costsincentive forcompensation personnelexpense, as well as higher salary and forcontract tradeshowlabor participation.expenses. Bressner had an increase of $724,337, or 43.5%, primarily resulting from the addition of new marketing personnel and sales collateral material. Overall, total marketingMarketing and selling expense increaseddecreased as a percentage of revenue to 14.6%20.4% duringin the year ended December 31, 2024,2025, as compared to 10.9% during the same period22.9% in 2023.2024.

Research and development expense decreasedincreased $233,794,$1,971,460, or 5.4%,56.9%, for the year ended December 31, 2024,2025, as compared to the same period in 2023. OSS saw a decrease of $347,383, or 9.1%.2024. The decreaseincrease was drivenprimarily byattributable theto timinghigher ofengineering certainlabor costs to support targeted investments in new product introductiondevelopment, activitiesincluding costs associated with the development of our PCIe Gen 6.0 offerings, the expansion and enhancement of our U-BMC offerings, and the deploymentdevelopment of engineeringother resourcesproprietary ontoproducts. customer funded development efforts, which costs as classified as a component of cost of sales. Bressner experienced an increase of $113,588, or 21.9% due to increased personnel and overhead costs. Overall, total researchResearch and development expense as a percentage of revenue increased to 7.5%16.9% duringfor the year ended December 31, 2024,2025, as compared to 7.1%14.1% duringfor the same period in 2023.2024.

Interest income decreased $67,213$198,957 for the year ended December 31, 2024,2025, as compared to the same period in 2023.2024. The decrease is primarily attributable to lower investment balances,balances partiallythroughout offsetthe by higher interest rates.year.

Interest expense decreased $43,658$1,504 for the year ended December 31, 2024,2025, as compared to the same period in 2023,2024. asThis awas resultprimarily due to interest expense related to taxes due in 2024 that did not recur in 2025, partially offset by interest expense incurred from borrowings on the domestic line of thecredit paydownin of outstanding debt.2025.

Other income (expense), for the year ended December 31, 2024,2025, resulted in net other income of $45,353,$16,309, as compared to net other expenseincome of $9,807$24,040 in the same period in 2023,2024, for a net changedecrease of $55,160.$7,731. ThisThe changedecrease was primarily duedriven toby alower netcredit foreigncard currencyrebates translationassociated gainwith ofcertain $17,276rewards in the year ended December 31, 2024, as compared to a net foreign current translation loss of $40,933 in the comparable period of 2023.programs.

We have recorded an incomeThe tax provision of $726,502 and $927,128, respectively, for the yearsyear ended December 31, 20242025 andassociated 2023.with continuing operations was $11,310, compared to $2,560 for the same period in the prior year. The effective tax rate for the years ended December 31, 20242025 and 20232024 differed from the statutory rate mainly due to permanent non-deductible goodwill amortization for Bressner, changechanges in the valuation allowance, deductions related to expenses of OSS stock options, research and development credits, and changes in reserves for uncertain tax positions, as well as projecting federal, foreignfederal and state tax liabilities for the year. Additionally, during 2023, the Company recorded an impairment of goodwill attributable to OSS that impacted the effective tax rate.liabilities.

Other income (expense), net consists of miscellaneous income and incomeexpense receivedassociated forwith activities outside of our core business.business, Otherincluding expenseinterest includesincome expenses for activities outside ofon our coreinvestment business.balances.

The following tables set forth our results of operations for the three and six month periods ended MarchJune 31,30, 2026 and 2025, presented in dollars and as a percentage of revenue, respectively.

Comparison of the Three and Six Month Periods Ended MarchJune 31,30, 2026 and 2025 from Continuing Operations:

For the threesix monthsmonth period ended MarchJune 31,30, 2026, our total revenue increased $2,862,800,$6,450,641, or 55%,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 productionthe andrevenue developmentincrease across multiple customers, includingincluded: 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 applicationapplication, as the customer moved from initial prototypes in 2025 to production in 2026; and 3) sales towith a defense primenew customer relatedfor toshort-depth theserver design,products development,engineered for military applications onboard naval vessels and deliveryaircraft; ofand prototype4) computehigher systemsrevenue forfrom ancustomer-funded enhanceddevelopment vision system for combat vehicles.programs.

Gross profit increased $1,798,349,$1,269,167, or 75.9%,53%, for the three months ended MarchJune 31,30, 2026 as compared to the same period in 2025. Gross margin percentage was 51.6%39.1% for the three months ended MarchJune 31,30, 2026, as compared to 45.5%41.3% for the same period in 2025. The improvementdecrease in gross margin percentage was primarily driven by: 1)product engineeringmix, efficienciesincluding realizeda onhigher certainvolume of our customer-funded development programs; andin 2)the current year period. This was partially offset by more favorable manufacturing absorption due to higher production volume.volume and higher usage of reserved inventory to fulfill customer orders.

General and administrative expense increased $536,362,$546,439, or 28.1%,28.6%, for the three months ended MarchJune 31,30, 2026, as compared to the same period in 2025. This increase was primarily attributable to higher employee incentivestock-based compensation expense anddue toa higher grant date fair value of RSUs expensed in the current year period. The increase was also driven by higher fees paidassociated forwith increased usage of professional services. General and administrative expense decreased as a percentage of revenue to 30.3%26.2% for the three months ended MarchJune 31,30, 2026, as compared to 36.7%33.1% for the same period in 2025.

Marketing and selling expense decreasedincreased $29,914,$107,202, or 1.9%,6.5%, for the three months ended MarchJune 31,30, 2026, as compared to the same period in 2025. This decreaseincrease was primarily attributable to lowerhigher expensestrade relatedshow toand demonstrationmarketing materials.expenses, as well as higher personnel expenses. Marketing and selling expense decreased as a percentage of revenue to 19.5%18.9% for the three months ended MarchJune 31,30, 2026, as compared to 30.9%28.8% for the same period in 2025.

Research and development expense decreased $388,103,$508,970, or 32.2%,37.4%, for the three months ended MarchJune 31,30, 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 10.1%9.1% for the three months ended MarchJune 31,30, 2026, as compared to 23.1%23.6% for the same period in 2025.

Interest income increased $223,072$264,394 for the three months ended MarchJune 31,30, 2026, as compared to the same period in 2025. TheThis 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; and 3) cash generated from operations in the three months ended March 31, 2026.2025.

Other income (expense), for the three months ended MarchJune 31,30, 2026,2026 resulted in net other income of $12,461,$37,532, as compared to net other expenseincome of $1,267$21,930 in the same period in 2025, for an increase in net other income of $13,728.$15,602. This increase was primarily attributable to changes in foreign currency gains and losses, as well as higher rebates.

(Loss)There was no income or loss from discontinued operations, net of income taxes resulted in a loss of $157,274 in the three months ended MarchJune 31,30, 2026,2026. comparedIncome tofrom discontinued operations, net of income oftaxes $261,759was $453,421 for the samethree periodmonths inended June 30, 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.

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 MarchJune 31,30, 2026, we had total cash,cash and cash equivalents, and restricted cashequivalents of $26,544,041$17,279,139; short-term investments of $10,033,654$14,128,617; and total working capital of $44,740,475.$38,082,133.

During the threesix month period ended MarchJune 31,30, 2025,2026, we had a loss from operations related to continuing operations of $2,351,191,$8,343,068, with cash used in continuing operating activities of $1,505,184.$629,138.

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 MarchJune 31,30, 2026 or December 31, 2025.

The following table summarizes our cash flows for the threesix month periods ended MarchJune 31,30, 2026 and 2025:

During the threesix month period ended MarchJune 31,30, 2026, we generatedused $4,041,908$629,138 in cash from continuing operating activities, compared to cash used in continuing operating activities of $1,505,184$2,773,914 for the same period in 2025.

Net cash providedused byin continuing operating activities during the threesix month period ended MarchJune 31,30, 2026 was the result of three components: 1) net loss from continuing operations of $362,588$7,682,247; 2) net adjustments to net loss from continuing operations for non-cash items of $1,022,815,$1,831,691, of which the largest components were stock-based compensation expense of $655,128$1,516,341 and depreciation expense of $184,151$366,616; and 3) aan decrease in net operating assets associated with continuing operations of $3,381,681.$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.

During the threesix month period ended MarchJune 31,30, 2026, the Company used cash of $10,090,641$14,300,749 in continuing investing activities, as compared to $595,419$2,128,105 of cash provided by continuing investing activities during the same period in 2025. This change is primarily attributable to $10,075,640$14,175,356 of purchases of marketable securities during the threesix months ended MarchJune 31,30, 2026, as compared to $601,860$2,184,302 of sales of marketable securities in the same period in 2025.

During the threesix month period ended MarchJune 31,30, 2026, the Company used $782,202$1,008,676 in cash from continuing financing activities, compared to $129,656$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 threesix month period ended MarchJune 31,30, 2026 as compared to the same period in 2025, due to a lower number of options exercised in the period.

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 MarchJune 31,30, 2026 or December 31, 2025.

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 MarchJune 31,30, 2026, the Company had $5,018,562$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 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 associated with our continuing operations for the three and six month periods ended MarchJune 31,30, 2026 and 2025 was as follows:

Adjusted EBITDA associated with discontinued operations for the three and six month periods ended MarchJune 31,30, 2026 and 2025 was as follows:

Consolidated adjusted EBITDA from continuing and discontinued operations for the three and six month periods ended MarchJune 31,30, 2026 and 2025 was as follows:

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.

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:

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:

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:

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:

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: