Exhibit 99.3

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements

Dollars in thousands except per share amounts

 

The Unaudited Pro Forma Condensed Combined Financial Statements (the “Pro Forma Statements”) presented below are derived from the historical consolidated financial statements of DPW Holdings, Inc. (“DPW” or the “Company”) and Enertec Systems 2001 Ltd. (“Enertec”). The Pro Forma Statements are prepared as a business combination reflecting DPW's acquisition of Enertec (the “Acquisition”) and as if the Acquisition had been completed on January 1, 2017 for statement of income purposes and on March 31, 2018 for balance sheet purposes. The Pro Forma Statements do not give effect to the realization of any expected cost savings or other synergies from the Acquisition as a result of restructuring activities and other cost savings initiatives.

 

The pro forma amounts have been developed from (a) the audited consolidated financial statements of DPW contained in its Annual Report on Form 10-K for the year ended December 31, 2017 and the unaudited condensed consolidated financial statements of DPW contained in its Quarterly Report on Form 10-Q for the three months ended March 31, 2018, and (b) the audited financial statements of Enertec contained in this Current Report on Form 8-K for the year ended December 31, 2017 and the unaudited consolidated financial statements of Enertec contained in this Current Report on Form 8-K for the three months ended March 31, 2018. Historical results of Enertec have been adjusted to reclassify certain amounts to conform to DPW’s presentation.

 

The Pro Forma Statements have been prepared to reflect adjustments to our historical consolidated financial information that are (i) directly attributable to the acquisition, (ii) factually supportable and (iii) with respect to the Unaudited Pro Forma Condensed Combined Statement of Income, expected to have a continuing impact on our results.

 

Under accounting for business combinations, the assets and liabilities of Enertec were recorded at their respective fair values as of the date of the acquisition, May 23, 2018. DPW has not obtained third-party valuations of Enertec’s assets and liabilities. The values of Enertec’s assets and liabilities are based on preliminary valuations, as allowed by U.S. generally accepted accounting principles, and are subject to adjustment as additional information is obtained. We cannot provide any assurance that such adjustments will not result in a material change.

 

The Pro Forma Statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of DPW would have been had the Enertec acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

 

The Pro Forma Statements should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of DPW and Enertec.

 

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements - Continued

(Amounts in thousands except per share data)

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEAR ENDED DECEMBER 31, 2017

 

 

		Historical								Pro Forma
		DPW				Enertec				Adjustments				Combined
Revenue		$	10,001			$	7,061			$	—			$	17,062
Revenue, related party			174				—				—				174
Total revenue			10,175				7,061				—				17,236
Cost of revenue			6,325				7,790				—				14,115
Gross profit (loss)			3,850				(729	)			—				3,121
Operating expenses
Engineering and product development			1,120				672				—				1,792
Selling and marketing			1,721				546				—				2,267
General and administrative			6,992				2,200				—				9,192
Total operating expenses			9,833				3,418				—				13,251
Loss from operations			(5,983	)			(4,147	)			—				(10,130	)
Interest expense			(4,990	)			(630	)			—				(5,620	)
Loss before income taxes			(10,973	)			(4,777	)			—				(15,750	)
Income tax benefit (provision)			78				(124	)			—				(46	)
Net loss			(10,895	)			(4,901	)			—				(15,796	)
Less: Net loss attributable to non-controlling interest			279				—				—				279
Net loss attributable to DPW Holdings		$	(10,616	)		$	(4,901	)		$	—			$	(15,517	)
Preferred deemed dividends on Series B and Series C Preferred Stock			(584	)			—				—				(584	)
Preferred dividends on Series C Preferred Stock			(54	)			—				—				(54	)
Net loss available to common stockholders		$	(11,254	)		$	(4,901	)		$	—			$	(16,155	)
Basic and diluted net loss per common share		$	(0.88	)		$	(19.53	)		$	—			$	(1.26	)
Basic and diluted weighted average common shares outstanding			12,789,130				251,000				—				12,789,130
Comprehensive loss
Loss available to common stockholders		$	(11,254	)		$	(4,901	)		$	—			$	(16,155	)
Other comprehensive income (loss)
Foreign currency translation adjustment			152				390				—				542
Net unrealized loss on securities available- for-sale			5,171				—				—				5,171
Other comprehensive income			5,323				390				—				5,713
Total Comprehensive loss		$	(5,931	)		$	(4,511	)		$	—			$	(10,442	)

 

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements - Continued

(Amounts in thousands except per share data)

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2018

 

 

		Historical								Pro Forma
		DPW				Enertec				Adjustments				Combined
Revenue		$	3,166			$	2,578			$	—			$	5,744
Revenue, cryptocurrency mining			237				—				—				237
Revenue, related party			1,793				—				—				1,793
Total revenue			5,196				2,578				—				7,774
Cost of revenue			3,803				1,931				—				5,734
Gross profit			1,393				647				—				2,040
Operating expenses
Engineering and product development			343				58				—				401
Selling and marketing			725				119				—				844
General and administrative			3,222				411				—				3,633
Change in fair value of digital currency			70				—				—				70
Total operating expenses			4,360				588				—				4,948
(loss) Income from operations			(2,967	)			59				—				(2,908	)
Interest expense			(3,132	)			(99	)			—				(3,231	)
Loss before income taxes			(6,099	)			(40	)			—				(6,139	)
Income tax benefit			4				—				—				4
Net loss			(6,095	)			(40	)			—				(6,135	)
Less: Net loss attributable to non-controlling interest			36				—				—				36
Net loss available to common stockholders		$	(6,059	)		$	(40	)		$	—			$	(6,099	)
Basic and diluted net loss per common share		$	(0.17	)		$	(0.16	)		$	—			$	(0.17	)
Basic and diluted weighted average common shares outstanding			36,709,506				251,000				—				36,709,506
Comprehensive (loss) income
Loss available to common stockholders		$	(6,059	)		$	(40	)		$	—			$	(6,099	)
Other comprehensive loss
Foreign currency translation adjustment			26				(10	)			—				16
Net unrealized loss on securities available-for-sale			(4,741	)			—				—				(4,741	)
Other comprehensive loss			(4,715	)			(10	)			—				(4,725	)
Total Comprehensive loss		$	(10,774	)		$	(50	)		$	—			$	(10,824	)

 

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements - Continued

(Amounts in thousands except per share data)

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET - CONTINUED

AS OF MARCH 31, 2018

 

		Historical								Pro Forma
		DPW				Enertec				Adjustments								Combined
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	630			$	139			$	860				(a2)/(a4)			$	1,629
Restricted cash			—				4,343				—								4,343
Marketable securities			1,938				—				—								1,938
Digital currencies			166				—				—								166
Accounts receivable, net			1,565				4,844				—								6,409
Accounts and other receivable, related party			1,967				316				(189	)			(a2)				2,094
Inventories, net			2,237				1,646				—								3,883
Prepaid expenses and other current assets			2,702				13				—								2,715
TOTAL CURRENT ASSETS			11,205				11,301				671								23,177
Intangible assets			2,868				—				—								2,868
Goodwill			3,652				—				4,234				(a)				7,886
Property and equipment, net			8,590				650				—								9,240
Investments - related party, net			2,970				—				—								2,970
Investments in warrants and common stock - related party			4,624				—				—								4,624
Investments in preferred stock of private company			1,000				—				—								1,000
Other investments			2,011				—				—								2,011
Other investments, related parties			893				—				—								893
Other assets			680				96				—								776
TOTAL ASSETS		$	38,493			$	12,047			$	4,905							$	55,445
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	4,680			$	2,589			$	—							$	7,269
Accounts payable and accrued expenses, related party			81				—				—								81
Advances on future receipts			3,775				—				—								3,775
Short term advances			2,776				—				—								2,776
Short term advances, related party			295				—				—								295
Revolving credit facility			339				—				—								339
Notes payable, net			3,160				8,596				4,042				(a4)				15,798
Notes payable, related party			162				—				—								162
Other current liabilities			727				—				—								727
TOTAL CURRENT LIABILITIES			15,995				11,185				4,042								31,222
LONG TERM LIABILITIES
Notes payable			520				—				—								520
Notes payable, related parties			146				—				—								146
Accrued severance, net			—				134				—								134
TOTAL LIABILITIES		$	16,661			$	11,319			$	4,042							$	32,022

 

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements - Continued

(Amounts in thousands except per share data)

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET - CONTINUED

AS OF MARCH 31, 2018

 

		Historical								Pro Forma
		DPW				Enertec				Adjustments								Combined
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred shares issued		$	—			$	—			$	—							$	—
Common shares issued			42				57				(57	)			(a1)				42
Additional paid-in capital			50,728				—				1,591				(a4)				52,319
Accumulated (deficit)/retained earnings			(29,471	)			373				(373	)			(a1)				(29,471	)
Accumulated other comprehensive (loss) income			(212	)			298				(298	)			(a1)				(212	)
TOTAL DPW HOLDINGS STOCKHOLDERS' EQUITY			21,087				728				863								22,678
Non-controlling interest			745				—				—								745
TOTAL STOCKHOLDERS' EQUITY			21,832				728				863								23,423
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	38,493			$	12,047			$	4,905							$	55,445

 

 

DPW HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Dollars in thousands except per share amounts

 

Note 1. Basis of Presentation

 

The accompanying Unaudited Pro Forma Condensed Combined Financial Statements (the “Pro Forma Statements”) present the pro forma combined consolidated financial position and results of operations of the combined company based upon the historical consolidated financial statements of DPW and Enertec, after giving effect to DPW's acquisition of Enertec (the “Acquisition”) and adjustments described in these footnotes, and are intended to reflect the impact of the Acquisition on DPW.

 

On January 2, 2018, Coolisys Technologies Inc., a Delaware corporation and wholly owned subsidiary of DPW (“Coolisys”), entered into a Share Purchase Agreement dated December 31, 2017 (the “Enertec Agreement”) with Micronet Enertec Technologies, Inc., a Delaware corporation (“MICT”), Enertec Management Ltd., an Israeli corporation and wholly owned subsidiary of MICT (“EML” and, together with MICT, the “Seller Parties”), and Enertec Systems 2001 Ltd., an Israeli corporation and wholly owned subsidiary of EML (“Enertec”).  On May 23, 2018, Coolisys acquired Enertec subject to the terms and conditions set forth in the Enertec Agreement (the “Acquisition”) for an aggregate purchase price of $5,250, which includes a deduction of (i) a closing debt of $288 in excess of the Allowed Company Debt to be assumed by the Company (as defined in the Enertec Agreement) of $4,000 and (ii) $189 in Intercompany Accounts (as defined in the Enertec Agreement) for a total cash payment of $4,773.

 

The assets and liabilities of Enertec have been reflected on the opening balance sheet. Long-lived assets such as property, plant and equipment reflect a value that a market participant would spend to replace the assets, which takes into account changes in technology, usage, and relative obsolescence of the assets. This approach often results in differences, sometimes material, from recorded book values even if, absent the acquisition, the assets would be neither increased in value nor impaired. In addition, assets and liabilities that would not usually be recorded in ordinary operations will be recorded at their acquisition values (e.g., customer relationships that were developed by the acquired company). Debt instruments and investments are valued in relation to current market conditions and other assets and liabilities are valued based on the acquiring company's estimates. After all identifiable assets and liabilities are valued, the remainder of the purchase price is recorded as goodwill. These values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained.

 

The accompanying Pro Forma Statements are presented for illustrative purposes only and do not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of DPW's and Enertec's operations. The accompanying Pro Forma Statements have been adjusted to reflect adjustments to our historical consolidated financial information that are (i) directly attributable to the acquisition, (ii) factually supportable and (iii) to reclassify certain Enertec items to conform to DPW’s presentation. The Unaudited Pro Forma Combined Statements of Income reflect the Enertec Acquisition as if it had been completed on January 1, 2017. The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the acquisition as if it was completed on March 31, 2018.

 

 

DPW HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Combined Financial Statements - Continued
Dollars in thousands except per share amounts

Note 2. Pro Forma Adjustments 

  

(a) This entry reflects the preliminary allocation of the purchase price to identifiable net assets acquired and the excess purchase price to Goodwill as follows:

        

Book value of net assets acquired
Enertec's equity		$	728				(a1)
Preliminary fair value adjustment of Enertec:
Preliminary estimate of fair value of identifiable net assets (liabilities) acquired			728
Goodwill		$	4,234				(a)

 
(a1) The Pro Forma Balance Sheet has been adjusted to eliminate the historical shareholders' equity accounts of Enertec.

 

(a2) The Pro Forma Balance Sheet has been adjusted to reflect a reduction in the proceeds paid to the Seller of $189, the amount owed to Enertec by the Seller, which was paid to Enertec pursuant to the terms of the Share Purchase Agreement.

 

(a3) The Pro Forma Statements of Operations and Comprehensive Loss have not been adjusted for the three year consulting agreement entered into between the Company, Coolisys, Enertec, MICT and David Lucatz, Chairman, President and Chief Executive Officer of MICT (the “Consulting Agreement”) pursuant to which MICT, through Mr. Lucatz, shall provide certain services to Enertec in consideration of (i) an annual fee of $150,000 and (ii) an aggregate of 150,000 restricted shares of the Company’s Class A common. The Consulting Agreement is a continuation of an existing relationship between Enertec and MICT and the historical financial statements of Enertec include these costs.

 

(a4) The Pro Forma Balance Sheet has been adjusted to reflect the net proceeds of $5,633 received from a convertible note financing. On May 15, 2018, the Company entered into a securities purchase agreement to sell (i) a 10% convertible note (the “10% Convertible Note”), (ii) a five-year warrant to purchase 1,111,111 shares of the Company’s common stock at an exercise price of $1.35 per share; (iii) a five-year warrant to purchase 1,724,138 shares of the Company’s Class A common stock at an exercise price of $0.87 per share; and (iv) 344,828 shares of the Company’s common stock to an institutional investor. The 10% Convertible Note is convertible into common stock at $0.75 per share, but may only be converted if an event of default thereunder has occurred and not been cured on a timely basis.

 

The 10% Convertible Note is in the principal amount of $6,000 and bears interest at 10% simple interest on the principal amount with 50% of the total interest due on the principal payable at the closing and the remaining 50% payable over the term of the 10% Convertible Note. After deducting debt issuance costs for fees paid to the Company’s placement agent of $300 and legal fees of $67, the Company received net proceeds of $5,633. As a result of the payment to MICT of $4,773, the Pro Forma Balance Sheet reflects an increase in cash of $860. The Company is required to make principal and interest payments every 2 weeks until the 10% Convertible Note is satisfied in full on November 27, 2018. Due to the short-term nature of the 10% Convertible Note, contractual interest expense of $600 and non-cash interest expense from the amortization of debt discounts of $1,958 will not have a continuing impact on the Company’s financial statements and has therefore not been included in the proforma financial statements. In connection with the financing, the Company agreed to pay the placement agent a cash fee of $300 and a warrant to purchase 150,000 shares of the Company’s common stock with an exercise price of $1.00 per share.

 

 

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $1,398 based on the estimated fair value of the warrants. The Company estimated that the grant date fair value of the shares of common stock was $193, which was determined from the closing price of the Company’s common stock on the date of issuance. The fair value of the warrants and commons stock of $1,591 is recorded as an increase to additional paid-in capital in the Pro Forma Balance Sheet. In aggregate, the Company recorded debt discount in the amount of $1,958 based on the relative fair values of the warrants, common stock and debt issuance costs of $367, which is recorded on the Pro Forma Balance Sheet in notes payable, net. The fair value of the warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate of 2.94% was derived from the U.S. Treasury yield curve, matching the term of the warrant, in effect at the measurement date. The volatility factor of 127.9% was determined based on the Company’s historical stock prices.