DECISIONPOINT SYSTEMS, INC. UNAUDITED PRO FORMA condensed CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.3
UNAUDITED PRO FORMA condensed CONSOLIDATED FINANCIAL STATEMENTS
Acquisition of ExtenData Solutions, LLC
On December 4, 2020, DecisionPoint Systems, Inc. (the “Company”) entered into a Membership Unit Purchase Agreement (the “Purchase Agreement”) and concurrently therewith closed upon the acquisition of all of the issued and outstanding membership interests of ExtenData Solutions, LLC (“ExtenData”). As a result of the acquisition, ExtenData became a wholly owned subsidiary of the Company (the “Acquisition”). ExtenData is focused on enterprise mobility solutions and provides software product development, mobile computing, identification and tracking solutions, and wireless tracking solutions.
The purchase price for the acquisition was cash of $4,250,000, subject to certain adjustments such as potential deductions for indebtedness and other transaction related expenses and bonuses. In addition, subject to the financial performance of ExtenData in each of the two years following closing, the Company may pay the sellers a total of up to an additional $750,000 in earn out payments. Of the purchase price, $500,000 was delivered into escrow at the closing to, among other things, cover any losses for which the sellers may be obligated to indemnify the Company. The Purchase Agreement imposes additional obligations on the parties, including restrictive covenants that are applicable to the sellers.
Unaudited Pro Forma Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated financial statements are derived from the historical consolidated financial statements of the Company and ExtenData, and have been adjusted to reflect the Acquisition. The Acquisition was accounted for using the acquisition method of accounting with the Company identified as the acquirer. Under the acquisition method of accounting, the Company recorded assets acquired and liabilities assumed at their respective acquisition date fair values on the acquisition date. Certain of ExtenData’s historical amounts have been reclassified to conform to DecisionPoint’s financial statement presentation. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2020 gives effect to the Acquisition as if it had been completed on September 30, 2020. The unaudited pro forma condensed consolidated statements of income for the year ended December 31, 2019 and the nine months ended September 30, 2020 give effect to the Acquisition as if it had been completed on January 1, 2019.
The unaudited pro forma condensed consolidated financial information does not purport to be indicative of our results of operations or financial position had the Acquisition occurred on the dates assumed and does not project our results of operations or financial position for any future period or date.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed consolidated financial statements. In addition, the unaudited pro forma condensed consolidated financial information was based on and should be read in conjunction with the following historical financial statements and accompanying notes:
| · | Audited consolidated financial statements of the Company as of and for the year ended December 31, 2019, and the related notes included in the Company’s Amendment No. 4 to Form S-1; and |
| · | Unaudited consolidated financial statements of the Company as of and for the three and nine months ended September 30, 2020, and the related notes included in the Company’s Amendment No. 4 to Form S-1. |
Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial statements. In management’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. These adjustments are directly attributable to the Acquisition, factually supportable and, with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on the consolidated results of DecisionPoint and ExtenData following the Acquisition.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2020
(in thousands)
| DecisionPoint Systems, Inc. | ExtenData Solutions, LLC | Pro Forma Adjustments | DecisionPoint Systems, Inc. Pro Forma | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 3,683 | $ | 1,457 | $ | (4,250 | )(a) | $ | 890 | |||||||
| Accounts receivable, net | 8,824 | 1,278 | - | 10,102 | ||||||||||||
| Inventory, net | 940 | - | - | 940 | ||||||||||||
| Deferred costs | 1,840 | - | - | 1,840 | ||||||||||||
| Prepaid expenses and other current assets | 296 | 29 | - | 325 | ||||||||||||
| Total current assets | 15,583 | 2,764 | (4,250 | ) | 14,097 | |||||||||||
| Operating lease right-of-use assets | 422 | - | 223 | (e) | 645 | |||||||||||
| Property and equipment, net | 234 | 543 | - | 777 | ||||||||||||
| Deferred costs, net of current portion | 1,330 | - | 1,330 | |||||||||||||
| Deferred tax assets | 1,889 | - | 1,889 | |||||||||||||
| Intangible assets, net | 1,890 | - | 3,479 | (d) | 5,369 | |||||||||||
| Goodwill | 6,990 | - | 676 | (c) | 7,666 | |||||||||||
| Other assets, net | 13 | - | - | 13 | ||||||||||||
| Total assets | $ | 28,351 | $ | 3,307 | $ | 128 | $ | 31,786 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 7,004 | $ | 1,388 | $ | - | $ | 8,392 | ||||||||
| Accrued expenses and other current liabilities | 1,994 | 164 | (10 | )(e) | 2,148 | |||||||||||
| Deferred revenue | 3,606 | 497 | - | 4,103 | ||||||||||||
| Current portion of debt | 1,157 | 413 | - | 1,570 | ||||||||||||
| Due to related parties | 108 | - | - | 108 | ||||||||||||
| Current portion of operating lease liabilities | 150 | - | 107 | (e) | 257 | |||||||||||
| Total current liabilities | 14,019 | 2,462 | 97 | 16,578 | ||||||||||||
| Deferred revenue, net of current portion | 2,146 | - | - | 2,146 | ||||||||||||
| Long-term debt, net of current portion | 656 | - | - | 656 | ||||||||||||
| Noncurrent portion of operating lease liabilities | 280 | - | 126 | (e) | 406 | |||||||||||
| Contingent earnout liabilities | - | - | 750 | (b) | 750 | |||||||||||
| Total liabilities | 17,101 | 2,462 | 973 | 20,536 | ||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Stockholders’ equity: | - | |||||||||||||||
| Preferred stock | - | - | - | - | ||||||||||||
| Common stock | 14 | - | - | 14 | ||||||||||||
| Additional paid-in capital | 38,215 | - | - | 38,215 | ||||||||||||
| Members’ equity | - | 845 | (845 | )(f) | - | |||||||||||
| Accumulated deficit | (26,979 | ) | - | - | (26,979 | ) | ||||||||||
| Total stockholders’ equity | 11,250 | 845 | (845 | ) | 11,250 | |||||||||||
| Total liabilities and stockholders’ equity | $ | 28,351 | $ | 3,307 | $ | 128 | $ | 31,786 | ||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(in thousands, except per share data)
| DecisionPoint Systems, Inc. | ExtenData Solutions, LLC | Pro Forma Adjustments | DecisionPoint Systems, Inc. Pro Forma | |||||||||||||
| Net sales | $ | 45,059 | $ | 9,464 | - | $ | 54,523 | |||||||||
| Cost of sales: | - | |||||||||||||||
| Product | 28,576 | 5,008 | - | 33,584 | ||||||||||||
| Service | 6,152 | 1,158 | - | 7,310 | ||||||||||||
| Cost of sales | 34,728 | 6,166 | - | 40,894 | ||||||||||||
| Gross profit | 10,331 | 3,298 | - | 13,629 | ||||||||||||
| Operating expenses: | - | |||||||||||||||
| Sales and marketing expenses | 4,001 | 1,238 | 62 | (g) | 5,301 | |||||||||||
| General and administrative expenses | 3,232 | 1,457 | 334 | (d)(g) | 5,023 | |||||||||||
| Total operating expenses | 7,233 | 2,695 | 396 | 10,324 | ||||||||||||
| Operating income | 3,098 | 603 | (396 | ) | 3,305 | |||||||||||
| Interest expense | 232 | - | - | 232 | ||||||||||||
| Other expense | (212 | ) | - | - | (212 | ) | ||||||||||
| Income before income taxes | 3,078 | 603 | (396 | ) | 3,285 | |||||||||||
| Income tax expense | 817 | - | 53 | (h) | 870 | |||||||||||
| Net income | $ | 2,261 | $ | 603 | $ | (449 | ) | $ | 2,415 | |||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.17 | (i) | $ | 0.18 | |||||||||||
| Diluted | $ | 0.14 | (i) | $ | 0.15 | |||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | 13,576 | 13,576 | ||||||||||||||
| Diluted | 15,642 | 15,642 | ||||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019
(in thousands, except per share data)
| DecisionPoint Systems, Inc. | ExtenData Solutions, LLC | Pro Forma Adjustments | DecisionPoint Systems, Inc. Pro Forma | |||||||||||||
| Net sales | $ | 43,889 | $ | 12,459 | - | $ | 56,348 | |||||||||
| Cost of sales: | - | |||||||||||||||
| Product | 25,866 | 7,801 | - | 33,667 | ||||||||||||
| Service | 7,267 | 290 | - | 7,557 | ||||||||||||
| Cost of sales | 33,133 | 8,091 | - | 41,224 | ||||||||||||
| Gross profit | 10,756 | 4,368 | - | 15,124 | ||||||||||||
| Operating expenses: | - | |||||||||||||||
| Sales and marketing expenses | 4,907 | 1,705 | 82 | (g) | 6,694 | |||||||||||
| General and administrative expenses | 3,999 | 1,815 | 446 | (d)(g) | 6,260 | |||||||||||
| Total operating expenses | 8,906 | 3,520 | 528 | 12,954 | ||||||||||||
| Operating income | 1,850 | 848 | (528 | ) | 2,170 | |||||||||||
| Interest expense | 649 | - | - | 649 | ||||||||||||
| Income before income taxes | 1,201 | 848 | (528 | ) | 1,521 | |||||||||||
| Income tax expense (benefit) | 310 | - | 83 | (h) | 393 | |||||||||||
| Net income | $ | 891 | $ | 848 | $ | (611 | ) | $ | 1,128 | |||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.07 | (i) | $ | 0.08 | |||||||||||
| Diluted | $ | 0.06 | (i) | $ | 0.07 | |||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | 13,415 | 13,415 | ||||||||||||||
| Diluted | 15,341 | 15,341 | ||||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The unaudited pro forma condensed consolidated financial statements are based on DecisionPoint’s and ExtenData’s historical consolidated financial statements as adjusted to give effect to the Acquisition. The unaudited pro forma consolidated statements of income for the nine months ended September 30, 2020 and the year ended December 31, 2019 give effect to the acquisition as if it had occurred on January 1, 2019. The unaudited pro forma consolidated balance sheet as of September 30, 2020 gives effect to the Acquisition as if it had occurred on September 30, 2020.
Note 2: Preliminary Purchase Price Allocation
The Acquisition was accounted for using the acquisition method of accounting using the accounting guidance in Accounting Standards Codification 805, Business Combinations.
The purchase price for the Acquisition was cash of $4,250,000, subject to certain adjustments such as potential deductions for indebtedness and other transaction related expenses and bonuses. In addition, subject to the financial performance of ExtenData in each of the two years following closing, the Company may pay the sellers a total of up to an additional $750,000 in earn out payments.
The preliminary purchase price allocation is subject to change due to changes in the estimated fair value of ExtenData’s assets acquired and liabilities assumed as of the date of the transaction, resulting from the finalization of the Company’s detailed valuation analysis.
The preliminary purchase price allocation of ExtenData as of September 30, 2020 is as follows (in thousands):
| Preliminary Purchase Price Allocation | ||||
| Cash and cash equivalents | $ | 1,457 | ||
| Accounts receivable, net | 1,278 | |||
| Prepaid expenses and other current assets | 29 | |||
| Property and equipment, net | 543 | |||
| Intangible assets | 3,479 | |||
| Accounts payable | (1,388 | ) | ||
| Accrued expenses and other current liabilities | (164 | ) | ||
| Deferred revenue | (497 | ) | ||
| Current portion of debt | (413 | ) | ||
| Identifiable net assets acquired | 4,324 | |||
| Goodwill | 676 | |||
| Total consideration | $ | 5,000 | ||
Note 3: Pro Forma Adjustments
The following adjustments have been made to the accompanying unaudited pro forma condensed consolidated financial statements:
| (a) | Reflects the cash consideration for the acquisition. |
| (b) | Reflects the estimated contingent earn out consideration as described in Note 2. |
| (c) | Reflects the preliminary estimate of goodwill, which represents the excess of the purchase price over the estimated fair value of ExtenData’s identifiable assets and liabilities assumed in Note 2. |
| (d) | Reflects the estimated fair value for the identifiable assets which represents customer lists and relationships amortized over an average estimated expected life of 12 years. For the nine months ended September 30, 2020 and the year ended December 31, 2019, pro forma adjustments for amortization expense are $217,000 and $290,000, respectively. |
| (e) | Reflects the recognition of operating lease right-of-use assets and operating lease liabilities in connection with ExtenData’s adoption of ASC 842. |
| (f) | Reflects the elimination of members’ equity. |
| (g) | Reflects an increase in compensation expense in connection with the Acquisition in result of the status change from LLC to Corporation. For the nine months ended September 30, 2020 and the year ended December 31, 2019, pro forma adjustments to reflect the increase in compensation expense are $117,000 and $156,000, respectively. |
| (h) | Reflects estimated income tax expense based on the Company’s annual effective tax rate. |
| (i) | Reflects changes in earnings per share in result of the Acquisition and pro forma adjustments. |
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