Date: 8/11/2022 Form: 10-Q - Quarterly Report
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

X

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

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

 

(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 X 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 X  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

 

X

 

Smaller reporting company

 

X

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

X

 

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 X

As of July 31, 2022, the registrant had 20,024,086 shares of common stock (par value $0.0001) outstanding.

 

 


 

Table of Contents

 

PART_1_FINANCIAL_INFORMATION

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

Unaudited Consolidated Balance Sheets

 

4

 

 

Unaudited Consolidated Statements of Income

 

5

 

 

Unaudited Consolidated Statements of Comprehensive Income

 

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

 

29

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

43

Item 4.

 

Controls and Procedures

 

43

 

 

 

 

 

PART II. OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

 

44

Item 1A

 

Risk Factors

 

44

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

 

2


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have presented financial statements in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these unaudited consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited consolidated financial statements were issued by filing with the SEC.

This Quarterly Report on Form 10-Q for the three and six month periods ended June 30, 2022, should be read in conjunction with our audited financial statements for the year ended December 31, 2021, included in our Annual Report on Form 10-K, filed with the SEC on March 24, 2022.

The results of operations for the three and six month periods ended June 30, 2022, are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022.

3


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

Unaudited

 

 

Audited

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,874,831

 

 

$

5,101,174

 

Short-term investments (Note 3)

 

 

11,514,047

 

 

 

14,535,750

 

Accounts receivable, net (Note 4)

 

 

10,014,336

 

 

 

5,089,804

 

Inventories, net (Note 5)

 

 

20,466,855

 

 

 

12,277,873

 

Prepaid expenses and other current assets

 

 

1,090,682

 

 

 

580,651

 

Total current assets

 

 

45,960,751

 

 

 

37,585,252

 

Property and equipment, net

 

 

2,687,391

 

 

 

3,091,415

 

Operating lease right-of-use assets

 

 

950,124

 

 

 

-

 

Deposits and other

 

 

38,092

 

 

 

46,845

 

Deferred tax assets, net

 

 

3,635,187

 

 

 

3,641,032

 

Goodwill

 

 

7,120,510

 

 

 

7,120,510

 

Intangible assets, net (Note 6)

 

 

73,769

 

 

 

105,385

 

Total Assets

 

$

60,465,824

 

 

$

51,590,439

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,332,547

 

 

$

2,059,059

 

Accrued expenses and other liabilities (Note 7)

 

 

3,297,460

 

 

 

3,846,488

 

Current portion of operating lease obligation (Note 10)

 

 

549,856

 

 

 

-

 

Current portion of notes payable (Note 8)

 

 

2,866,875

 

 

 

1,137,651

 

Current portion of senior secured convertible note, net of debt discounts

  of $0 and $2,384, respectively (Note 8)

 

 

-

 

 

 

2,588,525

 

Total current liabilities

 

 

13,046,738

 

 

 

9,631,723

 

Long-term debt, net of current portion (Note10)

 

 

796,134

 

 

 

-

 

Operating lease obligation, net of current portion (Note 8)

 

 

640,443

 

 

 

-

 

Total liabilities

 

 

14,483,315

 

 

 

9,631,723

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 50,000,000 shares authorized;

20,008,885 and 18,772,214 shares issued and outstanding, respectively

 

 

2,001

 

 

 

1,877

 

Additional paid-in capital

 

 

44,618,756

 

 

 

41,232,441

 

Accumulated other comprehensive (loss) income

 

 

(66,808

)

 

 

153,361

 

Accumulated earnings

 

 

1,428,560

 

 

 

571,037

 

Total stockholders’ equity

 

 

45,982,509

 

 

 

41,958,716

 

Total Liabilities and Stockholders' Equity

 

$

60,465,824

 

 

$

51,590,439

 

 

See accompanying notes to unaudited consolidated financial statements

4


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

18,303,343

 

 

$

14,905,009

 

 

$

35,356,020

 

 

$

28,220,761

 

Cost of revenue

 

 

13,103,025

 

 

 

10,252,265

 

 

 

25,015,047

 

 

 

19,135,233

 

Gross profit

 

 

5,200,318

 

 

 

4,652,744

 

 

 

10,340,973

 

 

 

9,085,528

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

1,821,445

 

 

 

1,648,785

 

 

 

3,596,133

 

 

 

3,806,404

 

Marketing and selling

 

 

1,724,913

 

 

 

1,479,292

 

 

 

3,196,633

 

 

 

2,647,193

 

Research and development

 

 

1,252,037

 

 

 

1,008,017

 

 

 

2,496,152

 

 

 

1,840,250

 

Total operating expenses

 

 

4,798,395

 

 

 

4,136,094

 

 

 

9,288,918

 

 

 

8,293,847

 

Income from operations

 

 

401,923

 

 

 

516,650

 

 

 

1,052,055

 

 

 

791,681

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

55,507

 

 

 

61,798

 

 

 

106,512

 

 

 

67,098

 

Interest expense

 

 

(44,949

)

 

 

(169,031

)

 

 

(103,665

)

 

 

(319,013

)

Other income (expense), net

 

 

(4,169

)

 

 

1,522,998

 

 

 

97,952

 

 

 

1,494,369

 

Total other income (expense), net

 

 

6,389

 

 

 

1,415,765

 

 

 

100,799

 

 

 

1,242,454

 

Income before income taxes

 

 

408,312

 

 

 

1,932,415

 

 

 

1,152,854

 

 

 

2,034,135

 

Provision for income taxes

 

 

85,490

 

 

 

235,293

 

 

 

250,798

 

 

 

295,815

 

Net income

 

$

322,822

 

 

$

1,697,122

 

 

$

902,056

 

 

$

1,738,320

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

0.09

 

 

$

0.05

 

 

$

0.10

 

Diluted

 

$

0.02

 

 

$

0.09

 

 

$

0.04

 

 

$

0.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

   outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,940,902

 

 

 

18,513,620

 

 

 

19,416,832

 

 

 

17,934,022

 

Diluted

 

 

21,180,490

 

 

 

19,735,383

 

 

 

20,346,917

 

 

 

19,305,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements

5


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

322,822

 

 

$

1,697,122

 

 

$

902,056

 

 

$

1,738,320

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized income (losses) on short-term

   investments

 

 

4,577

 

 

 

601

 

 

 

(1,419

)

 

 

601

 

Currency translation adjustment

 

 

(168,384

)

 

 

107,302

 

 

 

(218,750

)

 

 

(143,086

)

Total other comprehensive income (loss)

 

 

(163,807

)

 

 

107,903

 

 

 

(220,169

)

 

 

(142,485

)

Comprehensive income

 

$

159,015

 

 

$

1,805,025

 

 

$

681,887

 

 

$

1,595,835

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

6


 

ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 2022

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in-Capital

 

 

Comprehensive

Income

 

 

Accumulated Earnings

 

 

Stockholders'

Equity

 

Balance, January 1, 2022

 

 

18,772,214

 

 

$

1,877

 

 

$

41,232,441

 

 

$

153,361

 

 

$

571,037

 

 

$

41,958,716

 

Adjustment to beginning accumulated earnings for

   adoption of lease accounting (ASC 842)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,533

)

 

 

(44,533

)

Adjusted beginning balance, January 1, 2022

 

 

18,772,214

 

 

$

1,877

 

 

$

41,232,441

 

 

$

153,361

 

 

$

526,504

 

 

$

41,914,183

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

382,828

 

 

 

-

 

 

 

-

 

 

 

382,828

 

Exercise of stock options, RSUs and warrants

 

 

105,969

 

 

 

10

 

 

 

29,660

 

 

 

-

 

 

 

-

 

 

 

29,670

 

Taxes paid on net issuance of employee stock

   options

 

 

-

 

 

 

-

 

 

 

(20,478

)

 

 

-

 

 

 

-

 

 

 

(20,478

)

Conversion of senior secured convertible debt to equity

 

 

1,036,365

 

 

 

104

 

 

 

2,590,805

 

 

 

-

 

 

 

-

 

 

 

2,590,909

 

Currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(50,366

)

 

 

-

 

 

 

(50,366

)

Net unrealized gains (losses) on short-term investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,996

)

 

 

-

 

 

 

(5,996

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

579,234

 

 

 

579,234

 

Balance, March 31, 2022

 

 

19,914,548

 

 

$

1,991

 

 

$

44,215,256

 

 

$

96,999

 

 

$

1,105,738

 

 

$

45,419,984

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

532,636

 

 

 

-

 

 

 

-

 

 

 

532,636

 

Exercise of stock options, RSUs and warrants

 

 

94,337

 

 

 

10

 

 

 

2,548

 

 

 

-

 

 

 

-

 

 

 

2,558

 

Taxes paid on net issuance of employee stock

   options

 

 

-

 

 

 

-

 

 

 

(131,684

)

 

 

-

 

 

 

-

 

 

 

(131,684

)

Currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(168,384

)

 

 

-

 

 

 

(168,384

)

Net unrealized gains on short-term investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,577

 

 

 

-

 

 

 

4,577

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

322,822

 

 

 

322,822

 

Balance, June 30, 2022

 

 

20,008,885

 

 

$

2,001

 

 

$

44,618,756

 

 

$

(66,808

)

 

$

1,428,560

 

 

$

45,982,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements

7


ONE STOP SYSTEMS, INC. (OSS)

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 2021

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in-Capital

 

 

Comprehensive

Income

 

 

Accumulated

(Deficit)

 

 

Stockholders'

Equity

 

Balance, January 1, 2021

 

 

16,684,424

 

 

$

1,668

 

 

$

30,758,354

 

 

$

287,547

 

 

$

(1,761,736

)

 

$

29,285,833

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

438,394

 

 

 

-

 

 

 

-

 

 

 

438,394

 

Exercise of stock options, RSU's and warrants

 

 

321,472

 

 

 

32

 

 

 

278,936

 

 

 

-

 

 

 

-

 

 

 

278,968

 

Proceeds from issuance of stock, net of issuance costs

   of $778,810

 

 

1,497,006

 

 

 

150

 

 

 

9,221,040

 

 

 

-

 

 

 

-

 

 

 

9,221,190

 

Taxes paid on net issuance of employee stock

   options

 

 

-

 

 

 

-

 

 

 

(44,252

)

 

 

-

 

 

 

-

 

 

 

(44,252

)

Currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(250,388

)

 

 

-

 

 

 

(250,388

)

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41,198

 

 

 

41,198

 

Balance, March 31, 2021

 

 

18,502,902

 

 

$

1,850

 

 

$

40,652,472

 

 

$

37,159

 

 

$

(1,720,538

)

 

$

38,970,943

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

465,336

 

 

 

-

 

 

 

-

 

 

 

465,336

 

Exercise of stock options, RSU's and warrants

 

 

35,787

 

 

 

4

 

 

 

22,548

 

 

 

-

 

 

 

-

 

 

 

22,552

 

Additional stock issuance costs related to registered

   direct offering

 

 

-

 

 

 

-

 

 

 

(32,517

)

 

 

-

 

 

 

-

 

 

 

(32,517

)

Taxes paid on net issuance of employee stock

   options

 

 

-

 

 

 

-

 

 

 

(69,891

)

 

 

-

 

 

 

-

 

 

 

(69,891

)

Currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

107,302

 

 

 

-

 

 

 

107,302

 

Net unrealized gains on short-term investments

 

 

-

 

 

 

-