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, Inc. (“OSS”), of Concept Development, Inc., (“CDI”) following the execution on August 22, 2018, of an Agreement and Plan of Merger and Reorganization (the “Agreement”) with CDI and Mr. James M. Reardon pursuant to which CDI was acquired by OSS and CDI became a wholly-owned subsidiary (the “Acquisition”). As consideration for the Acquisition, OSS paid $646,760 in cash and issued 1,266,364 shares of OSS common stock, $0.0001 par value (the “Shares”). The Acquisition closed on August 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 CDI 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 CDI 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 June 30, 2018. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2017, and for the six month period ended June 30, 2018, give effect to the Acquisition as if it had occurred on January 1, 2017.


One Stop Systems, Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheets

 

     As of June 30, 2018  
                  Pro Forma           Combined  
     OSS     CDI      Adjustments     Ref.     Pro Forma  

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 9,267,320     $ 87,036      $ (845,652     (a   $ 8,508,704  

Accounts receivable, net

     4,510,711       718,288        —           5,228,999  

Inventories, net

     3,356,075       247,511        —           3,603,586  

Prepaid expenses and other current assets

     403,839       89,511        —           493,350  
  

 

 

   

 

 

    

 

 

     

 

 

 

Total current assets

     17,537,945       1,142,346        (845,652       17,834,639  

Property and equipment, net

     1,756,218       42,996        2,030       (b     1,801,244  

Deposits and other

     31,215       12,526        —           43,741  

Deferred tax assets, net

     530,221       570,797        (570,797     (b     530,221  

Goodwill

     3,324,128       —          3,148,482       (c     6,472,610  

Intangible assets, net

     411,085       —          1,770,000       (c     2,181,085  
  

 

 

   

 

 

    

 

 

     

 

 

 
   $ 23,590,812     $ 1,768,665      $ 3,504,063       $ 28,863,540  
  

 

 

   

 

 

    

 

 

     

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

           

Current liabilities:

           

Accounts payable

   $ 1,272,803     $ 233,916      $ —         $ 1,506,719  

Accrued expenses and other liabilities

     1,478,791       412,396        254,273       (b     2,145,460  

Notes payable

     —         376,363        —           376,363  
  

 

 

   

 

 

    

 

 

     

 

 

 

Total liabilities

     2,751,594       1,022,675        254,273         4,028,542  
  

 

 

   

 

 

    

 

 

     

 

 

 

Stockholders’ equity:

           

Common stock

     1,278       139        (12     (d     1,405  

Additional paid-in capital

     22,646,496       —          4,194,546       (d     26,841,042  

Noncontrolling interest

     207,261       —          —           207,261  

Retained (deficit) earnings

     (2,015,817     745,851        (944,744     (e     (2,214,710
  

 

 

   

 

 

    

 

 

     

 

 

 

Total stockholders’ equity

     20,839,218       745,990        3,249,790         24,834,998  
  

 

 

   

 

 

    

 

 

     

 

 

 
   $ 23,590,812     $ 1,768,665      $ 3,504,063       $ 28,863,540  
  

 

 

   

 

 

    

 

 

     

 

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial statements.


One Stop Systems, Inc.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

 

     For The Six Month Period ended June 30, 2018  
     OSS     CDI     Pro Forma
Adjustments
    Ref.     Combined
Pro Forma
 

Net revenue

   $ 13,012,378     $ 1,681,195     $ —         $ 14,693,573  

Cost of revenue

     9,159,330       1,122,034       —           10,281,364  
  

 

 

   

 

 

   

 

 

     

 

 

 

Gross margin

     3,853,048       559,161       —           4,412,209  
  

 

 

   

 

 

   

 

 

     

 

 

 

Operating expenses:

             —    

General and administrative

     2,170,600       398,377       201,853       (f     2,770,830  

Marketing and selling

     1,571,489       —         —           1,571,489  

Research and development

     1,931,406       —         —           1,931,406  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

     5,673,495       398,377       201,853         6,273,725  
  

 

 

   

 

 

   

 

 

     

 

 

 

(Loss) income from operations

     (1,820,447     160,784       (201,853       (1,861,516
  

 

 

   

 

 

   

 

 

     

 

 

 

Other income (expense):

             —    

Interest expense

     (55,661     (12,114     —           (67,775

Other, net

     122,039       —         —           122,039  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total other income (expense), net

     66,378       (12,114     —           54,264  
  

 

 

   

 

 

   

 

 

     

 

 

 

(Loss) income before provision for income taxes

     (1,754,069     148,670       (201,853       (1,807,252

Provision (benefit) for income taxes

     772,752       40,792       (61,355     (h     752,189  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income

   $ (2,526,821   $ 107,878     $ (140,498     $ (2,559,441
  

 

 

   

 

 

   

 

 

     

 

 

 

Net loss attributable to noncontrolling interest

   $ (229,581   $ —       $ —         $ (229,581
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income attributable to common stockholders

   $ (2,297,240   $ 107,878     $ (140,498     $ (2,329,860
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income per share attributable to common stockholders:

          

Basic

   $ (0.20         $ (0.18
  

 

 

         

 

 

 

Diluted

   $ (0.20         $ (0.18
  

 

 

         

 

 

 

Weighted average common shares outstanding:

          

Basic

     11,464,246         1,266,364         12,730,610  
  

 

 

     

 

 

     

 

 

 

Diluted

     11,464,246         1,266,364         12,730,610  
  

 

 

     

 

 

     

 

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial statements.


One Stop Systems, Inc.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

 

     For The Year Ended December 31, 2017  
     OSS     CDI     Pro Forma
Adjustments
    Ref.     Combined Pro
Forma
 

Net revenue

   $ 27,538,333     $ 3,879,880     $ —         $ 31,418,213  

Cost of revenue

     18,873,797       2,697,036       —           21,570,833  
  

 

 

   

 

 

   

 

 

     

 

 

 

Gross margin

     8,664,536       1,182,844       —           9,847,380  
  

 

 

   

 

 

   

 

 

     

 

 

 

Operating expenses:

             —    

General and administrative

     3,502,998       833,157       445,499       (g     4,781,654  

Marketing and selling

     2,924,727       —         —           2,924,727  

Research and development

     2,687,249       —         —           2,687,249  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

     9,114,974       833,157       445,499         10,393,630  
  

 

 

   

 

 

   

 

 

     

 

 

 

(Loss) income from operations

     (450,438     349,687       (445,499       (546,250
  

 

 

   

 

 

   

 

 

     

 

 

 

Other income (expense):

             —    

Interest expense

     (199,257     (23,569     —           (222,826

Other, net

     30,440       2,157       —           32,597  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total other income (expense), net

     (168,817     (21,412     —           (190,229
  

 

 

   

 

 

   

 

 

     

 

 

 

(Loss) income before provision for income taxes

     (619,255     328,275       (445,499       (736,479

(Benefit) for income taxes

     (402,717     (569,997     (47,244     (h     (1,019,958
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income

   $ (216,538   $ 898,272     $ (398,255     $ 283,479  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net loss attributable to noncontrolling interest

   $ (313,158   $ —       $ —         $ (313,158
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income attributable to common stockholders

   $ 96,620     $ 898,272     $ (398,255     $ 596,637  
  

 

 

   

 

 

   

 

 

     

 

 

 

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.


One Stop Systems, Inc.

NOTES TO UNAUDITED PRO FORMA

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 CDI’s assets acquired and liabilities assumed and conformed the accounting policies of CDI 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 CDI, Inc. 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 CDI, Inc. for $4,841,432, consisting of cash of $646,760 and 1,266,364 shares of common stock of One Stop Systems, Inc. with a fair value of $4,194,672 on the date of acquisition. Fair value was determined based upon the stock price as of August 31, 2018 of $3.63 less a discount of 8.75% for lack for of marketability for one year.

Note 3 - Preliminary purchase price allocation

The Company has performed a preliminary valuation analysis of the fair value of CDI, Inc.’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as June 30, 2018.

 

Cash

   $ 87,036  

Accounts receivable

     718,288  

Inventory

     247,511  

Prepaid expenses and deposits

     102,037  

Fixed assets, net

     45,026  

Customer relationships

     1,470,000  

Trade name

     100,000  

Non-compete - Jim Reardon

     200,000  

Accounts payable and accrued expenses

     (900,585

Notes payable

     (376,363
  

 

 

 

Total fair value excluding goodwill

     1,692,950  

Goodwill

     3,148,482  
  

 

 

 

Total allocated purchase price

   $ 4,841,432  
  

 

 

 

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 August 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 James Reardon in the transaction of $646,760 and acquisition costs of $198,893.

 

  (b)

Reflects adjustments to estimated fair value of tangible assets and to record the impact of acquired deferred taxes on non-deductible intangible assets and other tax attributes.

 

  (c)

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 CDI, Inc.’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.

 

     Estimated
Fair Value
     Estimated
Useful Life
in Months
     Amortization Expense  
     Year Ended
December 31,
2017
     Six months
ended
June 30,
2018
 

Customer relationships

   $ 1,470,000        60      $ 294,000      $ 147,000  

Trade name

     100,000        24        50,000        25,000  

Non-compete - Jim Reardon

     200,000        36        66,667        33,333  
  

 

 

       

 

 

    

 

 

 
   $ 1,770,000         $ 410,667      $ 205,333  
  

 

 

       

 

 

    

 

 

 

 

  (d)

Represents the net issuance of common shares for the acquisition and elimination of CDI’s outstanding stock:

 

Issuance of 1,266,364 shares of Company common stock at par $0.0001

   $ 127  

Additional paid in capital

     4,194,546  
  

 

 

 
   $ 4,194,673  
  

 

 

 

 

  (e)

Represents the elimination of the historical CDI retained earnings and to give effect to the impact of acquisition costs for the acquisition, as follows:

 

Elimination of CDI retained earnings

   $ (745,851

Acquisition expenses (i)

     (198,893
  

 

 

 
   $ (944,744
  

 

 

 

 

  (f)

The adjustment for general and administrative expenses for the six month period ended June 30, 2018 is as follows:

 

General and administrative adjustment:

  

Amortization expense

   $ 205,333  

Acquisition expense

     (20,450

Stock compensation expense (ii)

     16,970  
  

 

 

 
   $ 201,853  
  

 

 

 


  (i)

Acquisition expense for the six month period ended June 30, 2018 and through closing of transaction as of August 31, 2018 is as follows:

 

Acquisition expenses through June 30, 2018

   $ 20,450  

Additional acquisition costs incurred subsequent to June 30, 2018

     174,443  

Escrow fees

     4,000  
  

 

 

 
   $ 198,893  
  

 

 

 

 

  (ii)

Stock compensation expense for the six month period ended June 30, 2018 and for the year ended December 31, 2017 is as follows:

 

     Number of
Options
     Option
value
     No of
months
     Stock Compensation
Expense
 
     Year Ended
December 31,
2017
     Six months
ended
June 30,
2018
 

Stock compensation expense:

     60,000      $ 1.6970        36      $ 33,940      $ 16,970  

 

  (g)

The adjustment for general and administrative expenses for the year ended December 31, 2017 is as follows:

 

General and administrative adjustment:

  

Amortization expense

   $ 410,667  

Stock compensation expense

     33,940  

Employment agreements

     892  
  

 

 

 
   $ 445,499  
  

 

 

 

 

  (i)

New employment contracts with the sole selling shareholder in connection with the acquisition of CDI results in an increase in annual compensation of $0 and $892, which is reflected in the pro forma statements of operations for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively.

 

  (h)

Reflects the tax consequences of the pro forma adjustments for applicable period.

 

     Six months
ended
June 30,
2018
    Year Ended
December 31,
2017
 

Adjusted CDI (loss) income before tax (after pro forma adjustments)

   $ (73,633   $ (117,224

Effective tax rate

     27.93     40.30
  

 

 

   

 

 

 

Revised tax provision

     (20,563     (47,244

Current balance

     40,792       —  
  

 

 

   

 

 

 

Required adjustment

   $ (61,355   $ (47,244
  

 

 

   

 

 

 

 

*

Current provision only reflects adjustment to effect a change from an S corporation to a C corporation