One Stop Systems Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 oss-10q_20200930.htm 10-Q oss-10q_20200930.htm

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, 2020

☐	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

(760) 745-9883

(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, 2020, the registrant had 16,620,908 shares of common stock (par value $0.0001) outstanding.

Table of Contents

		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 Income (Loss)	5
	Unaudited Consolidated Statement of Stockholders’ Equity	6
	Unaudited Consolidated Statements of Cash Flows	8
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
	Signatures	47

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements.

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2020			2019
ASSETS
Current assets
Cash and cash equivalents	$	5,519,829		$	5,185,321
Accounts receivable, net		9,744,171			11,667,157
Inventories, net		9,999,680			7,369,356
Prepaid expenses and other current assets		720,070			453,938
Total current assets		25,983,750			24,675,772
Property and equipment, net		3,567,582			3,568,564
Deposits and other		81,711			47,146
Deferred tax assets, net		3,939,546			3,019,823
Goodwill		7,120,510			7,120,510
Intangible assets, net		826,157			1,346,192
	$	41,519,256		$	39,778,007

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	3,680,192		$	4,115,977
Accrued expenses and other liabilities		3,758,109			4,607,432
Current portion of notes payable, net of debt discount of $3,802 and $7,019, respectively (Note 7)		1,433,200			1,377,751
Current portion of related-party notes payable, net of debt discount of $12,491 and $23,060, respectively (Note 7)		345,586			561,441
Senior secured convertible note, net of discounts of $337,247 (Note 7)		1,299,117			-
Total current liabilities		10,516,204			10,662,601
Notes payable, net of current portion and debt discount of $0 and $2,047, respectively (Note 7)		-			149,301
Related-party notes payable, net of current portion and debt discount of $0 and $6,726 , respectively (Note 7)		-			199,943
Senior secured convertible note, net of discounts of $51,707 (Note 7)		902,839			-
Paycheck protection plan note payable (Note 7)		1,499,360			-
Total liabilities		12,918,403			11,011,845
Commitments and contingencies (Note 9)
Stockholders’ equity
Common stock, $.0001 par value; 50,000,000 shares authorized; 16,620,908 and 16,121,747 shares issued and outstanding, respectively		1,662			1,612
Additional paid-in capital		30,480,405			30,537,015
Noncontrolling interest		-			500
Accumulated other comprehensive income (loss)		124,382			(17,773	)
Accumulated deficit		(2,005,596	)		(1,755,192	)
Total stockholders’ equity		28,600,853			28,766,162
	$	41,519,256		$	39,778,007

See accompanying notes to consolidated financial statements

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Revenue	$	12,976,058		$	14,938,964		$	37,961,023		$	39,883,099
Cost of revenue		8,074,445			9,909,045			26,338,527			27,028,399
Gross profit		4,901,613			5,029,919			11,622,496			12,854,700
Operating expenses:
General and administrative		1,817,499			2,190,003			6,208,922			6,468,021
Impairment of goodwill		-			-			-			1,697,394
Marketing and selling		1,103,384			1,383,965			3,137,833			3,758,901
Research and development		1,001,288			1,036,394			3,213,339			3,523,515
Total operating expenses		3,922,171			4,610,362			12,560,094			15,447,831
Income (loss) from operations		979,442			419,557			(937,598	)		(2,593,131	)
Other income (expense), net:
Interest income		143,931			10,149			267,911			23,424
Interest expense		(174,205	)		(52,182	)		(393,175	)		(111,463	)
Other income (expense), net		(33,625	)		116,326			(38,598	)		91,819
Total other income (expense), net		(63,899	)		74,293			(163,862	)		3,780
Income (loss) before income taxes		915,543			493,850			(1,101,460	)		(2,589,351	)
Provision (benefit) for income taxes		57,753			(51,051	)		(851,056	)		(594,890	)
Net income (loss) attributable to common stockholders	$	857,790		$	544,901		$	(250,404	)	$	(1,994,461	)

Net income (loss) per share attributable to common stockholders:
Basic	$	0.05		$	0.03		$	(0.02	)	$	(0.13	)
Diluted	$	0.05		$	0.03		$	(0.02	)	$	(0.13	)

Weighted average common shares outstanding:
Basic		16,585,773			15,777,158			16,469,457			14,825,351
Diluted		17,018,614			16,390,206			16,469,457			14,825,351

See accompanying notes to consolidated financial statements

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,
	2020		2019			2020			2019
Net income (loss) attributable to common stockholders	$	857,790	$	544,901		$	(250,404	)	$	(1,994,461	)
Other comprehensive income:
Currency translation adjustment		130,280		(68,316	)		142,155			(66,382	)
Total other comprehensive income (loss)		130,280		(68,316	)		142,155			(66,382	)
Comprehensive income (loss)	$	988,070	$	476,585		$	(108,249	)	$	(2,060,843	)

See accompanying notes to consolidated financial statements

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For The Three and Nine Months Ended September 30, 2020

	Common Stock										Accumulated Other						Total
	Shares		Amount		Additional Paid-in-Capital			Noncontrolling Interest			Comprehensive income (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		-		-		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 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

See accompanying notes to consolidated financial statements

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For The Three and Nine Months Ended September 30, 2019

	Common Stock									Accumulated Other						Total
	Shares		Amount		Additional 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

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net loss attributable to common stockholders	$	(250,404	)	$	(1,994,461	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Deferred benefit for income taxes		(910,959	)		(275,949	)
Loss on foreign currency transactions		-			18,647
Gain on disposal of property and equipment		(1,542	)		(89,168	)
Provision for bad debt		10,950			495
Impairment of goodwill		-			1,697,394
Warranty reserves		(723	)		3,982
Amortization of deferred gain		(53,838	)		(45,316	)
Depreciation		688,727			430,347
Amortization of intangibles		520,035			809,540
Inventory reserves		382,472			191,012
Amortization of debt discount		249,882			13,786
Stock-based compensation expense		503,419			490,140
Changes in operating assets and liabilities:
Accounts receivable		1,971,324			1,220,504
Inventories		(2,872,108	)		(1,664,165	)
Prepaid expenses and other current assets		(294,475	)		(106,598	)
Accounts payable		(484,327	)		(60,607	)
Accrued expenses and other liabilities		(843,823	)		(251,236	)
Net cash (used in) provided by operating activities		(1,385,390	)		388,347

Cash flows from investing activities:
Purchases of property and equipment, including capitalization of labor costs for test equipment and ERP		(664,385	)		(2,061,762	)
Proceeds from sales of property and equipment		1,542			1,050
Net cash used in investing activities		(662,843	)		(2,060,712	)

Cash flows from financing activities:
Proceeds from issuance of stock and stock options exercised		124,467			29,149
Payment of payroll taxes on net issuance of employee stock options		(684,446	)		(132,017	)
Proceeds from issuance of common stock		-

Price	2.99	EPS	-0
Shares	16	P/E	-25
MCap	49	P/FCF	126
Net Debt	-1	EBIT	-1
TEV	48	TEV/EBIT	-36
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-12
10-Q	2020-06-30	Filed 2020-08-06
10-Q	2020-03-31	Filed 2020-05-15
10-K	2019-12-31	Filed 2020-03-26
10-Q	2019-09-30	Filed 2019-11-07
10-Q	2019-06-30	Filed 2019-08-08
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-03-21
10-Q	2018-09-30	Filed 2018-11-08
10-Q	2018-06-30	Filed 2018-08-08
10-Q	2018-03-31	Filed 2018-05-08
10-K	2017-12-31	Filed 2018-03-21

8-K	2020-11-12	Earnings, Exhibits
8-K	2020-08-06	Earnings, Exhibits
8-K	2020-06-24
8-K	2020-06-03
8-K	2020-06-03
8-K	2020-05-14
8-K	2020-05-11
8-K	2020-04-24
8-K	2020-04-20
8-K	2020-04-05
8-K	2020-03-26
8-K	2020-02-15
8-K	2020-02-15
8-K	2019-12-23
8-K	2019-11-07
8-K	2019-11-04
8-K	2019-08-26
8-K	2019-08-08
8-K	2019-08-02
8-K	2019-07-01
8-K	2019-06-26
8-K	2019-05-15
8-K	2019-05-09
8-K	2019-03-20
8-K	2019-02-13
8-K	2019-01-31
8-K	2019-01-02
8-K	2018-11-08
8-K	2018-10-31
8-K	2018-08-31
8-K	2018-08-22
8-K	2018-08-08
8-K	2018-07-30
8-K	2018-06-26
8-K	2018-05-22
8-K	2018-05-08
8-K	2018-04-11
8-K	2018-03-21
8-K	2018-03-07
8-K	2018-02-02
8-K	2018-02-01

EX-31.1	oss-ex311_9.htm
EX-31.2	oss-ex312_6.htm
EX-32.1	oss-ex321_8.htm
EX-32.2	oss-ex322_7.htm

OSS 10Q Quarterly Report

One Stop Systems Earnings 2020-09-30