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

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

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

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

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

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

As of ~~April 30,~~October 31, 2021, the registrant had ~~18,510,415~~18,666,022 shares of common stock (par value $0.0001) outstanding.

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have consolidated such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these unaudited consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited consolidated financial statements were issued by filing with the SEC.

This Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 should be read in conjunction with our audited financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K, filed with the SEC on March 25, 2021.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021.

	Unaudited						Unaudited
	March 31,			December 31,			September 30,		December 31,
	2021			2020			2021		2020
ASSETS
Current assets
Cash and cash equivalents	$	19,614,315		$	6,316,921		$	3,955,215	$	6,316,921
Accounts receivable, net		5,733,675			7,458,383
Inventories, net		9,548,960			9,647,504
Short-term investments (Note 3)								14,534,084		-
Accounts receivable, net (Note 4)								5,808,184		7,458,383
Inventories, net (Note 5)								14,361,034		9,647,504
Prepaid expenses and other current assets		889,043			655,708			1,121,868		655,708
Total current assets		35,785,993			24,078,516			39,780,385		24,078,516
Property and equipment, net		3,368,959			3,487,178			3,090,908		3,487,178
Deposits and other		45,136			81,709			35,629		81,709
Deferred tax assets, net		3,638,073			3,698,593			3,604,607		3,698,593
Goodwill		7,120,510			7,120,510			7,120,510		7,120,510
Intangible assets, net		498,357			662,257
	$	50,457,028		$	39,128,763
Intangible assets, net (Note 6)								170,556		662,257
Total Assets							$	53,802,595	$	39,128,763

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	2,735,695		$	976,420		$	3,846,282	$	976,420
Accrued expenses and other liabilities		3,585,102			3,481,444
Current portion of notes payable, net of debt discount of $292 and $2,047, respectively (Note 7)		1,190,065			1,365,204
Current portion of related party notes payable, net of debt discount of $962 and $6,726, respectively (Note 7)		50,685			199,943
Current portion of senior secured convertible note, net of debt discounts of $165,731 and $256,242, respectively (Note 7)		2,288,814			1,789,212
Accrued expenses and other liabilities (Note 7)								3,442,091		3,481,444
Current portion of notes payable, net of debt discount of $0 and $2,047, respectively (Note 8)								1,736,546		1,365,204
Current portion of related party notes payable, net of debt discount of $0 and $6,726, respectively (Note 8)								-		199,943
Current portion of senior secured convertible note, net of debt discounts of $20,462 and $256,242, respectively (Note 8)								2,570,447		1,789,212
Total current liabilities		9,850,361			7,812,223			11,595,366		7,812,223
Senior secured convertible note, net of current portion and debt discounts of $0 and $14,107 (Note 7)		136,364			531,347
Paycheck protection program note payable (Note 7)		1,499,360			1,499,360
Senior secured convertible note, net of current portion and debt discounts of $0 and $14,107, respectively (Note 8)								-		531,347
Paycheck protection program note payable (Note 8)								-		1,499,360
Total liabilities		11,486,085			9,842,930			11,595,366		9,842,930
Commitments and contingencies (Note 9)
Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock, $.0001 par value; 50,000,000 shares authorized; 18,502,902 and 16,684,424 shares issued and outstanding, respectively		1,850			1,668
Common stock, $.0001 par value; 50,000,000 shares authorized; 18,666,022 and 16,684,424 shares issued and outstanding, respectively								1,867		1,668
Additional paid-in capital		40,652,472			30,758,354			41,040,749		30,758,354
Accumulated other comprehensive income		37,159			287,547			207,333		287,547
Accumulated deficit		(1,720,538	)		(1,761,736	)
Accumulated earnings (deficit)								957,280		(1,761,736	)
Total stockholders’ equity		38,970,943			29,285,833			42,207,229		29,285,833
	$	50,457,028		$	39,128,763
Total Liabilities and Stockholders' Equity							$	53,802,595	$	39,128,763

For the Three Months Ended March 31,

2021

2020

Revenue

$
13,315,752

$
13,359,637

Cost of revenue

8,882,968

9,963,950

Gross profit

4,432,784

3,395,687

Operating expenses:

General and administrative

2,157,619

2,514,065

Marketing and selling

1,167,901

1,189,351

Research and development

832,233

1,203,425

Total operating expenses

4,157,753

4,906,841

Income (loss) from operations

275,031

(1,511,154
)
Other income (expense), net:

Interest income

5,300

24,637

Interest expense

(149,982
)

(68,784
)
Other income (expense), net

(28,629
)

(8,029
)
Total other income (expense), net

(173,311
)

(52,176
)
Income (loss) before income taxes

101,720

(1,563,330
)
Provision (benefit) for income taxes

60,522

(467,298
)
Net income (loss)

$
41,198

$
(1,096,032
)
Net income (loss) per share:

Basic

$
0.00

$
(0.07
)
Diluted

$
0.00

$
(0.07
)
Weighted average common shares outstanding:

Basic

17,348,164

16,332,898

Diluted

18,642,061

16,332,898

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020
Revenue	$	15,984,293		$	12,976,058		$	44,205,054		$	37,961,023
Cost of revenue		10,467,590			8,074,445			29,602,823			26,338,527
Gross profit		5,516,703			4,901,613			14,602,231			11,622,496
Operating expenses:
General and administrative		1,920,574			1,817,499			5,726,978			6,208,922
Marketing and selling		1,570,135			1,103,384			4,217,328			3,137,833
Research and development		999,715			1,001,288			2,839,965			3,213,339
Total operating expenses		4,490,424			3,922,171			12,784,271			12,560,094
Income (loss) from operations		1,026,279			979,442			1,817,960			(937,598	)
Other income (expense), net:
Interest income		92,105			143,931			159,203			267,911
Interest expense		(128,315	)		(174,205	)		(447,328	)		(393,175	)
Other income (expense), net		(9,693	)		(33,625	)		1,484,676			(38,598	)
Total other (expense) income, net		(45,903	)		(63,899	)		1,196,551			(163,862	)
Income (loss) before income taxes		980,376			915,543			3,014,511			(1,101,460	)
(Benefit) provision for income taxes		(320	)		57,753			295,495			(851,056	)
Net income (loss)	$	980,696		$	857,790		$	2,719,016		$	(250,404	)

Net income (loss) per share:
Basic	$	0.05		$	0.05		$	0.15		$	(0.02	)
Diluted	$	0.05		$	0.05		$	0.14		$	(0.02	)
Weighted average common shares outstanding:
Basic		18,636,337			16,585,773			18,170,700			16,469,457
Diluted		19,963,270			17,018,614			19,466,023			16,469,457

For the Three Months Ended March 31,

2021

2020

Net income (loss)

$
41,198

$
(1,096,032
)
Other comprehensive loss:

Currency translation adjustment

(250,388
)

(55,567
)
Total other comprehensive loss

(250,388
)

(55,567
)
Comprehensive loss

$
(209,190
)

$
(1,151,599
)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021			2020
Net income (loss)	$	980,696	$	857,790	$	2,719,016		$	(250,404	)
Other comprehensive income (loss):
Net unrealized gains (losses) on short-term investments		1,458		-		2,059			-
Currency translation adjustment		60,813		130,280		(82,273	)		142,155
Total other comprehensive income (loss)		62,271		130,280		(80,214	)		142,155
Comprehensive income (loss)	$	1,042,967	$	988,070	$	2,638,802		$	(108,249	)

Common Stock

Accumulated
Other

Total

Shares

Amount

Additional
Paid-in-Capital

Noncontrolling
Interest

Comprehensive
income

Accumulated
Deficit

Stockholders'
Equity

Balance, January 1, 2021

16,684,424

$
1,668

$
30,758,354

$
-

$
287,547

$
(1,761,736
)

$
29,285,833

Stock-based compensation

-

-

438,394

-

-

-

438,394

Exercise of stock options, RSU's and warrants

321,472

32

278,936

-

-

-

278,968

Proceeds from issuance of stock, net of issuance costs of $778,810

1,497,006

150

9,221,040

-

-

-

9,221,190

Taxes paid on net issuance of employee stock
options

-

-

(44,252
)

-

-

-

(44,252
)
Currency translation adjustment

-

-

-

-

(250,388
)

-

(250,388
)
Net Income

-

-

-

-

-

41,198

41,198

Balance, March 31, 2021

18,502,902

$
1,850

$
40,652,472

$
-

$
37,159

$
(1,720,538
)

$
38,970,943

For the Three ~~Month Period~~and Nine Months Ended ~~March 31, 2020~~September 30, 2021

Common Stock

Accumulated
Other

Total

Shares

Amount

Additional
Paid-in-Capital

Noncontrolling
Interest

Comprehensive
loss

Accumulated
Deficit

Stockholders'
Equity

Balance, January 1, 2020

16,121,747

$
1,612

$
30,537,015

$
500

$
(17,773
)

$
(1,755,192
)

$
28,766,162

Stock-based compensation

-

-

207,761

-

-

-

207,761

Exercise of stock options

354,914

35

56,965

-

-

-

57,000

Return of capital upon dissolution of SkyScale

(500
)

(500
)
Taxes paid on net issuance of employee stock
options

-

-

(656,845
)

-

-

-

(656,845
)
Currency translation adjustment

-

-

-

-

(55,567
)

-

(55,567
)
Net loss

-

-

-

(1,096,032
)

(1,096,032
)
Balance, March 31, 2020

16,476,661

$
1,647

$
30,144,896

$
-

$
(73,340
)

$
(2,851,224
)

$
27,221,979

	Common Stock							Accumulated Other			Accumulated			Total
	Shares		Amount		Additional Paid-in-Capital			Comprehensive Income			Earnings (Deficit)			Stockholders' Equity
Balance, January 1, 2021		16,684,424	$	1,668	$	30,758,354		$	287,547		$	(1,761,736	)	$	29,285,833
Stock-based compensation		-		-		903,730			-			-			903,730
Exercise of stock options, RSU's and warrants		357,259		36		301,484			-			-			301,520
Proceeds from issuance of stock, net of issuance costs of $811,327		1,497,006		150		9,188,523			-			-			9,188,673
Taxes paid on net issuance of employee stock options		-		-		(114,143	)		-			-			(114,143	)
Currency translation adjustment		-		-		-			(143,086	)		-			(143,086	)
Net unrealized gains (losses) on short-term investments		-		-		-			601			-			601
Net income		-		-		-			-			1,738,320			1,738,320
Balance, June 30, 2021		18,538,689	$	1,854	$	41,037,948		$	145,062		$	(23,416	)	$	41,161,448
Stock-based compensation		-		-		399,148			-			-			399,148
Exercise of stock options, RSU's and warrants		127,333		13		61,160			-			-			61,173
Taxes paid on net issuance of employee stock options		-		-		(457,507	)		-			-			(457,507	)
Currency translation adjustment		-		-		-			60,813						60,813
Net unrealized gains (losses) on short-term investments		-		-		-			1,458			-			1,458
Net income		-		-		-			-			980,696			980,696
Balance, September 30, 2021		18,666,022	$	1,867	$	41,040,749		$	207,333		$	957,280		$	42,207,229

	Common Stock										Accumulated Other						Total
	Shares		Amount		Additional Paid-in-Capital			Noncontrolling Interest			Comprehensive Loss / Income			Accumulated Deficit			Stockholders' Equity
Balance, January 1, 2020		16,121,747	$	1,612	$	30,537,015		$	500		$	(17,773	)	$	(1,755,192	)	$	28,766,162
Stock-based compensation		-		-		293,139			-			-			-			293,139
Exercise of stock options		376,870		37		64,430			-			-			-			64,467
Return of capital upon dissolution of SkyScale		-		-		-			(500	)		-			-			(500	)
Taxes paid on net issuance of employee stock options		-		-		(670,599	)		-			-			-			(670,599	)
Currency translation adjustment		-		-		-			-			11,875			-			11,875
Net loss		-		-		-			-			-			(1,108,194	)		(1,108,194	)
Balance, June 30, 2020		16,498,617	$	1,649	$	30,223,985		$	-		$	(5,898	)	$	(2,863,386	)	$	27,356,350
Stock-based compensation		-		-		210,280			-			-			-			210,280
Exercise of stock options, RSU's and warrants		122,291		13		59,987			-			-			-			60,000
Taxes paid on net issuance of employee stock options		-		-		(13,847	)		-			-			-			(13,847	)
Currency translation adjustment		-		-		-			-			130,280			-			130,280
Net income		-		-		-			-			-			857,790			857,790
Balance, September 30, 2020		16,620,908	$	1,662	$	30,480,405		$	-		$	124,382		$	(2,005,596	)	$	28,600,853

For the Three Months Ended March 31,

2021

2020

Cash flows from operating activities:

Net income (loss)

$
41,198

$
(1,096,032
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Deferred benefit for income taxes

(59,290
)

(441,282
)
(Gain) on disposal of property and equipment

-

(1,542
)
Provision for bad debt

(16,590
)

(2,405
)
Warranty reserves

13,944

5,075

Amortization of deferred gain

-

(41,479
)
Amortization of intangibles

163,900

174,525

Depreciation

216,878

221,300

Inventory reserves

154,335

148,418

Amortization of debt discount

61,210

7,520

Stock-based compensation expense

438,394

207,761

Changes in operating assets and liabilities:

Accounts receivable

1,697,901

2,530,072

Inventories

(223,160
)

(1,826,564
)
Prepaid expenses and other current assets

(152,561
)

(386,005
)
Accounts payable

1,795,141

(275,428
)
Accrued expenses and other liabilities

159,766

54,293

Net cash provided by (used in) operating activities

4,291,066

(721,773
)

Cash flows from investing activities:

Purchases of property and equipment, including capitalization of labor
costs for test equipment and ERP

(121,759
)

(200,049
)
Proceeds from sales of property and equipment

-

1,542

Net cash used in investing activities

(121,759
)

(198,507
)

Cash flows from financing activities:

Proceeds from exercise of stock options and warrants

278,968

57,000

Payment of payroll taxes on net issuance of employee stock options

(44,252
)

(656,845
)
Proceeds from issuance of stock

10,000,000

-

Stock issuance costs

(778,810
)

-

Net (repayment) borrowings on bank lines of credit

(80,117
)

(430,313
)
Net repayments on related-party notes payable

(155,022
)

(141,042
)
Net repayments on notes payable

(47,174
)

(42,919
)
Net cash provided by (used in) financing activities

9,173,593

(1,214,119
)

Net change in cash and cash equivalents

13,342,900

(2,134,399
)
Effect of exchange rates on cash

(45,506
)

(12,916
)
Cash and cash equivalents, beginning of period

6,316,921

5,185,321

Cash and cash equivalents, end of period

$
19,614,315

$
3,038,006

For the Three Months Ended March 31,

2021

2020

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$
83,392

$
22,369

Cash paid during the period for income taxes

$
80,629

$
-

	For the Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	2,719,016		$	(250,404	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred benefit for income taxes		(27,163	)		(910,959	)
Loss (gain) on disposal of property and equipment		4,238			(1,542	)
(Recovery) provision for bad debt		(4,902	)		10,950
Warranty reserves		93,944			(723	)
Amortization of deferred gain		-			(53,838	)
Amortization of intangibles		491,701			520,035
Depreciation		680,036			688,727
Inventory reserves		525,983			382,472
Amortization of debt discount		137,016			249,882
Stock-based compensation expense		1,302,878			503,419
Gain on forgiveness of Paycheck Protection Program (PPP) loan and interest		(1,514,354	)		-
Changes in operating assets and liabilities:
Accounts receivable		1,574,019			1,971,324
Inventories		(5,546,750	)		(2,872,108	)
Prepaid expenses and other current assets		(313,722	)		(294,475	)
Accounts payable		2,948,377			(484,327	)
Accrued expenses and other liabilities		226,808			(843,823	)
Net cash provided by (used in) operating activities		3,297,125			(1,385,390	)

Cash flows from investing activities:
Investment in short-term investment grade securities		(14,532,025	)		-
Purchases of property and equipment, including capitalization of labor costs for test equipment and ERP		(313,257	)		(664,385	)
Proceeds from sales of property and equipment		-			1,542
Net cash used in investing activities		(14,845,282	)		(662,843	)

Cash flows from financing activities:
Proceeds from exercise of stock options and warrants		362,693			124,467
Payment of payroll taxes on net issuance of employee stock options		(571,650	)		(684,446	)
Proceeds from issuance of stock		10,000,000			-
Stock issuance costs		(811,327	)		-
Net borrowings on bank lines of credit		-			(23,622	)
Proceeds from notes payable		2,307,818			-
Repayments on notes payable		(1,852,277	)		(131,792	)
Repayments on related-party notes payable		(206,669	)		(433,094	)
Proceeds, net of repayments, on secured convertible debt		-			2,383,726
Repayments on senior secured convertible note		-			(409,090	)
Proceeds on Paycheck Protection Program (PPP) note payable		-			1,499,360
Net cash provided by financing activities		9,228,588			2,325,509

Net change in cash and cash equivalents		(2,319,569	)		277,276
Effect of exchange rates on cash		(42,137	)		57,232
Cash and cash equivalents, beginning of period		6,316,921			5,185,321
Cash and cash equivalents, end of period	$	3,955,215		$	5,519,829

For ~~The~~the Three and Nine Month Periods Ended ~~March 31,~~September 30, 2021 and 2020

One Stop Systems, Inc. (“we,” “our,” “OSS,” or the “Company”) was originally incorporated as a California corporation in 1999 after initially being formed as a California limited liability company in 1998. On December 14, 2017, the Company was reincorporated as a Delaware corporation in connection with its initial public offering. The Company designs, manufactures, and markets industrial grade computer systems and components that are based on industry standard computer architectures. The Company markets its products to manufacturers of automated equipment used for media and entertainment, medical, industrial, and military applications.

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

In April 2017, the Company and a related entity formed a joint venture named SkyScale, LLC in the State of California (“SkyScale”). In accordance with the Contribution Agreement, each member contributed $750,000 and received a 50% interest in the joint venture. The purpose of SkyScale was to engage in the business of providing high performance computing capabilities as cloud services. As a result of changes in the competitive landscape and downward pressure on pricing from large competitors, the members of the SkyScale joint venture agreement agreed to dissolve SkyScale and ceased operations as of December 31, 2018.

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 has been fully integrated into the core operations of OSS as of June 1, 2020.

On October 31, 2018, OSS GmbH acquired 100% of the outstanding stock of Bressner Technology GmbH, a Germany limited liability company located near Munich, Germany (“Bressner”). Bressner ~~provides~~designs and manufactures standard and customized servers, panel PCs, and PCIe expansion systems. Bressner also provides manufacturing, test, ~~and~~ sales and marketing services for customers throughout Europe.

~~Given our recurring operating losses,~~Historically, the Company’s primary sources of liquidity have been provided by ~~(i) the Company’s February 2018 initial~~ public ~~offering (net proceeds were approximately $16,100,000); (ii) March 2019 notes payable~~and private offerings of its securities and revenues generated from ~~members of the Board of Directors and others of $1,500,000; (iii) the July 2019 sale of 1,554,546 shares of the Company’s common stock for net cash proceeds of $2,488,148; (iv) the~~its business operations. On April 24, 2020, ~~sale of~~the Company sold $3,000,000 of Senior Secured Convertible Promissory Notes ~~issued~~ at a 10% original issue ~~discount; (v) receipt of approximately $1,500,000 on~~discount to an institutional investor through a registered direct offering. On April 28, 2020, the Company received approximately $1,500,000, of government ~~loan proceeds~~funding under the Paycheck Protection ~~Program, and (vi) a receipt of approximately $9,221,000 on~~Program. On March 3, 2021, inthe Company sold and issued 1,497,006 shares of its common stock to an accredited investor through a registered direct ~~offering.~~offering, resulting in net proceeds of $9,188,673.

As of ~~March 31,~~September 30, 2021, the Company’s cash and cash equivalents were ~~$19,614,315~~$3,955,215, it had $14,534,084 in short-term investments, and it had total working capital ~~was $25,935,632.~~of $28,185,019. Cash and cash equivalents held by Bressner totaled ~~$1,263,430 (USD) at March 31,~~$770,603 on September 30, 2021. Bressner’s debt covenants do not permit the use of these funds by its parent company.

During the ~~three~~nine month period ended ~~March 31,~~September 30, 2021, the Company ~~experienced an~~had operating income of ~~$275,031,~~$1,817,960, with cash generated by operating activities of ~~$4,291,066.~~$3,297,125. During the year ended December 31, 2020, the Company experienced an operating loss of $424,281, with cash used in operating activities of $250,173.

The Company’s revenue growth during ~~the prior year~~2020, slowed due to the effects of COVID-19. However, ~~resulting from~~through a reduction in force and strict cost containment, the Company ~~has been~~was able to mitigate the effects, to some degree, of the reduced revenue attributable to the economic impact of COVID-19.

Despite global efforts to slow the ~~World Health Organization declared~~spread of the ~~outbreak of COVID-19, a global pandemic~~virus and ~~the United States federal government declared it a national emergency.~~ to mitigate its effects, COVID-19 continues to impact worldwide economic ~~activity. A public health~~activity, and the ongoing effects of the COVID-19 pandemic ~~including~~has adversely impacted, and may continue to adversely impact, many aspects of our business. In response to the COVID-19 ~~poses~~pandemic, many state, local, and foreign governments have put in place restrictions in order to control the ~~risk~~spread of the disease. Such restrictions, or the perception that further restrictions could occur, have resulted in business closures, work stoppages, slowdowns, delays, work-from-home policies, travel restrictions, and cancellation or postponement of events, among other effects that impacted productivity and disrupted our operations and those of our partners, suppliers, contractors, and customers.

One way that COVID-19 has directly affected our operations is that we have experienced increased pricing and/or shortages of certain parts and supplies that are necessary components to the products and services we offer to our ~~employees, contractors,~~ customers, ~~suppliers,~~ and ~~other partners~~as a result, are experiencing longer lead-times. COVID-19 has indirectly affected our operations as well. For instance, some of our customers experienced downturns or uncertainty in their own business operations and revenue, and as a result, these customers have (and may ~~be prevented from conducting business activities for an indefinite period~~continue to) decreased or delayed their technology spending, requested pricing concessions or payment extensions, or seek to renegotiate their contracts. For example, one of ~~time, including due to shutdowns~~our customers that ~~may be requested or mandated by governmental authorities.~~

~~More generally, COVID-19 raises the possibility of an extended global economic downturn, which could affect demand for~~uses our products and services in their business operations operates in the live event space, such as music festivals and concerts. Due to measures implemented by local and state governments to restrict public gatherings in order to stop and/or prevent the spread of COVID-19, our customer was unable to generate revenue at previous levels during these times, and as a result, we provided extended payment terms for the collection of our accounts receivables for this particular customer during the pandemic. However, all past due accounts receivables owed by this particular customer have now been received by the Company.

During the pandemic, as state, local, and foreign governments implemented (and may continue to implement) preventative measures to contain or mitigate the outbreak of COVID-19, the usage of our products and services fluctuated following such implementation, and we cannot predict how usage levels will continue to be impacted by these preventative measures. There is no assurance that customers will continue to use our products and services, or to the same extent, as the COVID-19 pandemic begins to taper off or when it will end. As a result, it has been difficult to accurately forecast our revenues or financial results, especially given that the near and long term impact of the pandemic remains uncertain. In addition, while the potential impact and duration of the COVID-19 pandemic on the economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional capital, which could negatively affect our liquidity in the future. Our results of operations could be materially below our forecasts as well, which could adversely affect our results of operations, disappoint analysts and ~~financial condition even after the pandemic is contained and remediation/restriction measures are lifted. For example, we may be unable~~investors, or cause our stock price to ~~collect receivables from customers that are significantly impacted by COVID-19. Also,~~decline.

Furthermore, a decrease in orders in a given period could negatively affect our revenues in future periods. The COVID-19 pandemic may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our December 31, 2020 Annual Report on Form 10-K, filed March 25, 2021, including risks associated with our customers and supply chain. We ~~will~~may take further actions that alter our operations as may be required by federal, state, or local authorities, or which we determine are in our best interests. While much of our operations can be performed remotely, certain activities often require personnel to be on-site, and our ability to carry out these activities has been, and may continue to ~~evaluate~~be negatively impacted if our employees or local personnel are not able to travel. In addition, for activities that may be conducted remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed and many employees and their families have been negatively affected, mentally or physically, by the ~~nature~~COVID-19 pandemic. Decreased effectiveness and availability of our team could harm our business. In addition, we may decide to postpone or cancel planned investments in our business in response to changes in our business as a result of the spread of COVID-19, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business.

We do not yet know the full extent of ~~the impact of COVID-19 to~~potential delays or impacts on our ~~business.~~

~~Presently, it is clear~~business, operations, or the global economy as a whole. 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, the Company is carrying increased inventory balances to ensure availability of product and to secure pricing. Additionally, work-in-process and finished goods inventory has been ~~negatively impacted by COVID-19,~~increasing as the timing of availability of certain componentry to the production line has varied from committed delivery dates from vendors.

While there have recently been vaccines developed and ~~demand for some of our products~~administered, and ~~services~~certain government orders and restrictions in particular cities, counties, and states have been ~~reduced due to uncertainty and~~lifted as the ~~economic impact~~spread of COVID-19. In particular, in the media and entertainment industry, demand for the use of outdoor media equipment has been impacted due to restrictions on public gatherings. Until such restrictions improve, we expect that demand for certain of our clients’ products and services will be limited, and may not return to prior levels, and thus, may impact our financial results and operations.

~~Specifically, our business has also begun~~COVID-19 starts to be ~~negatively affected by a range~~contained and mitigated, we cannot predict the timing of ~~external factors related to COVID-19 that are not within our control. For example, numerous measures have been implemented by governmental authorities across~~ the ~~globe to contain~~vaccine roll-out globally or the efficacy of such vaccines, including against variants of the virus, ~~including travel bans~~and we do not yet know how businesses, customers, contractors, suppliers, or our partners will operate in a post COVID-19 environment, especially if additional or supplemental governmental orders, limitations, and restrictions quarantines, shelter-in-place orders, restrictions and limitations of public gatherings, and business limitations and shutdowns. Many of our customers’ businesses have been severely impacted by these measures and some have been requiredare reinstated. There may be additional costs or impacts to ~~reduce employee headcount as a result. If a significant number of our customers are unable to continue as a going concern, this would have an adverse impact on~~ our business and ~~financial condition.~~operations, including when we are able to resume in-person activities, travel, and events. In addition, ~~many~~there is no guarantee that a future outbreak of ~~our customers are working remotely,~~this or any other widespread epidemics will not occur, or that the global economy will recover, either of 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.

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

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 ofcould harm our business.

The Company is complying with state mandated requirements for safety in the workplace to ensure the health, safety and welling-being of our employees. These measures included personal protective equipment, social distancing, and cleanliness of the facilities and daily monitoring of the health of employees in our facilities. We have not developed a specific and comprehensive contingency plan designed to address the challenges and risks presented by the COVID-19 pandemic, 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.

Management’s plans with respect to the above isare to continue ~~its~~their efforts towards responding to the changing economic landscape attributable to COVID-19, to continue to ~~reduce~~control costs, conserve cash, strengthen margins, and improve company-wide execution. Specific actions ~~already~~ implemented in 2020, by management ~~include~~in response to this effort included a reduction in force, a limited freeze on hiring, reduced work week, ~~minimizing~~minimized overtime, travel and entertainment, and contractor costs. 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 $2.5 million on an annual basis.

While management expects these actions to result in prospective cost ~~reductions,~~containment, management is also committed to conserving cash, and securing debt and/or equity financing ~~to ensure that~~as required for liquidity ~~will be sufficient~~ to meet the Company’s cash requirements through at least a period of the next twelve months. Management believes potential sources of liquidity include at least the following:

As a result of management’s cost reduction plans, the Company’s sources of liquidity and management’s most recent cash flow forecasts, management believes that the Company has sufficient liquidity to satisfy its anticipated cash requirements for at least the next twelve months. However, there can be no assurance that management’s cost reduction efforts will be effective, the forecasted cash flows will be achieved, or that external sources of financing, including the issuance of debt and/or equity securities, will be available at times and on terms acceptable to the Company, or at all.

The accompanying consolidated financial statements have been prepared on an accrual basis of accounting in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”), as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

The unaudited consolidated financial statements herein have been prepared by the Company pursuant to the rules and regulations of the ~~United States Securities Exchange Commission (“SEC”).~~SEC. The accompanying interim unaudited consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the latest year ended December 31, 2020. Accordingly, note disclosures which would substantially duplicate the disclosures contained in the December 31, 2020, audited consolidated financial statements have been omitted from these interim unaudited consolidated financial statements. The Company evaluated all subsequent events and transactions through the date of filing this report.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. Operating results for the three and nine months ended ~~March 31,~~September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the audited consolidated financial statements and notes for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2021.

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

There have been no changes to our accounting policies disclosed in our audited consolidated financial statements and the related notes for the year ended December 31, ~~2020.~~2020, except for the addition of a definition of, and description of our policy for short-term investments as follows:

Short-term investments consist predominantly of commercial paper, corporate debt securities, U.S. Treasury securities, and asset-backed securities. The Company classifies short-term investments based on the facts and circumstances surrounding the investments at the time of purchase and evaluates such classification as of each balance sheet date. On September 30, 2021, all short-term investments were classified as available-for-sale.

Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income—a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in other income (expense) in the consolidated statement of operations. The Company evaluates its investments to determine whether those with unrealized loss positions are other than temporarily impaired. Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before recovery of their cost basis.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

On an ongoing basis, our management evaluates these estimates and assumptions, including those related to determination of standalone selling prices of our products and services, allowance for doubtful account and sales reserves, income tax valuations, stock-based compensation, goodwill, intangible assets and inventory valuations and recoverability. We base our estimates on historical data and experience, as well as various other factors that our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities.

As of ~~March 31,~~September 30, 2021, we had ~~approximately $3.6 million~~$3,604,607 in net deferred tax assets ~~(DTAs)~~(“DTAs”). These DTAs include approximately ~~$5.1~~$5.3 million related to net operating loss carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these DTAs. However, it is possible that economic conditions may decrease the likelihood that we will have sufficient taxable income in the future. Therefore, unless we are able to generate sufficient taxable income from our operations, a substantial valuation allowance to reduce our U.S. DTAs may be required, which would materially increase our expenses in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.

On March 11, 2021, Congress passed, and the President signed into law, the American Rescue Plan Act, 2021 (the “ARP”), which includes certain business tax provisions.At this point, we do not believe that these changes will have a material impact on our income tax provision for 2021. We will continue to evaluate the impact of new legislation on our financial position, results of operations, and cash flows.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to our estimates or assumptions or a revision of the carrying value of our assets or liabilities as of the date of this Quarterly Report on Form 10-Q. These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal year 2023. Early application is permitted. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. ~~Lessees may not apply a full retrospective transition approach.~~ The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements and disclosures. Based on our preliminary analysis, management expects the Company’s assets and liabilities to increase by the present value of the lease ~~payments.~~payments of approximately $1,256,000 with implementation as of January 1, 2022.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. In November 2019, ASU 2016-13 was amended by ASU 2019-10 that changed the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022, with early adoption permitted. Further, the ASU clarifies that operating lease receivables are not within the scope of ASC Subtopic 326-20 and should instead be accounted for under the new leasing standard, ASC 842. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements and related disclosures.

~~Recently Implemented Accounting Pronouncements~~The Company’s short-term investments by significant investment category as of September 30, 2021, are as follows:

~~In September 2018, the FASB issued ASU No. 2018-07,~~ ~~Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting~~,

Description	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Accrued Interest		Estimated Fair Value
Level 1: (1)
Cash alternatives	$	1,350,654	$	-	$	-	$	-	$	1,350,654
Certificates of deposit		592,785		-		81		729		593,433
Corporate bonds and notes		4,324,787		-		962		34,571		4,358,396
Municipal Securities		8,177,623		471		-		53,507		8,231,601
	$	14,445,849	$	471	$	1,043	$	88,807	$	14,534,084

Cash alternatives represents cash balances in savings accounts which ~~amends the existing accounting standards~~are temporarily on-hand that are immediately available for ~~share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards~~investments in accordance with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. This ASU became effective for the year ended December 31, 2020 (and interim periods in 2021). ASU 2018-07 did no~~t materially impact~~ the Company’s ~~consolidated financial statements~~.investment policy.

~~In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in FASB Topic 605,~~ ~~Revenue Recognition~~. ASU 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. This guidance provides a single, comprehensive accounting model for revenue arising from contracts with customers. This guidance supersedes most of the existing revenue recognition guidance, including industry-specific guidance. Under this model, revenue is recognized at an amount that a company expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer. The new guidance also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flow arising from customer contracts, including significant judgments and changes in judgments. We adopted this standard beginning January 1, 2019 and used the modified retrospective method of adoption. Under the new guidance, based on the nature of our contracts, we continued to recognize revenue in a similar manner as with the former guidance. Accordingly, the adoption of this standard did not significantly impact our revenues.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (“ASU 2016-15”), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, provided that all of the amendments are adopted in the same period. The Company’s adoption of this guideline did not have a material effect on the Company’s consolidated financial statements.

~~In July 2017, the FASB issued Accounting Standards Update No. 2017-11,~~ ~~Accounting for financial instruments with down rounds features~~ ~~(“ASU 2017-11”), which addressed~~ ~~(i)~~ ~~accounting for certain financial instruments with down round features~~, and (ii) replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests with a scope exception. The main provisions of Part I of ASU 2017-11 are to change the classification analysis of certain equity-linked financial instruments ~~and~~ embedded features with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument or embedded conversion option no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Under previous US GAAP, ~~the existence of~~ ~~down round features often result in an accounting conclusion that the evaluated feature or instrument is~~ ~~not~~ i~~ndexed to the entity’s own stock, which results in classification as a derivative liability. ASU 2017-11~~ ~~was adopted early by the Company on April 1, 2020, with no adjustments. The Company’s April 2020 convertible note payable described in Note 7 possesses~~ ~~down round features.~~

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (“ASU 2019-12”), an amendment to the guidance on income taxes, which is intended to simplify the accounting for income taxes. The amendment eliminates certain exceptions related to the methodology for calculating income taxes on an interim period, the approach for intra-period tax allocation, and the recognition of deferred tax liabilities for outside basis differences. The amendment also clarifies existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. The effective date of the standard is annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company elected to early adopt ASU 2019-12 prospectively as of July 1, 2020, which did not have a material impact on the consolidated financial statements, except for the elimination of the rule that limited the interim tax benefit to the tax benefit expected for the year. The early adoption resultedtypically invests in the Company recording an additional interim tax benefit of $446,099 for the three months ended September 30, 2020. The adoption did not impact the Company’s annual income tax benefit or expense for the year ended December 31, 2020 orhighly rated securities and its investment policy limits the amount of ~~net deferred~~credit exposure to any 1 issuer. The policy requires investments in fixed income ~~tax assets as~~instruments denominated and payable in U.S. dollars only and requires investments to be investment grade, with a primary objective of ~~March 31, 2021. The Company made~~minimizing the election to early adopt because, consistent with the FASB, it believes that it will reduce the time and cost associated with income tax accounting and reporting, while not adversely altering the information provided to stakeholders on an interim basis. potential risk of principal loss.

Unbilled receivables include amounts associated with percentage of completion and milestone billing accounting, which includes cost and gross profit earned in excess of billing, not currently billable due to contractual provisions. ~~Provision~~(Recovery) provision for bad debt expense related to accounts receivable was ~~($16,590)~~$0 and ~~($2,405)~~$12,361 for the three month ~~periods~~period ended ~~March 31,~~September 30, 2021 and 2020, respectively, and ($4,902) and $10,950 for the nine month period ended September 30, 2021 and 2020, respectively.

Definite lived intangible assets related to acquisition are as follows, as of ~~March 31,~~September 30, 2021:

	Expected Life	Remaining Months	Gross Intangible Assets		Accumulated Amortization			Net Intangible Assets		Expected Life	Remaining Months	Gross Intangible Assets		Accumulated Amortization			Net Intangible Assets
Customer lists and relationships	36 to 60 months	7 to 29 months	$	2,084,515	$	(1,695,302	)	$	389,213	36 to 60 months	1 to 23 months	$	2,084,515	$	(1,929,551	)	$	154,964
Drawings and technology	36 months	0 months		760,207		(760,207	)		-	36 months	0 months		760,207		(760,207	)		-
Trade name, trademarks & other	24 to 36 months	7 months		447,274		(383,202	)		64,072	24 to 36 months	1 month		447,274		(438,121	)		9,153
Non-compete	36 months	7 months		246,797		(201,725	)		45,072	36 months	1 month		246,797		(240,358	)		6,439
			$	3,538,793	$	(3,040,436	)	$	498,357			$	3,538,793	$	(3,368,237	)	$	170,556

Definite lived intangibles assets related to acquisitions are as follows, as of December 31, 2020:

As of ~~March 31,~~September 30, 2021, amortization expense of the definite lived intangible assets for the years remaining is as follows:

Amortization expense recognized during the three months ended ~~March 31,~~September 30, 2021 and 2020, was $163,900 and ~~$174,525,~~$197,984, respectively, and $491,701 and $520,035 for the nine months ended September 30, 2021 and 2020, respectively.

Bressner Technology GmbH has ~~two~~3 revolving lines of credit with German institutions, including UniCredit Bank, totaling ~~€2,200,000~~€2,700,000 (US$~~2,578,904).~~3,125,782) as of September 30, 2021. Borrowing under the lines of credit bear interest at a variable rate of Euribor plus a stated rate. The current rates as of September 30, 2021, for the lines of credit are ~~3.89% and~~from 3.10% to 4.0%~~. One million euros of the credit line expires in January 2024,~~, with the ~~remaining balance~~balances being open indefinitely or until occurrence of a defined change of control event. There were no0 outstanding lines of credit balances as of ~~March 31,~~September 30, 2021 and December 31, 2020.

Bressner ~~Technology GmbH~~ has ~~two~~3 term loans outstanding as of ~~March 31,~~September 30, 2021, with a total balance outstanding of ~~€1,000,000~~€1,500,000 (US$~~1,174,343)~~1,736,546) as follows:

On April 9, 2020, Bressner converted €500,000 of its line of credit from UniCredit Bank to a one-year term loan at 1.9% interest with a balloon payment of principal and interest due upon maturity. The balance outstanding as of March 31, 2021 and December 31, 2020 is €500,000 (US$587,171, $611,406, respectively);

1, 2019, Bressner entered into a note payable in ~~June 2019 in~~ the amount of €500,000 (US$586,189), which bears interest at 1.70% and matured on June 25, 2020 with a balloon payment of principal and interest. This loan was subsequently extended to June 18, 2021, with an interest rate of 1.87% The amount outstanding as of March 31, 2021 and December 31, 2020 is €500,000 (US$587,172, $611,406, respectively);

~~Bressner entered into a note payable in April 2019 in the amount of €500,000 (US$586,189) which bears~~bore interest at 2.25% and ~~matures~~matured on March 30, 2021, with monthly payments of principal and interest of €22,232 (US$24,960). The amount outstanding was paid in full as of September 30, 2021. The balance outstanding as of ~~March 31, 2021 and~~ December 31, 2020, ~~is €0 (US$0) and~~was €66,446 (US$81,251)~~, respectively;~~;

In September 2019, Bressner entered into a note payable ~~in September 2019~~ in the amount of €300,000 (US$336,810) which bore interest at 1.65% and matured on March 24, 2020, with a balloon payment of principal and interest. The outstanding balance was paid in full as of ~~March~~September 30, 2021 and December 31, 2020; and

In September 2017, Bressner entered into a note payable, ~~in September 2017,~~ in the amount of €400,000 (US$436,272) which bore interest at 2.125% and matured on January 31, 2020 and ~~has been~~was paid in ~~full.~~full as of September 30, 2021 and December 31, 2020.

In April 2019, the Company borrowed an aggregate of $350,000 from ~~three~~3 individuals for a two-year period at an interest rate of 9.5% which requires the Company to make monthly principal and interest payments of $16,100 per month. These loans ~~are~~were secured by the assets of the Company. In connection with these loans, the Company issued to the noteholders warrants to purchase shares of the Company’s common stock in an amount equal to 10% of the original principal at a price per share equal to ~~$2.15 per share.~~$2.15. Accordingly, the Company issued to the noteholders warrants to purchase an aggregate of 16,276 shares of the Company’s common stock at an exercise price of $2.15 per share. The relative fair value of each warrant was $0.90. The relative fair value of warrants was estimated using Black-Scholes with the following weighted-average assumptions: fair value of the Company’s common stock at issuance of $2.15 per share; five year contractual term; 44.60% volatility; 0.0% dividend rate; and a risk-free interest rate of 2.307%. The total relative fair value of the warrants issued is $14,037. ~~The balance~~These loans have matured, and all balances have been paid in full. As such, the balances outstanding as of ~~March 31,~~September 30, 2021 and December 31, 2020, ~~is $16,014~~were $0 and $63,188, respectively.

In April 2019, the Company borrowed an aggregate of $1,150,000 from ~~three~~3 individuals who serve on the Company’s board of directors for a two-year period at an interest rate of 9.5% which requires the Company to make monthly principal and interest payments of $52,900 per month. These loans ~~are~~were secured by the assets of the Company. In connection with these loans, the Company issued to the noteholders warrants to purchase shares of the Company’s common stock in an amount equal to 10% of the original principal at a price per share equal to ~~$2.15 per share.~~$2.15. Accordingly, the Company issued to the noteholders warrants to purchase an aggregate 53,490 shares of the Company’s common stock at an exercise price of $2.15 per share. The relative fair value of each warrant was $0.90. The relative fair value of warrants was estimated using Black-Scholes with the following weighted-average assumptions: fair value of the Company’s common stock at issuance of $2.15 per share; five year contractual term; 42.60% volatility; 0.0% dividend rate; and a risk-free interest rate of 2.3067%. The relative fair value of warrants issued is $46,121. ~~The balance~~These loans have matured, and all balances have been paid in full, As such, the balances outstanding as of ~~March 31,~~September 30, 2021 and December 31, 2020 ~~is $51,647~~were $0 and $206,669, respectively.

On April 28, 2020, ~~One Stop Systems, Inc.~~the Company received authorization pursuant to the Paycheck Protection Program ~~(PPP)~~(“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the “SBA”) for a “PPP” loan. On May 11, 2020, the Loan was funded, and the Company received proceeds in the amount of $1,499,360 (the “PPP Loan”).

The PPP Loan, which took the form of a two-year promissory note (the “PPP Note”), matures on April 28, 2022 and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), was initially to commence on October 28, 2020. The Company did not provide any collateral or guarantees for the PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The PPP Note provides for customary events of default, including, among others, those relating to failure to make payment, breaches of any term, obligation, covenant, or condition contained in the PPP Note and payment of unauthorized expenses or use of proceeds contrary to CARES Act rules. ~~The Company may prepay the principal of the PPP Loan at any time without incurring any prepayment charges.~~

Under the original rules, all or a portion of the PPP Loan may be forgiven by the SBA and lender upon application by the Company beginning 60 days but not later than 120 days, after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the eight-week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

However, the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), enacted on June 5, 2020, amended the original rules governing loans granted under the PPP to provide, among ~~others,~~other changes, as follows: (i) the time period to spend the received funds was extended from the original eight weeks to twenty-four weeksfrom the date the PPP Loan was originated, during which PPP funds need to be expended in order to be forgiven; (ii) at least 60% of PPP funds must be spent on payroll costs, with the remaining 40% available to spend on other eligible expenses; (iii) payments are deferred until the date on which the amount of forgiveness determined is remitted to the lender, and if a borrower fails to seek forgiveness within 10 months after the last day of its covered period, then payments will begin on the date that is 10 months after the last day of the covered period; and (iv) the PPP Flexibility Act modified the CARES Act by increasing the maturity date for loans made after the effective date from two years to a minimum maturity of five years from the date on which the borrower applies for loan forgiveness. Existing PPP loans made before the new legislation retain their original two-year term, but may be renegotiated between a lender and a borrower to match the 5-year term permitted under the PPP Flexibility Act.

The Company ~~has~~ submitted an application with the lender to forgive the PPP Loan, in accordance with SBA Procedural Notice, Control No. 5000-20057, effective as of October 2, 2020. ~~Because~~On May 3, 2021, the Company ~~expects~~received notification from the SBA that its PPP ~~loan to be~~Loan of $1,499,360, plus accrued interest of $14,994 had been fully forgiven and such amount has been recognized as other income in ~~full, all related amounts have been presented as noncurrent liabilities (See Note 13).~~the consolidated statement of operations.

On April 20, 2020, the Company entered into a Securities Purchase Agreement with an institutional investor, providing for the issuance ofby the ~~Company’s~~Company of Senior Secured Convertible Promissory Notes with a principal face ~~amount~~value of up to $6,000,000. The notes are, subject to certain conditions, convertible into shares of the Company’s common stock, par value $0.0001 per share, at an initial conversion price per share of $2.50. The notes will be issued with a 10% original issue discount.

At the initial closing of this offering, the Company issued notes in the principal amount of $3,000,000 ~~and can consummate additional closings of up to $3,000,000, subject to the prior satisfaction of certain closing conditions which have been satisfied. The initial investor purchased the notes for~~ with a 10% original issue discount resulting inan aggregate purchase price of $2,700,000 at the initial closing. The notes bear no0 interest rate (except upon event of default) and, unless earlier converted or redeemed, will mature on April 1, 2022.

Pursuant to the Securities Purchase Agreement, the Company had the right to consummate additional closings of up to an additional $3,000,000, subject to the prior satisfaction of certain closing conditions. This right expired effective April 20, 2021, and the Company may no longer consummate additional closings under the Securities Purchase Agreement.

The Notes are convertible at any time, in whole or in part, at the option of the investors, into shares of common stock at the initial conversion price of $2.50 per share. The conversion price is subject to adjustment for issuances of securities below the conversion price then in effect and for stock splits, combinations or similar events. If immediately following the close of business on the ~~six~~nine month anniversary of the issuance date of each note, the conversion price then in effect exceeds 135% of the volume weighted average price VWAP (the “Market Price”), the initial conversion price under any such note will be automatically lowered to the Market Price.

Commencing July 1, 2020, the Company has made monthly amortization payments equal to 1/22nd of the initial principal, any accrued and unpaid interest and late charges and any deferred or accelerated amount, of such note, which may be satisfied in cash at a redemption price equal to 105% of such installment amount (110% of such

installment amount on notes issued at additional closings). As of ~~March 31,~~September 30, 2021, the holder has elected to defer receipt of ~~three~~twelve installment payments as allowed per the agreement.

Subject to the satisfaction of certain equity conditions set forth in the notes, installment amounts may be satisfied in shares of our common stock, with such installment conversion at a conversion price equal to the lower of (i) the conversion price then in effect; and (ii) the greater of (x) the floor price of $1.00 (80% of the Nasdaq market price at date of purchase agreement) and (y) the lower of (I) 82.5% the volume weighted average price of our common stock on the trading day immediately before the applicable installment date and (II) 82.5% of the quotient of (A) the sum of the volume weighted average price of our common stock for each of the three (3) trading days with the lowest volume weighted average price of our common stock during the twenty (20) consecutive trading day period ending and including the trading day immediately prior to the applicable installment date, divided by (B) three (3). Shares of our common stock to be issued with respect to any such installment will be pre-delivered on the second trading day after the applicable installment notice date (as defined in the notes) with a true-up on the applicable installment date. The market value of any installment amount below the floor price will be cash settled on the applicable installment date.

Management evaluated the embedded conversion feature to determine whether bifurcation was required as a separate derivative liability. Management first determined that the conversion feature was not within the scope of ASC 480. It then determined that the embedded derivative should be separated from the host instrument and accounted for as a derivative instrument because it met the criteria of ASC 815-15-25-1, primarily because the contract provides for delivery of an asset that puts the recipient in substantially the same position as net settlement. However, in part due to the Company’s adoption of ASC 2017-11 on April 1, 2020, which allowed management to disregard the down round provisions of the conversion feature, management determined that a scope exception to derivative accounting existed by satisfying the additional conditions necessary for equity classification specified by ASC 815-10-15-74 and ASC 815-40-25. As a result of management’s analysis, the conversion feature was not accounted for separately from the debt instrument and the Company will recognize the contingent beneficial conversion feature when, or if, such is triggered.

The original issue discount of 10% on the Senior Secured Convertible Note was recorded as a debt discount, decreasing the note payable. This debt discount is amortized to interest expense using the effective interest rate method over the term of the loan. For the three months ended ~~March 31,~~September 30, 2021 and 2020, total debt discount amortization was ~~$50,928,~~$26,285 and ~~such amount is~~$61,518, respectively, and was $121,644 and $110,659 for the nine months ended September 30, 2021 and 2020, respectively. Such amounts are included in interest expense in the accompanying consolidated statements of operations.

Debt issuance costs in the amount of $316,274 related to this indebtedness were deducted from the face value of the note. Such costs are amortized to interest expense using the effective interest rate method over the term of the loan. Total debt issuance costs amortized during the three months ended ~~March 31,~~September 30, 2021 and 2020, was ~~$53,690,~~$27,711 and ~~such amount is~~$64,855, respectively, and $128,243 and $116,662 for the nine months ended September 30, 2021 and 2020, respectively. Such amounts are included in interest expense in the accompanying consolidated statements of operations.

The relative fair value of warrants issued in connection with the notes payable described above were recorded as debt discount, decreasing notes payable and related-party notes payable and increasing additional paid-in-capital on the accompanying consolidated balance sheets. The debt discounts are being amortized to interest expense over the term of the corresponding notes payable using the straight-line method, which approximates the effective interest method.

For the three ~~month periods~~months ended ~~March 31,~~September 30, 2021 and 2020, total debt discount amortization was ~~$7,519~~$0 and ~~$7,520,~~$72,372, respectively, and ~~such~~was $8,773 and $139,221 for the nine months ended September 30, 2021 and 2020, respectively. Such amounts are included in interest expense in the accompanying consolidated statements of operations.

A summary of outstanding debt obligations as of ~~March 31,~~September 30, 2021, is as follows:

Loan Description	Current Interest Rate	Maturity Date	Balance (Euro)		Balance ($)		Current Portion		Long-term Portion		Current Interest Rate	Maturity Date	Balance (Euro)		Balance ($)		Current Portion
Domestic:
Notes payable - third party	9.50%	April-21	€	-	$	16,014	$	16,014	$	-
Related party notes payable	9.50%	April-21		-		51,647		51,647		-
Convertible senior secured note	10% OID	April-22		-		2,590,909		2,454,545		136,364	10% OID	April-22		-	$	2,590,909	$	2,590,909
PPP loan	1.00%	April-22		-		1,499,360		-		1,499,360
			€	-	$	4,157,930	$	2,522,206	$	1,635,724			€	-	$	2,590,909	$	2,590,909
Foreign:
Uni Credit Bank AG	1.87%	June-21	€	500,000	$	587,171	$	587,171	$	-	1.57%	March-22	€	500,000	$	578,848	$	578,848
Uni Credit Bank AG	1.90%	April-21		500,000		587,172		587,172		-	1.55%	November-21		500,000		578,849		578,849
Uni Credit Bank AG											1.55%	December-21		500,000		578,849		578,849
			€	1,000,000	$	1,174,343	$	1,174,343	$	-			€	1,500,000	$	1,736,546	$	1,736,546
					$	5,332,273	$	3,696,549	$	1,635,724					$	4,327,455	$	4,327,455

Outstanding debt obligations as of ~~March 31,~~September 30, 2021, consist of the following:

Period Ended March 31, 2021	Related Parties			Third Parties			Convertible Note			PPP Loan		Foreign		Total
Period Ended September 30, 2021																	Convertible Note			Foreign		Total
Current portion:
Principal	$	51,647		$	16,014		$	2,454,545		$	-	$	1,174,343	$	3,696,549		$	2,590,909		$	1,736,546	$	4,327,455
Less discount		(962	)		(292	)		(80,677	)		-		-		(81,931	)		(9,961	)		-		(9,961	)
Less loan origination costs		-			-			(85,054	)		-		-		(85,054	)		(10,501	)		-		(10,501	)
Net liability	$	50,685		$	15,722		$	2,288,814		$	-	$	1,174,343	$	3,529,564		$	2,570,447		$	1,736,546	$	4,306,993

Long-term portion:
Principal	$	-		$	-		$	136,364		$	1,499,360	$	-	$	1,635,724
Less discount		-			-			-			-		-		-
Less loan origination costs		-			-			-			-		-		-
Net liability	$	-		$	-		$	136,364		$	1,499,360	$	-	$	1,635,724

Total:
Principal	$	51,647		$	16,014		$	2,590,909		$	1,499,360	$	1,174,343	$	5,332,273
Less discount		(962	)		(292	)		(80,677	)		-		-		(81,931	)
Less loan origination costs		-			-			(85,054	)		-		-		(85,054	)
Net liability	$	50,685		$	15,722		$	2,425,178		$	1,499,360	$	1,174,343	$	5,165,288

Total future principal payments under notes payable and related party notes payable as of ~~March 31,~~September 30, 2021, are as follows:

Period Ending March 31,	Related Parties			Third Parties			Convertible Note			PPP Loan		Foreign			Total			Discount / Loan Original Costs
Period Ending September 30, 2022																					Convertible Note			Foreign			Total			Discount / Loan Original Costs
2022	$	51,647		$	16,014		$	2,454,545		$	-	$	1,174,343		$	3,696,549		$	(166,985	)	$	2,590,909		$	1,736,546		$	4,327,455		$	(20,462	)
2023		-			-			136,364			1,499,360		-			1,635,724			-
Total minimum payments		51,647			16,014			2,590,909			1,499,360		1,174,343			5,332,273			(166,985	)		2,590,909			1,736,546			4,327,455			(20,462	)
Current portion of notes payable		(51,647	)		(16,014	)		(2,454,545	)		-		(1,174,343	)		(3,696,549	)		166,985			(2,590,909	)		(1,736,546	)		(4,327,455	)		20,462
Notes payable, net of current portion	$	-		$	-		$	136,364		$	1,499,360	$	-		$	1,635,724		$	-		$	-		$	-		$	-		$	-

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

Effective June 24, 2020, the Company entered into an employment agreement with ~~Mr.~~David Raun to serve as the Company’s president and chief executive officer. Pursuant to the terms of the employment agreement, Mr. Raun is entitled to receive 412,125 restricted stock units (“RSUs”) that shall vest over three years, with one third of the RSUs vesting following the one-year anniversary of the date of grant, and the remaining RSUs vesting in four equal installments, commencing ~~six~~nine months after the one-year anniversary of the date of grant and every ~~six~~nine months thereafter until fully vested; and 412,125 Incentive Stock Options (“ISOs”) pursuant to the Company’s 2017 Equity Incentive Plan, as amended whereby the exercise price for the ISOs shall be no less than the fair market value of the Company’s common stock at the date of grant, ($2.14).

The ISOs shall vest at the end of each of the second and fourth quarters, the price of the Company’s common stock as of the end of quarter two or quarter four, as applicable, shall be determined using the ten-day trailing volume weighted average price (“VWAP”) after reporting of quarter two and quarter four earnings, as applicable. The date of each such determination shall be referred to as a “Determination Date.” If on any Determination Date the Company’s stock price has increased from the prior Determination Date, then a portion of the ISOs shall become vested. The number of ISOs that shall become vested on a ~~Determinate~~Determination Date is determined as follows: ((Price at Determination Date – Price at prior Determination Date) x 100) * 1,177.52 = Vested ISOs. If on any Determination Date the Company’s stock price is $5.50 per share, all ISOs shall immediately become vested. As of September 30, 2021, Mr. Raun’s ISOs are fully vested, but not exercised, based upon achievement of the specified performance objectives.

In the event, that Mr. Raun’s employment agreement is terminated for a reason other than “good cause” or for “good reason”, upon Mr. ~~Raun, upon executing~~Raun’s execution of an effective waiver and release of claims, unvested RSUs shall accelerate so that an additional twelve (12) months of RSUs shall vest from the termination date.

A summary of stock option activity under each of the Company’s stock option plans during the ~~three month period~~nine months ended ~~March 31, 2021:~~September 30, 2021, is as follows:

Stock Options Outstanding

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life (in years)

Aggregate
Intrinsic
Value

Outstanding at January 1, 2021

1,320,267

$
1.81

6.43

$
2,889,274

Granted

-

-

-

-

Forfeited / Cancelled

1,113

$
1.95

6.28

$
4,886

Exercised

(198,891
)

$
1.08

3.17

$
1,047,002

Outstanding at March 31, 2021

1,122,489

$
1.95

6.72

$
4,932,363

Exercisable at March 31, 2021

663,265

$
1.75

5.08

$
3,044,253

Vested and expected to vest at March 31,
2021

1,108,712

$
1.94

6.69

$
4,875,720

	Stock Options Outstanding
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding on January 1, 2021		1,320,267		$	1.81		6.43	$	2,889,274
Granted		-		$	-		-	$	-
Forfeited / Canceled		(13,772	)	$	2.66		6.21	$	29,350
Exercised		(229,496	)	$	1.11		2.76	$	899,175
Outstanding on September 30, 2021		1,076,999		$	1.95		6.30	$	3,316,333
Exercisable as of September 30, 2021		1,059,582		$	1.94		6.27	$	3,273,749
Vested and expected to vest as of September 30, 2021		1,044,689		$	1.95		6.30	$	3,216,843

The following table presents details of the assumptions used to calculate the weighted-average grant date fair value of common stock options granted by the Company. There were no0 options granted during the ~~three~~nine month period ended ~~March 31,~~September 30, 2021:

As of ~~March 31,~~September 30, 2021, the amount of unearned stock-based compensation estimated to be expensed from 2021 through 2025 related to unvested common stock options is ~~$49,012,~~$15,678, net of estimated forfeitures. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is ~~0.93~~0.94 years.

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

Restricted stock units may be granted at the discretion of the compensation committee of the Board of Directors under the Company’s 2017 Equity Incentive Plan that was adopted on October 10, 2017 ~~(the~~(as amended, the “2017 Plan”) in connection with the hiring and retention of personnel and are subject to certain conditions. Restricted stock units generally vest quarterly or semi-annually over a period of one to three years and are typically forfeited if employment is terminated before the restricted stock unit vest. The compensation expense related to the restricted stock units is calculated as the fair value of the common stock on the grant date and is amortized to expense over the vesting period and is adjusted for estimated forfeitures.

The Company’s restricted stock unit activity for the ~~three month period~~nine months ended ~~March 31,~~September 30, 2021, is as follows:

As of ~~March 31,~~September 30, 2021, there was ~~$786,901~~$2,285,644 of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average period of ~~2.07~~1.87 years.

Stock-based compensation expense for the three and nine month periods ended ~~March 31,~~September 30, 2021 and 2020, was comprised of the following:

The following table summarizes the Company’s warrant activity during the ~~three month period~~nine months ended ~~March 31,~~September 30, 2021:

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

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

On June 21, 2021, the Company filed a Form S-8 Registration Statement relating to 3,543,114 shares of the Company’s common stock, par value $0.0001 per share, issuable to the employees, officers, directors, consultants and advisors of the Company under the Company’s 2017 Plan, One Stop Systems, Inc. 2015 Stock Option Plan, and One Stop Systems, Inc. 2011 Stock Option Plan.

On August 12, 2021, the Company filed a new S-8 Registration Statement relating to the additional 1,500,000 shares of common stock authorized for issuance under the 2017 Plan, as approved by the Company’s stockholders on May 19, 2021

We are subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business.

On September 29, 2020, the Company’s former Chief Executive Officer, Stephen D. Cooper, commenced an action against the Company 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 in February 2020. Mr. Cooper ~~seeks~~sought 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,~~misrepresentation; and (4) breach of fiduciary ~~duty. The~~duty pursuant to which the Company ~~is seeking~~sought 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~~

On June 28, 2021, pursuant to ~~vigorously defend~~the parties’ agreement to resolve all ~~allegations.~~of their disputes, the court entered a dismissal with prejudice of the litigation, including all claims and cross-claims. As a result, these actions have been resolved.

The Company has made certain indemnities, under which it may be required to make payments to an indemnified party, in relation to certain transactions. The Company indemnifies its directors, officers, employees, and agents to the maximum extent permitted under the laws of the State of Delaware. In connection with its facility lease, the Company has indemnified its lessor for certain claims arising from the use of the facilities. Also, in connection with its Credit Agreement, the Company has agreed to indemnify its lender and others related to the use of the proceeds and other matters. The duration of the indemnities varies, and in many cases is indefinite. These indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities in the accompanying consolidated balance sheets.

The Company leases its offices, manufacturing, and warehouse facility in San Diego County under a non-cancelable operating lease. Our corporate headquarters are in a leased space comprising of approximately 29,342 square feet in Escondido, California under a lease that was modified in February 2019 and expires in August ~~2024.~~2024.

Additionally, the Company entered into a two year lease beginning July 2021, for a 1,632 square foot lab facility in Anaheim, California. The Company also leases a 3,208 square foot facility in Salt Lake City, Utah that houses our Ion software development ~~team. The Company is the lessee of a leased space comprising approximately 12,880 square feet located~~team, that was modified in ~~Irvine, California with the lease expiring~~July 2021 and expires in June ~~2021.~~2023. Bressner Technology GmbH, leases space comprising of 8,073 square feet on a month-to-month basis.

For the three ~~month periods~~months ended ~~March 31,~~September 30, 2021 and 2020, rent expense was ~~$251,130~~$162,745 and ~~$189,417,~~$162,262, respectively. For the nine months ended September 30, 2021 and 2020, rent expense was $614,996 and $528,418, respectively.

In the normal course of business, the Company ~~enters~~may enter into purchase commitments for inventory components to be delivered based upon pre-established delivery schedules over a period that may exceed one year.

During the three month periods ended ~~March 31,~~September 30, 2021 and 2020, the Company had ~~two~~2 customers ~~and~~ in ~~2020, one customer~~ each period, respectively,that had approximately ~~38%,~~41% and ~~27%~~23%, respectively, of revenue for which each represented greater than 10% of our consolidated ~~annual~~quarterly revenue.

~~As of March 31,~~

During the nine month periods ended September 30, 2021 and 2020, the Company had ~~three~~2 customers and as1 customer, respectively, that accounted for approximately 36% and 15%, respectively, of revenue for which each represented greater than 10% of our consolidated year to date revenue.

As of September 30, 2021 and December 31 2020, ~~one~~the Company had 1 customer and 3 customers, respectively, that ~~had~~accounted for approximately ~~58%~~60% and ~~41%~~64%, respectively, of trade accounts receivables for which each customer’s balances represented greater than 10% of our consolidated trade accounts receivable balance.

During the three month periods ended ~~March 31,~~September 30, 2021 and 2020, the Company had approximately ~~22%~~16% and 31%, respectively, of purchases from vendors/suppliers for which each represents greater than 10% of our consolidated purchases.

During the nine month periods ended September 30, 2021 and ~~18%~~2020, the Company had approximately 13% and 24%, respectively, of purchases from vendors/suppliers for which each represents greater than 10% of our consolidated purchases.

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 an aggregate of $1,150,000 from members of the Board of Directors and an aggregated of $350,000 from other shareholders for a two-year period at an interest rate of 9.5% which ~~requires~~required the Company to make monthly principal and interest payment of $69,000 per month. In connection with these loans, the Company issued to these 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.~~$2.15. Accordingly, the Company issued to these note holders warrants to purchase an aggregate of 69,766 shares of the Company’s common stock. The relative fair value of the warrants issued was $60,158. Interest expense on all ~~related-party~~related party notes payable for the three months ended ~~March 31,~~September 30, 2021 and 2020 totaled ~~$3,678~~$417 and $17,156, respectively, and $4,095 and $32,080 for the nine months ended September 30, 2021 and 2020, respectively. The remaining unfunded commitments expired as of April 1, 2020, and the Company has ~~not~~0t received any additional funding commitments from members of the Board of Directors as of the date of filing of the Quarterly Report on Form ~~10-Q.~~10-Q (See Note 8).

Basic and diluted net ~~loss~~income (loss) per share was calculated as follows for the three and nine month periods ended ~~March 31,~~September 30, 2021 and 2020:

	For the Three Months Ended March 31,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020			2021		2020		2021		2020
Basic and diluted net income (loss) per share:
Numerator:
Net income (loss)	$	41,198	$	(1,096,032	)	$	980,696	$	857,790	$	2,719,016	$	(250,404	)
Denominator:
Weighted average common shares outstanding - basic		17,348,164		16,332,898			18,636,337		16,585,773		18,170,700		16,469,457
Effect of dilutive securities		1,293,897		-			1,326,933		432,841		1,295,323		-
Weighted average common shares outstanding - diluted		18,642,061		16,332,898			19,963,270		17,018,614		19,466,023		16,469,457
Net income (loss) per common share:
Basic	$	0.00	$	(0.07	)	$	0.05	$	0.05	$	0.15	$	(0.02	)
Diluted	$	0.00	$	(0.07	)	$	0.05	$	0.05	$	0.14	$	(0.02	)

The Company operates in ~~two~~2 reportable segments: the design and manufacture of high-performance customized computers and flash arrays, which is inclusive of in-flight entertainment & ~~connectivity,~~connectivity; and value-added reseller with minimal customization. The Company evaluates financial performance on a company-wide basis. As of June 1, 2020, CDI’s operations became fully integrated and combined with the operation of OSS’ core business operations located in Escondido, California. It is the Company’s intention to dissolve CDI as a standalone entity upon resolution of certain outstanding items.

Segment detail for the three and nine month periods ended ~~March 31,~~September 30, 2021 and 2020, is as follows:

	For the Three Months Ended March 31, 2021									For the Three Months Ended March 31, 2020									For the Three Months Ended September 30, 2021									For the Three Months Ended September 30, 2020
	OSS			Bressner			Total			OSS			Bressner			Total			OSS			Bressner			Total			OSS			Bressner			Total
Revenues	$	8,601,971		$	4,713,781		$	13,315,752		$	8,440,224		$	4,919,413		$	13,359,637		$	9,263,796		$	6,720,497		$	15,984,293		$	8,976,539		$	3,999,519		$	12,976,058
Cost of revenues		(5,341,362	)		(3,541,606	)		(8,882,968	)		(6,120,909	)		(3,843,041	)		(9,963,950	)		(5,468,204	)		(4,999,386	)		(10,467,590	)		(4,976,063	)		(3,098,382	)		(8,074,445	)
Gross profit		3,260,609			1,172,175			4,432,784			2,319,315			1,076,372			3,395,687			3,795,592			1,721,111			5,516,703			4,000,476			901,137			4,901,613
Gross margin %		37.9	%		24.9	%		33.3	%		27.5	%		21.9	%		25.4	%		41.0	%		25.6	%		34.5	%		44.6	%		22.5	%		37.8	%
Total operating expenses		(3,251,785	)		(905,968	)		(4,157,753	)		(3,986,209	)		(920,632	)		(4,906,841	)		(3,562,174	)		(928,250	)		(4,490,424	)		(3,052,949	)		(869,222	)		(3,922,171	)
Income from operations	$	8,824		$	266,207		$	275,031		$	(1,666,894	)	$	155,740		$	(1,511,154	)	$	233,418		$	792,861		$	1,026,279		$	947,527		$	31,915		$	979,442

																			For the Nine Months Ended September 30, 2021									For the Nine Months Ended September 30, 2020
																			OSS			Bressner			Total			OSS			Bressner			Total
Revenues																			$	26,968,202		$	17,236,852		$	44,205,054		$	24,722,066		$	13,238,957		$	37,961,023
Cost of revenues																				(16,572,433	)		(13,030,390	)		(29,602,823	)		(15,899,150	)		(10,439,377	)		(26,338,527	)
Gross profit																				10,395,769			4,206,462			14,602,231			8,822,916			2,799,580			11,622,496
Gross profit %																				38.5	%		24.4	%		33.0	%		35.7	%		21.1	%		30.6	%
Total operating expenses																				(9,986,391	)		(2,797,880	)		(12,784,271	)		(9,883,997	)		(2,676,097	)		(12,560,094	)
Income (loss) from operations																			$	409,378		$	1,408,582		$	1,817,960		$	(1,061,081	)	$	123,483		$	(937,598	)

Revenue from customers with non-U.S. billing addresses represented approximately ~~66%~~63% and ~~50%,~~ 35%of the Company’s revenue during the three month periods ended ~~March 31,~~September 30, 2021 and 2020, respectively. Revenue from customers with non-U.S. billing addresses represented approximately 62% and 44%of the Company’s revenue during the nine month periods ended September 30, 2021 and 2020, respectively.

As of ~~March 31,~~September 30, 2021, substantially all the Company’s long-lived assets ~~were~~are located in the United States of America, with the exception of assets of ~~$215,961~~$184,723 located in Germany.

The Company has evaluated subsequent events after the consolidated balance sheet dated as of ~~March 31,~~September 30, 2021, through the date of filing of this quarterly report. Based upon the Company’s evaluation, management has determined that, other than as disclosed in the accompanying notes, no subsequent events have occurred that would require recognition in the accompanying consolidated financial statements or disclosure in the notes ~~thereto, other than as disclosed in the accompanying notes~~thereto.

~~On April 7, 2021, Bressner Technologies, Inc. received a short-term loan~~Analysis of ~~€500,000 at an interest rate~~Financial Condition and Results of ~~1.6% due September 30, 2021.~~

On May 3, 2021, the Company received notification from the Small Business Administration (SBA) that its Paycheck Protection Program (PPP) Loan of $1,499,360 plus accrued interest had been fully forgiven.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~.Operations.

You should read the following discussion and analysis of our financial condition and operating results together with our financial statements and related notes included elsewhere in this Quarterly Report. This discussion and analysis ~~contains~~contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included in our Annual Report filed on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 25, 2021. Readers are cautioned not to place undue reliance on these forward-looking statements.

One Stop Systems (OSS) designs, manufactures, and markets specialized high-performance computing modules and systems targeting edge deployments. These specialized computers and storage products incorporate state-of-the art components and allow our customers to offer high-end computing capabilities (often embedded within their equipment) to their target markets. Edge computing is when data is processed/analyzed on devices, that is, at the edge of the network, rather than in the cloud itself. ~~Factors such as~~The increase in load on the cloud infrastructure globally and rises in artificial intelligence ~~(AI)~~(“AI”) applications, are the major factors driving the growth of the edge computing market. Our customer applications often require connection to a wide array of data sources and sensors, ultra-fast processing power and the ability to quickly access and store large and ever-growing data sets at their location not in the cloud. This equipment requires datacenter class performance optimized for deployment at the edge in challenging environments. Unlike the controlled air-conditioned data center, many of these edge applications have unique requirements, including special and compact form factors ruggedized for harsh conditions. We are uniquely positioned as a specialized provider for the high-end of this marketplace providing custom servers, data acquisition platforms, compute accelerators, solid-state storage arrays, system IO expansion systems as well as edge optimized industrial and panel PCs, tablets and handheld compute devices. Our systems also offer industry leading capabilities that occupy less physical space and power consumption. We deliver this high-end technology to our customers through the sale of equipment and embedded software.

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 shares of our common stock began trading as a public company on the Nasdaq Capital Markets on February 1, 2018.

On August 31, 2018, we acquired Concept Development Inc. (“CDI”), a provider of specialty in-flight entertainment, networking and other aerospace technology located in Irvine, California. As of June 1, 2020, CDI has been fully integrated into the core operations of OSS.

On October 31, 2018, we acquired Bressner Technology GmbH (“Bressner”), located near Munich, Germany. Bressner provides manufacturing, test, sales and marketing services for customers throughout Europe. Furthermore, Bressner is a valued-added reseller of high technology hardware, which expanded the ~~company’s~~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.

~~In March 2020,~~Despite global efforts to slow the ~~World Health Organization declared~~spread of the ~~outbreak of Coronavirus, or COVID-19, a global pandemic~~virus and ~~the United States federal government declared it a national emergency.~~ to mitigate its effects, COVID-19 continues to impact worldwide economic ~~activity. A public health~~activity, and the ongoing effects of the COVID-19 pandemic ~~including~~has adversely impacted, and may continue to adversely impact, many aspects of our business. In response to the COVID-19 ~~poses~~pandemic, many state, local, and foreign governments have put in place restrictions in order to control the ~~risk~~spread of the disease. Such restrictions, or the perception that further restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions, and cancellation or postponement of

Furthermore, a decrease in orders in a given period could negatively affect our revenues in future periods. The COVID-19 pandemic may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our December 31, 2020 Annual Report on Form 10-K, filed on March 25, 2021, including risks associated with our customers and supply chain. We ~~will~~may take further actions that alter our operations as may be required by federal, state, or local authorities, or which we determine are in our best interests. While much of our operations can be performed remotely, certain activities often require personnel to be on-site, and our ability to carry out these activities have been, and may continue to ~~evaluate~~be negatively impacted if our employees or local personnel are not able to travel. In addition, for activities that may be conducted remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed and many employees and their families have been negatively affected, mentally or physically, by the ~~nature~~COVID-19 pandemic. Decreased effectiveness and availability of our team could harm our business. In addition, we may decide to postpone or cancel planned investments in our business in response to changes in our business as a result of the spread of COVID-19, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business.

We do not yet know the full extent of potential delays or impacts on our business, operations, or the ~~impact~~global economy as a whole. While there have recently been vaccines developed and administered, and certain government orders and restrictions in particular cities, counties, and states have been lifted as the spread of COVID-19 starts to be contained and mitigated, we cannot predict the timing of the vaccine roll-out globally or the efficacy of such vaccines, including against variants of the virus, and we do not yet know how businesses, customers, contractors, suppliers, or our partners will operate in a post COVID-19 environment, especially if additional or supplemental governmental orders, limitations, and restrictions are reinstated. There may be additional costs or impacts to our business and operations, including when we are able to resume in-person activities, travel, and events. In addition, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could harm our business.

~~At present, it is clear~~Although the ~~global economy has been negatively impacted by COVID-19, and demand for some of our products and services have been reduced~~Company’s revenue growth during 2020 slowed due to ~~uncertainty and~~the effects of COVID-19, the Company was able to mitigate the effects, to some degree, of the reduced revenue attributable to the economic impact of ~~COVID-19. Specifically, our business has been negatively affected by a range of external factors related 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 bans and restrictions, quarantines, shelter-in-place orders, restrictions and limitations of public gatherings, and business limitations and shutdowns. Many of our customers’ businesses have been severely impacted by these measures 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, 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.

~~Though management has been proactively managing~~ through the ~~current known impacts, if the situation further deteriorates or the outbreak results~~implementation of a reduction in ~~further restriction on both supply~~force 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.

The Company is complying with state mandated requirements for safety in the workplace to ensure the health, safety and welling-being of our employees. These measures included personal protective equipment, social distancing, and cleanliness of the facilities and daily monitoring of the health of employees in our facilities. 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.strict cost containment measures.

On February 15, 2020, Steve Cooper was terminated as President and CEO of One Stop Systems, Inc., and was replaced by David Raun, who is now the ~~president~~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~~were estimated to be approximately $2.5 million on an annual basis. Though such cost containment efforts were successful, the Company has begun making strategic investments in personnel, technology, and systems to expand the business and improve capabilities and efficiencies.

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~~2020. Although an additional $3.0 million was available, conditioned upon meeting certain requirements which were satisfied, for seven months from the date of closing at the option of the Company, ~~conditioned upon meeting certain requirements which have been satisfied.~~the Company’s right to consummate additional closings under the Securities Purchase Agreement expired effective April 20, 2021. The outstanding 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~~issued and ~~sell,~~sold, 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 (“SEC”) on May 15, 2019, and was declared effective on June 19, 2019. As compensation for their services, the Company paid to the placement agents a fee equal to 7%7.0% 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 net proceeds to the Company from the registered offering ~~are~~were approximately $9.2 million after deducting certain fees due to the placement agents’ and the Company’s transaction expenses. The net proceeds received by the Company will be used for general corporate and working capital purposes.

On May 19, 2021, the Company’s stockholders approved, by a majority of votes cast, the Company’s proposal to increase the number of shares of commons stock authorized for issuance under the Company’s 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.

The Company recognizes revenue under accounting standard ASC 606. Revenue is primarily generated from the sale of computer hardware and engineering services and to some extent the sale of software, and sales of software maintenance and support contracts. The Company’s performance obligations are satisfied over time as work is performed or at a point in time. The majority of the Company’s revenue is recognized at a point in time when products ship and control is transferred to the customer. The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.

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

Our operating expenses consist of general and administrative, marketing and ~~sales~~selling, and research and development expenses. Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities and utility costs.

General and Administrative - General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, and fees for third-party professional services, as well as allocated overhead. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing the business.

Marketing and Selling – Marketing and ~~Selling~~selling expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel, and entertainment expenses as well as allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications, and brand-building activities. We expect marketing and selling expenses to increase in absolute dollars as we expand our sales force, increase marketing resources, and further develop sales channels.

Research and Development - Research and development expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, third-party engineering, and contractor support costs, as well as allocated overhead. We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products.

Other income consists of miscellaneous income and income received ~~for~~from activities outside of our core business. Other expense includes expenses ~~for~~from activities outside of our core business.

Provision for income taxes consists of estimated income taxes due to the United States and German governments as well as state tax authorities in jurisdictions in which we conduct business, along with the change in our deferred income tax assets and liabilities.

The following tables set forth our results of operations for the three and nine month periods ended ~~March 31,~~September 30, 2021 and 2020, presented in dollars and as a percentage of revenue, respectively.

	For the Three Months Ended March 31,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020			2021			2020
Revenue	$	13,315,752		$	13,359,637		$	15,984,293		$	12,976,058		$	44,205,054		$	37,961,023
Cost of revenue		8,882,968			9,963,950			10,467,590			8,074,445			29,602,823			26,338,527
Gross profit		4,432,784			3,395,687			5,516,703			4,901,613			14,602,231			11,622,496
Operating expenses:
General and administrative		2,157,619			2,514,065			1,920,574			1,817,499			5,726,978			6,208,922
Marketing and selling		1,167,901			1,189,351			1,570,135			1,103,384			4,217,328			3,137,833
Research and development		832,233			1,203,425			999,715			1,001,288			2,839,965			3,213,339
Total operating expenses		4,157,753			4,906,841			4,490,424			3,922,171			12,784,271			12,560,094
Income (loss) from operations		275,031			(1,511,154	)		1,026,279			979,442			1,817,960			(937,598	)
Other income (expense), net:
Interest income		5,300			24,637			92,105			143,931			159,203			267,911
Interest expense		(149,982	)		(68,784	)		(128,315	)		(174,205	)		(447,328	)		(393,175	)
Other income (expense), net		(28,629	)		(8,029	)		(9,693	)		(33,625	)		1,484,676			(38,598	)
Total other income (expense), net		(173,311	)		(52,176	)
Total other (expense) income, net								(45,903	)		(63,899	)		1,196,551			(163,862	)
Income (loss) before income taxes		101,720			(1,563,330	)		980,376			915,543			3,014,511			(1,101,460	)
Provision (benefit) for income taxes		60,522			(467,298	)
(Benefit) provision for income taxes								(320	)		57,753			295,495			(851,056	)
Net income (loss)	$	41,198		$	(1,096,032	)	$	980,696		$	857,790		$	2,719,016		$	(250,404	)

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2021	2020	2021	2020
Revenue	100.0%	100.0%	100.0%	100.0%
Cost of revenue	65.5%	62.2%	67.0%	69.4%
Gross profit	34.5%	37.8%	33.0%	30.6%
Operating expenses:
General and administrative	12.0%	14.0%	13.0%	16.4%
Marketing and selling	9.8%	8.5%	9.5%	8.3%
Research and development	6.3%	7.7%	6.4%	8.5%
Total operating expenses	28.1%	30.2%	28.9%	33.1%
Income (loss) from operations	6.4%	7.5%	4.1%	-2.5%
Other income (expense), net:
Interest income	0.6%	1.1%	0.4%	0.7%
Interest expense	-0.8%	-1.3%	-1.0%	-1.0%
Other income (expense), net	-0.1%	-0.3%	3.3%	-0.1%
Total other (expense) income, net	-0.3%	-0.5%	2.7%	-0.4%
Income (loss) before income taxes	6.1%	7.1%	6.8%	-2.9%
(Benefit) provision for income taxes	0.0%	0.4%	0.7%	-2.2%
Net income (loss)	6.1%	6.6%	6.1%	-0.7%

For the Three Months Ended March 31,

2021

2020

Revenue

100
%

100
%
Cost of revenue

67
%

75
%
Gross profit

33
%

25
%
Operating expenses:

General and administrative

16
%

19
%
Marketing and selling

9
%

9
%
Research and development

6
%

9
%
Total operating expenses

31
%

37
%
Income (loss) from operations

2
%

-11
%
Other income (expense), net:

Interest income

0
%

0
%
Interest expense

-1
%

-1
%
Other income (expense), net

0
%

0
%
Total other income (expense), net

-1
%

0
%
Income (loss) before income taxes

1
%

-12
%
Provision (benefit) for income taxes

0
%

-3
%
Net income (loss)

0
%

-8
%

Comparison of the three and nine months ended ~~March 31,~~September 30, 2021 and 2020:

	For the Three Months Ended March 31, 2021										For the Three Months Ended March 31, 2020										For the Three Months Ended September 30, 2021										For the Three Months Ended September 30, 2020
Entity:	Revenue		Cost of Revenue			Gross Profit		Gross Margin %			Revenue		Cost of Revenue			Gross Profit		Gross Margin %			Revenue		Cost of Revenue			Gross Profit		Gross Margin %			Revenue		Cost of Revenue			Gross Profit		Gross Margin %
OSS	$	8,601,971	$	(5,341,362	)	$	3,260,609		37.9	%	$	8,440,224	$	(6,120,909	)	$	2,319,315		27.5	%	$	9,263,796	$	(5,468,204	)	$	3,795,592		41.0	%	$	8,976,539	$	(4,976,063	)	$	4,000,476		44.6	%
Bressner Technology GmbH		4,713,781		(3,541,606	)		1,172,175		24.9	%		4,919,413		(3,843,041	)		1,076,372		21.9	%		6,720,497		(4,999,386	)		1,721,111		25.6	%		3,999,519		(3,098,382	)		901,137		22.5	%
	$	13,315,752	$	(8,882,968	)	$	4,432,784		33.3	%	$	13,359,637	$	(9,963,950	)	$	3,395,687		25.4	%	$	15,984,293	$	(10,467,590	)	$	5,516,703		34.5	%	$	12,976,058	$	(8,074,445	)	$	4,901,613		37.8	%

																					For The Nine Months Ended September 30, 2021										For The Nine Months Ended September 30, 2020
Entity:																					Revenue		Cost of Revenue			Gross Margin		Gross Margin %			Revenue		Cost of Revenue			Gross Margin		Gross Margin %
OSS																					$	26,968,202	$	(16,572,433	)	$	10,395,769		38.5	%	$	24,722,066	$	(15,899,150	)	$	8,822,916		35.7	%
Bressner Technology GmbH																						17,236,852		(13,030,390	)		4,206,462		24.4	%		13,238,957		(10,439,377	)		2,799,580		21.1	%
																					$	44,205,054	$	(29,602,823	)	$	14,602,231		33.0	%	$	37,961,023	$	(26,338,527	)	$	11,622,496		30.6	%

For the three month period ended ~~March 31,~~September 30, 2021, total revenue ~~decreased $43,885~~increased $3,008,235, or ~~0.33%~~23.2%, as compared to the same period in 2020. OSS saw an increase in revenue of ~~$161,747~~$287,257 or ~~1.21 percentage points~~3.2%, as compared to the prior ~~year.~~year in 2020. The majority of this increase is attributable to an increase in shipments of product to our media and entertainment customer and government OEM suppliers creating a change in mix of distributed products as compared to the prior year which was ~~dominated~~negatively impacted by ~~product shipment to our largest media and entertainment customer.~~the COVID-19 pandemic. Bressner experienced ~~a decrease~~improved revenue of ~~$205,632~~$2,720,978, or ~~a decrease of 1.54 percentage points.~~68.0%, as compared to the prior year in 2020. This ~~decrease~~increase is mainly due to a general ~~slow-down~~economic improvement in Europe attributable to the diminishing impact of the COVID-19 pandemic in the current business environment.

For the nine month period ended September 30, 2021, total revenue increased $6,244,031, or 16.4%, as compared to the same period in 2020. OSS saw an increase in revenue of $2,246,136 or 9.1%, as compared to the prior year in 2020. The majority of this increase is attributable to an increase in shipments of product to our media and entertainment customer and government OEM suppliers creating a change in mix of distributed products as compared to the prior year which was negatively impacted by the COVID-19 pandemic. Bressner experienced an increase of $3,997,895, or 30.2%, as compared to the prior year in 2020. This increase is mainly due to a general economic improvement in Europe attributable to the diminishing impact of the COVID-19 pandemic in the current business environment.

Cost of revenue ~~decreased by $1,080,982~~increased $2,393,145, or ~~10.8%~~29.6%, for the three month period ended ~~March 31,~~September 30, 2021, as compared to the prior year in 2020. The ~~decrease~~increase in cost of revenue ~~was~~is mainly attributable to our ~~reduced~~improved sales in ~~the~~both our media and entertainment ~~industry that is a lower margin business~~customer as ~~compared to~~well as product sales to OEMs engaged in government contracts, thus driving a significant change in products shipped during the ~~quarter.~~quarter at higher margins. OSS saw ~~a decrease~~an increase in cost of revenue of ~~$779,547~~$492,141, or ~~7.8 percentage points~~9.9%, as compared to the prior ~~year.~~year in 2020. Bressner’s cost of revenue ~~decrease $301,435~~increased $1,901,004, or ~~3.0 percentage points~~61.4%, as compared to the prior year in 2020, on ~~lower~~higher sales and changes in product mix.

The overall gross margin percentage ~~improved~~decreased from ~~25.4%~~37.8%, for the three month period ~~March 31,~~September 30, 2020, to ~~33.3%~~34.5% for the same period ended ~~March 31,~~September 30, 2021, ~~an increase~~a decrease of ~~7.9~~3.3 percentage points. OSS’ gross margin percentage for the three months ended ~~March 31,~~September 30, 2021, was ~~37.9%~~41.0%, ~~an increase~~a decrease of ~~10.5~~3.6 percentage points as compared to the prior year period in 2020 of ~~27.5%~~44.6%, which was attributable to changes in product mix. Bressner

contributed gross margin at a rate of 25.6% as compared to the same prior year period in 2020 of 22.5%, an improvement of 3.1 percentage points which was attributable to a change in product mix.

Cost of revenue increased $3,264,296, or 12.4%, for the nine month period ended September 30, 2021, as compared to the prior year in 2020. The increase in cost of revenue is mainly attributable to our improved sales in both our media and entertainment customer as well as product sales to OEMs engaged in government contracts, thus driving a significant change in products shipped during the quarter at higher margins. OSS saw an increase in cost of revenue of $673,283, or 4.2% as compared to the prior year in 2020. Bressner’s cost of revenue increased $2,591,013, or 24.8% as compared to the prior year in 2020, on higher sales and changes in product mix.

The overall gross margin percentage improved from 30.6% for the nine month period September 30, 2020, to 33.0% for the same period ended September 30, 2021, an increase of 2.4 percentage points. OSS’ gross margin percentage for the nine months ended September 30, 2021, was 38.5%, an increase of 2.8 percentage points as compared to the prior year period in 2020 of 35.7% attributable to changes in product mix. Bressner contributed gross margin at a rate of ~~24.9%~~24.4% as compared to the same prior year period in 2020 of ~~21.9%~~21.1%, an increase of ~~3.0~~3.3 percentage points which was attributable to a change in product mix.

General and administrative expense ~~decreased $356,446~~increased $103,075, or ~~14.2%~~5.7%, for the three ~~months~~month period ended ~~March 31,~~September 30, 2021, as compared to the same prior year period in 2020. OSS experienced an increase of $68,881, or 5.2% and Bressner had an increase of $34,194, or 6.9%. The increase in general and administrative expense is primarily attributable to the returning to normalcy of activity since the previous constraints imposed by COVID-19 pandemic. There has been a reinstatement of certain employee benefits, a pay increase and reestablishment of certain services that were suspended during the strict policies implemented during the height of the pandemic. Overall, total general and administrative expense decreased as a percentage of revenue to 12.0% during the three month period ended September 30, 2021, as compared to 14.0% during the same period in 2020.

General and administrative expense decreased $481,944, or 7.8%, for the nine month period ended September 30, 2021, as compared to the same prior year period in 2020. OSS experienced a decrease of ~~$369,625~~$549,272, or 11.7% which was offset by an increase at Bressner of ~~$13,179.~~$67,328, or 4.4%. The decrease in general and administrative expense ~~was~~is primarily attributable to cost containment efforts and a reduction in force initially implemented in April 2020. Overall, total general and administrative expense decreased as a percentage of revenue to ~~16.2%~~13.0% during the ~~three~~nine month period ended ~~March 31,~~September 30, 2021, as compared to ~~18.8%~~16.4% during the same period in 2020.

Marketing and selling expense ~~decreased $21,450~~increased $466,751, or ~~1.8%~~42.3% during the three month period ended ~~March 31,~~September 30, 2021, as compared to the same prior year period in 2020. OSS had ~~a modest~~an increase of ~~$18,433~~$447,365, or 54.2%, which was ~~offset by a decrease at~~mainly attributable to the addition of personnel for the product marketing and project management team to drive product strategy, new product implementation, and gross margin improvement. Bressner had an increase of ~~$39,883~~$19,386, or 7.0% due to ~~less travel associated~~new marketing personnel and sales collateral material. Generally, both OSS and Bressner, experienced additional marketing costs as markets are beginning to open again with a reduction in restrictions that were imposed during the COVID-19 ~~restrictions.~~pandemic. Overall, total marketing and selling expense ~~decreased~~increased as a percentage of revenue to ~~8.8%~~9.8% during the three month period ended ~~March 31,~~September 30, 2021, as compared to ~~8.9%~~8.5% during the same period in 2020.

Marketing and selling expense increased $1,079,495, or 34.4% during the nine month period ended September 30, 2021, as compared to the same prior year period in 2020. OSS had an increase of $1,049,562 or 46.3%, which was mainly attributable to the addition of personnel for the product marketing and project management team to drive product strategy, new product implementation, and gross margin improvement. Bressner had an increase of $29,933, or 3.4% due to new marketing personnel and sales collateral material. Generally, both OSS and Bressner, experienced additional marketing costs as markets are beginning to open again with a reduction in restrictions that were imposed during the COVID-19 pandemic. Overall, total marketing and selling expense increased as a

percentage of revenue to 9.5% during the nine month period ended September 30, 2021, as compared to 8.3% during the same period in 2020.

Research and development expense decreased ~~$371,192~~$1,573, or ~~30.8%~~less than 0.2% during the three month period ended ~~March 31,~~September 30, 2021, as compared to the same prior year period in 2020. OSS saw a decrease of ~~$383,231~~$7,020. The decrease was largely driven by engineering resources being deployed on billable projects for which their costs were reclassified as cost of revenue or ~~103.2%~~classified as work in process labor. This reduction was offset by a modest increase of $5,447, at Bressner. Overall, total research and development expense as a percentage of revenue decreased as a percentage of revenue to 6.3% during the ~~decrease.~~three month period ended September 30, 2021, as compared to 7.7% during the same period in 2020.

Research and development expense decreased $373,374, or 11.6% during the nine month period ended September 30, 2021, as compared to the same prior year period in 2020. OSS saw a decrease of $397,896, or 13.5%. The decrease was largely driven by engineering resources being deployed on billable projects for which their costs are reclassified as cost of revenue or classified as work in process ~~labor.~~labor and continued cost containment. This reduction was offset by a modest increase of ~~$12,039~~$24,522, or ~~3.2%~~8.9% at Bressner. Overall, total research and development expense as a percentage of revenue decreased as a percentage of revenue to ~~6.2%~~6.4% during the ~~three~~nine month period ended ~~March 31,~~September 30, 2021, as compared to ~~9.0%~~8.5% during the same period in 2020.

Interest income decreased ~~$19,337~~$51,826 for the three month period ended ~~March 31,~~September 30, 2021, as compared to the same prior year period in 2020. The decrease is attributable to reduced finance charges on outstanding accounts receivable balances from our largest customer in the media and entertainment industry which has brought their account current.

Interest income decreased $108,708 for the nine month period ended September 30, 2021, as compared to the same prior year period in 2020. The decrease is attributable to reduced finance charges on outstanding accounts receivable balances from our largest customer in the media and entertainment industry which has brought their account current.

Interest expense ~~increased $81,198~~decreased $45,890 for the three month period ended ~~March 31,~~September 30, 2021, as compared to the same period in 2020. On April 24, 2020, the Company borrowed $3,000,000 through a senior secured convertible debt offering issued with a 10% original issue discount and incurred legal costs associated with this debt offering. Interest and related transaction costs are amortized using the effective interest method for which the periodic amortization costs decreases over the time. Additionally, the decrease was partially off-set by the April 2021 maturity and repayment in full of certain outstanding OSS notes and related party notes payable.

Interest expense increased $54,153 for the nine month period ended September 30, 2021, as compared to the same period in 2020 as a result of the addition of the senior secured convertible debt, certain of which debt was outstanding for nine months during 2021 and only five months during the relevant period in 2020. Additionally, the increase was partially offset by the April 2021 maturity and repayment in full of certain outstanding OSS notes and related party notes payable. The interest and the professional fees incurred on securing the debt are being amortized on an effective interest rate basis to interest expense.

Other income (expense), for the three month period ended ~~March 31,~~September 30, 2021, resulted in net ~~expenses~~other expense of ~~$28,629~~$9,693, as compared to net other ~~expenses~~expense of ~~$8,029~~$33,625, in the same prior year period in 2020, for a net reduction of $23,932. The most significant contribution of the change is attributable to a reduction in foreign currency losses.

Other income (expense), for the nine month period ended September 30, 2021, resulted in net other income of $1,484,676, as compared to net other expense of $38,598, in the same prior year period in 2020, for a net change of ~~$20,600.~~$1,523,274. The ~~majority~~most significant contribution of the ~~increase~~change is ~~an increase in foreign currency transactions gains~~attributable to forgiveness of the principal and ~~losses.~~interest of $1,514,354, of the Company’s PPP loan.

We have recorded an income tax (benefit) provision ~~(benefit)~~ of ~~$60,522~~$(320) and ~~$(467,298),~~$57,753, respectively, for the three month periods ended ~~March 31,~~September 30, 2021 and 2020, $295,495 and $(851,056), respectively, for the nine month periods ended September 30, 2021 and 2020. The effective tax rate for the ~~years~~period ended ~~March 31,~~September 30, 2021 and 2020, differs from the statutory rate mainly due to permanent non-deductible goodwill amortization for Bressner Technology GmbH, deductions related to expenses of OSS stock options, as well as projecting federal, foreign and state tax liabilities for the year. The effective tax rate for the nine months ended September 30, 2021, is ~~76.4%~~9.8% as compared to ~~28.2%~~55.7% in the prior year 2020. The annual expect tax rate for 2021 is anticipated to be approximately 15.7%

~~Given our prior year operating losses,~~On April 24, 2020, the Company sold $3,000,000 of Senior Secured Convertible Promissory Notes at a 10% original issue discount to an institutional investor through a registered direct offering. On April 28, 2020, the Company received approximately $1,500,000 of government funding under the Paycheck Protection Program. On March 3, 2021, the Company sold and issued 1,497,006 shares of its common stock to an accredited investor through a registered direct offering, resulting in net proceeds of $9,188,673 to the Company.

Historically, the Company’s primary sources of liquidity have been provided by ~~(i) the Company’s February 2018 initial~~ public ~~offering (net proceeds were approximately $16,100,000); (ii) March 2019 notes payable~~and private offerings of its securities and revenues generated from members of the Board of Directors and others of $1,500,000; (iii) the July 2019 sale of 1,554,546 shares of the Company’s common stock for net cash proceeds of $2,488,148; (iv) the April 24, 2020 sale of $3,000,000 of Senior Secured Convertible Promissory Notes issued at a 10% original issue discount; (v) receipt of approximately $1,500,000 on April 28, 2020 of government loan proceeds under the Paycheck Protection Program; and (vi) a receipt of approximately $9,221,000 on March 3, 2021 in a registered direct offering.

its business operations. As of ~~March 31,~~September 30, 2021, the Company’s cash and cash equivalents were ~~$19,614,315~~$3,955,215 with short-term investments of $14,534,084, and working capital ~~was $22,935,632.~~of $28,185,019. Cash and cash equivalents held by Bressner totaled ~~$1,263,439 (USD)~~US$770,603 on ~~March 31, 2021, and~~September 30, 2021. Bressner’s debt covenants do not permit the use of those funds by its parent company.

Our sources of liquidity and cash flows are used to fund ongoing operations, research and development projects for new products and technologies, and provide ongoing support services for our customers. Over the next year, we anticipate that we will use our liquidity and cash flows from our operations to fund our growth. In addition, as part of our business strategy, we occasionally evaluate potential acquisitions of businesses and products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot provide assurances that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all.

The Company’s revenue growth during ~~the year~~ 2020 slowed due to the effects of COVID-19. However, ~~resulting from~~through a reduction in force and strict cost containment, the Company has been able to mitigate the effects, to some degree, of the reduced revenue. For a further description and risk factors associated with COVID-19, please see Part 1A of the December 31, 2020, Annual Report on Form 10-K filed March 25, 2021.

Management’s plans are to continue its efforts towards responding to the changing economic landscape attributable to COVID-19, to ~~restructure the Company with the primary objectives of reducing~~control costs, ~~conserving~~conserve cash, ~~strengthening~~strengthen margins, and ~~improving~~improve company-wide execution. Specific actions already implemented by management ~~include~~included a reduction in force, a limited freeze on hiring, reduced work week, ~~minimizing~~minimized overtime, travel and entertainment, and contractor costs. ~~On April 7, 2020, the Company implemented a cost reduction plan which included the termination of certain employees and elimination of certain costs.~~

While management expects these actions to result in prospective cost ~~reductions,~~containment, management is also committed to conserving cash and securing debt and/or equity financing ~~to ensure that~~as required for liquidity ~~will be sufficient~~ to meet the Company’s cash requirements through at least a period of the next twelve months. Management believes potential sources of liquidity include at least the following:

As a result of management’s cost reduction plans, the Company’s potential sources of liquidity and management’s most recent cash flow forecasts, management believes that the Company has sufficient liquidity to satisfy its anticipated working capital requirements for its ongoing operations and obligations for at least the next twelve months. However, there can be no assurance that management’s cost reduction efforts will be effective or the forecasted cash flows will be achieved. Furthermore, the Company shall continue to evaluate its capital expenditure needs based upon factors including but not limited to, the Company’s sales from operations, growth rate, the timing and extent of spending to support development efforts, the expansion of the Company’s sales and marketing, the timing of new product introductions, and the continuing market acceptance of the Company’s products and services.

If cash generated from operations is insufficient to satisfy the Company’s capital requirements, the Company may open a revolving line of credit with a bank, or it may have to sell additional equity or debt securities or obtain expanded credit facilities to fund its operating expenses, pay its obligations, diversify its geographical reach, and grow the Company. In the event such financing is needed in the future, there can be no assurance that such financing will be available to the Company, or, if available, that it will be in amounts and on terms acceptable to the Company. If the Company cannot raise additional funds when it needs or wants them, the Company’s operations and prospects could be negatively affected. However, if cash flows from operations become insufficient to continue operations at the current level, and if no additional financing were obtained, then management would restructure the Company in a way to preserve its business while maintaining expenses within operating cash flows.

The following table summarizes our cash flows for the ~~three~~nine month periods ended ~~March 31,~~September 30, 2021 and 2020:

During the ~~three~~nine month period ended ~~March 31,~~September 30, 2021, the Company generated $~~4,291,066~~3,297,125 in cash from operating activities, an ~~increase~~improvement of ~~$5,012,839~~$4,682,515 when compared to the cash used in operating activities of ~~$721,773~~$1,385,390 during the same ~~three~~nine month period year in 2020. This improvement in operating cash flow is mainly attributable to better earnings resulting from improved gross margins, a reduction in expenses, and reduction in working capital ~~requirement~~requirements resulting in better collections from customers.

~~The improvement in cash~~Cash generated by operating activities ~~was~~during the nine month period ended September 30, 2021, is primarily a result of the improvement in profitability from a ~~decrease~~net loss of $250,404 in the prior year period to net income of $2,719,016 in the current period. Net favorable adjustments for net non-cash items of $1,689,377 are comprised of $3,208,633 in favorable non-cash items, which were offset by $1,519,256 in items that did not generate operating cash flow and a use of operating cash for working capital of $1,111,268.

Net working capital requirements for the nine months ended September 30, 2021, was $1,111,268, as compared to the prior year period use of ~~$3,180,719,~~working capital of $2,523,409, an improvement ~~in net loss~~ of $1,137,230, and an increase in non-cash adjustments of $694,890. Non-cash adjustments include increases of $794,122 attributable to deferred taxes; gain on disposal of property and equipment, warranty reserves, amortization of deferred gain, inventory reserves, amortization of debt discount and stock-based compensation expense. These increases were offset by $29,232 in decreases in non-cash adjustments attributable to the provision$1,412,141. The period changes for ~~bad debt depreciation, and amortization.~~

~~Working capital requirements were reduced overall by $3,180,719. The~~ sources of working capital of ~~$4,012,890~~$4,503,335 were attributable to changes ~~inventory levels,~~in prepaid and other current assets, ~~and accounts payable and~~ accrued expenses, and other liabilities for the comparable period. These sources were offset by ~~reductions in~~uses of working capital of ~~$832,171 attributable~~$3,091,194 being applied to changes in accounts ~~receivable.~~receivables, inventory levels and accounts payable.

Our ability to generate cash from operations in future periods will depend in large part on our profitability, the rate and timing of collections of our accounts receivable, our inventory turns and our ability to manage other areas of working capital, including accounts payable and accrued expenses.

During the ~~three~~nine month period ended ~~March 31,~~September 30, 2021, the Company used cash of ~~$121,759~~$14,845,282 in investing activities as compared to ~~$198,507~~$662,843 used during the prior year period in 2020, ~~a decrease~~an increase of ~~$76,748. The main projects for~~$14,182,439. This significant increase is mainly attributable to investing cash received from the ~~three months ended~~registered direct offering which was completed in March ~~31,~~ 2021 and ~~2020~~from cash balances which were not considered necessary for business operations. Additionally, the ~~continued enhancement~~Company continues to enhance the capabilities of ~~our~~its ERP system, and ~~the~~ purchase of test equipment for the engineering department. We currently do not anticipate any other significant purchases of equipment or expansion of our ERP system beyond completion of phase II of the project, which is the integration of certain sales functions.

Given the economic and financial hardships operating in a COVID-19 environment, the Company ~~believed~~believes it ~~to be~~is imperative to ~~secure~~maintain opportunities for additional financial resources to ensure financial stability during trying economic times. During the ~~three~~nine month period ended ~~March 31,~~September 30, 2021, the Company generated ~~$9,173,593~~$9,228,588 in cash from financing activities, as compared to the cash ~~used in~~provided by financing activities of ~~$1,214,119~~$2,325,509 during the same ~~three~~nine month period year in 2020. The increase is mainly attributable to proceeds received from a $10,000,000 registered direct offering that was completed in March 2021. The Company also received $362,693 from the exercise of options and warrants during the nine month period ended September 30, 2021.

During the ~~three~~nine month ~~periods~~period ended ~~March 31, 2021and~~September 30, 2020, the Company received net proceeds, after expenses, of ~~$278,968~~$2,383,726 from a senior secured convertible debt offering of $3,000,000 and ~~$57,000, respectively,~~$1,499,360 from ~~the exercise of warrants and stock options~~a Paycheck Protection Plan loan, which was ~~offset by payment for taxes of $44,252 and $656,845, respectively that was paid on behalf of those that exercised options and RSU’s on a net cashless basis.~~subsequently forgiven in May 2021.

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 net proceeds from the registered offering were approximately $9.22 million after deducting certain fees due to the placement agents’ and the Company’s transaction expenses.

Other than lease commitments incurred in the normal course of business and certain indemnification provisions, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity.

We do not have any majority-owned subsidiaries that are not consolidated in the financial statements. Additionally, we do not have an interest in, or relationships with, any special purpose entities.

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 an aggregate of $1,150,000 from members of the Board of Directors and an aggregate of $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 ~~payment~~payments of $69,000 per month. In connection with these loans, the Company issued to 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.~~$2.15. Accordingly, the Company issued to the note holders warrants to purchase an aggregate of 69,766 shares of the Company’s common stock. The relative fair value of the warrants issued was $60,158. The remaining unfunded loan commitments expired as of April 1, 2020, and the Company has not received any additional funding commitments from members of the Board of Directors. These are now fully paid as of April 2021.

In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.

Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. See further discussion of our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for year ended December 31, 2020. We periodically re-evaluate and adjust our critical accounting policies as circumstances change. There were no significant changes to our critical accounting policies during the ~~three~~nine month period ended ~~March 31, 2021.~~September 30, 2021, except for the addition of a definition of and accounting policy for, short-term investments as follows:

~~Per~~No new accounting pronouncements were implemented during the Company’s consolidated financial statements Note 2 – Significant Accounting Policies, we have implemented a number of changes, as required by FASB. See Note 2 of the accompanying financial statements for further details.nine month period ended September 30, 2021.

Our exposure to interest rate risk is primarily associated with borrowing on revolving lines of credit denominated in both U.S. dollars and Euros. We are exposed to the impact of interest rate changes primarily through our borrowing activities for our variable rate borrowings.

Financial instruments that potentially expose us to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. We place our cash and cash equivalents with financial institutions with high credit quality. On ~~March 31,~~September 30, 2021 and December 31, 2020, we had ~~$19,614,315~~$3,955,215 and $6,316,921, respectively, of cash and cash equivalents on deposit or invested with our financial and lending institutions. We provide credit to our customers in the normal course of business. We perform ongoing credit evaluations of our customers’ financial condition and limit the amount of credit extended when deemed necessary.

We operate primarily in the United States. Foreign sales of products and services are primarily denominated in U.S. dollars. We also conduct business outside the United States through our foreign subsidiary in Germany, where business is largely transacted in non-U.S. dollar currencies, particularly the Euro, which is subject to fluctuations due to changes in foreign currency exchange rates. Accordingly, we are subject to exposure from changes in the exchange rates of local currencies. Foreign currency transaction gains and losses are recorded in other income (expense), net in the consolidated statements of operations.

OSS GmbH operates as an extension of OSS’ domestic operations and acquired Bressner ~~Technology GmbH~~ in October 2018. The functional currency of OSS GmbH is the Euro. Transactions denominated in currencies other than the functional currency are remeasured to the functional currency at the average exchange rate in effect during the period. At the end of each reporting period, monetary assets and liabilities are translated using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Consequently, changes in the exchange rates of the currencies may impact the translation of the foreign subsidiaries’ statements of operations into U.S. dollars, which may in turn affect our consolidated statement of operations. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income in the consolidated statement of comprehensive income.

We employ derivatives on a periodic basis to manage certain market risks through the use of foreign exchange forward contracts. We do not use derivatives for trading or speculative purposes. Our derivatives are designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). We hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we may enter into foreign exchange contracts to provide currency at a fixed rate.

We believe that the use of adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, is helpful for an investor to assess the performance of the Company. The Company defines adjusted EBITDA as income (loss) before interest, taxes, depreciation, amortization, acquisition expenses, impairment of long-lived assets, financing costs, fair value adjustments from purchase accounting, stock-based compensation expense and expenses related to discontinued operations.

Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States, or GAAP. Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash operating expenses, we believe that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between our core business operating results and those of other companies, as well as providing us with an important tool for financial and operational decision making and for evaluating our own core business operating results over different periods of time.

Our adjusted EBITDA measure may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. Our adjusted EBITDA is not a measurement of financial performance under GAAP, and should not be considered as an alternative to operating income or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. We do not consider adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.

	For the Three Months Ended March 31,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020			2021			2020
Net income (loss)	$	41,198		$	(1,096,032	)	$	980,696		$	857,790		$	2,719,016		$	(250,404	)
Depreciation and amortization		380,778			395,825			396,165			410,552			1,171,737			1,208,762
Amortization of deferred gain		-			(41,479	)		-			-			-			(53,838	)
Stock-based compensation expense		438,394			207,761			399,148			210,280			1,302,878			503,419
Interest expense		149,982			68,784			128,315			174,205			447,328			393,175
Interest income		(5,300	)		(24,637	)		(92,105	)		(143,931	)		(159,203	)		(267,911	)
Provision (benefit) for income taxes		60,522			(467,298	)
PPP loan and interest forgiveness								-			-			(1,514,354	)		-
(Benefit) provision for income taxes								(320	)		57,753			295,495			(851,056	)
Adjusted EBITDA	$	1,065,574		$	(957,076	)	$	1,811,899		$	1,566,649		$	4,262,897		$	682,147

Adjusted EPS excludes the impact of certain items and therefore, has not been calculated in accordance with GAAP. We believe that exclusion of certain selected items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry. We use this measure along with the corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. The Company defines Non-GAAP income (loss) as income asor (loss) ~~or income~~ before amortization, stock-based compensation, expenses related to discontinued operations, impairment of long-lived assets and non-recurring acquisition costs. Adjusted EPS expresses adjusted income (loss) ~~income~~ on a per share basis using weighted average diluted shares outstanding.

Adjusted EPS is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the adjusted income from continuing operations and adjusted EPS financial adjustments described above, and investors should not infer from our presentation of these non-GAAP financial measures that these costs are unusual, infrequent or non-recurring.

The following table reconciles Non-GAAP net income (loss) and basic and diluted earnings per share:

	For the Three Months Ended March 31,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020			2021		2020		2021			2020
Net income (loss)	$	41,198	$	(1,096,032	)	$	980,696	$	857,790	$	2,719,016		$	(250,404	)
Amortization of intangibles		163,900		174,525			163,900		170,985		491,701			520,035
Stock-based compensation expense		438,394		207,761			399,148		210,280		1,302,878			503,419
Non-GAAP net income (loss)	$	643,492	$	(713,746	)
Non-GAAP net income (loss) per share:
PPP loan and interest forgiveness							-		-		(1,514,354	)		-
Non-GAAP net income						$	1,543,744	$	1,239,055	$	2,999,241		$	773,050
Non-GAAP net income per share:
Basic	$	0.04	$	(0.04	)	$	0.08	$	0.07	$	0.17		$	0.05
Diluted	$	0.03	$	(0.04	)	$	0.08	$	0.07	$	0.15		$	0.05
Weighted average common shares outstanding:
Basic		17,348,164		16,332,898			18,636,337		16,585,773		18,170,700			16,469,457
Diluted		18,642,061		16,332,898			19,963,270		17,018,614		19,466,023			16,902,298

Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by or used in operating activities, less capital expenditures for property and equipment, which includes capitalized software development costs for the implementation of the Company’s ERP system. We believe free cash flow provides investors with an important perspective on cash available for investments and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. We believe that trends in our free cash flow can be valuable indicators of our operating performance and liquidity.

Free cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.

We expect to continue to incur expenditures similar to the free cash flow adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash. The following table reconciles cash provided by or used in operating activities, the most directly comparable GAAP financial measure, to free cash flow:

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals. The inherent limitations in any control system include the realities that judgments related to decision-making can be faulty, and that reduced effectiveness in controls can occur because of simple errors or mistakes. Due to the inherent limitations in a cost-effective control system, misstatements due to error may occur and may not be detected.

Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at a reasonable assurance level as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~September 30, 2021, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

For a description of our material pending legal proceeding, please see Note 9,10, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, Item ~~IA.~~1A. of our Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition, or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

We must successfully navigate the demand, supply and operational challenges associated with the ongoing coronavirus (COVID-19) pandemic.

Our business has been negatively affected by a range of external factors related 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 bans and restrictions, quarantines, shelter-in-place orders, restrictions and limitations of public gatherings, and business limitations and shutdowns. Many of our customers’ businesses have been severely impacted by these measures 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, 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.

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. 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~~While there have recently been certain government orders and restrictions ~~improve,~~that have lifted the prohibition of public gatherings in particular cities, counties, and states as the spread of COVID-19 starts to be contained and mitigated, until COVID-19 has been contained and mitigated, we expect that demand for certain of our ~~clients’~~customers’ products and services will be limited, and thus, may impact our financial results and operations.

~~More generally,~~Moreover, even if the pandemic is contained and remediation/restriction measures are lifted, COVID-19 raises the possibility of an extended global economic downturn, which could affect demand for our products and services and disrupt our supply chain for materials and impact our results and financial ~~condition even after the pandemic is contained and remediation/restriction measures are lifted.~~condition. For example, we may be unable ~~to collect receivables~~source product or services 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. COVID-19 may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our Annual Report on Form 10-K, including risks associated with our customers and supply chain. We will continue to evaluate the nature and extent of the impact of COVID-19 to our business.

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933, as amended, during the reporting period which were not previously included in an Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K:

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Company issued ~~35,067~~54,834 shares of common stock upon the exercise of warrants for total proceeds of ~~$65,000.~~$107,500.

These securities were issued pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising.

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**

32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS*

~~XBRL Instance Document~~

101.SCH*

~~XBRL Taxonomy Extension Schema Document~~

101.CAL*101 INS**

Inline XBRL ~~Taxonomy Extension Calculation Linkbase~~Instance Document

101.DEF*

~~XBRL Taxonomy Extension Definition Linkbase Document~~

101.LAB*

~~XBRL Taxonomy Extension Label Linkbase Document~~

101.PRE*101 SCH**

Inline XBRL Taxonomy Extension Schema Document

101 CAL**

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101 LAB**

Inline XBRL Taxonomy Extension Label Linkbase Document

101 PRE**

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101 DEF**

Inline XBRL Taxonomy Extension Definition Linkbase Document

104**

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Unaudited Consolidated Balance Sheets	3
	~~Unaudited Consolidated Statements of Operations~~	4
	Unaudited Consolidated Statements of ~~Comprehensive Loss~~Operations	5
	Unaudited Consolidated ~~Statement~~Statements of ~~Stockholders’ Equity~~Comprehensive Income (Loss)	6
	Unaudited Consolidated ~~Statements~~Statement of ~~Cash Flows~~Stockholders’ Equity	87
	Unaudited Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	1011
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2729
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4044
Item 4.	Controls and Procedures	4044

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4145
Item 1A	Risk Factors	4145
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4246
Item 3.	Defaults Upon Senior Securities	4246
Item 4.	Mine Safety Disclosures	4246
Item 5.	Other Information	4246
Item 6.	Exhibits	4247
	Signatures	4549

	For the Nine Months Ended September 30,
	2021		2020
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	111,195	$	202,022
Cash paid during the period for income taxes	$	139,548	$	228,129

Supplemental disclosure of non-cash flow transactions:
Original issue discount on senior secured convertible note	$	-	$	300,000
Reclassification of inventories to property and equipment	$	108,739	$	157,133

	March 31,			December 31,			September 30,			December 31,
	2021			2020			2021			2020
Accounts receivable	$	5,749,660		$	7,491,397		$	5,835,675		$	7,491,397
Unbilled receivables		4			106			-			106
		5,749,664			7,491,503			5,835,675			7,491,503
Less: allowance for doubtful accounts		(15,989	)		(33,120	)		(27,491	)		(33,120	)
	$	5,733,675		$	7,458,383		$	5,808,184		$	7,458,383

	March 31,			December 31,			September 30,			December 31,
	2021			2020			2021			2020
Raw materials	$	4,014,408		$	5,210,327		$	5,318,929		$	5,210,327
Sub-assemblies		208,453			255,699			264,690			255,699
Work-in-process		768,473			407,328			1,668,214			407,328
Finished goods		5,218,864			4,424,603			7,813,887			4,424,603
		10,210,198			10,297,957			15,065,720			10,297,957
Less: reserves for obsolete and slow-moving inventories		(661,238	)		(650,453	)		(704,686	)		(650,453	)
	$	9,548,960		$	9,647,504		$	14,361,034		$	9,647,504

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☒

	Restricted Stock Units
	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2021		575,922		$	2.65
Granted		-		$	-
Vested		(93,793	)	$	2.37
Cancelled		-		$	2.70
Unvested at March 31, 2021		482,129		$	2.70

	Number of Warrants			Weighted Average Exercise Price		Number of Warrants			Weighted Average Exercise Price
Warrants outstanding – January 1, 2021		505,946		$	5.00		505,946		$	5.00
Warrants granted		-		$	-		-		$	-
Warrants exercised		(35,067	)	$	1.85		(54,834	)	$	1.96
Warrants outstanding – March 31, 2021		470,879		$	5.23
Warrants outstanding – September 30, 2021							451,112		$	5.37

	For the Three Months Ended March 31,						For the Nine Months Ended September 30,
Cash flows:	2021			2020			2021			2020
Net cash provided by (used in) operating activities	$	4,291,066		$	(721,773	)	$	3,297,125		$	(1,385,390	)
Net cash used in investing activities	$	(121,759	)	$	(198,507	)	$	(14,845,282	)	$	(662,843	)
Net cash provided by (used in) financing activities	$	9,173,593		$	(1,214,119	)
Net cash provided by financing activities							$	9,228,588		$	2,325,509

	For the Three Months Ended March 31,						For the Nine Months Ended September 30,
Cash flow:	2021			2020			2021			2020
Cash provided by (used in) operating activities	$	4,291,066		$	(721,773	)	$	3,297,125		$	(1,385,390	)
Capital expenditures		(121,759	)		(200,049	)		(313,257	)		(664,385	)
Free cash flow	$	4,169,307		$	(921,822	)	$	2,983,868		$	(2,049,775	)

Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
2.1	Agreement and Plan of Merger and Reorganization, dated August 22, 2018, with Concept Development Inc.	8-K	001-38371	2.1	September 6, 2018
2.2	Share Purchase Agreement, dated October 31, 2018, with Bressner Technology GmbH.	8-K	001-38371	2.1	November 6, 2018
3.1	Amended and Restated Certificate of Incorporation (currently in effect).	8-K/A	001-38371	3.1	March 21, 2018
3.2	Bylaws, as amended (currently in effect).	8-K	001-38371	3.2	February 6, 2018
4.1	Second Amended and Restated Investors’ Rights Agreement, dated January 2007.	S-1	333-222121	4.2	December 18, 2017
4.2	Common Shareholder Piggyback Registration Rights Agreement, dated July 15, 2016.	S-1	333-222121	4.3	December 18, 2017
10.1+	Form of Indemnification Agreement between One Stop Systems, Inc. and each its directors and executive officers.	S-1/A	333-222121	10.1	January 16, 2018
10.2+	One Stop Systems, Inc. 2000 Stock Option Plan and related form agreements.	S-1	333-222121	10.2	December 18, 2017
10.3+	One Stop Systems, Inc. 2011 Stock Option Plan and related form agreements.	S-1	333-222121	10.3	December 18, 2017
10.4+	One Stop Systems, Inc. 2015 Stock Option Plan and related form agreements.	S-1	333-222121	10.4	December 18, 2017
10.5+	One Stop Systems, Inc. 2017 Stock Equity Incentive Plan and related form agreements.	S-1	333-222121	10.5	December 18, 2017
10.6+	Amendment No. 1 to the 2017 Stock Equity Incentive Plan.	8-K	001-38371	10.2	June 25, 2020
10.7+	Amendment No. 2 to the 2017 Stock Equity Incentive Plan.	10-Q	001-38371	10.7	August 12, 2021
10.8	Lease Agreement dated October 21, 2004, as amended.	S-1/A	333-222121	10.9	January 16, 2018
10.9	Piggyback Registration Rights Agreement by and between One Stop Systems, Inc. and James M. Reardon, dated August 31, 2018.	8-K	001-38371	10.1	September 6, 2018
10.10	Form of Binding Commitment Letter.	10-Q	001-38371	10.1	May 9, 2019
10.11+	Executive Employment Agreement between One Stop Systems, Inc., and David Raun, dated March 24, 2020.	8-K/A	001-38371	10.1	March 25, 2020
10.12+	Employment Agreement between One Stop Systems, Inc., and David Raun, dated June 24, 2020.	8-K	001-38371	10.1	June 25, 2020
10.13	Form of Senior Secured Convertible Promissory Note.	8-K	001-38371	4.1	April 21, 2020
10.14	Form of Securities Purchase Agreement, dated April 20, 2020, by and between the Company and the investors.	8-K	001-38371	10.1	April 21, 2020
10.15	Form of Security Agreement, dated April 20, 2020, by and between the Company, certain of its subsidiaries and the investors.	8-K	001-38371	10.2	April 21, 2020
10.16	Form of Intercreditor Agreement, dated April 20, 2020, by and between the Company, the investors and certain secured parties.	8-K	001-38371	10.3	April 21, 2020
10.17	Senior Secured Convertible Promissory Note, dated April 24, 2020, by and between the Company and the investor.	8-K	001-38371	4.2	April 24, 2020
10.18	Promissory Note, dated as of April 28, 2020, by and between One Stop Systems, Inc., as Borrower, and Cache Valley Bank, as Lender.	8-K	001-38371	10.1	May 15, 2020
10.19	Form of Securities Purchase Agreement.	8-K	001-38371	10.1	March 3, 2021
10.20	Form of Placement Agency Agreement.	8-K	001-38371	10.2	March 3, 2021
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

~~Exhibit~~ ~~Number~~		~~Description~~

~~2.1 (1)~~ 31.2*		~~Agreement and Plan of Merger and Reorganization, dated August 22, 2018, with Concept Development Inc.~~

~~2.2 (2)~~		~~Share Purchase Agreement, dated October 31, 2018, with Bressner Technology GmbH.~~

~~3.1 (3)~~		~~Amended and Restated Certificate of Incorporation (currently in effect).~~

~~3.2 (4)~~		~~Bylaws, as amended (currently in effect).~~

~~4.1 (5)~~		~~Second Amended and Restated Investors’ Rights Agreement, dated January 2007.~~

~~4.2 (5)~~		~~Common Shareholder Piggyback Registration Rights Agreement, dated July 15, 2016.~~

~~10.1+ (6)~~		~~Form of Indemnification Agreement between One Stop Systems, Inc. and each its directors and executive officers.~~

~~10.2+ (5)~~		~~One Stop Systems, Inc. 2000 Stock Option Plan and related form agreements.~~

~~10.3+ (5)~~		~~One Stop Systems, Inc. 2011 Stock Option Plan and related form agreements.~~

~~10.4+ (5)~~		~~One Stop Systems, Inc. 2015 Stock Option Plan and related form agreements.~~

~~10.5+ (5)~~		~~One Stop Systems, Inc. 2017 Stock Equity Incentive Plan and related form agreements.~~

~~10.6 (12)~~		~~Amendment No. 1 to the 2017 Stock Equity Incentive Plan.~~

~~10.7 (6)~~		~~Lease Agreement dated October 21, 2004, as amended.~~

~~10.8 (1)~~		~~Piggyback Registration Rights Agreement by and between One Stop Systems, Inc. and James M. Reardon, dated August 31, 2018~~.

~~10.9 (7)~~		~~Form of Binding Commitment Letter~~.

~~10.10 (8)~~		~~Executive Employment Agreement between One Stop Systems, Inc., and David Raun, dated March 24, 2020.~~

~~10.11 (9)~~		~~Form of Senior Secured Convertible Promissory Note~~.

~~10.12 (9)~~		~~Form of Securities Purchase Agreement, dated April 20, 2020, by and between the Company and the investors~~.

~~10.13 (9)~~		~~Form of Security Agreement, dated April 20, 2020, by and between the Company, certain of its subsidiaries and the investors~~.

~~10.14 (9)~~		~~Form of Intercreditor Agreement, dated April 20, 2020, by and between the Company, the investors and certain secured parties~~.

~~10.15 (10)~~		~~Senior Secured Convertible Promissory Note, dated April 24, 2020, by and between the Company and the investor~~.

~~10.16 (11)~~		~~Promissory Note, dated as of April 28, 2020, by and between One Stop Systems, Inc., as Borrower, and Cache Valley Bank, as Lender.~~

~~10.17 (12)~~		~~Employment Agreement between One Stop Systems, Inc., and David Raun, dated June 24, 2020.~~

~~10.18 (13)~~		~~Form of Securities Purchase Agreement~~

~~10.19 (13)~~		~~Form of Placement Agency Agreement~~

	~~ONE STOP SYSTEMS, INC.~~One Stop Systems, Inc.

Date: ~~May 13,~~November 10, 2021	By:	/s/ David Raun
		David Raun
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~May 13,~~November 10, 2021	By:	/s/ John W. Morrison Jr.
		John W. Morrison Jr.
		Chief Financial Officer (Principal Financial and Accounting Officer)