Attached files
| file | filename |
|---|---|
| 8-K/A - PRIMARY DOCUMENT - HireQuest, Inc. | hqi8-ksnelling.htm |
| EX-99.2 - ADDITIONAL EXHIBITS - HireQuest, Inc. | exh992snellingfinancials.htm |
| EX-99.1 - ADDITIONAL EXHIBITS - HireQuest, Inc. | exh991snellingaudit.htm |
| EX-23.1 - CONSENTS OF EXPERTS AND COUNSEL - HireQuest, Inc. | exh231consent.htm |
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Financial
Information
The following unaudited pro forma financial information presents
the unaudited pro forma condensed combined balance sheet and
unaudited pro forma condensed combined statements of income based
upon the combined historical financial statements of HireQuest,
Inc. (“HQI” or the “Company”) and Snelling
Staffing, LLC (“Snelling”), after giving effect to the
Asset Purchase Agreement (the “Snelling Agreement”)
between Snelling and HQ Snelling Corporation (“HQ
Snelling”), a wholly-owned subsidiary of the Company, and the
adjustments described in the accompanying notes.
On March 1, 2021, the Company completed its acquisition of certain
assets of Snelling in accordance with the terms of the Snelling
Agreement dated January 29, 2021. Pursuant to the Snelling
Agreement, HQ Snelling acquired substantially all of the operating
assets and assumed certain liabilities of Snelling for a purchase
price of $17.3 million, subject to customary adjustments for net
working capital. The transaction will be financed with cash-on-hand
and the Company’s credit facility with Truist
Bank.
The unaudited pro forma condensed combined balance sheet as of
September 30, 2020 reflects the transaction as if it occurred on
September 30, 2020. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 2019
and for the three and nine months ended September 30, 2020 reflect
the transaction as if it occurred on January 1, 2019.
The unaudited pro forma condensed combined financial information is
for informational purposes only and does not purport to present
what our results would actually have been had these transactions
actually occurred on the dates presented or to project our results
of operations or financial position for any future period. You
should read the information set forth below together with the notes
to the pro forma condensed combined financial statements, the
Annual Report of the Company on Form 10-K for the year ended
December 31, 2019 and the Quarterly Report of the Company on Form
10-Q for the nine months ended September 30, 2020, and the audited
financial statements of Snelling for the fiscal years ended
December 27, 2019 and December 28, 2018 and the unaudited financial
statements for the fiscal quarters ended September 25, 2020 and
September 27, 2019 included as Exhibit 99.1.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2020
|
|
HireQuest,
Inc.
|
Snelling Staffing, LLC
|
Pro forma adjustments
|
Pro forma condensed combined
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
|
$10,297,147
|
$781,378
|
$(10,381,378)
|
A
|
$697,147
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
24,024,564
|
12,781,033
|
(256,343)
|
B
|
36,549,254
|
|
Notes
receivable
|
2,144,118
|
-
|
-
|
|
2,144,118
|
|
Prepaid expenses,
deposits, and other assets
|
1,179,333
|
1,147,134
|
(870,493)
|
C
|
1,455,974
|
|
Prepaid workers'
compensation
|
1,978,509
|
-
|
-
|
|
1,978,509
|
|
Workers'
compensation trust
|
-
|
7,193,529
|
(7,193,529)
|
D
|
-
|
|
Total current
assets
|
39,623,671
|
21,903,074
|
(18,701,743)
|
|
42,825,002
|
|
Property and
equipment, net
|
2,958,998
|
1,075,316
|
(1,075,316)
|
D
|
2,958,998
|
|
Intangible assets,
net
|
186,705
|
4,502,628
|
6,226,378
|
E
|
10,915,711
|
|
Notes receivable,
net of current portion and reserve
|
6,377,779
|
-
|
-
|
|
6,377,779
|
|
Other
assets
|
-
|
295,979
|
(295,979)
|
D
|
-
|
|
Total
assets
|
$49,147,153
|
$27,776,997
|
$(13,846,660)
|
|
$63,077,490
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
||
|
Current
liabilities
|
|
|
|
|
|
|
Accounts
payable
|
$5,499
|
$2,527,630
|
$(2,288,551)
|
F
|
$244,578
|
|
Other current
liabilities
|
1,664,854
|
8,156,281
|
(8,156,281)
|
D
|
1,664,854
|
|
Accrued benefits
and payroll taxes
|
2,088,119
|
-
|
-
|
|
2,088,119
|
|
Due to
franchisees
|
2,311,372
|
458,782
|
-
|
|
2,770,154
|
|
Risk management
incentive program liability
|
1,018,994
|
-
|
-
|
|
1,018,994
|
|
Revolving line of
credit
|
-
|
-
|
7,700,000
|
G
|
7,700,000
|
|
Current portion of
debt
|
-
|
47,663,416
|
(47,663,416)
|
D
|
-
|
|
Workers'
compensation claims liability
|
3,165,056
|
2,218,409
|
-
|
|
5,383,465
|
|
Total current
liabilities
|
10,253,894
|
61,024,518
|
(50,408,248)
|
|
20,870,164
|
|
Workers'
compensation claims liability, net of current portion
|
1,743,128
|
3,314,067
|
-
|
|
5,057,195
|
|
Franchisee
deposits
|
1,459,335
|
-
|
-
|
|
1,459,335
|
|
Debt, net of
current portion
|
-
|
25,006
|
(25,006)
|
D
|
-
|
|
Other long-term
liabilities
|
-
|
4,549,337
|
(4,549,337)
|
D
|
-
|
|
Deferred tax
liability
|
273,185
|
-
|
-
|
|
273,185
|
|
Total
liabilities
|
13,729,542
|
68,912,928
|
(54,982,591)
|
|
27,659,879
|
|
Equity
|
|
|
|
|
|
|
Total HireQuest,
Inc. stockholders equity
|
35,417,611
|
-
|
-
|
|
35,417,611
|
|
Total Snelling
member equity
|
-
|
(41,135,931)
|
41,135,931
|
H
|
-
|
|
Total stockholders'
equity
|
35,417,611
|
(41,135,931)
|
41,135,931
|
|
35,417,611
|
|
Total liabilities
and stockholders' equity
|
$49,147,153
|
$27,776,997
|
$(13,846,660)
|
|
$63,077,490
|
See
notes to pro forma condensed combined financial
statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for
the
Three Months Ended September 30, 2020
|
|
HireQuest, Inc.
|
Snelling Staffing, LLC
|
Pro forma adjustments
|
Pro forma condensed combined
|
|
|
Franchise
royalties/Revenue
|
$3,218,606
|
$21,378,487
|
$-
|
|
$24,597,093
|
|
Cost
of sales
|
-
|
16,322,627
|
-
|
|
16,322,627
|
|
Service
revenue
|
164,074
|
-
|
-
|
|
164,074
|
|
Total
revenue
|
3,382,680
|
5,055,860
|
-
|
|
8,438,540
|
|
Selling,
general and administrative expenses
|
1,357,725
|
4,836,389
|
-
|
|
6,194,114
|
|
Depreciation
and amortization
|
32,438
|
123,826
|
178,817
|
A
|
335,081
|
|
Income
(loss) from operations
|
1,992,517
|
95,645
|
(178,817)
|
|
1,909,345
|
|
Other
miscellaneous income
|
392,709
|
-
|
-
|
|
392,709
|
|
Interest
and other financing expense
|
(10,035)
|
(1,214,405)
|
-
|
|
(1,224,440)
|
|
Net income (loss)
before income taxes
|
2,375,191
|
(1,118,760)
|
(178,817)
|
|
1,077,614
|
|
Provision for
income taxes
|
404,058
|
22,500
|
43,989
|
B
|
470,547
|
|
Net income
(loss)
|
$1,971,133
|
$(1,141,260)
|
$(222,806)
|
|
$607,067
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
Basic
|
$0.15
|
|
|
|
$0.04
|
|
Diluted
|
$0.15
|
|
|
|
$0.04
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
Basic
|
13,573,086
|
|
|
|
13,573,086
|
|
Diluted
|
13,574,863
|
|
|
|
13,574,863
|
See
notes to pro forma condensed combined financial
statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for
the
Nine Months Ended September 30, 2020
|
|
HireQuest, Inc.
|
Snelling Staffing, LLC
|
Pro forma adjustments
|
Pro forma condensed combined
|
|
|
Franchise
royalties
|
$9,563,135
|
$64,768,429
|
$-
|
|
$74,331,564
|
|
Cost
of sales
|
-
|
49,894,333
|
-
|
|
49,894,333
|
|
Service
revenue
|
840,515
|
-
|
-
|
|
840,515
|
|
Total
revenue
|
10,403,650
|
14,874,096
|
-
|
|
25,277,746
|
|
Selling,
general and administrative expenses
|
6,542,171
|
15,004,723
|
-
|
|
21,546,894
|
|
Depreciation
and amortization
|
96,654
|
407,521
|
536,450
|
A
|
1,040,625
|
|
Income
(loss) from operations
|
3,764,825
|
(538,148)
|
(536,450)
|
|
2,690,227
|
|
Other
miscellaneous income
|
932,254
|
-
|
-
|
|
932,254
|
|
Interest
and other financing expense
|
(39,174)
|
(3,625,810)
|
-
|
|
(3,664,984)
|
|
Net income before
income taxes
|
4,657,905
|
(4,163,958)
|
(536,450)
|
|
(42,503)
|
|
Provision for
income taxes
|
654,592
|
67,500
|
131,967
|
B
|
854,059
|
|
Net income
(loss)
|
$4,003,313
|
$(4,231,458)
|
$(668,417)
|
|
$(896,562)
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
Basic
|
$0.30
|
|
|
|
$(0.07)
|
|
Diluted
|
$0.30
|
|
|
|
$(0.07)
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
Basic
|
13,551,507
|
|
|
|
13,551,507
|
|
Diluted
|
13,553,619
|
|
|
|
13,553,619
|
See
notes to pro forma condensed combined financial
statements.
HireQuest,
Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for
the
Year Ended December 31, 2019
|
|
HireQuest, Inc.
|
Snelling Staffing, LLC
|
Pro forma adjustments
|
Pro forma condensed combined
|
|
|
Franchise
royalties
|
$14,673,636
|
$123,344,233
|
$-
|
|
$138,017,869
|
|
Cost
of sales
|
-
|
91,571,809
|
-
|
|
91,571,809
|
|
Service
revenue
|
1,202,824
|
-
|
-
|
|
1,202,824
|
|
Total
revenue
|
15,876,460
|
31,772,424
|
-
|
|
47,648,884
|
|
Selling,
general and administrative expenses
|
12,692,297
|
27,803,694
|
-
|
|
40,495,991
|
|
Depreciation
and amortization
|
400,132
|
607,706
|
715,267
|
A
|
1,723,105
|
|
Income
(loss) from operations
|
2,784,031
|
3,361,024
|
(715,267)
|
|
5,429,788
|
|
Other
miscellaneous income
|
751,077
|
-
|
-
|
|
751,077
|
|
Interest
and other financing expense
|
(559,585)
|
(4,519,991)
|
-
|
|
(5,079,576)
|
|
Net income before
income taxes
|
2,975,523
|
(1,158,967)
|
(715,267)
|
|
1,101,289
|
|
Provision for
income taxes
|
3,480,996
|
78,825
|
175,956
|
B
|
3,735,777
|
|
Net
loss from continuing operations
|
$(505,473)
|
$(1,237,792)
|
$(891,223)
|
|
$(2,634,488)
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
|
|
|
Continuing
operations
|
$(0.05)
|
|
|
|
$(0.21)
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
11,588,776
|
|
|
|
11,588,776
|
See
notes to pro forma condensed combined financial
statements.
HireQuest, Inc.
Notes to Pro Forma Condensed Combined Financial
Statements.
Note 1 – Basis of Presentation
The historical financial information has been adjusted to give pro
forma effect to events that are directly attributable to the
Snelling Agreement and expected to have a continuing impact on the
combined results. The pro forma adjustments are preliminary and
based on estimates. They have been prepared to illustrate the
estimated effect of the Link Agreement and certain other
adjustments.
Note 2 – Preliminary Purchase Price Allocation
Under the purchase method of accounting, the total purchase price
of $17.3 million allocated to the tangible and intangible assets
acquired and liabilities assumed by the Company based on their
preliminary estimated fair values. The fair value assessments are
preliminary and are based upon available information and certain
assumptions which the Company believes are reasonable. Actual
results may differ materially from the unaudited pro forma
condensed combined financial statements.
|
Description
|
Amount
|
|
Fair
value of franchise agreements assumed
|
$10,729,006
|
|
Accounts
receivable
|
12,524,690
|
|
Other
current assets
|
276,641
|
|
Current portion of
workers' compensation claims liability
|
(2,218,409)
|
|
Other
current liabilities
|
(697,861)
|
|
Workers'
compensation claims liability, net of current portion
|
(3,314,067)
|
|
Total
allocated purchase price
|
$17,300,000
|
The preliminary purchase price as shown in the table above is
allocated to the tangible and intangible assets acquired and
liabilities assumed by the Company based on their preliminary
estimated fair values. The fair value assessments are preliminary
and are based upon available information and certain assumptions
which the Company believes are reasonable. Actual results may
differ materially from the unaudited pro forma condensed combined
financial statements.
Note 3 – Adjustments to the Unaudited Pro Forma Condensed
Combined Balance Sheet
(A) -Adjustments to cash:
|
Description
|
Amount
|
|
Borrowing
on line of credit
|
$7,700,000
|
|
Cash
consideration paid for Snelling Staffing, LLC
|
(17,300,000)
|
|
Snelling
cash balance not acquired
|
(781,378)
|
|
Pro
forma adjustment to cash
|
$(10,381,378)
|
(B) -
Accounts receivable not acquired.
(C) - Adjustments to prepaid expenses, deposits and other
assets:
|
Description
|
Amount
|
|
Snelling
prepaid expenses, deposits and other assets
|
$(1,147,134)
|
|
Prepaid
rents and rent deposits assumed
|
276,641
|
|
Pro
forma adjustment to accounts receivable
|
$(870,493)
|
(D) -
Assets not acquired and liabilities not assumed pursuant to the
Snelling Agreement.
(E) - Adjustments to intangible assets:
|
Description
|
Amount
|
|
Fair
value of franchisee agreements assumed
|
$10,729,006
|
|
Snelling
intangible assets not acquired
|
(4,502,628)
|
|
Pro
forma adjusted intangible assets
|
$6,226,378
|
(F) - Adjustments to accounts payable:
|
Description
|
Amount
|
|
Snelling
accounts payable
|
$(2,527,630)
|
|
Accounts
payable assumed in Snelling Agreement
|
239,079
|
|
Pro
forma adjustment to accounts payable
|
$(2,288,551)
|
(G) - Borrowing to facilitate Snelling
transaction.
(H) - Adjustment to Snelling’s historical
equity.
Note 4 – Adjustments to the Unaudited Pro Forma Condensed
Combined Statement of Income
(A) -The newly acquired intangible assets consisting of franchise
agreements will be amortized on a straight-line basis over their
estimated useful lives. The fair value assessment is preliminary
and any changes to the preliminary values will have a direct impact
on future earnings via amortization expense.
|
Description
|
Estimated fair value
|
Estimated useful life
|
Three months ended September 30, 2020
|
Nine months ended September 30, 2020
|
Year ended December 31, 2019
|
|
Franchise
agreements
|
$10,729,006
|
15 Years
|
$178,817
|
$536,450
|
$715,267
|
|
Pro
forma adjustment to amortization expense
|
|
|
$178,817
|
$536,450
|
$715,267
|
(B)
- To record the income tax impact of the pro forma adjustments (A)
above.
|
Description
|
Three months ended September 30, 2020
|
Nine months ended September 30, 2020
|
Year ended December 31, 2019
|
|
Pro
forma change in income before income tax
|
$178,817
|
$536,450
|
$715,267
|
|
Combined
Federal and State statutory rate
|
24.6%
|
24.6%
|
24.6%
|
|
Sub-total
|
$43,989
|
$131,967
|
$175,956
|