ONE STOP SYSTEMS, INC. current report, 20 March 2019

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Business Context and Reporting Period

Company: ONE STOP SYSTEMS, INC.
Filing Type: Form 8-K (Current Report)
Date of Report: March 20, 2019
Event: Entry into a Material Definitive Agreement (Binding Commitment Letters for Loans).

Key Financial Metrics

This filing does not report revenue, profit, cash flow, margins, or existing debt levels. It details a new financing arrangement with the following terms:

  • Total Commitment Amount: Up to $4,000,000 aggregate ($2,000,000 each from Kenneth Potashner and Steve Cooper).
  • Funding Status: No portions funded at execution.
  • Interest Rate: 9.5% per annum on funded amounts.
  • Maturity: 24 months from date of execution.
  • Origination Fee: 1.0% of the loan amount, payable in cash or stock at funding.
  • Warrant Coverage: 10% of funded amounts, priced at fair market value on funding date.
  • Commitment Fee: 0.25% monthly on the loan amount, payable in cash or stock.
  • Security: First priority security interest in all Company assets.

Material Changes

The Company entered into binding commitment letters with its President/CEO and a Director to secure potential liquidity. This represents a material change in the Company's capital structure potential, though no cash has changed hands as of the filing date. The agreement includes a "pay-in-full" clause if the Company secures a senior secured loan from a third party.

Guidance, Outlook, and Risks

  • Discretionary Funding: The Company may call for funding at its sole discretion with 10 business days' notice.
  • Expiration: The commitment letters are valid until April 1, 2020.
  • Termination: The Company may terminate the letters at any time upon notice.
  • Prepayment: Loans may be prepaid without penalty.
  • Risk: The agreement grants lenders a first priority security interest in all Company assets, which could limit future borrowing capacity or require immediate repayment if senior secured debt is obtained elsewhere.

Investor Verification Checklist

  • Verify if any portion of the $4,000,000 commitment has been funded since March 20, 2019.
  • Confirm the fair market value of the stock used for calculating the 1.0% origination fee and 10% warrant coverage if funding occurs.
  • Monitor for any new senior secured loan agreements that would trigger immediate repayment of these commitments.
  • Check subsequent filings for the actual issuance of warrants or stock in lieu of cash fees.