Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.21.1
Debt
3 Months Ended
Mar. 31, 2021
Debt Disclosure [Abstract]  
Debt

NOTE 7 – DEBT

Bank Lines of Credit

Bressner Technology GmbH has two revolving lines of credit with German institutions totaling €2,200,000 (US$2,578,904).  Borrowing under the lines of credit bear interest at a variable rate of Euribor plus a stated rate.  The current rates for the lines of credit are 3.89% and 4.0%. One million euros of the credit line expires in January 2024, with the remaining balance being open indefinitely or until occurrence of a defined change of control event.  There were no outstanding lines of credit balances as of March 31, 2021 and December 31, 2020.

 

Foreign Debt Obligations

Bressner Technology GmbH has two term loans outstanding as of March 31, 2021 with a total balance outstanding of €1,000,000 (US$1,174,343) 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);

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 interest at 2.25% and matures on March 30, 2021 with monthly payments of principal and interest of €22,232 (US$24,960). The balance outstanding as of March 31, 2021 and December 31, 2020 is €0 (US$0) and €66,446 (US$81,251), respectively;

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 31, 2020; and

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 paid in full.

Notes Payable

In April 2019, the Company borrowed $350,000 from three 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 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 equal to 10% of the original principal at a price per share equal to $2.15 per share.  Accordingly, the Company issued to the noteholders warrants to purchase 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 outstanding as of March 31, 2021 and December 31, 2020 is $16,014 and $63,188, respectively.

Notes Payable – Related Parties

In April 2019, the Company borrowed $1,150,000 from three 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 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 equal to 10% of the original principal at a price per share equal to $2.15 per share.  Accordingly, the Company issued to the noteholders warrants to purchase 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 outstanding as of March 31, 2021 and December 31, 2020 is $51,647 and $206,669, respectively.

 

Paycheck Protection Program Loan

On April 28, 2020, One Stop Systems, Inc. received authorization pursuant to the Paycheck Protection Program (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, among others, as follows: (i) the time period to spend the received funds was extended from the original eight weeks to twenty-four weeks from 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 the Company expects the PPP loan to be forgiven in full, all related amounts have been presented as noncurrent liabilities (See Note 13).

 

Senior Secured Convertible Note:

On April 20, 2020, the Company entered into a Securities Purchase Agreement with an institutional investor, providing for the issuance of the Company’s Senior Secured Convertible Promissory Notes with a principal face amount 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 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 an aggregate purchase price of $2,700,000 at the initial closing.  The notes bear no interest rate (except upon event of default) and, unless earlier converted or redeemed, will mature on April 1, 2022.

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 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, 2021, the holder has elected to defer receipt of three 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, 2021, total debt discount amortization was $50,928, and such amount is 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, 2021 was $53,690, and such amount is included in interest expense in the accompanying consolidated statements of operations.

Debt Discount

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 ended March 31, 2021 and 2020, total debt discount amortization was $7,519 and $7,520, respectively, and such amounts are included in interest expense in the accompanying consolidated statements of operations.

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

 

Loan Description

 

Current

Interest Rate

 

 

Maturity

Date

 

Balance

(Euro)

 

 

Balance ($)

 

 

Current

Portion

 

 

Long-term

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

 

PPP loan

 

1.00%

 

 

April-22

 

 

-

 

 

 

1,499,360

 

 

 

-

 

 

 

1,499,360

 

 

 

 

 

 

 

 

 

-

 

 

$

4,157,930

 

 

$

2,522,206

 

 

$

1,635,724

 

Foreign:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uni Credit Bank AG

 

1.87%

 

 

June-21

 

500,000

 

 

$

587,171

 

 

$

587,171

 

 

$

-

 

Uni Credit Bank AG

 

1.90%

 

 

April-21

 

 

500,000

 

 

 

587,172

 

 

 

587,172

 

 

 

-

 

 

 

 

 

 

 

 

 

1,000,000

 

 

$

1,174,343

 

 

$

1,174,343

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,332,273

 

 

$

3,696,549

 

 

$

1,635,724

 

 

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

 

 

Period Ended March 31, 2021

 

Related

Parties

 

 

Third

Parties

 

 

Convertible

Note

 

 

PPP Loan

 

 

Foreign

 

 

Total

 

Current portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

$

51,647

 

 

$

16,014

 

 

$

2,454,545

 

 

$

-

 

 

$

1,174,343

 

 

$

3,696,549

 

Less discount

 

 

(962

)

 

 

(292

)

 

 

(80,677

)

 

 

-

 

 

 

-

 

 

 

(81,931

)

Less loan origination costs

 

 

-

 

 

 

-

 

 

 

(85,054

)

 

 

-

 

 

 

-

 

 

 

(85,054

)

Net liability

 

$

50,685

 

 

$

15,722

 

 

$

2,288,814

 

 

$

-

 

 

$

1,174,343

 

 

$

3,529,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2021 are as follows:

 

Period Ending March 31,

 

Related

Parties

 

 

Third

Parties

 

 

Convertible

Note

 

 

PPP Loan

 

 

Foreign

 

 

Total

 

 

Discount / Loan Original Costs

 

2022

 

$

51,647

 

 

$

16,014

 

 

$

2,454,545

 

 

$

-

 

 

$

1,174,343

 

 

$

3,696,549

 

 

$

(166,985

)

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

)

Current portion of notes

   payable

 

 

(51,647

)

 

 

(16,014

)

 

 

(2,454,545

)

 

 

-

 

 

 

(1,174,343

)

 

 

(3,696,549

)

 

 

166,985

 

Notes payable, net of

   current portion

 

$

-

 

 

$

-

 

 

$

136,364

 

 

$

1,499,360

 

 

$

-

 

 

$

1,635,724

 

 

$

-