HireQuest, Inc S-1, filed Jun 5, 2020
HireQuest, Inc. (HQI)
S-1
2020-06-05
View Original
Added on
October 27, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
HIREQUEST, INC.
(Exact
name of registrant as specified in its Charter)
|
Delaware
|
7363
|
91-2079472
|
|
(State
of incorporation or organization)
|
(Primary
Standard Industrial Classification Code)
|
(I.R.S.
employer identification no.)
|
|
111 Springhall Drive, Goose Creek, SC 29445, (843)
723-7400
|
||
|
(Address, including zip code, and telephone number,
including area code,of registrant’s principal executive
offices)
|
||
|
John D. McAnnar, General
Counsel
HireQuest,
Inc.
111 Springhall Drive
Goose Creek,
SC 29445
(843) 723-7400
(Name, address, including zip code, and
telephone number, including area code, of agent for
service)
|
Copies to:
Roland S. Chase
Zachary W. Watt
Hill Ward Henderson
101 E. Kennedy Blvd., Suite 3700
Tampa, Florida 33602
(813) 221-3900
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
registration statement.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box: ☑
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and the list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
Indicate
by check mark whether the registrant is a large accelerated file,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act. Large accelerated filer ☐; Accelerated filer ☐; Non-accelerated filer ☑; Smaller reporting company ☑; 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 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
|
Title
of Each Class of Securities to be Registered(1)
|
Amount
to be Registered
|
Proposed
Maximum Offering Price Per Unit(2)
|
Proposed
Maximum Aggregate Offering Price (2)
|
Amount
of Registration Fee
|
|
Common Stock, par value $0.001 per share
|
9,939,668
|
$6.15
|
$61,128,958
|
$7,935
|
(1) All shares
registered pursuant to this registration statement are to be
offered for resale by the selling stockholders named herein.
Pursuant to Rule 416 under the Securities Act of 1933, as amended
(the “Securities Act”), the shares being registered
include such indeterminate number of shares of common stock as may
be issuable with respect to the shares being registered in this
registration statement as a result of any stock splits, stock
dividends or other similar event.
(2) Estimated
solely for the purposes of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act. Represents
an aggregate of 9,939,668 shares of common stock at the assumed
price of $6.15 per share, the last
reported sale price of the common stock as reported on the Nasdaq
Stock Market on June 3, 2020.
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with section 8(a) of the Securities Act or
until the registration statement shall become effective on such
date as the Commission acting pursuant to said section 8(a) may
determine.
The information in this preliminary prospectus is not complete and
may be changed. The selling stockholders may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and is not
soliciting offers to buy these securities in any jurisdiction where
the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED
JUNE 5,
2020
PRELIMINARY PROSPECTUS
9,939,668 Shares
HireQuest, Inc.
Common Stock
The
selling stockholders identified in this prospectus may offer, from
time to time, up to 9,939,668 shares of our common stock, par value
$0.001 per share (“common stock”). The selling
stockholders received the common stock as consideration for the
merger that occurred between Command Center, Inc. and Hire Quest
Holdings, LLC, which was completed on July 15, 2019 (the
“Merger”). We will not receive any of the proceeds from
the sale of shares of our common stock by any of the selling
stockholders.
Our
common stock is listed on the NASDAQ Stock Market LLC
(“NASDAQ”) under the symbol “HQI.” On June
3, 2020, the closing price of our common stock as reported on
NASDAQ was $6.15 per
share.
The
selling stockholders may offer the shares in amounts, at prices and
on terms determined by market conditions at the time of the
offering. The selling stockholders may sell shares through agents
they select or through underwriters or dealers they select. The
selling stockholders also may sell shares directly to investors. If
the selling stockholders use agents, underwriters, or dealers to
sell the shares, we will name them and describe their compensation
in a prospectus supplement. For additional information regarding
the methods of sale, you should refer to the section entitled
“Plan of Distribution” in this prospectus.
We may
supplement this prospectus from time to time by filing supplements
as required. You should read this prospectus and any applicable
prospectus supplement carefully before you invest.
Investing in our securities involves a high degree of risk. See the
section entitled “Risk Factors” beginning on page 5 of
this prospectus and in the documents incorporated by reference into
this prospectus for a discussion of risks that should be considered
in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities, or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this Prospectus
is
,
2020
TABLE OF CONTENTS
|
2
|
|
|
5
|
|
|
14
|
|
|
15
|
|
|
15
|
|
|
15
|
|
|
16
|
|
|
17
|
|
|
21
|
|
|
23
|
|
|
25
|
|
|
25
|
|
|
25
|
|
|
25
|
You
should rely only on the information contained in this prospectus,
any prospectus supplement and any free-writing prospectus that we
authorize to be distributed to you. We have not, and the selling
stockholders have not, authorized anyone to provide you with
information different from or in addition to that contained in this
prospectus, any prospectus supplement or any related free-writing
prospectus. If anyone provides you with different or inconsistent
information, you should not rely on it. The selling stockholders
are offering to sell, and are seeking offers to buy, the securities
offered by this prospectus only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of the
securities. Our business, financial conditions, results of
operations and prospects may have changed since that date. You
should read and consider this prospectus along with any prospectus
supplements and the related exhibits, together with the information
in the documents to which we have referred you under the caption
“Where You Can Find More Information” and
“Incorporation of Certain Information By Reference” in
this prospectus before making your investment
decision.
1
PROSPECTUS SUMMARY
This summary
highlights information contained in other parts of this prospectus
or incorporated by reference into this prospectus from our filings
with the Securities and Exchange Commission, or SEC, listed in the
section of the prospectus entitled “Incorporation of Certain
Information by Reference.” This summary does not contain all
of the information that you should consider before deciding to
invest in our securities. You should read this entire prospectus,
including any amendment or supplement, carefully before making an
investment decision, including the “Risk Factors”
section and our historical financial statements and the notes to
our historical financial statements incorporated herein by
reference.
Overview
HireQuest, Inc. is a Delaware corporation originally organized in
Washington as Command Staffing, LLC in 2002. In 2005,
Temporary Financial Services, Inc., a public company, acquired the
assets of Command Staffing, LLC, and the combined entity changed
its name to Command Center, Inc. (“Command
Center”).
On July 15, 2019, Command Center
completed its acquisition of Hire Quest Holdings, LLC, a Florida
limited liability company (“Hire Quest”), in accordance
with the terms of the Agreement and Plan of Merger dated April 8,
2019 (the “Merger Agreement”) among Command Center,
CCNI One, Inc., a wholly-owned subsidiary of Command Center
(“Merger Sub 1”), Command Florida, LLC, a wholly-owned
subsidiary of Command Center (“Merger Sub 2”), Hire
Quest, and solely for purposes of Sections 5.20(c), 5.20(e) and
5.23 of the Merger Agreement, Richard Hermanns as the
representative of the members. In accordance with the Merger
Agreement, (i) Merger Sub 1 was merged with and into Hire Quest
(the “First Merger”), with Hire Quest being the
surviving entity (the “First Surviving Company”), and
(ii) immediately following the First Merger, the First Surviving
Company was merged with and into Merger Sub 2 (the “Second
Merger” and, together with the First Merger, the
“Merger”), with Merger Sub 2 being the surviving entity
(the “Surviving Company”). On September 11, 2019,
Command Center reincorporated in Delaware and changed its name to
Hire Quest, Inc. Unless the context otherwise requires, in this
prospectus, references to the “Company,”
“we,” “us,” and “our” refer to
HireQuest, Inc. We refer to
Hire Quest collectively with its wholly-owned subsidiary, Hire
Quest, LLC, as “Legacy HQ.”
Upon the closing of the Merger, all
of the ownership interests in Hire Quest were converted into the
right to receive an aggregate of 68% of the shares of the
Company’s common stock outstanding immediately after the
effective time of the Merger. Pursuant to the Merger Agreement, the
Hire Quest owners were issued an aggregate of 9,939,668
unregistered shares of Company stock as Merger consideration. These
shares are being offered for resale by the selling stockholders
through this prospectus.
Our
common stock trades on the NASDAQ Stock Market under the symbol
“HQI.” Command Center previously traded on the NASDAQ
Stock Market under the symbol
“CCNI.” More
information about us may be found at www.hirequest.com. The
information on our website is not incorporated by reference in this
prospectus.
Our Business
We are a
nationwide franchisor of temporary staffing offices providing
on-demand labor solutions primarily in the light industrial and
blue-collar segments of the staffing industry. We provide our
customers with seamless access to a contingent workforce whenever
they need it. Our daily dispatch model, in which we match temporary
employees with openings every day, allows us to be responsive to
our customers’ dynamic needs. Our flexible staffing solutions
permit our customers to focus on their underlying operations and to
expand or contract their workforce quickly to meet fluctuating
demands. We assist our employees in arranging transportation
amongst themselves to ensure timely arrival of the right number of
employees at the scheduled starting time. In addition, we pay our
employees daily which attracts workers who cannot wait up to three
weeks for their first paycheck under a traditional
model.
Our
franchisees operate through one of our two owned brands: HireQuest
Direct and HireQuest. HireQuest Direct, which represents the great
majority of our franchises, focuses on daily-work-daily-pay jobs in
the construction and light industrial segments. HireQuest focuses
on longer-term staffing positions in the light industrial and
administrative arenas.
Our
differentiated services are driven by two key
elements:
Local
ownership and dedicated responsiveness. Our offices are franchisee-owned. We believe
that ownership at the local level – where the vast majority
of customer communication occurs – allows our organization to
be agile and responsive to customer needs. Since our franchisees
have personal financial stakes directly tied to the success of
their offices, our customers interface with owners who are
incentivized to deliver excellent customer service and resolve
issues efficiently. Responsiveness promotes customer retention.
Each franchisee is incentivized to acquire new business to help
grow his or her personal income.
Direct
dispatch from our offices. The majority of our employees are dispatched
from our offices every day. This allows our franchisees and their
staff to qualify the employees for work, provide them with any
necessary personal protective equipment, assist our employees in
arranging transportation amongst themselves, and ensure we deliver
the right number of qualified individuals at the right time. We
believe that employee dispatch from franchise offices increases
consistency as our employees are sent to a particular jobsite
without having to rely on potentially less reliable means of
verification, such as telephone calls. Once we and our customers
have developed a rapport with particular employees, we will
sometimes dispatch these employees directly to a customer
location.
2
We attribute
our success to the following strengths:
Nationwide
footprint with differentiated business model. We believe we are one of the largest providers
of on-demand temporary staffing solutions in the light industrial
and blue-collar segments of the staffing industry measured by
number of office locations. Our nationwide footprint allows us to
compete for national account relationships when our competitors
that are local or regional operators are simply too small. Our size
also allows us to obtain favorable terms on our workers’
compensation insurance program. Our franchise model has many
advantages as well. Most of our competitors utilize a company-owned
office model in which the management of day-to-day interactions
with customers is handled by individuals who do not have the
incentives to succeed that comes only from ownership. On the other
hand, our offices are owned and operated by franchisees whose
personal financial success is directly tied to the success or
failure of their local franchised office. The company-owned model
typically requires significant investment in middle management. We
largely avoid this expense because our franchisees are independent
business owners responsible for their own financial
well-being.
A franchise
system with expansion capabilities. We incentivize our franchisees to expand
their own businesses through our Franchise Expansion Incentive
Program. Under this program, we offer assistance overcoming the
startup costs of an office in a new metropolitan area by providing
our existing franchisees with credits on the royalty fees they pay
in their existing offices. Under certain circumstances, we will
provide assistance in acquisition funding or financing. In
addition, our Risk Management Incentive Program allows us to reward
franchisees who are successful in keeping their workers'
compensation loss ratios below certain thresholds by paying to
franchisees an amount equivalent to a portion of their premiums. We
believe that this incentivizes our franchisees to encourage
workplace safety and provides successful franchisees with capital
to reinvest in or expand their
businesses.
Responsible
capital allocation with very little debt. As of March 31, 2020, we were debt free.
Financing our day-to-day needs with cash produced from operations
allows us to continue building cash reserves which we can use, in
addition to our line of credit with Truist Bank, to finance
significant transactions such as major reinvestments in our
business, strategic acquisitions, share buybacks, or stockholder
dividends, depending on the opportunities that present themselves.
Compared to company-owned offices, our franchise model allows us to
employ relatively fewer full-time staff at our corporate
headquarters decreasing the working capital needed for
operations.
We
believe there are opportunities to grow our business and brand.
While the onset of COVID-19 has made the economic future
unpredictable, we believe the following to be key components of our
growth strategy:
Continue to
grow the number of offices our franchisees
operate. We believe attractive
returns at the franchisee level should allow us to continue to
attract new franchisees and encourage our existing franchisees to
open new offices. In addition, we encourage our existing
franchisees to explore new potential markets through our Franchise
Expansion Incentive Program. When combined with the back-office
support that we provide franchisees, we believe we are poised to
expand into unserved or underserved markets like the Upper
Midwestern United States.
Capitalize
on our national footprint to grow same store and
system-wide sales. We
anticipate that our enhanced scale combined with our royalty
business model will contribute to growth in our access to and
profitability from national accounts. Traditionally, these larger
national accounts have the leverage to impose lower margins on
their temporary staffing providers. Our royalty-driven business
model, in which we earn a percentage of gross billings or payroll
funded regardless of margins, partially insulates stockholders from
margin volatility inherent in the ownership of the traditional
company-owned model for temporary staffing (although royalty
revenue from our HireQuest business line depends in part on the
gross margin of the franchisee). In addition, we have a strategic
relationship with Dock Square HQ, LLC, an entity with connections
at many of the largest users of temporary staffing in the country,
which increases the prospects of introduction to the decision
makers at these traditionally harder-to-reach potential
customers.
Increase
our brand awareness. As we
continue to develop new markets and to serve our existing markets,
we expect our brand to become more recognizable and a greater asset
to us in driving repeat customers, encouraging customers to expand
their use of our services across multiple markets, and increasing
new customer development.
Address and
Telephone Number
Our principal
executive offices are located at 111 Springhall Drive, Goose Creek,
South Carolina 29445. We may also be reached by telephone at (843)
723-7400.
3
The
Offering
|
Common stock to be offered by the Selling Stockholders
|
|
9,939,668 shares of common stock
|
|
|
|
|
|
Common stock outstanding prior to this
offering(1)
|
|
13,545,123 shares of common stock
|
|
|
|
|
|
Common stock to be outstanding after
this offering(1)
|
|
13,545,123 shares of common stock
|
|
|
|
|
|
Use of proceeds
|
|
We will not receive any of the proceeds from any sale of common
stock by the selling stockholders.
|
|
|
|
|
|
Risk factors
|
|
Investing in our shares of common stock involves a high degree of
risk. You should read the “Risk Factors” section
beginning on page 5 of
this prospectus for a discussion of factors to consider before
deciding to invest in the common stock.
|
|
|
|
|
|
NASDAQ Symbol
|
|
HQI
|
1. The number of
shares of common stock outstanding prior to and to be outstanding
after this offering is based on the number of shares outstanding as
of June 3, 2020, and includes or excludes the following as of such
date:
● Includes
262,900 shares of
common stock subject to forfeiture pursuant to outstanding
non-vested restricted stock grants as of June 3,
2020;
● Excludes 29,165
shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $7.20 per share
as of June 3, 2020; and
● Excludes 153,323
shares of common
stock as of June 3,
2020 reserved for future issuance pursuant to our existing equity
incentive plans.
4
RISK FACTORS
Before deciding to invest in our securities, you should consider
carefully the following discussion of risks and uncertainties
affecting us and our securities, together with other information in
this prospectus or any prospectus supplement, the other information
and documents incorporated by reference in this prospectus,
including the risks and uncertainties discussed under “Risk
Factors” in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019, as well as any updates thereto
contained in subsequent filings with the SEC. If any of these risks
actually occur, our common stock, business, results of operations,
cash flows, and financial condition could be materially adversely
affected, and the value of our securities could decline. The risks
and uncertainties we discuss in the documents incorporated by
reference in this prospectus are those that we currently believe
may materially affect our company. Additional risks and
uncertainties not presently known to us or that we currently deem
immaterial also may materially and adversely affect our business,
financial condition and results of operations.
Risks Related to this Offering and Ownership of Our
Stock
Our directors, officers, and current principal stockholders, two of
whom are selling stockholders, own a large percentage of our common
stock and could limit other stockholders’ influence over
corporate decisions.
As of June 3, 2020, our
directors, officers, and current stockholders holding more than 5%
of our common stock collectively beneficially own, directly or
indirectly, in the aggregate, approximately 65% of our outstanding
common stock. Mr. Hermanns beneficially owns approximately 44% of
our outstanding common stock, and Mr. Jackson beneficially owns
approximately 19% of our outstanding common stock. As a result,
these stockholders acting alone or together may be capable of
controlling most matters requiring stockholder approval, including
the election of directors, approval of acquisitions, approval of
equity incentive plans, and other significant corporate
transactions. This concentration of ownership may have the effect
of delaying or preventing a change in control. The interests of
these stockholders may not always coincide with our corporate
interests or the interests of our other stockholders, and they may
act in a manner with which some stockholders may not agree or that
may not be in the best interests of all
stockholders.
Our stock typically trades in low volumes daily which could lead to
illiquidity, volatility, or depressed stock price.
Because of a history of low trading volume, our stock may be
relatively illiquid and its price may be volatile. Our stock trades
on NASDAQ, but typically trades in low daily volumes. For example,
the average daily trading volume in our common stock on NASDAQ
during the first quarter of 2020 was approximately 7,500 shares per
day. This may make it more difficult for our stockholders to resell
shares when desired or at attractive prices. Some investors view
low-volume stocks as unduly speculative and therefore not
appropriate candidates for investment. Also, due to the low volume
of shares traded on any trading day, persons buying or selling in
relatively small quantities may easily influence prices of our
stock.
We currently do not have any analysts covering our stock which
could negatively impact both the stock price and trading volume of
our stock.
The trading market for our common stock will likely be influenced
by the research and reports that industry or securities analysts
may publish about us, our business, our market or our competitors.
We do not currently have, and may never obtain, research coverage
by financial analysts. If no or few analysts commence coverage of
us, the trading price of our stock may not increase. Even if we do
obtain analyst coverage, if one or more of the analysts covering
our business downgrade their evaluation of our stock, the price of
our stock could decline. If one or more of these analysts cease to
cover our stock, we could lose visibility in the market for our
stock, which in turn could cause our stock price to decline.
Furthermore, if our operating results fail to meet analysts’
expectations our stock price would likely decline.
Our stock price could be extremely volatile, and, as a result,
stockholders may not be able to resell shares at or above their
purchase price.
In the 52 weeks ended June 3, 2020, our stock price, as reported by
NASDAQ, has ranged from a low of $5.00 to a high of $8.55. In
addition, in recent years, the stock market in general has been
highly volatile. The effects of the recent global coronavirus
disease (“COVID-19”) outbreak have dramatically
exacerbated this volatility. As a result, the market price and
trading volume of our common stock is likely to be similarly
volatile, and investors in our common stock may experience a
decrease, which could be substantial, in the value of their stock,
including a decrease unrelated to our results of operations or
prospects, and could lose part or all of their investment. The
price of our common stock could be subject to wide fluctuations in
response to a number of factors, including those described
elsewhere in this report and others such as:
● Variations in our
operating performance and the performance of our
competitors;
● Actual or
anticipated fluctuations in our quarterly or annual operating
results;
● Publication of
research reports by securities analysts about us, our competitors,
or our industry;
● The public’s
reaction to our press releases, our other public announcements and
our filings with the SEC;
● Our failure, or
the failure of our competitors, to meet analysts’ projections
or guidance that we or our competitors may give to the
market;
5
● Additions or
departures of key personnel;
● Strategic
decisions by us or our competitors, such as acquisitions,
divestitures, spin-offs, joint ventures, strategic investments, or
changes in business strategy;
● The passage of
legislation or other regulatory developments affecting us or our
industry;
● Speculation in the
press or investment community;
● Changes in
accounting principles;
● Terrorist acts,
acts of war, or periods of widespread civil
unrest;
● Natural disasters
or calamities (including, without limitation, pandemics or other
widespread events);
● Breach or improper
handling of data or cybersecurity events; and
● Other factors
(including currently unknown factors) which could result in changes
in general market and economic conditions.
In the past, following periods of volatility in the market price of
a company’s securities, securities class action litigation
has often been brought against that company. Because of the
potential volatility of our stock price, we may become the target
of securities litigation in the future. If we were to become
involved in securities litigation, it could result in substantial
costs, divert management’s attention and resources from our
business and adversely affect our business.
Because we do not currently pay any cash dividends on our common
stock, you may not receive any return on investment unless you sell
your common stock for a price greater than that which you paid for
it.
We may retain future earnings, if any, for future operations,
expansion and debt repayment and do not currently pay any cash
dividends on our common stock. Any decision to declare and pay
dividends in the future will be made at the discretion of our Board
of Directors and will depend on, among other things, our results of
operations, financial condition, cash requirements, contractual
restrictions, and other factors that our board of directors may
deem relevant. In addition, our ability to pay dividends may be
limited by covenants of any existing and future outstanding
indebtedness we or our subsidiaries incur. As a result, you may not
receive any return on an investment in our common stock unless you
sell our common stock for a price greater than that which you paid
for it.
We are a “smaller reporting company” as defined in the
Securities Act, and the reduced disclosure requirements applicable
to smaller reporting companies may make our common stock less
attractive to investors.
We are a “smaller reporting company” as defined in
Section 229.10(f)(1) of the Securities Act, and we may
take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are
not smaller reporting companies including, among other things,
reduced financial disclosure requirements including being permitted
to provide only two years of audited financial statements and
reduced disclosure obligations regarding executive compensation. As
a result, our stockholders may not have access to certain
information that they may deem important. We could remain a smaller
reporting company indefinitely. As a smaller reporting company,
investors may deem our stock less attractive and, as a result,
there may be less active trading of our common stock, and our stock
price may be more volatile.
Risks Related to Our Business and Industry
Fluctuations in general economic conditions, including those caused
by COVID-19, have impacted and may continue to significantly impact
demand for our services, system-wide sales, and
profitability.
The demand for temporary staffing is highly dependent upon the
state of the economy and upon the workforce needs of our clients,
which creates uncertainty and volatility. National and global
economic activity can be slowed by many factors, including the
economic impact of COVID-19, fluctuating markets and interest rates
and global trade uncertainties. To date, the global pandemic has
severly impacted levels of economic activity in the United States
and around the world. As economic activity slows, companies tend to
reduce their use of temporary workers and reduce their recruitment
of new employees, and permanent full-time and part-time workers are
generally inclined to work more hours and overtime, resulting in
fewer available vacancies and less demand for our services.
Significant declines in demand of any region or industry in which
we have a major presence may severely reduce the demand for our
services and thereby significantly decrease our revenue and
profits. Deterioration in economic conditions or the financial or
credit markets could also have an adverse impact on our
clients’ ability to pay for services we have already
provided.
It is difficult for us to forecast future demand for our services
due to the inherent uncertainty in forecasting the direction and
strength of economic cycles and the project nature of our staffing
assignments. The uncertainty can be exacerbated by volatile
economic conditions, which may cause clients to reduce or defer
projects for which they utilize our services. However, we have
experienced a slowdown in system-wide sales and resulting revenue
that we attribute to the COVID-19 related economic slowdown. Future
or continued negative impact to our business can occur even before
any decline in economic activity is seen in the broader economy.
When it is difficult for us to accurately forecast future demand,
we may not be able to determine the optimal level of personnel and
investment necessary to profitably take advantage of growth
opportunities.
6
The
coronavirus pandemic is a serious threat to health and economic
well-being affecting our franchisees, employees, customers and the
overall economy.
On March 11, 2020, the World Health Organization announced that
infections of COVID-19 had become pandemic, and on March 13, 2020,
the President of the United States announced a National Emergency
relating to the disease. Since March 13, state and local
authorities have taken dramatic action including, without
limitation, ordering the workforce to stay home, banning all
non-essential businesses from operating, refusing to issue new
building permits, and invalidating current building permits causing
work to stop. There has been widespread infection in the United
States and abroad, with a resulting catastrophic impact on human
lives, including those of our franchisees and employees, and the
economy as a whole, including our customers. In addition to the
actions described above, national, state, and local authorities
have recommended social distancing and imposed quarantine and
isolation measures on large portions of the population and
additional mandatory business closures. These measures, while
intended to protect human life, have had serious adverse impacts on
domestic and foreign economies. They have caused our system-wide
sales and resulting revenue to decline. The extent and duration of
this decline is uncertain. The ultimate and long-term effectiveness
of economic stabilization efforts, including government payments to
affected citizens and industries, such as the CARES Act and
Paycheck Protection Program, is uncertain. Many economists believe
that the United States has already entered a
recession.
The sweeping nature of the COVID-19 pandemic makes it extremely
difficult to predict how our business operations will be affected
long term. But the overall economic impact of the pandemic has been
highly negative to the general economy. Our operations have been
disrupted by customers decreasing the amount of orders they place
for temporary employees, safety measures we and our franchisees
have put in place to prevent spread of the virus, and in other
ways. The COVID-19 outbreak has had a negative impact on our
operations, system-wide sales, and revenue as well as those of our
franchisees. 13 of our franchised offices have closed or
consolidated into other existing offices at least, in part, due to
the impact of COVID-19. It is possible that additional offices may
be forced to close. Some of our franchisees have experienced
economic hardship including loss of customers or business. A small
number of franchisees have experieced difficulty in repaying their
financing obligations to us. Others may experience economic
hardship or even failure. If there were to be a resurgence in the
virus and infections in the second half of the year, we may be
forced to temporarily or permanently close offices in some
jurisdictions. Our customers may choose to voluntarily close their
worksites.
Any of the above factors, or other cascading effects of the
coronavirus pandemic that are not currently foreseeable, could
materially increase our costs, severely negatively impact our
revenue, net income, and other results of operations, reduce
system-wide sales, cause office closings or cause us to lose
franchisees, and impact our liquidity position, possibly
significantly. The duration of any such impacts cannot be
predicted. We expect COVID-19 will continue to negatively impact
customer demand in 2020. While we expect some recovery in some
markets in the second half of the year, the impact of COVID-19 on
our sales and revenue will likely still be significant. We do not
yet know the full extent of the impact of COVID-19 on our business,
financial condition and results of operations.
We may be unable to attract sufficient qualified candidates to meet
the needs of our clients.
We compete to meet our clients’ needs for workforce solutions
and, therefore, we must continually attract qualified candidates to
fill positions. Attracting qualified candidates depends on factors
such as desirability of the assignment, location, the health of our
workforce, and the associated wages and other benefits. We have
experienced shortages of qualified candidates and we may experience
such shortages in the future due to a number of factors including,
without limitation, as a result of the COVID-19 pandemic. Further,
if there is a shortage, the cost to employ or recruit these
individuals could increase. If we are unable to pass those costs
through to our clients, it could materially and adversely affect
our business.
We are vulnerable to seasonal fluctuations with lower demand in the
fall and winter months.
Royalty fees generated from office sales in markets subject to
seasonal fluctuations will be less stable and may be lower than in
other markets. Locating offices in highly seasonal markets involves
higher risks. Individual franchisee revenue can fluctuate
significantly on both a quarter over quarter and year over year
basis thereby impacting our royalty and service revenue, depending
on the local economic conditions and need for temporary labor
services in the local economy. Weather can also have a significant
impact on our operations as there is typically lower demand for
staffing services during adverse weather conditions in the winter
months. To the extent that seasonal fluctuations become more
pronounced, our royalty fees could fluctuate materially from period
to period.
We are critically dependent on workers’ compensation
insurance coverage at commercially reasonable terms, and unexpected
changes in claim trends on our workers’ compensation may
negatively impact our financial condition.
We employ workers for whom we provide workers’ compensation
insurance. Our workers’ compensation insurance policies are
renewed annually. The majority of our insurance policies are with
Chubb/Ace American. Our insurance carriers require us to
collateralize a significant portion of our workers’
compensation obligation. We currently collateralize our policies
largely with a letter of credit from Truist Bank. If we no longer
had access to that collateral, we could not be certain we would be
able to obtain appropriate types or levels of insurance in the
future or that adequate replacement policies would be available on
acceptable terms. As our business grows or if our financial results
deteriorate, the amount of collateral required will likely increase
and the timing of providing collateral could be accelerated.
Resources to meet these requirements may not be available to us in
a timely manner or at all. The loss of our workers’
compensation insurance coverage would prevent us from operating as
a staffing services business in the majority of our markets.
Further, we cannot be certain that our current and former insurance
carriers will be able to pay claims we make under such
policies.
We are responsible for a significant portion of expected losses
under our workers’ compensation program. Unexpected changes
in claim trends, including the severity and frequency of claims,
changes in state laws regarding benefit levels and allowable
claims, actuarial estimates, or medical cost inflation, could
result in costs that are significantly higher. There can be no
assurance that we will be able to increase the fees charged to our
clients in a timely manner and in a sufficient amount to cover
increased costs as a result of any changes in claims-related
liabilities.
7
Our efforts to actively manage the safety of our temporary workers
and actively control costs with internal staff and our network of
workers’ compensation related service providers may not be
sufficient to prevent material increases to our workers’
compensation costs.
We are dependent on a small number of individuals who constitute
our current management.
We are highly dependent on the services of our senior management
team and other key employees at our corporate headquarters and on
our franchisees’ ability to recruit, retain, and motivate key
employees. Competition for such employees can be intense, and the
inability to attract and retain the additional qualified employees
required to expand our activities, or the loss of current key
employees including, without limitation, as a result of the
COVID-19 pandemic, could adversely affect our and our
franchisees’ operating efficiency and financial condition. In
addition, our growth strategy may place strains on our management
who may become distracted from day-to-day duties.
Our industry is subject to extensive government regulation and the
imposition of additional regulations, which could materially harm
our future earnings.
Our workforce solutions are subject to extensive government
regulation. In particular, we are subject to a significant number
of employment laws due to our being a large employer. Additionally,
there are state and federal rules regarding disclosure requirements
to potential franchisees and regulations regarding our relationship
with existing franchisees. The cost to comply, and any inability to
comply with government regulation, could have a material adverse
effect on our business and financial results. Increases or changes
in government regulation of the workplace or of the
employer-employee relationship, or judicial or administrative
proceedings related to such regulation, could materially harm our
business.
We offer our qualifying temporary workers government-mandated
health insurance in compliance with the Patient Protection and
Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010 (collectively, the “ACA”).
We cannot be certain that compliant insurance coverage will remain
available to us on reasonable terms, and we could face additional
risks arising from future changes to or repeal of the ACA or
changed interpretations of our obligations under the
ACA.
We may incur employment related claims or other types of claims and
costs that could materially harm our business.
We are in the business of employing people in the workplaces of our
clients. We incur a risk of liability for claims for personal
injury, wage and hour violations, immigration, discrimination,
harassment, and other liabilities arising from the actions of our
clients and/or temporary workers. Some or all of these claims may
give rise to negative publicity, litigation, settlements, or
investigations. As a result, we may incur costs, charges or other
material adverse impacts on our financial statements.
We maintain insurance with respect to some potential claims and
costs with deductibles. We cannot be certain that our insurance
will be available, or if available, will be of a sufficient amount
or scope to cover claims that may be asserted against us. Should
the ultimate judgments or settlements exceed our insurance
coverage, they could have a material effect on our business. We
cannot be certain we will be able to obtain appropriate types or
levels of insurance in the future, that adequate replacement
policies will be available on acceptable terms, or at all, or that
our insurance providers will be able to pay claims we make under
such policies.
We operate in a highly competitive industry and may be unable to
retain clients or market share.
Our industry is highly competitive and rapidly innovating. We
compete in national, regional and local markets with full-service
and specialized temporary staffing companies. Our competitors offer
a variety of flexible workforce solutions. Therefore, there is
no assurance that we will be able to retain clients or market share
in the future, nor can there be any assurance that we will, in
light of competitive pressures, be able to remain profitable or
maintain our current profit margins.
If we fail successfully to implement our growth strategy, which
includes new office development by existing and new franchisees,
our ability to increase our revenue and operating profits could be
adversely affected.
Portions of our growth strategy rely on new office development by
existing and new franchisees. Our franchisees may face many
challenges in opening new offices including:
● General economic
and business conditions (including those resulting from the effects
COVID-19);
● Availability and
cost of financing;
● Negotiation of
acceptable lease and financing terms;
● Trends in the
overall and local economy of the target market;
and
● Recruitment,
training, and retention of qualified core staff and temporary
personnel.
These factors are outside of our control and could hinder our
franchisees from opening new offices or expanding existing ones.
This could prevent us from successfully implementing our growth
strategy.
8
Changes in our industry could place strains on our management,
employees, information systems, and internal controls, which may
adversely impact our business.
Changes in the temporary staffing industry and how our customers
utilize, order, and pay for temporary staffing services,
particularly through new and innovative uses of technology, may
place significant demands on our administrative, operational,
financial, and other resources or require us to obtain different or
additional resources. Any failure to respond to or manage such
changes effectively could adversely affect our business. To be
successful, we will need to continue to implement management
information systems and improve our operating, administrative,
financial, and accounting systems and controls in order to adapt
quickly to such changes. These changes may be time-consuming and
expensive, increase management responsibilities, and divert
management attention, and we may not realize a return on our
investment in these changes.
The loss of or damage to key relationships, including with Dock
Square, may adversely affect the Company’s
business.
The Company’s business is dependent on its relationships with
clients and collaboration partners. On July 15, 2019, the Company
entered into a consulting arrangement with Dock Square HQ, LLC
(“Dock Square”), an organization with connections
at many of the largest users of temporary staffing in the country.
Pursuant to this consulting arrangement, Dock Square introduces
prospective customers and expands relationships with existing
customers of the Company in return for which it is
eligible to receive unregistered shares of the Company’s
common stock, subject to certain performance metrics and vesting
terms. The loss of or damage to the Company’s consulting
arrangement with Dock Square may adversely affect the
Company’s business and revenue.
Shifts in attitudes towards contingent workforces could negatively
impact our results of operations and financial
condition.
Attitudes and beliefs about contingent workforces could change such
that our customers no longer desire to utilize our services. If
this occurs, it could negatively impact our financial condition and
results of operations. Such a shift could also make it challenging
or impossible for us to successfully implement our growth
strategies.
Difficult political or market conditions, natural disasters, global
pandemics, or other unpredictable matters could affect our business
in many ways including by reducing the amount of available
temporary employees, reducing the amount of customer projects, or
harming the overall economy which could materially reduce our
revenue, earnings and cash flow and adversely affect our financial
condition.
Our business is linked to conditions in the overall economy, such
as those impacting the ability of our customers to obtain
financing, the availability of temporary employees, changes in
laws, and catastrophic events such as fires, floods, earthquakes,
tornadoes, hurricanes, and pandemics. In particular, the outbreak
of COVID-19 has materially affected our business by decreasing
activity in the economy overall, negatively impacting the
industries our customers are in, especially hospitality, event
staffing, auto auctioneering, and similar industries. While we have
encouraged our franchisees to implement specific policies which the
CDC has suggested could help decrease the spread of COVID-19, and
we have not experienced a significant number of infections among
our employees, it is possible that COVID-19 could infect a large
number of temporary employees removing them from the available
worker pool. To date, we have experienced a decline in system-wide
sales and resulting revenue due to decreased economic activity. Our
franchisees have closed or consolidated 13 offices at least in part
due to the negative impacts of the coronavirus. These factors are
unpredictable and outside of our control. They may affect the level
and volatility of securities prices and the liquidity and value of
investments, including investments in our common
stock.
Our credit facility contains operating and financial covenants that
may restrict our business and financing activities.
On July 11, 2019, in connection with the Merger, we, along with our
subsidiaries, entered into a loan agreement with Truist Bank for a
$30 million line of credit with a $15 million sublimit for letters
of credit. The loan agreement and other loan documents contain
customary events of default and negative covenants, including but
not limited to those governing indebtedness, liens, fundamental
changes, transactions with affiliates, and sales of assets. The
loan agreement also requires us to comply with a fixed charge
coverage ratio of at least 1.10:1.00.
The agreements limit, among other things, our ability
to:
● Sell, lease,
license, or otherwise dispose of assets;
● Undergo a change
in control;
● Consolidate and
merge with other entities; or
● Create, incur, or
assume liens, debt, and other
encumbrances.
The operating and other restrictions and covenants in the
agreements and in any future financing arrangement that we may
enter into, may restrict our ability to finance our operations,
engage in certain business activities, or expand or fully pursue
our business strategies, or otherwise limit our discretion to
manage our business. Our ability to comply with these restrictions
and covenants may be affected by events beyond our control, and we
may not be able to meet those restrictions and covenants. A breach
of any of the restrictions and covenants could result in a default
under our agreements which could cause any outstanding indebtedness
under the agreements or under any future financing arrangements to
become immediately due and payable, and result in the termination
of commitments to extend further credit.
9
The phase-out of the London Interbank Offered Rate
(“LIBOR”), or the replacement of LIBOR with a different
reference rate, may adversely affect interest rates.
Borrowings under our credit facility bear interest at rates
determined using LIBOR as the reference rate. On July 27, 2017, the
Financial Conduct Authority (the authority that regulates LIBOR)
announced that it would phase-out LIBOR by the end of 2021. It is
unclear whether new methods of calculating LIBOR will be
established such that it continues to exist after 2021, or if
alternative rates or benchmarks will be adopted, and currently it
appears highly likely that LIBOR will be discontinued or
substantially modified by 2021. Changes in the method of
calculating LIBOR, or the replacement of LIBOR with an alternative
rate or benchmark, may adversely affect interest rates and result
in higher borrowing costs. This could materially and adversely
affect our results of operations, cash flows, and liquidity. We
cannot predict the effect of the potential changes to LIBOR or the
establishment and use of alternative rates or benchmarks.
Furthermore, we may need to renegotiate our revolving credit
facility or incur other indebtedness, and changes in the method of
calculating LIBOR, or the use of an alternative rate or benchmark,
may negatively impact the terms of such indebtedness.
Risks Related to Our Franchisees and Business Model
Converting our company-owned offices to franchises has multiple
risks.
We believe that the franchise model is superior to the
company-owned store model. To that end, we converted the remaining
company-owned offices to franchises in the third quarter of 2019.
However, we will have less control over the day-to-day operations
of the offices and the franchisees may operate in a manner that is
counter to our interests or introduce risks to our business by
departing from our operating norms. Further, franchises are
generally regulated at both the federal and the state level, so
operating as franchises will introduce additional regulatory risk.
In addition, the new franchisees will need to adapt to a new
operating model, a new IT system, and new business
processes.
Our operating and financial results and growth strategies are
closely tied to the success of our franchisees.
With all of our offices being operated by franchisees, we are
dependent on the financial success and cooperation of our
franchisees. We have limited control over how our
franchisees’ businesses are run, and the inability of
franchisees to operate successfully could adversely affect our
operating and financial results through decreased royalty payments
or otherwise. If our franchisees incur too much debt, if their
operating expenses increase, or if economic or sales trends
deteriorate (including as a result of the global pandemic caused by
COVID-19) such that they are unable to operate profitably or repay
existing debt, it could result in their financial distress,
including insolvency or bankruptcy. To date, a small number of
franchisees have had difficulty in servicing the debts they owe to
us as a result of the financial impacts of COVID-19. We placed a
reserve on the notes receivable from those franchisees in the
amount of approximately $360,000.
In addition,
franchisees have closed or consolidated 13 offices at least in part
due to the impact of COVID-19. If a
significant franchisee or a significant number of franchisees
become financially distressed, our operating and financial results
could be impacted through reduced or delayed royalty payments. A
franchisee bankruptcy could have a substantial negative impact on
our ability to collect payments due under such franchisee’s
franchise agreement. Our success also depends on the willingness
and ability of our franchisees to be incentivized to deliver
excellent customer service, resolve any issues efficiently, and
ensure customer retention. In addition, our success depends on the
willingness and ability of our franchisees to implement major
initiatives, which may include financial investment. Our
franchisees may be unable to successfully implement strategies that
we believe are necessary for their further growth, which in turn
may harm our growth prospects and financial
condition.
Our franchisees could take action that could harm our
business.
Our franchisees are contractually obligated to operate their
offices in accordance with the operations standards set forth in
our agreements with them and applicable laws. However, although we
attempt to properly train and support all our franchisees, they are
independent third parties whom we do not control. The franchisees
own, operate, and oversee the daily operations of their offices,
and their core office employees are not our employees. While we
have the ability to enforce our franchise agreements, many of our
franchisees’ actions are outside of our control. Although we
have developed criteria to evaluate and screen prospective
franchisees, we cannot be certain that our franchisees will have
the business acumen or financial resources necessary to operate
successful franchises at their approved locations, and state
franchise laws may limit our ability to terminate or not renew
these franchise agreements. Moreover, despite our training,
support, and monitoring, franchisees may not successfully operate
offices in a manner consistent with our standards and requirements
or may not hire and adequately train qualified office personnel.
The failure of our franchisees to operate their franchises in
accordance with our standards or applicable law, actions taken by
their employees or a negative publicity event at one of our
franchisees’ offices or involving one of our franchisees
could have a material adverse effect on our reputation, our brands,
our ability to attract prospective franchisees, and our business,
financial condition, or results of operations.
If we fail to identify, recruit, and contract with a sufficient
number of qualified franchisees, our ability to open new offices
and increase our revenue could be materially adversely
affected.
The opening of additional offices and expansion into new markets
depends, in part, upon the availability of prospective franchisees
who meet our selection criteria. Many of our franchisees open and
operate multiple offices, and part of our growth strategy requires
us to identify, recruit and contract with new franchisees or rely
on our existing franchisees to expand. We may not be able to
identify, recruit or contract with suitable franchisees in our
target markets on a timely basis or at all. If we are unable to
recruit suitable franchisees or if franchisees are unable or
unwilling to open new offices, our growth may be slower than
anticipated, which could materially adversely affect our ability to
increase our revenue and materially adversely affect our business,
financial condition and results of operations.
10
Opening new offices in existing markets and aggressive development
could cannibalize existing sales and may negatively affect sales at
existing offices.
We intend to continue opening new franchised offices in our
existing markets as a part of our growth strategy. Expansion in
existing markets may be affected by local economic and market
conditions. Further, the customer target area of our offices varies
by location, depending on a number of factors, including population
density, area demographics and geography. As a result, the opening
of a new office in or near markets in which our franchisees’
offices already exist could adversely affect the sales of these
existing franchised offices. Sales cannibalization between offices
may become significant in the future as we continue to expand our
operations and could affect sales growth, which could, in turn,
materially adversely affect our business, financial condition or
results of operations. There can be no assurance that sales
cannibalization will not occur or become more significant in the
future as we increase our presence in existing
markets.
A large number of our franchises are controlled by a small number
of individuals.
A significant number of our franchises are controlled or
beneficially owned by a small number of individuals. Specifically,
the offices we sold and converted to franchises on September 27,
2019 are controlled by a single individual via several affiliated
entities. In addition, the franchisees we refer to as the "Worlds
Franchisees" share significant common ownership with one another,
with us and with two selling stockholders. If either of these
ownership groups, or any of our other relatively large ownership
groups, were to experience financial difficulty, reduced sales
volume, or close, we may experience a negative impact on our
results of operations, liquidity, or financial
condition.
Our results of operations may be significantly affected by the
ability of certain franchisees to repay their loans to
us.
Lending money to our franchisees for startup costs and short-term
funding is an essential part of our business. While most of our
franchisees have historically repaid their loans to us, for various
reasons, a small number have not, and there is no guarantee that
our franchisees will continue to repay their loans in the future.
As a result of the negative impacts of COVID-19, a small number of
our franchisees have already had difficulty in repaying their debt
to us. To that end, we placed a reserve of approximately $360,000
on the notes receivable from these franchisees. The risk of
non-payment is affected, among other things, by:
● The overall
condition and results of operations of the particular
franchise;
● Changes in
economic conditions that impact specific franchisees, our industry,
or the overall economy;
● The amount and
duration of the loan;
● Credit risks of a
particular borrower; and
● In terms of
collateral, the value of the franchised business and any individual
guarantee we have or have not obtained.
Our franchisees’ ability to repay their loans usually depends
upon their successful operation of their business and income
stream. Loans we extend to franchisees to finance their purchase of
a new branch typically are our largest and riskiest loans; however,
given their historical role in driving growth in our overall size
and revenue streams, we intend to continue those lending efforts.
At March 31, 2020, our loans receivable from franchisees and from
the party to whom we sold the California offices, net of an
approximately $1.4 million reserve, constituted 19.5% of our
assets. We extended for us unprecedented levels of purchase
financing loans in 2019 in connection with the Merger and
subsequent sales and conversions of company-owned offices to
franchises. If our franchisees do not repay these loans, it may
negatively impact our overall financial condition and results of
operations.
We may have improperly balanced the costs and benefits related to
our Franchise Expansion Incentive Program.
Through our Franchise Expansion Incentive Program, we have agreed,
under certain circumstances, to provide certain franchisees with
credits to their royalty fees, financing assistance, or acquisition
funding. If the new offices which are funded in whole or in part by
this program fail or underperform, we may suffer financially, and
it may have an adverse impact on our results of operations,
liquidity, or financial condition.
We may have improperly balanced the costs and benefits related to
our Risk Management Incentive Program.
Through our Risk Management Incentive Program, we have agreed,
under certain circumstances, to provide certain payments to our
franchisees. The program is designed to incentivize our franchisees
to achieve certain loss ratio thresholds for workers’
compensation insurance. If more franchisees than anticipated
achieved these thresholds, or franchisees significantly exceeded
our expectations with respect the workers’ compensation
claims history, we may be required to pay more than we have
anticipated pursuant to our Risk Management Incentive Program which
may negatively impact our results of operations, liquidity, or
financial condition.
We may engage in litigation with our franchisees.
Although we believe we generally enjoy a positive working
relationship with our franchisees, the nature of the
franchisor-franchisee relationship may give rise to litigation with
our franchisees. While we do not engage in litigation with our
franchisees in the ordinary course of business, it is possible that
we may experience litigation with some of our franchisees in the
future. We may engage in future litigation with franchisees to
enforce our contractual indemnification rights if we are brought
into a matter involving a third party due to the franchisee’s
alleged acts or omissions. In addition, we may be subject to claims
by our franchisees relating to our franchise disclosure document,
including claims based on financial information contained in our
franchise disclosure document. Engaging in such litigation may be
costly and time-consuming and may distract management and
materially adversely affect our relationships with franchisees and
our ability to attract new franchisees. Any negative outcome of
these or any other claims could materially adversely affect our
results of operations as well as our ability to expand our
franchise system and may damage our reputation and brands.
Furthermore, existing and future franchise-related legislation
could subject us to additional litigation risk in the event we
terminate or fail to renew a franchise relationship.
11
Risks Related to the Merger and Our Organizational
Structure
The success of the Merger will depend, in large part, on the
ability of the combined company to realize the anticipated benefits
from combining the businesses of Legacy HQ with Command Center. To
realize the anticipated benefits, the combined company must
successfully integrate the businesses. This integration has been,
and will continue to be, complex and time-consuming.
Potential difficulties we may encounter include, among
others:
● Unanticipated
issues in integrating logistics, information, communications, and
other systems;
● Integrating
personnel from the two companies while maintaining focus on
providing a consistent, high quality level of
service;
● Unanticipated
issues resulting from the completion of the transition of our
owned-office network to franchised operations owned by multiple
franchisees, including first-time business
owners;
● Integrating
complex systems, technology, networks, and other assets of the two
companies in a seamless manner to minimize disruption to customers,
employees, service providers, and other
constituencies;
● Performance
shortfalls as a result of diversion of management’s attention
from day-to-day operations matters to integration
matters;
● Potential unknown
liabilities, liabilities that are significantly larger than
anticipated, unforeseen expenses or delays associated with the
Merger and the integration process;
● Unanticipated
changes in applicable laws and regulations;
● The impact on our
internal controls and compliance with the regulatory requirements
under the Sarbanes-Oxley Act of 2002, including, without
limitation, any problems that arise as a result of integrating the
accounting systems of a public and a private company (in this
context, refer to “We have identified a material
weakness in our internal control over financial reporting
which may adversely affect the accuracy and reliability of our
financial statements, and our reputation, business and the price of
our common stock, as well as lead to a loss of investor confidence
in us.” below);
and
● Unanticipated
complexities associated with managing the larger, combined
business.
These factors could contribute to us not fully achieving the
anticipated benefits of the Merger, which could adversely affect
our results of operations.
If we are a “personal holding company,” we may be
required to pay personal holding company taxes, which would have an
adverse effect on our cash flows, results of operations, and
financial condition.
Under the Code, a corporation that is a “personal holding
company” may be required to pay a personal holding company
tax in addition to regular income taxes. A corporation generally is
considered a personal holding company if (1) at any time during the
last half of the taxable year more than 50% of the value of the
corporation’s outstanding stock is owned, directly,
indirectly, or constructively, by or for five or fewer individuals,
the Ownership Test, and (2) at least 60% of the corporation’s
“adjusted ordinary gross income” constitutes
“personal holding company income", the Income Test. A
corporation that is considered a personal holding company is
required to pay a personal holding company tax at a rate equal to
20% of such corporation’s undistributed personal holding
company income, which is generally taxable income with certain
adjustments, including a deduction for U.S. federal income taxes
and dividends paid.
We will likely satisfy the Ownership Test for the 2019 tax year.
However, we do not expect to satisfy the Income Test in 2019.
Accordingly, we do not believe that we will be considered a
personal holding company for the 2019 tax year. However, because
personal holding company status is determined annually and is based
on the nature of the corporation’s income and percentage of
the corporation’s outstanding stock that is owned, directly,
indirectly, or constructively, by major stockholders, there can be
no assurance that we will not be a personal holding company for the
2019 tax year or become a personal holding company in any future
taxable year. If we were considered a personal holding company with
undistributed personal holding company income in a taxable year,
the payment of personal holding company taxes would have an adverse
effect on our cash flows, results of operations, and financial
condition.
We have identified a material weakness in our internal control over
financial reporting which may adversely affect the accuracy
and reliability of our financial statements, and our reputation,
business and the price of our common stock, as well as lead to a
loss of investor confidence in us.
As described under Item 9A. “Controls and Procedures”
in our Annual Report on Form 10-K for the year ended December 31,
2019, management has concluded that a material weakness in our
internal control over financial reporting existed as
of December 31, 2019 and, accordingly, internal
control over financial reporting and our disclosure controls and
procedures were not effective as of such date. A material weakness
is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim
consolidated financial statements will not be prevented or detected
on a timely basis.
12
We are taking steps to remediate this material weakness. While
we believe these steps will improve the effectiveness of our
internal control over financial reporting and remediate the
identified deficiency, if our remediation efforts are insufficient
to address the material weakness or we identify additional material
weaknesses in our internal control over financial reporting in the
future, our ability to record, process, summarize and report
information required to be disclosed within the time periods
specified by the rules and forms of the SEC and to otherwise comply
with our reporting obligations under the federal securities laws
and our credit agreement will likely be adversely affected. The
occurrence of, or failure to remediate, the material weakness and
any future material weaknesses in our internal control over
financial reporting may adversely affect the accuracy and
reliability of our financial statements and have other consequences
that could materially and adversely affect our business, including
an adverse impact on the market price of our common stock,
potential actions or investigations by the SEC or other regulatory
authorities, possible defaults under our credit agreement,
shareholder lawsuits, a loss of investor confidence and damage to
our reputation.
We will incur increased costs and demands upon management as a
result of complying with the laws and regulations affecting public
companies, which could harm our operating results.
As a public company, we will incur significant legal, accounting,
investor relations and other expenses, including costs associated
with public company reporting requirements. We also have incurred
and will incur costs associated with current corporate governance
requirements, including requirements under Section 404 and
other provisions of the Sarbanes-Oxley Act, as well as rules
implemented by the SEC and NASDAQ. We expect these rules and
regulations to substantially increase our legal and financial
compliance costs over prior years and to make some activities more
time-consuming and costly. We are unable to currently estimate
these costs with any degree of certainty. We also expect that, as a
public company, it will be more difficult and more expensive for us
to obtain director and officer liability insurance, and we may be
required to incur substantially higher costs to obtain coverage or
to accept reduced policy limits and coverage. As a result, it may
be more difficult for us to attract and retain qualified
individuals to serve on our board of directors or as our executive
officers.
Risks Related to Technology and Cybersecurity
Advances in technology may disrupt the labor and recruiting
markets.
We expect the increased use of internet-based and mobile technology
will attract additional technology-oriented companies and resources
to the staffing industry. We face increasing competition from
“gig-economy” companies entering the temporary staffing
industry by providing apps to connect workers with employers. Such
competition could adversely affect our business and results of
operations. Our candidates and clients increasingly demand
technological innovation to improve the access to and delivery of
our services.
Our clients increasingly rely on automation, artificial
intelligence and other new technologies to reduce their dependence
on labor needs, which may reduce demand for our services and impact
our operations. Our franchisees face extensive pressure for lower
prices and new service offerings and we must continue to invest in
and implement new technology and industry developments to remain
relevant to our ultimate clients and candidates. If we are unable
to do so, our business and results of operations may decline
materially. Furthermore, if our clients are able to increase
the effectiveness of their internal staffing and recruitment
functions through analytics, automation or otherwise, their need
for the services our franchisees offer may decline. New technology
and more sophisticated staffing management and recruitment
processes may cause clients to outsource less of their staffing
management, reducing the demand for our franchisees’
services.
Our information technology systems may need to be updated or
replaced.
We occasionally implement, modify, retire and change our systems.
These changes to our information technology systems may be
disruptive, take longer than desired, be more expensive than
anticipated, be distracting to management, or fail, causing our
business and results of operations to suffer
materially.
The improper disclosure of, or access to, our confidential and/or
proprietary information, or a failure to adequately protect this
information, could materially harm our business.
Our business requires the use, processing, and storage of
confidential information about applicants, candidates, temporary
workers, other employees and clients. We occasionally experience
cyberattacks, computer viruses, social engineering schemes and
other means of unauthorized access to our systems. The security
controls over sensitive or confidential information and other
practices we and our third-party vendors follow may not prevent the
improper access to, disclosure of, or loss of such information. We
may fail to implement practices and procedures that comply with
increasing privacy regulations. Failure to protect the integrity
and security of such confidential and/or proprietary information
could expose us to regulatory fines, litigation, contractual
liability, damage to our reputation and increased compliance
costs.
Our facilities, operations, and information technology systems are
vulnerable to damage and interruption.
Our primary computer systems, headquarters, support facilities and
operations are vulnerable to damage or interruption from power
outages, computer and telecommunications failures, computer
viruses, employee errors, security breaches, natural disasters and
catastrophic events. Failure of our systems or damage to our
facilities may cause significant interruption to our business, and
require significant additional capital and management resources to
resolve, causing material harm to our business.
13
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus and other documents incorporated herein by reference
include, and our officers and other representatives may sometimes
make or provide certain estimates and other forward-looking
statements within the meaning of the safe harbor provisions of the
U.S. Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), including, among
others, statements with respect to future revenue, franchise sales,
system-wide sales, and the growth thereof; the impact of any
global pandemic including COVID-19; operating results; anticipated
benefits of the merger with Command Center, or the conversion to
the franchise model; intended office openings; expectations of the
effect on our financial condition of claims and litigation;
strategies for customer retention and growth; strategies for risk
management; and all other statements that are not purely historical
and that may constitute statements of future expectations.
Forward-looking statements can be identified by words such as:
“anticipate,” “intend,” “plan,”
“goal,” “seek,” “believe,”
“project,” “estimate,”
“expect,” “strategy,” “future,”
“likely,” “may,” “should,”
“will,” and similar references to future
periods.
While
we believe these statements are accurate, forward-looking
statements are not historical facts and are inherently uncertain.
They are based only on our current beliefs, expectations, and
assumptions regarding the future of our business, future plans and
strategies, projections, anticipated events and trends, the
economy, and other future conditions. We cannot assure you that
these expectations will occur, and our actual results may be
significantly different. Therefore, you should not place undue
reliance on these forward-looking statements. Important factors
that may cause actual results to differ materially from those
contemplated in any forward-looking statements made by us include
the following: the level of demand and financial performance of the
temporary staffing industry; the financial performance of our
franchisees; changes in customer demand; the extent to which we are
successful in gaining new long-term relationships with customers or
retaining existing ones, and the level of service failures that
could lead customers to use competitors’ services;
significant investigative or legal proceedings including, without
limitation, those brought about by the existing regulatory
environment or changes in the regulations governing the temporary
staffing industry and those arising from the action or inaction of
our franchisees and temporary employees; strategic actions,
including acquisitions and dispositions and our success in
integrating acquired businesses including, without limitation,
successful integration following the merger with Command Center;
disruptions to our technology network including computer systems
and software; natural events such as severe weather, fires, floods,
and earthquakes, or man-made or other disruptions of our operating
systems; and the factors discussed in the “Risk
Factors” section and elsewhere in this prospectus, in our
most recent Annual Report on Form 10-K, and in our Quarterly
Reports on Form 10-Q.
Any
forward-looking statement made by us in this prospectus and in the
documents incorporated herein by reference is based only on
information currently available to us and speaks only as of the
date on which it is made. The Company disclaims any obligation to
update or revise any forward-looking statement, whether written or
oral, that may be made from time to time, based on the occurrence
of future events, the receipt of new information, or otherwise,
except as required by law.
14
USE OF PROCEEDS
To the extent the selling
stockholders choose to sell the shares covered by this prospectus,
they would be doing so for their own account. We will not receive
any of the proceeds from the resale of these shares.
CAPITALIZATION
The
following table sets forth our capitalization as of March 31, 2020.
This table should be read in conjunction with the financial
statements and notes to the financial statements and the
“Management’s Discussion of Financial Condition and
Results of Operations” section of our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2020.
|
|
Quarter ended
March 31, 2020
|
|
|
(unaudited)
|
|
Cash
|
$10,040,828
|
|
Capitalization
|
|
|
Debt:
|
-
|
|
Equity:
|
|
|
Preferred
stock - $0.001 par value, 1,000,000 shares authorized none
issued
|
-
|
|
Common
stock - $0.001 par value, 30,000,000 shares authorized; 13,536,742
shares issued and outstanding
|
13,537
|
|
Additional
paid-in capital
|
27,907,344
|
|
Retained
earnings
|
4,559,132
|
|
Total
stockholders’ equity
|
32,480,013
|
|
Total
capitalization
|
32,480,013
|
NO DILUTION
The
common stock covered by this prospectus is common stock that is
currently issued and outstanding. Accordingly, there will be no
dilution to our existing shareholders should the selling
stockholders choose to sell some or all of the shares covered by
this prospectus.
15
CERTAIN BENEFICIAL OWNERS OF OUR COMMON
STOCK
The following table sets forth, as of June 3, 2020 certain
information with respect to the shares of our common stock
beneficially owned by (i) stockholders known to us to own more than
5% of the outstanding shares of our common stock, (ii) each of our
directors and named executive officers, and (iii) all of our
executive officers and directors as a group:
|
Name and address of Beneficial Owner (1)
|
Title of class
|
Amount and nature of beneficial
ownership (2)
|
Percent of class
|
|
Richard F. Hermanns (3)
|
Common
Stock
|
5,892,275
|
43.5%
|
|
John McAnnar (4)
|
Common
Stock
|
32,202
|
*
|
|
Cory Smith (5)
|
Common
Stock
|
29,375
|
*
|
|
JD Smith (6)
|
Common
Stock
|
68,998
|
*
|
|
Edward Jackson (7)
|
Common
Stock
|
2,559,743
|
18.9%
|
|
R. Rimmy Malhotra (8)
|
Common
Stock
|
166,983
|
1.2%
|
|
Payne Brown (9)
|
Common
Stock
|
20,989
|
*
|
|
Kathleen Shanahan (10)
|
Common
Stock
|
21,736
|
*
|
|
Lawrence F. Hagenbuch (11)
|
Common
Stock
|
33,626
|
*
|
|
Jack Olmstead (12)
|
Common
Stock
|
-
|
-
|
|
All
Officers and Directors as a group
|
Common
Stock
|
8,825,927
|
65.2%
|
* Less
than 1%
1. The business address of each NEO and Director is: care of
HireQuest, Inc., 111 Springhall Drive, Goose Creek, SC
29445.
2. Based on 13,545,123 shares of common stock outstanding as of
June 3, 2020. Beneficial ownership is calculated in accordance with
Rule 13d-3 under the Exchange Act, and includes shares held
outright, shares held by entities controlled by the persons shown
above, and shares issuable upon exercise of options or warrants
which are exercisable on or within 60 days of June 3,
2020.
3. Includes 5,839,427 shares held outright and 52,848 restricted
shares which will vest during the period beginning in September
2021 and ending in September 2023. Mr. Hermanns is our CEO and
Chairman of our Board of Directors.
4. Includes 6,702 shares held outright and 25,500 restricted shares
which will vest during the period beginning in September 2021 and
ending in September 2023. Mr. McAnnar is our Corporate Secretary,
Vice President, and General Counsel.
5. Includes 1,250 shares held outright, 25,000 restricted shares,
and options to purchase 3,125 shares. Mr. Smith's restricted shares
will vest during the period beginning in September 2021 and ending
in September 2023. Mr. Smith is our CFO.
6. Includes 39,961 shares held outright, 16,954 restricted shares,
and options to purchase 12,083 shares. Mr. Smith currently serves
on our Board of Directors.
7. Includes 2,542,175 shares held outright and 17,568 restricted
shares which will vest during the period beginning in July 2020 and
ending in June 2023. Mr. Jackson currently serves on our Board of
Directors.
8. Includes 29,686 shares held outright, 18,499 restricted shares,
112,235 shares held indirectly through the Nicoya Fund, and options
to purchase 6,563 shares. The shares held by the Nicoya Fund are
directly owned by the Nicoya Fund LLC, a Delaware limited liability
company. This reporting person is the managing member and a
co-owner of Nicoya Capital LLC, which is the managing member and
owner of the Nicoya Fund. Mr. Malhotra's restricted shares will
vest during the period beginning in November 2021 and ending in
June 2023. Mr. Malhotra is currently Vice Chairman of our Board of
Directors.
9. Includes 3,205 shares held outright and 17,784 restricted shares
which will vest during the period beginning in July 2020 and ending
in June 2023. Mr. Brown currently serves on our Board of
Directors.
10. Includes 3,752 shares held outright and 17,984 restricted
shares which will vest during the period beginning in July 2020 and
ending in June 2023. Ms. Shanahan currently serves on our Board of
Directors.
11. Includes 15,472 shares held outright and 18,154 restricted
shares which will vest during the period beginning in July 2020 and
ending in June 2023. Mr. Hagenbuch currently serves on our Board of
Directors.
12.
Mr. Olmstead is a nominee for election
to the Board of Directors.
16
SELLING STOCKHOLDERS
While the selling stockholders have provided us with notice that
they wish to have their shares included in the registration covered
by this prospectus, we do not know if, when, or in what amounts a
selling stockholder may actually offer the shares of common stock
for sale. The selling stockholders might not sell any or all of the
shares of common stock offered by this prospectus. Because the
selling stockholders may offer all or some of the shares of common
stock pursuant to this prospectus, and because, to our knowledge,
there are currently no agreements, arrangements or understandings
with respect to the sale of any of the shares of common stock, we
cannot estimate the number of the shares of common stock that will
be held by the selling stockholders after completion of this
offering.
We are registering the resale or other disposition of the
above-referenced shares (and any shares issued as a dividend or
other distribution with respect to, or in exchange for or in
replacement of, such shares) to permit each of the selling
stockholders, and their pledgees, donees, transferees, or other
successors-in-interest that receive their shares after the date of
this prospectus, to resell or otherwise dispose of the shares in
the manner contemplated under “Plan of Distribution”
below.
For purposes of the following table, which sets forth information
as of June 3, 2020 with respect to the selling stockholders and the
shares of common stock beneficially owned by each selling
stockholder, we have assumed that the selling stockholders will offer and sell all
of the shares covered by this prospectus, and that after completion
of the offering pursuant to this prospectus, none of the shares of
common stock covered by this prospectus will be held by the selling
stockholders.
Except as otherwise disclosed or referenced in this section with
respect to any selling stockholder, none of the selling
stockholders currently has, or within the past three years has had,
any position, office, or other material relationship with
us.
In addition, for purposes of the columns entitled “Shares
Beneficially Owned After this Offering” and “Percentage
of Shares Beneficially Owned After this Offering,” we have
also assumed that:
●
the selling
stockholders will not sell any shares of common stock other than
those offered by this prospectus; and
●
we will not issue
any additional shares of common stock, whether by dividend, stock
split, or otherwise, prior to the sale of shares of common stock by
the selling stockholders.
17
The
information set forth below is based upon information obtained from
the selling stockholders and upon information in our possession
regarding the issuance of shares of common stock to the selling
stockholders in connection with the Merger.
|
Name of Selling Stockholder
|
Shares
Beneficially Owned Prior to this Offering(1)
|
Percentage of
Shares Beneficially Owned Prior to this Offering(2)
|
Shares Offered in this Offering
|
Shares Beneficially Owned After this Offering
|
Percentage of
Shares Beneficially Owned After this Offering(2)
|
|
Richard Hermanns(3)
|
5,892,275
|
43.5%
|
5,705,792
|
186,483
|
1.4%
|
|
Edward Jackson(4)
|
2,559,743
|
18.9%
|
2,482,321
|
77,422
|
*
|
|
Paul Kroncke(5)
|
529,310
|
3.9%
|
528,810
|
500
|
*
|
|
Daniel McAnnar(6)
|
396,216
|
2.9%
|
374,716
|
21,500
|
*
|
|
Jarrett Lindon(7)
|
226,945
|
1.7%
|
201,945
|
25,000
|
*
|
|
John Ellis Bush(8)
|
93,036
|
*
|
93,036
|
-
|
-
|
|
John Ellis Bush, Jr.(8)
|
62,024
|
*
|
62,024
|
-
|
-
|
|
Amar Bajpai(8)
|
93,036
|
*
|
93,036
|
-
|
-
|
|
Ross Rodrigues(8)
|
93,036
|
*
|
93,036
|
-
|
-
|
|
David Savett(8)
|
93,036
|
*
|
93,036
|
-
|
-
|
|
John L. Oliver III(8)
|
92,101
|
*
|
92,101
|
-
|
-
|
|
Rachel
H. Oliver
|
935
|
*
|
935
|
-
|
-
|
|
George Huber(8)
|
79,309
|
*
|
79,309
|
-
|
-
|
|
Anthony Zirille(8)
|
9,075
|
*
|
9,075
|
-
|
-
|
|
Dan Michael(8)
|
4,652
|
*
|
4,652
|
-
|
-
|
|
Stephen M. Lessing(8)
|
25,844
|
*
|
25,844
|
-
|
-
|
|
Total
|
10,250,573
|
75.7%
|
9,939,668
|
283,405
|
2.1%
|
* Less than
1%
1. For purposes of
determining the amount of securities beneficially owned, share
amounts include all shares of voting stock owned outright plus all
shares of voting stock issuable upon the exercise of options or
warrants exercisable as of June 3, 2020 or within 60 days thereof
in accordance with Rule 13d-3 under the Exchange Act. We believe
that, except as otherwise noted below, each named beneficial owner
has sole voting and investment power with respect to the shares
listed.
2. Based on
13,545,123 shares of outstanding common stock as of June 3,
2020.
3.
Includes 5,839,427 shares held outright and 52,848 restricted
shares which will vest during the period beginning in September
2021 and ending in September 2023. Mr. Hermanns has served as
Chairman of the Board, President, and Chief Executive Officer of
the Company since July 2019. He previously served as Chief
Executive Officer and Secretary of Legacy HQ.
4. Includes
2,542,175 shares held outright and 17,568 restricted shares which
will vest during the period beginning in May 2020 and ending in
June 2023. Mr. Jackson has served on the Board of the Company since
July 2019. He was previously a member of and consultant to Legacy
HQ.
5. Mr. Kroncke was
previously a member of Legacy HQ.
6. Includes 386,216
shares held outright and 10,000 restricted shares which will vest
during the period beginning in September 2021 and ending in
September 2023. Mr. McAnnar served the Company in a consulting
capacity from July 2019 until his retirement December 31, 2019. He
was previously President and a member of Legacy HQ.
7. Includes 201,945
shares held outright and 25,000 restricted shares which will vest
during the period beginning in September 2021 and ending in
September 2023. Mr. Lindon has served as Director of National
Accounts for the Company since July 2019. He was previously Vice
President and a member of Legacy HQ.
8. Denotes a member
or officer of Dock Square Capital, LLC.
18
Relationships between the Company and Certain Selling
Stockholders
Transactions occurring prior to July 15, 2019 occurred when Hire
Quest Holdings, LLC was a private company.
The Worlds Franchisees
Mr. Jackson, Mr. Kroncke, Mr. McAnnar, Mr. Lindon, Dock Square, HQ,
LLC, and immediate family members of Mr. Hermanns have ownership
interests in certain of our franchisees (the “Worlds
Franchisees”). In many instances, these selling stockholders
collectively have majority ownership in the Worlds Franchisees.
There
were 20 Worlds Franchisees at March 31, 2020 that operated 48 of
our 135 offices. There were 20 Worlds Franchisees
at December 31, 2019 that operated 57 of our 147 offices.
There were 23 Worlds Franchisees that operated 50 of Hire Quest
LLC’s 97 offices at December 31, 2018. At December 31, 2017,
the Worlds Franchisees operated 39 of Hire Quest LLC's 79
offices.
Royalty fees which the Worlds Franchisees paid the Company for the
relevant periods are set forth below:
|
|
Year ended
|
Quarter
ended
|
||
|
|
December 31, 2019
|
December 31, 2018
|
March 31,
2020
|
March 31,
2019
|
|
Franchisee
royalty fees paid to the Company
|
$6,964,690
|
$5,900,637
|
$1,373,876
|
$1,633,782
|
On July 15, 2019, in connection with the Merger, the Company closed
on the sale of assets of several offices to a number of Worlds
Franchisees (the “Worlds Buyers”) for an aggregate
purchase price of $2.2 million.
Contemporaneously with the sale of these assets, the Company
entered into an agreement with Hire Quest Financial, LLC ("HQF"),
an entity which Mr. Hermanns, Mr. Jackson, Mr. Kroncke, Mr.
McAnnar, and Mr. Lindon collectively own (discussed immediately
below), whereby the promissory notes issued by the Worlds Buyers to
the Company in the aggregate principal amount of approximately $2.2
million were transferred to HQF in exchange for accounts receivable
of an equal value. Accordingly, the Company received the full
payment price for the office assets upon the closing of the Merger
on July 15, 2019, and the Worlds Buyers have no outstanding
obligation to the Company with respect to those
assets.
Hire Quest Financial LLC
Mr. Hermanns, Mr. Jackson, Mr. Kroncke, Mr. McAnnar, and Mr. Lindon
collectively own HQF. In addition to the transaction described
immediately above, the following transactions occurred prior to the
Merger.
Prior to March 20, 2018, HQF provided Hire Quest, LLC finance and
insurance related services and a line of credit. HQF charged a
management fee, including interest charged on the line of credit,
of 2% of the sales of Hire Quest, LLC’s franchisee-owned and
company-owned offices, also known as system-wide sales. Hire Quest,
LLC terminated this arrangement in March 2018. The total fee paid
in 2018 and 2017, respectively, was approximately $249,000 and $3.4
million.
During the year ended December 31, 2018, Hire Quest, LLC
transferred approximately $1.8 million of accounts and notes
receivable due from franchisees to HQF, as well as approximately
$600,000 of investments and property and equipment. On July 14,
2019, in connection with the Merger, Hire Quest, LLC conveyed
approximately $2.2 million of accounts receivable to HQF. These
transfers were used to pay down intercompany debt
obligations.
The intercompany debt was entirely extinguished prior to the
Merger. Currently, there is no intercompany debt. At December 31,
2019, December 31, 2018, and December 31, 2017 the Company owed HQF
$-0-, approximately $6.7 million, and approximately $4.7 million
respectively. The Company currently has no business dealings with
HQF and is not indebted to HQF.
Hirequest Insurance Company
Mr. Hermanns, his adult daughter, a trust established for the
benefit of his children, Mr. Jackson, Mr. Kroncke, Mr. McAnnar, and
Mr. Lindon collectively own Hirequest Insurance Company (“HQ
Ins.”), a North Carolina protected cell captive insurance
company. Effective March 1, 2010, Hire Quest, LLC purchased a
deductible reimbursement insurance policy from HQ Ins. to cover
losses up to the $500,000 per claim deductible on the Hire Quest,
LLC high-deductible workers’ compensation policy originally
obtained through AIG and, later, through ACE American Insurance
Company. Hire Quest, LLC terminated its policy with HQ Ins. on July
15, 2019 upon the closing of the Merger.
Premiums paid by Hire Quest, LLC to HQ Ins. for workers’
compensation insurance during the years ended December 31, 2019,
2018, and 2017 are approximately $3.6 million, $5.5 million, and
$6.9 million respectively. HQI has no current business dealings
with the Company.
Insurance Technologies, Inc.
Mr. Hermanns, Mr. Jackson, and trusts they set up for the benefit
of their children collectively are the majority owners of Insurance
Technologies, Inc. (“Insurance Technologies”), an IT
development and security firm. On October 24, 2019, the Company
entered into an agreement with Insurance Technologies to add
certain cybersecurity protections to our existing information
technology systems and to assist in developing future information
technology systems within our HQ Webconnect software. Insurance
Technologies invoiced the Company $60,000 in 2019 and has
invoiced the Company approximately $50,000 in 2020 pursuant to this
agreement.
Jackson Insurance Agency and Bass Underwriters
Mr. Jackson owns a majority of Jackson Insurance Agency
(“Jackson Insurance”). Mr. Jackson, Mr. Hermanns, and
trusts they set up for the benefit of their children collectively
own a majority of Bass Underwriters, a large managing general agent
("Bass"). Jackson Insurance and Bass brokered Hire Quest
LLC’s property, casualty, general liability, and
cybersecurity insurance prior to the Merger. Since July 15, 2019,
they have brokered these same policies for the Company. Jackson
Insurance, but not Bass, also brokers certain insurance policies on
behalf of some of our franchisees, including the Worlds
Franchisees.
19
Premiums, taxes, and fees paid to Jackson Insurance and Bass for
the Company's 2020 polices were approximately $561,000 to date,
during 2019 were approximately $613,000, during 2018 were
approximately $212,000, and during 2017 were approximately
$146,000. Jackson Insurance and Bass do not retain the majority of
the premiums but they do retain a commission of approximately 9% -
15% of premiums depending on the market. Commissions retained by
Jackson Insect to the premiums for 2020, 2019, and 2018 policies
were $68,000, $54,000, and $20,000 respectively. Commissions
retained by Bass were approximately $5,000, $21,000, and $6,000
respectively.
Dock Square HQ, LLC
Dock Square HQ, LLC (“Dock Square”), an affiliate of
Dock Square Capital, LLC, was a strategic partner of, and 6.5%
investor in, Hire Quest, LLC, then a 93.5% subsidiary of Hire Quest
Holdings, LLC. Prior to the effective time of the Merger, (a) Dock
Square distributed to its direct or indirect members all of its
rights, title and interest in and to its membership interest in
Hire Quest, LLC, and (b) each such member contributed to Hire Quest
Holdings, LLC all of its respective rights, title and interest in
and to its membership interest in Hire Quest, LLC as a capital
contribution in exchange for, in the aggregate, a 6.5% membership
interest in Hire Quest Holdings, LLC. This membership
interest in Hire Quest Holdings, LLC was subsequently exchanged for
shares of the Company’s common stock in the Merger. Those
shares are being offered for resale pursuant to this
prospectus.
As contemplated by the Merger Agreement, on July 15, 2019, the
Company entered into a consulting arrangement with Dock Square.
Pursuant to this consulting arrangement, Dock Square introduces
prospective customers and expands relationships with existing
customers of the Company in return for which it is
eligible to receive unregistered shares of the Company’s
common stock, subject to certain performance metrics and vesting
terms. The grant of any such shares by the Company would be based
on the Company’s gross revenue generated from the services of
Dock Square as measured over a 12 month period. Upon the grant of
any such shares, 50% of such granted shares would vest immediately,
and the remaining 50% of such granted shares would be subject to a
vesting requirement linked to the Company’s gross revenue
generated from the services of Dock Square measured over a 3 year
period. We refer to any such shares as the “Performance
Shares.” We anticipate the maximum aggregate number of
Performance Shares issuable under the consulting arrangement would
not exceed approximately 1.6 million shares. Dock Square would
receive any declared and paid dividends on issued Performance
Shares, including the unvested portion of such shares during the
3-year vesting measurement period, and the issued but unvested
Performance Shares would vest on a change of control of the
Company. In addition, Dock Square received piggy-back registration
rights with respect to its Performance Shares issued and vested at
the time of such registration. As of the date of this prospectus,
no Performance Shares have been granted under the consulting
agreement as the required metrics have not been met.
20
PLAN OF DISTRIBUTION
The
shares of common stock may be sold, from time to time, to
purchasers directly by the selling stockholders and through
underwriters, brokers, dealers or agents who may receive
compensation in the form of discounts, concessions or commissions
from the selling stockholders or the purchasers of the shares of
common stock. In addition, the underwriters, brokers, dealers or
agents or the selling stockholders may agree to pay fees or
commissions to finders. These discounts, concessions or commissions
as to any particular underwriter, broker, dealer or agent may be in
excess of those customary in the types of transactions involved. To
our knowledge, there are currently no plans, arrangements or
understandings between any selling stockholders and any
underwriter, broker, dealer or agent regarding the sale of the
shares of common stock by the selling stockholders. We do not know
when or whether any selling stockholders will sell any or all of
the shares of common stock pursuant to this prospectus. The selling
stockholders will act independently of us in making decisions with
respect to the timing, manner, and size of each sale. In addition,
any shares of common stock covered by this prospectus that qualify
for sale under Rule 144 of the Securities Act of 1933 may be sold
under Rule 144 rather than pursuant to this
prospectus.
The shares of common stock may be sold in one or more transactions
at:
●
fixed
prices;
●
prevailing market
prices at the time of sale;
●
prices related to
the prevailing market prices;
●
varying prices
determined at the time of sale; or
●
negotiated
prices.
The sales may be effected:
●
in ordinary
brokers’ transactions in which the broker-dealer may act as
principal or agent and in transactions in which the broker solicits
purchasers;
●
in transactions on
any national securities exchange, or any quotation service, on
which the shares of common stock may be listed or quoted at the
time of sale;
●
in transactions in
the over-the-counter market;
●
in transactions
otherwise than through market makers or an established trading
market, including direct sales to purchasers or sales effected
through agents;
●
in privately
negotiated transactions;
●
in transactions
through the writing and exercise of options, whether the options
are listed on an options exchange or otherwise;
●
in transactions
through the settlement of short sales;
●
in any combination
of the foregoing transactions; or
●
in any other method
permitted by applicable law.
The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock
covered by this prospectus and, if they default in the performance
of their secured obligations, the pledgees or secured parties may
offer and sell the shares of common stock, from time to time, under
this prospectus or, to the extent required by law, under an
amendment to the registration statement of which this prospectus
forms a part or supplement to this prospectus. The selling
stockholders also may transfer the shares of common stock in other
circumstances. In each of these cases, the transferees, pledgees,
donees, or other successors in interest will become the selling
stockholders for purposes of this prospectus. The number of shares
beneficially owned by a selling stockholder will decrease as and
when it effects any such transfers. The plan of distribution for
the selling stockholders’ shares sold under this prospectus
will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will become the selling
stockholders in this prospectus.
In addition, the selling stockholders may enter into derivative
transactions with third parties. If indicated in a prospectus
supplement, then, in connection with those derivatives, third
parties may sell the shares of common stock covered by this
prospectus and the applicable prospectus supplement, including in
short sale transactions. If so, the third party may use shares of
common stock pledged by a selling stockholder or borrowed from a
selling stockholder or others to settle those sales or to close out
any related open borrowings of stock, and may use shares of common
stock received from a selling stockholder in settlement of those
derivatives to close out any related open borrowings of stock. The
third party in such sale transactions will be an underwriter and
will be identified as an underwriter in a prospectus
supplement.
Some or all of the shares of common stock covered by this
prospectus may be sold to or through an agent, broker-dealer or
underwriter. Any shares sold in that manner may be acquired by the
agent, broker-dealer or underwriter for its own account and may be
resold at different times in one or more transactions, including
negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The
underwriters’, brokers’, dealers’ or
agents’ obligations may be to sell the shares on a
“best efforts” basis, on a
“minimum-maximum” basis, or on such other terms as the
stockholder and the underwriter, broker, dealer or agent may
negotiate. The shares of common stock may be offered to the public
through underwriting syndicates represented by one or more managing
underwriters or may be offered to the public directly by one or
more underwriters. Any public offering price and any discounts or
concessions allowed or paid to dealers may be changed at different
times. Some of the agents, broker-dealers or underwriters and their
associates may be customers of, engage in transactions with and
perform services for us or the selling stockholders in the ordinary
course of business.
21
The aggregate proceeds to the selling stockholders from the sale of
the shares of common stock offered by them will be the purchase
price of the shares of common stock less discounts and commissions,
if any. Each of the selling stockholders reserves the right to
accept and, together with their agents, from time to time, to
reject, in whole or in part, any proposed purchase of the shares of
common stock to be made directly or through agents. We will not
receive any of the proceeds of the sale of the shares of common
stock offered by this prospectus. We have agreed to pay the
expenses in connection with this offering which we estimate to
be $35,435.
To comply with the securities laws of some states, if applicable,
the shares of common stock may be sold in these jurisdictions only
through registered or licensed brokers or dealers.
The selling stockholders and any brokers, dealers or agents who
participate in the distribution of the shares of common stock may
be deemed to be “underwriters” under the securities
laws. As a result, any profits on the sale of the shares of common
stock by selling stockholders and any discounts, commissions or
concessions received by any such broker, dealer or agent might be
deemed to be underwriting discounts or commissions under the
securities laws. If the selling stockholders were to be deemed
underwriters, the selling stockholders may be subject to certain
requirements (including prospectus delivery requirements) and
liabilities including, but not limited to, those under the
securities laws. If the shares of common stock are sold through
underwriters, brokers or dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent
commissions.
We have informed the selling stockholders that they and other
persons participating in any distribution will be subject to the
securities laws and rules, including Regulation M of the Exchange
Act, which may limit the timing of purchases and sales of any of
the shares of common stock by the selling stockholders and any
other persons. In addition, Regulation M of the Exchange Act may
restrict the ability of any person engaged in the distribution of
the shares of common stock to engage in market-making or
stabilization activities with respect to the particular shares of
common stock being distributed during a period beginning up to five
business days prior to the commencement of the distribution and
ending upon completion of such person’s participation in such
distribution. This restriction may affect the marketability of the
shares of common stock and the ability of any person or entity to
engage in market-making or stabilizing activities with respect to
the shares of common stock.
At the time a particular offering of the shares of common stock is
made, and to the extent required, the specific shares of common
stock to be sold, the names of the selling stockholders, the
respective purchase prices and public offering prices, the names of
any agent, dealer or underwriter, and any applicable commissions or
discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which
this prospectus is a part. We will make copies of this prospectus
available to the selling stockholders and have informed the selling
stockholders of the need for delivery of copies of this prospectus
to purchasers at or before the time of any sale of shares of common
stock.
22
DESCRIPTION OF SECURITIES TO BE
REGISTERED
Introduction
The following is a summary of information concerning the capital
stock of the Company. This discussion is subject to the relevant
provisions of Delaware law and is qualified in its entirety by
reference to the Company’s Certificate of Incorporation and
Bylaws. The Company’s Certificate of Incorporation and Bylaws
include more details regarding the provisions described below and
other provisions. The Company has filed copies of those documents
with the SEC.
Authorized Capital Stock
The Company’s authorized capital stock consists of 30,000,000
shares of common stock, par value $0.001 per share (“common
stock”), and 1,000,000 shares of preferred stock, par value
$0.001 per share (“preferred stock”). The stock being
registered by the registration statement, of which this prospectus
forms a part, consists of 9,939,668 shares of common stock issued
to the owners of Hire Quest as and for consideration in the Merger
that closed on July 15, 2019.
Common Stock
Dividends. Holders of shares of
our common stock will be entitled to receive dividends when, as and
if declared by the Company’s Board of Directors (the
“Board”) at its discretion out of funds legally
available for that purpose, subject to the preferential rights of
any outstanding shares of preferred stock. The timing, declaration,
amount and payment of future dividends depends on the
Company’s financial condition, earnings, capital requirements
and debt service obligations, as well as legal requirements,
regulatory constraints, industry practice and other factors that
the Board deems relevant. The Company’s Board makes all
decisions regarding its payment of dividends from time-to-time in
accordance with applicable law.
Voting Rights. The holders of
the Company’s common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
stockholders. With certain exceptions, a majority of the votes cast
at a stockholder meeting at which a quorum is present must approve
all stockholder matters. Except with respect to vacancies or new
directorships, the Company’s Bylaws provide that directors
are elected by a plurality of the votes cast on the election of
directors at a stockholder meeting at which a quorum is present.
The holders of the Company’s common stock do not have
cumulative voting rights for the election of directors or for any
other purpose.
Other Rights. Subject to any
preferential liquidation rights of holders of preferred stock that
may be outstanding, upon the Company’s dissolution, the
holders of common stock will be entitled to share ratably in its
assets legally available for distribution to
the Company’s stockholders. The holders of the common
stock do not have preemptive rights or preferential rights to
subscribe for shares of the Company’s capital
stock.
Fully Paid. The issued and
outstanding shares of common stock are fully paid and
non-assessable. Any additional shares of common stock that may be
issued in the future will also be fully paid and
non-assessable.
Undesignated Preferred Stock
The Company currently has no outstanding shares of preferred stock,
and the Board has no present intention to issue any shares of
preferred stock. The Company is authorized to issue up to 1,000,000
shares of preferred stock in one or more class or series. The
Board, without further action by the holders of the common stock,
may issue shares of preferred stock. The Board is vested with the
authority to fix by resolution the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions of any preferred stock
issued, including, without limitation, redemption rights, dividend
rights, sinking fund provisions, liquidation preferences, and
conversion or exchange rights of any class or series of preferred
stock, and to fix the number of classes or series of preferred
stock, the number of shares constituting each class or series and
the voting powers for each class or series.
Anti-Takeover Provisions of the Company’s Certificate of
Incorporation and Bylaws and Delaware Law
The Company’s Certificate of Incorporation and Bylaws include
a number of provisions that may have the effect of delaying,
deferring or preventing another party from acquiring control of it
and encouraging persons considering unsolicited tender offers or
other unilateral takeover proposals to negotiate with the
Company’s Board rather than pursue non-negotiated takeover
attempts. These provisions include the items described
below.
Filling Vacancies. Any
vacancy on the Board, however occurring, including a vacancy
resulting from an increase in the size of the Board, may be filled
by the affirmative vote of a majority of the Board’s
directors then in office, even if less than a quorum. The treatment
of vacancies may have the effect of making it more difficult for
stockholders to change the composition of the
Board.
Advance Notice Requirements.
The Company’s Bylaws establish advance notice procedures with
regard to stockholder proposals relating to the nomination of
candidates for election as directors or new business to be brought
before meetings of the Company’s stockholders. These
procedures provide that notice of stockholder proposals must be
timely given in writing to the Company’s secretary prior to
the meeting at which the action is to be taken. Generally, to be
timely, notice must be received at the Company’s principal
executive offices not later than the 45th day nor earlier than the
75th day before the one-year anniversary of the date on which the
Company first mailed its proxy materials or a notice of
availability of proxy materials (whichever is earlier) for the
preceding year’s annual meeting. The Company’s Bylaws
specify the requirements as to form and content of all
stockholders’ notices. These requirements may preclude
stockholders from bringing matters before the stockholders at an
annual or special meeting.
23
Choice of Forum. The
Company’s Bylaws provide that, unless consent is given in
writing to an alternative forum, the Court of Chancery of the State
of Delaware (or, if that court does not have jurisdiction, the
federal district court for the District of Delaware) will be the
sole and exclusive forum for (i) any derivative action or
proceeding brought on the Company’s behalf, (ii) any action
asserting a claim of a breach of a fiduciary duty owed by any of
the Company’s directors, officers and employees to the
Company or its stockholders, (iii) any action asserting a claim
pursuant to any provision of the Delaware General Corporation Law,
the Company’s Certificate of Incorporation or Bylaws, or (iv)
any action asserting a claim that is governed by the internal
affairs doctrine. Although the Company believes this provision is
beneficial by providing increased consistency in the application of
Delaware law in the types of lawsuits to which it applies, the
provision may have the effect of discouraging lawsuits against the
Company’s directors and officers.
Section 203 of the Delaware General Corporation
Law. The Company is subject to
the provisions of Section 203 of the Delaware General Corporation
Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an
"interested stockholder" for a three-year period following the time
that this stockholder becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. Under
Section 203, a business combination between a corporation and an
interested stockholder is prohibited unless it satisfies one of the
following conditions:
●
before the stockholder became interested, the
Board approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
●
upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the Company’s
voting stock outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock outstanding,
shares owned by persons who are directors and also officers, and
employee stock plans, in some instances, but not the outstanding
voting stock owned by the interested stockholder;
or
●
at or after the time the stockholder became
interested, the business combination was approved by the Board and
authorized at an annual or special meeting of the stockholders by
the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested
stockholder.
Section 203 defines a business combination to include:
● any merger or consolidation involving the Company
and the interested stockholder;
● any sale, transfer, lease, pledge or other
disposition involving the interested stockholder of 10% or more of
the Company’s our assets;
● subject to exceptions, any transaction that
results in the issuance or transfer by the Company of any of its
stock to the interested stockholder;
● subject to exceptions, any transaction involving
the Company that has the effect of increasing the proportionate
share of the stock of any of the Company’s class or series
beneficially owned by the interested stockholder;
and
● the receipt by the interested stockholder of the
benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the
Company.
In general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding
voting stock of the Company and any entity or person affiliated
with or controlling or controlled by the entity or
person.
Undesignated Preferred Stock.
The Company’s Certificate of Incorporation provides for
1,000,000 authorized shares of Preferred Stock. The existence of
authorized but unissued shares of preferred stock may enable the
Board to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, the
Board were to determine that a takeover proposal is not in the best
interests of the Company’s stockholders, the Board could
cause shares of preferred stock to be issued without stockholder
approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group. In this
regard, the Company’s Certificate of Incorporation grants the
Board broad power to establish the rights and preferences of
authorized and unissued shares of preferred stock. The issuance of
shares of preferred stock could decrease the amount of earnings and
assets available for distribution to holders of shares of common
stock. The issuance may also adversely affect the rights and
powers, including voting rights, of these holders and may have the
effect of delaying, deterring or preventing a change in control of
the Company.
Transfer Agent
Our transfer agent is Continental Stock Transfer & Trust
Company located at 17 Battery Street, 8th Floor, New York, New
York, 10004.
Listing
Our common stock is listed on The NASDAQ Stock Market under the
symbol “HQI”.
24
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon
for us by Hill, Ward & Henderson, P.A., Tampa,
Florida.
EXPERTS
Plante & Moran, PLLC, an independent registered public
accounting firm, has audited our financial statements as of and for
the years ended December 31, 2019 and December 31, 2018, included
in our Annual Report on Form 10-K for the year ended December 31,
2019, as set forth in its report, which is incorporated by
reference in this prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference
in reliance on Plante & Moran, PLLC’s report, given on
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We have
filed with the SEC a registration statement on
Form S-1 under the Securities Act with respect to the
shares of our common stock being registered by this prospectus.
This prospectus is a part of, and does not contain all of the
information set forth in, the registration statement and the
exhibits and schedules to the registration statement, portions of
which have been omitted as permitted by the rules and regulations
of the SEC. For further information with respect to us and our
common stock, please refer to the registration statement, including
its exhibits and schedules. Statements made in this prospectus
relating to any contract or other document filed as an exhibit to
the registration statement include the material terms of such
contract or other document. However, such statements are not
necessarily complete, and you should refer to the exhibits attached
to or incorporated by reference in the registration statement for
copies of the actual contract or document.
Because
we are subject to the information and reporting requirements of the
Exchange Act, we file periodic reports, proxy statements, and other
information with the SEC. Our SEC filings are available to the
public over the Internet at the SEC’s website at www.sec.gov.
Those filings are also available to the public on, or accessible
through, our website under the heading “Invest in
HireQuest” at www.hirequest.com. You may review a copy of the
registration statement by calling the SEC
at 1-800-SEC-0330 as well as on the Internet website
maintained by the SEC at www.sec.gov. Information contained on any
website referenced in this prospectus is not incorporated by
reference in this prospectus.
You
should rely only on the information contained in this prospectus or
to which this prospectus has referred you. We have not authorized
any person to provide you with different information or to make any
representation not contained in this prospectus.
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE
We
“incorporate by reference” certain information into
this registration statement, which means that we disclose important
information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference
is deemed to be part of this prospectus, and relying on the Fixing
America’s Surface Transportation Act, or the FAST Act, as a
smaller reporting company, subsequent information that we file with
the SEC will automatically update and supersede that information.
Any statement contained in a previously filed document incorporated
by reference will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement
contained in this prospectus modifies or replaces that
statement.
We
incorporate by reference our documents listed below and any future
filings made by us with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the termination of the offering,
including documents we may file with the SEC after the date of the
initial registration statement and prior to effectiveness of the
registration statement. We are not, however, incorporating by
reference any documents or portions thereof, whether specifically
listed below or filed in the future, that are not deemed
“filed” with the SEC, including any information
furnished pursuant to Items 2.02 or 7.01 of Form 8-K or related
exhibits furnished pursuant to Item 9.01 of Form 8-K. This
prospectus and any amendments or supplements thereto incorporate by
reference the documents set forth below that have previously been
filed with the SEC:
● Our Annual
Report on Form 10-K for the year ended December 31, 2019 filed with
the SEC on March 30, 2020;
● Our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020
filed with the SEC on May 11, 2020;
● Our Current
Report on Form 8-K filed with the SEC on April 7, 2020;
and
● Our
Definitive Proxy Statement on Schedule 14A filed with the SEC on
April 29, 2020.
25
You
should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have
not authorized anyone else to provide you with any information. You
should not assume that the information incorporated by reference or
provided in this prospectus is accurate as of any date other than
the date on the front of each document. Any stockholder, including
any beneficial owner, may request a free copy of any or all of the
reports or documents incorporated by reference in this prospectus
(other than exhibits, unless they are specifically incorporated by
reference in the documents) by writing or telephoning us at the
following address:
HireQuest,
Inc.
111
Springhall Drive
Goose
Creek, SC 29445
Attn:
John D. McAnnar, Corporate Secretary
(843)
723-7400
We also
maintain a website at www.hirequest.com where incorporated reports
or other documents filed with the SEC may be accessed. We have not
incorporated by reference into this prospectus the information
contained in, or that can be accessed through, our website, and you
should not consider it to be part of this prospectus. For other
ways to obtain a copy of these filings, please refer to
“Where You Can Find More Information”
above.
26
PRELIMINARY
PROSPECTUS
9,939,668
Shares
HireQuest,
Inc.
Common
Stock
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth all estimated costs and expenses, other
than underwriting discounts, commissions and expense allowances,
payable by the issuer in connection with the maximum offering for
the securities included in this registration
statement:
|
Expenses
|
Amount
|
|
SEC Registration
Fee
|
$7,935
|
|
Legal
Fees*
|
15,000
|
|
Accounting and
Audit Fees*
|
10,000
|
|
Electronic Filing
and Printing*
|
1,500
|
|
Transfer
Agent*
|
1,000
|
|
Total*
|
$35,435
|
None of
the above expenses of issuance and distribution will be borne by
the selling stockholders. The selling stockholders, however, will
pay any other expenses incurred in selling their common stock,
including any brokerage commissions or costs of sale. Our Company
does not expect to pay any underwriting discounts, commissions, or
expense allowances.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Section 102
of the General Corporation Law of the State of Delaware
(“DGCL”) permits a corporation to eliminate the
personal liability of directors of a corporation to the corporation
or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except where the director breached his or her
duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the
payment of a dividend or approved a stock repurchase in violation
of Delaware corporate law or obtained an improper personal benefit.
Our bylaws state that none of our directors shall be personally
liable to us or our stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any
provision of law imposing such liability, except to the extent that
the General Corporation Law of the State of Delaware prohibits the
elimination or limitation of liability of directors for breaches of
fiduciary duty.
Section 145 of the DGCL provides that a corporation has the
power to indemnify a director, officer, employee, or agent of the
corporation, or a person serving at the request of the corporation
for another corporation, partnership, joint venture, trust or other
enterprise in related capacities, against expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with an action, suit or proceeding to which he or she
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by
reason of such position, if such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal action
or proceeding, had no reasonable cause to believe his or her
conduct was unlawful, except that, in the case of actions brought
by or in the right of the corporation, no indemnification shall be
made with respect to any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or other
adjudicating court determines that, despite the adjudication
of
liability but in view of all of the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem
proper.
The registrant’s certificate of incorporation provides that,
HireQuest, Inc. ("the Company," "we," "us," or "our") shall
indemnify, to the fullest extent permitted by applicable law, any
of our directors or officers who was or is a party or is threatened
to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (a “Proceeding”) by reason of the fact
that he or she is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against
expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such
person in connection with any such Proceeding. We shall be required
to indemnify a person in connection with a Proceeding initiated by
such person only if the Proceeding was authorized by the Board of
Directors. We shall have the power to indemnify, to the extent
permitted by applicable law, any employee or agent of the
Corporation who was or is a party or is threatened to be made a
party to any Proceeding by reason of the fact that he or she is or
was a director, officer, employee or agent of the Corporation or is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with any such Proceeding.
Article 8 of the registrant’s bylaws provides that we will
indemnify, to the fullest extent authorized by the DGCL, each
person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the
fact that he or she is or was a director or officer of the
registrant, if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such
person’s conduct was unlawful.
II-1
In addition to the above, the registrant has entered into
indemnification agreements with each of our directors and officers.
These indemnification agreements provide the registrant’s
directors and officers with the same indemnification and
advancement of expenses as described above, and provide that our
directors and officers will be indemnified to the fullest extent
authorized by any future Delaware law that expands the permissible
scope of indemnification. The registrant also has directors’
and officers’ liability insurance, which provides coverage
against certain liabilities that may be incurred by the
registrant’s directors and officers in their capacities as
directors and officers of the registrant.
Disclosure of SEC Position on Indemnification for Securities Act
Liabilities
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED
SECURITIES
On July 15, 2019, Command Center, Inc. ("Command Center") completed
its acquisition of Hire Quest Holdings, LLC, a Florida limited
liability company (“Hire Quest”), in accordance with
the terms of the Agreement and Plan of Merger dated April 8, 2019
(the “Merger Agreement”) among Command Center, CCNI
One, Inc., a wholly-owned subsidiary of Command Center
(“Merger Sub 1”), Command Florida, LLC, a wholly-owned
subsidiary of Command Center (“Merger Sub 2”), Hire
Quest, and solely for purposes of Sections 5.20(c), 5.20(e) and
5.23 of the Merger Agreement, Richard Hermanns as the
representative of the members. In accordance with the Merger
Agreement, (i) Merger Sub 1 was merged with and into Hire Quest
(the “First Merger”), with Hire Quest being the
surviving entity (the “First Surviving Company”), and
(ii) immediately following the First Merger, the First Surviving
Company was merged with and into Merger Sub 2 (the “Second
Merger” and, together with the First Merger, the
“Merger”), with Merger Sub 2 being the surviving entity
(the “Surviving Company”).
Upon the closing of the Merger, all of the ownership interests in
Hire Quest were converted into the right to receive an aggregate
number of shares representing 68% of the shares of the Command
Center’s common stock outstanding immediately after the
effective time of the Merger. The 9,939,668 being registered
by this Registration Statement were issued to the selling
stockholders as and for consideration for the Merger. Command Center subsequently was renamed HireQuest,
Inc.
The
issuances of the securities in the transaction described above were
deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(a)(2) of the Securities Act and/or
Rule 506 thereunder. The securities were issued directly by us and
did not involve a public offering or general solicitation. The
recipients of such securities represented their intentions to
acquire the securities for investment purposes only and not with a
view to, or for sale in connection with, any distribution
thereof.
This
transaction did not involve any underwriters, underwriting
discounts or commissions or any public offering. All recipients had
adequate access, through their relationships with us, to
information about us. The sales of these securities were made
without any general solicitation or advertising.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) Exhibits
The
exhibit index attached hereto is incorporated herein by
reference.
All
schedules have been omitted because the information required to be
set forth in the schedules is either not applicable or is shown in
the financial statements or notes thereto which have been
incorporated by reference into this document.
II-2
ITEM 17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
|
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(A) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(B) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(C) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that
paragraphs (1)(A), (1)(B) and (1)(C) do not apply if the
information required to be included in a post-effective amendment
by those paragraphs is contained in reports filed with or furnished
to the SEC by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement, or is
contained in a form of prospectus filed pursuant to
Rule 424(b) that is part of the registration
statement.
(2)
That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment to this
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
|
(4)
That, for the purpose of determining liability of the registrant
under the Securities Act of 1933 to any purchaser,
each prospectus filed
pursuant to Rule 424(b) as part of a registration statement
relating to an offering shall be deemed to be part of and included
in the registration statement as of the date it is first used after
effectiveness, provided,
however, that no statement
made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
|
(5) The
undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant’s annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan’s
annual report pursuant to section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
|
II-3
INDEX
TO EXHIBITS
|
Exhibit No.
|
|
Description
|
|
|
Agreement
and Plan of Merger, dated April 8, 2019, by and among Command
Center, Inc., CCNI One, Inc., Command Florida, LLC, Hire Quest
Holdings, LLC and Richard Hermanns as Member
Representative. (incorporated by reference to Exhibit 2.1 to
the Company’s Current Report on Form 8-K, filed with the SEC
on April 9, 2019).
|
|
|
|
Plan of
Conversion, dated September 9, 2019 (incorporated by reference to
Exhibit 2.1 to the Company’s Current Report on Form 8-K,
filed with the SEC on September 9, 2019).
|
|
|
|
Certificate
of Conversion, as filed with the Secretary of State of the State of
Delaware on September 9, 2019 (incorporated by reference to Exhibit
3.1 to the Company’s Current Report on Form 8-K, filed with
the SEC on September 9, 2019).
|
|
|
|
Certificate
of Incorporation, as filed with the Secretary of State of the State
of Delaware on September 9, 2019 (incorporated by reference to
Exhibit 3.2 to the Company’s Current Report on Form 8-K,
filed with the SEC on September 9, 2019).
|
|
|
|
Cover
Sheet for Conversion of Business Entity and Articles of Conversion,
as filed with the Secretary of State of Washington on September 11,
2019 (incorporated by reference to Exhibit 3.3 to the
Company’s Current Report on Form 8-K, filed with the SEC on
September 9, 2019) .
|
|
|
|
Bylaws,
effective September 11, 2019 (incorporated by reference to Exhibit
3.4 to the Company’s Current Report on Form 8-K, filed with
the SEC on September 9, 2019).
|
|
|
|
Form of
Common Stock Share Certificate (incorporated by reference to
Exhibit 4.1 to the Company’s Annual Report on Form 10-K,
filed with the SEC on March 20, 2020).
|
|
|
5.1*
|
|
Opinion
of Hill, Ward & Henderson, P.A.
|
|
|
Executive
Employment Agreement, dated as of June 5, 2019, between Command
Center, Inc. and Cory Smith (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed with
the SEC on June 10, 2019).
|
|
|
|
Employment
Agreement among HQ LTS Corporation, the Company, and Richard
Hermanns (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed with the SEC on
September 26, 2019).
|
|
|
|
Employment
Agreement among HQ LTS Corporation, the Company, and John D.
McAnnar (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K, filed with the SEC on
September 26, 2019).
|
|
|
|
Loan
Agreement, dated as of July 11, 2019, by and among Branch Banking
and Trust Company, Command Center, Inc., Command Florida, LLC, Hire
Quest, L.L.C., HQ LTS Corporation, HQ Real Property Corporation, HQ
Insurance Corporation, HQ Financial Corporation and HQ Franchising
Corporation (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on
July 17, 2019).
|
|
|
|
Form of
Indemnification Agreement (Directors and Officers) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on September 9, 2019).
|
|
|
|
2019
HireQuest, Inc. Non-Employee Director Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on September 26,
2019).
|
|
|
|
Addendum
to Employment Agreement between the Company and Cory Smith
(incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K, filed with the SEC on September 26,
2019).
|
|
|
|
Consulting
Agreement, dated as of July 15, 2019, by and between Command
Center, Inc. and Dock Square HQ, LLC (incorporated by reference to
Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q,
filed with the SEC on November 13, 2019).
|
|
|
|
2016
Stock Incentive Plan (incorporated by reference to Appendix B
included in the Company's Definitive Proxy Statement on Schedule
14A, filed with the SEC on October 11, 2016).
|
|
|
|
Form of
Restricted Stock Award Agreement (incorporated by reference to
Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q,
filed with the SEC on November 13, 2019).
|
|
|
|
Form of
Asset Purchase Agreement (incorporated by reference to Exhibit
10.12 to the Company's Quarterly Report on Form 10-Q, filed with
the SEC on November 13, 2019).
|
|
|
|
List of
Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Company’s Annual Report on Form 10-K, filed with
the SEC on March 30, 2020).
|
|
|
23.1*
|
|
Consent
of Hill Ward Henderson, P.A. (included in Exhibit
5.1).
|
|
|
Consent
of Plante & Moran, PLLC
|
|
|
24.1
|
|
Power
of Attorney (included on the signature page to this Registration
Statement).
|
* To be
filed by amendment.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in
Goose Creek, South Carolina on the 5th day of June, 2020.
HIREQUEST, INC.
|
/s/ Richard F. Hermanns
|
|
Richard F. Hermanns
|
|
Signature
|
|
Printed Name
|
|
President, Chief Executive Officer, Chairman
|
|
|
|
(Principal Executive Officer)
|
|
|
POWER OF ATTORNEY
We, the undersigned officers and directors of HIREQUEST, INC.,
hereby severally constitute and appoint Richard F. Hermanns, our
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for us and in our stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all
documents relating thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in
the capacities indicated on the 5th day of June, 2020.
|
/s/ Richard F. Hermanns
|
|
Richard F. Hermanns
|
|
Signature
|
|
Printed Name
|
|
President, Chief Executive Officer, Chairman
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ Cory Smith
|
|
Cory Smith
|
|
Signature
|
|
Printed Name
|
|
Treasurer, Chief Financial Officer
|
|
|
|
(Principal Financial and Accounting Officer)
|
||
|
|
|
|
|
/s/ JD Smith
|
|
JD Smith
|
|
Signature
|
|
Printed Name
|
|
Director
|
|
|
|
|
|
|
|
/s/ R. Rimmy Malhotra
|
|
R. Rimmy Malhotra
|
|
Signature
|
|
Printed Name
|
|
Director
|
|
|
|
|
|
|
|
/s/ Kathleen Shanahan
|
|
Kathleen Shanahan
|
|
Signature
|
|
Printed Name
|
|
Director
|
|
|
|
|
|
|
|
/s/ Payne Brown
|
|
Payne Brown
|
|
Signature
|
|
Printed Name
|
|
Director
|
|
|
|
|
|
|
|
/s/ Lawrence Hagenbuch
|
|
Lawrence Hagenbuch
|
|
Signature
|
|
Printed Name
|
|
Director
|
|
|
|
|
|
|
|
/s/ Edward Jackson
|
|
Edward Jackson
|
|
Signature
|
|
Printed Name
|
|
Director
|
|
|
II-5
CONSENT OF INDEPENDENT AUDITORS
We
consent to the incorporation by reference of our report dated March
30, 2020 on the financial statements of HireQuest, Inc. for the
years ended December 31, 2019 and 2018 in the S-1 Registration
Statement filed on June 5, 2020 for the registration of 9,939,668
shares of its common stock. We also consent to the reference to us
under the heading “Experts” in the Prospectus, which is
part of the registration statement.
/s/
Plante & Moran,
PLLC
Denver,
Colorado
June 5,
2020