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Debt | 9 Months Ended
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Sep. 30, 2020
Debt Disclosure [Abstract] |
Debt | NOTE 7 – DEBT Bank Lines of Credit Bressner Technology GmbH has two revolving lines of credit with a German institution totaling €1,600,000 (US$1,875,805). Borrowing under the lines of credit bear interest at variable rates of Euribor plus a stated rate. The current rate is 3.89%. There were no outstanding line of credit balances as of September 30, 2020 and December 31, 2019. Foreign Debt Obligations Bressner Technology GmbH has three term loans outstanding as of September 30, 2020 with a total balance outstanding of €1,132,519 (US$1,327,740) as follows: Bressner entered into a note payable in April 2019 in the amount of €500,000 (US$586,189) which bears interest at 2.25% and matures on March 31, 2021 with monthly payments of principal and interest of €22,232 (US$24,960). The balance outstanding as of September 30, 2020 and December 31, 2019 is €132,519 (US$155,362) and €263,556 (US$290,534), respectively. Bressner entered into a note payable in June 2019 in the amount of €500,000 (US$586,189) which bears interest at 1.70.% and matures on June 25, 2020 with a balloon payment of principal and interest. This loan was subsequently extended to June 18, 2021, with an interest rate of 1.87% The amount outstanding as of September 30, 2020 and December 31, 2019 is €500,000 (US$586,189) and €508,679 (US$571,095), respectively. On April 9, 2020, Bressner converted €500,000 of its line of credit from UniCredit Bank to a one year term loan at 1.9% interest with a balloon payment of principal and interest due upon maturity. The balance outstanding as of September 30, 2020 is €500,000 (US$586,189). Bressner entered into a note payable in September 2017, in the amount of €400,000 (US$436,272) which bore interest at 2.125% and matured on January 31, 2020 and has been paid in full. Quarterly principal payments of €25,000 (US$28,068) were due in January, April, July and November of 2019. The balance outstanding as of December 31, 2019 was €25,000 (US$28,068). Bressner entered into a note payable in September 2019 in the amount of €300,000 (US$336,810) which bore interest at 1.65.% and matured on March 24, 2020, with a balloon payment of principal and interest. The outstanding balance was paid in full as of March 31, 2020. At December 31, 2019, the outstanding balance was €301,650 (US$338,663). Notes Payable In April 2019, the Company borrowed $350,000 from three individuals for a two year period at an interest rate of 9.5% which requires the Company to make monthly principal and interest payments of $16,100 per month. These loans are secured by the assets of the Company. In connection with these loans, the Company issued to the noteholders warrants to purchase shares of the Company’s common stock equal to 10% of the original principal at a price per share equal to $2.15 per share. Accordingly, the Company issued to the noteholders warrants to purchase 16,276 shares of the Company’s common stock at an exercise price of $2.15 per share. The relative fair value of each warrant was $0.90. The relative fair value of warrants was estimated using Black-Scholes with the following weighted-average assumptions: fair value of the Company’s common stock at issuance of $2.15 per share; five year contractual term; 44.60% volatility; 0.0% dividend rate; and a risk-free interest rate of 2.307%. The total relative fair value of the warrants issued is $14,037. The balance outstanding as of September 30, 2020 and December 31, 2019 is $109,262 and $241,054, respectively. Notes Payable – Related Parties In April 2019, the Company borrowed $1,150,000 from three individuals who serve on the Company’s board of directors for a two year period at an interest rate of 9.5% which requires the Company to make monthly principal and interest payments of $52,900 per month. These loans are secured by the assets of the Company. In connection with these loans, the Company issued to the noteholders warrants to purchase shares of the Company’s common stock equal to 10% of the original principal at a price per share equal to $2.15 per share. Accordingly, the Company issued to the noteholders warrants to purchase 53,490 shares of the Company’s common stock at an exercise price of $2.15 per share. The relative fair value of each warrant was $0.90. The relative fair value of warrants was estimated using Black-Scholes with the following weighted-average assumptions: fair value of the Company’s common stock at issuance of $2.15 per share; five year contractual term; 42.60% volatility; 0.0% dividend rate; and a risk-free interest rate of 2.3067%. The relative fair value of warrants issued is $46,121. The balance outstanding as of September 30, 2020 and December 31, 2019 is $358,077 and $791,170, respectively. Debt Discount The relative fair value of warrants were recorded as debt discount, decreasing notes payable and related-party notes payable and increasing additional paid-in-capital on the accompanying consolidated balance sheets. The debt discounts are being amortized to interest expense over the term of the corresponding notes payable using the straight-line method which approximates the effective interest method. For the three month periods ended September 30, 2020 and 2019, total debt discount amortization was $72,372 and $7,520, respectively, and such amounts are included in interest expense in the accompanying consolidated statements of operations. For the nine month periods ended September 30, 2020 and 2019, total debt discount amortization was $139,221 and $13,786 respectively, and such amounts are included in interest expense in the accompanying consolidated statements of operations. Paycheck Protect Plan Loan On April 28, 2020, One Stop Systems, Inc. received authorization pursuant to the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the “SBA”) for a “PPP” loan. On May 11, 2020, the Loan was funded and the Company received proceeds in the amount of $1,499,360 (the “PPP Loan”). The PPP Loan, which took the form of a two-year promissory note (the “PPP Note”), matures on April 28, 2022 and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), was initially to commence on October 28, 2020. The Company did not provide any collateral or guarantees for the PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The PPP Note provides for customary events of default, including, among others, those relating to failure to make payment, breaches of any term, obligation, covenant or condition contained in the PPP Note and payment of unauthorized expenses or use of proceeds contrary to CARES Act rules. The Company may prepay the principal of the PPP Loan at any time without incurring any prepayment charges. Under the original rules, all or a portion of the PPP Loan may be forgiven by the SBA and lender upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the eight week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. However, the original rules governing loans granted under the PPP have been subsequently updated. The time period to spend the received funds has been extended from the original eight weeks to twenty-four weeks. Payroll is only required to be 60%, and the commencement date for the repayment has also been extended accordingly. As of the filing date of this Quarterly Report on Form 10-Q, the Company has not submitted an application with the lender to forgive the PPP Loan, but intends to do so in accordance with SBA Procedural Notice, Control No. 5000-20057, effective October 2, 2020. Senior Secured Convertible Note: On April 20, 2020, the Company, entered into a Securities Purchase Agreement with an institutional investor, providing for the issuance of the Company’s Senior Secured Convertible Promissory Notes with a principal face amount of up to $6,000,000. The notes are, subject to certain conditions, convertible into shares of the Company’s common stock, par value $0.0001 per share, at an initial conversion price per share of $2.50. The notes will be issued with a 10% original issue discount. At the initial closing of this offering, the Company issued notes of $3,000,000, and can consummate additional closings of up to $3,000,000, subject to the prior satisfaction of certain closing conditions. The initial investor purchased the notes for an aggregate purchase price of $2,700,000 at the initial closing. The notes bear no interest rate (except upon event of default) and, unless earlier converted or redeemed, will mature on April 1, 2022. The Notes are convertible at any time, in whole or in part, at the option of the investors, into shares of common stock at the initial conversion price of $2.50 per share. The conversion price is subject to adjustment for issuances of securities below the conversion price then in effect and for stock splits, combinations or similar events. If immediately following the close of business on the six month anniversary of the issuance date of each note, the conversion price then in effect exceeds 135% of the volume weighted average price VWAP (the “Market Price”), the initial conversion price under any such note will be automatically lowered to the Market Price. Commencing July 1, 2020, the Company made monthly amortization payments equal to 1/22nd of the initial principal, any accrued and unpaid interest and late charges and any deferred or accelerated amount, of such note, which may be satisfied in cash at a redemption price equal to 105% of such installment amount (110% of such installment amount on notes issued at additional closings). Subject to the satisfaction of certain equity conditions set forth in the notes, installment amounts may be satisfied in shares of our common stock, with such installment conversion at a conversion price equal to the lower of (i) the conversion price then in effect and (ii) the greater of (x) the floor price of $1.00 (80% of the Nasdaq market price at date of purchase agreement) and (y) the lower of (I) 82.5% the volume weighted average price of our common stock on the trading day immediately before the applicable installment date and (II) 82.5% of the lowest volume weighted average price in the 20 days prior to the installment date. Shares of our common stock to be issued with respect to any such installment will be pre-delivered on the 2nd trading day after the applicable installment notice date as defined in the notes) with a true-up on the applicable installment date. The market value of any installment amount below the floor price will be cash settled on the applicable installment date. Management evaluated the embedded conversion feature to determine whether bifurcation was required as a separate derivative liability. Management first determined that the conversion feature was not within the scope of ASC 480. It then determined that the embedded derivative should be separated from the host instrument and accounted for as a derivative instrument because it met the criteria of ASC 815-15-25-1, primarily because the contract provides for delivery of an asset that puts the recipient in substantially the same position as net settlement. However, in part due to the Company’s adoption of ASC 2017-11 on April 1, 2020, which allowed management to disregard the down round provisions of the conversion feature, management determined that a scope exception to derivative accounting existed by satisfying the additional conditions necessary for equity classification specified by ASC 815-10-15-74 and ASC 815-40-25. As a result of management’s analysis, the conversion feature was not accounted for separately from the debt instrument and the Company will recognize the contingent beneficial conversion feature when, or if, such is triggered. The original issue discount of 10% on the Senior Secured Convertible Note was recorded as a debt discount, decreasing the note payable. This debt discount is amortized to interest expense using the effective interest rate method over the term of the loan. For the three and nine month periods ended September 30, 2020, total debt discount amortization was $61,518 and $110,659 respectively, and such amount is included in interest expense in the accompanying consolidated statements of operations. Debt issuance costs in the amount of $316,274 related to this indebtedness were deducted from the face value of the note. Such costs are amortized to interest expense using the effective interest rate method over the term of the loan. Total debt issuance costs amortized during the three and nine month period ended September 30, 2020 was $64,855 and $116,662 respectively, and such amount is included in interest expense in the accompanying consolidated statements of operations. A summary of outstanding debt obligations as of September 30, 2020 is as follows:
Loan Description |  | Current interest rate |  |  | Maturity date |  | Balance (Euro) |  |  | Balance ($) |  |  | Current Portion |  |  | Long-term Portion |
Domestic: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Notes payable - third party |  | 9.50% |  |  | April-21 |  |  | - |  |  | $ | 105,460 |  |  | $ | 105,460 |  |  | $ | - |
Related party notes payable |  | 9.50% |  |  | April-21 |  |  | - |  |  |  | 345,586 |  |  |  | 345,586 |  |  |  | - |
Convertible senior secured note |  | OID |  |  | April-22 |  |  | - |  |  |  | 2,201,956 |  |  |  | 1,299,117 |  |  |  | 902,839 |
PPP loan |  | 1.00% |  |  | April-22 |  |  | - |  |  |  | 1,499,360 |  |  |  | - |  |  |  | 1,499,360 |
|  |  |  |  |  |  |  |  | - |  |  | $ | 4,152,362 |  |  | $ | 1,750,163 |  |  | $ | 2,402,199 |
Foreign: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Uni Credit Bank AG |  | 1.87% |  |  | June-21 |  | € | 500,000 |  |  | $ | 586,189 |  |  | $ | 586,189 |  |  | $ | - |
Uni Credit Bank AG |  | 2.25% |  |  | March-21 |  |  | 132,519 |  |  |  | 155,362 |  |  |  | 155,362 |  |  |  | - |
Uni Credit Bank AG |  | 1.90% |  |  | April-21 |  |  | 500,000 |  |  |  | 586,189 |  |  |  | 586,189 |  |  |  | - |
|  |  |  |  |  |  |  | € | 1,132,519 |  |  | $ | 1,327,740 |  |  | $ | 1,327,740 |  |  | $ | - |
|  |  |  |  |  |  |  |  |  |  |  | $ | 5,480,102 |  |  | $ | 3,077,903 |  |  | $ | 2,402,199 |
Outstanding debt obligations as of September 30, 2020 consist of the following:
Period Ending September 30, |  | Related Parties |  |  | Third Parties |  |  | Convertible Note |  |  | PPP Loan |  |  | Foreign |  |  | Total |
Current portion: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  | $ | 358,077 |  |  | $ | 109,262 |  |  | $ | 1,636,364 |  |  | $ | - |  |  | $ | 1,327,740 |  |  | $ | 3,431,442 |
Less discount |  |  | (12,491 | ) |  |  | (3,802 | ) |  |  | (164,171 | ) |  |  | - |  |  |  | - |  |  |  | (180,464 | )
Less loan origination costs |  |  | - |  |  |  | - |  |  |  | (173,076 | ) |  |  | - |  |  |  | - |  |  |  | (173,076 | )
Net liability |  |  | 345,586 |  |  |  | 105,460 |  |  |  | 1,299,117 |  |  |  | - |  |  |  | 1,327,740 |  |  |  | 3,077,903 |
Long-term portion: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  |  | - |  |  |  | - |  |  |  | 954,545 |  |  |  | 1,499,360 |  |  |  | - |  |  |  | 2,453,905 |
Less discount |  |  | - |  |  |  | - |  |  |  | (25,171 | ) |  |  | - |  |  |  | - |  |  |  | (25,171 | )
Less loan origination costs |  |  | - |  |  |  | - |  |  |  | (26,536 | ) |  |  | - |  |  |  | - |  |  |  | (26,536 | )
Net liability |  |  | - |  |  |  | - |  |  |  | 902,839 |  |  |  | 1,499,360 |  |  |  | - |  |  |  | 2,402,199 |
Total: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  |  | 358,077 |  |  |  | 109,262 |  |  |  | 2,590,909 |  |  |  | 1,499,360 |  |  |  | 1,327,740 |  |  |  | 5,885,348 |
Less discount |  |  | (12,491 | ) |  |  | (3,802 | ) |  |  | (189,341 | ) |  |  | - |  |  |  | - |  |  |  | (205,634 | )
Less loan origination costs |  |  | - |  |  |  | - |  |  |  | (199,612 | ) |  |  | - |  |  |  | - |  |  |  | (199,612 | )
Net liability |  | $ | 345,586 |  |  | $ | 105,460 |  |  | $ | 2,201,956 |  |  | $ | 1,499,360 |  |  | $ | 1,327,740 |  |  | $ | 5,480,102 |
Total future principal payments under notes payable and related-party notes payable as of September 30, 2020 are as follows:
Period Ending September 30, |  | Related Parties |  |  | Third Parties |  |  | Convertible Note |  |  | PPP Loan |  |  | Foreign |  |  | Total |  |  | Discount / Loan Originaion Costs |
2021 |  | $ | 358,077 |  |  | $ | 109,262 |  |  | $ | 1,636,364 |  |  | $ | - |  |  | $ | 1,327,740 |  |  | $ | 3,431,442 |  |  | $ | (353,540 | )
2022 |  |  | - |  |  |  | - |  |  |  | 954,545 |  |  |  | 1,499,360 |  |  |  | - |  |  |  | 2,453,905 |  |  |  | (51,707 | )
Total minimum payments |  |  | 358,077 |  |  |  | 109,262 |  |  |  | 2,590,909 |  |  |  | 1,499,360 |  |  |  | 1,327,740 |  |  |  | 5,885,348 |  |  |  | (405,246 | )
Current portion of notes payable |  |  | (358,077 | ) |  |  | (109,262 | ) |  |  | (1,636,364 | ) |  |  | - |  |  |  | (1,327,740 | ) |  |  | (3,431,442 | ) |  |  | 353,540 |
Notes payable, net of current portion |  | $ | - |  |  | $ | - |  |  | $ | 954,545 |  |  | $ | 1,499,360 |  |  | $ | - |  |  | $ | 2,453,905 |  |  | $ | (51,707 | )

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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