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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 20202021

or

For the transition period from _________ to _______

Commission File Number 001-38371

One Stop Systems, Inc.

(Exact name of Registrant as specified in its Charter)

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)

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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, a 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of June 30, 2020,2021, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $22,794,553,$87,262,850, based on the closing price of the registrant’s common stock on The Nasdaq Capital Market of $1.97$5.79 per share.share on such date.  This calculation does not reflect a determination that persons are affiliates for any other purpose.  

As of March 15, 2021,17, 2022, the registrant had 18,409,318 18,878,183 shares of common stock (par value $0.0001) outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None

One Stop Systems, Inc.

FORM 10-K

For the Fiscal Year Ended December 31, 20202021

Table of Contents

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this Annual Report, including statements regarding our future operating results, financial position and cash flows, our business strategy and plans and our objectives for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. This Annual Report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions.  The forward-looking statements in this Annual Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this Annual Report and are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

One Stop Systems, the One Stop Systems logo, and other trademarks or service marks of One Stop Systems appearing in this Annual Report are the property of One Stop Systems, Inc. This Annual Report also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Annual 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 tradenames.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements and other information required by the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the “SEC”).  You may read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E. Washington D.C. 20549, U.S.A.  Please call the SEC at 1-800-SEC0330 for further information on the public reference room.  Our SEC filings are also available to the public fromon the SEC’s internet site at http://www.sec.gov.

On our internet website, http://www.onestopsystems.com, we post the following recent filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.  The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing.Annual Report. Further, our references to the URLs for these websites are intended to be inactive textual references only.

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PART I

ITEM 1. BUSINESS.

Company History

One Stop Systems, Inc. (“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 of securities.

During the year ended December 31, 2015, the Company formed a wholly owned subsidiary in Germany, One Stop Systems, GmbH (“OSS GmbH”). Then, in July 2016, the Company acquired Mission Technologies Group, Inc. (“Magma”) and its operations.

On August 31, 2018, the Company acquired Concept Development Inc. (“CDI”) located in Irvine, California.  CDI specializes in the design and manufacture of custom high-performance computing systems for airborne in-flight entertainment and networking systems. CDI 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 stock 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 expansion systems.  Bressner also provides manufacturing, test, sales, and marketing services for customers throughout Europe.

Our principal executive offices are located at 2235 Enterprise Street, Suite 110, Escondido, California 92029, and our telephone number is (760) 745-9883. Our website address is www.onestopsystems.com. Information contained in, or accessible through, our website is for reference purposes only.

Business Overview

One Stop Systems, (OSS)Inc. (“OSS” or the “Company”) designs, manufactures, and markets specialized high-performance computing modules and systems, targetingwhich are designed to target edge computing deployments. Edge computing is a form of computing that is done on site, near a particular data source or the user (rather than in the cloud), minimizing the need for data to be processed in a remote data center.  This growing trend increases computing performance and security as the data does not have to travel to some distant data center location. These specialized modules and systems consist of computers and storage products that incorporate the latest state-of-the art components with our embedded proprietary software. Such modules and systems allow our customers to offer high-end computing capabilities (often embbedintegrated within their equipment) to their target markets. Edgemarkets and applications.

The fast-growing edge computing space consists of three major segments. The first segment is whencomprised of many smaller data is processed/analyzed oncenters that are located in close proximity to the users (or edge). These typically include compute and storage racks in environmentally controlled buildings, similar to large cloud data centers.  Suppliers in this space tend to be the same large server and storage manufacturers whose products are used at cloud data centers.  The second segment includes billions of Internet-of-Things (“IOT”) devices that is, atmay reside in everything from home appliances to the edgefactory production floor. These IOT devices and applications tend not to be challenged on performance and easily communicate up to the cloud or the data centers on the edge.  OSS does not focus on either of the network, rather thanforegoing segments. The third segment is called AI Transportables.  These are primarily on land, in the cloud itself.  Factors such as increase in load on the cloud infrastructure globally and rises inair or at sea vehicles that need performance without compromise for artificial intelligence (AI)(“AI”) and Autonomous capabilities.  This is where OSS’ vision and strategy is aligned, and where we believe that we offer the greatest unique value to our customers.

Examples of applications arethat utilize AI Transportables range from autonomous trucks, busses, mining equipment, and aircrafts. Less mobile applications that utilize AI Transportables include items like medical equipment and mobile command centers. There is currently a growing demand for AI/autonomous capabilities within the major factors driving the growth of the edge computing market.  Our customercommercial/industrial market, as well as for military use.

The AI and/or autonomous capabilities require these demanding applications often require connectionto connect to a wide array of data sources and sensors, ultra-fast processing power and to have the ability to quickly access and store large and ever-growing data sets at their location notsets. They must be able to maintain ultra-fast processing power to act on data in the cloud. This equipment requires datacenter class performance optimized for deploymentreal time at the edge location, which is independent of whether a high-speed network, like 5G, connects the edge application back to the distant central data centers. Standard servers and storage systems available in challenging environments.  Unlike the controlled air-conditionedmarket do not address the AI Transportable requirements. Although the network, if it exists, may transfer data center,or be used for updates, the latency is not acceptable for many of these edge applications have unique requirements including specialwhere time is of the essence. This increases the need for data center type performance using the latest generation of products from companies like NVIDIA, AMD and compact form factors ruggedizedIntel. In most of these applications, available space is limited and the number of inputs from sensors and other data sources are significant, thus, requiring high speed input/output (“I/O”) expansion like the latest in PCI Express, which OSS is known for harsh conditions.  We are uniquely positioned as a specialized providerin the market. In the case of vehicles, fuel efficiency, and particularly, in the case of aircrafts, AI Transportables come into play due to the need for lower weight materials. Additionally, the mobility of these systems creates the need for the high-end of this marketplace providing custom servers, data acquisition platforms, compute accelerators, solid-state storage arrays,equipment to survive drops, g-forces, vibration, dust, wide temperature swings, and moisture. Once you have a system IO expansion systems as well as edge optimized industrialthat can operate and panel PCs, tabletssurvive in these harsh environments, you need to be able to dissipate the heat and handheld compute devices. We deliver this high-end technology to our customers through the sale of equipment and embedded software.keep it cool.

The worldwide high-performance computing (HPC) market is expected to grow from $39 billion in 2019 to $50 billion by 2023, representing a compound annual growth rate (CAGR) of 7% while the overallWhile other edge computing marketsuppliers may adequately serve the needs of the environmentally controlled edge data centers with the latest technology, the deployment of the same performance level in the AI Transportable space requires unique capabilities and knowhow, which is forecastedwhere we believe that we excel. Many companies that enter this space tend to growoffer solutions based on older and lower performance technology, whereas we advance our proprietary state-of-the-art technologies and utilize the latest generation of products to $28.8 billion by 2025 with a compound annual growth rate of over 50% (Grandview research, “Edge Computing Market Size,” June 2019).ensure superior performance. We are establishing a leading position as a provider of specialized servers, compute accelerators and flash storage arrays to the high-end of this growing marketplace targeting edge deployments.  OSS estimates the high-performance specialized segment at the intersection of HPC and the edge computing market will be greater than $2 billion in 2023.  It is OSS’ objective to be the leading vendor and technology innovator in this targeted market segment.

Throughleverage ourAI on the Fly ® initiative, we are delivering innovative specialized high-performance edge computing building blocks and platforms used by our customers to develop products for scientists, engineers, creators and other professionals.  These mission critical applications capture and store data and quickly, securely, and cost effectively transform it into actionable intelligence at the edge.

High-performance computing applications are moving beyond the traditional academic and scientific realms to broad application across the spectrum of vertical markets. These applications include computationally intense areas like artificial intelligence (AI), deep learning, media and entertainment, test and measurement, medical imaging, genomics, cyber security, automotive, aerospace and defense. We are well positioned to leverage these market trends and capitalize on our unique core competencies in high-speed system design, switch fabrics, and edge system optimization. We have a proven track record of delivering first-to-market advanced technologies and have continued to do sotechnical strength, working with next generationthe latest high-speed networks like PCI Express (PCIe) based input/output expansion systems,5.0 and NVIDIA’s NVLink. This is in addition to our expertise with compute acceleration systems and high-performance flash array storage systems. PCIe offersWhen combined with our execution and knowhow of deploying these systems in challenging environments, we bring the highest performancelatest commercially available technology and lowest latency which is criticalproducts to this market. Unlike the edge or cloud data centers in a building, these applications bring on many unique requirements playing to our strength and create opportunities for our target applications.  Edge optimizations include rugged chassis design with light-weight removable high-capacity canisters. These products fit solidly into the emerging markets for specialized high-performance computing at the edge.additional barriers of entry.

The more data input, GPU compute accelerationBusiness Strategy

In March 2021, after reviewing our current business, market trends, the competitive landscape, reflecting on our strengths as well as listening to feedback from current and flash-based storage resources availablepotential customers, we determined that it would be in the best interest of the Company and our shareholders to shift our primary focus to the development and sale of AI Transportables. At that time, 20% of our business was already in the AI Transportables space. Our AI Transportables business accounts for some

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of our highest margins, repeat business, highest closure rate, and most importantly, we believe that it represents our highest value proposition when bringing together all our skills and experience.

Although it will take some time to pursue, secure, and turn these target opportunities into increased revenue and profits, we believe our new focus provides us with a server,unique opportunity to drive shareholder value. We are not abandoning current business in the faster itprocess, but rather focusing on this market segment for future growth. We believe the implementation of the new strategy and vision can acquire, process, store,drive this portion of our business from approximately 20% of revenues today to over 50% in the coming years by providing an opportunity for a higher growth rate, margins, and retrieve data. In cases where the amountprofits. This starts with identifying and closing opportunities in this space. Approximately 50% of these resources doesour current pipeline of prospects, that are not fityet closed, fall within the constraints of a conventional server, PCIe is used to disaggregate the resources into a multi-chassis solution. We have built leading edge expertise in PCIe expansion technology and leverage it to design and build systems that offer a high quantity and density of GPU compute acceleration, flash storage and data I/O interfaces.AI Transportables space.

We see opportunities in both the commercial/industrial and military/government segments. Currently, our military business accounts for approximately 20% of our overall sales, but we anticipate this will grow to 50% over the next few years. Although the overall military budget will likely vary depending on the administration and global tensions, both of which can impact how many new aircraft carriers or tanks are built, we believe the priority will remain on implementing AI throughout the military theater, and that military funding in this segment is more likely to grow than decrease as the United States continues to be competitive with China.

A key element of our product strategy is technological leadership. We believe a first-to-market strategy is key to our ability to continue to win significant OEMoriginal equipment manufacturer (“OEM”) opportunities. As a result, we continue to develop new state-of-the-art products, providing first-to-market next-generation PCIe based building blocksa unique value proposition for our customers in the targeted space. Most recently, in November 2021, we introduced Rigel, the Super Edge Computing platform. This product brings to market the latest in Graphics Processing Units (“GPU”), Central Processing Unit (“CPU”), and systems. memory products in a rugged compact form factor, which targets the AI Transportable space and which we believe to be the first of its kind.

Our ability to drive the leading edge of technology is enabled by our strong relationships with strategic component manufactures, including NVIDIA (for GPUs), Western Digital and Micron (for flash memory);, Broadcom (for PCIe switch components), Mellanox (for networking) and Intel, AMD, and Marvel (for CPUs). In many of these cases, OSS haswe have access to product roadmaps and other technical information relating to future technology. Access to this information allows us to begin our design process well before the

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future components we are designing for even exist. This accelerates our time-to-market and allows us to produce and release state-of-the-art designs well ahead of our competitors.

OSS sells itsWe sell our products worldwide to industry leading customers. We service over 1,800 customers per year worldwide, with major repeat customers including disguise, National Instruments, Raytheon, the Navy, Thales, and Alcon. Our operations in Europe are driven by our Bressner group located near Munich, Germany, which we acquired in 2018 to help us expand within the European market. Although they are primarily a value-added reseller for the Company and other suppliers in Europe, we have a team that is focused solely on the AI Transportable portion of our business and leveraging many of their existing relationships. We anticipate continued global market growth, especially in our target marketsAI Transportables, and sustaining theour ability to increase market share through our leading technology, engineering expertise, supply chain management, and go-to-market innovation.

We were originally organized as One Stop Systems, LLC, a California limited liability company in 1998 before converting into One Stop Systems, Inc., a California corporation in 1999. On July 6, 2016, we entered into a Merger Agreement and Plan of Reorganization with Mission Technology Group, Inc. (“Magma”) whereby Magma merged with and into OSS with OSS continuing as the surviving corporation. We reincorporated as a Delaware corporation on December 14, 2017 and began trading as a public company on the Nasdaq Capital Markets on February 1, 2018. On August 31, 2018, we acquired Concept Development Inc., a provider of specialty in-flight entertainment, networking and other aerospace technology located in Irvine, California.  On October 31, 2018, we acquired Bressner Technology GmbH located near Munich, Germany.  Bressner is a valued-added reseller of high technology hardware which expanded the company’s high-performance computing product lines to include industrial and panel PCs, tablets and handheld compute devices while also opening up new markets in Europe.  Our principal executive offices are located at 2235 Enterprise Street, Suite 110, Escondido, California 92029 and our telephone number is (760) 745-9883. Our website address is www.onestopsystems.com. Information contained in, or accessible through, our website is for reference purposes only.

Industry Background and Market Opportunity

High performanceThe notion of network-based computing refersdates back to the 1960s, but many believe the first use of “cloud computing” in its modern context occurred in 2006 when Google’s then-CEO, Eric Schmidt, introduced the term during an industry conference. Years later, the explosive growth of internet-connected devices (“IoT”), along with new applications that require real-time computing power, started to create the drive for edge-computing systems. As the demand for AI on the edge and autonomous vehicles grew, so did the need for high-performance solutions capableto operate in harsh environments.

Edge computing is one of ingestingthe fastest growing markets driven by the need to do more at the edge. We estimate the edge computing market to be valued at approximately $200 to $400 million currently, and processing large amountswe anticipate that it will grow to $1 to $5 billion in the coming years. According to Gartner, Inc., a leader in technology research, only 10% of data was gathered and storingprocessed at the edge in 2018; however, it is expected that this number will grow to 75% by 2025. This dramatic change is driving an expected growth of over 38% per year between today and retrieving that data at speeds 10-100 times faster than a typical corporate computer. Increasingly, commercial companies, financial entities, governmental agencies, including2028, according to Grand View Research, resulting in an estimated market of $61 billion later this decade. OSS’ objective is to be the Departmenttechnology and market leader in the AI Transportable segment of Defense, and academic institutions are turning to high-performance computing solutions to analyze vast amounts of data to obtain meaningful and actionable insights. this market.

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Three technologies are fundamental:fundamental to the edge computing space: GPU compute accelerators, flash memory basedmemory-based storage, and high speedhigh-speed data acquisition I/O. These technologies enable systems to ingest, process and store data at significantly higher rates than traditional systems. By harnessing large quantities of these components, companies can receive necessary data analyses much more quickly turningand in a more secure manner, and as a result, turn raw data tointo actionable intelligence. Industry experts typically divide the high-performance computing market into the following categories:

Intersect360 Research categorizes and projects sales in the total high-performance computing market, as follows:

High Performance Computing Market by Product Category — Total Market Forecast by Economic Sectors ($B)

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Source:

Intersect360 Research, High Performance Computing (HPC) Revenue: Worldwide Market and Forecast Series, June 7, 2019.

The AI Transportable markets tend to implement AI, autonomous, and/or semi-autonomous capabilities. We believe markets for these products are large and growing. The industry sectorsApplications deploying these technologies today, or that are currently or anticipatedwe expect to require high-performance computing systemsdo so in the future, include:

These industry sectorsWe expect these applications to deploy increasingly faster computing systems in order to meet industry and competitive goals. GPU computer acceleration, high-performance flash storage and data acquisition are key subsets of the high-performance computing market.

GPU Compute Acceleration

The capabilities and speed of GPU accelerated computers are driving significant advances in AI and machine learning. Massive amounts of data are being collected, stored, and analyzed by today’s sophisticated algorithms. AI and machine learningWe are poised to transform worldwide business, as advances in computing speed and storage come together to enable businesses to solve complex problems. OSS is enabling the movegrowth of thissuch AI capability from centralized datacenters to deployments closer to the data sources at the edge.capability.

High Density Solid-State Storage

The market for flash memory based on solid-state storage systems is large and growing. According to a study by Markets and Markets, the all-flash storage server market is growing at 25% per year, and is expected to reach $18 billion by 2023. The proliferation of larger and larger data sets used in HPC andedge computing, including AI, areis feeding the need for higher capacity and higher performance storage devices.

Traditionally, companies have used hard disk drives for their primary storage. Hard disk drive-based systems are being replaced by flash memory basedmemory-based systems, which offer higher capacity, performance, reliability, and ruggedness. Flash-based storage systems also consume significantly less power.

Flash-based storage systems are especially useful for high performance computing applications, which deal with large amounts of data and the need for complex calculations to be completed in real time. In these applications, speed and efficiency are paramount. Military systems, for example, collect vast amounts of data using sensor systems, cameras, radar systems, and a myriad of other real-world inputs. This data needs to be collected, stored, analyzed and acted upon in a real-time environment.

High Speed Data Acquisition

At the front endfront-end of theseAI Transportable systems is high speed data acquisition technology. Depending on the application, the data can be generated from a wide array of sensors. In the case of an application utilized by autonomous vehicles, data is generated through arrays of video, LIDAR, and radar sensors. In battlefield applications, cameras, radar, sonar, FLIR (infrared), and RF sensors are deployed.deployed to generate data. In Medical applications, use MRI or CT sensors. Insensors are deployed to generate data, and in security applications, networks of security cameras produce high volumes of video data. Industrial automation includes telemetry data from Internet of Things (IoT) sensors and video feeds at a wide spectrum of frame rates.

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Although data rates vary for all of these applications based on the sensors or array of sensors deployed, the fundamental requirements for the ingest subsystem is that it supports high speed data rates, does not allow loss of data, and does not impose flow control on the sensor data stream. For many AI on the Fly applications, local data rates can be extremely high, requiring specialized PCIe data capture hardware. As part of the capture process, the data is often processed in real time to be formatted in a useable form prior to movement to the storage devices. Capture hardware can be in the form of PCIe FPGAs, video capture, frame grabbers, or smart NICs performing a range of functions including tagging, encoding, sorting, and analog to digital conversion, filtering, time stamping, and channel synchronization. 

Key Components of Our Business

Product Development

Our systems are built using the latest GPU and flash storage technologies andthat draw upon years of expertise in designing and manufacturing semi-custom as well as standard systems for OEMs. We have a history of being first-to-market with many solutions for emerging technologies. When PCIe was introduced in 2005, we were the first company to produce PCIe over cable adapters allowing system-to-system communication at the same speed as internal I/O expansion.expansion reducing latency significantly. Similarly, in 2018, we introduced the first PCIe Gen 4.0 cable adapters, and in 2019, we introduced the

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first PCIe Gen 4.0 system building blocks and platforms.platforms in which the PCIe Gen 4.0’s ultra-high performance 16.0 GT/s (giga-transfers/second) and signal integrity challenges limits the number of players in this market and creates barriers ofto entry. Today, we are one of the largest providers of PCIe adapters and expansion components used worldwide. In 2022, we intend to introduce a broad set of products utilizing PCIe Gen 5.0, which once again doubles performance to 32.0 GT/s.

When GPU technology and solid-state flash were first introduced, we began designing systems that maximized the effectiveness of these technologies. We now produce compute systemscompute-systems with large numbers of GPUs and flash memory communicatingthat communicate over PCIe toand allow faster processing, and data storage, and data retrieval. The more GPUs and flash devices available to a server, the faster that system can process and store data.

We use leading edge, state-of-the art components from major technology providers to design purpose-built systems that solve customer problems in an efficient, cost-effective manner. We apply the component technology provided by Intel, AMD, NVIDIA, Western Digital, Broadcom, and others to deliver customer driven designssolutions to provide true value to our customers.

Worldwide Sales

We providesell our products on a worldwide basis and are supported through a network of resellermanufacturers’ representatives, resellers, and distribution partners. Sales in North America and Europe are predominately driven by our direct sales force and manufacturers’ sales representatives, whereas Asian sales in Asia are driven through distributors.our distribution partners.

In October 2018, OSS GmbH acquired 100%(a wholly owned subsidiary of the outstanding stock ofCompany) acquired Bressner Technology GmbH (Bressner), located in Gröbenzell, Germany.Germany (near Munch, Germany). This acquisition providescreated a base for us to expand our European operations for sales, marketing, engineering, manufacturing, and support capabilities.

Recent Business Initiatives

In April 2019, certain members of the Company’s Board of Directors executed definitive agreements to commit funds of up to $4,000,000 as a credit facility. The Company initially borrowed $1,150,000 from members of the Board of Directors, and $350,000 from other shareholders for a two-year period at an interest rate of 9.5% which requires the Company to make monthly principal and interest payments of $69,000 per month. In connection with these loans, the Company issued the note holders warrants to purchase shares of the Company’s common stock equal to 10% of the original principal at a price per share equal to $2.15 per share.  Accordingly, the Company issued to the note holders warrants to purchase 69,766 share of the Company’s common stock.  The relative fair value of the warrants issued was $60,158.

In May 2019, the Company filed a Form S-3 prospectus with the Securities and Exchange Commission which became effective on June 19, 2019, and allows the Company to offer up to $100,000,000 aggregate dollar amount of shares of its common stock, preferred stock, debt securities, warrants to purchase its common stock, preferred stock or debt securities, subscription rights to purchase its common stock, preferred stock or debt securities and\or units consisting of some or all of these securities, in any combination, together or separately, in one of more offerings, in amounts, at prices and on the terms that the Company will determine at the time of the offering and which will be set forth in a prospectus supplement and any related free writing prospectus.

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In July 2019, the Company sold 1,554,832 shares of common stock for total gross proceeds of $2,700,714, which resulted in net proceeds to the Company of $2,488,148.

Coronavirus, COVID-19, continues to impact worldwide economic activity since it first surfaced around December 2019.  A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, customers, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.

On February 15, 2020, Steve Cooper was terminated as President and CEO of the Company, and was replaced by David Raun, who is now the current President and CEO of the Company.

On April 7, 2020, the Company implemented a cost reduction plan which included the termination of certain employees and elimination of certain costs.  Savings from this effort are estimated to be approximately $2.5 million on an annual basis.  

On April 24, 2020, the Company completed a $6.0 million debt financing on a non-interest bearing convertible note with a 10% original issue discount.  The first tranche of $3.0 million was received on April 27, 2020, with an additional $3.0 million available seven months from the date of closing at the option of the Company conditioned upon meeting certain requirements which have been satisfied.  The note is repayable in twenty-two installments beginning three months after closing in cash or shares of the Company’s common stock. 

On March 1, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 1,497,006 shares of the Company’s common stock, par value $0.0001 per share, to the purchaser at an offering price of $6.68 per share. The registered offering was conducted pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-231513), which was initially filed with the Securities and Exchange Commission on May 15, 2019, and was declared effective on June 19, 2019. The Company filed the final prospectus supplement for the registered offering on March 3, 2021. In connection with the Securities Purchase Agreement, the Company also entered into a Placement Agency Agreement, pursuant to which A.G.P./Alliance Global Partners agreed to serve as lead placement agent for the registered offering and The Benchmark Company, LLC agreed to serve as co-placement agent for such offering. As compensation for their services, the Company paid to the placement agents a fee equal to 7% of the gross proceeds received by the Company as a result of the registered offering, and reimbursed the placement agents for certain expenses incurred in connection with such offering. The Company estimates that the net proceeds from the registered offering will be approximately $9.25 million after deducting certain fees due to the placement agents’ and the Company’s estimated transaction expenses. The net proceeds received by the Company will be used for general corporate and working capital purposes.

What Sets OSS Apart

Several factors differentiate OSS from other suppliers of high-performance edge computing solutions:

solutions, including, without limitation the following:

Our business model consists of developing specialized computing solutions that our customers utilize as a key component of the equipment that they sell to end users. Our niche is to provide reliable purpose-built platforms with the latest high-performance computing technology that is focused on challenging edge deployments.deployments that are mobile.

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Business Strategy

We have traditionally followed a strategy of being first-to-market in leading edge deployment technologies by designing and developing products that are delivered before our competitors. This market leadership strategy is accomplished through what we term aas the “Catch the Wave” approach to the market. We currently have products spanning the spectrum of

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high-performance computing including servers, flash storage, GPU acceleration, networking and PCIe data acquisition I/O expansion. Within these product areas, the OSS “Catch the Wave” approach implies that we:

Earnings Growth Strategy

OSS intendsWe intend to implement different strategies to continue itsour revenue growth, with a focus on growingwhile improving earnings. TheWe believe that earnings growth willcan be accomplished by:by taking the following actions:

Revenue growth driven by existing OEM and new design wins:

Higher Margins:margins:

Manage Expenses:Optimize expenses:

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Our Opportunity

The worldwide high-performanceedge computing market is expected to grow from $39 billion in 2019at a compounded annual growth rate (“CAGR”) of 38% to $50$61 billion by 2023.2028 (Grandview research, “Edge Computing Market Size” June 2019)Size,” May 2021). Within this market, OSS iswe are positioned inand focused on the highest performanceAI/autonomous portion at the very edge, which we call AI Transportables, and fastest growing portionswe believe that this market could be as large as $5 billion within several years. The products we develop to address this market include custom compute and storage servers, as well as edge optimized PCIe expansion systems. These PCIe expansion systems can be populated with a range of the specialized edge computing market including the customer server, GPU accelerators, storage (flash arrays)high-end GPUs, FPGAs or Nonvolatile Memory Express (“NVMe”) drives to create Compute and PCIe data acquisition and expansion sectors.Storage Accelerators that attach to general purpose servers.

Custom Built Servers

Within the server sector, OSS has secured a niche position of building purpose-built specialty servers, which the major server suppliers choose not to supply as they require custom tuning and special features that major OEMs cannot easily provide. Such flexibility is difficult to maintain for major suppliers because their systems are not designed to reflect specific customer specifications. OSS on the other hand has continued to find efficient ways to service this market.  For example, OSS designs and builds a custom server with custom connectors and 16 high-definition video media outputs that are used in the entertainment industry to provide multimedia at live performances.

GPU Compute Accelerators

GPU computing uses hardware components that are optimized to perform mathematical calculations in a rapid fashion. NVIDIA is the market leader in the design and manufacturing of these components.  OSS works closely with NVIDIA to design and build systems which use multiple GPUs to accelerate applications.

Markets and applications such as artificial intelligence, image rendering and processing, autonomous vehicles, deep learning, molecular modeling, genomics, advanced visualization, machine learning, and image processing, all benefit from the ability to use GPUs to accelerate the application. OSS builds specialized compute accelerators, using the latest GPU technology, to attach to traditional servers used in these emerging growth markets. We estimate these markets to be very large and growing.  Because our strategy has been to be first-to-market with the fastest and densest compute accelerator appliances, we anticipate our addressable market to be in the hundreds of millions of dollars.

We also have a strong position in the government market which, according to Intersect360, constitutes 25% of the market resulting in projected revenue of $13 billion by 2023. OSS products can form a basis for companies who wish to participate in the hyper-scale market, which includes deep learning and AI. This is a major technology trend that OSS is addressing. Intersect360 estimates the deep learning market was worth more than $8 billion in 2018 with projections to grow to over $28 billion by 2023, according to Kenneth Research dated August 2019.

All Flash Arrays

We build standard and custom flash storage arrays to customer specifications utilizing our unique know-how in PCIe device fan-out, packaging, cooling, and PCIe-over-cable. We deliver dense, high-performance systems that provide customers with high value and utility in the most demanding, data-intensive operations.

Through a strategic agreement with Western Digital, we acquired the software engineering team several years back and the appropriate source code license for the Ion flash array software.  This provides OSS flash arrays with a high level of differentiation relating to storage management, latency and throughput. We provide standard flash array products and have the in-house hardware and software expertise to provide customized systems for demanding applications that are not suitable for standard offerings.

For example, we provide products to a large military contractor for integration into military aircraft that required us to design and manufacture a highly ruggedized mil-spec flash array. The resulting product provides high data density with low weight and a high degree of portability and security for the data. We believe our experience and capability in high speed, low-latency, digital signaling via PCIe gives us an edge in providing these custom designs to OEMs, military programs and other special purpose applications.

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The overall market for flash arrays is growing rapidly. According to Markets and Markets All-Flash Array Market – Global Forecast to 2023 published in February 2019, the flash storage market totaled $6 billion in 2018 and is expected to grow to reach $18 billion by 2023. According to Intersect360 about 80% of the total sales in 2018 were attributed to traditional large OEMs, like Dell EMC, NetApp, HPE, Hitachi, Lenovo, DDN and IBM. The remaining 20% is addressed by many smaller flash storage providers, including OSS. We believe that because our products are positively differentiated by speed, density, and management features for challenging edge applications, our offerings compete favorably in this market and provide a substantial growth opportunity.

Since we develop custom flash storage arrays, we work closely with both OEMs and end users to insure they receive the product they want in the specific configuration, size and weight required for their application. We believe this gives OSS an advantageous position in a market that is growing rapidly and allows us to favorably compete in the market.

PCIe Data Acquisition Expansion and Adaptors

PCIe is the high-speed standard for communications within a computer. This standard defines the signals and connectors (i.e. slots) that are used for computer add-in cards (such as Ethernet or graphics). Traditionally, communication between computers in the network is done via Ethernet.  Although Ethernet is great for large networks, this introduces delays and latency challenges.  To keep performance at the highest level, PCIe signaling can also be routed over a cable, allowing expansion input/output slots to be physically located in a separate chassis. This provides for the high performance and low latency which are essential in this market.

Being able to separate the server from the I/O expansion, using PCIe over a cable, facilitates disaggregation of server functionality. That is, with PCIe, server I/O functions no longer need to be contained in the physical server chassis, but can instead be separated into a separate chassis and continue to operate at full speed. This offers many advantages over higher latency and power consuming traditional networking communications like Ethernet.  From a practical perspective, servers can be connected directly to larger storage arrays or other peripheral devices, with the resulting group of chassis operating as if they were all in the same physical chassis.

We began developing our first PCIe-over-cable adaptor in 2006, and were one of the early providers of PCIe adaptors. We recognized this as prime opportunity to utilize our core strengths, such as:

This technology has now become a standard within the computer industry, and OSS customers have used our adaptors to connect their custom input/output chassis and achieve performance equivalence as if the input/output was integrated into the server box. This gives designers and integrators a degree of flexibility and utility in architecting computer systems that is unprecedented. For example, one of our customers has utilized PCIe-over-cable to connect its high-performance video editing systems to a host computer, providing a system that is optimized for an application using standard servers. We have expanded our PCIe adaptor market in breadth and depth, including making adaptors for many OEM customers. To date, we have shipped more than 100,000 PCIe adaptor cards to customers globally.

With our expertise developed in designing adaptor cards, the logical extension of our capability led us to develop a method for expanding the PCIe bus into an external chassis containing one or many expansion slots. This allowed a customer to install multiple standard PCIe boards into a chassis and expand their system without having to add additional servers. A user could now connect a multiplicity of PCIe devices to a single server, and achieve performance throughput and low latency that was not possible prior to the introduction of PCIe.

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We have been a leader in PCIe expansion backplanes and chassis through generations 1, 2, 3, and 4. As PCIe evolves through generations 5 and 6, we are uniquely positioned to continue our leadership role in this market. We have introduced a full line of PCIe Gen 4.0 products and will once again take a leadership role with PCIe Gen 5.0 when the specification is complete which is anticipated in 2021. We currently offer what we believe to be the largest PCIe expansion product line breadth, with chassis and backplanes that offer expansion from one to 64 slots. Due to its greater data throughput and flexibility of design, we believe this is a growing market, and we intend to maintain our leadership role.

Our Technology

We design and manufacture high performance computing systems for use on the AI Transportable edge, thatwhich are designed to increase compute performance while reducing cost and impact to the infrastructure.surviving in harsh environments. Our high-density compute acceleratorsconnect directly to a server’s PCIe bus, delivering substantial compute performance. Our flash storage arrayssupport hundreds of terabytes of high-speed storage that can also be accessed by multiple servers.

Technology Drivers for OSS High-Performance Computing Business

OSS hasWe have developed expertise and core competencies in the three fundamental technology drivers ofwithin today’s high-performance edge computing market. Namely,market – high-speed serial interconnect technology, compute acceleration utilizing GPUs, and low latency flash storage. In combination, these three fundamental technologies are changing the economics of computing, bringing high-performance computing within the grasp of a wide range of new industries and commercial applications on the edge. Simultaneously, the emergence of massive amounts of data being generated in each of these industries is pushing the requirement for state-of-the-art technology. OSS isWe are enabling this state-of-the-art technology to be deployed at the edge by merging these fundamental technologies with our expertise inand providing the system level customization for meeting requirements for ruggedization and SWAP constraints (space,space, weight, and power).power (“SWAP”) constraints. Our strategy is to be the leader in the platforms for AI Transportable applications, and our strategy is based on our unique ability to design high quality performing AI workflow compute/storage engines that can be deployed in harsh dynamic environments, which require unique system level features for vibration, cooling, and power.

The opportunity isWe strive to not only to provide competitive advantage for corporations,companies, but also to address some of the most fundamental challenges in military, life science, energy, and security. OSS issecurity applications. We believe that we are well situated to leverage these major industry forces. By exploiting itsour unique set of expertise in the underpinning technologies of high-performance computing, OSS willwe strive to continue to deliver worldindustry leading solutions withand to take advantage of the opportunity to capture a growing market share ofin this rapidly expanding marketplace.

Switched Serial Interconnect

Switched serial interconnects are the data highways connecting many elements of today’s high-performance computing platforms. At ever increasing speeds, these pathways move data between system’s processing units, storage, networking, and peripheral elements. For high performancehigh-performance computing, the primary processing, storage and peripheral interconnect is PCIe Gen 4.0.PCIe. Currently, PCIe Gen 4.0 has an ability to run up to 16 lanes in parallel, which allows up to 64 gigabytes (full duplex) per second bandwidth between system elements.

Serial switches incorporated in system design allow many system elements We intend to be connected together in a non-blocking interconnect fabric atintroduce products based on PCIe Gen 4 speeds. This switch fabric capability allows systems5.0 during 2022, which is anticipated to scale internally avoiding bottlenecks. The serial interconnect can be embedded directly indouble the computer printed circuit boards, across connectors board-to-board, or traverse across copper or optical cables for chassis-to-chassis connection. Due to the extremely high speeds, the design considerations around signal integrity are rigorous and with unforgiving tolerances. PCIe Gen 5 will begin deployment in 2021, doubling the interconnect speed once again.system bandwidth.

Compute Acceleration with GPUs

GPUs have evolved from graphics display acceleration to becoming general-purpose processing workhorses for high-performance computing systems. Today, the majority of the fastest supercomputers in the world utilize GPUs as their primary compute engines. GPUs are ideal for high-performance computing workloads because of their ability to do massively parallel processing. While today traditional CPUs today may have dozens of processing cores, GPUs have thousands of cores that are able to execute calculations simultaneously.

For many high-performance applications, fundamental pieces of the code can be optimized to run in parallel and therefore experience significant performance enhancements. NVIDIA, a key supplier of GPUs to the market, has done extensive benchmarking showing the ability of single GPU based machines to exceed the performance of dozens or even thousands of traditional CPU-only computers. NVIDIA has worked extensively with the software development community, and hundreds of applications have been tuned and developed to run on GPUs.

The current NVIDIA GPU Applications catalog lists more than 400 such applications across a broad set of market spaces including:including, without limitation:

While NVIDIA is focused on the deployment of their GPUs in the Data Centerdata centers and for gaming OSS ispurposes, we are focused on taking this capability to the edge. Many of these applications also scale performance, based on the number of GPU components utilized. OSS hasWe have designed multi-GPU systems, including up to 16 GPUs in a single system. Current state-of-the art GPUs provide over 7 teraflops of performance, with future products set to dramatically increase overall processing capabilities in the years to come.

GPUs also pose significant system design challenges due to their high-power requirements. High-end GPUs can require as much as 350500 watts of power or more, which generates a tremendous amount of heat. Sophisticated power distribution and cooling designs are required, especially for large scalelarge-scale systems with multiple GPUs per chassis.

PCI Express Flash Storage – NVMe protocol

The use of flash memory technology for system storage has gained traction over the last several years, aspast decade, which we believe to be a result of the continuous decline in the cost per gigabyte has continued to drop.gigabyte. Flash memory is now becoming the ubiquitous storage technology in high-performance systems.

Combined with the move away from traditional rotating hard drive technology, there has been the trend toward eliminating traditional storage protocols in favor of low latency flash memory protocols. Newer flash memory modules utilize a protocol known as NVMe, which connects the flash memory directly to the system’s PCIe interconnect. This direct connection allows for very high bandwidth between the storage and the other system elements, andwhich eliminates the need for protocol translation as data is movedmoves from storage subsystems to and from the compute complex.

Today, flash memory modules with capacities up to 816 terabytes and PCIe Gen 44.0 interfaces are becomingnow available. OSSOur flash storage arrays with hundreds of terabytes of capacity are also available, enabling the scaling of high-speed storage to meet the full range of high-performance edge application requirements.

Our Core Technical Capabilities

OSS hasWe have developed unique expertise and core competency across the fundamental technologies of today’s rapidly expanding specialized high-performance edge computing marketplace. These valuable assets are embedded in the leading-edge engineering capabilities of our engineers, the proprietary intellectual property residing in our vast library of designs, and our brand equity based on our reputation as a high-quality producer of state-of-the-art, custom and standard solutions across a broad array of markets.

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High Speed System Interconnect Design

Our electrical engineers are experts in high-speed digital signaling design. They have continually designed at the leading edge of the state-of-the-art signaling speeds, even as semiconductor technology has driven up the clock rate of digital transmission. We have consistently been among a small handful of companies able to come to market first with the latest technology. In fact, we delivered the industry’s first PCIe over cable solutions for PCIe Gen 1,1.0, Gen 2,2.0, Gen 3, and3.0, Gen 44.0, and are currently on track to accomplish this again for Gen 5.0, which is expected to begin deployment in Gen 5.2022. The expertise required includes circuit design, PCB (printed circuit board) layout and routing optimizations, all with aof which focus on achieving the highest levels of signal integrity. In our current systems, PCIe Gen 44.0 signals are propagated across multiple PCBs, connectors, and copper cabling, while maintaining the ability to recognize digital signal transitions at 16 billion times per second.

In high-performance computing systems, especially those systems that operate on the edge, the trajectory ofand need for ever-increasing signaling speeds is continuing.   An ever-shrinking setcontinuing; provided, however, the number of companies that have the capability to design robust, highly-reliable systems at speeds that can tolerate the harsh conditions on the edge.edge are continuing to decline. We believe our core competency in large-scale, high-speed design, and layout will allow us to remain on the forefront of this growing industry.

Complex System Design

In addition to low-level signal integrity design expertise, we have amassed expertise and intellectual property in high-performance system architecture design. This expertise allows us to develop extremely sophisticated systems with massive scaling, while also meeting customer demands for reliability, cost, and flexibility.

We To do so, we have developed the deep knowledge for high-capacity input/output systems, and operating system adjustments, and required configuration tuning required. Ourtuning. Due to this development, our engineers are often called upon to co-design with OEM designers to create the perfect solution to fit solution forthe needs of their customers.

For highly scalable systems, a deep understanding and experience with switching topologies and interconnect fabric design is required. We have worked with serial switching technology starting with the first generation of PCIe and have been an innovator in creating unique and flexible topologies to meet the specific needs of the customers. Creating custom solutions for unique customer solutions is a core competency at OSS, and relieswe rely on this deep knowledge of switch capabilities and limitations.

For maximum system performance, design for optimizing data transfer speeds is also an important consideration. OSS hasWe have developed expertise in system design to leverage peer-to-peer data flows between GPUs and pioneering techniques for optimized data flows between flash storage and GPU compute engines.compute-engines. Our systems optimize switch and GPU configuration topologies to optimize GPU-to-GPU communication without requiring latency-inducing data transfer between host dual processors. Our platforms feature RDMA (remote direct memory access) across compute nodes,compute-nodes, which support data transfer without burdening the host CPU.

OSS hasWe have pioneered the ability to extend the PCIe bus beyond the confines of a single enclosure, opening the possibility of flexible system expansion options. We believe we are one of the leading designers and suppliers of PCIe host bus adapters that extend PCIe signals from the host motherboard across copper or optical cables to expansion enclosures. OSSOur adapters provide both ends of the external cable connection. Our expertise in high-speed signal design in printed circuit boards, connectors, and cables is essential to successful expansion designs. We also hold expertise in incorporating clustering and rack scale expansion into our system designs, including 100/200200/400 gigabit Ethernet, 100/200200/400 gigabit InfiniBand, and emerging PCIe top-of-rack switch technology.

Expertise in power, cooling, and mechanical design are required to address the requirements of the high-performance computing customers, especially while meeting the constrained time requirements of edge deployments. We have developed leadership design capability in high-power design and distribution within large rack enclosures as well as edge optimized configurations. High-end GPUs today require 350500 watts or above, and in our high-end systems, up to 16 of theseGPUs can reside in a single chassis. Thousands of kilowatts of redundant power are required. Power stability and huge thermal loads are some of the critical design issues that must be addressed. Additionally, at the edge for AI applications, a wide range of input power sources need to be supported from standard 110-220 VAC to 270 and 48 VDC for terrestrial vehicles to three phase 400-800Hz AC for airborne applications.

We have expertise in power distribution, redundant power, and complex chassis cooling design, including materials selection, airflow simulation, fan technology, and cable routing. We have also developed extensive intellectual property into help ensure regulatory compliance of our complex high-performance computing system designdesigns that span across emission, shock, vibration, thermal, humidity, and other environmental requirements that are required for highly reliable and highly available solutions. OSSOur engineers are experts in design for regulatory testing for FCC (Federal Communications Commission), CE (European

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Conformity), UL (Underwriters Laboratories), and Mil-Spec (Military Standard) standards. Additionally, we have expertise in rapid prototyping, design for manufacturability, and design for serviceability.

Storage Management Software

Given our hardware design and integration expertise, we seebelieve that the next natural step is to add a robust software capability that will allow us to offer more optimized and customized systems. Our Ion software design team provides the expertise to deliver full server and storage solutions that produce the highest performance from today’s leading-edge flash storage devices.

The Ion software allows flash-based modules to be put into a variety of storage and network configurations

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which can then be accessed by multiple servers. The Ion software can do this cost-effectively, while preserving the low latency that is vital for many business and mission-critical enterprise applications, from database and transaction processing to massive data collection programs. Ion also has a full high-availability option to ensure complete data integrity.

In-house mature and established foundational storage software allows OSS to add new products and capabilities to its product portfolio. Possibilities range from increasing data efficiency with snapshot, de-duplication and compression, to improving system manageability and adding NVMe over Fabrics storage scale out capabilities to our products.

Benefits of Technology and Core Capabilities to our Customers

Due to our core capabilities, we can provide our high-performance computing customers with platforms possessing high reliabilitythat are highly reliable and cost effectiveness.effective. Such performance allows our customers to solve bigger problems faster, and save the cost and time of highly-paid engineers, data scientists, and other human resources. Our technology enhances innovation by allowing more ‘what-if’ analysis in a finite amount of time. Our price/performance leadership enhances our customers’ competitiveness and lowers capital expense and total cost of ownership. We work with our OEM customers to develop custom ‘perfect fit solutions’ for their unique requirements.

Our Products

OSS has developedCompute Servers

Within the server sector, we have secured a completeniche position of building purpose-built specialty servers, which the major server suppliers choose not to supply, as they require custom tuning and special features that major OEMs cannot easily provide. Our compute servers are designed to provide the highest level of performance that can be deployed in harsh edge environments. Our extensible operating system (“EOS”) line of productsservers is optimized for supporting a high number of expansion chassis. Servers in this product family have a large number of slots that are compatible with the PCIe host bus interface cards that we have been customizeddeveloped. These cards enable PCIe connection over cable between the hose processor and downstream I/O devices. These servers have custom basic input/output systems (“BIOS”) to ensure they work seamlessly with expansion chassis and support a high number of downstream I/O devices. Our software-defined storage (“SDS’) line of servers support rugged deployment in space constrained environments providing a maximum depth of 20 inches.  We believe that our newly announced “Rigel Edge SuperComputer” (“Rigel”) is the highest performance, most dense, AI-compute platform that is deployable in extreme environments, including on military aircraft. We also design custom servers; for example, a server with custom connectors and 16 high-definition video media outputs that are used in the benefit of our customers.entertainment industry to provide multimedia at live performances.

GPU Appliances – high-density, fully integrated computer clusterscomputing uses hardware components that are purpose-built for user applications. They provide thousands of cores and hundreds of teraflops of computing performance.

GPU Expansion – expansion units can add hundreds or thousands of computing cores with hundreds of teraflops of computing performance to virtually any OEM server.

Flash Storage and Network Appliances – networked storage appliances optimized for the environment and system software of our customers. These offer flexible and powerful turnkey, customer-driven solutions for the HPC market.

Flash Storage Arrays – arrays that provide hundreds of terabytes of storage and millions of input/output operations per second with flash memory. They are flexible, powerful, and configurable for customers in the HPC market.

Servers – OSS designs servers optimized for PCIe-over-cable expansion. Available in various turn-key and custom configurations, they provide simple, reliable and cost-effective server solutions. These servers are optimized to perform mathematical calculations in a rapid fashion. NVIDIA is the market leader in the design and manufacturing of these components. We work seamlesslyclosely with otherNVIDIA to design and build systems which use multiple GPUs to accelerate applications.

Emerging markets and applications such as AI, image rendering and processing, autonomous vehicles, deep learning, molecular modeling, genomics, advanced visualization, machine learning, and image processing, all benefit from the ability to use GPUs to accelerate the application. We build specialized compute-servers and accelerators used in these emerging growth markets. We estimate these markets to be very large and growing. Because our strategy has been to be first-to-market with the fastest and densest compute appliances, we anticipate our addressable market to be in the hundreds of millions of dollars.

Storage Servers

We also build standard and custom flash storage arrays utilizing our unique know-how in PCIe device fan-out, packaging, cooling, and PCIe-over-cable. We deliver dense, high-performance systems that provide customers with high value and utility in the most demanding, data-intensive operations. These OSS Storage Servers complement our compute servers to provide an end-to-end edge solution for AI workflows.

Through a strategic agreement with Western Digital, we acquired a software engineering team on July 1, 2017, and entered into a license agreement to obtain rights to the appropriate source code for the Ion flash array software. This provides our flash arrays with a high level of differentiation relating to storage management, latency, and throughput. We provide standard flash array products and have the in-house hardware and software expertise to provide customized systems for demanding applications that are not suitable for standard offerings. For example, we provide products to a large military contractor for integration into military aircrafts that require us to design and appliances.

Desktop Computing Appliances – OSSmanufacture a highly ruggedized mil-spec flash array. The resulting product provides high data density with low weight, a high degree of portability, and security for data protection. We believe our experience and capability in high speed, low-latency, digital signaling via PCIe gives us an edge in providing custom designs and builds desktop expansion appliances in many configurations that add input/output flexibility to any user’s desktop system. These appliances come pre-configured with many combinations of flash memory, GPUs,OEMs, military programs, and other add-in boards.special purpose applications.

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We believe that because our products are positively differentiated by speed, density, and management features for challenging edge applications, our offerings compete favorably in this market and provide a substantial growth opportunity.

PCIe Expansion – and Adaptors

PCIe is the high-speed standard for high-speed connectivitycommunications within a computer. This standard defines the signals and connectors (i.e., slots) that are used for computer add-in cards (such as Ethernet or graphics). Traditionally, communication between computers in the network is completed via Ethernet. Although Ethernet is great for large networks, this introduces delays and latency challenges.  To keep performance at the highest level, PCIe signaling can also be routed over a cable, allowing expansion input/output slots to be physically located in a separate chassis. This provides for high-performance and low latency, which are essential in this market.

Being able to separate the server from the I/O expansion, by using PCIe over a cable, facilitates disaggregation of server functionality. That is, with PCIe, server I/O functions no longer need to be contained in the physical server chassis, but instead, can be separated into a separate chassis and continue to operate at full speed. This offers many advantages over higher latency and power consuming traditional networking communications like Ethernet. From a practical perspective, servers can be connected directly to larger storage arrays or other peripheral devices, with the resulting group of chassis operating as if they were all in the same physical chassis.

We began developing our first PCIe-over-cable adaptor in 2006, and were one of the early providers of PCIe adaptors. We recognized this space as a prime opportunity to utilize our core strengths, such as:

This technology has now become a standard within the computer industry, our customers have used our adaptors to connect their custom input/output chassis and achieve performance equivalence as if the input/output was integrated into the server box. This gives designers and integrators a degree of flexibility and utility in architecting computer systems that is unprecedented. We have expanded our PCIe adaptor market in breadth and depth, including making adaptors for many OEM customers.

With our expertise developed in designing adaptor cards, the logical extension of our capability led us to develop a method for expanding the PCIe bus into an external chassis containing one or many expansion slots. This allows a customer to install multiple standard PCIe boards into a chassis and expand their system without having to add additional servers. These are typically GPUs, FPGAs or NVMe drives to create large-scale Compute and Storage appliances. For example, we have developed a product for deployment in a mobile command center, which aggregates large amounts of high frequency data from sensors and allows in the field AI algorithms to operate in real time. This is achieved through a cluster of our Compute and Storage products. A user can now connect a multiplicity of PCIe devices to a PCIe device. It provides vastly fastersingle server, and achieve performance throughput compared to USB or Ethernet in a simple, cost-effective connection. It requires no special software, which adds no overheadand low latency, what was not possible prior to the system,introduction of PCIe.

We have been a leader in PCIe expansion backplanes and improves latencychassis through generations 1.0, 2.0, 3.0, and 4.0. As PCIe evolves through generations 5.0 and 6.0, we believe that we are uniquely positioned to continue our leadership role in this market. We have introduced a full line of throughput. OSS provides cables, kits,PCIe Gen 4.0 products, and expect to take a leadership role with PCIe Gen 5.0 as we introduce products in 2022. We currently offer what we believe to be the largest PCIe expansion product line, with chassis and backplanes enclosures, switches,that offer expansion from one to 64 slots. Due to its greater data throughput and adaptor cards forflexibility of design, we believe this is a growing market, and we intend to maintain our leadership role within the market.

Industrial and Panel PCs – OSS provides

Additional Compute Products

Through our Bressner subsidiary, we provide small, form factor high-performance compute platformsindustrial and panel PCs compute-platforms customizable to meet needs in industrial applications on the edge where space constraint is a fundamental consideration.

Tablets and Handhelds – OSS provides  We also provide ruggedized, mobile high-performance compute devicestablets and handhelds that meet the specialized requirement for devices deployed at the edge in a diverse set of environmental conditions.  

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Customers

OSS servesCustomers

We serve a global clientele consisting of multinational companies, governmental agencies, military contractors, and leading technology providers. Some of our key customers are set forth below, including case studies illustrating the class of customers we pursue with our sales, product marketing and marketing communications efforts.

Raytheon – We work closely with many of the US Government agencies and prime contractors to bring the latest technologies to mobile edge applications. Raytheon provides an excellent example of how we provide custom solutions.

Raytheon – OSSadapted high-performance computing elements used in air-conditioned datacenters to the rigorous environment encountered in a US Navy aircraft. We worked closely with Raytheon to build a customized flashNVMe storage array, with flash drives installed in removable canisters. Raytheon has installed these storage arrayscanisters for high-speed sensor data acquisition, encryption, and recording. This massive amount of mission data can then be easily off-loaded upon landing the aircraft and sent to the traditional government data center, which is a significant development given that satellite network links are too slow to handle transmitting that amount of data. To further enhance the data collected, we embarked on a current military aircraft equippedsecond project with multiple sensors, encryption devices andRaytheon to build a GPU accelerated “datacenter in the sky” system to enable mission data recorders. These devices are fully compliant with appropriate military specifications, including shock and vibration. Each canister hascollected in the capacity to save 100 terabytes of data and weighs only 6.5 pounds, a fraction of the weight of the previous spinning hard drive design. Data is captured onto the compact OSS flash array canisters, which canto be easily removed at the end ofanalyzed and run through AI algorithms in real time while the mission for analysis. Our expertisewas in designingprocess. This allowed the aircraft and manufacturing high-density flash arrayscrew to make real time decisions using the same level of processing power available in a ground-based system. Finally, we enhanced that “datacenter in the lightest, most compact package allows military aircraftsky” with a 3-system cluster to realize faster turnaroundsprovide large scale resources during critical missions.missions and to carry out multiple AI tasks in real time. These systemsapplications are being incorporated into new aircraftgreat examples of AI transportable end products. We have continued to enhance and retrofitted intorefresh the existing fleet.  In addition to these storage arrays, OSS has also expanded into designingtechnology for this program while working on opportunities with other prime contractors, including other mobile applications such as video surveillance, video analytics and manufacturing compute platforms for Raytheon, adding AIautonomous vehicles on land, in the fly capabilities to aircrafts.sea and in the air.

disguise– disguise is the leading provider of hardware and software that allows their customers to produce live events, television broadcasts, theater effects, and special effects for concert tours. In addition to its live event products, disguise is becoming a leader in the virtual world by leveraging the same technology and OSS’our products to create realistic 3D backdrops in movie and broadcast studios around the world. OSS hasWe have worked with disguise to design purpose-built, customrugged servers that act as video controllers for specialto create the virtual and visual effects atused in these events.applications. These edge servers workrequire high performance to create the most demanding effects, but also must be rugged enough to move from venue to venue every night. The edge servers operate seamlessly with disguisedisguise’s software applications on set, providing up to 16 simultaneous video outputs that supports a rich array of special effects and extended reality experiences. Events like the Super Bowl halftime show, sporting events, feature films, music videos, broadcast studio, metaverse experiences and numerous musical concerts rely upon disguise controllers, designed, and produced by OSSus to deliver a lasting impression on audiences.

National Instruments – National Instruments is a market leader and multinational company that produces automated test equipment and virtual instrumentation software. OSS providesWe provide several PXI/PXIe/PCIePCI Express-based interface cards that are branded by National Instruments. OSS actsInstruments and used in capturing and controlling sensors that produce AI datasets. We act as an extension to National Instruments’ engineering group, allowing National Instruments to complete their product roadmap in a timely and cost-effective manner.

Alcon – Alcon is a market leader in the production of computer assisted medical equipment. Our European subsidiary, Bressner, provides several rugged, purpose-built, high-performance workstations used in performing these AI assisted surgeries.  Bressner works directly with Alcon engineers to co-design and assist in securing medical certifications for the products that doctors and patient trust for pinpoint accuracy and speed.

Sales and Marketing

Our sales and marketing efforts are focused on promoting sales, producing expert content, and brand awareness.

Sales

Our sales efforts entail threeconsist of five main areas:channels:

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Marketing Communications

Our marketing communications department is responsible for defining our vision and product road map while also producing the highest return on our investments.  They primarily focus on positioning OSS as an expert and visionary in the field of high-performance computing in edge applications utilizing PCI Express.AI Transportables market.  We generate expert content to support our market leading products, while also building cost effective brand/product awareness in several ways. We use traditional and non-traditional marketing communications, as well as partnerships and word of mouth, to convey the uniqueness and compelling value of our products and services. The markets andAI Transportable market applications we target include machine learning, deep learning, finance,AI inference applications in autonomous vehicles, medical equipment, in-flight entertainment, manufacturing automation,commercial aerospace, defense/government, oil and gas exploration, and media and entertainment. Bressner additionally targets embedded industrial and IoT customers in the EMEA region. Among the many channels utilized are:

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As we grow, it is anticipated our marketing efforts will likewise continue to increase in size and diversity.focus on the AI Transportable market.

Competition

OSS’Our core business is to provide specialized high-performance edge AI computing building blocks and platforms to OEMs who incorporate these products ininto their complete solutions, which they then sell to end users in specific vertical markets.the AI Transportable market. Due to the nature of OSS’our business, there are a number of categories of potential competitors of our products.

Customer in-house design resources

Many of OSS’our target OEM customers have in-house engineering design resources, which could be used as an alternative to engaging with OSS.us. Examples of current OSS customers who have significant in-house resources include National Instruments, Raytheon, and Lockheed Martin. This potential competition is mitigated by the technical specialization OSS hasthat we have, especially in high endhigh-end and large scalelarge-scale PCI Express switch fabrics and PCI Express over cable capabilities. OEMs can invest their in-house resources on value-add capabilities within their specific vertical market and outsource these horizontal technology capabilities to OSS.  OSS hasus. We have also developed a trusted partner relationship with many of these OEMs

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and hashave established a market reputation for technical expertise and a responsive and cost-effective engagement model. We win when our customers realize that together we can produce better products faster and more cost-effectively than they can by themselves. This has proven to be particularly evident when customers require state-of-the-art products that are constructed of parts available commercially. This has resulted in several designprogram wins that demonstrate our flexibility and how we can work closely with large OEM and government customers. Interestingly, it appears that when these large companies cut back on their workforce or have more limited budgets,funding, such events may actually helpbolster our position, as we may become these companies’ only option to get their desired product or service deployed within a reasonable period of time.period.

Major Tier 1 & 2 Mainstream Computer, GPU and Storage Vendors

These vendors offer mainstream high-performance computing platforms, including servers and storage systems that can address some applications at the edge in OSSour target markets. TheyTypically, they do not; however, offer the ‘specialized’ platforms or customization capabilities that OSS specializeswe specialize in to meet unique form factor, orpower, ruggedization or scale out requirements sought by OEM customers. For the most partGenerally, these vendors focus on the large, air-conditioned data centers and competecompeting with such vendors based on price/volume.  OSS’volume as differentiation is challenging. Our strategy is specifically designed to avoid head-to-head competition in this part of the market with this class of vendors. In some scenarios, OSSwe can provide a complementary specialized component or building block, which interface tointerfaces with one of these vendorsvendors’ mainstream products. Examples of companies in this space include NVIDIA, HP, Dell/EMC, IBM, SuperMicro, Pure Storage, and NetApp.

Chip Vendors with vertical integration offerings

Third party competitive products include cases where the manufacturers of the underlying chip or board-level products decide to also offer system-level products. This is the case with Intel, NVIDIA, Western Digital and others. These offerings tend to be tactical, short-term products that are intended to demonstrate a new technology, rather than long-term forays into the systems business. In addition, these “technology demonstration systems” tend to be priced at high levels, making them less competitive once the newness factor wears off.

Specialized Horizontal HPC Vendors

There are a handful of fragmented competitors who offer specialized products in the same categories as OSS.  These companies are small and tend to focus in specific geographic area or with an established set of long-term customers.  They have limited bandwidth to take on many simultaneous projects and are rarely seen in direct competitive situations. Examples of companies in this space include Trenton and Cyclone.

Multi GPU Platform Vendors

A significant area of focus for OSS is in specialized multi-GPU platforms for edge applications.  Due to the tremendous interest in AI solutions using GPUs there are many vendors offering products in this space.  Similar to the mainstream computer and storage vendors mentioned above these vendors offer standard solutions without the options for specialization and customization that OSS offers. As the primary GPU vendor, NVIDIA is a safe choice as a system provider for many customers who do not need or desire a level of specialization in their products.  OSS has a strong and positive relationship with NVIDIA which includes receiving leads from them for specialized solutions not addressed by their mainstream system offering.  Other companies such as SuperMicro and Tyan who offer their own system products directly are also happy to work with OSS to resell their products when customers need a combination of standard and specialized products.  OSS offers its EOS server based on SuperMicro motherboards. Examples of companies in this space include NVIDIA, SuperMicro and Tyan.

Vertical HPCHigh Performance Compute Vendors – Military/Aerospace

In certain vertical markets, there are competitors who focus primarily in that market. Theon the high performance compute (“HPC”) military and aerospace markets are prime examples.markets. These vendors often provide complete solutions, including both hardware and software, and some specialization in terms of form factor and ruggedization. In these markets, OSS provideswe provide unique capability in terms of

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scaling of PCI Express components over cable (copper and fiber) that can address unique requirements of specific military or government programs. OSS hasMany of these competitors use older technologies in these more challenging environments.  We are able to differentiate ourselves from such competitors due to the fact that we deploy the latest high-performance technology which enables us to provide superior products to potential customers in this space.  We have also established good relationships with prime contractors or governmental agencies (Raytheon, Lockheed, Boeing, NASA, ONR, and others), which can be important influencers or decision makers on technology selection. Competitors in this space include companies such as Mercury, Crystal, Curtiss Wright, Kontron, Trenton, Core Systems and Systel. In the past, we have been able to offer the latest technology to the rugged edge, which is normally only deployed in commercial applications, well before our competitors by leveraging our “performance, without compromise” strategy.

Vertical Vendors – M&E/Visualization

Another vertical market with different competitors is the media and entertainment and visualization markets.  These companies focus on understanding and tuning their hardware systems to the specific application and data types of these markets.  This focus provides those benefits in terms of brand awareness in the vertical, but often they are limited in ability to meet specialized and customized requirements of OEMs in this space.  Examples of companies in this space include Boxx, Cubix and Sonnet.

Manufacturing and Operations

OSS isand Bressner are certified under ISO 9001-2015 for “design, manufacture, and supply of industrial computers.” This means OSS hasand Bressner have demonstrated itstheir ability to consistently provide products that meet both customer requirements and applicable regulatorygovernment regulations or statutory requirements. In February 2022, OSS upgraded its ISO 9001 certification to the higher tier, AS9100, which is the pinnacle of quality management systems recognized by government and aerospace companies world-wide. It also indicates that we have programs and processes in place to ensure a high level of customer satisfaction, as well as a continuous improvement programand risk mitigation programs that ensures OSS getsensure we get better over time.

WeWhile OSS and Bressner primarily utilize lean principles to drive our manufacturing and assembly process.process, we recognize the importance of smooth builds and strategic inventory in this current climate of sustained supply chain shortages. One of the key aspects of thisutilizing lean principles is our application of just-in-time principles thatto ensure effective ordering and utilization of inventory, and thisinventory. This also helps optimize cash flow throughout the manufacturing cycle. Within the manufacturing process, our operations encompass three categories of “builds:”“builds”:

OSS isWe are dedicated to quality and customer satisfaction. Within the manufacturing operations function at OSS, our processes begin with the end goal in mind. This means we start with the customer. All our business processes begin with the idea that the customer is the essence of why we exist. Our continuous improvement efforts require us to review products, services, and processes with the idea that minor changes can lead to greater outcomes for our customers.

While we are cognizant of the additive nature of small improvements, we believe a disciplined approach to improvement sometime leads to extraordinary, large, and positive advances in our products and services. This is extremely important to OSS, as our goal is to bring the most advanced leading-edge technologies to our customers before our competitors can. Our operations strategy supports our overall mission of being first-to-market with customized, leading-edge products that are best-in-market in terms of speed and overall performance.

Although we serve the high endhigh-end of the rugged edge computing space, we are constantly looking for ways to become more efficient and drive down costs while driving up margins.

Research and Development

Our ability to compete successfully in our industry is heavily dependent upon our ability to ensure a continualcontinuous and timely flow of competitive products, services, and technologies to the marketplace. We continue to develop new products and technologies and to enhance existing products in order tothat will further drive further commercialization. We may also expand the range of our product offerings and intellectual property through licensing and/or acquisitionacquisitions of third-party businessbusinesses and technology.technologies.

IntellectualOur intellectual property research and development at OSS is centeredfocused on the exploitation of key technologies as they evolve in the marketplace. Our product roadmap reflects new technologies for CPUs, GPUs, flash storage, and advanced PCIe switches. We design first-to-market, customunique implementations targeted at the AI Transportable market utilizing market leading component technologies. Accordingly, our focus lies not in the capital-intensive development of silicon implementations of technologies (i.e., chips, processors, GPUs, or storage devices), but rather leverages leading-edge technologies and building first-to-market products that fully exploit those technologies for solvingto solve customer problems.problems in challenging environments.

The OSS

Our research and development strategy can be summarized as follows: OSS drives designWe drive customer program wins by utilizing new key new technologies to develop products that are leading edge and first-to-market while solvingand that are designed to solve challenging problems in harsh environments, while working closely with our customers.

Some examples of OSS developments:customers to understand and address their needs.

Intellectual Property

TheOur primary intellectual property value of OSS emanates from the more than 600 individual design projects that we have undertaken over the decades since our founding.founding, experience, and knowhow, in addition to trade secrets and copyrights. These designs are archived and cataloged, socataloged; we rarely begin a new design from scratch.scratch, but rather, typically use our archived and cataloged designs as a starting point to efficiently provide products to our customers.  In general, we maintain theintellectual property rights with respect to the productcomponents of the products we design and sell so that we may continue to use elsewhere.them for future sales and development efforts.

Over the years, our team has developed and maintained expertise in high-speed signal design and analysis, electronic and mechanical packaging, PCIe-over-cable, fiber optics transmission, high-speed/density flash arrays, and integration and deployment of GPUs in compute accelerators and servers. This extensive expertise positions us to expand and rationalize our product line to meet the growing and ever-changing HPChigh-performance computing market.

Working Capital Items

Our inventory levels are currently adequate for our short-term needs based upon present levels of demand. We considerbelieve that the component partsexpertise of our different productsstaff is a considerable asset closely related to be generally availableintellectual property, and current suppliersattracting and retaining highly qualified employees is essential to be reliable and capable of satisfying anticipated needs.our business.

Markets, Seasonality, and Major Customers

The Company’sOur products and services serve a global clientele consisting of multinational companies, governmental agencies, military contractors, and leading technology providers. Based on recent market experience, it appears there may be someare seasonality factors with deliveries decreasing in January and February each year,year. At Bressner, this is likely as a result of Asia’s holiday season, and aswhereas at OSS, this is more of a result of varied government and commercial customer appropriation cycles;cycles and the timing of budgets, which tend to be larger later in the year; however, we believe these market factors will continue to evolve and the Company’sour insight tointo these trends will improve with continuedimprove.

During 2020 and 2021, we experienced an impact from the COVID-19 virus.  This included reduced demand from some current and potential customers serving specific markets.  The media and entertainment industries experienced delayed or canceled live concerts, other large in-person events, and sporting events. This resulted in less demand for their products and services, which consequently resulted in a decrease in demand for our products designed for use in these industries.  Fortunately, some of the decrease in demand for our live media and entertainment focused products was offset by growing demand for virtual events especially in 2021.  The commercial successaerospace market was also impacted when air travel dropped significantly due to various COVID-19 related factors, such as stay-at-home orders, travel restrictions, the fear of being exposed to the virus in an aircraft and time.later by the shortage of crew members. With aircrafts flying at lower capacities or sitting idle, the spending budgets were cut drastically, which decreased the demand for our commercial aerospace customers’ products resulting in a decrease in demand for our products designed for use in the industry.  We cannot currently predict how the pandemic will impact our business in the future; however, it may continue to impact our customers and our business in 2022.

For the yearyears ended December 31, 2021 and 2020, an aggregate of 36% and 2019, respectively, 24.1% and 41.0%24%, of our total consolidated revenues respectively, were associated primarily withattributable to two customers.customers (disguise and Raytheon). A loss or decline in business with either of these customers could have an adverse impact on our business, financial condition, and results of operations.

We typically provide our products under contract supply agreements or purchase orders. We provide our products, software, and services from our offices located in California, Utah, and Germany. 

Distribution, Marketing, and Strategic Relationships

We have developed strategic relationships with well-established companies in key areas including distribution and manufacturing. We sell our products worldwide, with a primary focus on North America, Europe and Asia markets, through our direct product sales force, and partner networks.

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Materials and Suppliers

Although most components essential to our business are generally available from multiple sources, we believe there arethat a loss or limited availability of certain component suppliers and manufacturing vendors whose loss to us could have a material adverse effect upon our business and financial condition.

Historically,Prior to 2021, we havedid not experiencedexperience significant delays in the supply or availability of our key materials or components provided by our suppliers, nor havedid we experiencedexperience a significant price increase for materials or components. In 2021, the worldwide supply shortage created many challenges, resulting in the need for our team to implement different strategies and analyze how we allocate resources. Currently, we are experiencing unavailability of products and limited supplies, protracted delivery dates for components, increasing product costs, and changes in minimum order quantities, which creates limitations on our ability to secure product. Shortages have ranged from semiconductors to packing materials for

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shipping. As a result, we are carrying increased inventory balances to ensure availability of necessary products and to secure pricing. Additionally, products that are in the “work-in-process” stage and the inventory of finished goods have increased due to timing and availability of certain componentry necessary to complete our products. We do not anticipatehave worked with suppliers and customers to provide multiple options, including the alternative sourcing of similar products. We manage the business carefully to minimize any such delays or significant price increases in our fiscal year 2021. material impact to financial performance. For more information, see the section titled, “Risk Factors” found on Part I, Item1A, to this Annual Report.

Human Capital Resources, Employees, and Personnel

We believe that our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. To achieve this objective, the Company provideswe provide competitive compensation, benefits, stock participation, and a success driven work environment.

As of December 31, 2020,2021, we had approximately 99109 employees, of which 97 are103 were full-time and 2 are6 were part-time employees. Seventy-threeEighty of our employees arewere domestic and twenty-six aretwenty-nine were international. Our employees include highly skilled engineers, technicians, assemblers, and support staff. They are housedDespite recent staffing challenges that have plagued the industry that we operate in, multiple facilities, and are led by a management team that is supportive but expects a lot. Wewhich have generally resulted in greater turnover throughout the industry we are proud of ourthe low turnover rate of our personnel whereto date, as we keep theendeavor to continue to challenge our team challenged and encourage input and creative thinking by all.  TheOur management team providesstrives to provide transparency to itsour employees through regular communication meetings designed to update employees on current metric driven results and future expectations. None of our employees are covered by a collective bargaining agreement or represented by a labor union. We consider our relationship with our employees to be strong.

Environmental Matters

No significant pollution or other types of hazardous emission result from the Company’sour operations and it is not anticipated that our operations will be materially affected by federal, state, or local provisions concerning environmental controls. Our costs of complying with environmental, health and safety requirements have not been material.

Furthermore, we do not believe that compliance with existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business or markets that we serve, nor on our results of operations, capital expenditures, earnings, competitive position, financial position, or any of our operations. However, we will continue to monitor emerging developments in this area.

Government Approval and Effect of Government Regulations

Because our core business is to provide specialized high performancehigh-performance edge computing building blocks and platforms to OEMs who incorporate these products ininto their complete solutions, which they sell to end users in specific vertical markets, we do not believe that any government agency approval is required for the products and services that we provide to our customers.

We believe that our operations are substantially in compliance with all applicable laws and regulations and that we hold all necessary permits to operate our business in each jurisdiction in which our facilities are located. Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance with these laws, rules, and regulations has not historically had a material effect upon our capital expenditures, results of operations, or competitive position. However, governmental regulations, including but not limited to import and export law, customer, and trade regulations, are subject to change and interpretation and may affect our business.business in the future. For more information, see the section titled, “Risk Factors” found on Part I, Item1A, to this Annual Report.

Recent Developments

The COVID-19 pandemic continues to impact worldwide economic activity.  A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, customers, suppliers, manufacturers, distribution partners, and other partners may be prevented from conducting business activities for an indefinite period, including due to shutdowns or certain restrictions that may be requested or mandated by governmental authorities.

On February 15, 2020, Steve Cooper was terminated as President and CEO of the Company, and was replaced by David Raun, who is our current President and CEO.

On April 7, 2020, we implemented a cost reduction plan, which included the termination of certain employees and elimination of various costs. Savings from this effort were approximately $2.5 million on an annualized basis. In conjunction

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with this reduction, we implemented a re-organization to put more focus on strategy and vision.  This included adding a separate product marketing team and implementing changes in roles, processes and decision making with the objective of generating higher return on investments, greater efficiency, margin enhancement and a more focused approach to create a leadership position in our industry.  Although we expect that it will take multiple years to fully achieve the desired impact, we believe we are seeing progress in the quality of the opportunities in our pipeline for future business.

On April 24, 2020, we completed a $6.0 million debt financing on a non-interest bearing convertible note with a 10% original issue discount. The first tranche of $3.0 million was received on April 27, 2020. Pursuant to the Securities Purchase Agreement entered into in connection with the financing we had the right to consummate additional closings of up to an additional $3.0 million starting seven months from the date of closing, subject to the prior satisfaction of certain closing conditions. This right expired on April 20, 2021, and we may no longer consummate additional closings under the Securities Purchase Agreement. The note is repayable in twenty-two equal installments, payable in cash or shares of our common stock, beginning three months after closing.

On March 1, 2021, we entered into a Securities Purchase Agreement with an accredited investor (the “Purchaser”), pursuant to which we agreed to issue and sell, in a registered direct offering, 1,497,006 shares of Company common stock to the Purchaser at an offering price of $6.68 per share. The registered direct offering was conducted pursuant to our effective shelf registration statement on Form S-3 (Registration No. 333-231513), which was initially filed with the Securities and Exchange Commission on May 15, 2019, and was declared effective on June 19, 2019. We filed the final prospectus supplement for the registered direct offering on March 3, 2021. In connection with the Securities Purchase Agreement, we also entered into a Placement Agency Agreement, pursuant to which A.G.P./Alliance Global Partners agreed to serve as lead placement agent for the registered direct offering and The Benchmark Company, LLC agreed to serve as co-placement agent for such offering. As compensation for their services, we paid to the placement agents a cash fee equal to an aggregate of 7% of the gross proceeds received by us as a result of the registered offering and reimbursed the placement agents for certain expenses incurred in connection with such offering.

During the Company’s 2021 Annual Meeting of Stockholders, which occurred on May 19, 2021, our stockholders approved by a majority of votes cast, a proposal to increase the number of shares of common stock authorized for issuance under our 2017 Equity Incentive Plan (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.

Company Website

We maintain a corporate Internet website at: http://www.onestopsystems.com

The contents of our website are not incorporated in or otherwise to be regarded as part of this Annual Report. We file reports with the SEC which are available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, “Section 16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as reasonably practical after we electronically file such materials with or furnish them to the SEC. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company.

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ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Annual Report, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risk Factors Summary

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this “Risk Factors Summary” section, and other risks that we face, can be found below and should be carefully considered, together with other information included in this Annual Report.

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Risks Related to Our Business and Industry

Navigating the demand, supply, and operational challenges associated with the ongoing coronavirus (COVID-19) pandemic unsuccessfully may affect our financial condition and results of operations.

COVID-19 has spread worldwide, resulting in shutdowns and continuing interruptions of manufacturing and commerce. COVID-19 has resulted in government authorities implementing numerous measures to try to contain it, such as travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. These measures have impacted, and may further impact, our workforce and operations, the operations of our customers and our partners, and those of our respective vendors and suppliers. Our critical business operations, including our headquarters, most of our finished goods inventory and many of our key suppliers, are located in regions which have been impacted by COVID-19. Our customers and suppliers worldwide have also been affected and may continue to be affected by COVID-19 related restrictions and closures.

The COVID-19 pandemic has increased economic and demand uncertainty.  Supply chain disruptions, resulting from factors such as the COVID-19 pandemic, labor supply and shipping container shortages, have impacted, and may continue to

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impact, us and our customers, vendors, and suppliers. These disruptions have resulted in longer lead times and, increased product costs and shipping expenses. It is not currently possible to predict how long it will take for these supply chain disruptions to cease.In the fourth quarter of fiscal year 2020,2021, the Company experienced protracted timelines and shortages for delivery of productour products as well as delays in the ability to transact business due to remotely accessing customer representatives and their decision makers.

a result of such supply chain disruptions.

The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations that have been impacted by COVID-19, and local governments continue to take measures to try to contain the pandemic. There is considerable uncertainty regarding the impact of such measures and potential future measures, including restrictions on manufacturing facilities, on our support operations orand workforce, or on our customers, partners, vendors and suppliers. Such measures, as well as restrictions or disruptions of transportation, such as reduced availability or increased cost of air transport, port closures and increased border controls or closures, could limit our capacity to meet customer demanddemands and have a material adverse effect on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices as the Company complieswe comply with state and federal mandated requirements for safety in the workplace to ensure the health, safety and welling-being of our employees. These measures include personal protective equipment, social distancing, cleanliness of the facilities and daily monitoring of the health of employees in our facilities, as well as modifying our policies on employee travel and the cancellation of physical participation in meetings, events, and conferences. We may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners and suppliers. However,Other than implementing and enforcing general policies to ensure our compliance with guidance issued by government agencies from time to time throughout the pandemic, we have not developed a specific and comprehensive contingency plan designed to address the challenges and risks presented by the COVID-19 pandemic and, even if and when we do develop such a plan, there can be no assurance that such plan will be effective in mitigating the potential adverse effects on our business, financial condition and results of operations.

In addition, while the extent and duration of the COVID-19 pandemic on the global economy and our business in particular is difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, which could negatively affect our liquidity. A recession or financial market correction resulting from the lack of containment and spread of COVID-19 could impact overall technology spending, adversely affecting demand for our products, our business and the value of our common stock.

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including, but not limited to, the duration and continued spread of the pandemic, its severity, the actions to contain the disease or treat its impact, further related restrictions on travel, and the duration, timing and severity of the impact on customer spending, including any recession resulting from the pandemic, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration is uncertain. The longer the COVID-19 pandemic persists, the greater the potential for significant adverse impact to our business operations.

The COVID-19 pandemic continues to impact our businesscustomers, which has impacted our sales and could materially adversely affecthave a material adverse effect on our financial condition and results of operations.operations if our customers are unable to overcome their challenges.

Our businessThe demand for some of our products and services has begunbeen reduced due to be negatively affected by a rangeuncertainty and the economic impact of external factors relatedCOVID-19.  In particular, in the media and entertainment and commercial airlines industries, demand for the use of outdoor media equipment has been impacted due to COVID-19 that are not within our control. For example, numerous measures have been implemented by governmental authorities across the globe to contain the virus, including travel bansrestrictions on, and restrictions, quarantines, shelter-in-place orders, restrictions and limitations ofreductions in, public gatherings and business limitationsthe airlines industry has been impacted by reduced travel and shutdowns. flight cancellations. While there have been certain government orders and restrictions that have lifted the prohibition of, and certain restrictions related to, public gatherings in particular cities, counties, and states as more people become vaccinated and the spread of COVID-19 starts to be contained and mitigated, until COVID-19 has been eradicated, we expect that demand for certain of our customers’ products and services will be limited, and thus, may impact our financial results and operations.

Many of our customers’ businesses have been severely impacted by these measuresthe pandemic and some have been required to reduce employee headcount as a result. If a significant number of our customers are unable to continue as a going concern,

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this would have an adverse impact on our business and financial condition.In addition, many of our customers are working remotely, which may delay the timing of new business and implementations of our services. If COVID-19 continues to have a substantial impact on our partners, customers, or suppliers, our results of operations and overall financial performance will be harmed.

The impacts of COVID-19 on our business, customers, partners, suppliers, employees, markets and financial results and condition are uncertain, evolving and dependent on numerous unpredictable factors outside of our control, including:

If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.

At present, it is clear the global economy has been negatively impacted by COVID-19, and demand for some of our products and services has been reduced due to uncertainty and the economic impact of COVID-19. For example, during the year, a customer in certain of the industries most impacted by COVID-19, requested, and we expect will continue to request, relief to existing contracts or the timing of payment obligations. For example, some customers are delaying payments owed to the Company while they address immediate financial crises in their operations due to COVID-19. In particular, in the media and entertainment and commercial airlines industries, demand for the use of outdoor media equipment has been impacted due to restrictions on public gatherings and the airlines industry has been impacted by reduced travel. Until such restrictions improve, we expect that demand for certain of our clients’ products and services will be limited, and thus, may impact our financial results and operations.

More generally, COVID-19 raises the possibility of an extended global economic downturn, which could affect demand for our products and services and impact our results and financial condition even after the pandemic is contained and remediation/restriction measures are lifted. For example, we may be unable to collect receivables from customers that are significantly impacted by COVID-19. Also, a decrease in orders in a given period could negatively affect our revenues in future periods. 

Though management has been proactively managing through the current known impacts, if the situation further deteriorates or the outbreak results in further restriction on both supply and demand factors, our cash flows, financial position and operating results for 2021 and beyond will be negatively impacted. Neither the length of time nor the magnitude of the negative impacts can be presently determined.

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The longer the COVID-19 pandemic persists, the greater the potential for significant adverse impact to our business operations.   Quarantines, travel restrictions, prohibitions on non-essential gatherings, shelter-in-place orders and other similar directives and policies intended to reduce the spread of the disease, may reduce our productivity and that of the third parties on which we rely and may disrupt and delay many aspects of our business.

Business disruptions could harm our business, lead to a decline in revenues and increase our costs.

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), medical epidemics or pandemics (including, but not limited to, COVID-19) 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 expenditures 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, Germany, and China. 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 counties on Russia), trade policies, import duties 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 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. For example, regulations to implement the Export Control Reform Act of 2018 could have an adverse effect on our business plans. Catastrophic events can also have an impact on third-party vendors who provide us with critical infrastructure services for IT and research and development systems and personnel. In addition, geopolitical and domestic political developments, such as existing and potential trade wars, political or social unrest, military conflicts, elections and post-election developments, and other events beyond our control, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. Political instability or adverse political developments in or around any of the major countries in which we do business would also likely harm our business, financial condition and results of operations. Our operations could be harmed if manufacturing, logistics or other operations in these locations are disrupted for any reason, including natural disasters, high heat events or water shortages, information technology system failures, military actions or economic, business, labor, environmental, public health, regulatory or political issues. The ultimate impact on us, our third-party vendors and other suppliers and our general infrastructure of being located near major earthquake faults and being consolidated in certain geographical areas is unknown. In the event a major earthquake or other disaster or catastrophic event affects us or the third-party systems on which we rely, our business could be harmed as a result of declines in revenue, increases in expenses, substantial expenditures and time spent to fully resume operations. All of these risks and conditions could materially adversely affect our future sales and operating results.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. 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 the conflict in Ukraine or any other geopolitical tensions.

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine 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 and globally and assessing its potential impact on our business.

Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.

Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine 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 the conflict may impact our business. The extent and duration of the military action, sanctions 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.

A reversal of the U.S. economic recovery and a return to volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.

Worsening economic and market conditions, downside shocks, or a return to recessionary economic conditions could severely reduce demand for our products and adversely affect our operating results. These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand.  Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy.  An economic downturn may cause uncertainty in the capital and credit markets and could have a material adverse effect on us. We could also be adversely affected by such factors as changes in foreign currency rates, weak economies, and political conditions in each of the countries in which we sell our products.

We may be adversely affected by the effects of inflation.

Inflation has the potential to adversely affect our liquidity, business, financial condition 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 existence of inflation in the economy has resulted in, and may continue to result 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. 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.

The market for our products is developing and may not develop as we expect.

The market for cutting-edge, high performancehigh-performance computing products is characterized by rapid advances in technologies. We believe our future success will depend in large part on our ability to develop products, new business initiatives and creating innovative and custom designs for our customers. The growth of server clusters, specialized or high-performance applications, and hosted software solutions which require fast and efficient data processing, is crucial to our success. It is difficult to predict the development of the demand for high performancehigh-performance computing, supercomputers, and related hardware solutions, the size and growth rate for this market, the entry of competitive products, or the success of existing competitive products. Any expansion in our market depends on several factors, including the demand, cost, performance, and perceived value associated with our products. If our products are not adopted or there is a reduction in demand for our products caused by a lack of customer acceptance, a slowdown in demand for computational power, an overabundance of unused computational power, technological challenges, competing technologies and products, decreases in corporate spending, weakening economic conditions, or otherwise, it could result in reduced customer orders, early order cancellations, the loss of customers, or decreased sales, any of which would adversely affect our business, operating results, and financial condition.

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Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. The timing and size of sales of our products are variable and difficult to predict and can result in fluctuations in our net sales from period to period. In addition, our budgeted expense levels depend in part on our expectation of future sales. Any substantial adjustment to expenses to account for lower levels of sales is difficult and takes time, thus we may not be able to reduce our costs sufficiently to compensate for a shortfall in net sales, and even a small shortfall in net sales could disproportionately and adversely affect our operating margin and operating results for a given quarter.

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Our operating results may also fluctuate due to a variety of other factors, many of which are outside our control, including the changing and volatile local, national, and international economic environments, any of which may cause our stock price to fluctuate. Besides the other risks in this “Risk Factors” section, factors that may affect our operations include:

Each of these factors individually, or the cumulative effect of two or more of these factors, could result in large fluctuations in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of future performance.

Our products are subject to competition, including competition from the customers to whom we sell.

Servers, computer accelerators, flash storage arrays, PCIe expansion products, and other products that we design, manufacture, and sell or license are subject to competition. The computer hardware and technology fields are well established with limited, and in many cases no, intellectual property and technological barriers to entry. The markets in which we operate are competitive and we expect competition to increase in the future from established competitors and new market entrants. The markets are influenced by, among others, brand awareness and reputation, price, strength and scale of sales and marketing efforts, professional services and customer support, product features, reliability and performance, scalability of products, and breadth of product offerings. Due to the nature of our products, competition occurs at the design, performance, and sales stages. A design or sales win by us does not limit further competition and our customers may purchase competitive products from third parties at any time. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which would likely seriously harm our business, operating results, or financial condition. From a cost and control perspective, our products are specialized and thus generally cost more than our competitors’ products. If our ability to design specialized solutions is deemed to be on par or of lesser value than competing solutions, we could lose our customers and prospects.

Many of our customers and competitors, often with substantially more resources or larger economies of scale, produce products that are competitive with our products. Many of these third parties mass-produce hardware solutions and have not heavily invested in or allocated resources to the smaller scale specialized products and solutions we design. A decrease in the cost of general mass-produced hardware solutions, which can serve as a substitute for our products, or the entrance of or additional allocation of resources by one of these customers or competitors into the production of specialized systems which compete with our products could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

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New entrants and the introduction of other distribution models in our markets may harm our competitive position.

The markets for development, distribution, and sale of our high-performance computing solutions are rapidly evolving. New entrants seeking to gain market share by introducing new technology, new products and new server configurations may make it more difficult for us to sell our products and earn design wins, which could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

Large computer hardware and equipment manufacturers and suppliers have traditionally designed, produced, and sold general purpose servers, and storage arrays and related products and equipment. Our customers supplement these general general-

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purpose systems by purchasing our specialized or customized systems or supplemental products which improve the speed, efficiency, or performance of such systems. If the speed, efficiency, or computational power of such general purpose systems increases such that supplemental or specialized products become unnecessary, or the cost of such general purpose systems declines such that it is more cost effective for prospective customers to add general-purpose equipment rather than specialized or supplemental equipment, we could experience a significant decline in demand for the products which may significantly harm to our business, operating results and financial condition.

Our products compete with and supplement general purpose servers, storage systems and related equipment. If the producers of general purposegeneral-purpose equipment implement proprietary standards, software, interfaces, or other interoperability restrictions, including controls which restrict the equipment’s compatibility with third party systems, we could experience a significant decline in sales because our products would not be interoperable with such systems, resulting in significant harm to our business, operating results and financial condition.

In our marketplace, general-purpose equipment is traditionally mass-produced and available to order while specialized equipment and custom bulk-order equipment is subject to a bid-based purchase system. If one or more large manufacturers of general or standard serversserver storage arrays, or related products and equipment provide specialized, customized, or supplementary equipment on a made-to-order or generally available basis, we could be forced to reduce our prices or change our selling model to remain competitive which would significantly harm to our business, operating results and financial condition.

If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged.

We have expanded our operations significantly since inception and anticipate that further significant expansion will be required to achieve our business objectives. The growth and expansion of our business and product offerings places a continuous and significant strain on our management, operational and financial resources. Any such future growth would also add complexity to and require effective coordination throughout our organization. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner. We may not be able to successfully implement improvements to these systems and processes in a timely or efficient manner, which could result in additional operating inefficiencies and could cause our costs to increase more than planned. If we do increase our operating expenses in anticipation of the growth of our business and this growth does not meet our expectations, our operating results may be negatively impacted. If we are unable to manage future expansion, our ability to provide high quality products and services could be harmed, which could damage our reputation and brand, and may have a material adverse effect on our business, operating results and financial condition.

A limited number of customers represent a significant portion of our sales. If we were to lose any of these customers, our sales could decrease significantly.

In the years ended December 31, 2021 and 2020, approximately 36% and December 31, 2019, approximately 24.1%24%, and 41.0%respectively, of net sales represent customers which are greater than 10% of our consolidated annual revenue.were attributable to two customers.  This concentration is with two customers, disguise and Raytheon.

In addition, a few products comprise a significant amount of our sales, and the discontinuation, modification, or obsolescence of such products maycould materially and adversely affect our sales and results of operations. Any loss of, or a significant reduction in purchases by, these otherour significant customers or a decrease in the high performancehigh-performance applications that drive the use of our products, or the modification, discontinuation, or obsolescence of a device which constitutes a significant portion of our sales could have an adverse effect on our financial condition and operating results.

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Some of our contracts allow our customers to have access to the design drawings for products which we have designed and manufacture for them.

Some of our contracts allow our customers to have access to the design drawings for products whichthat we have designed and manufactured for them. In some cases, these drawings are included as a deliverable in conjunction with their non-recurring engineering fee, and in other cases, an additional fee is required to obtain the drawings package.  Since these customers have access to the drawings, there is no guarantee that they will continue to purchase the manufactured products from OSS. This arrangement applies particularly to our large media and entertainment customer, several of CDI’s customers, and other customers of OSS as well.  Neithercustomer. To our media and entertainment customer, norknowledge, our current CDI customers have not had any of the OSS-designed products manufactured by anyone other than OSS, but they may have the capability to do so in the future.

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We rely on a limited number of parts suppliers to support our manufacturing and design processes.

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 COVID-19, supply chain, and or other factors, could adversely affect our ability to market and sell our products. In the years ended December 31, 20202021 and December 31, 2019,2020, suppliers for which purchases represent greater than 10% of our total parts purchases accounted for approximately 18.3%,12.6% and 11%,18.3% of materials purchased, respectively. This concentration is with one supplier, Concisys Inc.

Although we do believe we could locate additional suppliers to fulfill our 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 not required to supply our raw materials for any specific period or in 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 novel coronavirus or H1N1 flu could result in the disruption of our business. Specifically, the ongoing COVID-19 pandemic has resulted in increased travel restrictions and extended shutdowns or disruptions of certain businesses in the region. These or any governmental developments or health concerns in countries in which we operate could result in social, economic, or labor instability. Although we are monitoring the situation regularly, it is currently unknown whether the outbreak will continue to disrupt our product shipments or impact manufacturing in the region over a prolonged period. If such disruption were to extend over a prolonged period, it could have a material adverse impact on our business and our financial results. Any disruption resulting from similar events could also 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.We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy. Currently, we are experiencing unavailability of product and limited supplies, protracted delivery dates for componentry, increasing product costs, and changes in minimum order quantities to secure product. As a result, we are carrying increased inventory balances to ensure availability of necessary products and to secure pricing. Additionally, products that are in the "work-in-process” stage and our inventory of finished goods have increased due to timing variances in the availability of certain componentry necessary to complete our products.

Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers.

Our sales depend on our ability to anticipate our existing and prospective customers’ needs and develop products that address those needs. Our future success will depend on our ability to design new products, anticipate technological improvements and enhancements, and to develop products that are competitive in the rapidly changing computer hardware and software industry. Introduction of new products and product enhancements will require coordination of our efforts with those of our customers, suppliers, and manufacturers to develop products that offer performance features desired by our customers and performance and functionality superior or more cost effective than solutions offered by our competitors. If we fail to coordinate these efforts, develop product enhancements, or introduce new products that meet the needs of our customers as scheduled, our operating results will be materially and adversely affected, and our business and prospects will be harmed. We cannot assure that product introductions will meet our anticipated release schedules or that our products will be competitive in the market. Furthermore, given the rapidly changing nature of the computer equipment market, there can be no assurance our products and technology will not be rendered obsolete by alternative or competing technologies.

Delays in our production cycle could result in outdated equipment or decreased purchases of our products.

The design and manufacture of our products can take several months to several years. The length of such process depends on the complexity and purpose of the system or equipment being designed, and may be affected by factors such as: the development and design of unique or specialized systems, the fabrication, availability, and supply of parts, the customization of parts as applicable, the manufacture and/or assembly of the units, quality control testing, and the development and incorporation of new technologies. If our products are outdated upon completion of this process, our sales could materially decline, and it may be necessary to sell products at a loss.

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Unsuccessful government programs or OEM contracts could lead to reduced revenues.

We design and manufacture certain products to fit the specifications of government programs or OEM contracts. These programs may take months or years to complete and involve significant investment of our time, money, and resources. We

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generally receive upfront fees for these programs but there is often no or little obligation on the part of our customer to purchase large volumes of products at the time of final product launch. Unsuccessful product launches could lead to reduced revenues and/or potential returns of products, andwhich could have a material adverse effect on our financial condition and operating results. We may be forced to sell products at a loss or spend a significant amount of resources to find additional customers for these products if these programs do not fit the future needs of our intended customers.

Our inventory may rapidly become obsolete.

Sales cycles for some of our products can take several months or longer. In addition, it can take time from the bid to the development and manufacture of the equipment. We maintain inventory based in large part on our forecasts of the volume and timing of orders. The varying length of the sales cycles makes accurate forecasting difficult. The delays inherent in our sales cycles raise the risk that the inventory we have on hand will become obsolete or impaired prior to its use or sale. If our forecasted demand does not materialize into purchase orders, we may be required to write off our inventory balances or reduce the value of our inventory, based on a reduced sales price. A write off of the inventory, or a reduction in the inventory value due to a sales price reduction, could have an adverse effect on our financial condition and operating results.

If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share.

Our products are complex and may contain defects or security vulnerabilities, or experience failures or unsatisfactory performance due to any number of issues in design, fabrication, packaging, materials and/or use within a system. These risks may increase as our products are introduced into new devices, markets, technologies and applications, or as new versions are released. Some errors in our products or services may only be discovered after a product or service has been shipped or used by customers or the end users of such product. Undiscovered vulnerabilities in our products or services could expose our customers or end users to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attack our products or services. Failure of our products to perform to specifications, or other product defects, could lead to substantial damage to the products we sell directly to customers, the end product in which our device has been integrated by OEMs and to the user of such end product. Any such defect may cause us to incur significant warranty, support and repair or replacement costs, write off the value of related inventory, cause us to lose market share, and divert the attention of our personnel from our product development efforts to find and correct the issue. In addition, an error or defect in new products or releases or related software drivers after commencement of commercial shipments could result in failure to achieve market acceptance or loss of design wins, harm our relationships with customers and partners and harm consumers’ perceptions of our brand. Also, we may be required to reimburse our customers, partners or consumers, including costs to repair or replace products in the field. A product recall, including a recall due to a bug in our products, or a significant number of product returns could be expensive, damage our reputation, harm our ability to attract new customers, result in the shifting of business to our competitors and result in litigation against us, such as product liability suits. If a product liability claim is brought against us, the cost of defending the claim could be significant and would divert the efforts of our technical and management personnel, and harm our business. Further, our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results.

We offer an extended product warranty to cover defective products at no cost to the customer. An unexpected change in failure rates of our products could have a material adverse impact on our business.

We offer product warranties that generally extend for one or two years from date of sale that requiresrequire us to repair or replace defective products returned by the customer during the warranty period at no cost to the customer. Our product warranties are in addition to warranties we receive from our vendors. Existing and future product guarantees and warranties place us at the risk of incurring future returns and repair and/or replacement costs.

While we engage in product quality programs and processes, including monitoring and evaluating the quality of our components sourced from our suppliers, our warranty obligation is affected by actual product defect rates, parts and equipment costs and service labor costs incurred in correcting a product defect. We record an estimate for anticipated warranty-related costs based on historical and estimated future product return rates and expected repair or replacement costs. WhileAlthough such costs have historically been within management’s expectations and the provisions established and we receiveour warranty reserves (when coupled with warranty coverage fromprovided by our vendors,vendors) have been sufficient to cover such costs, our reserves set aside to cover warranty returns may be inadequate due to an unanticipated number of customer returns, undetected product defects, unanticipated component failures or changes in estimates for material, labor and other costs we may incur to replace projected product defects. As a result, if actual customer returns, product defect rates, parts and equipment costs or service labor costs exceed

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our estimates, or we experience unexpected changes in failure rates, we could haveexperience a material adverse impacteffect on our business, requiring additional warranty reserves. These failures could adversely impact our operating results.financial condition and results of operations.

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If we fail to achieve design wins for our products, our business will be harmed.

Achieving design wins is an important success factor for our business. We work closely with OEM’s and end users to ensure the customer gets the product they want in the specific configuration, size and weight required for the application. We have participated in many design wins based upon our ability to interpret technical specifications and proceed rapidly through prototyping, development, and delivery. This approach and expertise are two of the factors driving our growth. Failure to maintain our expertise and ability to deliver custom, specific design systems could harm our business. In order to achieve design wins, we must:

Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers. Further, if our products are not in compliance with prevailing industry standards, our customers may not incorporate our products into their design strategies.

If we cannot retain, attract, and motivate key personnel, we may be unable to effectively implement our business plan.

Our success depends in large part upon our ability to retain, attract and motivate highly skilled management, development, marketing, sales, and service personnel. The loss of and failure to replace key technical management and personnel, including David Raun, our Chief Executive Officer, and John Morrison, our Chief Financial Officer, could adversely affect multiple development efforts. We have entered into employment agreements with most of our executive officers, though they may terminate employment with us at any time, for any reason and with no advance notice. We may lose key personnel to other high technology companies or to other larger companies with significantly greater resources than us who may recruit our key personnel. The replacement of members of our senior management team or other key personnel may involve significant time and costs, and the loss of these employees could significantly delay or prevent the achievement of our business objectives.

Recruitment and retention of senior management and skilled technical, sales and other personnel is very competitive, and we may not be successful in either attracting or retaining such personnel. We have lost key personnel to other high technology companies, and many larger companies with significantly greater resources than us having aggressively recruited, and continue to aggressively recruit, key personnel. As part of our strategy to attract and retain key personnel, we may offer equity compensation through grants of stock options, restricted stock awards or restricted stock units. Potential employees, however, may not perceive our equity incentives as attractive enough. In addition, due to the intense competition for qualified employees, we may be required to, and have had to, increase the level of compensation paid to existing and new employees, which could materially increase our operating expenses.

We have made in the past, and may make in the future, acquisitions which could require significant management attention, disrupt our business, result in dilution to our stockholders, deplete our cash reserves and adversely affect our financial results.

Acquisitions involve numerous risks, including, without limitation, the following:

Acquisitions may also cause us to:

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Acquisitions of high-technology companies and assets are inherently risky and subject to many factors outside of our control and no assurance can be given that our recently completed or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results.

The continuing commoditization of HPC hardware and software has resulted in increased pricing pressure and may adversely affect our operating results.

The continuing commoditization of HPC hardware, such as processors, interconnects, flash storage and other infrastructure, and the growing commoditization of software, including plentiful building blocks and more capable open source software, as well as the potential for integration of differentiated technology into already-commoditized components, has resulted in, and may result in increased pricing pressure that may cause us to reduce our pricing in order to remain competitive, which can negatively impact our gross margins and adversely affect our operating results.

Risks Relating to Intellectual Property

If we are unable to protect our proprietary design and intellectual property rights, our competitive position could be harmed, or we could be required to incur significant expenses to enforce our rights.

Our ability to compete effectively is dependent in part upon our ability to protect our proprietary technology. We rely on patents, trademarks, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. There can be no assurance these protections will be available in all cases or will be adequate to prevent our competitors from copying, reverse engineering or otherwise obtaining and using our technology, proprietary rights or products. For example, the laws of certain countries in which our products are manufactured or licensed do not protect our proprietary rights to the same extent as the laws of the United States. In addition, third parties may seek to challenge, invalidate, or circumvent our patents, trademarks, copyrights and trade secrets, or applications for any of the foregoing. There can be no assurance that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology or design around our proprietary rights. In each case, our ability to compete could be significantly impaired.

To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our trade secrets and/or proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management’s attention, and there can be no assurance we will be successful in such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our trade secrets and/or intellectual property.

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Many of our proprietary designs are in digital form and the breach of our computer systems could result in these designs being stolen.

If our cybersecurity measures are breached or unauthorized access to private or proprietary data is otherwise obtained, our proprietary designs could be stolen. Because we hold many of these designs in digital form on our servers, there exists an inherent risk that an unauthorized third party could conduct a cybersecurity breach resulting in the theft of our proprietary information. While we have taken cybersecurity steps to protect our proprietary information, because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any or all of these issues could negatively impact our competitive edge and our ability to obtain new customers thereby adversely affecting our financial results.

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Our proprietary designs are susceptible to reverse engineering by our competitors.

Much of the value of our proprietary rights is derived from our vast library of design specifications. While we consider our design specifications to be protected by various proprietary, trade secret and intellectual property laws, such information is susceptible to reverse engineering by our competitors. We may not be able to prevent our competitors from developing competing design specifications and the cost of enforcing these rights may be significant. If we are unable to adequately protect our proprietary designs our financial condition and operating results could suffer.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

We consider trade secrets, including confidential and unpatented know-how and designs important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatented know-how, in part, by customarily entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, outside technical and commercial collaborators, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.

Claims by others that we infringe their intellectual property or trade secret rights could harm our business.

Our industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. Third parties may in the future assert claims of infringement of intellectual property rights against us or against our customers or channel partners for which we may be liable. As the number of products and competitors in our market increases and overlaps occur, infringement claims may increase.

Intellectual property or trade secret claims against us, and any resulting lawsuits, may result in us incurring significant expenses and could subject us to significant liability for damages and invalidate what we currently believe are our proprietary rights. Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how could have a material adverse effect on our business. Adverse determinations in any litigation could subject us to significant liabilities to third parties, require us to seek licenses from third parties and prevent us from manufacturing and selling our products. Any of these situations could have a material adverse effect on our business. 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.

We are generally obligated to indemnify our channel partners and end-customers for certain expenses and liabilities resulting from intellectual property infringement claims regarding our products, which could force us to incur substantial costs.

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.brought against them regarding our products. These claims, regardless of their merits or outcome, would likely be time consuming expensive to resolve, and could divert management’s time and attention from managing our business.

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Privacy concerns relating to our products and services could damage our reputation, deter current and potential users from using our products and services, result in liability, or result in legal or regulatory proceedings.

Our products and services may provide us with access to sensitive, confidential, or personal data or information that is subject to privacy and security laws and regulations. Concerns about our practices with regard to the collection, use, retention, security or disclosure of personal information or other privacy-related matters, even if unfounded, could damage our reputation and adversely affect our operating results. The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business or by one of our partners could result in significantly increased security costs, damage to our reputation, regulatory proceedings, disruption of our business activities or increased costs related to defending legal claims.

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Worldwide regulatory authorities are considering and have approved various legislative proposals concerning data protection, which continue to evolve and apply to our business. For example, the European Union adopted the General Data Protection Regulation or GDPR,(“GDPR”), which took effect in May 2018 and requires companies to meet new requirements effective as of May 2018 regarding the handling of personal data, including its use, protection, and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet GDPR requirements could result in penalties of up to 4% of worldwide revenue. In addition, the interpretation and application of consumer and data protection laws in the United States, Europe and elsewhere are often uncertain and fluid, and may be interpreted and applied in a manner that is inconsistent with our data practices. If so, we may be ordered to change our data practices and/or be fined.

In addition, California enacted the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020.  The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent state privacy, data protection, and data security legislation in the U.S., which could increase our potential liability and adversely affect our business. The CCPA will be expanded substantially on January 1, 2023, when the California Privacy Rights Act of 2020 (“CPRA”) becomes fully operative. The CPRA will, among other things, give California residents the ability to limit use of certain sensitive personal information, further restrict the use of cross-contextual advertising, establish restrictions on the retention of personal information, expand the types of data breaches subject to the CCPA’s private right of action, provide for increased penalties for CPRA violations concerning California residents under the age of 16, and establish a new California Privacy Protection Agency to implement and enforce the new law.

Complying with these changing laws has caused, and could continue to cause, us to incur substantial costs, which could have an adverse effect on our business and results of operations. Further, failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity.

Risks Related to Our International Operations

Our international sales and operations subject us to additional risks that can adversely affect our operating results and financial condition.

Our international operations subject us to a variety of risks and challenges, including:including, without limitation, exposure to fluctuations in foreign currency exchange rates, 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;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. In addition, political and economic changes, including international conflicts (such as the ongoing conflict between Russia and Ukraine) and terrorist acts, throughout the world may interfere with our, our suppliers’ and/or our customers’ activities in particular locations and result in a material adverse effect on our business, financial condition, and operating results. Any of these risks could adversely affect our international operations, reduce our international sales or increase our operating costs, adversely affecting our business, operating results and financial condition and growth prospects.

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We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.

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. 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.

New regulations or standards or changes in existing regulations or standards in the United States or internationally related to our supplierssuppliers’ products may result in unanticipated costs or liabilities, which could have a material adverse effect on our business, operating results and future sales, and could place additional burdens on the operations of our business.

Our suppliers’ products are subject to governmental regulations in many jurisdictions. To achieve and maintain market acceptance, our suppliers’ products must continue to comply with these regulations and many industry standards. As these regulations and standards evolve, and if new regulations or standards are implemented, our suppliers may have to modify their products. The failure of their products to comply, or delays in compliance, with the existing and evolving industry regulations and standards could prevent or delay introduction of our products, which could harm our business. Supplier uncertainty regarding future policies may also affect demand for HPC products, including our products. Moreover, channel partners or customers may require us, or we may otherwise deem it necessary or advisable, to alter our products to address actual or anticipated changes in the regulatory environment. Our inability to alter our products to address these requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition.

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We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

We have international operations. The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Practices in the local business communities of many countries outside the United States have a level of government corruption that is greater than that found in the developed world. Our policies mandate compliance with these anti-bribery laws and we have established policies and procedures designed to monitor compliance with these anti-bribery law requirements; however, we cannot assure that our policies and procedures will protect us from potential reckless or criminal acts committed by individual employees or agents. If we are found to be liable for anti-bribery law violations, we could suffer from criminal or civil penalties or other sanctions that could have a material adverse effect on our business.

Risks Related to Our Common Stock

The price of our common stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock may fluctuate substantially. The trading price of our common stock will depend on several factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock sinceif you might beare unable to sell your shares at or above the price you paid.  Factors that could cause fluctuations in the trading price of our common stock include:include, amongst other things:

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In addition, the stock market in general, and the market for technology companies in particular, havehas experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of thosethe relevant companies. Broad market and industry factors, as well as general economic, political and market conditions, such as recessions or interest rate changes, may seriously affect the market price of our common stock, regardless of our actual operating performance.

In the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigations havelitigation has often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

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

Our directors, executive officers and significant stockholders have substantial control over 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, 36.0%26.7% of our outstanding common stock, based on the number of shares outstanding as of February 28, 2021.2022. As a result, these stockholders, acting together, would have the ability to control 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 control the management and affairs of our company.the Company. Accordingly, this concentration of ownership might adversely affect the market price of our common stock by:

If securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our company,Company, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that equity research analysts publish about us and our business. We anticipate having limited analyst coverage and we may continue to have inadequate analyst coverage in the future. Even if we obtain adequate analyst coverage, we wouldwill have no control over such analysts or the content and opinions in their reports. Securities analysts may elect not to provide research coverage of our companyCompany and such lack of research coverage may adversely affect the market price of our common stock. The price of our common stock could also decline if one or more equity research analysts downgrade our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. If one or more equity research analysts cease coverage of our company,Company, we could lose visibility in the market, which in turn could cause our stock price to decline.

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

The market price of shares of our common stock could decline as a result of substantial 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 February 28, 2021,2022, we have 16,912,31218,878,183 shares of our common stock outstanding.

Moreover, certain holdersWe have the right to designate and issue shares of preferred stock. If we were to designate and/or issue additional preferred stock, it is likely to have rights, preferences and privileges that may adversely affect the common stock.

We are authorized to issue 10,000,000 shares of blank-check preferred stock, with such rights, preferences and privileges as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to issue preferred stock in one or more series, and to fix for any series the dividend rights, dissolution or liquidation preferences, redemption prices, conversion rights, voting rights, and other rights, preferences, and privileges for the preferred stock. Currently, we do not have any series of preferred stock designated or shares of preferred stock issued and outstanding.

The issuance of shares of preferred stock, depending on the rights, preferences, and privileges attributable to the preferred stock, could reduce the voting rights and powers of the common stock and the portion of our assets allocated for distribution to common stockholders in a liquidation event, and could also result in dilution in the book value per share of the common stock. The preferred stock could also be utilized, under certain circumstances, as a method for raising additional capital or discouraging, delaying or preventing a change in control of the Company, to the detriment of the investors in the common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statementsoffered hereby. We cannot assure that we may file for ourselves orwill not, under certain circumstances, issue shares of our stockholders.preferred stock.

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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Some of these provisions:

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In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Furthermore, our certificate of incorporation specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable in such action.

These anti-takeover provisions and other provisions in our certificate of incorporation and amended and restated bylaws make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company.Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and expand our operations.

If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, due to lower demand for our products as a result of other risks described in this “Risk Factors” section, we may seek to raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements. We may also consider raising additional capital in the future to expand our business, pursue strategic investments, take advantage of financing opportunities, or other reasons.

Additional funding may not be available to us on acceptable terms, or at all. If we raise funds by issuing equity securities, dilution to our stockholders could result. Any equity securities issued also may provide for rights, preferences, or privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings could impose significant restrictions on our operations. The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or to grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay or reduce the scope of our development programs. We also may have to reduce marketing,marketing; customer support or other resources devoted to our products or cease operations. Any of these actions could harm our business, operating results, and financial condition.

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We have never paid, and do not expect to pay, any cash dividends to holders of our common stock for the foreseeable future.

We have never paid, and do not expect to pay, cash dividends to holders of our common stock at any time in the foreseeable future. Anyone considering investing in shares of our common stock should not rely on such investment to provide dividend income. Instead, we plan to retain any earnings to establish, maintain and expand our operations and product offerings. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our stock. Accordingly, investors must rely on sales of their shares of common stock after price appreciation, which may never occur, as the only way to realize any return on their investment.

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We are an “emerging growth company” and we cannot be certain ifa “smaller reporting company,” and the reduced public company reporting and disclosure requirements applicable to emerging growth companies willand smaller reporting companies may make our common stock less attractive to investors.

We arequalify as an “emerging growth company”company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, which includes, among other things:

We could be an emerging growth company until the last day of the fiscal year following the fifth anniversary after our initial public offering (December 31, 2023), or until the earliest of (i) the last day of the fiscal year in which we have annual gross revenue of $1.07 billion or more; (ii) the date on which we have, during the previous three year period, issued more than $1.07 billion in non-convertible debt; or (iii) the date on which we are deemed to be a large accelerated filer under the federal securities laws. We will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non-affiliates, and (ii) been public for at least 12 months. The value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter.

In addition, we are currently a “smaller reporting company,” as defined in the Exchange Act, and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. To the extent that we continue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as a “smaller reporting company,” including exemption from compliance with the auditor attestation requirements pursuant to the Sarbanes-Oxley Act and reduced disclosure about our executive compensation arrangements, amongst other things. We will continue to be a “smaller reporting company” until we have more than $250 million in public float (based on our common stock) measured as of the last business day of our most recently completed second fiscal quarter or, in the event we have no public float (based on our common stock), annual revenues of more than $100 million during the most recently completed fiscal year.

As a result of the foregoing, the information we provide may be different than the information that is available with respect to other public companies. We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.COMMENTS.

Not applicable.

ITEM 2. PROPERTIES.

Our corporate headquarters are in a leased space comprising of approximately 29,342 square feet in Escondido, California under a lease that was modified in February 2019 and expires in August 2024. We also lease a 3,208 square foot facility in Salt Lake City, Utah that expires in June 2023, that houses our Ion software development team that isteam. Additionally, we lease a month-to-month lease. CDI is the lessee of 12,8801,632 square feetfoot facility located in Irvine,Anaheim, California, with the lease expiring in June 2021.2023. Bressner Technology leases space comprising of 8,073 square feet on a month-to-month lease.

The Company believes its39

We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of itsour business.

ITEM 3. LEGAL PROCEEDINGS.

We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business.  See footnote No. 12 “Commitments and Contingencies” in the accompanying consolidated financial statements.

On September 29, 2020, the Company’s former Chief Executive Officer, Stephen D. Cooper, commenced an action entitled Stephen D. Cooper v. One Stop Systems, Inc. et al, in San Diego County Superior Court, Case No. 37-2020-00034492-CU-BC-CTL.  Mr. Cooper alleges claims for (1) breach of written contract and (2) violation of California Labor Code Sections 201 and 203 in connection with the Company’s alleged failure to pay unpaid wages and an earned bonus following the Company’s termination of Mr. Cooper’s employment with the Company back in February 2020. Mr. Cooper seeks unspecified compensatory damages and statutory penalties.

The Company has denied Mr. Cooper’s allegations. On December 8, 2020, the Company filed a cross-complaint (“Cross Complaint”) against Mr. Cooper for (1) breach of contract (in connection with a binding commitment letter and Mr. Cooper’s employment agreement), (2) intentional misrepresentation, (3) negligent misrepresentation, and (4) breach of fiduciary duty. The Company is seeking compensatory damages, punitive damages, pre-judgment interest, attorneys’ fees, and the cost of suit incurred in connection with Mr. Cooper’s complaint and the Cross Complaint. The Company intends to vigorously defend all allegations.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market InformationRecent Developments

Our common stock, par value $0.0001, has been publicly traded

The COVID-19 pandemic continues to impact worldwide economic activity.  A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, customers, suppliers, manufacturers, distribution partners, and other partners may be prevented from conducting business activities for an indefinite period, including due to shutdowns or certain restrictions that may be requested or mandated by governmental authorities.

On February 15, 2020, Steve Cooper was terminated as President and CEO of the Company, and was replaced by David Raun, who is our current President and CEO.

On April 7, 2020, we implemented a cost reduction plan, which included the termination of certain employees and elimination of various costs. Savings from this effort were approximately $2.5 million on an annualized basis. In conjunction

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with this reduction, we implemented a re-organization to put more focus on strategy and vision.  This included adding a separate product marketing team and implementing changes in roles, processes and decision making with the objective of generating higher return on investments, greater efficiency, margin enhancement and a more focused approach to create a leadership position in our industry.  Although we expect that it will take multiple years to fully achieve the desired impact, we believe we are seeing progress in the quality of the opportunities in our pipeline for future business.

On April 24, 2020, we completed a $6.0 million debt financing on a non-interest bearing convertible note with a 10% original issue discount. The Nasdaq Capital Marketfirst tranche of $3.0 million was received on April 27, 2020. Pursuant to the Securities Purchase Agreement entered into in connection with the financing we had the right to consummate additional closings of up to an additional $3.0 million starting seven months from the date of closing, subject to the prior satisfaction of certain closing conditions. This right expired on April 20, 2021, and we may no longer consummate additional closings under the symbol “OSS”.  BelowSecurities Purchase Agreement. The note is our quarterly information with respect to the high and low sale prices for our common stock for such time periods.

Holders

As of February 28, 2021, there were 16,912,312repayable in twenty-two equal installments, payable in cash or shares of our common stock, outstanding heldbeginning three months after closing.

On March 1, 2021, we entered into a Securities Purchase Agreement with an accredited investor (the “Purchaser”), pursuant to which we agreed to issue and sell, in a registered direct offering, 1,497,006 shares of Company common stock to the Purchaser at an offering price of $6.68 per share. The registered direct offering was conducted pursuant to our effective shelf registration statement on Form S-3 (Registration No. 333-231513), which was initially filed with the Securities and Exchange Commission on May 15, 2019, and was declared effective on June 19, 2019. We filed the final prospectus supplement for the registered direct offering on March 3, 2021. In connection with the Securities Purchase Agreement, we also entered into a Placement Agency Agreement, pursuant to which A.G.P./Alliance Global Partners agreed to serve as lead placement agent for the registered direct offering and The Benchmark Company, LLC agreed to serve as co-placement agent for such offering. As compensation for their services, we paid to the placement agents a cash fee equal to an aggregate of 7% of the gross proceeds received by approximately 62 holdersus as a result of recordthe registered offering and reimbursed the placement agents for certain expenses incurred in connection with such offering.

During the Company’s 2021 Annual Meeting of Stockholders, which occurred on May 19, 2021, our stockholders approved by a majority of votes cast, a proposal to increase the number of shares of common stock authorized for issuance under our 2017 Equity Incentive Plan (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.

Company Website

We maintain a corporate Internet website at: http://www.onestopsystems.com

The contents of our website are not incorporated in or otherwise to be regarded as part of this Annual Report. We file reports with the SEC which are available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, “Section 16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as reasonably practical after we electronically file such materials with or furnish them to the SEC. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company.

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ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Annual Report, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. This number was derived fromThe occurrence of any of the events or developments described below could harm our stockholder recordsbusiness, financial condition, operating results, and does not include beneficial holdersgrowth prospects. In such an event, the market price of our common stock whose shares are heldcould decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risk Factors Summary

Below is a summary of the principal factors that make an investment in “street name” with various dealers, clearing agencies, banks, brokersour common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this “Risk Factors Summary” section, and other fiduciaries.risks that we face, can be found below and should be carefully considered, together with other information included in this Annual Report.

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Risks Related to Our Business and Industry

Dividend PolicyNavigating the demand, supply, and operational challenges associated with the ongoing coronavirus (COVID-19) pandemic unsuccessfully may affect our financial condition and results of operations.

COVID-19 has spread worldwide, resulting in shutdowns and continuing interruptions of manufacturing and commerce. COVID-19 has resulted in government authorities implementing numerous measures to try to contain it, such as travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. These measures have impacted, and may further impact, our workforce and operations, the operations of our customers and our partners, and those of our respective vendors and suppliers. Our critical business operations, including our headquarters, most of our finished goods inventory and many of our key suppliers, are located in regions which have been impacted by COVID-19. Our customers and suppliers worldwide have also been affected and may continue to be affected by COVID-19 related restrictions and closures.

The COVID-19 pandemic has increased economic and demand uncertainty.  Supply chain disruptions, resulting from factors such as the COVID-19 pandemic, labor supply and shipping container shortages, have impacted, and may continue to

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impact, us and our customers, vendors, and suppliers. These disruptions have resulted in longer lead times and, increased product costs and shipping expenses. It is not currently possible to predict how long it will take for these supply chain disruptions to cease. In the fourth quarter of fiscal year 2021, the Company experienced protracted timelines and shortages for delivery of our products as a result of such supply chain disruptions.

The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations that have been impacted by COVID-19, and local governments continue to take measures to try to contain the pandemic. There is considerable uncertainty regarding the impact of such measures and potential future measures, including restrictions on manufacturing facilities, on our support operations and workforce, or on our customers, partners, vendors and suppliers. Such measures, as well as restrictions or disruptions of transportation, such as reduced availability or increased cost of air transport, port closures and increased border controls or closures, could limit our capacity to meet customer demands and have a material adverse effect on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices as we comply with state and federal mandated requirements for safety in the workplace to ensure the health, safety and welling-being of our employees. These measures include personal protective equipment, social distancing, cleanliness of the facilities and daily monitoring of the health of employees in our facilities, as well as modifying our policies on employee travel and the cancellation of physical participation in meetings, events, and conferences. We may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners and suppliers. Other than implementing and enforcing general policies to ensure our compliance with guidance issued by government agencies from time to time throughout the pandemic, we have not developed a specific and comprehensive contingency plan designed to address the challenges and risks presented by the COVID-19 pandemic and, even if and when we do develop such a plan, there can be no assurance that such plan will be effective in mitigating the potential adverse effects on our business, financial condition and results of operations.

In addition, while the extent and duration of the COVID-19 pandemic on the global economy and our business in particular is difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, which could negatively affect our liquidity. A recession or financial market correction resulting from the lack of containment and spread of COVID-19 could impact overall technology spending, adversely affecting demand for our products, our business and the value of our common stock.

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including, but not limited to, the duration and continued spread of the pandemic, its severity, the actions to contain the disease or treat its impact, further related restrictions on travel, and the duration, timing and severity of the impact on customer spending, including any recession resulting from the pandemic, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration is uncertain. The longer the COVID-19 pandemic persists, the greater the potential for significant adverse impact to our business operations.

The COVID-19 pandemic continues to impact our customers, which has impacted our sales and could have a material adverse effect on our financial condition and results of operations if our customers are unable to overcome their challenges.

The demand for some of our products and services has been reduced due to uncertainty and the economic impact of COVID-19.  In particular, in the media and entertainment and commercial airlines industries, demand for the use of outdoor media equipment has been impacted due to restrictions on, and reductions in, public gatherings and the airlines industry has been impacted by reduced travel and flight cancellations. While there have been certain government orders and restrictions that have lifted the prohibition of, and certain restrictions related to, public gatherings in particular cities, counties, and states as more people become vaccinated and the spread of COVID-19 starts to be contained and mitigated, until COVID-19 has been eradicated, we expect that demand for certain of our customers’ products and services will be limited, and thus, may impact our financial results and operations.

Many of our customers’ businesses have been severely impacted by the pandemic and some have been required to reduce employee headcount as a result. If a significant number of our customers are unable to continue as a going concern,

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this would have an adverse impact on our business and financial condition.In addition, many of our customers are working remotely, which may delay the timing of new business and implementations of our services.

Business disruptions could harm our business, lead to a decline in revenues and increase our costs.

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), medical epidemics or pandemics (including, but not limited to, COVID-19) 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 expenditures 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, Germany, and China. 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 counties on Russia), trade policies, import duties 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 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. For example, regulations to implement the Export Control Reform Act of 2018 could have an adverse effect on our business plans. Catastrophic events can also have an impact on third-party vendors who provide us with critical infrastructure services for IT and research and development systems and personnel. In addition, geopolitical and domestic political developments, such as existing and potential trade wars, political or social unrest, military conflicts, elections and post-election developments, and other events beyond our control, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. Political instability or adverse political developments in or around any of the major countries in which we do business would also likely harm our business, financial condition and results of operations. Our operations could be harmed if manufacturing, logistics or other operations in these locations are disrupted for any reason, including natural disasters, high heat events or water shortages, information technology system failures, military actions or economic, business, labor, environmental, public health, regulatory or political issues. The ultimate impact on us, our third-party vendors and other suppliers and our general infrastructure of being located near major earthquake faults and being consolidated in certain geographical areas is unknown. In the event a major earthquake or other disaster or catastrophic event affects us or the third-party systems on which we rely, our business could be harmed as a result of declines in revenue, increases in expenses, substantial expenditures and time spent to fully resume operations. All of these risks and conditions could materially adversely affect our future sales and operating results.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. 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 the conflict in Ukraine or any other geopolitical tensions.

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine 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 and globally and assessing its potential impact on our business.

Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.

Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine 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 the conflict may impact our business. The extent and duration of the military action, sanctions 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.

A reversal of the U.S. economic recovery and a return to volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.

Worsening economic and market conditions, downside shocks, or a return to recessionary economic conditions could severely reduce demand for our products and adversely affect our operating results. These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand.  Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy.  An economic downturn may cause uncertainty in the capital and credit markets and could have a material adverse effect on us. We could also be adversely affected by such factors as changes in foreign currency rates, weak economies, and political conditions in each of the countries in which we sell our products.

We may be adversely affected by the effects of inflation.

Inflation has the potential to adversely affect our liquidity, business, financial condition 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 existence of inflation in the economy has resulted in, and may continue to result 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. 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.

The market for our products is developing and may not develop as we expect.

The market for cutting-edge, high-performance computing products is characterized by rapid advances in technologies. We believe our future success will depend in large part on our ability to develop products, new business initiatives and creating innovative and custom designs for our customers. The growth of server clusters, specialized or high-performance applications, and hosted software solutions which require fast and efficient data processing, is crucial to our success. It is difficult to predict the development of the demand for high-performance computing, supercomputers, and related hardware solutions, the size and growth rate for this market, the entry of competitive products, or the success of existing competitive products. Any expansion in our market depends on several factors, including the demand, cost, performance, and perceived value associated with our products. If our products are not adopted or there is a reduction in demand for our products caused by a lack of customer acceptance, a slowdown in demand for computational power, an overabundance of unused computational power, technological challenges, competing technologies and products, decreases in corporate spending, weakening economic conditions, or otherwise, it could result in reduced customer orders, early order cancellations, the loss of customers, or decreased sales, any of which would adversely affect our business, operating results, and financial condition.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. The timing and size of sales of our products are variable and difficult to predict and can result in fluctuations in our net sales from period to period. In addition, our budgeted expense levels depend in part on our expectation of future sales. Any substantial adjustment to expenses to account for lower levels of sales is difficult and takes time, thus we may not be able to reduce our costs sufficiently to compensate for a shortfall in net sales, and even a small shortfall in net sales could disproportionately and adversely affect our operating margin and operating results for a given quarter.

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Our operating results may also fluctuate due to a variety of other factors, many of which are outside our control, including the changing and volatile local, national, and international economic environments, any of which may cause our stock price to fluctuate. Besides the other risks in this “Risk Factors” section, factors that may affect our operations include:

Each of these factors individually, or the cumulative effect of two or more of these factors, could result in large fluctuations in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of future performance.

Our products are subject to competition, including competition from the customers to whom we sell.

Servers, computer accelerators, flash storage arrays, PCIe expansion products, and other products that we design, manufacture, and sell or license are subject to competition. The computer hardware and technology fields are well established with limited, and in many cases no, intellectual property and technological barriers to entry. The markets in which we operate are competitive and we expect competition to increase in the future from established competitors and new market entrants. The markets are influenced by, among others, brand awareness and reputation, price, strength and scale of sales and marketing efforts, professional services and customer support, product features, reliability and performance, scalability of products, and breadth of product offerings. Due to the nature of our products, competition occurs at the design, performance, and sales stages. A design or sales win by us does not limit further competition and our customers may purchase competitive products from third parties at any time. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which would likely seriously harm our business, operating results, or financial condition. From a cost and control perspective, our products are specialized and thus generally cost more than our competitors’ products. If our ability to design specialized solutions is deemed to be on par or of lesser value than competing solutions, we could lose our customers and prospects.

Many of our customers and competitors, often with substantially more resources or larger economies of scale, produce products that are competitive with our products. Many of these third parties mass-produce hardware solutions and have not heavily invested in or allocated resources to the smaller scale specialized products and solutions we design. A decrease in the cost of general mass-produced hardware solutions, which can serve as a substitute for our products, or the entrance of or additional allocation of resources by one of these customers or competitors into the production of specialized systems which compete with our products could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

New entrants and the introduction of other distribution models in our markets may harm our competitive position.

The markets for development, distribution, and sale of our high-performance computing solutions are rapidly evolving. New entrants seeking to gain market share by introducing new technology, new products and new server configurations may make it more difficult for us to sell our products and earn design wins, which could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

Large computer hardware and equipment manufacturers and suppliers have traditionally designed, produced, and sold general purpose servers, and storage arrays and related products and equipment. Our customers supplement these general-

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purpose systems by purchasing our specialized or customized systems or supplemental products which improve the speed, efficiency, or performance of such systems. If the speed, efficiency, or computational power of such general purpose systems increases such that supplemental or specialized products become unnecessary, or the cost of such general purpose systems declines such that it is more cost effective for prospective customers to add general-purpose equipment rather than specialized or supplemental equipment, we could experience a significant decline in demand for the products which may significantly harm to our business, operating results and financial condition.

Our products compete with and supplement general purpose servers, storage systems and related equipment. If the producers of general-purpose equipment implement proprietary standards, software, interfaces, or other interoperability restrictions, including controls which restrict the equipment’s compatibility with third party systems, we could experience a significant decline in sales because our products would not be interoperable with such systems, resulting in significant harm to our business, operating results and financial condition.

In our marketplace, general-purpose equipment is traditionally mass-produced and available to order while specialized equipment and custom bulk-order equipment is subject to a bid-based purchase system. If one or more large manufacturers of general or standard server storage arrays, or related products and equipment provide specialized, customized, or supplementary equipment on a made-to-order or generally available basis, we could be forced to reduce our prices or change our selling model to remain competitive which would significantly harm to our business, operating results and financial condition.

If we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged.

We have never declared or paid cash dividends onexpanded our common stock. We currently intendoperations significantly since inception and anticipate that further significant expansion will be required to retain all available fundsachieve our business objectives. The growth and any future earnings for use in the operationexpansion of our business and do not anticipate paying any cash dividendsproduct offerings places a continuous and significant strain on our common stock in the foreseeable future.  We may enter into credit agreements or other borrowing arrangements in themanagement, operational and financial resources. Any such future that will restrictgrowth would also add complexity to and require effective coordination throughout our organization. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to declaremanage headcount, capital, and processes in an efficient manner. We may not be able to successfully implement improvements to these systems and processes in a timely or pay cash dividendsefficient manner, which could result in additional operating inefficiencies and could cause our costs to increase more than planned. If we do increase our operating expenses in anticipation of the growth of our business and this growth does not meet our expectations, our operating results may be negatively impacted. If we are unable to manage future expansion, our ability to provide high quality products and services could be harmed, which could damage our reputation and brand, and may have a material adverse effect on our common stock. Any future determination to declare dividends will be made at the discretionbusiness, operating results and financial condition.

A limited number of customers represent a significant portion of our boardsales. If we were to lose any of directorsthese customers, our sales could decrease significantly.

In the years ended December 31, 2021 and 2020, approximately 36% and 24%, respectively, of net sales were attributable to two customers.  This concentration is with two customers, disguise and Raytheon. In addition, a few products comprise a significant amount of our sales, and the discontinuation, modification, or obsolescence of such products could materially and adversely affect our sales and results of operations. Any loss of, or a significant reduction in purchases by, our significant customers or a decrease in the high-performance applications that drive the use of our products, or the modification, discontinuation, or obsolescence of a device which constitutes a significant portion of our sales could have an adverse effect on our financial condition and operating results.

Some of our contracts allow our customers to have access to the design drawings for products which we have designed and manufacture for them.

Some of our contracts allow our customers to have access to the design drawings for products that we have designed and manufactured for them. In some cases, these drawings are included as a deliverable in conjunction with their non-recurring engineering fee, and in other cases, an additional fee is required to obtain the drawings package.  Since these customers have access to the drawings, there is no guarantee that they will continue to purchase the manufactured products from OSS. This arrangement applies particularly to our large media and entertainment customer. To our knowledge, our current customers have not had any of the OSS-designed products manufactured by anyone other than OSS, but they may have the capability to do so in the future.

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We rely on a limited number of parts suppliers to support our manufacturing and design processes.

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 COVID-19, supply chain, and or other factors, could adversely affect our ability to market and sell our products. In the years ended December 31, 2021 and 2020, suppliers for which purchases represent greater than 10% of our total parts purchases accounted for approximately 12.6% and 18.3% of materials purchased, respectively. This concentration is with one supplier, Concisys Inc.

Although we do believe we could locate additional suppliers to fulfill our 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 not required to supply our raw materials for any specific period or in 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 novel coronavirus or H1N1 flu could result in the disruption of our business. Specifically, the ongoing COVID-19 pandemic has resulted in increased travel restrictions and extended shutdowns or disruptions of certain businesses in the region. These or any governmental developments or health concerns in countries in which we operate could result in social, economic, or labor instability. Although we are monitoring the situation regularly, it is currently unknown whether the outbreak will continue to disrupt our product shipments or impact manufacturing in the region over a prolonged period. If such disruption were to extend over a prolonged period, it could have a material adverse impact on our business and our financial results. Any disruption resulting from similar events could also 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. We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy. Currently, we are experiencing unavailability of product and limited supplies, protracted delivery dates for componentry, increasing product costs, and changes in minimum order quantities to secure product. As a result, we are carrying increased inventory balances to ensure availability of necessary products and to secure pricing. Additionally, products that are in the "work-in-process” stage and our inventory of finished goods have increased due to timing variances in the availability of certain componentry necessary to complete our products.

Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers.

Our sales depend on our ability to anticipate our existing and prospective customers’ needs and develop products that address those needs. Our future success will depend on our ability to design new products, anticipate technological improvements and enhancements, and to develop products that are competitive in the rapidly changing computer hardware and software industry. Introduction of new products and product enhancements will require coordination of our efforts with those of our customers, suppliers, and manufacturers to develop products that offer performance features desired by our customers and performance and functionality superior or more cost effective than solutions offered by our competitors. If we fail to coordinate these efforts, develop product enhancements, or introduce new products that meet the needs of our customers as scheduled, our operating results will be materially and adversely affected, and our business and prospects will be harmed. We cannot assure that product introductions will meet our anticipated release schedules or that our products will be competitive in the market. Furthermore, given the rapidly changing nature of the computer equipment market, there can be no assurance our products and technology will not be rendered obsolete by alternative or competing technologies.

Delays in our production cycle could result in outdated equipment or decreased purchases of our products.

The design and manufacture of our products can take several months to several years. The length of such process depends on the complexity and purpose of the system or equipment being designed, and may be affected by factors such as: the development and design of unique or specialized systems, the fabrication, availability, and supply of parts, the customization of parts as applicable, the manufacture and/or assembly of the units, quality control testing, and the development and incorporation of new technologies. If our products are outdated upon completion of this process, our sales could materially decline, and it may be necessary to sell products at a loss.

Unsuccessful government programs or OEM contracts could lead to reduced revenues.

We design and manufacture certain products to fit the specifications of government programs or OEM contracts. These programs may take months or years to complete and involve significant investment of our time, money, and resources. We

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generally receive upfront fees for these programs but there is often no or little obligation on the part of our customer to purchase large volumes of products at the time of final product launch. Unsuccessful product launches could lead to reduced revenues and/or potential returns of products, which could have a material adverse effect on our financial condition and operating results. We may be forced to sell products at a loss or spend a significant amount of resources to find additional customers for these products if these programs do not fit the future needs of our intended customers.

Our inventory may rapidly become obsolete.

Sales cycles for some of our products can take several months or longer. In addition, it can take time from the bid to the development and manufacture of the equipment. We maintain inventory based in large part on our forecasts of the volume and timing of orders. The varying length of the sales cycles makes accurate forecasting difficult. The delays inherent in our sales cycles raise the risk that the inventory we have on hand will become obsolete or impaired prior to its use or sale. If our forecasted demand does not materialize into purchase orders, we may be required to write off our inventory balances or reduce the value of our inventory, based on a reduced sales price. A write off of the inventory, or a reduction in the inventory value due to a sales price reduction, could have an adverse effect on our financial condition and operating results.

If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share.

Our products are complex and may contain defects or security vulnerabilities, or experience failures or unsatisfactory performance due to any number of issues in design, fabrication, packaging, materials and/or use within a system. These risks may increase as our products are introduced into new devices, markets, technologies and applications, or as new versions are released. Some errors in our products or services may only be discovered after a product or service has been shipped or used by customers or the end users of such product. Undiscovered vulnerabilities in our products or services could expose our customers or end users to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attack our products or services. Failure of our products to perform to specifications, or other product defects, could lead to substantial damage to the products we sell directly to customers, the end product in which our device has been integrated by OEMs and to the user of such end product. Any such defect may cause us to incur significant warranty, support and repair or replacement costs, write off the value of related inventory, cause us to lose market share, and divert the attention of our personnel from our product development efforts to find and correct the issue. In addition, an error or defect in new products or releases or related software drivers after commencement of commercial shipments could result in failure to achieve market acceptance or loss of design wins, harm our relationships with customers and partners and harm consumers’ perceptions of our brand. Also, we may be required to reimburse our customers, partners or consumers, including costs to repair or replace products in the field. A product recall, including a recall due to a bug in our products, or a significant number of product returns could be expensive, damage our reputation, harm our ability to attract new customers, result in the shifting of business to our competitors and result in litigation against us, such as product liability suits. If a product liability claim is brought against us, the cost of defending the claim could be significant and would divert the efforts of our technical and management personnel, and harm our business. Further, our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results.

We offer an extended product warranty to cover defective products at no cost to the customer. An unexpected change in failure rates of our products could have a material adverse impact on our business.

We offer product warranties that generally extend for one or two years from date of sale that require us to repair or replace defective products returned by the customer during the warranty period at no cost to the customer. Our product warranties are in addition to warranties we receive from our vendors. Existing and future product guarantees and warranties place us at the risk of incurring future returns and repair and/or replacement costs.

While we engage in product quality programs and processes, including monitoring and evaluating the quality of our components sourced from our suppliers, our warranty obligation is affected by actual product defect rates, parts and equipment costs and service labor costs incurred in correcting a product defect. We record an estimate for anticipated warranty-related costs based on historical and estimated future product return rates and expected repair or replacement costs. Although such costs have historically been within management’s expectations and our warranty reserves (when coupled with warranty coverage provided by our vendors) have been sufficient to cover such costs, our reserves set aside to cover warranty returns may be inadequate due to an unanticipated number of customer returns, undetected product defects, unanticipated component failures or changes in estimates for material, labor and other costs we may incur to replace projected product defects. As a result, if actual customer returns, product defect rates, parts and equipment costs or service labor costs exceed

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our estimates, or we experience unexpected changes in failure rates, we could experience a material adverse effect on our business, financial condition and results of operations.

If we fail to achieve design wins for our products, our business will be harmed.

Achieving design wins is an important success factor for our business. We work closely with OEM’s and end users to ensure the customer gets the product they want in the specific configuration, size and weight required for the application. We have participated in many design wins based upon our ability to interpret technical specifications and proceed rapidly through prototyping, development, and delivery. This approach and expertise are two of the factors driving our growth. Failure to maintain our expertise and ability to deliver custom, specific design systems could harm our business. In order to achieve design wins, we must:

Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers. Further, if our products are not in compliance with prevailing industry standards, our customers may not incorporate our products into their design strategies.

If we cannot retain, attract, and motivate key personnel, we may be unable to effectively implement our business plan.

Our success depends in large part upon our ability to retain, attract and motivate highly skilled management, development, marketing, sales, and service personnel. The loss of and failure to replace key technical management and personnel, including David Raun, our Chief Executive Officer, and John Morrison, our Chief Financial Officer, could adversely affect multiple development efforts. We have entered into employment agreements with most of our executive officers, though they may terminate employment with us at any time, for any reason and with no advance notice. We may lose key personnel to other high technology companies or to other larger companies with significantly greater resources than us who may recruit our key personnel. The replacement of members of our senior management team or other key personnel may involve significant time and costs, and the loss of these employees could significantly delay or prevent the achievement of our business objectives.

Recruitment and retention of senior management and skilled technical, sales and other personnel is very competitive, and we may not be successful in either attracting or retaining such personnel. As part of our strategy to attract and retain key personnel, we may offer equity compensation through grants of stock options, restricted stock awards or restricted stock units. Potential employees, however, may not perceive our equity incentives as attractive enough. In addition, due to the intense competition for qualified employees, we may be required to, and have had to, increase the level of compensation paid to existing and new employees, which could materially increase our operating expenses.

We have made in the past, and may make in the future, acquisitions which could require significant management attention, disrupt our business, result in dilution to our stockholders, deplete our cash reserves and adversely affect our financial results.

Acquisitions involve numerous risks, including, without limitation, the following:

Acquisitions may also cause us to: