Business Context and Reporting Period
One Stop Systems, Inc. (OSS), a Delaware corporation, filed this Form 8-K on April 20, 2020, to report the entry into a Material Definitive Agreement. The company is an emerging growth company with its common stock trading on The Nasdaq Capital Market under the symbol "OSS."
Key Financial Metrics and Transaction Details
The filing details a registered direct offering of Senior Secured Convertible Promissory Notes. Key financial terms include:
- Total Principal Capacity: Up to $6,000,000.
- Initial Closing Principal: $3,000,000.
- Initial Purchase Price: $2,700,000 (reflecting a 10% original issue discount).
- Conversion Price: Initial price of $2.50 per share, subject to adjustment.
- Interest Rate: 0% (except upon event of default).
- Maturity: 23 months from the last day of the month of closing.
- Amortization: Monthly payments commencing 3 months post-issuance, equal to 1/22nd of the principal.
- Collateral: First prior senior security interest in accounts, inventory, equipment, and general intangibles.
Material Changes and Agreements
The company entered into a Securities Purchase Agreement, a Security Agreement, and an Intercreditor Agreement. The Security Agreement grants the investor a first-priority lien on substantially all company assets. The Intercreditor Agreement establishes a pari passu pro rata priority between the new investor and existing senior secured lenders regarding collateral proceeds. The transaction is structured as a registered direct offering under an effective Form S-3 shelf registration statement.
Outlook, Risks, and Management Commentary
Management expects the offering to close on or about April 22, 2020, subject to customary conditions. The filing includes standard forward-looking statements regarding the company's future activities, noting that actual results may differ due to risks outlined in the company's Form 10-K. The filing does not provide specific revenue, profit, or cash flow metrics for the reporting period, as the document focuses solely on the financing transaction.
Investor Verification Checklist
- Verify the final closing date and total principal amount issued against the initial $3,000,000 target.
- Review the full text of the Security Agreement (Exhibit 10.2) to understand the scope of assets pledged as collateral.
- Monitor the Intercreditor Agreement (Exhibit 10.3) for details on how proceeds are allocated between new and existing lenders.
- Check the prospectus supplement for the Registered Offering once filed to confirm final terms and use of proceeds.
- Assess the impact of the 10% original issue discount and monthly amortization requirements on future liquidity.