EX-99.3 4 dex993.htm UNAUDITED PRO FORMA BALANCE SHEET Unaudited Pro Forma Balance Sheet
EXHIBIT 99.3
 
HALL, KINION & ASSOCIATES, INC.
 
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
On August 9, 2002, Hall, Kinion & Associates, Inc., a Delaware corporation (“Hall Kinion”), through a newly formed wholly-owned subsidiary of Hall Kinion, OnStaff Acquisition Corp. (“Subsidiary”), a Delaware corporation, acquired certain net assets of OnStaff, a privately-held group of companies that provides temporary and full-time employees in the real estate, finance and healthcare industries through its 28 office locations in 12 states and its online recruiting and placement websites. The OnStaff group of companies includes: OnStaff, Inc., a California corporation (“OSI”), Healthcare Staffing Resources, Inc., a California corporation (“HCSR”), and Boardnetwork.com, Inc., a California corporation (“BNI”)(collectively, the “Acquisitions”).
 
The total purchase price was approximately $22.0 million, consisting of cash paid of $18.1 million and the issuance of 363,057 shares of common stock valued at $2.2 million, both distributed to shareholders and held in escrow, as well as transaction costs estimated at $1.7 million.
 
The transaction will be accounted for using the purchase method in accordance with accounting principles generally accepted in the United States of America. The net purchase price, including transaction costs, is allocated to tangible assets and intangible assets. The excess of the aggregate purchase price over the estimated fair value of the tangible net assets acquired is recognized as other identifiable intangible assets and goodwill. Identifiable intangible assets will be amortized over periods from five to nine years. Goodwill will be evaluated on a regular basis for any impairment. The allocation of the purchase price is based on preliminary data and will change when the independent valuation information is finalized.
 
The unaudited pro forma consolidated balance sheet as of June 30, 2002 gives effect to the Acquisitions as if they had occurred on June 30, 2002. The unaudited pro forma consolidated statements of operations for the six months ended June 30, 2002 and for the year ended December 31, 2001 give effect to the Acquisitions as if they had occurred on January 1, 2001. The unaudited pro forma information is based on the historical financial statements of Hall, Kinion & Associates as of June 30, 2002 and for the periods ended June 30, 2002 and December 30, 2001, and the historical combined financial statements of OnStaff Group as of July 31, 2002 and for the periods ended June 30, 2002 and December 31, 2001. The pro forma information does not purport to represent what the operating results or financial position would have been or to project the operating results or financial position for any future period or date. The unaudited pro forma financial statements give effect to the transaction under the purchase method of accounting, considering the assumptions and adjustments as indicated in the Notes below.

1

HALL, KINION & ASSOCIATES, INC.
 
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2002
(In thousands)
 
    
Hall Kinion
     
OnStaff
Group
    
Pro Forma Adjustments
     
Notes
     
Pro Forma
  
ASSETS
                                           
Current Assets:
                                           
Cash and cash equivalents
   
$
25,804
 
   
$
222
 
   
$
(8,050
)
   
(A
)
   
$
17,754
 
                      
 
(222
)
   
(B
)
         
Accounts receivable, net
   
 
11,386
 
   
 
3,004
 
   
 
(3,004
)
   
(B
)
   
 
11,386
 
Prepaid expenses and other current assets
   
 
1,899
 
   
 
183
 
   
 
(122
)
   
(B
)
   
 
1,960
 
Deferred income taxes
   
 
6,634
 
   
 
—  
 
   
 
—  
 
          
 
6,634
 
    
  
  
         
Total current assets
   
 
45,723
 
   
 
3,409
 
   
 
(11,398
)
          
 
37,734
 
Property and equipment, net
   
 
8,205
 
   
 
261
 
   
 
—  
 
          
 
8,466
 
Goodwill, net
   
 
15,478
 
   
 
—  
 
   
 
9,313
 
   
(D
)
   
 
24,791
 
Deferred income taxes and other assets
   
 
8,770
 
   
 
92
 
   
 
(36
)
   
(B
)
   
 
8,826
 
Identifiable intangible assets
   
 
—  
 
   
 
—  
 
   
 
13,019
 
   
(D
)
   
 
13,019
 
    
  
  
         
Total assets
   
$
78,176
 
   
$
3,762
 
   
$
10,898
 
          
$
92,836
 
    
  
  
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                           
Current Liabilities:
                                           
Accounts payable and accrued liabilities
   
$
3,400
 
   
$
1,433
 
   
$
(1,243
)
   
(B
)
   
$
5,290
 
                      
 
1,700
 
   
(A
)
         
Accrued payroll and payroll taxes
   
 
6,628
 
   
 
1,266
 
   
 
(838
)
   
(B
)
   
 
7,056
 
Reserve for restructuring costs
   
 
5,443
 
   
 
—  
 
   
 
—  
 
          
 
5,443
 
Bank line of credit
   
 
—  
 
   
 
483
 
   
 
(483
)
   
(B
)
   
 
—  
 
Deferred revenue
   
 
—  
 
   
 
100
 
   
 
(100
)  
   
(B
)
   
 
—  
 
Deferred income taxes
   
 
90
 
   
 
28
 
   
 
(28
)
   
(B
)
   
 
90
 
Current portion of capital lease obligations
   
 
—  
 
   
 
18
 
   
 
—  
 
          
 
18
 
    
  
  
         
Total current liabilities
   
 
15,561
 
   
 
3,328
 
   
 
(992
)
          
 
17,897
 
    
  
  
         
Accrued compensation and deferred rent
   
 
1,712
 
   
 
—  
 
   
 
—  
 
          
 
1,712
 
Reserve for non-current restructuring costs
   
 
2,252
 
   
 
—  
 
   
 
—  
 
          
 
2,252
 
Line of credit
   
 
—  
 
   
 
—  
 
   
 
10,000
 
   
(A
)
   
 
10,000
 
Capital lease obligations, net of current portion
   
 
—  
 
   
 
84
 
   
 
—  
 
          
 
84
 
    
  
  
  
  
Total liabilities
   
 
19,525
 
   
 
3,412
 
   
 
9,008
 
          
 
31,945
 
    
  
  
         
Stockholders’ Equity:
                                           
Common stock
   
 
82,993
 
   
 
1,655
 
   
 
(1,655
)
   
(C
)
   
 
85,233
 
                      
 
2,240
 
   
(A
)
         
Stockholder notes receivable
   
 
(1,000
)
   
 
(429
)
   
 
429
 
   
(B
)
   
 
(1,000
)
Accumulated other comprehensive loss
   
 
(385
)
   
 
—  
 
   
 
—  
 
          
 
(385
)
Accumulated deficit
   
 
(22,957
)
   
 
(876
)
   
 
876
 
   
(C
)
   
 
(22,957
)
    
  
  
  
  
Total stockholders’ equity
   
 
58,651
 
   
 
350
 
   
 
1,890
 
          
 
60,891
 
    
  
  
         
Total liabilities and stockholders' equity
   
$
78,176
 
   
$
3,762
 
   
$
10,898
 
          
$
92,836
 
    
  
  
         
 
See Notes to Pro Forma Consolidated Financial Statements.
 

2

 
HALL, KINION & ASSOCIATES, INC.
 
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 2002
(In thousands, except per share amounts)
 
    
Hall Kinion
     
OnStaff
Group
      
Pro Forma
Adjustments
     
Notes
   
Pro Forma
  
Net revenues
   
$
49,328
 
   
$
19,252
 
     
$
—  
 
        
$
68,580
 
Cost of revenues
   
 
32,385
 
   
 
13,349
 
     
 
—  
 
        
 
45,734
 
    
  
    
       
Gross profit
   
 
16,943
 
   
 
5,903
 
     
 
—  
 
        
 
22,846
 
Selling, general and administrative expenses
   
 
22,682
 
   
 
6,483
 
     
 
358
 
   
(E)
   
 
29,166
 
                        
 
15
 
   
(F)
         
                        
 
(372
)
   
(G)
         
    
  
    
       
Operating income (loss)
   
 
(5,739
)
   
 
(580
)
     
 
(1
)
        
 
(6,320
)
Interest income (expense), net
   
 
277
 
   
 
20
 
     
 
(298
)
   
(H)
   
 
19
 
                        
 
20
 
   
(I)
         
    
  
    
       
Loss before income taxes
   
 
(5,462
)
   
 
(560
)
     
 
(279
)
        
 
(6,301
)
Provision (benefit) for income taxes
   
 
(2,223
)
   
 
29
 
     
 
(114
)
   
(J)
   
 
(2,308
)
    
  
    
       
Net loss
   
$
(3,239
)
   
$
(589
)
     
$
(165
)
        
$
(3,993
)
    
  
    
       
Weighted average number of common shares outstanding
   
 
12,978
 
              
 
363
 
   
(A)
   
 
13,341
 
    
             
       
Basic loss per share
   
$
(0.25
)
                            
$
(0.30
)
    
                           
Diluted loss per share
   
$
(0.25
)
                            
$
(0.30
)
    
                           
 
 
See Notes to Pro Forma Consolidated Financial Statements.

3

 
HALL, KINION & ASSOCIATES, INC.
 
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THE YEAR ENDED DECEMBER 30, 2001
(In thousands, except per share amounts)
 
    
Hall Kinion
     
OnStaff
Group
   
Pro Forma Adjustments
     
Notes
     
Pro Forma
  
Net revenues
   
$
173,836
 
   
$
35,065
   
$
—  
 
          
$
208,901
 
Cost of revenues
   
 
100,834
 
   
 
24,644
   
 
—  
 
          
 
125,478
 
    
  
  
         
Gross profit
   
 
73,002
 
   
 
10,421
                   
 
83,423
 
Selling, general and administrative expenses
   
 
140,604
 
   
 
10,006
   
 
716
 
   
(E
)
   
 
151,338
 
                    
 
12
 
   
(F
)
         
    
  
  
         
Operating income (loss)
   
 
(67,602
)
   
 
415
   
 
(728
)
          
 
(67,915
)
Interest income (expense), net
   
 
1,181
 
   
 
27
   
 
(717
)
   
(H
)
   
 
527
 
                    
 
36
 
   
(I
)
         
    
  
  
         
Income (loss) before income taxes
   
 
(66,421
)
   
 
442
   
 
(1,409
)
          
 
(67,388
)
Provision (benefit) for income taxes
   
 
(20,809
)
   
 
23
   
 
(573
)
   
(J
)
   
 
(21,359
)
    
  
  
         
Net income (loss)
   
$
(45,612
)
   
$
419
   
$
(836
)
          
$
(46,029
)
    
  
  
         
Weighted average of common shares outstanding
   
 
13,121
 
          
 
363
 
   
(A
)
   
 
13,484
 
    
         
         
Basic loss per share
   
$
(3.48
)
                          
$
(3.40
)
    
                         
Diluted loss per share
   
$
(3.48
)
                          
$
(3.40
)
    
                         
 
 
See Notes to Pro Forma Consolidated Financial Statements.

4

 
HALL, KINION & ASSOCIATES, INC.
 
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
(A)  Adjustment represents the cash paid and common stock issued to fund the acquisition of OnStaff Group as follows:
 
Cash paid
   
$
8,050,000
Capital lease obligations assumed
   
 
102,000
Additional debt
   
 
10,000,000
Estimated transaction costs
   
 
1,700,000
Common stock issued (363,057 shares of common stock issued valued at $6.17 per share)
   
 
2,240,000
    
Total purchase price
   
$
22,092,000
    
 
(B)  Adjustment represents the elimination of certain assets and liabilities of OnStaff that were not acquired or assumed by Hall Kinion.
 
(C)  Adjustment represents the elimination of OnStaff’s historical stockholders’ equity.
 
(D)  Represents the excess of purchase price over the current fair value of identifiable OnStaff assets at the time of purchase as follows:
 
           
Value
  
Total purchase price
          
$
22,092,000
 
Add:
                
Tangible liabilities (assets) acquired:
                
Net working capital
   
557,000
 
         
Fixed assets
   
(261,000
)
         
Other tangible assets
   
(56,000
)
         
    
        
           
 
240,000
 
Less:
                
Identifiable intangible assets:
                
Tradename and Trademarks
   
6,841,000
 
         
Customer Relationships
   
5,846,000
 
         
Web-based Job Board Software
   
332,000
 
         
    
        
           
 
(13,019,000
)
           
Goodwill
          
$
9,313,000
 
           

5

 
HALL, KINION & ASSOCIATES, INC.
 
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
 
(E)
 
Represents amortization expense of acquired identifiable intangible assets.
 
 
(F)
 
Represents adjustment to conform OnStaff’s depreciation accounting policy to Hall Kinion’s accounting policy
 
 
(G)
 
Adjustment eliminates acquisition-related expenses included in OnStaff’s selling, general and administrative expenses.
 
 
(H)
 
Represents a reduction in interest income, net based on cash paid of $8,050,000 and estimated additional debt of $10,000,000. Interest income is calculated at an annual rate of 1.5% and 3.0%, which approximate Hall Kinion’s effective interest rates on investments for 2002 and 2001, respectively. Interest expense is calculated at an annual rate of 4.75%, which approximates Hall Kinion’s effective interest rate on borrowings.
 
 
(I)
 
Adjustment eliminates OnStaff’s interest expense for debt that was not assumed by Hall Kinion in the acquisition.
 
 
(J)
 
Represents the estimated tax effect of pro forma adjustments based upon 40.7% effective tax rate.

6