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
Bressner Technology GmbH
Table of Contents
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| 1. | Accountant’s Review Report |
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
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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) | |
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| 2. | Balance Sheets according to local GAAP (unaudited) |
| | | | 30.09.2018 |
| | | | € |
A. | | FIXED ASSETS | | |
I. | | Intangible assets | | |
1. | | Software | | 149.399 |
2. | | Prepayment for software | | - |
II. | | Property, plant and equipment | | |
| | Fixtures, fittings and equipment | | 90.950 |
| | Total fixed assets | | 240.349 |
B. | | CURRENT ASSETS | | |
I. | | Inventories | | |
1. | | Finished goods | | 3.543.792 |
2. | | Advance payment | | 38.213 |
| | | | 3.582.005 |
II. | | Accounts receivable and other assets | | |
1. | | Accounts receivable from trading | | 1.667.128 |
2. | | Other assets | | 235.312 |
| | Total current assets | | 1.902.440 |
III. | | Cash on hand and cash in banks | | 96.761 |
C. | | DEFERRED CHARGES AND PREPAID EXPENSES | | 19.716 |
| | | | 5.841.271 |
| | | | 30.09.2018 |
| | | | € |
A. | | STOCKHOLDERS‘ EQUITY | | |
I. | | Capital subscribed | | 30.000 |
II. | | Capital reserve | | 56.425 |
III. | | Earnings reserves | | 485.000 |
IV | | Retained earnings | | 2.408.708 |
| | Total stockholders‘ equity | | 2.980.133 |
B. | | PROVISIONS AND ACCRUED LIABILITIES | | |
1. | | Accrued taxes | | 42.960 |
2. | | Other provisions and accrued liabilities | | 549.117 |
| | | | 592.077 |
C. | | LIABILITIES | | |
1. | | Liabilities due to banks | | 1.446.344 |
2. | | Advance payments received on account of orders | | 2.000 |
3. | | Trade accounts payable | | 754.692 |
4. | | Other liabilities | | 66.025 |
| | Total liabilities | | 2.861.138 |
| | | | 5.841.271 |
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| 3. | Statements of Income according to local GAAP (unaudited) |
| | 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 |
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| 4. | Notes according to local GAAP (unaudited) |
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.
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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 |
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| 5. | German GAAP / US-GAAP reconciliation of the balance sheet as of September 30, 2018 (unaudited) |
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 | | |
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General Note: | | | |
| | | |
The grouping of the balance sheet accounts under German GAAP differs from the US-GAAP classification of accounts. For the purpose of reconciliation, the balance sheet accounts for German GAAP have been re-grouped to follow the US-GAAP classification. |
| | | |
Note A: | | | |
| | | |
In German-GAAP a general bad-debt provision in the amount of € 7.741 was recognized without regard to a specific risk or age of receivables. |
| | | |
Note B: | | | |
| | | |
In addition to German GAAP the account contains unrealized gains on forward exchange contracts in the amount of € 9.836. |
| | | |
Note C: | | | |
| | | |
The requirement for capitalization of internally developed software was met under FASB ASC 985-20-25, Costs of Software to be Sold, Leased, or Marketed. The completion of development was determined to have occurred in January 2016, resulting in € 193.000 of labor costs capitalized. The adjustment amount at year-end is net of accumulated amortization during the year. Costs for research and development prior to achievement of technological feasibility, as well as costs associated with marketing and selling the software, have been expensed as incurred. The management estimates the duration of use to be seven years. |
| | | |
| | | |
Note D: | | | |
| | | |
The below outlines local GAAP to US-GAAP differences resulting in deferred tax impacts in the respective amounts, using an average tax rate of 30%: |
| | | |
Discounting of provisions | | 3.218 | |
Self-developed software | | 35.231 | |
Unrealized gains and losses | | 2.951 | |
Total | | 41.400 | |
Note E:
Difference is due to accumulated result of reconciliation adjustments impacting the Statements of Income.
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| 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. |
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| 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. |
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| 8. | Statements of Cash Flows for the nine months ended September 30, 2018 (unaudited) |
| | 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.
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| 9. | Statements of Cash Flows for the nine months ended September 30, 2017 (unaudited) |
| | 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.
| 10. | Statement of Stockholders’ Equity for the nine months ended September 30, 2018 (unaudited) |
| | 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.
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