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.