EX-99.3 4 qrhc-ex993_45.htm EX-99.3 qrhc-ex993_45.htm

Exhibit 99.3

 

QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On October 19, 2020, Green Remedies Waste and Recycling, Inc. entered into an asset purchase agreement (the “APA”) by and among Quest Resource Holding Corporation (QRHC), Quest Resource Management Group, LLC (“Buyer”), a wholly-owned subsidiary of the Company, Green Remedies Waste and Recycling, Inc. (GRWR or “Seller”) and Alan Allred (the “Shareholder”) and completed the acquisition by Buyer of the business operation including substantially all of the assets used in the business of the Seller and assumed certain liabilities of the Seller, as set forth in the APA (the “Acquisition”).  Seller is a leading provider of independent environmental services, particularly in multi-family housing, located in Elon, NC.

As consideration for the Acquisition, under the APA, the Seller received a purchase price of (i) $10,870,000 in cash subject to certain adjustments set forth in the APA at the closing of the Acquisition; (ii) a promissory note in the aggregate principal amount of $2,684,000, payable commencing on January 1, 2021 in quarterly installments through October 1, 2025 and subject to an interest rate of 3.0% per annum; (iii) a payment of $2,684,000 in additional consideration pursuant to a Consideration Agreement to be paid in either cash or shares of our common stock, par value $0.001 per share, or any combination thereof, at the Buyer’s option, to be paid or issued in two equal installments on each of the first and second anniversaries of the closing date; (iv) contingent earn-out payment, in an aggregate amount not to exceed $2,250,000, based upon the achievement of certain performance thresholds over the next three years and subject to the satisfaction of certain conditions.

Pursuant to this acquisition Buyer had an appraisal performed to identify the fair market value of the assets and obligations purchased. The appraisal was conducted by an independent appraiser that valued, among other things, the asset purchase agreement consideration, contingent consideration, and the value of stock consideration in the sale. As of the date of acquisition, the total value of the purchase was estimated to be $15,770,000. The net tangible assets acquired had a value of $1,778,000 with the remainder of the purchase price, $13,992,000, allocated by the appraiser to intangible assets as follows:  customer relationships - $5,480,000, trademark $410,000, and the remainder associated with cost-in-excess of these assets, or goodwill, of $8,102,000. It was estimated that customer relationships and the trademark would have an estimated life of five (5) years and seven (7) 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 GRWR, Buyer, and certain of its domestic subsidiaries entered into a credit agreement, dated as of October 19, 2020, with Monroe Capital. Among other things, the Credit Agreement provides for a senior secured term loan facility in the principal amount of $11.5 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 GRWR, 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 market 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, 2020, 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, 2020 and year ended

December 31, 2019, 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 GRWR, including the related notes and other financial information included in the filing.


Pro forma adjustments (unaudited):

 

 

Debit

 

 

Credit

 

A

Stockholders' equity

$

4,241,836

 

 

 

 

 

 

Cash

 

 

 

 

$

5,339,686

 

 

Property and equipment, net, and other assets

 

 

 

 

$

130,851

 

 

Accounts payable and accrued liabilities

$

174,118

 

 

 

 

 

 

Notes payable - current portion

$

402,866

 

 

 

 

 

 

Notes payable - non-current portion

$

651,717

 

 

 

 

 

 

To record assets and liabilities retained by Seller, payoff certain notes payable, and adjust equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B

Cash

$

10,889,565

 

 

 

 

 

 

Notes payable - current

 

 

 

 

$

115,000

 

 

Notes payable - long-term

 

 

 

 

$

11,385,000

 

 

Notes payable - discount for debt issuance costs

$

610,435

 

 

 

 

 

 

Notes payable - discount for warrants

$

765,678

 

 

 

 

 

 

APIC - discount for warrants

 

 

 

 

$

765,678

 

 

Notes payable - discount for debt issuance costs

$

764,501

 

 

 

 

 

 

Cash

 

 

 

 

$

764,501

 

 

To record the Monroe financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C

Intangibles - customer relationships

$

5,480,000

 

 

 

 

 

 

Intangibles - trademark

$

410,000

 

 

 

 

 

 

Goodwill

$

8,043,525

 

 

 

 

 

 

APIC

$

1,816,971

 

 

 

 

 

 

Cash

 

 

 

 

$

10,850,496

 

 

Deferred revenue and other current liabilities

 

 

 

 

$

1,342,125

 

 

Notes payable - current portion

 

 

 

 

$

509,383

 

 

Notes payable - non-current portion

 

 

 

 

$

2,174,867

 

 

Notes payable - discount

$

514,250

 

 

 

 

 

 

Other long-term liabilities

 

 

 

 

$

1,342,125

 

 

Other long-term liabilities, discount

$

394,250

 

 

 

 

 

 

Other long-term liabilities - earn-out

 

 

 

 

$

440,000

 

 

To record the asset purchase and adjust balance of GRWR equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D

Nine months ended September 30, 2020

$

77,000

 

 

 

 

 

 

Year ended December 31, 2019

$

103,000

 

 

 

 

 

 

To record interest expense on Seller Note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E

Nine months ended September 30, 2020

$

866,000

 

 

 

 

 

 

Year ended December 31, 2019

$

1,155,000

 

 

 

 

 

 

To record amortization of definite lived intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F

Nine months ended September 30, 2020

 

 

 

 

$

22,000

 

 

Year ended December 31, 2019

 

 

 

 

$

194,000

 

 

To record income tax expense at a 27.0% statutory tax rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G

Nine months ended September 30, 2020

$

780,000

 

 

 

 

 

 

Year ended December 31, 2019

$

1,174,000

 

 

 

 

 

 

To record interest expense associated with Monroe Capital Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

H

Nine months ended September 30, 2020

 

 

 

 

$

32,000

 

 

Year ended December 31, 2019

 

 

 

 

$

37,000

 

 

To record interest benefit related to payoff of Green Remedies bank notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I

Nine months ended September 30, 2020

$

148,000

 

 

 

 

 

 

Year ended December 31, 2019

$

197,000

 

 

 

 

 

 

To record interest expense on additional consideration

 

 

 

 

 

 

 


QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED

BALANCE SHEET

AS OF SEPTEMBER 30, 2020

(UNAUDITED)

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

Quest Resource Holding Corporation

 

 

Green Remedies Waste and Recycling, Inc.

 

 

Pro Forma Adjustments

 

 

Notes

 

Combined Pro Forma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,427,020

 

 

$

5,370,514

 

 

$

(6,065,118

)

 

(A) (B) & (C)

 

$

5,732,416

 

Accounts receivable, net

 

 

15,151,305

 

 

 

880,383

 

 

 

—

 

 

 

 

 

16,031,688

 

Prepaid expenses and other current assets

 

 

1,342,905

 

 

 

13,045

 

 

 

—

 

 

 

 

 

1,355,950

 

Total current assets

 

 

22,921,230

 

 

 

6,263,942

 

 

 

(6,065,118

)

 

 

 

 

23,120,054

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

58,208,490

 

 

 

—

 

 

 

8,043,525

 

 

(C)

 

 

66,252,015

 

Intangible assets, net

 

 

914,234

 

 

 

—

 

 

 

5,890,000

 

 

(C)

 

 

6,804,234

 

Property and equipment, net, and other assets

 

 

2,544,753

 

 

 

1,400,243

 

 

 

(130,851

)

 

(A)

 

 

3,814,145

 

Deposits and other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

—

 

Total assets

 

$

84,588,707

 

 

$

7,664,185

 

 

$

7,737,556

 

 

 

 

$

99,990,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

13,010,919

 

 

$

506,692

 

 

 

(174,118

)

 

(A)

 

$

13,343,493

 

Deferred revenue and other current liabilities

 

 

21,721

 

 

 

44,103

 

 

 

1,342,125

 

 

(C)

 

 

1,407,949

 

Notes payable - current portion

 

 

—

 

 

 

402,866

 

 

 

221,517

 

 

(A) (B) & (C)

 

 

624,383

 

Total current liabilities

 

 

13,032,640

 

 

 

953,661

 

 

 

1,389,524

 

 

 

 

 

15,375,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility, net

 

 

4,162,641

 

 

 

—

 

 

 

—

 

 

 

 

 

4,162,641

 

Other long-term liabilities

 

 

659,612

 

 

 

—

 

 

 

1,387,875

 

 

(C)

 

 

2,047,487

 

Notes payable - non-current portion, net

 

 

—

 

 

 

651,717

 

 

 

10,253,286

 

 

(A) (B) & (C)

 

 

10,905,003

 

Total liabilities

 

 

17,854,893

 

 

 

1,605,378

 

 

 

13,030,685

 

 

 

 

 

32,490,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2020 and December 31, 2019

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

—

 

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

   18,381,227 and 15,372,905 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

 

18,381

 

 

 

—

 

 

 

—

 

 

 

 

 

18,381

 

Additional paid-in capital

 

 

165,239,093

 

 

 

117,555

 

 

 

648,123

 

 

(B) & (C)

 

 

166,004,771

 

Accumulated earnings (deficit)

 

 

(98,523,660

)

 

 

5,941,252

 

 

 

(5,941,252

)

 

(A) & (C)

 

 

(98,523,660

)

Total stockholders’ equity

 

 

66,733,814

 

 

 

6,058,807

 

 

 

(5,293,129

)

 

 

 

 

67,499,492

 

Total liabilities and stockholders’ equity

 

$

84,588,707

 

 

$

7,664,185

 

 

$

7,737,556

 

 

 

 

$

99,990,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(UNAUDITED)

 

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

Quest Resource Holding Corporation

 

 

Green Remedies Waste and Recycling, Inc.

 

 

Pro Forma Adjustments

 

 

Notes

 

Combined Pro Forma

 

Revenue

 

$

71,002,281

 

 

$

9,016,765

 

 

$

—

 

 

 

 

$

80,019,046

 

Cost of revenue

 

 

57,527,714

 

 

 

6,601,296

 

 

 

—

 

 

 

 

 

64,129,010

 

Gross profit

 

 

13,474,567

 

 

 

2,415,469

 

 

 

—

 

 

 

 

 

15,890,036

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative

 

 

12,677,873

 

 

 

597,824

 

 

 

—

 

 

 

 

 

13,275,697

 

Depreciation and amortization

 

 

818,060

 

 

 

35,683

 

 

 

866,000

 

 

(E)

 

 

1,719,743

 

Total operating expenses

 

 

13,495,933

 

 

 

633,507

 

 

 

866,000

 

 

 

 

 

14,995,440

 

Operating income (loss)

 

 

(21,366

)

 

 

1,781,962

 

 

 

(866,000

)

 

 

 

 

894,596

 

    Other (income) expense, net

 

 

(1,408,000

)

 

 

(11,750

)

 

 

—

 

 

 

 

 

(1,419,750

)

    Interest expense

 

 

244,123

 

 

 

34,785

 

 

 

973,000

 

 

(D) (G) (H) & (I)

 

 

1,251,908

 

    Loss on extinguishment of debt

 

 

167,964

 

 

 

—

 

 

 

—

 

 

 

 

 

167,964

 

Income (loss) before taxes

 

 

974,547

 

 

 

1,758,927

 

 

 

(1,839,000

)

 

 

 

 

894,474

 

Income tax expense (benefit)

 

 

63,800

 

 

 

—

 

 

 

(22,000

)

 

(F)

 

 

41,800

 

Net income (loss)

 

$

910,747

 

 

$

1,758,927

 

 

$

(1,817,000

)

 

 

 

$

852,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Deemed dividend for warrant down round feature

 

 

(205,014

)

 

 

 

 

 

 

 

 

 

 

 

 

(205,014

)

Net income applicable to common stockholders

 

$

705,733

 

 

 

 

 

 

 

 

 

 

 

 

$

647,660

 

Net income per share applicable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

$

0.04

 

Diluted

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

$

0.04

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

16,055,110

 

 

 

 

 

 

 

 

 

 

 

 

 

16,055,110

 

Diluted

 

 

16,070,275

 

 

 

 

 

 

 

 

 

 

 

 

 

16,070,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


QUEST RESOURCE HOLDING CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2019

(UNAUDITED)

 

 

 

 

Historical

 

 

 

 

 

 

 

 

 

 

 

 

 

Quest Resource Holding Corporation

 

 

Green Remedies Waste and Recycling, Inc.

 

 

Pro Forma Adjustments

 

 

Notes

 

Combined Pro Forma

 

Revenue

 

$

98,979,140

 

 

$

10,817,265

 

 

$

—

 

 

 

 

$

109,796,405

 

Cost of revenue

 

 

80,253,172

 

 

 

8,144,344

 

 

 

—

 

 

 

 

 

88,397,516

 

Gross profit

 

 

18,725,968

 

 

 

2,672,921

 

 

 

—

 

 

 

 

 

21,398,889

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative

 

 

16,815,767

 

 

 

745,887

 

 

 

—

 

 

 

 

 

17,561,654

 

Depreciation and amortization

 

 

1,314,731

 

 

 

31,537

 

 

 

1,155,000

 

 

(E)

 

 

2,501,268

 

Total operating expenses

 

 

18,130,498

 

 

 

777,424

 

 

 

1,155,000

 

 

 

 

 

20,062,922

 

Operating income (loss)

 

 

595,470

 

 

 

1,895,497

 

 

 

(1,155,000

)

 

 

 

 

1,335,967

 

    Other (income) expense, net

 

 

—

 

 

 

(26,004

)

 

 

—

 

 

 

 

 

(26,004

)

    Interest expense

 

 

431,628

 

 

 

46,487

 

 

 

1,437,000

 

 

(D) (G) (H) & (I)

 

 

1,915,115

 

Income (loss) before taxes

 

 

163,842

 

 

 

1,875,014

 

 

 

(2,592,000

)

 

 

 

 

(553,144

)

Income tax expense (benefit)

 

 

219,082

 

 

 

—

 

 

 

(194,000

)

 

(F)

 

 

25,082

 

Net income (loss)

 

$

(55,240

)

 

$

1,875,014

 

 

$

(2,398,000

)

 

 

 

$

(578,226

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss applicable to common stockholders

 

$

(55,240

)

 

 

 

 

 

 

 

 

 

 

 

$

(578,226

)

Net loss per share applicable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.00

)

 

 

 

 

 

 

 

 

 

 

 

$

(0.04

)

Diluted

 

$

(0.00

)

 

 

 

 

 

 

 

 

 

 

 

$

(0.04

)

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

15,347,039

 

 

 

 

 

 

 

 

 

 

 

 

 

15,347,039

 

Diluted

 

 

15,347,039

 

 

 

 

 

 

 

 

 

 

 

 

 

15,347,039