EX-99.2 4 ex_477352.htm PRO FORMA FINANCIAL STATEMENTS ex_477351.htm

Exhibit 99.2

 

HireQuest, Inc.

 

Unaudited Pro Forma Condensed Combined Financial Information

 

The following unaudited pro forma financial information presents the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of income based upon the combined historical financial statements of HireQuest, Inc. (the “Company”) and MRI Network Holdings, Inc. (“MRI”), after giving effect to the Acquisition of MRI into HQ Snelling Corporation (“HQ Snelling”), a wholly-owned subsidiary of the Company, and the adjustments described in the accompanying notes. The Acquisition is accounted for as a business combination under the acquisition method of accounting where the Company is the acquiring entity.

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2022 reflects the transaction as if it occurred on September 30, 2022. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 and for the quarter ended September 30, 2022 reflect the transaction as if it occurred on January 1, 2021, the beginning of the earliest period presented.

 

The unaudited pro forma condensed combined financial information is for informational purposes only and does not purport to present what our results would actually have been had these transactions actually occurred on the dates presented or to project our results of operations or financial position for any future period. You should read the information set forth below together with the notes to the pro forma condensed combined financial statements, the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2021 and the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended September 30, 2022, and the financial statements of MRI for the years ended December 31, 2021 and 2020 and the three and nine months ended September 30, 2022 and 2021 included as Exhibit 99.1.

 

 
 

 

HireQuest, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

September 30, 2022

 

(in thousands)

  

HireQuest, Inc.

    

MRI

    

Pro forma

adjustments

  

Pro forma

condensed

combined

  

ASSETS

                                  

Current assets

                                  

Cash and cash equivalents

   $ 1,535     $ 1,084     $ (1,084 )

A

   $ 1,535  

Accounts receivable, net of allowance for doubtful accounts

     45,686       7,890       (7,890 )

A

     45,686  

Note receivable

     1,272       -       -         1,272  

Prepaid expenses, deposits, and other assets

     1,313       895       (314 )

B

     1,894  

Prepaid workers' compensation

     873       -       -         873  

Current assets held for sale - discontinued operations

     204       -       -         204  

Total current assets

     50,883       9,869       (9,288 )       51,464  

Property and equipment, net

     4,397       122       (122 )

A

     4,397  

Workers' compensation claim payment deposit

     1,231       -       -         1,231  

Franchise agreements, net

     17,714       -       5,640  

C

     23,354  

Goodwill and other intangible assets, net

     12,643       159       7,391  

D

     20,193  

Other assets

     447       1,005       (1,005 )

A

     447  

Notes receivable, net of current portion and reserve

     2,452       -       -         2,452  

Total assets

   $ 89,767     $ 11,155     $ 2,616       $ 103,538  

LIABILITIES AND EQUITY

                                  

Current liabilities

                                  

Accounts payable

   $ 206     $ 1,776     $ (1,776 )     $ 206  

Line of credit

     2,206       -       13,224  

E

     15,430  

Term loans payable

     699       7       (7 )

A

     699  

Other current liabilities

     2,662       961       (766 )

F

     2,857  

Accrued payroll, benefits, and payroll taxes

     3,411       2,377       (2,025 )

G

     3,763  

Due to franchisees

     11,380       -       -         11,380  

Risk management incentive program liability

     1,199       -       -         1,199  

Workers' compensation claims liability

     3,852       -       -         3,852  

Total current liabilities

     25,615       5,121       8,650         39,386  

Term loans payable, net of current portion

     3,429       824       (824 )

A

     3,429  

Workers' compensation claims liability, net of current portion

     2,591       -       -         2,591  

Other liabilities

     -       76       (76 )

A

     -  

Franchise deposits

     2,242       -       -         2,242  

Total liabilities

     33,877       6,021       7,750         47,648  

Equity

                                  

Total HireQuest, Inc. stockholders' equity

     55,890       -       -         55,890  

Total MRI, LLC member equity

     -       5,134       (5,134 )

H

     -  

Total stockholders' equity

     55,890       5,134       (5,134 )       55,890  

Total liabilities and stockholders' equity

   $ 89,767     $ 11,155     $ 2,616       $ 103,538  

 

See notes to pro forma condensed combined financial statements.

 

 

HireQuest, Inc.

Unaudited Pro Forma Condensed Combined Statement of Income for the

Three Months Ended September 30, 2022

 

(in thousands, except per share data)

  

HireQuest, Inc.

    

MRI

    

Pro forma

adjustments

  

Pro forma

condensed

combined

  

Franchise royalties

   $ 7,433     $ 2,590     $ -       $ 10,023  

Staffing revenue, owned locations

     1,499       -       -         1,499  

Service revenue

     429       -       -         429  

Total revenue

     9,361       2,590       -         11,951  

Cost of staffing revenue, owned locations

     1,123       -       -         1,123  

Gross profit

     8,238       2,590       -         10,828  

Selling, general and administrative expenses

     2,395       2,245       (1,337 )

A

     3,303  

Depreciation and amortization

     601       30       64  

B

     695  

Income from operations

     5,242       315       1,273         6,829  

Other miscellaneous income (expense)

     (99 )     3,675       (3,675 )

C

     (99 )

Interest income

     51       2       -         53  

Interest and other financing expense

     (100 )     -       -         (100 )

Net income before income taxes

     5,094       3,991       (2,402 )       6,683  

Provision (benefit) for income taxes

     946       4       (601 )

D

     350  

Net income from continuing operations

     4,148       3,987       (1,802 )       6,334  

Income from discontinued operations, net of tax

     98       -       -         98  

Net income

   $ 4,246     $ 3,987     $ (1,802 )     $ 6,432  
                                   

Basic earnings per share

                                  

Continuing operations

   $ 0.30                       $ 0.47  

Discontinued operations

     0.01                         -  

Total

   $ 0.31                       $ 0.47  
                                   

Diluted earnings per share

                                  

Continuing operations

   $ 0.30                       $ 0.46  

Discontinued operations

     0.01                         0.01  

Total

   $ 0.31                       $ 0.47  
                                   

Weighted average shares outstanding

                                  

Basic

     13,610                         13,610  

Diluted

     13,677                         13,677  

 

See notes to pro forma condensed combined financial statements.
 

 

HireQuest, Inc.

Unaudited Pro Forma Condensed Combined Statement of Income for the

Nine Months Ended September 30, 2022

 

(in thousands, except per share data)

  

HireQuest, Inc.

    

MRI

    

Pro forma

adjustments

  

Pro forma

condensed

combined

  

Franchise royalties

   $ 21,226     $ 8,331     $ -       $ 29,557  

Staffing revenue, owned locations

     3,891       -       -         3,891  

Service revenue

     1,677       -       -         1,677  

Total revenue

     26,794       8,331       -         35,125  

Cost of staffing revenue, owned locations

     2,832       -       -         2,832  

Gross profit

     23,962       8,331       -         32,293  

Selling, general and administrative expenses

     8,763       7,177       (4,034 )

A

     11,906  

Depreciation and amortization

     1,777       92       190  

B

     2,059  

Income from operations

     13,422       1,062       3,845         18,328  

Other miscellaneous income (expense)

     (2,020 )     3,675       (3,675 )

C

     (2,020 )

Interest income

     198       (25 )     -         173  

Interest and other financing expense

     (256 )     -       -         (256 )

Net income before income taxes

     11,344       4,712       170         16,226  

Provision (benefit) for income taxes

     1,880       12       42  

D

     1,935  

Net income from continuing operations

     9,464       4,699       127         14,291  

Income from discontinued operations, net of tax

     277       -       -         277  

Net income

   $ 9,741       4,699     $ 127       $ 14,568  
                                   

Basic earnings per share

                                  

Continuing operations

   $ 0.70                       $ 1.05  

Discontinued operations

     0.02                         0.02  

Total

   $ 0.72                       $ 1.07  
                                   

Diluted earnings per share

                                  

Continuing operations

   $ 0.69                       $ 1.04  

Discontinued operations

     0.02                         0.02  

Total

   $ 0.71                       $ 1.06  
                                   

Weighted average shares outstanding

                                  

Basic

     13,598                         13,598  

Diluted

     13,688                         13,688  

 

See notes to pro forma condensed combined financial statements.
 

 

HireQuest, Inc.

Unaudited Pro Forma Condensed Combined Statement of Income for the

Year Ended December 31, 2021

 

(in thousands, except per share data)

  

HireQuest, Inc.

    

MRI

    

Pro forma

adjustments

  

Pro forma

condensed

combined

  

Franchise royalties

   $ 21,317     $ 10,910     $ -       $ 32,227  

Staffing revenue, owned locations

     -       -       -         -  

Service revenue

     1,212       -       -         1,212  

Total revenue

     22,529       10,910       -         33,439  

Cost of staffing revenue, owned locations

     -       -       -         -  

Gross profit

     22,529       10,910       -         33,439  

Selling, general and administrative expenses

     13,328       8,027       (4,942 )

A

     16,414  

Depreciation and amortization

     1,563       120       256  

B

     1,939  

Income from operations

     7,638       2,763       4,686         15,087  

Other miscellaneous income (expense)

     4,571       (20 )     -         4,551  

Interest income

     413       (1 )     -         412  

Interest and other financing expense

     (157 )     -       -         (157 )

Net income before income taxes

     12,465       2,742       4,686         19,893  

Provision (benefit) for income taxes

     633       799       1,171  

D

     2,603  

Net income from continuing operations

     11,832       1,943       3,514         17,289  

Income from discontinued operations, net of tax

     18       -       -         18  

Net income

   $ 11,850     $ 1,943     $ 3,514       $ 17,307  
                                   

Basic earnings per share

                                  

Continuing operations

   $ 0.88                       $ 1.28  

Discontinued operations

     -                         0.01  

Total

   $ 0.88                       $ 1.29  
                                   

Diluted earnings per share

                                  

Continuing operations

   $ 0.87                       $ 1.27  

Discontinued operations

     -                         -  

Total

   $ 0.87                       $ 1.27  
                                   

Weighted average shares outstanding

                                  

Basic

     13,461                         13,461  

Diluted

     13,588                         13,588  

 

See notes to pro forma condensed combined financial statements.
 

 

HireQuest, Inc.

Notes to the Pro Forma Condensed Combined Financial Statement

 

Note 1 – Basis of Presentation

 

The historical financial information has been adjusted to give pro forma effect to events that are directly attributable to the Merger and expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates. They have been prepared to illustrate the estimated effect of the Acquisition and certain other adjustments. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed of the Company as of the closing date of Acquisition, and could result in a significant change to the unaudited pro forma condensed combined financial information, including goodwill.

 

Note 2 – MRI Preliminary Purchase Price Allocation

 

The preliminary purchase price as shown in the table below is allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based on their preliminary estimated fair values. The fair value assessments are preliminary and are based upon available information and certain assumptions which the Company believes are reasonable. Actual results may differ materially from the unaudited pro forma condensed combined financial statements.

 

Description

  

Amount

  

Cash consideration

   $ 13,224  

Contingent consideration

     60  

Total consideration

   $ 13,284  
         

Current assets

   $ 581  

Identifiable intangible assets (1)

     7,820  

Goodwill

     5,370  

Current liabilities

     (487 )

Preliminary purchase price

   $ 13,284  

 

1.

Preliminary fair assessments are still in process. However, based on the information available to management to date, management does not believe the fair value will be differ materially. Identifiable intangible assets include franchise agreements and trade name. The useful life of franchise agreements was estimated to be fifteen years. The trade name was deemed to have an indefinite life.

 

Note 3 – Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet

 

A.

Assets not acquired and liabilities not assumed in the Acquisition.

 

B.

Adjustments to prepaid expenses, deposits, and other assets:

 

Description

  

Amount

  

Fair value of prepaid expenses acquired

   $ 581  

Less carrying value of MRI's prepaid expenses, deposits, and other assets not acquired

     (895 )

Pro forma adjustment to prepaid expenses, deposits, and other assets

   $ (314 )

 

C.

Preliminary fair value assigned to franchise agreements acquired.

 

 
 

 

D.

Adjustments to goodwill and other intangible assets based on preliminary fair value assessment:

 

Description

  

Amount

  

Fair value of consideration transferred in excess of preliminary fair value of assets acquired and liabilities assumed

   $ 5,370  

Fair value of trade name

     2,180  

Less MRI historical intangible assets

     (159 )

Pro forma adjustment to goodwill and other intangible assets

   $ 7,391  

 

E.

Increase in line of credit to finance Acquisition.

 

F.

Adjustment to other current liabilities based on preliminary fair value assessment:

 

Description

  

Amount

  

Current liabilities assumed

   $ 135  

Contingent consideration

     60  

Less carrying value of MRI other current liabilities not assumed

     (961 )

Pro forma adjustment to other current liabilities

   $ (766 )

 

G.

Adjustment to accrued payroll, benefits, and payroll taxes based on preliminary fair value assessment:

 

Description

  

Amount

  

Accrued payroll liabilities assumed

   $ 352  

Less carrying value of MRI accrued payroll, benefits, and payroll taxes not assumed

     (2,377 )

Pro forma adjustment to accrued payroll, benefits, and payroll taxes

   $ (2,025 )

 

H.

Elimination of MRI’s historical equity.

 

Note 4 – Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Income

 

A.

Estimated reduction in selling, general and administrative expenses related to synergies achieved when combining the two entities.  These include salaries of employees who did not transition, rents for facilities we did not assume and certain legal & professional fees that will no longer be required.

 

B.

The newly acquired intangible asset consisting of franchise agreements will be amortized on a straight-line basis over its estimated useful lives. The fair value assessment is preliminary and any changes to the preliminary value will have a direct impact on future earnings via amortization expense.

 

             

Amortization expense

  
   

Estimated

  

Estimated

  

Three months Ended

    

Nine months Ended

    

Year months Ended

  

Description

   fair value   useful life   

September 30, 2022

    

September 30, 2022

    

December 31, 2021

  

Franchise agreements

   $ 570  

15 Years

   $ 94       282       376  

Less MRI historical amortization

               (30 )     (92 )     (120 )

Pro forma adjustment to amortization expense

             $ 64     $ 190     $ 256  

 

C.

Elimination of one-time MRI income.

 

D.

To record the income tax impact of the pro forma adjustments 4.A. through 4.C above.