[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part provides the company's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows, showing significant revenue growth and a shift to net income for the nine months ended September 30, 2021 Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2021 ($) | December 31, 2020 ($) | | :--- | :--- | :--- | | **Total Current Assets** | 39,780,385 | 24,078,516 | | **Total Assets** | 53,802,595 | 39,128,763 | | **Total Current Liabilities** | 11,595,366 | 7,812,223 | | **Total Liabilities** | 11,595,366 | 9,842,930 | | **Total Stockholders' Equity** | 42,207,229 | 29,285,833 | Consolidated Statements of Operations Highlights (Unaudited) | Metric | Q3 2021 ($) | Q3 2020 ($) | Nine Months 2021 ($) | Nine Months 2020 ($) | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | 15,984,293 | 12,976,058 | 44,205,054 | 37,961,023 | | **Gross Profit** | 5,516,703 | 4,901,613 | 14,602,231 | 11,622,496 | | **Income (Loss) from Operations** | 1,026,279 | 979,442 | 1,817,960 | (937,598) | | **Net Income (Loss)** | 980,696 | 857,790 | 2,719,016 | (250,404) | | **Diluted EPS** | 0.05 | 0.05 | 0.14 | (0.02) | Consolidated Statements of Cash Flows Highlights (Unaudited, Nine Months Ended) | Cash Flow Activity | September 30, 2021 ($) | September 30, 2020 ($) | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | 3,297,125 | (1,385,390) | | **Net cash used in investing activities** | (14,845,282) | (662,843) | | **Net cash provided by financing activities** | 9,228,588 | 2,325,509 | [Note 1 – The Company and Basis of Presentation](index=11&type=section&id=Note%201%20%E2%80%93%20The%20Company%20and%20Basis%20of%20Presentation) This note describes the company's industrial-grade computer system operations, corporate structure, and the significant impact of the COVID-19 pandemic on supply chains and component pricing - The company designs, manufactures, and markets industrial-grade computer systems for various applications, including media, medical, industrial, and military[30](index=30&type=chunk) - In March 2021, the company raised net proceeds of **$9,188,673** through a registered direct offering of its common stock[34](index=34&type=chunk) - The COVID-19 pandemic has caused increased pricing and shortages of necessary components, leading to longer lead times and increased inventory balances to ensure product availability[40](index=40&type=chunk)[43](index=43&type=chunk) [Note 8 – Debt](index=18&type=section&id=Note%208%20%E2%80%93%20Debt) This note details the company's debt structure, including foreign obligations, a Senior Secured Convertible Note, and the full forgiveness of its $1.5 million PPP loan in May 2021 - On May 3, 2021, the company received notification from the SBA that its Paycheck Protection Program (PPP) loan of **$1,499,360**, plus accrued interest of **$14,994**, had been fully forgiven[80](index=80&type=chunk) - The company has a Senior Secured Convertible Promissory Note with a principal face value of **$3,000,000**, issued in April 2020 with a **10%** original issue discount, maturing in April 2022[81](index=81&type=chunk)[82](index=82&type=chunk) Outstanding Debt Obligations as of September 30, 2021 | Loan Description | Balance ($) | Current Portion ($) | | :--- | :--- | :--- | | Convertible senior secured note | 2,590,909 | 2,590,909 | | Foreign (Uni Credit Bank AG) | 1,736,546 | 1,736,546 | | **Total** | **4,327,455** | **4,327,455** | [Note 9 – Stockholders' Equity](index=22&type=section&id=Note%209%20%E2%80%93%20Stockholders%27%20Equity) This note details stockholders' equity components, including stock-based compensation for options, RSUs, and warrants, totaling approximately $1.3 million for the nine months ended September 30, 2021 - As of September 30, 2021, there were **1,076,999** stock options outstanding with a weighted average exercise price of **$1.95**[98](index=98&type=chunk) - As of September 30, 2021, there was **$2,285,644** of unrecognized compensation cost related to **697,321** unvested restricted stock units (RSUs), expected to be recognized over a weighted average period of **1.87 years**[101](index=101&type=chunk) Stock-Based Compensation Expense | Period | 2021 | 2020 | | :--- | :--- | :--- | | **Three Months Ended Sep 30** | $399,148 | $210,280 | | **Nine Months Ended Sep 30** | $1,302,878 | $503,419 | [Note 10 – Commitments and Contingencies](index=25&type=section&id=Note%2010%20%E2%80%93%20Commitments%20and%20Contingencies) This note addresses legal matters, lease obligations, and significant customer concentration, including the resolution of a former CEO's legal dispute and one customer accounting for 60% of receivables - A legal action brought by former CEO Stephen D. Cooper was resolved, and the litigation was dismissed with prejudice on June 28, 2021[108](index=108&type=chunk)[110](index=110&type=chunk) - For the nine months ended September 30, 2021, two customers accounted for approximately **36%** of consolidated revenue[118](index=118&type=chunk) - As of September 30, 2021, one customer accounted for approximately **60%** of consolidated trade accounts receivable[119](index=119&type=chunk) [Note 13 – Revenue, Segment and Geographic Information](index=27&type=section&id=Note%2013%20%E2%80%93%20Revenue%2C%20Segment%20and%20Geographic%20Information) This note details segment performance, with OSS generating $27.0 million revenue (38.5% gross margin) and Bressner $17.2 million (24.4% gross margin) for the nine months ended September 30, 2021, with 62% of revenue from non-U.S. customers Segment Performance (Nine Months Ended September 30, 2021) | Segment | Revenues ($) | Gross Profit ($) | Gross Margin % | | :--- | :--- | :--- | :--- | | **OSS** | 26,968,202 | 10,395,769 | 38.5% | | **Bressner** | 17,236,852 | 4,206,462 | 24.4% | | **Total** | **44,205,054** | **14,602,231** | **33.0%** | - For the nine months ended September 30, 2021, revenue from customers with non-U.S. billing addresses represented approximately **62%** of the company's total revenue[125](index=125&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial performance for the three and nine months ended September 30, 2021, covering revenue growth, gross margin, operating expenses, and liquidity, including non-GAAP measures like Adjusted EBITDA and EPS [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This subsection details financial results, with Q3 2021 revenue growing 23.2% to $16.0 million, driven by Bressner, while nine-month revenue increased 16.4% to $44.2 million with improved gross margin - Q3 2021 revenue increased **23.2%** year-over-year to **$16.0 million**, driven by a **$2.7 million (68.0%)** increase at Bressner and a **$0.3 million (3.2%)** increase at OSS[158](index=158&type=chunk) - Nine-month 2021 revenue increased **16.4%** year-over-year to **$44.2 million**, reflecting a general economic improvement and recovery from the COVID-19 pandemic's impact[159](index=159&type=chunk) - Consolidated gross margin for Q3 2021 decreased to **34.5%** from **37.8%** in Q3 2020, primarily due to changes in product mix at the OSS segment; however, the nine-month gross margin improved to **33.0%** from **30.6%** in the prior year[161](index=161&type=chunk)[164](index=164&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20capital%20resources) This subsection reviews liquidity, with $4.0 million cash, $14.5 million short-term investments, and $28.2 million working capital as of September 30, 2021, bolstered by a $9.2 million stock offering - As of September 30, 2021, the company had cash and cash equivalents of **$4.0 million**, short-term investments of **$14.5 million**, and working capital of **$28.2 million**[181](index=181&type=chunk) - Net cash provided by operating activities for the nine months ended September 30, 2021, was **$3.3 million**, a **$4.7 million** improvement compared to the **$1.4 million** used in the same period in 2020[190](index=190&type=chunk) - Financing activities provided **$9.2 million** in cash, primarily from a **$10.0 million** registered direct stock offering completed in March 2021[195](index=195&type=chunk) [Non-GAAP Financial Measures](index=41&type=section&id=Non-GAAP%20Financial%20Measures) This subsection presents non-GAAP metrics like Adjusted EBITDA ($4.3 million) and Non-GAAP diluted EPS ($0.15) for the nine months ended September 30, 2021, providing insight into core operating performance Adjusted EBITDA Reconciliation | Period | Q3 2021 ($) | Q3 2020 ($) | Nine Months 2021 ($) | Nine Months 2020 ($) | | :--- | :--- | :--- | :--- | :--- | | **Net Income (Loss)** | 980,696 | 857,790 | 2,719,016 | (250,404) | | **Adjusted EBITDA** | 1,811,899 | 1,566,649 | 4,262,897 | 682,147 | Non-GAAP Net Income and EPS | Metric | Q3 2021 ($) | Q3 2020 ($) | Nine Months 2021 ($) | Nine Months 2020 ($) | | :--- | :--- | :--- | :--- | :--- | | **Non-GAAP Net Income** | 1,543,744 | 1,239,055 | 2,999,241 | 773,050 | | **Non-GAAP Diluted EPS** | 0.08 | 0.07 | 0.15 | 0.05 | - Free cash flow for the nine months ended September 30, 2021, was **$3.0 million**, compared to a negative free cash flow of **$(2.0) million** in the same period of 2020[223](index=223&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risks include interest rate exposure on variable debt, credit risk from receivables, and foreign currency fluctuations primarily from its German subsidiary Bressner's Euro transactions - The company is exposed to interest rate risk through its variable rate borrowings[207](index=207&type=chunk) - Credit risk is concentrated in cash, cash equivalents, and accounts receivable, with ongoing credit evaluations performed to mitigate this risk[208](index=208&type=chunk) - The company is subject to foreign currency risk as its German subsidiary, Bressner, largely transacts in Euros, with resulting translation adjustments recorded in other comprehensive income[209](index=209&type=chunk)[210](index=210&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[227](index=227&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2021[228](index=228&type=chunk) [PART II. OTHER INFORMATION](index=45&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, and details regarding unregistered sales of equity securities and use of proceeds [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10, detailing the resolution and dismissal of a legal action filed by the company's former CEO in June 2021 - A legal action filed by former CEO Stephen D. Cooper against the company was resolved, and the court entered a dismissal with prejudice on June 28, 2021[110](index=110&type=chunk)[231](index=231&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section highlights ongoing business risks from the COVID-19 pandemic, including demand fluctuations, supply chain disruptions, and impacts on media, entertainment, and airline industries - The business continues to face negative effects from the COVID-19 pandemic, including impacts on customers, suppliers, and overall demand[233](index=233&type=chunk) - Demand from customers in the media, entertainment, and commercial airline industries has been particularly impacted by restrictions on public gatherings and reduced travel[236](index=236&type=chunk) - The pandemic raises the possibility of an extended global economic downturn, which could disrupt the supply chain and negatively affect revenues in future periods[237](index=237&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the first nine months of 2021, the company issued common stock shares from warrant exercises, generating $107,500 in proceeds, without registration under the Securities Act of 1933 - During the nine months ended September 30, 2021, the company issued **54,834** shares of common stock from the exercise of warrants, generating total proceeds of **$107,500**[238](index=238&type=chunk)

Edge Computing Market & AI Transportables - The global edge computing market is projected to reach $61.1 billion by 2025[14] - In 2018, only 10% of generated data was processed on the edge, but by 2025, it is expected to grow to 75%[14] - One Stop Systems (OSS) focuses on "AI Transportables," which require the power of the datacenter at each node in harsh environments[19] - The AI Transportables market is estimated to be a $200M-$400M market[45] OSS Financial Performance & Strategic Changes - OSS's revenue in 2017 was $27.5 million, $37.0 million in 2018, $58.3 million in 2019, and $51.9 million in 2020 (impacted by COVID)[50, 62] - OSS experienced a COVID-related loss/delay of $14 million in revenue[61] - Q2 2021 revenue was $14.9 million, up 28% compared to Q2 2020[71] - Q2 2021 gross profit was $4.7 million, up 40% compared to Q2 2020[71] - Q2 2021 Adjusted EBITDA was $1.4 million, up $1.3 million compared to Q2 2020, representing 9% of quarterly revenue[71] - Cash and cash equivalents increased by $12 million+ to $18.5 million as of Q2 2021[71] - OSS expects AI Transportables to grow from 20% of revenue in 2020 to 50% in the future[45]

Financial Data and Key Metrics Changes - One Stop Systems achieved record revenues for the first half of 2021, with Q2 revenue of $14.9 million, an increase of 12% from Q1 and up 28% year-over-year [4][9] - Net income increased to $1.7 million in Q2 2021, compared to a net loss of $12,000 in the same quarter last year [13] - Adjusted EBITDA reached $1.4 million, representing 9% of quarterly revenue, compared to $73,000 in the same year-ago quarter [14] Business Line Data and Key Metrics Changes - The core OSS business revenue increased by 25% to $9.1 million compared to $7.3 million in the same year-ago quarter [10] - Bressner, the European subsidiary, saw a revenue increase of 34%, contributing $5.8 million in Q2 compared to $4.3 million in the same period last year [10] - Gross margin for the core OSS business improved to 36.7%, up 2.4 percentage points year-over-year [11] Market Data and Key Metrics Changes - Revenue growth was driven by sales of ruggedized servers into the media and entertainment markets and military AI transportable products [9] - The company reported a notable increase in product orders from media and entertainment customers, particularly for new virtual products [10] Company Strategy and Development Direction - The company aims to strengthen its position in the edge computing industry and become a market leader in the AI transportable space [5] - A focus on diversifying the customer base and expanding into military applications is evident, with a significant portion of the pipeline now targeting AI transportable markets [44] Management's Comments on Operating Environment and Future Outlook - Management noted that while the pandemic's effects will continue, there is improving customer demand, particularly from commercial aerospace clients [25][26] - The company anticipates revenue guidance of $15.9 million for Q3, representing 8% growth over Q2 and 23% growth year-over-year [28] Other Important Information - The company has seen a tripling of shareholder value over the past two years, attributed to strategic execution and improved board composition [6] - Cash and cash equivalents totaled $4 million, with short-term investments of $14.5 million, down from $19.6 million as of March 31, 2021 [19] Q&A Session Summary Question: Impact of global supply chain issues on gross margins - Management acknowledged supply issues but emphasized that demand reflects real market needs, and they are focused on efficiency to offset price increases [32][33] Question: Operating expenses outlook - Operating expenses are expected to increase slightly due to trade shows and hiring, but management is cautious about significant increases [35] Question: RFP pipeline and end market dynamics - The pipeline includes 17 major pending opportunities, with a focus on higher-margin AI transportable markets [36][38] Question: Sustainability of entertainment vertical revenue - Management expressed confidence in the sustainability of revenue from virtual products, anticipating a stronger customer base in 2022 [40] Question: Revenue concentration from major customers - Both major customers have returned strong, but the company is diversifying its customer base and participating in more programs [42][43] Question: Staffing challenges - The company is adequately staffed but noted challenges in finding new talent due to geographic dynamics [55] Question: Design cycle for major customer wins - The design cycle for commercial customers typically takes 6 to 12 months, while military projects can take 12 to 24 months [57]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ________________ Commission File Number: 001-38371 One Stop Systems, Inc. WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 (Exact Name of Registrant as Specified in its Charter) (State or other ju ...

N A S D A Q : O S S Corporate Presentation June 2021 onestopsystems.com Important Disclaimers & Cautions Regarding Forward-Looking Statements 2 One Stop Systems cautions you that statements in this presentation that are not a description of historical facts are forward-looking statements. These statements are based on the company's current beliefs and expectations. The inclusion of forward-looking statements should not be regarded as a representation by One Stop Systems or its partners that any of our plans ...

Financial Data and Key Metrics Changes - The company achieved revenue of $13.3 million in Q1 2021, similar to the record first quarter of the previous year, which was not impacted by the pandemic [16] - Adjusted EBITDA improved by $2 million compared to Q1 2020, reaching a record $1.1 million for OSS in the first quarter [6][7] - GAAP net income was $21,000 in Q1 2021, compared to a net loss of $1.1 million in the same period last year [20] - Non-GAAP net income improved to $643,000 or $0.03 per diluted share in Q1 2021, compared to a non-GAAP net loss of $714,000 or $0.04 per diluted share in the same year-ago period [21] - Cash and cash equivalents increased to $19.6 million, the highest in the company's history, up from about $3 million a year ago [23][24] Business Line Data and Key Metrics Changes - The core OSS business revenue increased to $8.6 million compared to $8.4 million in the same year-ago period [16] - Bressner, the European subsidiary, contributed $4.7 million in Q1, down from $4.9 million in the same year-ago period [17] - Gross profit in Q1 2021 was $4.4 million, an increase of $1 million from $3.4 million in Q1 2020, with gross margins of 33.3%, up 7.9 percentage points year-over-year [17][18] Market Data and Key Metrics Changes - The military segment accounted for approximately 37% of OSS' revenue in Q1, which is higher than in previous periods [58] - The company expects military business to grow from 30% to 40% or 50% over the next few years due to increased focus and activity in that area [56] Company Strategy and Development Direction - The company is executing a long-term strategic vision focused on AI Transportables, which are mobile, high-performance computing systems for edge computing applications [9][10] - AI Transportables contributed over 25% of the revenue in Q1, marking it as the fastest-growing and highest-margin segment of the business [11] - The company aims to drive revenue growth and industry expansion opportunities through strategic sales and diversification of the customer base [30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of the business and market conditions, expecting continued improvements in overall performance [33] - The company anticipates revenue of approximately $14.4 million for Q2 2021, representing a 24% growth over the same quarter last year [36] - The management highlighted the importance of maintaining a strong cash position to invest in future growth initiatives [24][34] Other Important Information - The company completed a registered direct equity offering to strengthen its cash position [23] - The $1.5 million PPP loan received last year has been forgiven, further enhancing the company's financial stability [23] Q&A Session Summary Question: Can you provide updates on your largest customer and component availability? - The largest customer generated $3.3 million in revenue during the quarter, with a positive outlook for their virtual product line [43][39] - Component supply issues have not significantly impacted revenue, particularly as the company focuses on high-end GPUs [40][41] Question: How is the pipeline for AI Transportables looking? - The company has around 24 RFPs in various stages, with a conservative estimate of a 60% or better chance to close [44][45] - The quality of wins is improving due to a focus on margins and AI Transportable solutions [47] Question: What is the potential of military contracts and overall revenue growth? - Military business is expected to grow significantly, with a target of double-digit growth this year and aiming for 20% growth in future years [56][58] - Military contracts accounted for about 25% of overall revenue in Q1 [58] Question: What is the status of the company's debt and cash management? - The company has $2.5 million in senior secured debt, which is likely to convert to equity upon maturity, and minimal foreign debt associated with working capital [61][62]

Revenue and Profitability - Revenue for the three months ended March 31, 2021, was $13,315,752, a slight decrease from $13,359,637 in the same period of 2020[154] - Net income for Q1 2021 was $41,198, a recovery from a net loss of $1,096,032 in Q1 2020[154] - Total revenue for the three months ended March 31, 2021, decreased by $43,885 or 0.33% compared to the same period in 2020, with OSS revenue increasing by $161,747 or 1.21 percentage points, while Bressner's revenue decreased by $205,632 or 1.54 percentage points[157] - The adjusted EBITDA for the three months ended March 31, 2021, was $1,065,574, a significant improvement from the adjusted EBITDA of $(957,076) in the same period of 2020[202] - The Company reported a net income of $41,198 for the three months ended March 31, 2021, compared to a net loss of $(1,096,032) in the same period of 2020[202] - Non-GAAP net income for the three months ended March 31, 2021, was $643,492, compared to a loss of $(713,746) in the same period of 2020[205] Cost Management - Cost of revenue decreased to $8,882,968 in Q1 2021 from $9,963,950 in Q1 2020, resulting in a gross profit increase to $4,432,784, compared to $3,395,687 in Q1 2020[154] - Gross margin improved to 33.3% in Q1 2021 from 25.4% in Q1 2020, reflecting better cost management and operational efficiency[156] - Cost of revenue decreased by $1,080,982 or 10.8% for the three months ended March 31, 2021, primarily due to reduced sales in the media and entertainment industry[158] - General and administrative expenses decreased by $356,446 or 14.2%, resulting in a decrease as a percentage of revenue to 16.2% in Q1 2021 from 18.8% in Q1 2020[161] - Research and development expenses decreased by $371,192 or 30.8%, with total R&D expense as a percentage of revenue decreasing to 6.2% in Q1 2021 from 9.0% in Q1 2020[163] Cash Flow and Liquidity - The company generated $4,291,066 in cash from operating activities in Q1 2021, an increase of $5,012,839 compared to cash used in Q1 2020[178] - Cash and cash equivalents as of March 31, 2021, were $19,614,315, with working capital of $22,935,632[170] - The company anticipates using liquidity and cash flows to fund ongoing operations, R&D projects, and potential acquisitions over the next year[171] - The Company had $19,614,315 in cash and cash equivalents as of March 31, 2021, compared to $6,316,921 as of December 31, 2020, indicating a significant increase in liquidity[194] Financing Activities - The company completed a $6.0 million debt financing in April 2020, with a non-interest bearing convertible note[142] - The company raised approximately $9.2 million in a registered direct offering in March 2021, selling 1,497,006 shares at $6.68 per share[143] - The Company generated $9,173,593 in cash from financing activities for the three months ended March 31, 2021, compared to cash used of $1,214,119 in the same period of 2020[183] - The Company experienced net cash provided by financing activities of $9,173,593 in Q1 2021, compared to net cash used of $1,214,119 in Q1 2020[177] - The Company received proceeds of $278,968 from the exercise of warrants and stock options during the three months ended March 31, 2021, up from $57,000 in the same period of 2020[184] - The Company entered into a Securities Purchase Agreement on March 1, 2021, issuing 1,497,006 shares at an offering price of $6.68 per share, resulting in net proceeds of approximately $9.22 million[185] Challenges and Strategic Actions - The company implemented a cost reduction plan in April 2020, estimated to save approximately $2.5 million annually[141] - The acquisition of Bressner Technology GmbH expanded the company's product lines and market reach in Europe[133] - The company continues to face challenges due to COVID-19, impacting demand and operational capabilities[136] Taxation - The company recorded an income tax provision of $60,522 for Q1 2021, with an effective tax rate of 76.4% compared to 28.2% in Q1 2020[168] Shareholder Information - The weighted average common shares outstanding increased to 17,348,164 for basic shares in Q1 2021, up from 16,332,898 in Q1 2020[205] - The Company does not have any off-balance sheet financing arrangements or liabilities, ensuring a straightforward financial position[186]

Financial Data and Key Metrics Changes - In Q4 2020, revenue was $13.9 million, up 7% from Q3 but down 24% year-over-year due to pandemic impacts [13][15] - Full-year revenue totaled $51.9 million, a decrease of $6.4 million or 11% compared to the previous year [15] - Gross profit for Q4 was $4.8 million with a gross margin of 34.5%, down from $6.5 million and 35% in the same quarter last year [19] - Full-year gross profit was $16.4 million or 31.7% of revenue, compared to $19.4 million or 33.3% in 2019 [21] - Net income on a GAAP basis for Q4 was $244,000 or $0.01 per share, down from $1.1 million or $0.06 per share in the same period last year [24] Business Line Data and Key Metrics Changes - OSS business contributed $8.9 million in Q4, down from $13.9 million year-over-year, while Bressner contributed $5 million, up from $4.5 million [18] - For the full year, OSS business revenue was $33.7 million compared to $40.1 million last year, while Bressner remained flat at $18.2 million [18] Market Data and Key Metrics Changes - The largest customer in the media and entertainment industry accounted for over half of the $14 million in lost or delayed business due to COVID [8] - Encouraging signs of recovery were noted from this customer in Q4, particularly with their 3D virtual product line [9] Company Strategy and Development Direction - The company has implemented a multi-year strategic plan focusing on enhancing its product roadmap and market position, particularly in the fast-growing Edge computing space [37][38] - The strategic focus is on AI transportables, which are high-performance computing solutions for mobile applications in harsh environments [41][42] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued impacts from COVID in 2021 but sees early signs of recovery and improvement in customer demand [8][45] - The company expects Q1 2021 revenue to be approximately $13 million, indicating a strong rebound from the previous year [45] Other Important Information - The company has a cash position of approximately $19 million, bolstered by a recent direct offering and improved operational cash flow [11][28] - Operating expenses decreased by 16% for the full year, attributed to cost reduction initiatives [22] Q&A Session Summary Question: Clarification on Disguise's performance and recovery - Management noted a $4.3 million year-over-year decline for Disguise in Q4 but observed growth in new 3D virtual products, expecting further recovery in 2021 [48][49] Question: Component availability and its impact on gross margins - Management acknowledged supply chain challenges but stated that they have managed to avoid significant revenue impacts and do not expect margin deterioration [51] Question: Pipeline of opportunities and market strategy for AI transportables - The company reported 24 active opportunities, with over half related to AI transportables, and emphasized a careful approach to investment in growth initiatives [53][54] Question: Strategic shift towards Edge computing and project details - Management confirmed ongoing projects with Raytheon and Lyft, focusing on AI transportables, and indicated a potential market size of $200 million to $400 million, with long-term growth prospects [59][60] Question: Outlook for Disguise and inventory management - Management expects positive results from virtual products and anticipates a rebound in traditional revenue streams in the second half of 2021 [63]

(Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _______ Commission File Number 001-38371 One Stop Systems, Inc. (Exact name of Registrant as specified in its Charter) Delaware 33-0885351 (State or o ...

Financial Data and Key Metrics Changes - Revenue for Q3 2020 was $13 million, up 12% from $11.6 million in the previous quarter but down 13% from $14.9 million in Q3 2019 [12] - Operating margin, EBITDA, and net income all improved compared to the same quarter last year [8] - Net income on a GAAP basis totaled $858,000 or $0.05 per share in Q3 2020, compared to $545,000 or $0.03 per share in the same period last year [27] - Non-GAAP net income totaled $1.2 million or $0.07 per diluted share in Q3 2020, compared to $900,000 or $0.05 per diluted share in the same year-ago period [28] Business Line Data and Key Metrics Changes - Core OSS business contributed $9 million in Q3, down from $9.7 million in the same period last year [15] - European subsidiary Bressner contributed $4 million in Q3, down from $5.2 million in the same year-ago period [16] - Gross margins for the core OSS business increased to 44.6% in Q3 from 39% in the same year-ago quarter [19] Market Data and Key Metrics Changes - The media and entertainment business saw a revenue decrease of approximately $1.8 million due to the COVID-19 pandemic [13] - Revenue for the nine months ended September 30, 2020, was $38 million, a decrease of 5% compared to $39.9 million in the same period last year [14] Company Strategy and Development Direction - The company is focusing on diversifying its customer base and has closed four major opportunities in industrial, medical, and military programs [32] - A multi-year strategic plan is being developed to enhance the product roadmap and leverage employee talents [40] - The company aims to create higher value products for specific target verticals, particularly in military and transportable applications [41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of COVID-19 on revenue growth, estimating $9.9 million in lost or delayed revenue [7] - The company expects strong growth in the military vertical based on user engagement and value proposition [39] - For Q4 2020, the company is on target to generate approximately $13 million in revenue [43] Other Important Information - Operating expenses decreased by 15% to $3.9 million in Q3 2020 compared to $4.6 million in Q3 2019 [21] - Cash and cash equivalents totaled $5.5 million as of September 30, 2020, compared to $4.7 million as of June 30, 2020 [30] Q&A Session Summary Question: Impact of COVID-19 on revenue - Management clarified that over half of the $9.9 million loss was related to the largest customer, with military sales showing delays rather than losses [46][49] Question: Comparison of ramp to revenue in new markets - The commercial market typically has a 6 to 12-month ramp, while government contracts take 12 to 18 months [52] Question: Status of largest client and receivables - The accounts receivable from the largest client has been reduced to under $2 million, with ongoing payments being made [63] Question: Military revenue outlook - Military revenue for Q4 is expected to be strong, with solid wins in multiple programs anticipated to kick in 2021 [70] Question: Virtual events and customer engagement - Virtual events have been effective in maintaining customer engagement, with a mix of webinars and virtual trade shows [72][75]