A mediation was held on July 30, 2026 with Disguise Systems Limited, a United Kingdom company, and Disguise Technologies Limited, a United Kingdom company (collectively, “Disguise”) to resolve Disguise Systems Limited and Disguise Technologies Limited v. One Stop Systems, Inc. pending in the United States District Court for the District of Delaware, C.A. No. 24-536-JHS, initiated by Disguise in 2024. As a result of the mediation the Company entered into a settlement agreement term sheet with Disguise on August 4, 2026 (the “Term Sheet”) whereby the Company will, without any admission of wrongdoing or liability, pay or cause to be paid to Disguise a net monetary payment of $6,250,000 US, in a single lump sum payment by the Company, due and owing to Disguise, within thirty (30) days of a fully executed definitive settlement agreement. The Term Sheet also sets forth a mutual release of claims and provides that the parties will document the definitive settlement agreement no later than August 19, 2026. As the settlement provides additional evidence of a condition that existed as of June 30, 2026, the Company has recognized the $6,250,000 liability and recorded this settlement in the operational results of the current fiscal quarter. The Company had previously characterized this matter as a customer dispute arising in the

ordinary course of business and, prior to the mediation on July 30, 2026, did not believe the matter was material to the Company's financial condition, results of operations, or cash flows. The Company is including this description of the litigation in this Quarterly Report because it has determined that the amount of the settlement renders the matter material to the Company for purposes of this disclosure, notwithstanding the Company's prior assessment that the underlying dispute, standing alone, was in the Company’s ordinary course of business and not material prior to the mediation on July 30, 2026.

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.

The Company leases its corporate headquarters, manufacturing, and warehouse facility in San Diego County, under a non-cancelable operating lease. The facility is approximately 29,342 square feet in Escondido, California with a lease that expires in August 2030. The Company also leases a 925 square foot facility in Salt Lake City, Utah, which houses its Ion software development team, under a lease that was last modified and extended in June 2026 and expires in June 2027. Additionally, the Company leased a 1,632 square foot facility located in Anaheim, California. This lease expired on July 31, 2025, and the Company extended the lease through January 31, 2026. Upon expiration of the lease on January 31, 2026, the Company did not renew the lease and exited the facility.

Other information related to leases for the three and six month periods ended June 30, 2026 and 2025 was as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2026		2025		2026			2025
Operating lease expense	$	147,127	$	153,781	$	291,904		$	307,755
Total lease expense	$	147,127	$	153,781	$	291,904		$	307,755

Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	99,599	$	113,068	$	202,218		$	226,135

Weighted-average remaining lease term - operating leases					51.0 months			62.9 months
Weighted-average discount rate - operating leases						13.66	%		13.66	%

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2026:


Year	Operating Leases
Remaining 2026	$	196,675
2027		403,771
2028		419,922
2029		436,719
2030		298,809
Total lease payments		1,755,896
Less: Amount representing interest		(388,762	)
Present value of lease payments		1,367,134
Less: current portion of operating lease obligation		(244,859	)
Operating lease obligation, net of current portion	$	1,122,275

In the normal course of business, the Company may enter into purchase commitments for inventory components to be delivered based upon non-cancellable, pre-established delivery schedules that are over a period that may exceed one year. Total non-cancellable purchase orders as of June 30, 2026 were $2,696,608.

During the three month periods ended June 30, 2026 and 2025, the Company had three and two customers, respectively, that accounted for (in the aggregate) approximately 39% and 41% of revenue, respectively. No other customers represented greater than 10% of our revenue in these periods. During the six month periods ended June 30, 2026 and 2025, the Company had two customers, in each period, that accounted for (in the aggregate) approximately 43% and 39% of revenue, respectively. No other customers represented greater than 10% of our revenue in these periods.

As of June 30, 2026 and December 31, 2025, the Company had three customers, at each date, that accounted for (in the aggregate) approximately 40% and 77%, respectively, of trade accounts receivables for which each of such customer’s balances represented 10% or greater of our consolidated trade accounts receivable balance.

During the three month periods ended June 30, 2026 and 2025, the Company had approximately 77% and 40%, respectively, of aggregate purchases from three suppliers, in each period, for which each represents greater than 10% of our consolidated purchases. During the six month periods ended June 30, 2026 and 2025, the Company had approximately 59% and 40%, respectively, of aggregate purchases from three and two suppliers, respectively, for which each represents greater than 10% of our consolidated purchases.