8-K
HireQuest, Inc. (HQI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
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 22, 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. ☐
Item 2.01 Completion of Acquisition or Disposition of Assets.
On March 22, 2021, HQ Link Corporation (“HQ Link”), a wholly-owned subsidiary of HireQuest, Inc. (the “Company”) completed its acquisition of certain assets (the “Transaction”) of Link Staffing Services Corporation, Franlink, Inc., and Stafflink, Inc. (collectively, the “Sellers”) in accordance with the terms of the Asset Purchase Agreement (the “Purchase Agreement”) dated February 12, 2021 by and between HQ Link and Sellers. The aggregate consideration paid by HQ Link was $11.1 million cash. The assets acquired included the Sellers' franchise relationships and agreements, customer lists and agreements, and other items set forth in the Purchase Agreement.
The description of the Transaction does not purport to be complete and is subject to, and qualified in its entirety by reference to the full text of 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 16, 2021 and which is incorporated herein by reference.
Item 8.01 Other Events.
On March 23, 2021, the Company issued a press release announcing the closing of the Transaction, a copy of which is furnished as Exhibit 99.4 to this Current Report on Form 8-K.
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 29, 2019 and December 30, 2018, and the related notes thereto, are filed as Exhibit 99.1 to this Form 8-K and are incorporated in their entirety into this item by reference. The unaudited consolidated balance sheets at September 27, 2020 and December 29, 2019, the unaudited consolidated statement of operations for the quarter and three quarters ended September 27, 2020 and September 29, 2019, and the unaudited consolidated statement of cash flows for the quarter ended September 27, 2020, and September 29, 2019, and the related notes thereto, of Sellers are filed as Exhibit 99.2 to this Form 8-K 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 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 Calvetti Ferguson
99.1 Audited consolidated financial statements of Sellers as of and for the years ended December 29, 2019 and December 30, 2018, and the related notes thereto.
99.2 Unaudited consolidated balance sheets at September 27, 2020 and December 29, 2019, the unaudited consolidated statement of operations for the quarter and three quarters ended September 27, 2020 and September 29, 2019, and the unaudited consolidated statement of cash flows for the quarter ended September 27, 2020, and September 29, 2019, and the related notes thereto, of Sellers.
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.
99.4 Press Release dated March 23, 2021 (furnished only).
Cautionary Note Regarding Forward Looking Statements.
This Current Report on Form 8-K, the exhibits attached hereto and incorporated herein by reference, and the press release furnished as Exhibit 99.4 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 Snelling Staffing and the expected benefits from such transactions including increased earnings and revenue, growth, and the effects of expanded scale. All statements other than statements of historical facts contained herein, including the statements identified in the preceding sentences 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, Sellers, or Snelling Staffing, 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 acquisitions will not be realized or will not be realized within the expected time period; the risk that Sellers' or Snelling Staffing’s business may not be integrated successfully; the risk that disruption from the acquisitions 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, February 16, and March 2, 2021, and will be contained in our SEC filings in connection with this acquisition and the Snelling 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 23,<br>2021 | /s/ John McAnnar | |
| John<br>McAnnar | ||
| Chief Legal<br>Officer |
exh231consent
exh991audit
exh992-linksept2020financ
| LINK STAFFING SERVICES CORPORATION AND SUBSIDIARIES | ||
|---|---|---|
| CONSOLIDATED BALANCE SHEETS | ||
| (unaudited) | ||
| September 27, 2020 | December 29, 2019 | |
| ASSETS | ||
| Current assets: | ||
| Cash<br>and cash equivalents | $ 8,373,730 | $ 330,749 |
| Accounts<br>receivable - trade, net of allowance for doubtful<br>accounts | 7,555,508 | 8,561,206 |
| Prepaid<br>expenses | 638,849 | 872,112 |
| Other<br>current assets | 216,914 | 148,205 |
| Total<br>current assets | 16,785,001 | 9,912,272 |
| Property and equipment, net | 1,003,199 | 1,246,990 |
| Other assets: | ||
| Notes<br>receivable, franchisees | 164,694 | 482,246 |
| Workers'<br>compensation deposits | 1,771,257 | 1,915,088 |
| Intangible<br>assets, net of accumulated amortization | 266,474 | 254,323 |
| Total<br>other assets | 2,202,425 | 2,651,657 |
| TOTAL ASSETS | $ 19,990,625 | $ 13,810,919 |
The accompanying notes are an integral part of these consolidated financial statements.
| LINK STAFFING SERVICES CORPORATION AND SUBSIDIARIES | |
|---|---|
| CONSOLIDATED BALANCE SHEETS - CONTINUED | |
| (unaudited) | |
| December 29, 2019 | |
| LIABILITIES AND STOCKHOLDER’ EQUITY | |
| Cash<br>overdrafts | $ 156,851 |
| Revolving<br>line of credit | 2,793,816 |
| Current<br>maturity of capital lease obligations | 19,944 |
| Accounts<br>payable and accrued liabilities | 1,707,228 |
| Distributions<br>payable to stockholders | 476,889 |
| Payable<br>to franchisees | 1,065,235 |
| Workers'<br>compensation reserve | 861,606 |
| Total<br>current liabilities | 7,081,569 |
| Long-term liabilities: | |
| Capital<br>lease obligations | - |
| Notes<br>payable, stockholders | 6,374,435 |
| Total<br>long-term liabilities | 6,374,435 |
| Total liabilities | 13,456,004 |
| Stockholders' equity: | |
| Common<br>stock - voting, 1 par value; 100,000 shares authorized; 83,926<br>shares issued and outstanding, | |
| respectively | 83,926 |
| Additional<br>paid-in capital | 552,278 |
| Retained<br>deficit | (280,496) |
| 355,708 | |
| Treasury<br>stock - 40 shares, at cost | (793) |
| Total<br>stockholders' equity 354,915 1,030,456 | 354,915 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 13,810,919 |
All values are in US Dollars.
The accompanying notes are an integral part of these consolidated financial statements.
| LINK STAFFING SERVICES CORPORATION AND SUBSIDIARIES | ||||
|---|---|---|---|---|
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (unaudited) | ||||
| Quarter Ended | Three Quarters Ended | |||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |
| Service revenues | $ 17,161,413 | $ 21,134,666 | $ 48,760,965 | $ 65,050,137 |
| Payroll and other direct operating expenses | 15,487,475 | 18,959,835 | 43,769,233 | 58,074,047 |
| Gross<br>margin | 1,673,938 | 2,174,831 | 4,991,732 | 6,976,090 |
| General and administrative expenses | 1,691,303 | 2,018,532 | 5,702,535 | 6,824,400 |
| Income<br>from operations | (17,365) | 156,299 | (710,803) | 151,690 |
| Other income (expense): | ||||
| Interest<br>expense | (84,897) | (34,929) | (186,493) | (193,429) |
| Interest<br>income | 3,268 | 4,238 | 10,509 | 13,503 |
| Other<br>income, net | 18,307 | 13,227 | 23,129 | 111,631 |
| Depreciation<br>and amortization | (101,676) | (88,705) | (303,641) | (274,931) |
| Total<br>other expense | (164,998) | (106,169) | (456,496) | (343,226) |
| (Loss) income before provision for state taxes | (182,363) | 50,130 | (1,167,299) | (191,536) |
| Provision for state taxes | 22,500 | 22,500 | 67,450 | 50,624 |
| (Loss) income before non-controlling interest in subsidiary<br>income | (204,863) | 27,630 | (1,234,749) | (242,160) |
| Non-controlling interest in subsidiary loss (income) | - | - | - | |
| CONSOLIDATED NET (LOSS) INCOME | $ (204,863) | $ 27,630 | $ (1,234,749) | $ (242,160) |
The accompanying notes are an integral part of these consolidated financial statements.
| Additional | Retained | Non- | Total | ||||
|---|---|---|---|---|---|---|---|
| Common Stock | Controlling | Treasury | Stockholders' | ||||
| Shares | Par Value | Capital | (Deficit) | Interest | Stock | Equity | |
| Balance at December 30, 2018 | 83,926 | 83,926 | 552,278 | $ 395,045 | $ - | $ (793) | $ 1,030,456 |
| Contributions | - | - | - | - | 2,747 | - | 2,747 |
| Distributions | - | - | - | (568,707) | - | - | (568,707) |
| Net Loss | - | - | - | (106,834) | (2,747) | - | (109,581) |
| Balance at December 29, 2019 | 83,926 | 83,926 | 552,278 | (280,496) | - | (793) | 354,915 |
| Contributions | - | - | - | 107,418 | - | - | 107,418 |
| Net Loss | - | - | - | (1,234,749) | - | - | (1,234,749) |
| Balance at September 27, 2020 | 83,926 | 83,926 | 552,278 | $ (1,407,827) | $ - | $ (793) | $ (772,416) |
| Balance at December 30, 2017 | 83,028 | 83,028 | 483,710 | $ 773,246 | $ - | $ (793) | $ 1,339,191 |
| Issuance of common stock | 898 | 898 | 68,568 | - | - | - | 69,466 |
| Distributions | - | - | - | (946,908) | (14,296) | - | (961,204) |
| Net Loss | - | - | - | 568,707 | 14,296 | - | 583,003 |
| Balance at December 29, 2018 | 83,926 | 83,926 | 552,278 | 395,045 | - | (793) | 1,030,456 |
| Distributions | - | - | - | (568,708) | - | - | (568,708) |
| Net Loss | - | - | - | (242,160) | - | - | (242,160) |
| Balance at September 29, 2019 | 83,926 | 83,926 | 552,278 | $ (415,823) | $ - | $ (793) | $ 219,588 |
All values are in US Dollars.
The accompanying notes are an integral part of these consolidated financial statements.
| LINK STAFFING SERVICES CORPORATION AND SUBSIDIARIES | ||
|---|---|---|
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (unaudited) | ||
| September 27, 2020 | September 29, 2019 | |
| Cash flows from operating activities: | ||
| Net<br>(loss) income | $ (1,234,749) | $ (242,160) |
| Adjustment<br>to reconcile net (loss) income to net cash from operating<br>activities: | - | |
| Depreciation<br>and amortization | 303,641 | 274,931 |
| Bad<br>debt | 35,401 | 12,228 |
| Changes<br>in: | ||
| Accounts<br>receivable - trade | 1,005,698 | 1,842,044 |
| Write-off<br>due from affiliate | (207,401) | (348,232) |
| Prepaid<br>expenses | 233,263 | 24,098 |
| Other<br>current assets | (68,709) | (45,002) |
| Workers'<br>compensation deposits | 143,831 | (43,429) |
| Accounts<br>payable and accrued liabilities | 689,843 | 829,644 |
| Payable<br>to franchisees | (181,911) | (404,447) |
| Workers'<br>compensation reserve | (283,994) | (205,072) |
| Net<br>cash from operating activities | 434,913 | 1,694,603 |
| Cash flows from investing activities: | ||
| Net<br>change in notes receivable, franchisees | 317,552 | 131,665 |
| Purchases<br>of property and equipment | - | (100,780) |
| Development<br>of trademark | - | (72,001) |
| Net<br>cash from investing activities | 317,552 | (41,116) |
| Cash flows from financing activities: | ||
| Change<br>in cash overdraft | (156,851) | (486,434) |
| Principal<br>payments of notes payable, franchisees | - | - |
| Principal<br>payments of obligations under capital lease | 9,873 | 120,960 |
| Net<br>borrowings (repayments) under revolving line of credit | 7,337,646 | (662,272) |
| Payments<br>on note payable to stockholder | (7,570) | - |
| Proceeds<br>from note payable to stockholder | - | 344,377 |
| Cash<br>contributions (distributions) to stockholders | 107,418 | (568,708) |
| Net<br>cash from financing activities | 7,290,516 | (1,252,077) |
| Net<br>change in cash | 8,042,981 | 401,410 |
| Cash - beginning of year | 330,749 | 212,601 |
| CASH - END OF YEAR | $ 8,373,730 | $ 614,011 |
The accompanying notes are an integral part of these consolidated financial statements.
LINK STAFFING SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
Link Staffing Services Corporation (the “Parent Company”) and Subsidiaries (collectively, the “Company”) are temporary and permanent employment placement service companies specializing in supplying s semiskilled, light skilled, and skilled crafts and tradespeople as well as clerical/administrative and professional labor to the light industrial market and other markets since 1980. The Company provides industrial temporary and permanent help services to businesses and other organizations in twelve states, concentrated in Texas, Florida, and California. The Company also sells franchises to third party individuals and organizations, as well as existing companies operating in the temporary personnel industry. The Company’s fiscal year is based on a 52 to 53 week fiscal year ending on the Sunday immediately preceding the calendar year-end.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The principal accounting policies adopted in preparing the consolidated financial statements of the Company are as follows.
Principles of Consolidation – The accompanying consolidated financial statements include the accounts of Link Staffing Services Corporation (the “Parent Company”); its wholly-owned subsidiaries; and its 80% and 99.25% owned subsidiaries, respectively, LSSC-Irving, LLC (“Irving”) and LSSC-HouNW, LLC (“HouNW”). All significant intercompany accounts and transactions have been eliminated upon consolidation.
Non-Controlling Interest – Non-controlling interest represents the non-controlling members’ proportionate share of the equity on the non-wholly owned subsidiaries. Because the Parent Company owns controlling interest in Irving and HouNW, it is required that the operations of Irving and HouNW be included in the consolidated financial statements. The equity interest of Irving and HouNW that is not owned by the Parent Company is shown as "non-controlling interest" in the consolidated statements of operations and stockholders’ equity for the years ended December 29, 2019, December 30, 2018, and December 31, 2017. In January 2017, the Parent Company repurchased the non-controlling interest in HouNW.
Use of Estimates – The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, estimated losses on accounts receivable, useful lives used in depreciation and amortization of property and equipment, accounting for state taxes and related valuation allowances, and accounting for goodwill. Future events may occur which could cause the assumptions used in arriving at the estimates to change. The effect of any changes will be recorded in the consolidated financial statements when determinable. Actual results could differ from these estimates.
Cash and Cash Equivalents – The Company has concentrated credit risk for cash by maintaining deposits in a bank, which may at times exceed amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation (“FDIC”). All noninterest-bearing transaction accounts are insured up to $250,000. The Company monitors the financial health of the bank and has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk to cash. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Accounts Receivable – Trade – Accounts receivable are stated at the amount billed to the customers and are generally uncollateralized. Accounts receivable are ordinarily due within twenty days after the issuance of the invoice. The Company has provided an allowance for doubtful accounts based upon management’s judgment of individual customers and the overall economic conditions. Accounts deemed uncollectible are applied against the allowance for doubtful accounts. Bad debt recorded on uncollectible trade accounts receivable for the quarter ended September 27, 2020 and September 29, was approximately $1,000, and $8,000, respectively. Bad debt recorded on uncollectible trade accounts receivable for the three quarter ended September 27, 2020 and September 29, was approximately $35,000, and $12,000, respectively.
Property and Equipment – Property and equipment is stated at cost. The Company depreciates and amortizes property and equipment over the estimated useful lives by the straight-line method as follows:
Computer equipment 5 years
Equipment and automobiles 5 years
Furniture and fixtures 7 years
Software 5 – 10 years
Leasehold improvements remaining term of lease
Expenditures for additions, major renewals, and betterments are capitalized, while expenditures for maintenance and repairs that do not increase the value or extend the useful life of the asset are expensed as incurred. When assets are sold, retired, or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any resulting gain or loss is reflected in other income.
Trademarks, net – Trademarks are identified intangible assets with determinable lives. The trademarks are amortized on a straight-line basis over 7 years and are evaluated for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of the trademarks below their carrying amounts.
Revenue Recognition – On January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). In accordance with ASC 606, the Company applied the modified retrospective method to those contracts which were not completed as of January 1, 2019. Under the modified retrospective method, the cumulative effect of applying the standard is recognized at the date of initial application. In implementing ASC 606, the Company was required to recalculate the revenue earned on any contract in progress at the implementation date and to restate the revenue and cost of services as if ASC 606 had been followed from the inception of the contract. In recalculating costs and revenue under ASC 606 guidelines, the Company identified no material difference in the account balances. Since a material difference was not found, no retrospective analysis of account balance changes is required. The Company recognizes revenues from providing temporary and permanent personnel placement services. All revenues are recognized in the United States. Prior to the adoption of ASC 606, the Company recorded revenues at the time services were rendered. Under ASC 606, revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed. Specifically, revenue is recognized when the Company’s performance obligations under these contracts are satisfied.
The Company enters into contracts with customers to sell temporary personnel placement services. Satisfaction of performance obligations generally occurs as services are rendered, and revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. As described in Note 9, a portion of the Company’s revenue is derived from franchised operations.
Advertising – The Company’s policy is to expense advertising costs as incurred. Advertising costs were approximately $3,000, and $43,000 for the quarters ending September 27, 2020, September 29, 2019, respectively. Advertising costs were approximately $23,000, and $73,000 for the three quarters ending September 27, 2020, September 29, 2019, respectively.
Income Taxes – The stockholders of the Parent Company have elected to be taxed as a small business corporation under the provisions of Subchapter S of the Internal Revenue Code. The Subchapter S corporations and remaining subsidiaries, which include limited partnerships and limited liability companies, are not taxable entities for federal income tax purposes. As such, no provision for federal income taxes has been recorded in the accompanying consolidated financial statements. Stockholders are taxed individually based on their share of the Company’s earnings. The Company’s net income or loss is allocated to each stockholder proportionate to their ownership of the Company. The Company is subject to state taxes consisting primarily of the Texas margin tax, which is included on the Company’s consolidated statements of operations under provision for state taxes
The Company accounts for uncertain tax positions in accordance with FASB ASC Topic 740, Income Taxes. ASC 740 prescribes a recognition threshold and measurement process for consolidated financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance on recognition, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires recognition of the consolidated financial statement benefit of a tax position only after determining the relevant tax authority would more likely than not sustain the tax position following an audit. Based on management’s analysis, the Company did not have any uncertain tax positions as defined by ASC 740 as of December 29, 2019 and December 30, 2018. The Company’s federal tax returns are subject to examination by the relevant taxing authorities for the fiscal years ending after 2016.
Workers’ Compensation Benefit Programs – The Company has elected to self-insure certain costs related to employee workers’ compensation benefit programs. The Company enters into agreements with insurance companies to administrate the programs and manage the related claims. The agreements require various deposits as collateral and payments for estimated claims. The Company accrues program expenses based on work performed by temporary staff employees. The accrual for these expenses is reported net of the estimated claims paid to the program administrators as workers’ compensation reserve on the balance sheets. The deposits held by administrators as additional security for certain programs are reported as workers’ compensation deposits on the balance sheets and are fully refundable. The Company has invested in two insurance captives to enable it to participate in its insurance services.
NOTE 3 – NOTES PAYABLE, STOCKHOLDERS
The Company had notes payable to stockholders of $6,366,865 and $6,374,435 as of September 27, 2020 and December 29, 2019, respectively. The notes bear interest at the one month LIBOR rate plus 3.5% with interest payable monthly. The Company’s effective rate was 5.26% at December 29, 2019. These notes mature in January 2021 and are unsecured. The notes payable to the stockholders are subordinated to the revolving line of credit. During the fiscal year 2019, the stockholders forgave interest totaling approximately $219,000. For the quarter ending September 27, 2020 and September 29, 2019, the Company incurred interest expense to stockholders of approximately $85,000, and $35,000, respectively. For the three quarter ending September 27, 2020 and September 29, 2019, the Company incurred interest expense to stockholders of approximately $186,000, and $193,000, respectively.
NOTE 4 – SERVICE REVENUES AND FRANCHISE OPERATIONS
Revenues generated by franchisee locations and the related costs of services are included in the Parent Company’s consolidated financial statements. The Parent Company has the direct contractual relationships with the customers and holds title to the related customers’ receivables. Stafflink, Inc. is the legal employer of the temporary employees (except in the case where the franchised operator elects to provide workers’ compensation coverage independent from the Company’s coverage). The franchisee acts as an independent contractor to market the Company’s services within the franchisee’s designated market area.
The net distribution paid to the franchisee for the temporary personnel services rendered is based on the lower of a percentage of the gross revenues or gross margin generated by the franchisee’s operation.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Operating Leases – The Company leases office space under non-cancelable operating lease agreements which expire at various dates through August 2025 and require various minimum annual rentals. Future minimum rental payments under these operating leases which have initial or remaining terms in excess of one year as of December 29, 2019 for each of the years remaining and in the aggregate are as follows:
| Years Ending | |
|---|---|
| 2020 | $ 172,000 |
| 2021 | 655,000 |
| 2022 | 597,000 |
| 2023 | 552,000 |
| 2024 | 546,000 |
| Thereafter | 348,000 |
| $ 2,870,000 |
Rent expense included in the consolidated statements of operations totaled approximately $136,000 and $162,000 for the quarter ending September 27, 2020 and September 29, 2019, respectively. Rent expense included in the consolidated statements of operations totaled approximately $477,000 and $524,000 for the three quarter ending September 27, 2020 and September 29, 2019, respectively.
Litigation and Claims – There were various claims and disputes incidental to operations. The Company believes that the disposition of all such claims and disputes, individually or in the aggregate, should not have a material adverse effect upon the Company’s financial position, results of operations, or cash flows.
exh993-proformafor8klink
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 Link Staffing Services Corporation, Franlink, Inc., and Stafflink, Inc. (collectively “Link”), after giving effect to the Asset Purchase Agreement (the “Link Agreement”) between Link and HQ Link Corporation (“HQ Link”), a wholly-owned subsidiary of the Company, and the adjustments described in the accompanying notes.
On February 12, 2021, HQ Link entered into the Link Agreement with Link. Pursuant to the Link Agreement, HQ Link will acquire sellers’ franchise relationships and certain other assets of the sellers for a purchase price of approximately $11.1 million. Consummation of the transactions contemplated by the Link Agreement is subject to the satisfaction or waiver of customary closing conditions. The transaction was financed with cash-on-hand and the Company’s credit facility with Truist Bank and is not subject to any financing condition.
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 and 2019 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 Link for the fiscal years ended December 29, 2019 and December 30, 2018 and the unaudited financial statements for the fiscal quarters ended September 27, 2020 and September 29, 2019 included as Exhibit 99.1.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2020
| HireQuest, Inc. | Link Staffing Services Corp. | Pro forma adjustments | Pro forma condensed combined | |
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash | $<br>10,297,147 | $ 8,373,731 | (17,973,731) | $ 697,147 |
| Accounts<br>receivable, net of allowance for doubtful accounts | 24,024,564 | 7,555,508 | (7,555,508) | 24,024,564 |
| Notes<br>receivable | 2,144,118 | - | - | 2,144,118 |
| Prepaid<br>expenses, deposits, and other assets | 1,179,333 | 855,763 | (855,763) | 1,179,333 |
| Prepaid<br>workers' compensation | 1,978,509 | 1,771,256 | (1,771,256) | 1,978,509 |
| Total<br>current assets | 39,623,671 | 18,556,258 | (28,156,258) | 30,023,671 |
| Property<br>and equipment, net | 2,958,998 | 1,003,199 | (1,003,199) | 2,958,998 |
| Intangible<br>assets, net | 186,705 | 266,474 | (266,474) | 186,705 |
| Notes<br>receivable, net of current portion and reserve | 6,377,779 | 164,694 | (164,694) | 6,377,779 |
| Intangible<br>assets, franchisee agreements | - | - | 11,100,000 | 11,100,000 |
| Total<br>assets | $<br>49,147,153 | $<br>19,990,625 | (18,490,625) | $<br>50,647,153 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current liabilities | ||||
| Accounts<br>payable | $<br>5,499 | $ 214,887 | (214,887) | $ 5,499 |
| Line of<br>credit | - | - | 1,500,000 | 1,500,000 |
| Other<br>current liabilities | 1,664,854 | 1,700,933 | (1,700,933) | 1,664,854 |
| Accrued<br>benefits and payroll taxes | 2,088,119 | 1,154,233 | (1,154,233) | 2,088,119 |
| Due to<br>franchisees | 2,311,372 | 587,232 | (587,232) | 2,311,372 |
| Risk<br>management incentive program liability | 1,018,994 | - | - | 1,018,994 |
| Notes<br>payable | - | 16,498,327 | (16,498,327) | - |
| Workers'<br>compensation claims liability | 3,165,056 | 577,612 | (577,612) | 3,165,056 |
| Total<br>current liabilities | 10,253,894 | 20,733,224 | (19,233,224) | 11,753,894 |
| Workers'<br>compensation claims liability, net of current portion | 1,743,128 | - | - | 1,743,128 |
| Franchisee<br>deposits | 1,459,335 | - | - | 1,459,335 |
| Deferred<br>rent | - | 29,817 | (29,817) | - |
| Deferred<br>tax liability | 273,185 | - | - | 273,185 |
| Total<br>liabilities | 13,729,542 | 20,763,041 | (19,263,041) | 15,229,542 |
| Equity | - | - | 1,743,128 | |
| Total<br>HireQuest, Inc. stockholders’ equity | 35,417,611 | - | - | 35,417,611 |
| Total<br>Link stockholders’ equity | - | (772,416) | 772,416 | - |
| Total<br>stockholders' equity | 35,417,611 | (772,416) | 772,416 | 35,417,611 |
| Total<br>liabilities and stockholders' equity | $<br>49,147,153 | $<br>19,990,625 | (18,490,625) | $<br>50,647,153 |
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 royalties/Revenue | 3,218,606 | - | $ 3,218,606 |
| Service revenue | 164,074 | - | 17,325,487 |
| Cost of sales | - | - | 15,487,475 |
| Total<br>revenue | 3,382,680 | - | 5,056,618 |
| Selling, general and administrative expenses | 1,357,725 | - | 3,049,028 |
| Depreciation and amortization | 32,438 | 185,000 | 319,114 |
| Income<br>(loss) from operations | 1,992,517 | (185,000) | 1,688,476 |
| Other miscellaneous income | 392,709 | - | 414,284 |
| Interest and other financing expense | (10,035) | - | (94,932) |
| Net<br>income before income taxes | 2,375,191 | (185,000) | 2,007,828 |
| Provision<br>(benefit) for income taxes | 404,058 | 45,510 | 472,068 |
| Net<br>income (loss) | 1,971,133 | (230,510) | $<br>1,535,760 |
| Earnings per share | |||
| Basic | 0.15 | $ 0.11 | |
| Diluted | 0.15 | $<br>0.11 | |
| 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 royalties | 9,563,135 | - | $ 9,563,135 |
| Service revenue | 840,515 | - | 49,601,480 |
| Cost of sales | - | - | 43,769,233 |
| Total<br>revenue | 10,403,650 | - | 15,395,382 |
| Selling, general and administrative expenses | 6,542,171 | - | 12,244,706 |
| Depreciation and amortization | 96,654 | 555,000 | 955,295 |
| Income<br>(loss) from operations | 3,764,825 | (555,000) | 2,195,381 |
| Other miscellaneous income | 932,254 | - | 955,383 |
| Interest and other financing expense | (39,174) | - | (215,158) |
| Net<br>income before income taxes | 4,657,905 | (555,000) | 2,935,606 |
| Provision<br>for income taxes | 654,592 | 136,530 | 858,572 |
| Net<br>income (loss) | 4,003,313 | (691,530) | $<br>2,077,034 |
| Earnings per share | |||
| Basic | 0.30 | $ 0.15 | |
| Diluted | 0.30 | $<br>0.15 | |
| 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 royalties | 14,673,636 | - | $ 14,673,636 |
| Service revenue | 1,202,824 | - | 86,236,885 |
| Cost of sales | - | - | 75,215,530 |
| Total<br>revenue | 15,876,460 | - | 25,694,991 |
| Selling, general and administrative expenses | 12,692,297 | - | 22,326,861 |
| Depreciation and amortization | 400,132 | 740,000 | 1,205,132 |
| Income<br>(loss) from operations | 2,784,031 | (740,000) | 2,162,998 |
| Other miscellaneous income | 751,077 | - | 841,858 |
| Interest and other financing expense | (559,585) | - | (803,038) |
| Net<br>income before income taxes | 2,975,523 | (740,000) | 2,201,818 |
| Provision<br>for income taxes | 3,480,996 | 182,040 | 3,736,165 |
| Loss<br>from continuing operations | (505,473) | (922,040) | (1,534,347) |
| Income<br>from discontinued operations, net of tax | 215,494 | - | 215,494 |
| Net<br>loss | (289,979) | (922,040) | $<br>(1,318,853) |
| Basic and diluted earnings (loss) per share | |||
| Continuing<br>operations | (0.05) | $ (0.12) | |
| Discontinued<br>operations | 0.02 | 0.02 | |
| Total | (0.03) | $ (0.10) | |
| 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 Link 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 $11.1 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 value of franchise agreements assumed | $ 11,100,000 |
| Total<br>allocated purchase price | $ 11,100,000 |
Note 3 – Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
| (A) -<br>Adjustments to cash: | |
|---|---|
| Description | Amount |
| --- | --- |
| Borrowing on line of credit | $ 1,500,000 |
| Cash consideration paid for Link | (11,100,000) |
| Link cash balance not acquired | (8,373,731) |
| Pro<br>forma adjustment to cash | $ (17,973,731) |
| (B)<br>-Assets not acquired and liabilities not assumed pursuant to the<br>Link Agreement. | |
| --- | |
| (C)<br>-Preliminary estimated value of franchise agreements<br>assumed. | |
| --- | |
| (D) -<br>Borrowing on line of credit to fund transaction. | |
| --- | |
| (E) -Adjustment to Link stockholders historical<br>equity. | |
| --- |
Note 4 – Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Income
| (A)<br>-The newly acquired intangible assets consisting of assumed<br>franchise agreements will be amortized on a straight-line basis<br>over their estimated useful lives. The fair value assessment is<br>preliminary and any changes to the preliminary values will have a<br>direct impact on future earnings via amortization<br>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 agreements | $ 11,100,000 | 15 years | $ 185,000 | $ 555,000 | $ 740,000 |
| Pro<br>forma adjustment to amortization expense | $ 185,000 | $ 555,000 | $ 740,000 | ||
| (B) -<br>To record the income tax impact of the pro forma adjustments (A)<br>above. | |||||
| --- | |||||
| Description | Three months ended September 30, 2020 | Nine months ended September 30, 2020 | Year ended December 31, 2019 | ||
| --- | --- | --- | --- | ||
| Pro forma change in income before income tax | $ 185,000 | $ 555,000 | $ 740,000 | ||
| Combined Federal and State statutory rate | 24.6% | 24.6% | 24.6% | ||
| Pro<br>forma adjustment to provision for income taxes | $ 45,510 | $ 136,530 | $ 182,040 |
exh994pressrelease
HireQuest, Inc. Closes Acquisition of LINK Staffing
Acquires 35 Franchised Locations in Nine States, Further
Expanding Franchise Opportunity to Include Traditional Commercial Staffing
GOOSE CREEK, South Carolina – March 23, 2021 – HireQuest, Inc. (Nasdaq: HQI), a national franchisor of on-demand and temporary staffing services, today announced that its subsidiary, HQ Link Corporation, has closed the acquisition of the franchised operations of LINK Staffing, a family-owned staffing company based in Houston, Texas, for approximately $11.1 million in cash. The transaction does not include working capital. The 35 acquired locations generated approximately $57 million in system-wide sales in 2020.
“On the heels of the recent acquisition of 47 locations from Snelling Staffing, a 67-year-old staffing company, we have rapidly expanded our presence in commercial staffing, creating an additional revenue stream for HireQuest,” commented Rick Hermanns, HireQuest’s President and Chief Executive Officer. “Just as importantly, the combined branch networks of LINK and Snelling will create a dynamic platform from which we believe we can grow our commercial staffing business organically. Most of the LINK locations are expected to be rebranded under the well-respected Snelling name.”
Through the Snelling and LINK acquisitions, HireQuest added 82 locations before any location sales, that produced $144 million in system-wide sales for a total consideration of $28.4 million before working capital adjustments. HireQuest subsequently sold five locations to a third party and divested ten California offices in exchange for a continuing trademark license royalty.
HireQuest funded the LINK acquisition with existing cash on hand.
About HireQuest
HireQuest, Inc. is a nationwide franchisor that provides on-demand labor and commercial staffing solutions in the light industrial, blue-collar, and commercial segments of the staffing industry for HireQuest Direct, HireQuest, Snelling, and LINK franchised offices across the United States. Through its national network of over 200 franchisee-owned offices in more than 30 states and the District of Columbia, HireQuest provides employment for approximately 60,000 individuals annually that work for thousands of customers in numerous industries including construction, light industrial, manufacturing, hospitality, clerical, travel, and event services. For more information, visit www.hirequest.com.
Important Cautions Regarding Forward-Looking Statements
This release 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 LINK Staffing and Snelling Staffing and the expected benefits from such transaction including increased earnings and revenue, diversified offerings, organic growth, and the effects of expanded scale. All statements other than statements of historical facts contained herein, including the statements identified in the preceding sentences 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, LINK, or Snelling Staffing, 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 acquisitions or asset sales will not be realized or will not be realized within the expected time period; the risk that LINK’s or Snelling Staffing’s business may not be integrated successfully; the risk that disruption from the acquisitions 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, February 16, 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.
Company Contact:
HireQuest, Inc.
Cory Smith, CFO
(800) 835-6755
Email: Cssmith@hirequest.com
Investor Relations Contact:
Hayden IR
Brett Maas
(646) 536-7331
Email: brett@haydenir.com