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.

On June 24, 2020, the Company amended its 2017 Equity Incentive Plan (as 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.

Effective June 24, 2020, the Company entered into an employment agreement with 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 nine months after the one-year anniversary of the date of grant and every nine months thereafter until fully vested; and 412,125 Incentive Stock Options (“ISOs”) pursuant to the Company’s 2017 Plan, 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 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. 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’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 equity incentive plans during the nine month period ended September 30, 2022, is as follows:

	Stock Options Outstanding
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding on January 1, 2022		1,025,499		$	2.01		6.35	$	1,867,324
Granted		-			-		-		-
Forfeited / Canceled		(1,000	)		2.43		-	$	770
Exercised		(53,819	)	$	0.78		-	$	130,059
Outstanding on September 30, 2022		970,680		$	2.06		5.86	$	1,155,716
Exercisable as of September 30, 2022		967,345		$	2.06		5.86	$	1,154,049
Vested and expected to vest as of September 30, 2022		970,680		$	2.06		5.86	$	1,155,716

There were no options granted during the nine month periods ended September 30, 2022 and 2021. The following table presents the grant date fair value of options vested and the intrinsic value of options exercised:

	For the Nine Months Ended September 30,
	2022		2021
Grant date fair value of options vested	$	2,006,480	$	329,980
Intrinsic value of options exercised	$	130,059	$	899,175

As of September 30, 2022, the amount of unearned stock-based compensation estimated to be expensed from 2022 through 2025 related to unvested stock options is $2,771, net of estimated forfeitures. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is 0.29 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.

RSUs may be granted at the discretion of the compensation committee of the Board of Directors under the Company’s 2017 Plan in connection with the hiring and retention of personnel and are subject to certain conditions. RSUs generally vest quarterly or semi-annually over a period of one to three years and are typically forfeited if employment is terminated before the RSUs vest. The compensation expense related to the RSUs 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 RSU activity for the nine months ended September 30, 2022, is as follows:

	Restricted Stock Units
	Number of Shares			Weighted Average Grant Date Fair Value
Unvested on January 1, 2022		604,800		$	4.30
Granted		683,450		$	3.92
Vested		(226,278	)	$	4.36
Canceled		(938	)	$	4.57
Unvested on September 30, 2022		1,061,034		$	4.04

As of September 30, 2022, there was $3,211,543 of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.18 years.

Stock-based compensation expense for the three and nine month periods ended September 30, 2022 and 2021, was comprised of the following:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Stock-based compensation classified as:	2022		2021		2022		2021
General and administrative	$	309,631	$	239,056	$	812,072	$	855,881
Production		70,967		49,826		197,382		143,142
Marketing and selling		104,543		71,169		291,087		200,885
Research and development		57,025		39,097		157,089		102,970
	$	542,166	$	399,148	$	1,457,630	$	1,302,878

The following table summarizes the Company’s warrant activity during the nine months ended September 30, 2022:

	Number of Warrants		Weighted Average Exercise Price
Warrants outstanding – January 1, 2022		451,112	$	5.37
Warrants granted		-	$	-
Warrants exercised		-	$	-
Warrants outstanding – September 30, 2022		451,112	$	5.37