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.

3

 

 


 

 

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

 

 

 

760,080

 

 

 

-

 

 

 

 

5,270,791

 

Inventories, net

 

 

3,356,075

 

 

 

247,511

 

 

 

-

 

 

 

 

3,603,586

 

Prepaid expenses and other current assets

 

 

403,839

 

 

 

47,719

 

 

 

-

 

 

 

 

451,558

 

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

 

 

 

-

 

 

 

3,147,040

 

(c)

 

 

6,471,168

 

Intangible assets, net

 

 

411,085

 

 

 

-

 

 

 

1,770,000

 

(c)

 

 

2,181,085

 

 

 

$

23,590,812

 

 

$

1,768,665

 

 

$

3,502,621

 

 

 

$

28,862,098

 

LIABILITIES AND STOCKHOLDERS'

   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,272,803

 

 

$

233,916

 

 

$

-

 

 

 

$

1,506,719

 

Accrued expenses and other liabilities

 

 

1,478,791

 

 

 

411,020

 

 

 

254,208

 

(b)

 

 

2,144,019

 

Notes payable

 

 

-

 

 

 

376,363

 

 

 

-

 

 

 

 

376,363

 

Total liabilities

 

 

2,751,594

 

 

 

1,021,298

 

 

 

254,208

 

 

 

 

4,027,100

 

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

)

 

 

747,228

 

 

 

(946,121

)

(e)

 

 

(2,214,710

)

Total stockholders’ equity

 

 

20,839,218

 

 

 

747,367

 

 

 

3,248,413

 

 

 

 

24,834,998

 

 

 

$

23,590,812

 

 

$

1,768,665

 

 

$

3,502,621

 

 

 

$

28,862,098

 

 

 

 

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

4


 

 

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

 

$

5,892,666

 

 

$

1,681,195

 

 

$

-

 

 

 

$

7,573,861

 

Cost of revenue

 

 

4,252,484

 

 

 

1,122,034

 

 

 

-

 

 

 

 

5,374,518

 

Gross margin

 

 

1,640,182

 

 

 

559,161

 

 

 

-

 

 

 

 

2,199,343

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

General and administrative

 

 

1,097,552

 

 

 

398,377

 

 

 

201,853

 

(f)

 

 

1,697,783

 

Marketing and selling

 

 

702,474

 

 

 

-

 

 

 

-

 

 

 

 

702,474

 

Research and development

 

 

958,775

 

 

 

-

 

 

 

-

 

 

 

 

958,775

 

Total operating expenses

 

 

2,758,801

 

 

 

398,377

 

 

 

201,853

 

 

 

 

3,359,032

 

(Loss) income from operations

 

 

(1,118,619

)

 

 

160,784

 

 

 

(201,853

)

 

 

 

(1,159,688

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Interest expense

 

 

-

 

 

 

(12,115

)

 

 

-

 

 

 

 

(12,115

)

Other, net

 

 

54,430

 

 

 

1

 

 

 

-

 

 

 

 

54,431

 

Total other income (expense), net

 

 

54,430

 

 

 

(12,114

)

 

 

-

 

 

 

 

42,316

 

(Loss) income before provision for income

   taxes

 

 

(1,064,189

)

 

 

148,670

 

 

 

(201,853

)

 

 

 

(1,117,372

)

Provision (benefit) for income taxes

 

 

555,629

 

 

 

40,792

 

 

 

(61,355

)

(h)

 

 

535,066

 

Net (loss) income

 

$

(1,619,818

)

 

$

107,878

 

 

$

(140,498

)

 

 

$

(1,652,438

)

Net loss attributable to noncontrolling

   interest

 

$

(116,996

)

 

$

-

 

 

$

-

 

 

 

$

(116,996

)

Net (loss) income attributable to common

   stockholders

 

$

(1,502,822

)

 

$

107,878

 

 

$

(140,498

)

 

 

$

(1,535,442

)

Net (loss) income per share attributable to

   common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

 

 

 

 

 

 

 

 

 

$

(0.11

)

Diluted

 

$

(0.12

)

 

 

 

 

 

 

 

 

 

 

$

(0.11

)

Weighted average common shares

   outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

12,773,419

 

 

 

 

 

 

 

1,266,364

 

 

 

 

14,039,783

 

Diluted

 

 

12,773,419

 

 

 

 

 

 

 

1,266,364

 

 

 

 

14,039,783

 

 

 

 

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

5


 

 

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.

6


 

 

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

 

 

760,080

 

Inventory

 

 

247,511

 

Prepaid expenses and deposits

 

 

60,245

 

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

 

 

(899,143

)

Notes payable

 

 

(376,363

)

Total fair value excluding goodwill

 

 

1,694,392

 

Goodwill

 

 

3,147,040

 

 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.

7


 

 

 

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.

 

 

 

 

 

 

 

 

 

 

Amortization Expense

 

 

 

Estimated

Fair Value

 

 

Estimated

Useful Life

in Months

 

 

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

 

 

 

$

4,194,672

 

 

 

(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

 

$

(747,228

)

Acquisition expenses (i)

 

 

(198,893

)

 

 

$

(946,121

)

 

 

(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:

 

8


 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Compensation Expense

 

 

 

Number of

Options

 

 

Option

value

 

 

No of

months

 

 

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

 

 

 

9