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.

 

 


 

 

One Stop Systems, Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheets

 

 

As of September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Pro Forma

 

 

 

Combined

 

 

 

OSS

 

 

Bressner

 

 

Adjustments

 

Ref.

 

Pro Forma

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,057,228

 

 

$

112,345

 

 

$

(5,593,122

)

(a)

 

$

1,576,451

 

Accounts receivable, net

 

 

8,078,307

 

 

 

1,944,623

 

 

 

-

 

 

 

 

10,022,930

 

Inventories, net

 

 

3,408,911

 

 

 

4,114,555

 

 

 

-

 

 

 

 

7,523,466

 

Prepaid expenses and other current assets

 

 

426,286

 

 

 

351,891

 

 

 

-

 

 

 

 

778,177

 

Total current assets

 

 

18,970,732

 

 

 

6,523,414

 

 

 

(5,593,122

)

 

 

 

19,901,024

 

Property and equipment, net

 

 

1,556,941

 

 

 

241,949

 

 

 

-

 

 

 

 

1,798,890

 

Deposits and other

 

 

49,966

 

 

 

-

 

 

 

-

 

 

 

 

49,966

 

Deferred tax assets, net

 

 

1,672,670

 

 

 

-

 

 

 

-

 

 

 

 

1,672,670

 

Goodwill

 

 

6,461,253

 

 

 

-

 

 

 

212,559

 

(b)

 

 

6,673,812

 

Intangible assets, net

 

 

2,048,202

 

 

 

173,461

 

 

 

1,777,110

 

(b)

 

 

3,998,773

 

 

 

$

30,759,764

 

 

$

6,938,824

 

 

$

(3,603,453

)

 

 

$

34,095,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS'

   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,462,080

 

 

$

876,243

 

 

$

-

 

 

 

$

3,338,323

 

Accrued expenses and other liabilities

 

 

1,967,304

 

 

 

766,418

 

 

 

-

 

 

 

 

2,733,722

 

Current portion of long-term debt

 

 

-

 

 

 

171,481

 

 

 

-

 

 

 

 

171,481

 

Total current liabilities

 

 

4,429,384

 

 

 

1,814,142

 

 

 

-

 

 

 

 

6,243,526

 

Long-term debt

 

 

-

 

 

 

1,507,811

 

 

 

-

 

 

 

 

1,507,811

 

Deferred tax liability

 

 

-

 

 

 

48,068

 

 

 

-

 

 

 

 

48,068

 

 

 

 

4,429,384

 

 

 

3,370,021

 

 

 

-

 

 

 

 

7,799,405

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

1,407

 

 

 

34,832

 

 

 

(34,821

)

(c)

 

 

1,418

 

Additional paid-in capital

 

 

26,995,705

 

 

 

65,512

 

 

 

163,255

 

(c)

 

 

27,224,472

 

Noncontrolling interest

 

 

67,795

 

 

 

-

 

 

 

-

 

 

 

 

67,795

 

Retained (deficit) earnings

 

 

(734,527

)

 

 

3,468,459

 

 

 

(3,731,887

)

(d)

 

 

(997,955

)

Total stockholders’ equity

 

 

26,330,380

 

 

 

3,568,803

 

 

 

(3,603,453

)

 

 

 

26,295,730

 

 

 

$

30,759,764

 

 

$

6,938,824

 

 

$

(3,603,453

)

 

 

$

34,095,135

 

 

 

 

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 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.

 


 

 

One Stop Systems, Inc.

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.

 


 

 

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 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%.