8-K/A
HireQuest, Inc. (HQI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 1, 2021
HIREQUEST, INC.
(Exact name of registrant as specified in its Charter)
| Delaware | 000-53088 | 91-2079472 |
|---|---|---|
| (State<br>or Other Jurisdiction of<br><br><br>Incorporation<br>or Organization) | (Commission<br><br><br>File<br>Number) | (I.R.S.<br>Employer<br><br><br>Identification<br>No.) |
| 111<br>Springhall Drive, Goose Creek, SC | 29445 | |
| --- | --- | |
| (Address<br>of Principal Executive Offices) | (Zip<br>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<br>Class | Trading<br>Symbol(s) | Name of Each<br>Exchange on Which Registered |
|---|---|---|
| Common Stock,<br>$0.001 par value | HQI | The NASDAQ Stock<br>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. ☐
Introductory Note.
On March 1, 2021, 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 Snelling Staffing, LLC, Snelling Services, LLC, Snelling Employment, LLC, Snelling Medical Staffing, LLC, and Snelling Investments, Inc. (collectively, the “Sellers”) in accordance with the terms of the Asset Purchase Agreement (the “Purchase Agreement”) dated January 29, 2021 by and among HQ Snelling, the Sellers, Snelling Holdings, LLC as Sellers’ Representative, and the Company (solely in its capacity as guarantor of the obligations of HQ Snelling). The assets acquired included the working capital of Sellers, customer lists and agreements, and other items set forth in the Purchase Agreement which was filed as Exhibit 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission (“SEC”) on February 1, 2021 as amended by the First Amendment, filed as Exhibit 2.1 to the Company's Form 8-K filed with the SEC on March 2, 2021, both of which are incorporated herein by reference. The total consideration paid was $17.3 million before working capital adjustments.
This Amendment No. 1 to Current Report on Form 8K/A (the "Form 8-K/A") amends and supplements the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on March 2, 2021 (the "Original Report") to include consolidated financial statements of Sellers 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.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The audited consolidated financial statements of Sellers as of and for the years ended December 27, 2019 and December 28, 2018, and the related notes thereto, are filed as Exhibit 99.1 to this Form 8K/A and are incorporated in their entirety into this item by reference.
The unaudited consolidated balance sheets of Sellers at September 25, 2020 and December 27, 2019, the unaudited consolidated statements of operations of Sellers as of and for the quarters and three quarters ended September 25, 2020, and September 27, 2019, and the unaudited consolidated statement of cash flows for the nine months ended September 25, 2020 and September 27, 2019, and the related notes thereto, are filed as Exhibit 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, 2020 and the unaudited pro forma condensed combined statements of operations for the quarter ended September 30, 2020, the three quarters ended September 30, 2020, and the year ended December 31, 2019, 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 Sellers' 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 Transaction 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) Exhibits
23.1 Consent of Baker Tilly US, LLP
99.1 Audited consolidated financial statements of Sellers as of and for the years ended December 27, 2019 and December 28, 2018, and the related notes thereto.
99.2 Unaudited consolidated balance sheets of Sellers at September 25, 2020 and December 27, 2019, the unaudited consolidated statements of operations of Sellers as of and for the quarters and three quarters ended September 25, 2020, and September 27, 2019, and the unaudited consolidated statement of cash flows for the nine months ended September 25, 2020 and September 27, 2019, and the related notes thereto.
99.3 Unaudited pro forma condensed combined financial statements, which include the unaudited pro forma condensed combined balance sheet as of September 30, 2020 and the unaudited pro forma condensed combined statements of operations for the quarter ended September 30, 2020, the three quarters ended September 30, 2020, and the year ended December 31, 2019, and the related notes thereto.
Cautionary Note Regarding Forward Looking Statements.
This Current Report on Form 8-K/A, the Original Report, and the exhibits attached hereto and thereto and incorporated herein and therein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements regarding the acquisition of certain assets of Sellers 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, including the statements identified in the preceding sentence 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 Sellers 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 Sellers' 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 Securities and Exchange Commission, including our Form 10-K for the fiscal year ended December 31, 2019, our quarterly reports on Form 10-Q filed since that date, and our current reports on Form 8-K filed with the SEC on February 1, 2021 and March 2, 2021, 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,<br>INC. | ||
|---|---|---|
| (Registrant) | ||
| Date: March 24,<br>2021 | /s/ John McAnnar | |
| John<br>McAnnar | ||
| Chief Legal<br>Officer |
exh231consent
exh991snellingaudit
exh992snellingfinancials
exh993proforma
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. (“HQI” or the “Company”) and Snelling Staffing, LLC (“Snelling”), after giving effect to the Asset Purchase Agreement (the “Snelling Agreement”) between Snelling and HQ Snelling Corporation (“HQ Snelling”), a wholly-owned subsidiary of the Company, and the adjustments described in the accompanying notes.
On March 1, 2021, the Company completed its acquisition of certain assets of Snelling in accordance with the terms of the Snelling Agreement dated January 29, 2021. Pursuant to the Snelling Agreement, HQ Snelling acquired substantially all of the operating assets and assumed certain liabilities of Snelling for a purchase price of $17.3 million, subject to customary adjustments for net working capital. The transaction will be financed with cash-on-hand and the Company’s credit facility with Truist Bank.
The unaudited pro forma condensed combined balance sheet as of September 30, 2020 reflects the transaction as if it occurred on September 30, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 and for the three and nine months ended September 30, 2020 reflect the transaction as if it occurred on January 1, 2019.
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 year ended December 31, 2019 and the Quarterly Report of the Company on Form 10-Q for the nine months ended September 30, 2020, and the audited financial statements of Snelling for the fiscal years ended December 27, 2019 and December 28, 2018 and the unaudited financial statements for the fiscal quarters ended September 25, 2020 and September 27, 2019 included as Exhibit 99.1.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2020
| HireQuest,<br>Inc. | Snelling Staffing, LLC | Pro forma adjustments | Pro forma condensed combined | |
|---|---|---|---|---|
| ASSETS | ||||
| Current<br>assets | ||||
| Cash | $10,297,147 | $781,378 | (10,381,378) | $697,147 |
| Accounts<br>receivable, net of allowance for doubtful accounts | 24,024,564 | 12,781,033 | (256,343) | 36,549,254 |
| Notes<br>receivable | 2,144,118 | - | - | 2,144,118 |
| Prepaid expenses,<br>deposits, and other assets | 1,179,333 | 1,147,134 | (870,493) | 1,455,974 |
| Prepaid workers'<br>compensation | 1,978,509 | - | - | 1,978,509 |
| Workers'<br>compensation trust | - | 7,193,529 | (7,193,529) | - |
| Total current<br>assets | 39,623,671 | 21,903,074 | (18,701,743) | 42,825,002 |
| Property and<br>equipment, net | 2,958,998 | 1,075,316 | (1,075,316) | 2,958,998 |
| Intangible assets,<br>net | 186,705 | 4,502,628 | 6,226,378 | 10,915,711 |
| Notes receivable,<br>net of current portion and reserve | 6,377,779 | - | - | 6,377,779 |
| Other<br>assets | - | 295,979 | (295,979) | - |
| Total<br>assets | $49,147,153 | $27,776,997 | (13,846,660) | $63,077,490 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current<br>liabilities | ||||
| Accounts<br>payable | $5,499 | $2,527,630 | (2,288,551) | $244,578 |
| Other current<br>liabilities | 1,664,854 | 8,156,281 | (8,156,281) | 1,664,854 |
| Accrued benefits<br>and payroll taxes | 2,088,119 | - | - | 2,088,119 |
| Due to<br>franchisees | 2,311,372 | 458,782 | - | 2,770,154 |
| Risk management<br>incentive program liability | 1,018,994 | - | - | 1,018,994 |
| Revolving line of<br>credit | - | - | 7,700,000 | 7,700,000 |
| Current portion of<br>debt | - | 47,663,416 | (47,663,416) | - |
| Workers'<br>compensation claims liability | 3,165,056 | 2,218,409 | - | 5,383,465 |
| Total current<br>liabilities | 10,253,894 | 61,024,518 | (50,408,248) | 20,870,164 |
| Workers'<br>compensation claims liability, net of current portion | 1,743,128 | 3,314,067 | - | 5,057,195 |
| Franchisee<br>deposits | 1,459,335 | - | - | 1,459,335 |
| Debt, net of<br>current portion | - | 25,006 | (25,006) | - |
| Other long-term<br>liabilities | - | 4,549,337 | (4,549,337) | - |
| Deferred tax<br>liability | 273,185 | - | - | 273,185 |
| Total<br>liabilities | 13,729,542 | 68,912,928 | (54,982,591) | 27,659,879 |
| Equity | ||||
| Total HireQuest,<br>Inc. stockholders equity | 35,417,611 | - | - | 35,417,611 |
| Total Snelling<br>member equity | - | (41,135,931) | 41,135,931 | - |
| Total stockholders'<br>equity | 35,417,611 | (41,135,931) | 41,135,931 | 35,417,611 |
| Total liabilities<br>and stockholders' equity | $49,147,153 | $27,776,997 | (13,846,660) | $63,077,490 |
All values are in US Dollars.
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Three Months Ended September 30, 2020
| HireQuest, Inc. | Pro forma adjustments | Pro forma condensed combined | |
|---|---|---|---|
| Franchise<br>royalties/Revenue | 3,218,606 | - | $24,597,093 |
| Cost<br>of sales | - | - | 16,322,627 |
| Service<br>revenue | 164,074 | - | 164,074 |
| Total<br>revenue | 3,382,680 | - | 8,438,540 |
| Selling,<br>general and administrative expenses | 1,357,725 | - | 6,194,114 |
| Depreciation<br>and amortization | 32,438 | 178,817 | 335,081 |
| Income<br>(loss) from operations | 1,992,517 | (178,817) | 1,909,345 |
| Other<br>miscellaneous income | 392,709 | - | 392,709 |
| Interest<br>and other financing expense | (10,035) | - | (1,224,440) |
| Net income (loss)<br>before income taxes | 2,375,191 | (178,817) | 1,077,614 |
| Provision for<br>income taxes | 404,058 | 43,989 | 470,547 |
| Net income<br>(loss) | 1,971,133 | (222,806) | $607,067 |
| Earnings per share | |||
| Basic | 0.15 | $0.04 | |
| Diluted | 0.15 | $0.04 | |
| Weighted average shares outstanding | |||
| Basic | 13,573,086 | 13,573,086 | |
| Diluted | 13,574,863 | 13,574,863 |
All values are in US Dollars.
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Nine Months Ended September 30, 2020
| HireQuest, Inc. | Pro forma adjustments | Pro forma condensed combined | |
|---|---|---|---|
| Franchise<br>royalties | 9,563,135 | - | $74,331,564 |
| Cost<br>of sales | - | - | 49,894,333 |
| Service<br>revenue | 840,515 | - | 840,515 |
| Total<br>revenue | 10,403,650 | - | 25,277,746 |
| Selling,<br>general and administrative expenses | 6,542,171 | - | 21,546,894 |
| Depreciation<br>and amortization | 96,654 | 536,450 | 1,040,625 |
| Income<br>(loss) from operations | 3,764,825 | (536,450) | 2,690,227 |
| Other<br>miscellaneous income | 932,254 | - | 932,254 |
| Interest<br>and other financing expense | (39,174) | - | (3,664,984) |
| Net income before<br>income taxes | 4,657,905 | (536,450) | (42,503) |
| Provision for<br>income taxes | 654,592 | 131,967 | 854,059 |
| Net income<br>(loss) | 4,003,313 | (668,417) | $(896,562) |
| Earnings (loss) per share | |||
| Basic | 0.30 | $(0.07) | |
| Diluted | 0.30 | $(0.07) | |
| Weighted average shares outstanding | |||
| Basic | 13,551,507 | 13,551,507 | |
| Diluted | 13,553,619 | 13,553,619 |
All values are in US Dollars.
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 2019
| HireQuest, Inc. | Pro forma adjustments | Pro forma condensed combined | |
|---|---|---|---|
| Franchise<br>royalties | 14,673,636 | - | $138,017,869 |
| Cost<br>of sales | - | - | 91,571,809 |
| Service<br>revenue | 1,202,824 | - | 1,202,824 |
| Total<br>revenue | 15,876,460 | - | 47,648,884 |
| Selling,<br>general and administrative expenses | 12,692,297 | - | 40,495,991 |
| Depreciation<br>and amortization | 400,132 | 715,267 | 1,723,105 |
| Income<br>(loss) from operations | 2,784,031 | (715,267) | 5,429,788 |
| Other<br>miscellaneous income | 751,077 | - | 751,077 |
| Interest<br>and other financing expense | (559,585) | - | (5,079,576) |
| Net income before<br>income taxes | 2,975,523 | (715,267) | 1,101,289 |
| Provision for<br>income taxes | 3,480,996 | 175,956 | 3,735,777 |
| Net<br>loss from continuing operations | (505,473) | (891,223) | $(2,634,488) |
| Basic and diluted loss per share | |||
| Continuing<br>operations | (0.05) | $(0.21) | |
| Basic and diluted weighted average shares outstanding | 11,588,776 | 11,588,776 |
All values are in US Dollars.
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Notes to Pro Forma Condensed Combined Financial Statements.
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 Snelling Agreement 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 Link Agreement and certain other adjustments.
Note 2 – Preliminary Purchase Price Allocation
Under the purchase method of accounting, the total purchase price of $17.3 million 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 |
|---|---|
| Fair<br>value of franchise agreements assumed | $10,729,006 |
| Accounts<br>receivable | 12,524,690 |
| Other<br>current assets | 276,641 |
| Current portion of<br>workers' compensation claims liability | (2,218,409) |
| Other<br>current liabilities | (697,861) |
| Workers'<br>compensation claims liability, net of current portion | (3,314,067) |
| Total<br>allocated purchase price | $17,300,000 |
The preliminary purchase price as shown in the table above 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.
Note 3 – Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
(A) -Adjustments to cash:
| Description | Amount |
|---|---|
| Borrowing<br>on line of credit | $7,700,000 |
| Cash<br>consideration paid for Snelling Staffing, LLC | (17,300,000) |
| Snelling<br>cash balance not acquired | (781,378) |
| Pro<br>forma adjustment to cash | $(10,381,378) |
(B) - Accounts receivable not acquired.
(C) - Adjustments to prepaid expenses, deposits and other assets:
| Description | Amount |
|---|---|
| Snelling<br>prepaid expenses, deposits and other assets | $(1,147,134) |
| Prepaid<br>rents and rent deposits assumed | 276,641 |
| Pro<br>forma adjustment to accounts receivable | $(870,493) |
(D) - Assets not acquired and liabilities not assumed pursuant to the Snelling Agreement.
(E) - Adjustments to intangible assets:
| Description | Amount |
|---|---|
| Fair<br>value of franchisee agreements assumed | $10,729,006 |
| Snelling<br>intangible assets not acquired | (4,502,628) |
| Pro<br>forma adjusted intangible assets | $6,226,378 |
(F) - Adjustments to accounts payable:
| Description | Amount |
|---|---|
| Snelling<br>accounts payable | $(2,527,630) |
| Accounts<br>payable assumed in Snelling Agreement | 239,079 |
| Pro<br>forma adjustment to accounts payable | $(2,288,551) |
(G) - Borrowing to facilitate Snelling transaction.
(H) - Adjustment to Snelling’s historical equity.
Note 4 – Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Income
(A) -The newly acquired intangible assets consisting of franchise agreements will be amortized on a straight-line basis over their estimated useful lives. The fair value assessment is preliminary and any changes to the preliminary values will have a direct impact on future earnings via amortization expense.
| Description | Estimated fair value | Estimated useful life | Three months ended September 30, 2020 | Nine months ended September 30, 2020 | Year ended December 31, 2019 |
|---|---|---|---|---|---|
| Franchise<br>agreements | $10,729,006 | 15 Years | $178,817 | $536,450 | $715,267 |
| Pro<br>forma adjustment to amortization expense | $178,817 | $536,450 | $715,267 |
(B)
- To record the income tax impact of the pro forma adjustments (A) above.
| Description | Three months ended September 30, 2020 | Nine months ended September 30, 2020 | Year ended December 31, 2019 |
|---|---|---|---|
| Pro<br>forma change in income before income tax | $178,817 | $536,450 | $715,267 |
| Combined<br>Federal and State statutory rate | 24.6% | 24.6% | 24.6% |
| Sub-total | $43,989 | $131,967 | $175,956 |