# EDGAR Filing Document

**Accession Number:** 0001140102
**File Stem:** 0001437749-23-003997
**Filing Date:** 2023-2
**Character Count:** 109734
**Document Hash:** 6adb006ade4a568e83c203bf30c1e2bc
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001437749-23-003997.hdr.sgml**: 20230221

**ACCESSION NUMBER**: 0001437749-23-003997

**CONFORMED SUBMISSION TYPE**: 8-K/A

**PUBLIC DOCUMENT COUNT**: 18

**CONFORMED PERIOD OF REPORT**: 20230221

**ITEM INFORMATION**: Financial Statements and Exhibits

**FILED AS OF DATE**: 20230221

**DATE AS OF CHANGE**: 20230221

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** HireQuest, Inc.
- **CENTRAL INDEX KEY:** 0001140102
- **STANDARD INDUSTRIAL CLASSIFICATION:** SERVICES-HELP SUPPLY SERVICES [7363]
- **IRS NUMBER:** 912084501
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 8-K/A
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-38513
- **FILM NUMBER:** 23648814

**BUSINESS ADDRESS:**
- **STREET 1:** 111 SPRINGHALL DRIVE
- **CITY:** GOOSE CREEK
- **STATE:** SC
- **ZIP:** 29445
- **BUSINESS PHONE:** (843) 723-7400

**MAIL ADDRESS:**
- **STREET 1:** 111 SPRINGHALL DRIVE
- **CITY:** GOOSE CREEK
- **STATE:** SC
- **ZIP:** 29445

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Command Center, Inc.
- **DATE OF NAME CHANGE:** 20060403

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** TEMPORARY FINANCIAL SERVICES INC
- **DATE OF NAME CHANGE:** 20010507

hqi20230217_8ka.htm

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

------

**FORM**8-K/A**

**CURRENT REPORT**

**PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**Date of Report (Date of earliest event reported):**February 21, 2023**

![logo1.jpg](logo1.jpg)

**HIREQUEST, INC.**

**(Exact name of registrant as specified in its Charter)**

---

| | | |
|:---|:---|:---|
| **Delaware** | **000-53088** | **91-2079472** |
| **(State or Other Jurisdiction of**<br> **Incorporation or Organization)** | **(Commission**<br> **File Number)** | **(I.R.S. Employer**<br> **Identification No.)** |

---

---

| | |
|:---|:---|
| **111 Springhall Drive,**Goose Creek**,**SC** | **29445** |
| **(Address of Principal Executive Offices)** | **(Zip Code)** |

---

**(**843**)**723-7400**

**(Registrant**'**s telephone number, including area code)**

**(Former name, former address and former fiscal year, if changed since last report)**

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (*see* General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, $0.001 par value | HQI | The NASDAQ Stock Market LLC |

---

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

------

**Explanatory Note**

On December 12, 2022, HQ Snelling Corporation ("HQ Snelling"), a wholly owned subsidiary of HireQuest, Inc. (the "Company") completed its acquisition of certain assets and assumption of certain liabilities (the "Transaction") of MRI Network Holdings, Inc., Management Recruiters International, Inc., MRI International, LLC, and MRI Contract Staffing, LLC (collectively, the "Sellers") in accordance with the terms of the Asset Purchase Agreement (the "Purchase Agreement") dated November 16, 2022 by and among HQ Snelling, the Sellers, and Bert Miller as Sellers' Representative. The assets acquired included customer lists and franchise agreements, and other items set forth in the Purchase Agreement which was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on November 16, 2022 which is incorporated herein by reference, as amended by the First Amendment, filed herewith as Exhibit 2.1 and incorporated herein by reference. This Amendment No. 1 to Current Report on Form 8-K/A (the "Form 8-K/A") amends and supplements the Current Report on 8-K filed by the Company with the Securities and Exchange Commission on December 12, 2022 (the "Original Report") to include consolidated financial statements of Management Recruiters International, Inc. and the pro forma financial information required by Items 9.01(a) and 9.01(b), respectively, and to include the exhibits under Item 9.01(d) of this Form 8-K/A.

I**tem 9.01 Financial Statements and Exhibits.**

(a) Financial Statements of Business Acquired. The audited consolidated financial statements of Management Recruiters International, Inc. as of and for the years ended December 31, 2020 and 2021, and the related notes thereto, as well as the unaudited consolidated financial statements of Management Recruiters International, Inc. as of and for the quarters ended September 30, 2022 and 2021, and the related notes thereto, are filed as Exhibit 99.1 and 99.2 to this Form 8-K/A and are incorporated in their entirety into this item by reference.

(b) Pro Forma Financial Information. The unaudited pro forma condensed combined financial statements, which include the unaudited pro forma condensed combined balance sheet as of September 30, 2022 and the unaudited pro forma condensed combined statements of operations for the quarter ended September 30, 2022 and the year ended December 31, 2021, and the related notes thereto, are filed as Exhibit 99.3 to this Form 8-K/A and are incorporated in their entirety into this item by reference. The unaudited pro forma condensed combined financial statements were derived from the Company's and the Seller's separate historical consolidated financial statements. These pro forma financial statements may not necessarily reflect what the Company's results of operations and financial position would have been had the Merger occurred during the periods presented in the pro forma financial statements, or what the Company's results of operations and financial position will be in the future.

(c) Not Applicable.

(d) <u>Exhibits</u>

---

| | |
|:---|:---|
| EX-23.1 | [Consent of Daszkal Bolton LLP](ex_477350.htm) |
| EX-99.1 | [Unaudited consolidated financial statements of Management Recruiters International, Inc. as of and for the years ended December 31, 2021 and 2020, and the related notes thereto, as well as the unaudited consolidated financial statements of Management Recruiters International, Inc. as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021.](ex_477351.htm)  |
| EX-99.2 | [Unaudited pro forma condensed combined financial information for HireQuest, Inc. and Management Recruiters International, Inc., and the related notes thereto.](ex_477352.htm) |
| EX-99.3 | [Audited consolidated financial statements of Management Recruiters International, Inc. as of and for the years ended December 31, 2021 and 2020, and the related notes thereto.](ex_478092.htm) |
| EX_104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |

---

**Cautionary Note Regarding Forward Looking Statements.**

This Current Report, including the document furnished herewith, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements regarding the acquisition of certain assets of MRI and the expected benefits from such transaction including increased earnings and revenue and the effects of expanded scale. All statements other than statements of historical facts contained herein and other statements regarding our future financial position and results of operations, liquidity, business strategy, and plans and objectives of management for future operations, are forward-looking statements. The words "expect," "expectation," "intend," "anticipate," "will," "believe," "may," "estimate," "continue," "should," "plan," "could," "target," "potential," "is likely," and similar expressions as they relate to the company or MRI, are intended to identify forward-looking statements. We have based these forward-looking statements largely on management's expectations and projections regarding future events, negotiations, and financial trends that we believe may affect our financial condition, operating performance, business strategy, and financial needs. These forward-looking statements involve a number of risks and uncertainties.

Important factors that could cause actual results to differ materially from these forward-looking statements include: the possibility that the anticipated benefits of the asset acquisition will not be realized or will not be realized within the expected time period; the risk that MRI's business may not be integrated successfully; the risk that disruption from the acquisition may make it more difficult to maintain existing business and operational relationships; and several other factors.

Further information on risks we face is detailed in our filings with the SEC, including our Form 10-K for the fiscal year ended December 31, 2021, our quarterly reports on Form 10-Q filed since that date, our current report on Form 8-K filed with the SEC on November 16, 2022, and will be contained in our SEC filings in connection with this acquisition. Any forward-looking statement made by us herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. The Company undertakes no obligations to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may otherwise be required by law.

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

---

| | | |
|:---|:---|:---|
|  | **HIREQUEST, INC.** | **HIREQUEST, INC.** |
|  | (Registrant) | (Registrant) |
| Date: February 21, 2023 |  | /s/ David S. Burnett |
|  |  | David S. Burnett |
|  |  | Chief Financial Officer |

---

## Exhibit 23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-166452 and 333-215350) and on Form S-3 (No. 333-265212) of our report dated March 11, 2022, relating to the consolidated financial statements of Management Recruiters International, Inc. at and for the years ended December 31, 2021 and 2020, that appear in this Current Report on Form 8-K/A.

/s/ Daszkal Bolton, LLP

February 21, 2023

Boca Raton, Florida

## Exhibit 99.1

**Exhibit 99.1**

**<u>**Table of Contents**</u>**

---

| | |
|:---|:---|
| Consolidated Financial Statements: |  |
| Consolidated Balance Sheets | 2 |
| Consolidated Statements of Income | 3 |
| Consolidated Statements of Comprehensive Income | 4 |
| Consolidated Statements of Stockholders' Equity | 5 |
| Consolidated Statements of Cash Flows | 6 |
| Notes to the Consolidated Financial Statements | 7 |

---

------

**Management Recruiters International, Inc.**

**Unaudited Consolidated Balance Sheets**

---

| | | | | |
|:---|:---|:---|:---|:---|
| (Dollars in thousands) | **December 31,** | **December 31,** | **September 30,** | **September 30,** |
|  | **2021** | **2020** | **2022** | **2021** |
| <u>**Assets**</u> |  |  |  |  |
| Current assets: |  |  |  |  |
| Cash and cash equivalents | $2429 | $332 | $1084 | $3325 |
| Accounts receivable, net of allowances of $317 and $82 | 9939 | 10086 | 7887 | 11404 |
| Due from affiliate | 479 | 109 |  |  |
| Prepaid expenses and other current assets | 401 | 624 | 552 | 319 |
| Current income tax receivable |  | 5 | 205 | 57 |
| Right of use asset - current | 140 | 94 | 140 | 140 |
| Total current assets | 13388 | 11250 | 9868 | 15245 |
| Right of use asset - noncurrent | 176 | 414 | 70 | 211 |
| Property and equipment, net of accumulated depreciation and amortization of $235 and $135 | 201 | 263 | 122 | 230 |
| Intangible assets, net of accumulated amortization of $47 and $25 | 173 | 195 | 159 | 177 |
| Deferred income taxes - noncurrent | 935 | 1542 | 935 | 1542 |
| Total assets | $14873 | $13664 | $11155 | $17406 |
| **<u>Liabilities and Stockholders' Equity</u>** |  |  |  |  |
| Current liabilities: |  |  |  |  |
| Accounts payable | $2422 | $2820 | $1783 | $3058 |
| Accrued compensation and related expenses | 2801 | 1576 | 2361 | 2624 |
| Operating lease - current | 140 | 94 | 140 | 140 |
| Unearned revenue | 33 | 96 | 52 | 40 |
| Other accrued expenses and other current liabilities | 1082 | 334 | 677 | 1226 |
| Total current liabilities | 6478 | 4920 | 5013 | 7088 |
| Long-term debt: |  |  |  |  |
| Long-term debt | 4614 | 4614 | 824 | 4614 |
| Operating lease - noncurrent | 176 | 414 | 70 | 211 |
| Unearned income - noncurrent | 174 | 129 | 113 | 143 |
| Total long-term debt | 4964 | 5157 | 1008 | 4968 |
| Total liabilities | 11442 | 10077 | 6021 | 12056 |
| Commitments and contingencies |  |  |  |  |
| Stockholders' equity: |  |  |  |  |
| Common stock, $1 par value, 1,000 shares authorized, issued and outstanding | 1 | 1 | 1 | 1 |
| Additional paid-in capital | 1165 | 3190 | 6540 | 3190 |
| Retained earnings | 2368 | 425 | (1310) | 2187 |
| Accumulated other comprehensive loss | (103) | (29) | (97) | (28) |
| Total stockholders' equity | 3431 | 3587 | 5134 | 5350 |
| Total liabilities and stockholders' equity | $14873 | $13664 | $11155 | $17406 |

---

See accompanying notes to financial statements.

------

**Management Recruiters International, Inc.**

**Unaudited Consolidated Statements of Income**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended** | **For the Year Ended** | **For the Three Months Ended** | **For the Three Months Ended** | **For the Nine Months Ended** | **For the Nine Months Ended** |
|  | **December 31,** | **December 31,** | **September 30,** | **September 30,** | **September 30,** | **September 30,** |
| (Dollars in thousands) | **2021** | **2020** | **2022** | **2021** | **2022** | **2021** |
| Revenue | $75433 | $46706 | $13942 | $20802 | $43699 | $58033 |
| Cost of services | 46055 | 28000 | 8194 | 12771 | 26501 | 35143 |
| Gross profit | 29378 | 18706 | 5748 | 8031 | 17197 | 22890 |
| Operating and administrative expenses | 26615 | 19419 | 5142 | 7171 | 16116 | 21065 |
| Operating income (loss) | 2763 | (713) | 606 | 860 | 1081 | 1826 |
| Gain on the extinguishment of debt |  | 1104 |  |  | 3675 |  |
| Other expenses | (20) |  |  |  |  |  |
| Interest expense | (1) | (41) | (4) |  | (25) | (1) |
| Income before income taxes | 2742 | 350 | 602 | 860 | 4731 | 1825 |
| Income tax (expense) benefit | (799) | 235 | (5) | 58 | (12) | 52 |
| Net income | $1943 | $585 | $597 | $918 | $4719 | $1877 |

---

See accompanying notes to financial statements.

------

**Management Recruiters International, Inc.**

**Unaudited Consolidated Statements of Comprehensive Income**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended** | **For the Year Ended** | **For the Three Months Ended** | **For the Three Months Ended** | **For the Nine Months Ended** | **For the Nine Months Ended** |
|  | **December 31,** | **December 31,** | **September 30,** | **September 30,** | **September 30,** | **September 30,** |
| (Dollars in thousands) | **2021** | **2020** | **2022** | **2021** | **2022** | **2021** |
| Net income | $1943 | $585 | $597 | $918 | $4719 | $1877 |
| Other comprehensive income (loss): |  |  |  |  |  |  |
| Foreign currency translation adjustments, net of tax of $0 | (74) | (5) | (39) | (5) | (71) | 1 |
| Total comprehensive income | $1869 | $580 | $558 | $913 | $4648 | $1878 |

---

See accompanying notes to financial statements.

------

**Management Recruiters International, Inc.**

**Unaudited Consolidated Statements of Stockholders' Equity**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  | **Accumulated** |  |
|  |  |  |  | **Retained** | **Other** | **Total** |
| <u>**Twelve Months**</u> | **Common Stock** | **Common Stock** | **Additional** | **Earnings** | **Comprehensive** | **Stockholders'** |
| (Dollars in thousands) | **Shares** | **Par Value** | **Paid-in Capital** | **(Deficit)** | **Loss** | **Equity** |
| Balance, December 31, 2019 | 1 | $1 | $3190 | $(160) | $(24) | $3007 |
| Net income |  |  |  | 585 | (5) | 580 |
| Balance, December 31, 2020 | 1 | 1 | 3190 | 425 | (29) | 3587 |
| Distributions |  |  | (2000) |  |  | (2000) |
| Net income |  |  | (25) | 1943 | (74) | 1844 |
| Balance, December 31, 2021 | 1 | $1 | $1165 | $2368 | $(103) | $3431 |
| **<u>Three Months</u>** |  |  |  |  |  |  |
| Balance, June 30, 2022 | 1 | $1 | $(1310) | $5943 | $(58) | $4576 |
| Net income |  |  |  | 597 | (39) | 558 |
| Balance, September 30, 2022 | 1 | $1 | $(1310) | $6540 | $(97) | $5134 |
| Balance, June 30, 2021 | 1 | $1 | $3190 | $1269 | $(23) | $4437 |
| Net income |  |  |  | 918 | (5) | 913 |
| Balance, September 30, 2021 | 1 | $1 | $3190 | $2187 | $(28) | $5350 |
| **<u>Nine Months</u>** |  |  |  |  |  |  |
| Balance, December 31, 2021 | 1 | $1 | $1190 | $1821 | $(26) | $2986 |
| Distributions |  |  | (2500) |  |  | (2500) |
| Net income |  |  |  | 4719 | (71) | 4648 |
| Balance, September 30, 2022 | 1 | $1 | $(1310) | $6540 | $(97) | $5134 |
| Balance, December 31, 2020 | 1 | $1 | $3190 | $425 | $(29) | $3587 |
| Net income |  |  |  | 1762 | 1 | 1763 |
| Balance, December 31, 2021 | 1 | $1 | $3190 | $2187 | $(28) | $5350 |

---

See accompanying notes to financial statements.

------

**Management Recruiters International, Inc.**

**Unaudited Consolidated Statements of Cash Flows**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **For the Year Ended** | **For the Year Ended** | **For the Nine Months Ended** | **For the Nine Months Ended** |
|  | **December 31,** | **December 31,** | **September 30,** | **September 30,** |
| (Dollars in thousands) | **2021** | **2020** | **2022** | **2021** |
| Cash flows from operating activities: |  |  |  |  |
| Net income | $1943 | $585 | $4719 | $1877 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |
| Depreciation and amortization | 120 | 116 | 110 | 94 |
| Amortization of right of use asset | 192 | 66 | 107 | 106 |
| Deferred income taxes | 791 | (291) | (390) | (318) |
| Increase (decrease) in allowance for doubtful accounts | 235 | (78) | (112) | (259) |
| Gain on extinguishment of debt |  | (1105) | (4607) |  |
| Changes in operating assets and liabilities: |  |  |  |  |
| Accounts receivable | (85) | (1882) | 2166 | (830) |
| Prepaid expenses and other current assets | 220 | (288) | (251) | (238) |
| Accounts payable | (398) | 1319 | (631) | 234 |
| Due from affiliate | (395) | (109) |  | 231 |
| Accrued compensation and related expenses | 1225 | 547 | (441) | 1066 |
| Unearned revenue - current and noncurrent | (18) | 168 | 105 | 204 |
| Accrued expenses and other current liabilities | 564 | (1278) | 542 | 1076 |
| Income tax receivable | 5 | 4 |  |  |
| Operating cash flows from operating leases | (192) | (66) | (105) | (204) |
| Deferred compensation |  | (13) |  |  |
| Net cash provided by (used in) operating activities | 4207 | (2305) | 1212 | 3039 |
| Cash flows from investing activities: |  |  |  |  |
| Additions to property and equipment | (36) | (124) | (9) | (38) |
| Net cash used in investing activities | (36) | (124) | (9) | (38) |
| Cash flows from financing activities: |  |  |  |  |
| Distributions | (2000) |  | (2500) |  |
| Proceeds from line of credit, net |  | (2953) |  |  |
| Proceeds from PPP loans |  | 5719 |  |  |
| Net cash (used in) provided by financing activities | (2000) | 2766 | (2500) |  |
| Net increase in cash and cash equivalents | 2171 | 337 | (1296) | 3001 |
| Effects of exchange rates on cash | (74) | (5) | (49) | (10) |
| Cash and cash equivalents, beginning of year | 332 |  | 2429 | 334 |
| Cash and cash equivalents, end of year | $2429 | $332 | $1084 | $3325 |
| **<u>Supplemental disclosure of cash flow information:</u>** |  |  |  |  |
| Cash paid during the year for interest | $1 | $47 | $1 | $- |
| **<u>Supplemental non-cash investing and financing activities:</u>** |  |  |  |  |
| The Company entered into a new lease for office space that is classified as an operating lease and resulted in a right-of-use asset and lease liability in the initial amount of $585,198 |  |  |  |  |

---

See accompanying notes to financial statements.

------

**Management Recruiters International, Inc.**

**Notes to Unaudited Consolidated Financial Statements**

**<u>Note 1</u>** <u>–</u> **<u>Nature of Business</u>**

Management Recruiters International, Inc. ("MRI") is a global franchisor that does business as MRINetwork® and provides the use of its trademarks, business systems and training and support services to its franchisees who engage in the search and recruitment of executive, technical, professional and managerial personnel for employment by their clients. The MRI franchisees provide permanent placement services primarily under the brand names MRINetwork®, Management Recruiters® and Sales Consultants®. MRI also provides training and support, implementation and back-office services to enable franchisees to pursue contract staffing opportunities.

**<u>Note 2</u>** <u>–</u> **<u>Summary of Significant Accounting Policies</u>**

***<u>Basis of Presentation</u>***

The consolidated financial statements of MRI and Subsidiaries (collectively, the "Company") and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles ("GAAP").

***<u>Use of Estimates</u>***

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in the consolidated financial statements and accompanying notes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the allowance for doubtful accounts receivable, determination of the recoverability of long-lived assets, assessment of legal contingencies and calculation of income taxes.

***<u>Principles of Consolidation</u>***

The consolidated financial statements include the accounts of MRI and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

***<u>Revenue recognition</u>***

The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, *Revenue from Contracts with Customers* ("Topic 606").

Topic 606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue to be recognized. Under Topic 606, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when<br> (or as) the Company satisfies a performance obligation.

------

***<u>Revenue recognition, continued</u>***

The Company derives its significant revenue from the following sources:

***<u>Franchise Royalties</u>***

MRI's rights to franchise royalties are governed by the provisions of its franchise contracts. Under the franchise contracts, the franchisees remit to the Company a contractual percentage of fees collected from their customers or a fixed monthly fee. The Company records franchise royalty revenue as fees are collected by the franchisee and they become a receivable due from the franchisee.

***<u>Franchise Fees</u>***

The Franchise Agreement provides for an initial franchise fee, which requires payment upon execution of the Franchise Agreement. The Company determined that the services provided in exchange for these initial fees are highly interrelated with the franchise right and are not individually distinct from the ongoing services the Company provides to its franchisees. As a result, the initial franchise fee is recognized on a straight-line basis over the term of each respective agreement, which is consistent with the franchisee's right to use and benefit from the exclusivity of territory and operational support.

***<u>Contract Staffing Services</u>***

The Company recognizes revenue from contract staffing services based on the gross amount billed. The Company typically bills its customers once services are performed and associated costs have been incurred. In these circumstances, the Company assumes the risk of acceptability of its employees to its customers. The Company will also at times use unaffiliated companies (supplier associates) and their employees to fulfill a customer's staffing requirements, either in whole or in part. Under these arrangements, these firms serve as subcontractors. When utilizing supplier associates, the Company records the difference between its gross billings and the amount paid to the supplier associate as revenue, which is generally referred to as an administrative fee.

Revenue from royalties and contract staffing services is recognized at a point in time, whereas revenue from franchise fees are recognized over time. Total revenue recognized at a point in time and over time was as follows for the years ended December 31, (in thousands):

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** | **Three Months Ended September 30,** | **Three Months Ended September 30,** |
|  | **2021** | **2020** | **2022** | **2021** | **2022** | **2021** |
| Revenue recognized over time | $75 | $18 | $22 | $65 | $5 | $15 |
| Revenue recognized at a point in time | 75358 | 46688 | 4697 | 1812 | 592 | 904 |
|  | $75433 | $46706 | $4719 | $1877 | $597 | $918 |

---

***<u>Advertising Costs</u>***

The Company participates in various advertising programs. All costs related to advertising are included in operating and administrative expenses and are expensed in the period incurred. Advertising costs were $530,647 and $348,479 for years ended December 31, 2021 and 2020, respectively, and $457,033 and $349,599 for the nine months ended September 30, 2022 and 2021, respectively, and $173,875 and $152,160 for the three months ended September 30, 2022 and 2021, respectively.

***<u>Foreign Currency</u>***

Foreign franchisees of the Company use local currency as the functional currency. Net assets are translated at year-end exchange rates while revenue and expenses are translated at average monthly exchange rates. Adjustments resulting from these translations are reflected in accumulated other comprehensive gain or loss in the equity section of the consolidated balance sheets.

***<u>Concentrations of Credit Risk</u>***

The Company's principal asset is its accounts receivable. Substantially, all of the Company's customers are provided trade credit. Credit risk with respect to receivables is limited due to the number of companies comprising the Company's customer base. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The Company considers several factors in determining the allowance for doubtful accounts receivable, including an assessment of customer-specific information, the Company's historical experience, the age of the receivable and current market and economic conditions.

The Company maintains cash deposits in financial institutions in excess of federally insured limits. Management believes the risk is mitigated by maintaining all deposits in high quality financial institutions in the U.S.

During the years ended December 31, 2021 and 2020, the Company had approximately 15% and 28% of its sales from one (1) customer and two (2) customers, respectively, and during the nine months ended September 30, 2022 and 2021, the Company had approximately 0% and 29% of its sales from no customers (0) and two (2) customers, respectively. Accounts receivable from these customers were approximately 1% and 29% at December 31, 2021 and 2020, respectively, and Accounts receivable from these customers were approximately 0% and 33% at September 30, 2022 and 2021, respectively.

***<u>Income Taxes</u>***

The Company accounts for income taxes using the asset and liability method. Under this method, income taxes are recorded for amounts currently payable and for amounts deferred based on differences between the financial statement carrying amounts and tax basis of its assets and liabilities. In establishing its deferred income tax assets and liabilities, the Company makes judgments and interpretations based on the enacted tax laws and published tax guidance. The Company records deferred tax assets and liabilities and evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. The likelihood of a material change in the Company's expected realization of these assets is dependent on future taxable income, its ability to use tax credit carry forwards and carry backs, final tax settlements and the effectiveness of its tax planning strategies in the various tax jurisdictions in which it operates. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

------

***<u>Intangible Assets</u>***

The Company evaluates the useful lives of intangible assets. Reaching a determination on useful life requires significant judgements and assumptions. Intangible assets include trade names and trademarks, which are amortized on a straight-line basis over their useful life of twelve (12) years.

***<u>Fair Value of Financial Instruments</u>***

The net carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and line of credit approximate their fair value due to the short-term nature of these instruments.

***<u>Property and Equipment</u>***

Property and equipment are recorded at cost. Depreciation and amortization expense for financial reporting purposes is computed using the straight-line method over the following useful lives:

---

| | |
|:---|:---|
| Computer software and hardware | 3 - 4 years |
| Equipment and furniture | 4 - 10 years |
| Software | 4 - 7 years |
| Leasehold improvements | Shorter of lease term or useful life |

---

***<u>Long-Lived Assets</u>***

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When it is probable that undiscounted future cash flows will not be sufficient to recover an asset's carrying amount, the asset is written down to its fair value. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less cost to sell. There were no triggering events during the years ended December 31, 2021 and 2020.

***<u>Recent Accounting Pronouncements</u>***

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, *Financial Instruments* – *Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments*, which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost (including loans, trade receivables and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, *Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes*, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for the Company beginning on January 1, 2022. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

***<u>Date of Management</u>***<u>'</u>***<u>s Review</u>***

Management evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through March 11, 2022, the day the consolidated financial statements were approved and authorized for issuance.

**<u>Note 3</u>** <u>–</u> **<u>Property and Equipment</u>**

Property and equipment, net was comprised of the following (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **September 30,** | **September 30,** |
|  | **2021** | **2020** | **2022** | **2021** |
| Computer equipment | $414 | $380 | $434 | $418 |
| Equipment and furniture | 22 | 18 | 22 | 23 |
| Total property and equipment | 436 | 398 | 456 | 441 |
| Accumulated depreciation and amortization | (235) | (135) | (335) | (211) |
| Property and equipment, net | $201 | $263 | $121 | $230 |

---

Depreciation and amortization expense for the years ended December 31, 2021 and 2020, was approximately $124,000 and $110,000, respectively, and approximately $93,700 and $90,000 for the nine months ended September 30, 2022 and 2021, respectively, and approximately $31,500 and $28,600 for the three months ended September 30, 2022 and 2021, respectively.

**<u>Note 4</u>** <u>–</u> **<u>Line of Credit</u>**

On May 28, 2019, the Company entered into a revolving credit loan agreement ("Revolving Credit Loan") to fund a previous acquisition that occurred. The Revolving Credit Loan has a maximum availability of $7,000,000, originally maturing on May 28, 2022, and carries interest at a per annum rate equal to the LIBOR rate plus 2.75%. Interest is payable in arrears on the first day of each month. The line was subsequently amended on October 19, 2021 to permit the specified owner distribution in 2021, extended the maturity date to May 28, 2025, along with modifications to the certain financial covenants, all other material terms of the agreement remained the same. At December 31, 2021 and 2020, the Company had borrowings outstanding of $0, and approximately $7,000 and $0 at September 30, 2022 and 2021, respectively.

The line of credit is subject to certain financial covenants, as defined. The Company was in compliance with the financial covenants at December 31, 2021. The Company was not in compliance with the financial covenants at December 31, 2020. In February 2021, the lender provided a waiver for the covenant violation as of December 31, 2020. The Company was in compliance with the financial covenants at September 30, 2022 and 2021, respectively.

------

**<u>Note 5</u>** <u>–</u> **<u>Long-Term Debt</u>**

On April 10, 2020, the Company received a $1,104,200 term note with a bank pursuant to the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, administered by the U.S. Small Business Administration ("SBA"). In accordance with the requirements of the CARES Act, the borrower used the proceeds from the note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs and other eligible costs. Interest accrued on the note at the rate of 1.00% per annum. The borrower did not provide any collateral or guarantees for the note. On December 15, 2020, the Company received formal approval to forgive the loan from the SBA and has recognized a gain on extinguishment of debt in the amount of $1,104,200.

On April 20, 2020, the Company received a $4,614,400 term note with a bank pursuant to the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, administered by the U.S. Small Business Administration ("SBA"). In accordance with the requirements of the CARES Act, the borrower used the proceeds from the note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs and other eligible costs. Interest accrued on the note at the rate of 1.00% per annum. The borrower is applying for forgiveness of the amount due under the respective note. The borrower did not provide any collateral or guarantees for the note. At December 31, 2021, the note has not been forgiven and the principal is included in long-term debt.

Subsequently, in February, 2022 the Company received formal approval to forgive the loan from the SBA for all but $939,587 of the $4,614,400 term loan and has recognized a gain on extinguishment of the debt in the amount of $3,674,813 in 2022. The unforgiven remaining balance was set up as a term loan to be repaid over 7 years. This loan was subsequently paid in full in December, 2022 when the Company sold its Assets to Hire Quest, Inc.

**<u>Note 6</u>** <u>–</u> **<u>Intangible Assets</u>**

Intangible assets consist of the following at December 31, 2021 and 2020, (in thousands), respectively:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  |  | **Accumulated** | **Net** | **Estimated** |
|  | **Cost** | **Amortization** | **Book Value** | **Useful Life** |
| Trade names and trademarks | $220 | $47 | $173 | 12 years |
|  | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  |  | **Accumulated** | **Net** | **Estimated** |
|  | **Cost** | **Amortization** | **Book Value** | **Useful Life** |
| Trade names and trademarks | $220 | $25 | $195 | 12 years |

---

Intangible assets consist of the following at September 30, 2022 and 2021 (in thousands), respectively:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** |
|  |  | **Accumulated** | **Net** | **Estimated** |
|  | **Cost** | **Amortization** | **Book Value** | **Useful Life** |
| Trade names and trademarks | $220 | $61 | $159 | 12 years |
|  | **September 30, 2021** | **September 30, 2021** | **September 30, 2021** | **September 30, 2021** |
|  |  | **Accumulated** | **Net** | **Estimated** |
|  | **Cost** | **Amortization** | **Book Value** | **Useful Life** |
| Trade names and trademarks | $220 | $43 | $177 | 12 years |

---

------

Annual amortization of amortizable intangible assets is as follows (in thousands), respectively:

---

| | |
|:---|:---|
| **Years Ending December 31,** | **Amount** |
| 2022 | $18 |
| 2023 | 18 |
| 2024 | 18 |
| 2025 | 18 |
| 2026 | 18 |
| Thereafter | 83 |
| Total | $173 |

---

Amortization expense for intangible assets was $22,480 and $15,714 for the years ended December 31, 2021 and 2020, respectively, and $13,750 and $17,897 for the nine months ended September 30, 2022 and 2021, respectively, and $4,583 for both the three months ended September 30, 2022 and 2021.

**<u>Note 7</u>** <u>–</u> **<u>Income Taxes</u>**

Income before income taxes was as follows for the years ended December 31, (in thousands):

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| United States | $2738 | $443 |
| Foreign |  | (93) |
| Income before income taxes | $2738 | $350 |

---

------

Income tax expense was comprised of the following for the years ended December 31, (in thousands):

---

| |
|:---|
| Current: |
| Federal |
| State |
| Total current income tax expense |
| Deferred: |
| Federal |
| State |
| Total current income tax benefit |
| Income tax (expense) benefit |

---

The significant temporary differences and carryforwards that impact the Company's deferred tax accounts were accrued compensation, net operating loss carryforwards and depreciation of fixed assets.

As of December 31, 2020, the Company had no material unrecognized tax benefits that, if recognized, would impact the effective tax rate.

As of December 31, 2021 and 2020, the Company has available for carryforward, federal and state net operating losses, of approximately $6.06 million and $10.6 million, respectively, to be applied against future U.S. federal and state taxable income. Such state carryforwards expire according to individual state regulations. Carryforwards generated in tax years beginning after December 31, 2017, do not expire.

---

| | | |
|:---|:---|:---|
| (in thousands) | **2021** | **2020** |
| Fixed assets | $(21) | $22 |
| Accrued expenses and other | 2 | (66) |
| Accrued compensation | 42 | 143 |
| NOL's - federal, state and foreign | 912 | 1443 |
| Total deferred assets | 935 | 1542 |
| Less: total valuation allowance recognized |  |  |
| Net deferred tax assets | $935 | $1542 |

---

------

The Tax Reform Act of 1986 contains provisions that may limit the yearly utilization of net operating loss and credits carryforwards if there has been a ownership change. An ownership change is defined as a greater than 50% change in ownership over a three-year period. Such an ownership change, as described in Section 382 of the Internal Revenue Code, may limit the Company's ability to utilize its net operating loss and credit carryforwards on a yearly basis. As a result, to the extent that any single-year limitation is not utilized to the full amount of the limitation, such unused amounts are carried over to subsequent years until the earlier of its utilization or the expiration of the carryforward period. Due to the Company's prior equity transactions, its net operating loss may be subject to an annual limitation.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740-10, Income Taxes. The recognition criteria under ASC 740-10 requires the Company to recognize the consolidated financial statements effect of a tax position when it is more likely than not that the position will be sustained upon examination. Management has evaluated the positions taken by the Company and has concluded that no material reserves are required for tax exposures. The Company's federal and state returns since 2017 are open to examination by the federal tax authorities.

**<u>Note 8</u>** <u>–</u> **<u>Commitments, Contingencies and Legal Proceedings</u>**

***<u>Lease Commitments</u>***

The Company leases buildings for its operating locations under noncancelable agreements that expire on various dates through 2024. In conjunction with the new guidance for leases contained in ASU 2016-02, *Leases (Topic 842)*, a lease is defined as any contract that conveys the right to use a specific asset for a period of time in exchange for consideration. Leases are classified as a finance lease, formerly called a capital lease, if certain criteria are met. For any leases that do not meet the criteria identified for finance leases, the Company treats such leases as operating leases. As of December 31, 2021 and 2020, the Company's lease is classified as an operating lease.

The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to be exercised. Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately. In general, the Company will assess if non-lease components should be included in the lease liability. For purposes of calculating the present value of the lease obligation the company utilizes the private company practical expedient of discounting the future value of lease payments to present value, using the risk-free rate.

As of December 31, 2021 and 2020, the Company has recorded right-of-use assets of $316,094 and $508,628, respectively, of which $140,486 and $94,182 is reported as a current asset and a lease liability of $316,094 and $508,628, of which $140,486 and $94,182 is reported as a current liability.

As of September 20, 2022 and 2021, the Company has recorded right-of-use assets of $210,729 and $351,215, respectively, of which $140,486 is reported as a current asset at both balance sheet dates, and a lease liability of $210,729 and $351,215 and, of which $140,485 is reported as a current liability at both balance sheet dates.

------

Future maturities of the operating lease liability are as follows as of December 31:

---

| | |
|:---|:---|
| **Years Ending December 31,** | **Amount** |
| 2022 | $146 |
| 2023 | 150 |
| 2024 | 20 |
| Total minimum lease payments | $316 |

---

As of December 31, 2021, the weighted-average remaining lease term of the Company's operating leases is 0.75 years, and the weighted-average remaining discount rate is 0.29%.

Rent expense for the years ended December 31, 2021 and 2020 was $170,611 and $198,776, respectively, and $157,424 and $145,838 for the nine months ended September 30, 2022 and 2021, respectively, and $52,347 and $53,375 for the three months ended September 30, 2022 and 2021, respectively.

***<u>Meeting Commitments</u>***

The Company has contracted with various venues for franchise meetings in 2022. The contracted payments due related to these meetings totaled approximately $775,113. The Company contracted with various venues for franchise meetings in 2023, contracted payments totaling approximately $975,000. Franchisees attending these meetings reimburse the Company for a portion of the cost of each event.

***<u>Job Board Commitments</u>***

During 2020, the Company entered into an agreement with a job board provider for a $1.61 million purchase commitment for the period from June 2021 to May 2022. A final payment amount of $632,000 is due in May 2022. During 2021, the Company entered into an agreement with a marketing tool provider for approximately $300,000 for the period through December 2022. The agreement enables the Company and franchisees to access the job board. The job board provider is paid directly by the Company who in turns bills other members of the franchise group for their share of the cost.

The relationship with our large job board provider changed in 2022, and no commitment is made by the Company. The services are provided to, and paid directly by, each individual franchise under the current process.

***<u>Technology Commitments</u>***

During 2021, the Company entered into multiple agreements with technology software providers for purchase commitments totaling approximately $210,000 for periods through September 2024. The service provider is paid directly by the Company which in turn bills other members of the franchise group for their respective share of the cost.

------

***<u>Legal Proceedings and Claims</u>***

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although management cannot predict the timing or outcome of these matters with certainty, management does not believe that the final resolution of these matters, individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows.

**<u>Note 9</u>** <u>–</u> **<u>Retirement Plan</u>**

Through December 5, 2020, the Company participated in the CDI Corporation 401(k) Saving Plan (the "Plan"). The Plan is a defined contribution retirement plan maintained for the benefit of eligible employees and qualified under section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary tax deferred contributions to the Plan and the Company, at its discretion, may make matching contributions subject to certain limitations. Participants are fully vested in their contributions and in the Company's matching contributions at all times, except in certain limited instances.

Effective December 6, 2020, the Company created a new 401(k) plan (the "New Plan"). The New Plan is a defined contribution plan maintained for the benefit of eligible employees and qualified under section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary tax deferred contributions to the New Plan and the Company, at its discretion, may make matching contributions subject to certain limitations. Participants are fully vested in their contributions and in the Company's matching contributions at all times, except in certain limited instances.

Between the Plan and the New Plan, the Company recorded expenses of $68,736 and $59,612 in their consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively, and the Company recorded expenses of $59,107 and $50,111 in their consolidated statement of operations for the nine months ended September 30, 2022 and 2021, respectively. Plan expenses are based on a formula using a percentage of compensation or an amount determined by the Board of Directors.

**<u>Note 10</u>** <u>–</u> **<u>Market Conditions</u>**

During the year ended December 31, 2020, the World Health Organization declared the coronavirus outbreak ("COVID-19") a pandemic. The impact of COVID-19 could negatively impact the Company's operations. The extent to which the coronavirus impacts the Company's results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus or its impact, among other factors.

## Exhibit 99.2

**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** <br> **adjustments** | **Pro forma** <br> **condensed** <br> **combined** |
| **ASSETS** |  |  |  |  |
| **Current assets** |  |  |  |  |
| Cash and cash equivalents | $1535 | $1084 | $(1084) A | $1535 |
| Accounts receivable, net of allowance for doubtful accounts | 45686 | 7890 | (7890) A | 45686 |
| Note receivable | 1272 |  |  | 1272 |
| Prepaid expenses, deposits, and other assets | 1313 | 895 | (314) B | 1894 |
| Prepaid workers' compensation | 873 |  |  | 873 |
| Current assets held for sale - discontinued operations | 204 |  |  | 204 |
| Total current assets | 50883 | 9869 | (9288) | 51464 |
| Property and equipment, net | 4397 | 122 | (122) A | 4397 |
| Workers' compensation claim payment deposit | 1231 |  |  | 1231 |
| Franchise agreements, net | 17714 |  | 5640 C | 23354 |
| Goodwill and other intangible assets, net | 12643 | 159 | 7391 D | 20193 |
| Other assets | 447 | 1005 | (1005) A | 447 |
| Notes receivable, net of current portion and reserve | 2452 |  |  | 2452 |
| Total assets | $89767 | $11155 | $2616 | $103538 |
| **LIABILITIES AND EQUITY** |  |  |  |  |
| **Current liabilities** |  |  |  |  |
| Accounts payable | $206 | $1776 | $(1776) | $206 |
| Line of credit | 2206 |  | 13224 E | 15430 |
| Term loans payable | 699 | 7 | (7) A | 699 |
| Other current liabilities | 2662 | 961 | (766) F | 2857 |
| Accrued payroll, benefits, and payroll taxes | 3411 | 2377 | (2025) G | 3763 |
| Due to franchisees | 11380 |  |  | 11380 |
| Risk management incentive program liability | 1199 |  |  | 1199 |
| Workers' compensation claims liability | 3852 |  |  | 3852 |
| Total current liabilities | 25615 | 5121 | 8650 | 39386 |
| Term loans payable, net of current portion | 3429 | 824 | (824) A | 3429 |
| Workers' compensation claims liability, net of current portion | 2591 |  |  | 2591 |
| Other liabilities |  | 76 | (76) A |  |
| Franchise deposits | 2242 |  |  | 2242 |
| Total liabilities | 33877 | 6021 | 7750 | 47648 |
| **Equity** |  |  |  |  |
| Total HireQuest, Inc. stockholders' equity | 55890 |  |  | 55890 |
| Total MRI, LLC member equity |  | 5134 | (5134) H |  |
| Total stockholders' equity | 55890 | 5134 | (5134) | 55890 |
| Total liabilities and stockholders' equity | $89767 | $11155 | $2616 | $103538 |

---

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** <br> **adjustments** | **Pro forma** <br> **condensed** <br> **combined** |
| Franchise royalties | $7433 | $2590 | $- | $10023 |
| Staffing revenue, owned locations | 1499 |  |  | 1499 |
| Service revenue | 429 |  |  | 429 |
| Total revenue | 9361 | 2590 |  | 11951 |
| Cost of staffing revenue, owned locations | 1123 |  |  | 1123 |
| Gross profit | 8238 | 2590 |  | 10828 |
| Selling, general and administrative expenses | 2395 | 2245 | (1337) A | 3303 |
| Depreciation and amortization | 601 | 30 | 64 B | 695 |
| Income from operations | 5242 | 315 | 1273 | 6829 |
| Other miscellaneous income (expense) | (99) | 3675 | (3675) C | (99) |
| Interest income | 51 | 2 |  | 53 |
| Interest and other financing expense | (100) |  |  | (100) |
| Net income before income taxes | 5094 | 3991 | (2402) | 6683 |
| Provision (benefit) for income taxes | 946 | 4 | (601) D | 350 |
| Net income from continuing operations | 4148 | 3987 | (1802) | 6334 |
| Income from discontinued operations, net of tax | 98 |  |  | 98 |
| Net income | $4246 | $3987 | $(1802) | $6432 |
| **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 | 13610 |  |  | 13610 |
| Diluted | 13677 |  |  | 13677 |

---

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**<br> **adjustments** | **Pro forma** <br> **condensed** <br> **combined** |
| Franchise royalties | $21226 | $8331 | $- | $29557 |
| Staffing revenue, owned locations | 3891 |  |  | 3891 |
| Service revenue | 1677 |  |  | 1677 |
| Total revenue | 26794 | 8331 |  | 35125 |
| Cost of staffing revenue, owned locations | 2832 |  |  | 2832 |
| Gross profit | 23962 | 8331 |  | 32293 |
| Selling, general and administrative expenses | 8763 | 7177 | (4034) A | 11906 |
| Depreciation and amortization | 1777 | 92 | 190 B | 2059 |
| Income from operations | 13422 | 1062 | 3845 | 18328 |
| Other miscellaneous income (expense) | (2020) | 3675 | (3675) C | (2020) |
| Interest income | 198 | (25) |  | 173 |
| Interest and other financing expense | (256) |  |  | (256) |
| Net income before income taxes | 11344 | 4712 | 170 | 16226 |
| Provision (benefit) for income taxes | 1880 | 12 | 42 D | 1935 |
| Net income from continuing operations | 9464 | 4699 | 127 | 14291 |
| Income from discontinued operations, net of tax | 277 |  |  | 277 |
| Net income | $9741 | 4699 | $127 | $14568 |
| **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 | 13598 |  |  | 13598 |
| Diluted | 13688 |  |  | 13688 |

---

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** <br> **adjustments** | **Pro forma** <br> **condensed** <br> **combined** |
| Franchise royalties | $21317 | $10910 | $- | $32227 |
| Staffing revenue, owned locations |  |  |  |  |
| Service revenue | 1212 |  |  | 1212 |
| Total revenue | 22529 | 10910 |  | 33439 |
| Cost of staffing revenue, owned locations |  |  |  |  |
| Gross profit | 22529 | 10910 |  | 33439 |
| Selling, general and administrative expenses | 13328 | 8027 | (4942) A | 16414 |
| Depreciation and amortization | 1563 | 120 | 256 B | 1939 |
| Income from operations | 7638 | 2763 | 4686 | 15087 |
| Other miscellaneous income (expense) | 4571 | (20) |  | 4551 |
| Interest income | 413 | (1) |  | 412 |
| Interest and other financing expense | (157) |  |  | (157) |
| Net income before income taxes | 12465 | 2742 | 4686 | 19893 |
| Provision (benefit) for income taxes | 633 | 799 | 1171 D | 2603 |
| Net income from continuing operations | 11832 | 1943 | 3514 | 17289 |
| Income from discontinued operations, net of tax | 18 |  |  | 18 |
| Net income | $11850 | $1943 | $3514 | $17307 |
| **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 | 13461 |  |  | 13461 |
| Diluted | 13588 |  |  | 13588 |

---

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 | $13224 |
| Contingent consideration | 60 |
| Total consideration | $13284 |
| Current assets | $581 |
| Identifiable intangible assets <sup>(1)</sup> | 7820 |
| Goodwill | 5370 |
| Current liabilities | (487) |
| Preliminary purchase price | $13284 |

---

&nbsp;&nbsp;&nbsp;&nbsp;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**

&nbsp;&nbsp;&nbsp;&nbsp;A. Assets not acquired and liabilities not assumed in the Acquisition.

&nbsp;&nbsp;&nbsp;&nbsp;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) |

---

&nbsp;&nbsp;&nbsp;&nbsp;C. Preliminary fair value assigned to franchise agreements acquired.

------

&nbsp;&nbsp;&nbsp;&nbsp;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 | $5370 |
| Fair value of trade name | 2180 |
| Less MRI historical intangible assets | (159) |
| Pro forma adjustment to goodwill and other intangible assets | $7391 |

---

&nbsp;&nbsp;&nbsp;&nbsp;E. Increase in line of credit to finance Acquisition.

&nbsp;&nbsp;&nbsp;&nbsp;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) |

---

&nbsp;&nbsp;&nbsp;&nbsp;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 | (2377) |
| Pro forma adjustment to accrued payroll, benefits, and payroll taxes | $(2025) |

---

&nbsp;&nbsp;&nbsp;&nbsp;H. Elimination of MRI's historical equity.

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

&nbsp;&nbsp;&nbsp;&nbsp;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.

&nbsp;&nbsp;&nbsp;&nbsp;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** | **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 |

---

&nbsp;&nbsp;&nbsp;&nbsp;C. Elimination of one-time MRI income.

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

## Exhibit 99.3

**Exhibit 99.3**

**Management Recruiters International, Inc.**<br> **and Subsidiaries**

**Consolidated Financial Statements** 

**December 31, 2021**

------

**<u>**Table of Contents**</u>**

---

| | |
|:---|:---|
| Independent Auditors' Report | 1 – 2 |
| Consolidated Financial Statements: |  |
| Consolidated Balance Sheets | 3 |
| Consolidated Statements of Income | 4 |
| Consolidated Statements of Comprehensive Income | 5 |
| Consolidated Statements of Stockholders' Equity | 6 |
| Consolidated Statements of Cash Flows | 7 |
| Notes to the Consolidated Financial Statements | 8 – 18 |

---

------

**<u>Independent Auditors</u>**<u>'</u> **<u>Report</u>**

Board of Directors

Management Recruiters International, Inc. and Subsidiaries

**Opinion**

We have audited the accompanying consolidated financial statements of Management Recruiters International, Inc. and its subsidiaries (the "Company"), which comprise the consolidated balance sheets at December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Management Recruiters International, Inc. and its subsidiaries at December 31, 2021 and 2020, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

**Basis for Opinion**

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Management Recruiters International, Inc. and its subsidiaries and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

**Responsibilities of Management for the Consolidated Financial Statements**

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Management Recruiters International, Inc. and its subsidiaries ability to continue as a going concern within one year after the date that the consolidated financial statements are available to be issued.

**Auditor**'**s Responsibilities for the Audit of the Consolidated Financial Statements**

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

------

In performing an audit in accordance with generally accepted auditing standards, we:

● Exercise professional judgment and maintain professional skepticism throughout the audit.

● Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion, on the effectiveness of Management Recruiters International, Inc. and its subsidiaries internal control. Accordingly, no such opinion is expressed.

● Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

● Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Management Recruiters International, Inc. and its subsidiaries' ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

**Prior Period Consolidated Financial Statements**

The consolidated financial statements of the Company at December 31, 2020 and for the year then ended, were audited by other auditors whose report, dated March 23, 2021, expressed an unmodified opinion on those statements.

/s/ Daszkal Bolton, LLP

Boca Raton, Florida

March 11, 2022

------

---

| |
|:---|
| **Management Recruiters International, Inc. and Subsidiaries** |
| **Consolidated Balance Sheets** |
| **December 31, 2021 and 2020** |

---

---

| | | |
|:---|:---|:---|
| (Dollars in thousands) |  |  |
|  | **2021** | **2020** |
| <u>**Assets**</u> | <u>**Assets**</u> | <u>**Assets**</u> |
| Current assets: |  |  |
| Cash and cash equivalents | $2429 | $332 |
| Accounts receivable, net of allowances of $317 and $82 | 9939 | 10086 |
| Due from affiliate | 479 | 109 |
| Prepaid expenses and other current assets | 401 | 624 |
| Current income tax receivable |  | 5 |
| Right of use asset - current | 140 | 94 |
| Total current assets | 13388 | 11250 |
| Right of use asset - noncurrent | 176 | 414 |
| Property and equipment, net of accumulated depreciation and amortization of $235 and $135 | 201 | 263 |
| Intangible assets, net of accumulated amortization of $47 and $25 | 173 | 195 |
| Deferred income taxes - noncurrent | 935 | 1542 |
| Total assets | $14873 | $13664 |
| **<u>Liabilities and Stockholders' Equity</u>** | **<u>Liabilities and Stockholders' Equity</u>** | **<u>Liabilities and Stockholders' Equity</u>** |
| Current liabilities: |  |  |
| Accounts payable | $2422 | $2820 |
| Accrued compensation and related expenses | 2801 | 1576 |
| Operating lease - current | 140 | 94 |
| Unearned revenue | 33 | 96 |
| Other accrued expenses and other current liabilities | 1082 | 334 |
| Total current liabilities | 6478 | 4920 |
| Long-term debt: |  |  |
| Long-term debt | 4614 | 4614 |
| Operating lease - noncurrent | 176 | 414 |
| Unearned income - noncurrent | 174 | 129 |
| Total long-term debt | 4964 | 5157 |
| Total liabilities | 11442 | 10077 |
| Commitments and contingencies |  |  |
| Stockholders' equity: |  |  |
| Common stock, $1 par value, 1,000 shares authorized, issued and outstanding | 1 | 1 |
| Additional paid-in capital | 1165 | 3190 |
| Retained earnings | 2368 | 425 |
| Accumulated other comprehensive loss | (103) | (29) |
| Total stockholders' equity | 3431 | 3587 |
| Total liabilities and stockholders' equity | $14873 | $13664 |

---

See accompanying notes to the consolidated financial statements.

------

---

| |
|:---|
| **Management Recruiters International, Inc. and Subsidiaries** |
| **Consolidated Statements of Income** |
| **December 31, 2021 and 2020** |

---

---

| | | |
|:---|:---|:---|
| (Dollars in thousands) | **2021** | **2020** |
| Revenue | $75433 | $46706 |
| Cost of services | 46055 | 28000 |
| Gross profit | 29378 | 18706 |
| Operating and administrative expenses | 26615 | 19419 |
| Operating income (loss) | 2763 | (713) |
| Other income (expense): |  |  |
| Gain on the extinguishment of debt |  | 1104 |
| Other expenses | (20) |  |
| Interest expense | (1) | (41) |
| Income before income taxes | 2742 | 350 |
| Income tax (expense) benefit | (799) | 235 |
| Net income | $1943 | $585 |

---

See accompanying notes to the consolidated financial statements.

------

---

| |
|:---|
| **Management Recruiters International, Inc. and Subsidiaries** |
| **Consolidated Statements of Comprehensive Income** |
| **December 31, 2021 and 2020** |

---

---

| | | |
|:---|:---|:---|
| (Dollars in thousands) | **2021** | **2020** |
| Net income | $1943 | $585 |
| Other comprehensive income (loss): |  |  |
| Foreign currency translation adjustments, net of tax of $0 | (74) | (5) |
| Total comprehensive income | $1869 | $580 |

---

See accompanying notes to the consolidated financial statements.

------

---

| |
|:---|
| **Management Recruiters International, Inc. and Subsidiaries** |
| **Consolidated Statements of Stockholders' Equity** |
| **December 31, 2021 and 2020** |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  | **Accumulated** |  |
|  |  |  |  | **Retained** | **Other** | **Total** |
|  | **Common Stock** | **Common Stock** | **Additional** | **Earnings** | **Comprehensive** | **Stockholders'** |
| (Dollars in thousands) | **Shares** | **Par Value** | **Paid-in Capital** | **(Deficit)** | **Loss** | **Equity** |
| Balance, December 31, 2019 | 1 | $1 | $3190 | $(160) | $(24) | $3007 |
| Net income |  |  |  | 585 | (5) | 580 |
| Balance, December 31, 2020 | 1 | 1 | 3190 | 425 | (29) | 3587 |
| Distributions |  |  | (2000) |  |  | (2000) |
| Net income |  |  | (25) | 1943 | (74) | 1844 |
| Balance, December 31, 2021 | 1 | $1 | $1165 | $2368 | $(103) | $3431 |

---

See accompanying notes to the consolidated financial statements.

------

---

| |
|:---|
| **Management Recruiters International, Inc. and Subsidiaries** |
| **Consolidated Statements of Cash Flows** |
| **December 31, 2021 and 2020** |

---

---

| | | |
|:---|:---|:---|
| (Dollars in thousands) | **2021** | **2020** |
| Cash flows from operating activities: |  |  |
| Net income | $1943 | $585 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |
| Depreciation and amortization | 120 | 116 |
| Amortization of right of use asset | 192 | 66 |
| Deferred income taxes | 791 | (291) |
| Increase (decrease) in allowance for doubtful accounts | 235 | (78) |
| Gain on extinguishment of debt |  | (1105) |
| Changes in operating assets and liabilities: |  |  |
| Accounts receivable | (85) | (1882) |
| Prepaid expenses and other current assets | 220 | (288) |
| Accounts payable | (398) | 1319 |
| Due from affiliate | (395) | (109) |
| Accrued compensation and related expenses | 1225 | 547 |
| Unearned revenue - current and noncurrent | (18) | 168 |
| Accrued expenses and other current liabilities | 564 | (1278) |
| Income tax receivable | 5 | 4 |
| Operating cash flows from operating leases | (192) | (66) |
| Deferred compensation |  | (13) |
| Net cash provided by (used in) operating activities | 4207 | (2305) |
| Cash flows from investing activities: |  |  |
| Additions to property and equipment | (36) | (124) |
| Net cash used in investing activities | (36) | (124) |
| Cash flows from financing activities: |  |  |
| Distributions | (2000) |  |
| Proceeds from line of credit, net |  | (2953) |
| Proceeds from PPP loans |  | 5719 |
| Net cash (used in) provided by financing activities | (2000) | 2766 |
| Net increase in cash and cash equivalents | 2171 | 337 |
| Effects of exchange rates on cash | (74) | (5) |
| Cash and cash equivalents, beginning of year | 332 |  |
| Cash and cash equivalents, end of year | $2429 | $332 |
| **<u>Supplemental disclosure of cash flow information:</u>** |  |  |
| Cash paid during the year for interest | $1 | $47 |
| **<u>Supplemental non-cash investing and financing activities:</u>** |  |  |
| The Company entered into a new lease for office space that is classified as an operating lease and resulted in a right-of-use asset and lease liability in the initial amount of $585,198 |  |  |

---

See accompanying notes to the consolidated financial statements.

------

**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

------

**<u>Note 1</u>** <u>–</u> **<u>Nature of Business</u>**

Management Recruiters International, Inc. ("MRI") is a global franchisor that does business as MRINetwork® and provides the use of its trademarks, business systems and training and support services to its franchisees who engage in the search and recruitment of executive, technical, professional and managerial personnel for employment by their clients. The MRI franchisees provide permanent placement services primarily under the brand names MRINetwork®, Management Recruiters® and Sales Consultants®. MRI also provides training and support, implementation and back-office services to enable franchisees to pursue contract staffing opportunities.

**<u>Note 2</u>** <u>–</u> **<u>Summary of Significant Accounting Policies</u>**

***<u>Basis of Presentation</u>***

The consolidated financial statements of MRI and Subsidiaries (collectively, the "Company") and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles ("GAAP").

***<u>Use of Estimates</u>***

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in the consolidated financial statements and accompanying notes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the allowance for doubtful accounts receivable, determination of the recoverability of long-lived assets, assessment of legal contingencies and calculation of income taxes.

***<u>Principles of Consolidation</u>***

The consolidated financial statements include the accounts of MRI and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

***<u>Revenue recognition</u>***

The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, *Revenue from Contracts with Customers* ("Topic 606").

Topic 606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue to be recognized. Under Topic 606, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation.

------

**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

------

**<u>Note 2</u>** <u>–</u> **<u>Summary of Significant Accounting Policies, continued</u>**

***<u>Revenue recognition, continued</u>***

The Company derives its significant revenue from the following sources:

***<u>Franchise Royalties</u>***

MRI's rights to franchise royalties are governed by the provisions of its franchise contracts. Under the franchise contracts, the franchisees remit to the Company a contractual percentage of fees collected from their customers or a fixed monthly fee. The Company records franchise royalty revenue as fees are collected by the franchisee and they become a receivable due from the franchisee.

***<u>Franchise Fees</u>***

The Franchise Agreement provides for an initial franchise fee, which requires payment upon execution of the Franchise Agreement. The Company determined that the services provided in exchange for these initial fees are highly interrelated with the franchise right and are not individually distinct from the ongoing services the Company provides to its franchisees. As a result, the initial franchise fee is recognized on a straight-line basis over the term of each respective agreement, which is consistent with the franchisee's right to use and benefit from the exclusivity of territory and operational support.

***<u>Contract Staffing Services</u>***

The Company recognizes revenue from contract staffing services based on the gross amount billed. The Company typically bills its customers once services are performed and associated costs have been incurred. In these circumstances, the Company assumes the risk of acceptability of its employees to its customers. The Company will also at times use unaffiliated companies (supplier associates) and their employees to fulfill a customer's staffing requirements, either in whole or in part. Under these arrangements, these firms serve as subcontractors. When utilizing supplier associates, the Company records the difference between its gross billings and the amount paid to the supplier associate as revenue, which is generally referred to as an administrative fee.

Revenue from royalties and contract staffing services is recognized at a point in time, whereas revenue from franchise fees are recognized over time. Total revenue recognized at a point in time and over time was as follows for the years ended December 31, (in thousands):

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Revenue recognized over time | $75 | $18 |
| Revenue recognized at a point in time | 75358 | 46688 |
|  | $75433 | $46706 |

---

***<u>Advertising Costs</u>***

The Company participates in various advertising programs. All costs related to advertising are included in operating and administrative expenses and are expensed in the period incurred. Advertising costs were $530,647 and $348,479 for years ended December 31, 2021 and 2020, respectively.

------

**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

------

**<u>Note 2</u>** <u>–</u> **<u>Summary of Significant Accounting Policies, continued</u>**

***<u>Foreign Currency</u>***

Foreign franchisees of the Company use local currency as the functional currency. Net assets are translated at year-end exchange rates while revenue and expenses are translated at average monthly exchange rates. Adjustments resulting from these translations are reflected in accumulated other comprehensive gain or loss in the equity section of the consolidated balance sheets.

***<u>Concentrations of Credit Risk</u>***

The Company's principal asset is its accounts receivable. Substantially, all of the Company's customers are provided trade credit. Credit risk with respect to receivables is limited due to the number of companies comprising the Company's customer base. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The Company considers several factors in determining the allowance for doubtful accounts receivable, including an assessment of customer-specific information, the Company's historical experience, the age of the receivable and current market and economic conditions.

The Company maintains cash deposits in financial institutions in excess of federally insured limits. Management believes the risk is mitigated by maintaining all deposits in high quality financial institutions in the U.S.

During the years ended December 31, 2021 and 2020, the Company had approximately 15% and 28% of its sales from one (1) customer and two (2) customers, respectively. Accounts receivable from these customers were approximately 1% and 29% at December 31, 2021 and 2020, respectively.

***<u>Income Taxes</u>***

The Company accounts for income taxes using the asset and liability method. Under this method, income taxes are recorded for amounts currently payable and for amounts deferred based on differences between the financial statement carrying amounts and tax basis of its assets and liabilities. In establishing its deferred income tax assets and liabilities, the Company makes judgments and interpretations based on the enacted tax laws and published tax guidance. The Company records deferred tax assets and liabilities and evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. The likelihood of a material change in the Company's expected realization of these assets is dependent on future taxable income, its ability to use tax credit carry forwards and carry backs, final tax settlements and the effectiveness of its tax planning strategies in the various tax jurisdictions in which it operates. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

***<u>Intangible Assets</u>***

The Company evaluates the useful lives of intangible assets. Reaching a determination on useful life requires significant judgements and assumptions. Intangible assets include trade names and trademarks, which are amortized on a straight-line basis over their useful life of twelve (12) years.

------

**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

------

**<u>Note 2</u>** <u>–</u> **<u>Summary of Significant Accounting Policies, continued</u>**

***<u>Fair Value of Financial Instruments</u>***

The net carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and line of credit approximate their fair value due to the short-term nature of these instruments.

***<u>Property and Equipment</u>***

Property and equipment are recorded at cost. Depreciation and amortization expense for financial reporting purposes is computed using the straight-line method over the following useful lives:

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| | |
|:---|:---|
| Computer software and hardware | 3 - 4 years |
| Equipment and furniture | 4 - 10 years |
| Software | 4 - 7 years |
| Leasehold improvements | Shorter of lease term or useful life |

---

***<u>Long-Lived Assets</u>***

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When it is probable that undiscounted future cash flows will not be sufficient to recover an asset's carrying amount, the asset is written down to its fair value. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less cost to sell. There were no triggering events during the years ended December 31, 2021 and 2020.

***<u>Recent Accounting Pronouncements</u>***

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, *Financial Instruments* – *Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments*, which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost (including loans, trade receivables and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, *Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes*, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for the Company beginning on January 1, 2022. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

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**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

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**<u>Note 2</u>** <u>–</u> **<u>Summary of Significant Accounting Policies, continued</u>**

***<u>Date of Management</u>***<u>'</u>***<u>s Review</u>***

Management evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through March 11, 2022, the day the consolidated financial statements were approved and authorized for issuance.

**<u>Note 3</u>** <u>–</u> **<u>Property and Equipment</u>**

Property and equipment, net was comprised of the following (in thousands):

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| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Computer equipment | $414 | $380 |
| Equipment and furniture | 22 | 18 |
| Total property and equipment | 436 | 398 |
| Accumulated depreciation and amortization | (235) | (135) |
| Property and equipment, net | $201 | $263 |

---

Depreciation and amortization expense for the years ended December 31, 2021 and 2020, was approximately $124,000 and $110,000, respectively.

**<u>Note 4</u>** <u>–</u> **<u>Line of Credit</u>**

On May 28, 2019, the Company entered into a revolving credit loan agreement ("Revolving Credit Loan") to fund a previous acquisition that occurred. The Revolving Credit Loan has a maximum availability of $7,000,000, originally maturing on May 28, 2022, and carries interest at a per annum rate equal to the LIBOR rate plus 2.75%. Interest is payable in arrears on the first day of each month. The line was subsequently amended on October 19, 2021 to permit the specified owner distribution in 2021, extended the maturity date to May 28, 2025, along with modifications to the certain financial covenants, all other material terms of the agreement remained the same. At December 31, 2021 and 2020, the Company had borrowings outstanding of $0.

The line of credit is subject to certain financial covenants, as defined. The Company was in compliance with the financial covenants at December 31, 2021. The Company was not in compliance with the financial covenants at December 31, 2020. In February 2021, the lender provided a waiver for the covenant violation as of December 31, 2020.

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**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

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**<u>Note 5</u>** <u>–</u> **<u>Long-Term Debt</u>**

On April 10, 2020, the Company received a $1,104,200 term note with a bank pursuant to the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, administered by the U.S. Small Business Administration ("SBA"). In accordance with the requirements of the CARES Act, the borrower used the proceeds from the note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs and other eligible costs. Interest accrued on the note at the rate of 1.00% per annum. The borrower did not provide any collateral or guarantees for the note. On December 15, 2020, the Company received formal approval to forgive the loan from the SBA and has recognized a gain on extinguishment of debt in the amount of $1,104,200.

On April 20, 2020, the Company received a $4,614,400 term note with a bank pursuant to the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, administered by the U.S. Small Business Administration ("SBA"). In accordance with the requirements of the CARES Act, the borrower used the proceeds from the note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs and other eligible costs. Interest accrued on the note at the rate of 1.00% per annum. The borrower is applying for forgiveness of the amount due under the respective note. The borrower did not provide any collateral or guarantees for the note. At December 31, 2021, the note has not been forgiven and the principal is included in long-term debt.

**<u>Note 6</u>** <u>–</u> **<u>Intangible Assets</u>**

Intangible assets consist of the following at December 31, (in thousands), respectively:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **2021** | **2021** | **2021** | **2021** |
|  |  | **Accumulated** | **Net** | **Estimated** |
|  | **Cost** | **Amortization** | **Book Value** | **Useful Life** |
| Trade names and trademarks | $220 | $47 | $173 | 12 years |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2020** | **2020** | **2020** | **2020** |
|  |  | **Accumulated** | **Net** | **Estimated** |
|  | **Cost** | **Amortization** | **Book Value** | **Useful Life** |
| Trade names and trademarks | $220 | $25 | $195 | 12 years |

---

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**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

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**<u>Note 6</u>** <u>–</u> **<u>Intangible Assets, continued</u>**

Amortization of amortizable intangible assets is as follows at December 31, 2021, (in thousands), respectively:

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| | |
|:---|:---|
| **Years Ending December 31,** | **Amount** |
| 2022 | $18 |
| 2023 | 18 |
| 2024 | 18 |
| 2025 | 18 |
| 2026 | 18 |
| Thereafter | 83 |
|  | $173 |

---

Amortization expense for intangible assets was $22,480 and $15,714 for the years ended December 31, 2021 and 2020, respectively.

**<u>Note 7</u>** <u>–</u> **<u>Income Taxes</u>**

Income before income taxes was as follows for the years ended December 31, (in thousands):

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| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| United States | $2738 | $443 |
| Foreign |  | (93) |
| Income before income taxes | $2738 | $350 |

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**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

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**<u>Note 7</u>** <u>–</u> **<u>Income Taxes, continued</u>**

Income tax expense was comprised of the following for the years ended December 31, (in thousands):

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| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Current: |  |  |
| Federal | $(99) | $- |
| State | (94) | (49) |
| Total current income tax expense | $(193) | $(49) |
| Deferred: |  |  |
| Federal | $(471) | $165 |
| State | (135) | 119 |
| Total current income tax benefit | $(606) | $284 |
| Income tax (expense) benefit | $(799) | $235 |

---

The significant temporary differences and carryforwards that impact the Company's deferred tax accounts were accrued compensation, net operating loss carryforwards and depreciation of fixed assets.

As of December 31, 2020, the Company had no material unrecognized tax benefits that, if recognized, would impact the effective tax rate.

As of December 31, 2021 and 2020, the Company has available for carryforward, federal and state net operating losses, of approximately $6.06 million and $10.6 million, respectively, to be applied against future U.S. federal and state taxable income. Such state carryforwards expire according to individual state regulations. Carryforwards generated in tax years beginning after December 31, 2017, do not expire.

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| | | |
|:---|:---|:---|
| (in thousands) | **2021** | **2020** |
| Fixed assets | $(21) | $22 |
| Accrued expenses and other | 2 | (66) |
| Accrued compensation | 42 | 143 |
| NOL's - federal, state and foreign | 912 | 1443 |
| Total deferred assets | 935 | 1542 |
| Less: total valuation allowance recognized |  |  |
| Net deferred tax assets | $935 | $1542 |

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**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

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**<u>Note 7</u>** <u>–</u> **<u>Income Taxes, continued</u>**

The Tax Reform Act of 1986 contains provisions that may limit the yearly utilization of net operating loss and credits carryforwards if there has been a ownership change. An ownership change is defined as a greater than 50% change in ownership over a three-year period. Such an ownership change, as described in Section 382 of the Internal Revenue Code, may limit the Company's ability to utilize its net operating loss and credit carryforwards on a yearly basis. As a result, to the extent that any single-year limitation is not utilized to the full amount of the limitation, such unused amounts are carried over to subsequent years until the earlier of its utilization or the expiration of the carryforward period. Due to the Company's prior equity transactions, its net operating loss may be subject to an annual limitation.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740-10, Income Taxes. The recognition criteria under ASC 740-10 requires the Company to recognize the consolidated financial statements effect of a tax position when it is more likely than not that the position will be sustained upon examination. Management has evaluated the positions taken by the Company and has concluded that no material reserves are required for tax exposures. The Company's federal and state returns since 2017 are open to examination by the federal tax authorities.

**<u>Note 8</u>** <u>–</u> **<u>Commitments, Contingencies and Legal Proceedings</u>**

***<u>Lease Commitments</u>***

The Company leases buildings for its operating locations under noncancelable agreements that expire on various dates through 2024. In conjunction with the new guidance for leases contained in ASU 2016-02, *Leases (Topic 842)*, a lease is defined as any contract that conveys the right to use a specific asset for a period of time in exchange for consideration. Leases are classified as a finance lease, formerly called a capital lease, if certain criteria are met. For any leases that do not meet the criteria identified for finance leases, the Company treats such leases as operating leases. As of December 31, 2021 and 2020, the Company's lease is classified as an operating lease.

The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to be exercised. Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately. In general, the Company will assess if non-lease components should be included in the lease liability. For purposes of calculating the present value of the lease obligation the company utilizes the private company practical expedient of discounting the future value of lease payments to present value, using the risk-free rate.

As of December 31, 2021 and 2020, the Company has recorded right-of-use assets of $316,094 and $508,628, respectively, of which $140,486 and $94,182 is reported as a current asset and a lease liability of $316,094 and $508,628, of which $140,486 and $94,182 is reported as a current liability.

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**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

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**<u>Note 8</u>** <u>–</u> **<u>Commitments, Contingencies and Legal Proceedings, continued</u>**

***<u>Lease Commitments, continued</u>***

Future maturities of the operating lease liability are as follows as of December 31:

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| | |
|:---|:---|
| **Years Ending December 31,** | **Amount** |
| 2022 | $146 |
| 2023 | 150 |
| 2024 | 20 |
| Total minimum lease payments | $316 |

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As of December 31, 2021, the weighted-average remaining lease term of the Company's operating leases is 0.75 years, and the weighted-average remaining discount rate is 0.29%.

Rent expense for the years ended December 31, 2021 and 2020 was $170,611 and $198,776, respectively.

***<u>Meeting Commitments</u>***

The Company has contracted with various venues for franchise meetings in 2022. The contracted payments due related to these meetings totaled approximately $775,113. The Company contracted with various venues for franchise meetings in 2023, contracted payments totaling approximately $975,000. Franchisees attending these meetings reimburse the Company for a portion of the cost of each event.

***<u>Job Board Commitments</u>***

During 2020, the Company entered into an agreement with a job board provider for a $1.61 million purchase commitment for the period from June 2021 to May 2022. A final payment amount of $632,000 is due in May 2022. During 2021, the Company entered into an agreement with a marketing tool provider for approximately $300,000 for the period through December 2022. The agreement enables the Company and franchisees to access the job board. The job board provider is paid directly by the Company who in turns bills other members of the franchise group for their share of the cost.

***<u>Technology Commitments</u>***

During 2021, the Company entered into multiple agreements with technology software providers for purchase commitments totaling approximately $210,000 for periods through September 2024. The service provider is paid directly by the Company which in turn bills other members of the franchise group for their respective share of the cost.

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**Management Recruiters International, Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

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**<u>Note 8</u>** <u>–</u> **<u>Commitments, Contingencies and Legal Proceedings, continued</u>**

***<u>Legal Proceedings and Claims</u>***

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although management cannot predict the timing or outcome of these matters with certainty, management does not believe that the final resolution of these matters, individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows.

**<u>Note 9</u>** <u>–</u> **<u>Retirement Plan</u>**

Through December 5, 2020, the Company participated in the CDI Corporation 401(k) Saving Plan (the "Plan"). The Plan is a defined contribution retirement plan maintained for the benefit of eligible employees and qualified under section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary tax deferred contributions to the Plan and the Company, at its discretion, may make matching contributions subject to certain limitations. Participants are fully vested in their contributions and in the Company's matching contributions at all times, except in certain limited instances.

Effective December 6, 2020, the Company created a new 401(k) plan (the "New Plan"). The New Plan is a defined contribution plan maintained for the benefit of eligible employees and qualified under section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary tax deferred contributions to the New Plan and the Company, at its discretion, may make matching contributions subject to certain limitations. Participants are fully vested in their contributions and in the Company's matching contributions at all times, except in certain limited instances.

Between the Plan and the New Plan, the Company recorded expenses of $68,736 and $59,612 in their consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively. Plan expenses are based on a formula using a percentage of compensation or an amount determined by the Board of Directors.

**<u>Note 10</u>** <u>–</u> **<u>Market Conditions</u>**

During the year ended December 31, 2020, the World Health Organization declared the coronavirus outbreak ("COVID-19") a pandemic. The impact of COVID-19 could negatively impact the Company's operations. The extent to which the coronavirus impacts the Company's results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus or its impact, among other factors.