UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): October 31, 2018
ONE STOP SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware |
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001-38371 |
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33-0885351 |
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(State or Other Jurisdiction of Incorporation) |
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(Commission File Number) |
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(IRS Employer Identification No.) |
2235 Enterprise Street #110
Escondido, California 92029
(760) 745-9883
(Address and Telephone Number of Registrant’s Principal Executive Offices)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
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☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
On November 6, 2018, One Stop Systems, Inc., a Delaware corporation (the “Company”), filed a Current Report on Form 8-K (the “Original Form 8-K”) with the Securities and Exchange Commission regarding the closing of a Share Purchase Agreement (the “Purchase Agreement) by and between One Stop Systems GmbH, a limited liability company under the laws of Germany (the “Purchaser”), and wholly-owned subsidiary of the Company, and the shareholders of Bressner Technology GmbH, a limited liability company under the laws of Germany (“Bressner”).
This Current Report on Form 8-K/A (“Amendment No. 1”) amends and supplements the Original Form 8-K to provide certain financial statements and pro forma financial information as required by Items 9.01(a) and (b) of Form 8-K. No other amendments are being made to the Original Form 8-K by this Amendment No. 1. This Amendment No. 1 should be read in connection with the Original Form 8-K, which provides a more complete description of the acquisition of Bressner.
(a) Financial Statements of Business Acquired.
The audited financial statements of Bressner as of and for the years ended December 31, 2017 and 2016, and the independent auditors’ report related thereto, are attached hereto as Exhibit 99.1.
The unaudited financial statements of Bressner as of September 30, 2018, and the nine month periods ended September 30, 2018 and 2017, and the independent accountants’ report related thereto, are attached hereto as Exhibit 99.2.
The consent of BDO AG Wirtschaftsprüfungsgesellschaft with respect to the Registration Statement of One Stop Systems, Inc. on Form S-8 (No. 333-227671) is attached as Exhibit 23.1 hereto.
(b) Pro Forma Financial Information.
The unaudited pro forma combined consolidated statements of operations for the year ended December 31, 2017, the nine months ended September 30, 2018, and balance sheet as of September 30, 2018, which give effect to the acquisition of Bressner, are attached hereto as Exhibit 99.3.
(d) Exhibits.
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Exhibit No. |
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Description |
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23.1 |
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99.1 |
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99.2 |
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99.3 |
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- 2 -
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ONE STOP SYSTEMS, INC. |
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Dated: January 15, 2019 |
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By: |
/s/ Steve Cooper |
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Steve Cooper |
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President, Chief Executive Officer and Chairman |
- 3 -
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
One Stop Systems Inc.
Escondido, CA
We consent to the incorporation by reference in Registration Statement No. 333-227671 on Form S-8 of One Stop Systems, Inc. of our report dated 13 December 2018 with respect to the financial statements of Bressner Technology GmbH included in this current report on Form 8-K.
BDO AG Wirtschaftsprüfungsgesellschaft
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/s/ Uwe Braunschläger |
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/s/ Frank Werner |
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Uwe Braunschläger |
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Frank Werner |
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Wirtschaftsprüfer, CPA |
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Wirtschaftsprüfer |
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(German Public Auditor) |
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(German Public Auditor) |
Munich, Germany
13 December 2018
Exhibit 99.1
Bressner Technology GmbH
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2017 AND 2016
Table of Contents
2
INDEPENDENT AUDITORS’ REPORT
One Stop Systems, Inc.
2235 Enterprise Street #110
Escondido, CA 92029
United States of America
Bressner Technology GmbH
Industriestr. 51
82194 Gröbenzell
Germany
We have audited the accompanying financial statements of Bressner Technology GmbH (the “Company”), which comprise the balance sheets as of December 31, 2017 and 2016, and the related statements of income for the years then ended and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the Federal Republic of Germany; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations in accordance with accounting principles generally accepted in the Federal Republic of Germany.
Emphasis of Matter – Reconciliation to US GAAP
We draw attention to Footnotes 5-10, which reconcile the results for the periods from accounting principles generally accepted in the Federal Republic of Germany (German Generally Accepted Accounting Principles) to the accounting principles generally accepted in the United States of America (U.S. GAAP) due to significant differences that exist between German Generally Accepted Accounting Principles and US GAAP. Our opinion is not modified with respect to this matter.
Emphasis of Matter – Acquisition of the Company
On October 31, 2018, the Company was acquired by One Stop Systems, Inc., a publicly-traded company.
Munich/Germany, 13 December 2018
BDO AG
Wirtschaftsprüfungsgesellschaft
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/s/ Uwe Braunschläger |
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/s/ Frank Werne |
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Uwe Braunschläger |
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Frank Werner |
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Wirtschaftsprüfer, CPA |
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Wirtschaftsprüfer |
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(German Public Auditor) |
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(German Public Auditor) |
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4
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31.12.2017 |
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31.12.2016 |
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€ |
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€ |
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A. FIXED ASSETS |
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I. Intangible assets |
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1. Software |
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8.788 |
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4.621 |
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2. Prepayment for software |
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108.942 |
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48.990 |
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II. Property, plant and equipment |
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Fixtures, fittings and equipment |
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113.330 |
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133.421 |
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Total fixed assets |
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231.060 |
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187.032 |
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B. CURRENT ASSETS |
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I. Inventories |
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1. Finished goods |
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2.676.919 |
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1.316.619 |
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2. Advance payments |
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86.026 |
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99.408 |
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II. Accounts receivable and other assets |
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1. Accounts receivable from trading |
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1.851.563 |
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2.012.780 |
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2. Other assets |
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32.783 |
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64.133 |
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Total current assets |
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4.647.291 |
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3.492.940 |
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III. Cash on hand and cash in banks |
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249.673 |
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179.551 |
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C. DEFERRED CHARGES AND PREPAID EXPENSES |
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32.439 |
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19.447 |
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5.160.463 |
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3.878.970 |
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31.12.2017 |
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31.12.2016 |
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€ |
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€ |
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A. STOCKHOLDERS' EQUITY |
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I. Capital subscribed |
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30.000 |
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30.000 |
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II. Capital reserve |
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56.425 |
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56.425 |
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III. Earnings reserves |
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485.000 |
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485.000 |
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IV. Retained earnings |
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2.005.331 |
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1.563.860 |
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Total shareholders` equity |
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2.576.756 |
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2.135.285 |
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B. PROVISIONS AND ACCRUED LIABILITIES |
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1. Accrued taxes |
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39.287 |
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160.003 |
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2. Other provisions and accrued liabilities |
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566.475 |
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709.386 |
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C. LIABILITIES |
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1. Liabilities due to banks |
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1.668.229 |
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437.501 |
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2. Advance payments received on account of orders |
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4.871 |
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9.327 |
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3. Trade accounts payable |
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31.965 |
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132.351 |
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4. Other liabilities |
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272.880 |
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295.117 |
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thereof taxes Euro 251.601 (PY 192.984) |
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thereof for social security Euro 790 (PY 1.532) |
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Total liabilities |
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2.583.707 |
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1.743.685 |
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5.160.463 |
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3.878.970 |
5
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31.12.2017 |
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31.12.2016 |
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€ |
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€ |
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1. Sales |
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14.809.282 |
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14.690.751 |
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2. Other operating income |
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423.713 |
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428.671 |
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3. Cost of materials |
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a) Cost of supplies |
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-10.716.468 |
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-10.989.629 |
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b) Cost of purchased services |
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-26.154 |
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-181 |
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4. Personnel expenses |
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a) Wages and salaries |
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-1.824.406 |
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-1.758.172 |
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b) Social security, pension and other benefit costs |
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-337.015 |
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-345.759 |
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5. Depreciation |
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-45.316 |
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-50.636 |
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6. Other operating expenses |
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-1.290.921 |
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-1.147.658 |
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7. Interest and similar expenses |
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-35.530 |
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-28.200 |
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8. Taxes on income |
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-263.244 |
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-222.266 |
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9. Other taxes |
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-2.470 |
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-2.840 |
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10. Net income |
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691.471 |
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574.081 |
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11. Net income from prior years |
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1.563.860 |
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1.189.779 |
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12. Profit distributions |
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-250.000 |
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-200.000 |
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13. Retained earnings |
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2.005.331 |
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1.563.860 |
I. General disclosures to the financial statements
The financial statements as of 31 December 2017 and 2016 were prepared in accordance with the regulations of the German Commercial Code (HGB) and the Limited Liability Company Act (GmbHG).
In 2017 and 2016 the company is a small-sized corporation in accordance with § 267 HGB and exercises the exemptions for small-sized corporations as stipulated in § 288 HGB.
The Company's financial year corresponds to the calendar year.
II. Disclosures to the accounting and valuation methods
a. General disclosures
The financial statements have been prepared subject to the general statement regulations set out in sections 246-251 HGB and also subject to the special statement regulations for corporations, sections 268-274a, 276-278, and subject to the general valuation regulations of sections 252-256 HGB.
The classification of the balance sheet and the income statement was made in accordance to §§ 266, 275 HGB and § 42 GmbHG. The income statement was prepared in accordance with the total cost method. The financial statements were prepared under the assumption of going concern in accordance with § 252 sec. 1 no. 2 HGB.
6
The accounting and valuation methods have remained unchanged compared to the previous year, except where new knowledge required a diverging valuation.
b. Disclosures to individual balance sheet items
Intangible assets acquired in return for payment are recognized at cost and are subject to straight-line amortization over the course of their expected useful lives of 3 to 5 years.
Tangible assets are recognized at cost, less accumulated depreciation and are depreciated on a straight-line basis according to their expected useful lives of 3 to 13 years.
Low-cost assets with an individual acquisition cost of up to EUR 410 are depreciated immediately. It is assumed that they are disposed of within the fiscal year.
Inventories are recognized at acquisition or at manufacturing cost according to § 255 sec. 2 HGB. Appropriate valuation allowances were made for inventory risks resulting from the duration of storage and marketability.
Receivables and other assets are stated at their nominal value or fair value. Appropriate individual value adjustments were made for recognizable risks. The general credit risk inherent in trade receivables is covered by a general allowance taken on the net receivables that have not been individually adjusted for specific circumstances already.
Cash in hand and bank balances are recognized at nominal value.
The Company‘s subscribed capital amounts to EUR 30.000 and remains unchanged compared to the previous year.
Provisions consider all identifiable contingent liabilities and are set up in the amount necessary for repayment in accordance with reasonable commercial judgment. Provisions due after more than one year are discounted at average market interest rate (published by the Federal Bank of Germany) in accordance with their residual term. In particular, other provisions take into account obligations from warranties and royalties.
Liabilities are recognized with the amount repayable.
Assets and liabilities denominated in foreign currencies are translated at the mean spot exchange rate prevailing on the balance sheet date following the principles of § 256a HGB.
III. Further comments on the balance sheet
Other assets contain items with a remaining term of more than one year in the amount of EUR 22.445 (prior year: EUR 35.087). All other receivables and other assets fall due within one year.
The balance sheet profit includes retained earnings in the amount of EUR 1.313.860.
Liabilities with a remaining term of up to one year amount to EUR 1.311.007 (prior year: EUR 482.976), while liabilities with a remaining term of more than one year and up to five years amount to EUR 666.937 (prior year: EUR: 391.321).
7
Other financial obligations in the amount of EUR 150.967 result from the rental contract for the office and storage units in Gröbenzell and from software updates.
Currency forwards were used for hedging foreign currency risks. Arising losses as of balance sheet date will be shown on the balance sheet.
IV. Other mandatory disclosures
In the financial year the company had an average of 25 employees.
The company is legally represented by:
Mrs. Claudia Bressner, Managing Director (till 3 April 2017)
Mr. Josef Bressner, Managing Director
Mr. Martin Stiborski, Managing Director
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Gröbenzell, 12 October 2018 |
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Josef Bressner |
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Martin Stiborski |
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Assets |
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German GAAP |
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Reconciliation |
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US-GAAP |
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Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Current assets |
|
|
|
|
|
|
|
|
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Cash and cash equivalents |
|
249.673 |
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- |
|
249.673 |
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|
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Accounts receivables |
|
1.851.564 |
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8.601 |
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1.860.165 |
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A |
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Inventories |
|
2.762.944 |
|
-86.025 |
|
2.676.919 |
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B |
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Prepaid expenses and other assets |
|
65.222 |
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194.967 |
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260.189 |
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B |
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|
|
|
|
|
|
|
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Total current assets |
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4.929.403 |
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117.543 |
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5.046.946 |
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Property, plant and equipment, net |
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122.118 |
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- |
|
122.118 |
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|
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Internally developed software |
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- |
|
138.160 |
|
138.160 |
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C |
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Other intangible assets, net |
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108.942 |
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-108.942 |
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- |
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B |
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Total assets |
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5.160.463 |
|
146.761 |
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5.307.224 |
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8
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Liabilities |
|
|
|
|
|
|
|
|
|
|
|
German GAAP |
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Reconciliation |
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US-GAAP |
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Note |
|
|
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€ |
|
€ |
|
€ |
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
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Accounts payable |
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31.965 |
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- |
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31.965 |
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|
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Accrued expenses and other liabilities |
|
277.751 |
|
27.195 |
|
304.946 |
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D |
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Tax and other provisions |
|
605.762 |
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- |
|
605.762 |
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|
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Current portion of long-term debt |
|
201.292 |
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- |
|
201.292 |
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|
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Total current liabilities |
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1.116.770 |
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27.195 |
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1.143.965 |
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|
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Long-term debt |
|
1.466.937 |
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- |
|
1.466.937 |
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|
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Deferred tax liability |
|
- |
|
36.940 |
|
36.940 |
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E |
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Stockholders’ equity: |
|
|
|
|
|
|
|
|
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Common stock |
|
30.000 |
|
- |
|
30.000 |
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|
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Additional paid in capital |
|
56.425 |
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- |
|
56.425 |
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|
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Retained earnings |
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2.490.331 |
|
82.626 |
|
2.572.957 |
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F |
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Total stockholders’ equity |
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2.576.756 |
|
82.626 |
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2.659.382 |
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Total liabilities and stockholders’ equity |
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5.160.463 |
|
146.761 |
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5.307.224 |
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9
10
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Assets |
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|
|
|
|
|
|
|
|
|
|
German GAAP |
|
Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
179.551 |
|
- |
|
179.551 |
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|
|
Accounts receivables |
|
2.012.780 |
|
9.356 |
|
2.022.136 |
|
A |
|
Inventories |
|
1.416.027 |
|
-99.408 |
|
1.316.619 |
|
B |
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Prepaid expenses and other assets |
|
83.580 |
|
203.911 |
|
287.491 |
|
B |
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Total current assets |
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3.691,938 |
|
113.859 |
|
3.805.797 |
|
|
|
Property, plant and equipment, net |
|
138.042 |
|
- |
|
138.042 |
|
|
|
Internally developed software |
|
- |
|
165.792 |
|
165.792 |
|
C |
|
Other intangible assets, net |
|
48.990 |
|
-48.990 |
|
- |
|
B |
|
Total assets |
|
3.878.970 |
|
230.661 |
|
4.109.631 |
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
German GAAP |
|
Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
132.350 |
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- |
|
132.350 |
|
|
|
Accrued expenses and other liabilities |
|
304.445 |
|
98.720 |
|
403.165 |
|
D |
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Tax and other provisions |
|
869.389 |
|
-88.381 |
|
781.008 |
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D |
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Current portion of long-term debt |
|
46.180 |
|
- |
|
46.180 |
|
|
|
Total current liabilities |
|
1.352.364 |
|
10.339 |
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1.362.703 |
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Long-term debt |
|
391.321 |
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- |
|
391.321 |
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|
|
Deferred tax liability |
|
- |
|
66.782 |
|
66.782 |
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E |
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Stockholders’ equity: |
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|
|
|
|
|
|
|
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Common stock |
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30.000 |
|
- |
|
30.000 |
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|
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Additional paid-in capital |
|
56.425 |
|
- |
|
56.425 |
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|
|
Retained earnings |
|
2.048.860 |
|
153.540 |
|
2.202.400 |
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F |
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Total stockholders’ equity |
|
2.135.285 |
|
153.540 |
|
2.288.825 |
|
|
|
Total liabilities and stockholders’ equity |
|
3.878.970 |
|
230.661 |
|
4.109.631 |
|
|
11
12
|
|
|
German GAAP |
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Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Net revenue |
|
14.809.282 |
|
- |
|
14.809.282 |
|
|
|
Cost of Sales |
|
-11.206.542 |
|
-27.632 |
|
-11.234.174 |
|
A |
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Gross profit |
|
3.602.740 |
|
-27.632 |
|
3.575.108 |
|
|
|
Selling and marketing |
|
-1.343.822 |
|
|
|
-1.343.822 |
|
B |
|
General expenses |
|
-1.365.081 |
|
-755 |
|
1.365.836 |
|
|
|
Research and development expenses |
|
-280.831 |
|
- |
|
-280.831 |
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
Other income |
|
377.239 |
|
-72.368 |
|
304.871 |
|
C |
|
Interest expenses |
|
-35.530 |
|
- |
|
-35.530 |
|
|
|
Income before provisions for income taxes |
|
954.715 |
|
-100.755 |
|
853.960 |
|
|
|
Income taxes |
|
-263.244 |
|
29.841 |
|
-233.403 |
|
D |
|
Net income |
|
691.471 |
|
-70.914 |
|
620.557 |
|
|
|
General Note: |
|
The profit and loss accounting under German GAAP follows the total cost accounting method, whereas US-GAAP requires the cost of sales method. The classification of the profit and loss statement under German GAAP as shown in the financial statements has been adjusted to the cost of sales method for the purpose of this reconciliation. |
|
|
|
Note A: |
|
|
|
The difference is due to depreciation of the internally developed software. |
|
|
|
Note B: |
|
|
|
The amount of € 755 reflects the correction of bad debt expenses during the year. |
|
|
|
Note C: |
|
|
|
The differences rise from unrealized gains and losses on forward exchange contracts, which are not realized under German GAAP but recognized through profit and loss under U.S. GAAP. |
|
|
|
Note D: |
|
|
|
The amount of € 29.841 reflects the income statement effect of the change in deferred taxes of the year. |
13
|
|
|
German GAAP |
|
Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
|
|
|
|
€ |
|
|
|
Net revenue |
|
14.690.751 |
|
- |
|
14.690.751 |
|
|
|
Cost of Sales |
|
-11.453.116 |
|
-27.632 |
|
-11.480.748 |
|
A |
|
Gross profit |
|
3.237.635 |
|
-27.632 |
|
3.210.003 |
|
|
|
Selling and marketing |
|
-2.546.537 |
|
5.035 |
|
-2.541.502 |
|
B |
|
General expenses |
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
-273.197 |
|
- |
|
-273.197 |
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
Other income |
|
406.646 |
|
45.174 |
|
451.820 |
|
C |
|
Interest expenses |
|
-28.200 |
|
- |
|
-28.200 |
|
|
|
Income before provisions for income taxes |
|
796.347 |
|
22.577 |
|
818.924 |
|
|
|
Income taxes |
|
-222.266 |
|
1.181 |
|
-221.085 |
|
D |
|
Net income |
|
574.081 |
|
23.758 |
|
597.839 |
|
|
|
General Note: |
|
|
|
The profit and loss statement under German GAAP follows the total cost accounting method, whereas US-GAAP requires the cost of sales method. The classification of the profit and loss statement under German GAAP as shown in the financial statements has been adjusted to the cost of sales method for the purpose of this reconciliation. |
|
|
|
Note A: |
|
|
|
The difference is due to depreciation of the internally developed software. |
|
|
|
Note B: |
|
|
|
The amount of € 5.035 reflects the correction of bad debt expenses during the year. |
|
|
|
Note C: |
|
|
|
The differences rise from unrealized gains and losses on forward exchange contracts, which are not realized under German GAAP but recognized through profit and loss under U.S. GAAP. |
|
|
|
Note D: |
|
|
|
The amount of € 1.181 reflects the income statement effect of the change in deferred taxes of the year. |
14
|
|
|
31.12.2017 |
|
31.12.2016 |
|
|
|
€ |
|
€ |
|
Cash flows from operating activities: |
|
|
|
|
|
Net income |
|
620.557 |
|
597.839 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
72.948 |
|
78.268 |
|
Provisions for bad debts |
|
20.194 |
|
-12.049 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
Decrease / (Increase) in accounts receivables and other assets |
|
176.864 |
|
-1.202.209 |
|
(Increase) / Decrease in inventories |
|
-1.360.299 |
|
1.095.316 |
|
(Increase) in prepaid expenses and other expenses |
|
-7.785 |
|
-120.122 |
|
(Decrease) in accounts payables |
|
-100.386 |
|
-436.631 |
|
(Decrease) / Increase in accrued expenses and other liabilities |
|
-98.220 |
|
192.349 |
|
(Decrease) / Increase in deferred tax |
|
-29.841 |
|
1.181 |
|
(Decrease) / Increase in tax and other provisions |
|
-175.246 |
|
71.775 |
|
Net cash (used in) provided by operating activities: |
|
-881.214 |
|
265.717 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Purchase of property and equipment |
|
-29.391 |
|
-19.348 |
|
Net cash used in investing activities: |
|
-29.391 |
|
-19.348 |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Proceeds from bank loans |
|
1.355.111 |
|
250.000 |
|
Repayment of bank loans |
|
-124.384 |
|
-473.042 |
|
Dividends paid |
|
-250.000 |
|
-200.000 |
|
Net cash provided by (used in) financing activities: |
|
980.727 |
|
-423.042 |
|
|
|
|
|
|
|
Net change in cash |
|
70.122 |
|
-176.673 |
|
Cash at the beginning period |
|
179.551 |
|
356.224 |
|
Cash at the end of the period |
|
249.673 |
|
179.551 |
Note:
The cash flow statement is not required for German GAAP. The cash flow activities are prepared on US GAAP figures.
|
|
|
Common Stock |
|
Additional paid-in capital |
|
Retained Earnings |
|
Stockholders' Equity |
|
|
|
€ |
|
€ |
|
€ |
|
€ |
|
Balance December 31, 2015 |
|
30.000 |
|
56.425 |
|
1.804.561 |
|
1.890.986 |
|
Stockholder distributions |
|
- |
|
- |
|
-200.000 |
|
-200.000 |
|
Net Income |
|
- |
|
- |
|
597.839 |
|
597.839 |
|
Balance, December 31, 2016 |
|
30.000 |
|
56.425 |
|
2.202.400 |
|
2.288.825 |
|
Stockholder distributions |
|
- |
|
- |
|
-250.000 |
|
-250.000 |
|
Net income |
|
- |
|
- |
|
620.557 |
|
620.557 |
|
Balance, December 31, 2017 |
|
30.000 |
|
56.425 |
|
2.572.957 |
|
2.659.382 |
The Statement of Stockholders’ Equity is not required for German GAAP. The statement activities are prepared on U.S. GAAP figures.
15
Exhibit 99.2
Bressner Technology GmbH
FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANT’S REVIEW REPORT
AS OF SEPTEMBER 30, 2018 AND FOR THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 2018 AND 2017
Table of Contents
2
INDEPENDENT ACCOUNTANT’S REVIEW REPORT
One Stop Systems, Inc.
2235 Enterprise Street #110
Escondido, CA 92029
United States of America
Bressner Technology GmbH
Industriestr. 51
82194 Gröbenzell
Germany
We have reviewed the accompanying financial statements of Bressner Technology GmbH (the “Company”) which comprise the balance sheet as of September 30, 2018, and the related statements of income for the nine month periods ended September 30, 2018 and 2017, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements, which, as described in Note 4 to the financial statements, have been prepared in accordance with accounting principles generally accepted in the Federal Republic of Germany; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.
Accountant’s Responsibility
Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the Federal Republic of Germany. We believe that the results of our procedures provide a reasonable basis for our conclusion.
Accountant’s Conclusion
3
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the Federal Republic of Germany.
Emphasis of Matter – Basis of Accounting
We draw attention to Note 4 of the financial statements, which describes the basis of accounting. The financial statements are prepared in accordance with accounting principles generally accepted in the Federal Republic of Germany (“Local GAAP”), which is a basis of accounting other than accounting principles generally accepted in the United States of America (“US GAAP”). Therefore, we draw attention to Notes 5-10, which reconcile the results for the periods from Local GAAP to US GAAP, due to differences that exist between the two. Our conclusion is not modified with respect to this matter.
Emphasis of Matter – Acquisition of the Company
On October 31, 2018, the Company was acquired by One Stop Systems, Inc., a publicly-traded company.
Munich/Germany, 13 December 2018
BDO AG
Wirtschaftsprüfungsgesellschaft
|
/s/ Uwe Braunschläger |
|
/s/ Frank Werner |
|
|
Uwe Braunschläger |
|
Frank Werner |
|
|
Wirtschaftsprüfer, CPA |
|
Wirtschaftsprüfer |
|
|
(German Public Auditor) |
|
(German Public Auditor) |
|
4
5
|
|
|
30.09.2018 |
|
30.09.2017 |
|
|
|
€ |
|
€ |
|
1. Sales |
|
10.155.600 |
|
10.748.276 |
|
2. Other operating income |
|
220.771 |
|
394.896 |
|
3. Cost of materials |
|
|
|
|
|
a) Cost of supplies |
|
-7.232.997 |
|
-7.905.727 |
|
b) Cost of purchased services |
|
- |
|
-3.674 |
|
4. Personnel expenses |
|
|
|
|
|
a) Wages and salaries |
|
-1.478.921 |
|
-1.398.415 |
|
b) Social security, pension and other benefit costs |
|
-249.236 |
|
-255.127 |
|
5. Depreciation |
|
-50.972 |
|
-34.332 |
|
6. Other operating expenses |
|
-784.727 |
|
-1.026.046 |
|
7. Interest income |
|
15 |
|
- |
|
8. Interest and similar expenses |
|
-14.957 |
|
-22.683 |
|
9. Taxes on income |
|
-157.172 |
|
-136.648 |
|
10. Other taxes |
|
-4.027 |
|
-1.122 |
|
11. Net income |
|
403.377 |
|
359.398 |
|
12. Net income from prior years |
|
2.005.331 |
|
1.563.859 |
|
13. Profit distributions |
|
- |
|
-250.000 |
|
14. Retained earnings |
|
2.408.708 |
|
1.673.257 |
6
I. General disclosures to the financial statements
The financial statements as of 30 September 2018 and for the nine month periods ended 30 September 2018 and 2017 were prepared in accordance with the regulations of the German Commercial Code (HGB) and the Limited Liability Company Act (GmbHG).
In 2018 and 2017 the company is a small-sized corporation in accordance with § 267 HGB and exercises the exemptions for small-sized corporations as stipulated in § 288 HGB.
The Company's financial year corresponds to the calendar year. The reporting period for the review is from January 1 to September 30.
II. Disclosures to the accounting and valuation methods
a. General disclosures
The financial statements have been prepared subject to the general statement regulations set out in sections 246-251 HGB and also subject to the special statement regulations for corporations, sections 268-274a, 276-278, and subject to the general valuation regulations of sections 252-256 HGB.
The classification of the balance sheet and the income statement was made in accordance to §§ 266, 275 HGB and § 42 GmbHG. The income statement was prepared in accordance with the total cost method. The financial statements were prepared under the assumption of going concern in accordance with § 252 sec. 1 no. 2 HGB.
The accounting and valuation methods have been retained unchanged compared to the previous year, except where new knowledge required a diverging valuation.
b. Disclosures to individual balance sheet items
Intangible assets acquired in return for payment are recognized at cost and are subject to straight-line amortization over the course of their expected useful lives of 3 to 5 years.
Tangible assets are recognized at cost, less accumulated depreciation and are depreciated on a straight-line basis according to their expected useful lives of 3 to 13 years.
Low-cost assets with an individual acquisition cost of up to EUR 410 are depreciated immediately. It is assumed that they are disposed of within the fiscal year.
Inventories are recognized at acquisition or at manufacturing cost according to § 255 sec. 2 HGB. Appropriate valuation allowances were made for inventory risks resulting from the duration of storage and marketability.
7
Receivables and other assets are stated at their nominal value or present value. Appropriate individual value adjustments were made for recognizable risks. The general credit risk inherent in trade receivables is covered by a general allowance taken on the net receivables that have not been individually adjusted for specific circumstances already.
Cash in hand and bank balances are recognized at nominal value.
The Company‘s subscribed capital amounts to EUR 30.000 and remains unchanged compared to the previous year.
Provisions consider all identifiable contingent liabilities and are set up in the amount necessary for repayment in accordance with reasonable commercial judgment. Provisions due after more than one year are discounted at average market interest rates (published by the Federal Bank of Germany) in accordance with their residual term. In particular, other provisions take into account obligations from warranties and royalties.
Liabilities are recognized with the amount repayable.
Assets and liabilities denominated in foreign currencies are translated at the mean spot exchange rate prevailing on the balance sheet date following the principles of § 256a HGB.
III. Further comments on the balance sheet
Other assets contain items with a remaining term of more than one year in the amount of EUR 0 (prior year: EUR 22.604). All other receivables and other assets fall due within one year.
The balance sheet profit includes retained earnings in the amount of EUR 2.005.331.
Liabilities with a remaining term of up to one year amount to EUR 1.935.126 (prior year: EUR 2.660.629) while liabilities with a remaining term of more than one year and up to five years amount to EUR 173.650 (prior year: EUR: 298.033).
Other financial obligations in the amount of EUR 150.967 result from the rental contract for the office and storage units in Gröbenzell and from software updates.
Currency forwards were used for hedging foreign currency risks. Arising losses as of balance sheet date will be shown on the balance sheet.
IV. Other mandatory disclosures
In the financial year the company had an average of 24 employees.
The company is legally represented by:
Mr. Josef Bressner, Managing Director
Mr. Martin Stiborski, Managing Director
Gröbenzell, 13 December 2018
|
Josef Bressner |
|
Martin Stiborski |
8
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
German GAAP |
|
Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
96.761 |
|
- |
|
96.761 |
|
|
|
Accounts receivables, net |
|
1.667.128 |
|
7.741 |
|
1.674.869 |
|
A |
|
Inventories, net |
|
3.543.792 |
|
- |
|
3.543.792 |
|
|
|
Prepaid expenses and other assets |
|
293.241 |
|
9.836 |
|
303.077 |
|
B |
|
Total current assets |
|
5.600.922 |
|
17.577 |
|
5.618.499 |
|
|
|
Property, plant and equipment, net |
|
90.950 |
|
- |
|
90.950 |
|
|
|
Internally developed software |
|
- |
|
117.436 |
|
117.436 |
|
C |
|
Other intangible assets, net |
|
149.399 |
|
- |
|
149.399 |
|
|
|
Total assets |
|
5.841.271 |
|
135.013 |
|
5.976.284 |
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
German GAAP |
|
Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
754.692 |
|
- |
|
754.692 |
|
|
|
Accrued expenses and other liabilities |
|
68.025 |
|
- |
|
68.025 |
|
|
|
Tax and other provisions |
|
592.077 |
|
- |
|
592.077 |
|
|
|
Current portion of long-term debt |
|
147.694 |
|
- |
|
147.694 |
|
|
|
Total current liabilities |
|
1.562.488 |
|
|
|
1.562.488 |
|
|
|
Long-term debt |
|
1.298.650 |
|
- |
|
1.298.650 |
|
|
|
Deferred tax liability |
|
- |
|
41.400 |
|
41.400 |
|
D |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common stock |
|
30.000 |
|
- |
|
30.000 |
|
|
|
Additional paid-in capital |
|
56.425 |
|
- |
|
56.425 |
|
|
|
Retained earnings |
|
2.893.708 |
|
93.613 |
|
2.987.321 |
|
E |
|
Total stockholders’ equity |
|
2.980.133 |
|
93.613 |
|
3.073.746 |
|
|
|
Total liabilities and stockholders’ equity |
|
5.841.271 |
|
135.013 |
|
5.976.284 |
|
|
9
Note E:
Difference is due to accumulated result of reconciliation adjustments impacting the Statements of Income.
10
|
|
6. |
German GAAP / US-GAAP reconciliation of the income statement for the nine months ended September 30, 2018 (unaudited) |
|
|
|
German GAAP |
|
Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Net revenue |
|
10.155.600 |
|
– |
|
10.155.600 |
|
|
|
Cost of sales |
|
(7.633.871) |
|
(20.724) |
|
(7.654.595) |
|
A |
|
Gross profit |
|
2.521.729 |
|
(20.724) |
|
2.501.005 |
|
|
|
Selling and marketing |
|
(999,407) |
|
|
|
(999,407) |
|
|
|
Administrative expenses |
|
(913,792) |
|
27.194 |
|
(886,598) |
|
B |
|
Research and development expenses |
|
(223.903) |
|
– |
|
(223.903) |
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
Other income |
|
190.865 |
|
8.976 |
|
199.841 |
|
C |
|
Interest expenses (income) |
|
(14.943) |
|
– |
|
(14.943) |
|
|
|
Income before provisions for income taxes |
|
560.549 |
|
15.446 |
|
575.995 |
|
|
|
Income taxes |
|
(157.172) |
|
(4.459) |
|
(161.631) |
|
D |
|
Net income |
|
403.377 |
|
10.987 |
|
414.364 |
|
|
|
General Note: |
|
|
|
|
|
|
|
|
|
|
|
The profit and loss statement under German GAAP follows the total cost accounting method, whereas US-GAAP requires the cost of sales method. The classification of the profit and loss statement under German GAAP as shown in the financial statements has been adjusted to the cost of sales method for the purpose of this reconciliation. |
||||
|
|
|
|
|
|
|
Note A: |
|
|
|
|
|
|
|
|
|
|
|
The difference is due to depreciation of the internally developed software. |
|
|
|
|
|
|
|
|
|
|
|
Note B: |
|
|
|
|
|
|
|
|
|
|
|
The differences arise from unrealized gains and losses on forward exchange contracts, which are not realized under German GAAP but recognized through profit and loss under US-GAAP. |
||||
|
|
|
|
|
|
|
Note C: |
|
|
|
|
|
|
|
|
|
|
|
The amount of € 8.976 reflects the adjustment of bad debt expenses during the year. |
|
|
|
|
|
|
|
|
|
|
|
Note D: |
|
|
|
|
|
|
|
|
|
|
|
The amount of € 4.459 reflects the income statement effect of the change in deferred taxes of the year. |
||||
11
|
|
7. |
German GAAP / US-GAAP reconciliation of the income statement for the nine months ended September 30, 2017 (unaudited) |
|
|
|
German GAAP |
|
Reconciliation |
|
US-GAAP |
|
Note |
|
|
|
€ |
|
€ |
|
€ |
|
|
|
Net revenue |
|
10.748.276 |
|
— |
|
10.748.276 |
|
|
|
Cost of sales |
|
(8.269.616) |
|
(20.724) |
|
(8.290.340) |
|
A |
|
Gross profit |
|
2.478.660 |
|
(20.724) |
|
2.457.936 |
|
|
|
Selling and marketing |
|
(1,019,872) |
|
|
|
(1,019,872) |
|
|
|
Administrative expenses |
|
(1,084,111) |
|
(65.234) |
|
(1,149,345) |
|
B |
|
Research and development expenses |
|
(220.417) |
|
— |
|
(220.417) |
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
Other income |
|
364.469 |
|
(1.127) |
|
363.342 |
|
C |
|
Interest expenses |
|
(22.683) |
|
— |
|
(22.683) |
|
|
|
Income before provisions for income taxes |
|
496.046 |
|
(87.085) |
|
408.961 |
|
|
|
Income taxes |
|
(136.648) |
|
25.820 |
|
(110.828) |
|
D |
|
Net income |
|
359.398 |
|
(61.265) |
|
298.133 |
|
|
|
General Note: |
|
|
|
|
|
|
|
|
|
The profit and loss statement under German GAAP follows the total cost accounting method, whereas US-GAAP requires the cost of sales method. The classification of the profit and loss statement under German GAAP as shown in the financial statements has been adjusted to the cost of sales method for the purpose of this reconciliation. |
|||
|
|
|
|
|
|
Note A: |
|
|
|
|
|
|
|
|
|
The difference is due to depreciation of the internally developed software. |
|
|
|
|
|
|
|
|
|
Note B: |
|
|
|
|
|
|
|
|
|
The differences arise from unrealized gains and losses on forward exchange contracts, which are not realized under German GAAP but recognized through profit and loss under US-GAAP. |
|
|
|
|
|
|
|
|
|
Note C: |
|
|
|
|
|
|
|
|
|
The amount of € 1.127 reflects the adjustment of bad debt expenses during the year. The remaining difference arise from the forward exchange contracts. |
|||
|
|
|
|
|
|
Note D: |
|
|
|
|
|
|
|
|
|
The amount of € 25.820 reflects the income statement effect of the change in deferred taxes of the year. |
|||
12
|
|
|
01.01.2018 - 30.09.2018 |
|
Cash flows from operating activities: |
|
€ |
|
Net income |
|
414.364 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
Depreciation and amortization |
|
71.696 |
|
Provisions for bad debts |
|
11.308 |
|
Changes in operating assets and liabilities: |
|
|
|
Increase / Decrease in accounts receivables and other assets |
|
196.433 |
|
Increase / Decrease in inventories |
|
-866.874 |
|
Increase / Decrease in prepaid expenses and other expenses |
|
-65.331 |
|
Increase / Decrease in accounts payables |
|
722.727 |
|
Increase / Decrease in accrued expenses and other liabilities |
|
-236.919 |
|
Increase / Decrease in deferred tax |
|
4.459 |
|
Increase / Decrease in tax and other provisions |
|
-13.685 |
|
Net cash provided by operating activities: |
|
238.178 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
Purchase of property and equipment, intangible assets |
|
-169.204 |
|
Net cash used in investing activities: |
|
-169.204 |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
Repayment of bank loan |
|
-221.886 |
|
Net cash used in financing activities: |
|
-221.886 |
|
|
|
|
|
Net change in cash |
|
-152.912 |
|
Cash at the beginning period |
|
249.673 |
|
Cash at the end of the period: |
|
96.761 |
Note:
The cash flow statement is not required for German GAAP. The cash flow activities are prepared on US GAAP figures.
13
|
|
|
01.01.2017 - 30.09.2017 |
|
Cash flows from operating activities: |
|
€ |
|
Net income |
|
298.133 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
Depreciation and amortization |
|
55.056 |
|
Provisions for bad debts |
|
32.516 |
|
Changes in operating assets and liabilities: |
|
|
|
Increase / Decrease in accounts receivables and other assets |
|
224.644 |
|
Increase / Decrease in inventories |
|
-2.536.672 |
|
Increase / Decrease in prepaid expenses and other expenses |
|
95.587 |
|
Increase / Decrease in accounts payables |
|
734.231 |
|
Increase / Decrease in accrued expenses and other liabilities |
|
-178.339 |
|
Increase / Decrease in deferred tax |
|
-25.820 |
|
Increase / Decrease in tax and other provisions |
|
412.052 |
|
Net cash used in operating activities: |
|
-888.612 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
Purchase of property and equipment |
|
-15.676 |
|
Net cash used in investing activities: |
|
-15.676 |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
Proceeds from bank loans |
|
1.200.000 |
|
Repayment of bank loan |
|
-139.469 |
|
Dividends paid |
|
-250.000 |
|
Net cash provided by financing activities: |
|
810.531 |
|
|
|
|
|
Net change in cash |
|
-93.757 |
|
Cash at the beginning period |
|
179.551 |
|
Cash at the end of the period: |
|
85.794 |
Note:
The cash flow statement is not required for German GAAP. The cash flow activities are prepared on US GAAP figures.
|
|
|
Common Stock € |
|
Additional paid-in capital € |
|
Retained earnings € |
|
Stockholders' Equity € |
|
Balance, January 1, 2018 |
|
30.000 |
|
56.425 |
|
2.572.957 |
|
2.659.382 |
|
Stockholder distributions |
|
– |
|
– |
|
– |
|
– |
|
Net income |
|
– |
|
– |
|
414.364 |
|
414.364 |
|
Balance, September 30, 2018 |
|
30.000 |
|
56.425 |
|
2.987.321 |
|
3.073.746 |
The Statement of Stockholders’ Equity is not required for German GAAP. The statement activities are prepared on US GAAP figures .
14
Exhibit 99.3
One Stop Systems, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements give effect to the acquisition by One Stop Systems, GmbH (“OSS-GmbH”), of Bressner Technology GmbH, (“Bressner”) following the execution on October 31, 2018, of a Share Purchase Agreement (the “Agreement”) with Josef and Claudia Bressner pursuant to which Bressner was acquired by OSS-GmbH and Bressner became a wholly-owned subsidiary (the “Acquisition”). As consideration for the Acquisition, OSS-GmbH paid €4,725,000 (US$5,362,875), excluding a potential working capital adjustment, in cash and issued 106,463 of newly issued restricted shares of OSS common stock, $0.0001 par value (the “Shares”). The Acquisition closed on October 31, 2018.
The unaudited pro forma condensed consolidated financial statements are based upon the estimates and assumptions set forth herein. The unaudited pro forma information has been prepared utilizing the historical financial statements and notes thereto, for which OSS and Bressner are included herein. The unaudited pro forma financial data does not purport to be indicative of the results which actually would have been obtained had the purchase been affected on the dates indicated or of the results which may be obtained in the future. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical financial statements of OSS and the historical financial statements of Bressner included herein. The pro forma adjustments are based on estimates, available information and certain assumptions and may be revised as additional information becomes available. The unaudited pro forma condensed consolidated balance sheet gives effect to the Acquisition as if it had occurred on September 30, 2018. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2017, and for the nine month period ended September 30, 2018, give effect to the Acquisition as if it had occurred on January 1, 2017.
Unaudited Pro Forma Condensed Consolidated Balance Sheets
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
|
|
|
For The Nine Month Period ended September 30, 2018 |
|
||||||||||||||
|
|
|
OSS |
|
|
Bressner |
|
|
Pro Forma Adjustments |
|
Ref. |
|
Combined Pro Forma |
|
||||
|
Net revenue |
|
$ |
22,645,715 |
|
|
$ |
12,131,576 |
|
|
$ |
- |
|
|
|
$ |
34,777,291 |
|
|
Cost of revenue |
|
|
15,622,557 |
|
|
|
9,143,950 |
|
|
|
- |
|
|
|
|
24,766,507 |
|
|
Gross margin |
|
|
7,023,158 |
|
|
|
2,987,626 |
|
|
|
- |
|
|
|
|
10,010,784 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
3,729,530 |
|
|
|
1,059,103 |
|
|
|
35,767 |
|
(e) |
|
|
4,824,400 |
|
|
Marketing and selling |
|
|
2,567,984 |
|
|
|
1,193,862 |
|
|
|
- |
|
|
|
|
3,761,846 |
|
|
Research and development |
|
|
2,826,149 |
|
|
|
267,468 |
|
|
|
- |
|
|
|
|
3,093,617 |
|
|
Total operating expenses |
|
|
9,123,663 |
|
|
|
2,520,433 |
|
|
|
35,767 |
|
|
|
|
11,679,863 |
|
|
(Loss) income from operations |
|
|
(2,100,505 |
) |
|
|
467,193 |
|
|
|
(35,767 |
) |
|
|
|
(1,669,079 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Interest expense |
|
|
(55,821 |
) |
|
|
(17,850 |
) |
|
|
- |
|
|
|
|
(73,671 |
) |
|
Other, net |
|
|
96,520 |
|
|
|
238,724 |
|
|
|
- |
|
|
|
|
335,244 |
|
|
Total other income (expense), net |
|
|
40,699 |
|
|
|
220,874 |
|
|
|
- |
|
|
|
|
261,573 |
|
|
(Loss) income before provision for income taxes |
|
|
(2,059,806 |
) |
|
|
688,067 |
|
|
|
(35,767 |
) |
|
|
|
(1,407,506 |
) |
|
Provision (benefit) for income taxes |
|
|
(674,809 |
) |
|
|
193,080 |
|
|
|
(4,734 |
) |
(g) |
|
|
(486,463 |
) |
|
Net (loss) income |
|
$ |
(1,384,997 |
) |
|
$ |
494,987 |
|
|
$ |
(31,033 |
) |
|
|
$ |
(921,043 |
) |
|
Net loss attributable to noncontrolling interest |
|
$ |
(369,047 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
(369,047 |
) |
|
Net (loss) income attributable to common stockholders |
|
$ |
(1,015,950 |
) |
|
$ |
494,987 |
|
|
$ |
(31,033 |
) |
|
|
$ |
(551,996 |
) |
|
Net (loss) income per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(0.05 |
) |
|
Diluted |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(0.05 |
) |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
12,052,175 |
|
|
|
|
|
|
|
106,463 |
|
|
|
|
12,158,638 |
|
|
Diluted |
|
|
12,052,175 |
|
|
|
|
|
|
|
106,463 |
|
|
|
|
12,158,638 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
|
|
|
For The Year Ended December 31, 2017 |
|
||||||||||||||
|
|
|
OSS |
|
|
Bressner |
|
|
Pro Forma Adjustments |
|
Ref. |
|
Combined Pro Forma |
|
||||
|
Net revenue |
|
$ |
27,538,333 |
|
|
$ |
16,732,104 |
|
|
$ |
- |
|
|
|
$ |
44,270,437 |
|
|
Cost of revenue |
|
|
18,873,797 |
|
|
|
12,692,807 |
|
|
|
- |
|
|
|
|
31,566,604 |
|
|
Gross margin |
|
|
8,664,536 |
|
|
|
4,039,297 |
|
|
|
- |
|
|
|
|
12,703,833 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
General and administrative |
|
|
3,502,998 |
|
|
|
1,543,175 |
|
|
|
290,717 |
|
(f) |
|
|
5,336,890 |
|
|
Marketing and selling |
|
|
2,924,727 |
|
|
|
1,518,302 |
|
|
|
- |
|
|
|
|
4,443,029 |
|
|
Research and development |
|
|
2,687,249 |
|
|
|
317,293 |
|
|
|
- |
|
|
|
|
3,004,542 |
|
|
Total operating expenses |
|
|
9,114,974 |
|
|
|
3,378,770 |
|
|
|
290,717 |
|
|
|
|
12,784,461 |
|
|
(Loss) income from operations |
|
|
(450,438 |
) |
|
|
660,527 |
|
|
|
(290,717 |
) |
|
|
|
(80,628 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Interest expense |
|
|
(199,257 |
) |
|
|
(40,143 |
) |
|
|
- |
|
|
|
|
(239,400 |
) |
|
Other, net |
|
|
30,440 |
|
|
|
344,455 |
|
|
|
- |
|
|
|
|
374,895 |
|
|
Total other income (expense), net |
|
|
(168,817 |
) |
|
|
304,312 |
|
|
|
- |
|
|
|
|
135,495 |
|
|
(Loss) income before provision for income taxes |
|
|
(619,255 |
) |
|
|
964,839 |
|
|
|
(290,717 |
) |
|
|
|
54,867 |
|
|
(Benefit) provision for income taxes |
|
|
(402,717 |
) |
|
|
263,708 |
|
|
|
(79,366 |
) |
(g) |
|
|
(218,375 |
) |
|
Net (loss) income |
|
$ |
(216,538 |
) |
|
$ |
701,131 |
|
|
$ |
(211,351 |
) |
|
|
$ |
273,242 |
|
|
Net loss attributable to noncontrolling interest |
|
$ |
(313,158 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
(313,158 |
) |
|
Net (loss) income attributable to common stockholders |
|
$ |
96,620 |
|
|
$ |
701,131 |
|
|
$ |
(211,351 |
) |
|
|
$ |
586,400 |
|
|
Net (loss) income per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
$ |
0.09 |
|
|
Diluted |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
$ |
0.05 |
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
5,449,413 |
|
|
|
|
|
|
|
1,266,364 |
|
|
|
|
6,715,777 |
|
|
Diluted |
|
|
10,689,047 |
|
|
|
|
|
|
|
1,266,364 |
|
|
|
|
11,955,411 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1- Basis of presentation
The historical consolidated financial statements have been adjusted in the pro forma condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations . As the acquirer for accounting purposes, the Company has estimated the fair value of Bressner Technology GmbH’s assets acquired and liabilities assumed and conformed the accounting policies of Bressner to its own accounting policies.
The pro forma consolidated financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The consolidated pro forma financial information does not reflect the realization of any expected cost savings or other synergies from the acquisition of Bressner, as a result of restructuring activities and other planned cost savings initiatives following the completion of the business combination.
Note 2 – Purchase consideration
The Company acquired Bressner for cash consideration of €4,725,000 (US$5,362,875), and 106,463 shares of newly issued restricted common shares of One Stop Systems, Inc. with a fair value of $228,779 on the date of acquisition, less an estimated working capital adjustment. Fair value of the common stock issued by One Stop Systems, Inc., was determined based upon the stock price as of October 31, 2018 of $2.47 less a discount of 13.0% for lack of marketability for two years.
Note 3 - Preliminary purchase price allocation
The Company has performed a preliminary valuation analysis of the fair value of Bressner Technology GmbH’s assets and liabilities. The following table summarizes the preliminary allocation of the purchase price as September 30, 2018.
|
Cash |
|
$ |
112,345 |
|
|
Accounts receivable |
|
|
1,944,623 |
|
|
Inventory |
|
|
4,114,555 |
|
|
Prepaid expenses and deposits |
|
|
351,891 |
|
|
Fixed assets, net |
|
|
241,949 |
|
|
Intangible assets |
|
|
173,461 |
|
|
Customer relationships |
|
|
1,215,798 |
|
|
Trade name |
|
|
329,515 |
|
|
Non-compete - Josef Bressner |
|
|
231,797 |
|
|
Accounts payable and accrued expenses |
|
|
(1,642,661 |
) |
|
Notes payable |
|
|
(1,679,292 |
) |
|
Deferred tax liability |
|
|
(48,068 |
) |
|
Total fair value excluding goodwill |
|
|
5,345,913 |
|
|
Goodwill |
|
|
212,559 |
|
|
Total allocated purchase price |
|
$ |
5,558,472 |
|
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statements of operations. The determination of fair value for the identifiable net assets acquired and the allocation of the purchase price was determined by management and considered the results of a third-party appraisal of the fair value of tangible and intangible assets as of October 31, 2018, which is the actual acquisition closing date.
Note 4 - Pro Forma adjustments
The pro forma adjustments are based on management’s assessment and a third-party appraisal’s preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
|
|
(a) |
Reflects cash paid to Josef and Claudia Bressner in the transaction of $5,362,875, less an estimated working capital adjustment and additional acquisition costs of $263,428. |
|
|
(b) |
Reflects the intangible assets acquired by the Company at their estimated fair values. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. The following table summarizes the estimated fair values of Bressner’s identifiable intangible assets and their estimated useful lives. Goodwill represents the excess of the purchase price consideration over the estimated fair value of net assets acquired. |
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense |
|
|||||
|
|
|
Estimated Fair Value |
|
|
Estimated Useful Life in Months |
|
|
Year Ended December 31, 2017 |
|
|
Nine months ended September 30, 2018 |
|
||||
|
Customer relationships |
|
$ |
1,215,798 |
|
|
|
36 |
|
|
$ |
405,266 |
|
|
$ |
303,950 |
|
|
Trade name |
|
|
329,515 |
|
|
|
36 |
|
|
|
109,838 |
|
|
|
82,379 |
|
|
Non-compete - Josef Bressner |
|
|
231,797 |
|
|
|
36 |
|
|
|
77,266 |
|
|
|
57,949 |
|
|
|
|
$ |
1,777,110 |
|
|
|
|
|
|
$ |
592,370 |
|
|
$ |
444,278 |
|
|
|
(c) |
Represents the net issuance of common shares for the acquisition and elimination of Bressner’s outstanding stock and additional paid in capital: |
|
Issuance of 106,463 shares of Company common stock at par $0.0001 |
|
$ |
11 |
|
|
Additional paid in capital |
|
|
228,768 |
|
|
|
|
$ |
228,779 |
|
|
|
(d) |
Represents the elimination of the historical Bressner retained earnings and to give effect to the impact of post September 30, 2018 acquisition costs for the acquisition, as follows: |
|
Elimination of Bressner retained earnings |
|
$ |
(3,468,459 |
) |
|
Acquisition expenses (i) |
|
|
(263,428 |
) |
|
|
|
$ |
(3,731,887 |
) |
|
|
(e) |
The adjustment for general and administrative expenses for the nine month period ended September 30, 2018 is as follows: |
|
General and administrative adjustment: |
|
|
|
|
|
Amortization expense |
|
$ |
444,278 |
|
|
Acquisition expenses (i) |
|
|
(107,848 |
) |
|
Employment agreement |
|
|
(300,663 |
) |
|
|
|
$ |
35,767 |
|
|
|
(i) |
Acquisition expense for the nine month period ended September 30, 2018 and through closing of transaction on October 31, 2018 is as follows: |
|
Acquisition expenses through September 30, 2018 |
|
$ |
107,848 |
|
|
Additional acquisition costs incurred subsequent to September 30, 2018 |
|
|
263,428 |
|
|
|
|
$ |
371,276 |
|
|
|
( f ) |
The adjustment for general and administrative expenses for the year ended December 31, 2017 is as follows: |
|
General and administrative adjustment: |
|
|
|
|
|
Amortization expense |
|
$ |
592,370 |
|
|
Employment agreements |
|
|
(301,653 |
) |
|
|
|
$ |
290,717 |
|
|
|
(ii) |
New employment contracts with the sole selling shareholder in connection with the acquisition of Bressner results in a decrease in annual compensation of $300,663 and $301,653, which is reflected in the pro forma statements of operations for the nine months ended September 30, 2018 and the year ended December 31, 2017, respectively. |
|
|
(g) |
The pro forma income tax adjustments for the nine months ended September 30, 2018 were estimated based on (i) a reduction of OSS’s operating expenses of $107,848 and an effective income tax rate of 33% and (ii) an increase of Bressner’s operating expenses of $143,615 and an effective income tax rate of 28%. |
The pro forma income tax adjustment for the year ended December 31, 2017 were estimated based on an increase of Bressner’s operating expenses of $290,717 and an effective income tax rate of 27%.