EX-99.3 5 qrhc-ex99_3.htm EX-99.3 EX-99.3

Exhibit 99.3

 

QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On December 7, 2021, Rome Holdings, LLC and M&A Business Consulting, Inc. (collectively, the “Sellers”) entered into a membership interest purchase agreement (the “MIPA”) by and among Quest Sustainability Services, Inc. (“Buyer”) (QSSI), a wholly-owned subsidiary of the Company, RWS Facility Services, LLC (the “Business”) (RWS) and completed the acquisition by Buyer of the Business as set forth in the MIPA. Whereas, Sellers collectively owned (100%) of all of the issued and outstanding membership interest of the Business, which is a full-service management company engaged in the brokering of recycling, waste and sustainability solutions, located in Chadds Ford, PA.

As consideration for the Acquisition, under the MIPA, the Seller received a purchase price of $33,000,000 in cash subject to certain adjustments set forth in the MIPA at the closing of the Acquisition.

As of the date of acquisition, the total value of the purchase was estimated to be $34,013,000. The net tangible assets acquired had a value of $1,721,000 with the remainder of the purchase price, $32,292,000, allocated by the appraiser to intangible assets as follows: customer relationships - $24,590,000, trademark $760,000, non-compete $40,000 and the remainder associated with cost-in-excess of these assets, or goodwill, of $6,902,000. It was estimated that customer relationships, trademark and the non-compete would have an estimated life of five (5) years, seven (7) years and three (3) years, respectively. Goodwill would be subject to impairment valuations periodically in accordance with accounting principles generally accepted in the United States and other authoritative literature associated with goodwill impairment.

In order to facilitate the purchase of RWS, Buyer, and certain of its domestic subsidiaries modified an existing credit agreement, originally dated as of October 19, 2020, with Monroe Capital. Among other things, the modified Credit Agreement provides for a senior secured term loan facility in the principal amount of $34.7 million. The senior secured term loan at the LIBOR Rate for LIBOR Loans plus the Applicable Margin (as defined); provided, that if the provision of LIBOR Loans becomes unlawful or unavailable, then interest will be payable at a rate per annum equal to the Base Rate (as defined) from time to time in effect plus the Applicable Margin for Base Rate Loans (as defined). The maturity date of the revolving credit facility is October 19, 2025 (the "Maturity Date"). The senior secured term loan will amortize in aggregate annual amounts equal to 1.00% of the original principal amount of the senior secured term loan facility with the balance payable on the Maturity Date. Proceeds of the senior secured term loan were permitted to be used in connection with the Acquisition.

The following unaudited pro forma condensed combined financial information present the historical condensed combined financial information of QRHC and Subsidiaries and RWS, after giving effect to the Acquisition. The acquisition was accounted for under the purchase method of accounting in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), with the excess purchase price over the fair value of the assets acquired and liabilities assumed allocated to goodwill.

The fair value of assets acquired and liabilities assumed was based upon a preliminary valuation and the Company’s estimates and assumptions are subject to change within the measurement period. The estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Acquisition had been affected on the dates previously set forth, nor is it indicative of the future operating results or financial position in combination.

The unaudited pro forma condensed combined balance sheet shown on these unaudited pro forma statements is based upon the historical figures for all of the combined entities at September 30, 2021, as if the acquisition had taken place on the balance sheet date. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and year ended December 31, 2020, assumes the acquisition took place on the first day of the fiscal year. The unaudited pro forma condensed combined financial statements may not be indicative of the actual results of the acquisition and merger of the operations. In particular, the unaudited pro forma condensed combined financial statements are based upon management’s current estimate of the allocation of the purchase price, the final allocation of which may differ.

The accompanying unaudited pro forma condensed combined financial statements should be read in connection with the historical financial statements of QRHC and RWS (under Rome Holdings, LLC), including the related notes and other financial information included in the filing. Management adjustments are, in the opinion of management, necessary to a fair statement of pro forma financial information presented.

 

 

 

Pro forma adjustments (unaudited):

 

 

Debit

 

 

Credit

 

A

Cash

$

34,700,000

 

 

 

 

 

 

Notes payable - current portion

 

 

 

 

$

347,000

 

 

Notes payable - long-term

 

 

 

 

$

34,353,000

 

 

Notes payable - discount for warrants

$

535,970

 

 

 

 

 

 

APIC - discount for warrants

 

 

 

 

$

 535,970

 

 

Notes payable - discount for debt issuance costs

$

1,269,000

 

 

 

 

 

 

Cash

 

 

 

 

$

 1,269,000

 

 

To record the Monroe financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B

Intangibles – customer contracts

$

24,590,000

 

 

 

 

 

 

Intangibles – trademark

$

760,000

 

 

 

 

 

 

Intangibles – non-compete

$

40,000

 

 

 

 

 

 

Goodwill

$

1,175,491

 

 

 

 

 

 

Intangibles – pre-acquisition

 

 

 

 

$

1,444,046

 

 

Members’ equity

$

4,199,828

 

 

 

 

 

 

Cash

 

 

 

 

$

29,321,273

 

 

To record the membership purchase and adjust balance of RWS equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C

Notes payable – non-current portion

$

1,926,670

 

 

 

 

 

 

Other current liabilities

$

718,712

 

 

 

 

 

 

Other long-term liabilities

$

453,001

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

$

511,367

 

 

Goodwill

 

 

 

 

$

826,670

 

 

Cash

 

 

 

 

$

1,760,346

 

 

To record payoff of RWS debt, capital leases and PPP loans in conjunction with the purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D

Nine months ended September 30, 2021

$

2,276,000

 

 

 

 

 

 

Year ended December 31, 2020

$

3,038,000

 

 

 

 

 

 

To record interest expense with Monroe Capital Management calculated at 7.5% per annum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E

Nine months ended September 30, 2021

$

3,739,000

 

 

 

 

 

 

Year ended December 31, 2020

$

5,007,000

 

 

 

 

 

 

To record amortization of definite lived intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F

Nine months ended September 30, 2021

 

 

 

 

$

1,640,000

 

 

Year ended December 31, 2020

 

 

 

 

$

1,744,000

 

 

To record income tax expense (benefit) at a 27.0% statutory tax rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G

Nine months ended September 30, 2021

 

 

 

 

$

1,131,000

 

 

Year ended December 31, 2020

 

 

 

 

$

1,508,000

 

 

To reverse prior owners management fees and compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

H

Nine months ended September 30, 2021

 

 

 

 

$

41,000

 

 

Year ended December 31, 2020

 

 

 

 

$

58,000

 

 

To record interest benefit related to payoff of RWS notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I

Nine months ended September 30, 2021

$

    950,427

 

 

 

 

 

 

Year ended December 31, 2020

 

NA

 

 

 

 

 

 

To reverse Paycheck Protection Program benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments G and I are management adjustments that had the effect of improving pro forma earnings per share by $0.01 for the nine months ended September 30, 2021 and by $0.07 for the year ended December 31, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED

BALANCE SHEET

AS OF SEPTEMBER 30, 2021

(UNAUDITED)

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

Quest Resource Holding Corporation

 

 

RWS Facility Services, LLC

 

 

Pro Forma

Transactional Adjustments

 

 

Notes

 

Combined Pro Forma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,100,210

 

 

$

1,124,364

 

 

$

2,349,381

 

 

(A) (B) & (C)

 

$

12,573,955

 

Accounts receivable, net

 

 

25,918,812

 

 

 

11,347,014

 

 

 

—

 

 

 

 

 

37,265,826

 

Prepaid expenses and other current assets

 

 

1,462,742

 

 

 

320,936

 

 

 

—

 

 

 

 

 

1,783,678

 

Total current assets

 

 

36,481,764

 

 

 

12,792,314

 

 

 

2,349,381

 

 

 

 

 

51,623,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

66,794,747

 

 

 

6,553,179

 

 

 

348,821

 

 

(B) & (C)

 

 

73,696,747

 

Intangible assets, net

 

 

7,263,330

 

 

 

1,444,046

 

 

 

23,945,954

 

 

(B)

 

 

32,653,330

 

Property and equipment, net, and other assets

 

 

3,363,720

 

 

 

1,488,292

 

 

 

(511,367)

 

 

(C)

 

 

4,340,645

 

Deposits and other

 

 

—

 

 

 

516,667

 

 

 

—

 

 

 

 

 

516,667

 

Total assets

 

$

113,903,561

 

 

$

22,794,498

 

 

$

26,132,789

 

 

 

 

$

162,830,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

22,106,060

 

 

$

12,232,329

 

 

 

—

 

 

 

 

$

34,338,389

 

Deferred revenue and other current liabilities

 

 

1,678,370

 

 

 

3,982,670

 

 

 

(718,712)

 

 

(C)

 

 

4,942,328

 

Notes payable - current portion

 

 

651,800

 

 

 

—

 

 

 

347,000

 

 

 

 

 

998,800

 

Total current liabilities

 

 

24,436,230

 

 

 

16,214,999

 

 

 

(371,712)

 

 

 

 

 

40,279,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable – non-current portion, net

 

 

15,877,669

 

 

 

1,926,670

 

 

 

30,621,360

 

 

(A) & (C)

 

 

48,425,699

 

Other long-term liabilities

 

 

1,608,535

 

 

 

453,001

 

 

 

(453,001)

 

 

(C)

 

 

1,608,535

 

Total liabilities

 

 

41,922,434

 

 

 

18,594,670

 

 

 

29,796,647

 

 

 

 

 

90,313,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2021 and December 31, 2020

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

—

 

Common stock, $0.001 par value, 200,000,000 shares authorized,

   18,802,539 and 18,413,419 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

18,802

 

 

 

—

 

 

 

—

 

 

 

 

 

18,802

 

Members’ equity

 

 

—

 

 

 

4,199,828

 

 

 

(4,199,828)

 

 

(B)

 

 

—

 

Additional paid-in capital

 

 

168,130,553

 

 

 

—

 

 

 

535,970

 

 

(A)

 

 

168,666,523

 

Accumulated earnings (deficit)

 

 

(96,168,228

)

 

 

—

 

 

 

—

 

 

 

 

 

(96,168,228

)

Total stockholders’ equity

 

 

71,981,127

 

 

 

4,199,828

 

 

 

(3,663,858

)

 

 

 

 

72,517,097

 

Total liabilities and stockholders’ equity

 

$

113,903,561

 

 

$

22,794,498

 

 

$

26,132,789

 

 

 

 

$

162,830,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

(UNAUDITED)

 

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quest Resource Holding Corporation

 

 

RWS Facility Services, LLC

 

 

Pro Forma Transactional Adjustments

 

 

 

Pro Forma Management Adjustments

Notes

 

Combined Pro Forma

 

Revenue

 

$

109,326,814

 

 

$

38,731,037

 

 

$

—

 

$

—

 

 

$

148,057,851

 

Cost of revenue

 

 

89,223,751

 

 

 

31,431,720

 

 

 

—

 

 

—

 

 

 

120,655,471

 

Gross profit

 

 

20,103,063

 

 

 

7,299,317

 

 

 

—

 

 

—

 

 

 

27,402,380

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative

 

 

14,630,426

 

 

 

7,734,867

 

 

 

—

 

 

(1,131,000)

(G)

 

 

21,234,293

 

Depreciation and amortization

 

 

1,324,391

 

 

 

647,787

 

 

 

3,739,000

 

 

—

(E)

 

 

5,711,178

 

Total operating expenses

 

 

15,954,817

 

 

 

8,382,654

 

 

 

3,739,000

 

 

(1,131,000)

 

 

 

26,945,471

 

Operating income (loss)

 

 

4,148,246

 

 

 

(1,083,337

)

 

 

(3,739,000

)

 

1,131,000

 

 

 

456,909

 

    Other (income) expense, net

 

 

—

 

 

 

(950,427

)

 

 

—

 

 

950,427

(I)

 

 

—

 

    Interest expense

 

 

1,653,987

 

 

 

146,628

 

 

 

2,235,000

 

 

—

(D) & (H)

 

 

4,035,615

 

    Loss on extinguishment of debt

 

 

—

 

 

 

—

 

 

 

—

 

 

—

 

 

 

—

 

Income (loss) before taxes

 

 

2,494,259

 

 

 

(279,538)

 

 

 

(5,974,000

)

 

180,573

 

 

 

(3,578,706)

 

Income tax expense (benefit)

 

 

262,449

 

 

 

—

 

 

 

(1,689,000

)

 

49,000

(F)

 

 

(1,377,551)

 

Net income (loss)

 

$

2,231,810

 

 

$

(279,538)

 

 

$

(4,285,000

)

$

131,573

 

 

$

(2,201,155)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

$

2,231,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(2,201,155)

 

Net income (loss) per share applicable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.12)

 

Diluted

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.12)

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

18,784,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,784,722

 

Diluted

 

 

20,704,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,784,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2020

(UNAUDITED)

 

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quest Resource Holding Corporation

 

 

RWS Facility Services, LLC

 

 

Pro Forma Transactional Adjustments

 

 

Pro Forma Management Adjustments

Notes

 

Combined Pro Forma

 

Revenue

 

$

98,660,035

 

 

$

50,190,343

 

 

$

—

 

$

—

 

 

$

148,850,378

 

Cost of revenue

 

 

79,604,958

 

 

 

37,927,794

 

 

 

—

 

 

—

 

 

 

117,532,752

 

Gross profit

 

 

19,055,077

 

 

 

12,262,549

 

 

 

—

 

 

—

 

 

 

31,317,626

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative

 

 

17,140,996

 

 

 

11,124,743

 

 

 

—

 

 

(1,508,000)

(G)

 

 

26,757,739

 

Depreciation and amortization

 

 

1,163,812

 

 

 

792,317

 

 

 

5,007,000

 

 

—

(E)

 

 

6,963,129

 

Total operating expenses

 

 

18,304,808

 

 

 

11,917,060

 

 

 

5,007,000

 

 

(1,508,000)

 

 

 

33,720,868

 

Operating income (loss)

 

 

750,269

 

 

 

345,489

 

 

 

(5,007,000

)

 

1,508,000

 

 

 

(2,403,242

)

    Other (income) expense, net

 

 

(1,408,000)

 

 

 

—

 

 

 

—

 

 

—

 

 

 

(1,408,000

)

    Interest expense

 

 

701,932

 

 

 

327,379

 

 

 

2,980,000

 

 

—

(D) & (H)

 

 

4,009,311

 

    Loss on extinguishment of debt

 

 

167,964

 

 

 

—

 

 

 

—

 

 

—

 

 

 

167,964

 

Income (loss) before taxes

 

 

1,288,373

 

 

 

18,110

 

 

 

(7,987,000

)

 

1,508,000

 

 

 

(5,172,517

)

Income tax expense (benefit)

 

 

254,004

 

 

 

—

 

 

 

(2,151,000

)

 

407,000

(F)

 

 

(1,489,996

)

Net income (loss)

 

$

1,034,369

 

 

$

18,110

 

 

$

(5,836,000

)

 $

1,101,000

 

 

$

(3,682,521

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividend for warrant down round feature

 

 

(205,014)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(205,014)

 

Net income (loss) applicable to common stockholders

 

$

829,355

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(3,887,535

)

Net income (loss) per share applicable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.23

)

Diluted

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(0.23

)

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

16,661,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,661,472

 

Diluted

 

 

16,755,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,661,472