UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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 September 30, 2019

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.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

33-0885351

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

2235 Enterprise Street #110

Escondido, California  92029

(Address of principal executive offices including Zip Code

 

(877) 438-2724

(Registrant’s telephone number, including area code)

 

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

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

 

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

 

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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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 October 31, 2019, the registrant had 16,101,460 shares of common stock (par value $0.0001) outstanding.

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

Unaudited Consolidated Balance Sheets

 

3

 

 

Unaudited Consolidated Statements of Operations

 

5

 

 

Unaudited Consolidated Statement of Comprehensive Income (Loss)

 

6

 

 

Unaudited Consolidated Statement of Stockholders’ Equity

 

7

 

 

Unaudited Consolidated Statements of Cash Flows

 

9

 

 

Notes to Unaudited Consolidated Financial Statements

 

11

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

53

Item 4.

 

Controls and Procedures

 

53

PART II. OTHER INFORMATION

Item 1.

 

Legal Proceedings

 

54

Item 1A.

 

Risk Factors

 

54

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

54

Item 3.

 

Defaults Upon Senior Securities

 

54

Item 4.

 

Mine Safety Disclosures

 

54

Item 5.

 

Other Information

 

54

Item 6.

 

Exhibits

 

55

 

 

Signatures

 

56

 

2


PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash  and cash equivalents

 

$

4,226,201

 

 

$

2,272,256

 

Accounts receivable, net

 

 

9,208,166

 

 

 

10,540,150

 

Inventories, net

 

 

8,227,567

 

 

 

6,823,930

 

Prepaid expenses and other current assets

 

 

820,677

 

 

 

666,330

 

 

 

 

22,482,611

 

 

 

20,302,666

 

Property and equipment, net

 

 

3,370,759

 

 

 

1,759,086

 

Deposits and other

 

 

52,204

 

 

 

49,966

 

Deferred tax assets, net

 

 

3,048,692

 

 

 

2,505,632

 

Goodwill

 

 

7,120,510

 

 

 

7,914,211

 

Intangible assets, net

 

 

1,520,717

 

 

 

3,525,257

 

 

 

$

37,595,493

 

 

$

36,056,818

 

 

See accompanying notes to consolidated financial statements

3


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED BALANCE SHEETS - CONTINUED

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,594,863

 

 

$

3,708,865

 

Accrued expenses and other liabilities

 

 

3,569,015

 

 

 

3,930,718

 

Borrowings on bank lines of credit (Note 8)

 

 

220,794

 

 

 

422,960

 

Current portion of notes payable, net of debt discount of $7,019 and

   $0, respectively  (Note 8)

 

 

1,628,571

 

 

 

1,156,915

 

Current portion of related-party notes payable, net of debt discount

   of $23,060 and $0, respectively  (Note 8)

 

 

547,813

 

 

 

-

 

Total current liabilities

 

 

9,561,056

 

 

 

9,219,458

 

Notes payable, net of current portion and debt discount of $3,802 and

   $0, respectively  (Note 8)

 

 

241,795

 

 

 

265,038

 

Related-party notes payable, net of current portion and debt discount

   of $12,491 and $0, respectively  (Note 8)

 

 

345,586

 

 

 

-

 

Total liabilities

 

 

10,148,437

 

 

 

9,484,496

 

Commitments and contingencies (Note 10 and 11)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $.0001 par value; 50,000,000 shares authorized;

   16,101,460 and 14,216,328 shares issued and outstanding, respectively

 

 

1,610

 

 

 

1,422

 

Additional paid-in capital

 

 

30,359,503

 

 

 

27,424,113

 

Noncontrolling interest

 

 

500

 

 

 

500

 

Accumulated other comprehensive (loss) income

 

 

(65,240

)

 

 

1,142

 

Accumulated deficit

 

 

(2,849,317

)

 

 

(854,855

)

Total stockholders’ equity

 

 

27,447,056

 

 

 

26,572,322

 

 

 

$

37,595,493

 

 

$

36,056,818

 

 

See accompanying notes to consolidated financial statements

4


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

14,938,964

 

 

$

9,633,338

 

 

$

39,883,099

 

 

$

22,645,715

 

Cost of revenue

 

 

9,909,045

 

 

 

6,463,227

 

 

 

27,028,399

 

 

 

15,622,557

 

Gross margin

 

 

5,029,919

 

 

 

3,170,111

 

 

 

12,854,700

 

 

 

7,023,158

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

2,190,003

 

 

 

1,558,930

 

 

 

8,165,415

 

 

 

3,729,530

 

Marketing and selling

 

 

1,383,965

 

 

 

996,495

 

 

 

3,758,901

 

 

 

2,567,984

 

Research and development

 

 

1,036,394

 

 

 

894,744

 

 

 

3,523,515

 

 

 

2,826,149

 

Total operating expenses

 

 

4,610,362

 

 

 

3,450,169

 

 

 

15,447,831

 

 

 

9,123,663

 

Income (loss) from operations

 

 

419,557

 

 

 

(280,058

)

 

 

(2,593,131

)

 

 

(2,100,505

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(52,182

)

 

 

(160

)

 

 

(111,463

)

 

 

(55,821

)

Other income (expense), net

 

 

126,475

 

 

 

(25,519

)

 

 

115,243

 

 

 

96,520

 

Total other income (expense), net

 

 

74,293

 

 

 

(25,679

)

 

 

3,780

 

 

 

40,699

 

Income (loss) before income taxes

 

 

493,850

 

 

 

(305,737

)

 

 

(2,589,351

)

 

 

(2,059,806

)

Benefit for income taxes

 

 

(51,051

)

 

 

(1,447,561

)

 

 

(594,890

)

 

 

(674,809

)

Net income (loss)

 

$

544,901

 

 

$

1,141,824

 

 

$

(1,994,461

)

 

$

(1,384,997

)

Net loss attributable to noncontrolling interest

 

$

-

 

 

$

(139,466

)

 

$

-

 

 

$

(369,047

)

Net income (loss) attributable to

   common stockholders

 

$

544,901

 

 

$

1,281,290

 

 

$

(1,994,461

)

 

$

(1,015,950

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

0.10

 

 

$

(0.13

)

 

$

(0.08

)

Diluted

 

$

0.03

 

 

$

0.09

 

 

$

(0.13

)

 

$

(0.08

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

15,777,158

 

 

 

13,208,864

 

 

 

14,825,351

 

 

 

12,052,175

 

Diluted

 

 

16,390,206

 

 

 

14,549,354

 

 

 

14,825,351

 

 

 

12,052,175

 

 

See accompanying notes to consolidated financial statements

5


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (loss) attributable to common stockholders

 

$

544,901

 

 

$

1,281,290

 

 

$

(1,994,461

)

 

$

(1,015,950

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on forward contract

 

 

53,904

 

 

 

-

 

 

 

53,904

 

 

 

-

 

Currency translation adjustment

 

 

(122,220

)

 

 

-

 

 

 

(120,286

)

 

 

-

 

Total other comprehensive (loss) income

 

 

(68,316

)

 

 

-

 

 

 

(66,382

)

 

 

-

 

Comprehensive income (loss)

 

$

476,585

 

 

$

1,281,290

 

 

$

(2,060,843

)

 

$

(1,015,950

)

 

See accompanying notes to consolidated financial statements

 

6


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For The Three and Nine Month Periods Ended September 30, 2019

 

 

Series C Preferred

Stock

 

Series B Preferred

Stock

 

Series A Preferred

Stock

 

Common Stock

 

Additional

 

 

 

 

Accumulated

Other

 

 

 

 

Total

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Paid-in-

Capital

 

Noncontrolling

Interest

 

Comprehensive

Income (loss)

 

Accumulated

Deficit

 

Stockholders'

Equity

 

Balance, January 1, 2019

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

14,216,328

 

$

1,422

 

$

27,424,113

 

$

500

 

$

1,142

 

$

(854,855

)

$

26,572,322

 

Stock-based compensation

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

325,283

 

 

-

 

 

-

 

 

-

 

 

325,283

 

Exercise of stock options,

   RSU's and Warrants

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

281,319

 

 

28

 

 

21,121

 

 

-

 

 

-

 

 

-

 

 

21,149

 

Relative fair value of warrants

   issued with notes payable

   and notes payable to related

   parties

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

60,158

 

 

-

 

 

-

 

 

-

 

 

60,158

 

Taxes paid on net issuance of

   employee stock options

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(112,879

)

 

-

 

 

-

 

 

-

 

 

(112,879

)

Currency translation

   adjustment

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,934

 

 

-

 

 

1,934

 

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

(2,539,363

)

 

(2,539,363

)

Balance, June 30, 2019

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

14,497,647

 

 

1,450

 

$

27,717,796

 

$

500

 

$

3,076

 

$

(3,394,218

)

$

24,328,604

 

Stock-based compensation

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

164,857

 

 

-

 

 

-

 

 

-

 

 

164,857

 

Exercise of stock options,

   RSU's and Warrants

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

48,981

 

 

5

 

 

7,995

 

 

-

 

 

-

 

 

-

 

 

8,000

 

Taxes paid on net issuance of

   employee stock options

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(19,138

)

 

-

 

 

-

 

 

-

 

 

(19,138

)

Proceeds from issuance

   of stock, net of issuance

   costs of $212,566

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,554,832

 

 

155

 

 

2,487,993

 

 

-

 

 

-

 

 

-

 

 

2,488,148

 

Currency translation

   adjustment

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(122,220

)

 

-

 

 

(122,220

)

Gain on forward contract

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

53,904

 

 

-

 

 

53,904

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

544,901

 

 

544,901

 

Balance, September 30, 2019

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

16,101,460

 

$

1,610

 

$

30,359,503

 

$

500

 

$

(65,240

)

$

(2,849,317

)

$

27,447,056

 

 

See accompanying notes to consolidated financial statements

7


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

For The Three and Nine Month Periods Ended September 30, 2018

 

 

Series C Preferred

Stock

 

Series B Preferred

Stock

 

Series A Preferred

Stock

 

Common Stock

 

Additional

 

 

 

 

Accumulated

Other

 

 

 

 

Total

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Paid-in-

Capital

 

Noncontrolling

Interest

 

Comprehensive

Income (loss)

 

Accumulated

Deficit

 

Stockholders'

Equity

 

Balance, January 1, 2018

 

1,087,006

 

$

1,604,101

 

 

1,450,000

 

$

697,996

 

 

500,000

 

$

114,430

 

 

5,514,917

 

$

551

 

$

3,484,428

 

$

436,842

 

$

-

 

$

281,423

 

$

6,619,771

 

Conversion of preferred

   stock to common stock

   upon initial public offering

 

(1,087,006

)

 

(1,604,101

)

 

(1,450,000

)

 

(697,996

)

 

(500,000

)

 

(114,430

)

 

3,037,006

 

 

304

 

 

2,416,223

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

160,133

 

 

-

 

 

 

 

 

-

 

 

160,133

 

Exercise of stock options

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

327,287

 

 

33

 

 

59,117

 

 

-

 

 

-

 

 

-

 

 

59,150

 

Taxes paid on net issuance of

   employee stock options

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(274,663

)

 

-

 

 

-

 

 

-

 

 

(274,663

)

Relative fair value of

   warrants issued to

   Underwriters with IPO

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

669,408

 

 

-

 

 

-

 

 

-

 

 

669,408

 

Proceeds from issuance

   of stock, net of issuance

   costs of $3,367,760

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

3,900,000

 

 

390

 

 

16,131,850

 

 

-

 

 

-

 

 

-

 

 

16,132,240

 

Noncontrolling interest

   in consolidated

   subsidiary (Note 1)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(229,581

)

 

-

 

 

-

 

 

(229,581

)

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,297,240

)

 

(2,297,240

)

Balance, June 30, 2018

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

12,779,210

 

$

1,278

 

$

22,646,496

 

$

207,261

 

$

-

 

$

(2,015,817

)

$

20,839,218

 

Stock-based compensation

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

214,846

 

 

-

 

 

 

 

 

-

 

 

214,846

 

Exercise of stock options

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

27,660

 

 

2

 

 

5,302

 

 

-

 

 

-

 

 

-

 

 

5,304

 

Taxes paid on net issuance of

   employee stock options

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(65,485

)

 

-

 

 

-

 

 

-

 

 

(65,485

)

Shares issued in merger with CDI

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,266,364

 

 

127

 

 

4,194,546

 

 

-

 

 

-

 

 

-

 

 

4,194,673

 

Noncontrolling interest

   in consolidated

   subsidiary (Note 1)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(139,466

)

 

-

 

 

-

 

 

(139,466

)

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,281,290

 

 

1,281,290

 

Balance, September 30, 2018

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

14,073,234

 

$

1,407

 

$

26,995,705

 

$

67,795

 

$

-

 

$

(734,527

)

$

26,330,380

 

 

See accompanying notes to consolidated financial statements

 

 

8


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

For the Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,994,461

)

 

$

(1,384,997

)

Net loss attributable to noncontrolling interest

 

 

-

 

 

 

(369,047

)

Net loss attributable to common stockholders

 

 

(1,994,461

)

 

 

(1,015,950

)

Adjustments to reconcile net loss to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

 

-

 

 

 

(369,047

)

Deferred benefit for income taxes

 

 

(567,257

)

 

 

(649,288

)

Loss on foreign currency transactions

 

 

18,647

 

 

 

-