Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 29, 2019 | Nov. 11, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | HireQuest, Inc. | |
Entity Central Index Key | 0001140102 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 29, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-29 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 13,481,084 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2019 |
Statement - Consolidated Conden
Statement - Consolidated Condensed Balance Sheets (Unaudited) - USD ($) | Sep. 29, 2019 | Dec. 28, 2018 |
Current assets | ||
Cash and restricted cash | $ 1,528,334 | $ 1,291,317 |
Accounts receivable, net of allowance for doubtful accounts | 35,710,057 | 20,725,170 |
Notes receivable, net of reserve | 4,527,645 | 0 |
Prepaid expenses, deposits and other | 492,676 | 0 |
Prepaid workers' compensation | 1,254,671 | 0 |
Due from affiliates | 114 | 209,685 |
Current assets of discontinued operations | 2,256,960 | 0 |
Total current assets | 45,770,857 | 22,226,172 |
Property and equipment, net | 2,097,605 | 2,045,881 |
Notes receivable, net of current portion | 10,500,455 | 85,500 |
Deposits and other assets | 0 | 8,334 |
Right-of-use assets | 174,461 | 0 |
Total assets | 58,543,377 | 24,365,887 |
Current liabilities | ||
Accounts payable | 39,234 | 53,435 |
Line of credit | 6,889,848 | 0 |
Other current liabilities | 8,076,594 | 1,947,551 |
Accrued wages and benefits | 1,989,158 | 504,035 |
Due to affiliates | 85,605 | 7,740,083 |
Due to franchisees | 5,338,721 | 620,385 |
Current portion of lease liability | 151,900 | 0 |
Current portion of workers' compensation claims liability | 1,189,132 | 0 |
Current liabilities of discontinued operations | 77,154 | 0 |
Total current liabilities | 23,837,346 | 10,865,489 |
Workers compensation claims liability, less current portion | 1,081,819 | 0 |
Franchisee deposits | 1,433,163 | 767,509 |
Deferred tax liability | 3,080,184 | 0 |
Lease liability, less current portion | 48,315 | 0 |
Total liabilities | 29,480,827 | 11,632,998 |
Commitments and contingencies (Note 9) | ||
Stockholders' equity | ||
Preferred stock - $0.001 par value, 1,000,000 shares authorized; none issued | 0 | 0 |
Common stock - $0.001 par value, 30,000,000 shares authorized; 13,472,334 and 9,939,668 shares issued and outstanding, respectively | 13,472 | 9,940 |
Additional paid-in capital | 25,861,985 | 6,938,953 |
Retained earnings | 3,187,093 | 5,783,996 |
Total stockholders' equity | 29,062,550 | 12,732,889 |
Total liabilities and stockholders' equity | $ 58,543,377 | $ 24,365,887 |
Statement - Consolidated Cond_2
Statement - Consolidated Condensed Balance Sheets (Parenthetical) - $ / shares | Sep. 29, 2019 | Dec. 28, 2018 |
Stockholders' equity | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 1,000,000 | 1,000,000 |
Preferred stock shares issued | 0 | 0 |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 30,000,000 | 30,000,000 |
Common stock shares issued | 13,472,334 | 9,939,668 |
Common stock shares outstanding | 13,472,334 | 9,939,668 |
Consolidated Condensed Statemen
Consolidated Condensed Statements of Income (Operations) (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 29, 2019 | Sep. 30, 2018 | Sep. 29, 2019 | Sep. 30, 2018 | |
Gross profit | $ 3,380,520 | $ 2,342,108 | $ 10,094,407 | $ 8,794,462 |
Selling, general, and administrative expenses | 7,393,380 | 1,270,547 | 9,817,245 | 3,980,006 |
Depreciation and amortization | 40,200 | 8,428 | 75,630 | 26,357 |
Income (loss) from operations | (4,053,060) | 1,063,133 | 201,532 | 4,788,099 |
Other miscellaneous income | 417,188 | 29,096 | 661,077 | 148,684 |
Interest and other financing expense | (106,461) | (13,057) | (521,838) | (14,697) |
Net income (loss) before income taxes | (3,742,333) | 1,079,172 | 340,771 | 4,922,086 |
Provision for income taxes | 4,716,731 | 13,783 | 4,816,337 | 35,678 |
Income (loss) income from continuing operations | (8,459,064) | 1,065,389 | (4,475,566) | 4,886,408 |
Income from discontinued operations, net of tax | 682,674 | 20,246 | 722,756 | 40,561 |
Net income (loss) | $ (7,776,390) | $ 1,085,635 | $ (3,752,810) | $ 4,926,969 |
Earnings per share - basic and diluted: | ||||
Continuing operations | $ (.65) | $ 0.11 | $ (.41) | $ 0.49 |
Discontinued operations | .05 | .00 | .07 | 0.01 |
Basic and diluted net income (loss) per share | $ (0.60) | $ 0.11 | $ (.34) | $ .50 |
Weighted average shares outstanding: | ||||
Basic and diluted | 12,927,634 | 9,939,668 | 10,939,318 | 9,939,668 |
Franchise Royalties | ||||
Revenue | $ 3,139,158 | $ 2,175,960 | $ 9,276,714 | $ 8,032,132 |
Service Revenue | ||||
Revenue | $ 241,362 | $ 166,148 | $ 817,693 | $ 762,330 |
Consolidated Statements of Chan
Consolidated Statements of Changes in Shareholders' Equity - USD ($) | Common Stock | Additional Paid-in Capital | Retained Earnings | Total |
Beginning balance, shares at Dec. 29, 2017 | 9,939,668 | |||
Beginning balance at Dec. 29, 2017 | $ 9,940 | $ 6,938,953 | $ 5,683,223 | $ 12,632,116 |
Net (distributions) contributions | (4,252,105) | (4,252,105) | ||
Net income (loss) | 4,926,969 | 4,926,969 | ||
Ending balance, shares at Sep. 30, 2018 | 9,939,668 | |||
Ending balance at Sep. 30, 2018 | $ 9,940 | 6,938,953 | 6,358,086 | 13,306,979 |
Beginning balance, shares at Dec. 28, 2018 | 9,939,668 | |||
Beginning balance at Dec. 28, 2018 | $ 9,940 | 6,938,953 | 5,783,996 | 12,732,889 |
Net (distributions) contributions | 1,155,907 | 1,155,907 | ||
Merger with Command Center, Inc., shares | 4,677,487 | |||
Merger with Command Center, Inc. | $ 4,677 | 26,937,648 | 26,942,325 | |
Stock-based compensation | 251,266 | 251,266 | ||
Restricted stock granted, shares | 250,000 | |||
Restricted stock granted | $ 250 | 101,649 | 101,899 | |
Common stock purchased and retired, shares | (1,394,821) | |||
Common stock purchased and retired | $ (1,395) | (8,367,531) | (8,368,926) | |
Net income (loss) | (3,752,810) | (3,752,810) | ||
Ending balance, shares at Sep. 29, 2019 | 13,472,334 | |||
Ending balance at Sep. 29, 2019 | $ 13,472 | $ 25,861,985 | $ 3,187,093 | $ 29,062,550 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 29, 2019 | Sep. 30, 2018 | |
Cash flows from operating activities | ||
Net (loss) income | $ (3,752,810) | $ 4,926,969 |
Income from discontinued operations | (722,756) | 0 |
Net income (loss) from continuing operations | (4,475,566) | 4,926,969 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operations: | ||
Depreciation and amortization | 75,630 | 26,357 |
Stock based compensation | 353,165 | 0 |
Deferred taxes | 283,666 | 0 |
(Gain) loss on disposition of property and equipment | (528,786) | (34,912) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (12,728,327) | (3,958,087) |
Prepaid expenses, deposits and other assets | 1,284,002 | (149,829) |
Prepaid workers' compensation | (765,910) | 0 |
Due from affiliates | 209,570 | (369,657) |
Accounts payable | (91,354) | (1,143) |
Deposits and other assets | 8,334 | 0 |
Other current liabilities | 4,127,267 | (469,169) |
Accrued wages and benefits | (526,930) | (339,371) |
Due to franchisees | 4,718,335 | 694,998 |
Operating leases | 25,755 | 0 |
Workers' compensation claims liability | 431,042 | 0 |
Net cash provided by operating activities-continuing operations | (7,600,107) | 326,156 |
Net cash used in operating activities-discontinued operations | 6,400,550 | 0 |
Net cash (used in) provided by operating activities | (1,199,557) | 326,156 |
Cash flows from investing activities | ||
Purchase of property and equipment | (284,919) | (313,961) |
Proceeds from the sale of property and equipment | 573,840 | 560,277 |
Notes receivable issued | (55,380) | (167,828) |
Sale of intangible assets | 221,845 | 0 |
Net change in in franchisee deposits | 665,654 | 62,046 |
Net cash provided by investing activities | 1,121,040 | 140,534 |
Cash flows from financing activities: | ||
Net change in line of credit | 7,602,202 | 1,338,073 |
Net change in due to affiliates | (5,450,192) | 2,672,555 |
Proceeds from the sale of common stock in Command Center acquisition | 5,376,543 | 0 |
Purchase of treasury stock | (8,368,926) | 0 |
Net contributions by (distributions to) HQ, LLC members | 1,155,907 | (4,252,105) |
Net cash used by financing activities | 315,534 | (241,477) |
Net increase in cash | 237,017 | 225,213 |
Cash and restricted cash, beginning of period | 1,291,317 | 275,920 |
Cash and restricted cash, end of period | 1,528,334 | 501,133 |
Non-cash investing and financing activities | ||
Purchase of net assets of Command Center with shares of common stock | 21,565,782 | 0 |
Sale of assets in exchange for accounts receivable | 2,204,286 | 0 |
Sale of intangible assets in exchange for notes receivable | 14,887,220 | 0 |
Supplemental disclosure of cash flow information | ||
Interest paid | 521,837 | 0 |
Income taxes paid | $ 0 | $ 0 |
1. Overview and Summary of Sign
1. Overview and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 29, 2019 | |
Accounting Policies [Abstract] | |
Overview and Summary of Significant Accounting Policies | Nature of Business HireQuest, Inc. (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of branch offices providing on-demand labor solutions in the light industrial and blue-collar segments of the staffing industry. We provide various types of temporary personnel through two business models operating under the trade names “HireQuest Direct,” previously known as “Trojan Labor,” and “HireQuest,” previously known as “Acrux Staffing.” HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest specializes primarily in skilled and semi-skilled industrial personnel as well as clerical and secretarial personnel. Currently, we have more than 150 franchised branches in 30 states and the District of Columbia. Prior to September 29, 2019, when we finalized our conversion of all company-owned branches to franchise-owned branches, we also owned and operated a number of branches. We provide employment to more than 85,000 individuals annually working for thousands of clients in various industries including construction, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail. We provide staffing, marketing, funding, software, and administrative services to our franchisees. Prior to September 29, 2019, we provided the same services to our owned temporary staffing locations. HQI is the product of the merger between Command Center, Inc., or Command Center, with Hire Quest Holdings, LLC, and its wholly-owned subsidiary, Hire Quest, LLC, which we collectively refer to as Legacy HQ. We refer to this merger as the Merger. Upon the closing of the Merger, all of the ownership interests in Hire Quest Holdings, LLC were converted into the right to receive an aggregate amount of shares representing 68% of the total shares of the Company’s common stock outstanding immediately after the closing. For additional information related to the Merger, see Note 2 – Acquisitions Basis of Presentation We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial reporting and rules and regulations of the United States Securities and Exchange Commission, or SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of our management, all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the financial position, results of operations, and cash flows for the fiscal periods presented have been included. You should read these consolidated financial statements in conjunction with the audited consolidated financial statements and accompanying notes of Hire Quest, LLC included in our Form 8-K/A filed with the SEC on August 23, 2019. The results of operations for the quarter and the three quarters ended September 29, 2019 are not necessarily indicative of the results expected for the full fiscal year, or for any other fiscal period. Fiscal period end As of January 1, 2019, we changed our financial reporting period from a calendar year to a fiscal year. Our fiscal year end is the Sunday closest to the last day of December. Our fiscal quarters end on the last Sunday closest to the last day in March, June and September. This change in fiscal year end and fiscal quarter end did not have a material effect on the comparability of the periods presented. Consolidation The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of estimates The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions underlie our workers’ compensation claim liabilities, the allowance for doubtful accounts, and our deferred taxes. Accounts receivables and allowance for doubtful accounts Accounts receivables consist of amounts due for labor services from customers of franchises and of previously owned locations. At September 29, 2019, approximately 78% and 22% of our accounts receivables were due from franchise and owned locations, respectively. At December 31, 2018, approximately 99% and 1% of our accounts receivable were due from franchise and owned locations, respectively. We own accounts receivable from labor services provided by franchisees. We charge accounts receivable that remain uncollected beyond 84 days after the invoice date back to the franchisee. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable. For labor services provided by previously owned locations, we record accounts receivable at face value less an allowance for doubtful accounts. We determine the allowance for doubtful accounts based on historical write-off experience, the age of the receivable, other qualitative factors and extenuating circumstances, and current economic data which represents our best estimate of the amount of probable losses on these accounts receivable, if any. We review the allowance for doubtful accounts periodically and write off past due balances when it is probable that the receivable will not be collected. Our allowance for doubtful accounts on receivables generated by owned locations was approximately $362,000 and $-0- at September 29, 2019 and December 31, 2018, respectively. Revenue recognition We account for revenue when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Our revenue arises from (1) royalties paid by our franchisees, (2) revenues from company-owned locations, and (3) interest we charge our franchisees on overdue accounts. We invoice customers every week and generally do not require payment prior to the delivery of service. Substantially all of our contracts include payment terms of 30 days or less and are short-term in nature. Because of our payment terms, there are no significant contract assets or liabilities. We do not extend payment terms beyond one year. Revenue from franchise royalties is based on a percentage of sales generated by the franchisee and recognized at the time the underlying sales occur. We recognize revenue from company-owned locations at the time we satisfy our performance obligation, which is the transfer of services. Because our customers receive and consume the benefits of our services simultaneously, we typically satisfy our performance obligations when we provide our services. We report revenue net of customer credits, discounts, and taxes collected from customers that we remit to taxing authorities. We recognize revenue from interest on overdue accounts receivable related to franchisee sales when they age past forty-two days. Leases Operating leases are included in right-of-use asset and lease current and long-term liabilities. We recognize lease expense for operating leases on a straight-line basis over the lease term, and include it in selling, general and administrative expenses. If any of our leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent, we do not include the variable portion of these lease payments in our right-of-use asset or lease liabilities. We expense these variable payments when we incur the obligation to pay them and include them in lease expense as part of selling, general and administrative expenses. We measure lease right-of-use assets and lease liabilities using the present value of future minimum lease payments over the lease term at the lease commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives we received. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We estimate the incremental borrowing rates based on what we would be required to pay for a collateralized loan over a similar term. Business combinations We account for business acquisitions under the acquisition method of accounting by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. We record as goodwill the excess of the cost of the acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed. We expense acquisition related costs as we incur them. Reserve on notes receivable In connection with the Merger and to execute on our strategy to convert company-owned locations to franchisee-owned locations, we sold the operating assets of the Command Center owned branches to new and existing franchisees during the fiscal quarter ended September 29, 2019. We received consideration for these assets primarily in the form of promissory notes. We record these notes receivable at their face value net of a reserve. We determine the reserve based on historical experience, the ratio of the note receivable compared to the estimated value of the branch, and other qualitative factors and extenuating circumstances. We review this reserve on notes receivable periodically. The reserve was approximately $1.3 million at September 29, 2019 and $-0- at December 31, 2018, respectively. Earnings per share Basic earnings per share is calculated by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding, and does not include the impact of any potentially dilutive common stock equivalents. Diluted earnings per share reflect the potential dilution of securities that could share in our earnings through the conversion of common shares issuable via outstanding stock options, except where their inclusion would be anti-dilutive. Outstanding common stock equivalents at September 29, 2019 and September 30, 2018 totaled approximately 61,000 and -0-, respectively. Diluted common shares outstanding were calculated using the treasury stock method and are as follows: Quarter ended Three quarters ended September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018 Weighted average number of common shares used in basic net income per common share 12,927,634 9,939,668 10,939,318 9,939,668 Dilutive effects of stock options - - - - Weighted average number of common shares used in diluted net income per common share 12,927,634 9,939,668 10,939,318 9,939,668 Recently adopted accounting pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued new revenue recognition guidance under Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers, that supersedes the existing revenue recognition guidance under GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. On January 1, 2019, we adopted the new revenue recognition guidance using the modified retrospective method for all open contracts and related amendments. Results for reporting periods beginning after January 1, 2019 are presented under the new revenue recognition guidance, while prior period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance. The adoption of this new guidance did not have a material impact on our consolidated financial statements. In February 2016, the FASB issued guidance on lease accounting. The new guidance continues to classify leases as either finance or operating, but results in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance was effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standard using the transition relief provided in the July amendment. We have elected the three practical expedients allowed for implementation of the new standard, but have not utilized the hindsight practical expedient. Accordingly, we did not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; or 3) initial direct costs for any existing leases. As a result of adopting this guidance, we recognized a right-of-use asset, and corresponding lease liability, of approximately $200,000 as of July 15, 2019, the date the guidance became effective for us because of the Merger between Legacy HQ and Command Center. Had we adopted this guidance at the beginning of the year, the effect to our balance sheet would have been substantially the same as with the mid-year adoption. The adoption of this guidance did not have a material impact on expense recognition. The difference between the right-of-use assets and lease liabilities relates to the deferred rent liability balance as of the end of fiscal 2018 associated with the leases capitalized. The deferred rent liability, which was the difference between the straight-line lease expense and cash paid, reduced the right-of-use asset upon adoption. Recently issued accounting pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today's “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures. We do not expect other accounting standards that the FASB or other standards-setting bodies have issued to have a material impact on our financial position, results of operations, and cash flows. |
2. Acquisitions
2. Acquisitions | 9 Months Ended |
Sep. 29, 2019 | |
Business Combinations [Abstract] | |
Acquisitions | On July 15, 2019, the Company completed its acquisition of Legacy HQ, in accordance with the terms of the Agreement and Plan of Merger dated April 8, 2019, or the Merger Agreement. Upon the closing of the Merger, all of the membership interests in Hire Quest Holdings were converted into the right to receive 68% of the Company’s common stock outstanding immediately after the closing, or 9,939,668 shares. In accordance with ASC 805, Business Combinations, we accounted for the Merger as a reverse acquisition. As such, Legacy HQ is considered to be the accounting acquirer. Therefore, Legacy HQ's historical financial statements replace Command Center’s historical financial statements following the completion of the Merger, and the results of operations of both companies will be included in our financial statements for all periods subsequent to July 14, 2019. Because the Merger is considered a reverse acquisition, the fair value of the purchase consideration is calculated based on the Company's stock price as it is considered to be more reliable than the fair value of the membership interests of Legacy HQ, a private company. Consideration is calculated based on the Company's closing share price of $5.76 on Nasdaq on July 15, 2019. The following table summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date. These estimates are preliminary, pending final evaluation of certain assets and liabilities, and therefore are subject to revisions that may result in adjustments to the values presented below: Stock issued 4,677,487 Closing share price on July 15, 2019 $ 5.76 Total allocable purchase price $ 26,942,325 Accounts receivable $ 10,480,907 Cash and cash equivalents 5,376,543 Identifiable intangible assets 16,881,428 Other current assets 850,711 Property, plant and equipment, net 281,186 Other non-current assets 2,820,650 Current liabilities (4,128,063 ) Deferred tax liability (3,974,473 ) Other liabilities (1,646,564 ) Preliminary purchase price allocation $ 26,942,325 The following table presents the unaudited pro forma information assuming the Merger occurred on January 1, 2018. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on that date: Quarter ended Three quarters ended September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018 Royalty revenue $ 20,615,713 $ 21,216,830 $ 27,063,188 $ 27,513,503 Net income 416,040 817,715 3,515,142 3,717,119 Basic earnings per share $ 0.03 $ 0.06 $ 0.24 $ 0.28 Basic weighted average shares outstanding 14,633,639 13,222,334 14,622,670 13,281,839 Diluted earnings per share $ 0.03 $ 0.06 $ 0.24 $ 0.28 Diluted weighted average shares outstanding 14,643,436 13,229,795 14,623,959 13,289,045 These calculations reflect the decreased amortization expense and the consequential tax effects that would have resulted had the Merger closed on January 1, 2018. Effective September 11, 2019, as contemplated by the Merger Agreement and as approved by our shareholders, Command Center changed its name to HireQuest, Inc., changed its state of incorporation from Washington to Delaware, adopted new bylaws, and moved its principal executive offices to Goose Creek, South Carolina. In connection with our name change to HireQuest, Inc., we also changed the trading symbol of our common stock from “CCNI” to “HQI.” Discontinued operations We sold the branches we acquired from Command Center to franchises in the third quarter of 2019 through sales of operating branch assets to existing and new franchisees in two tranches. We also made the strategic decision to sell the assets of Command Center’s four California branches outside of our franchise system to an unaffiliated third party and we no longer conduct business in the state of California. We have summarized these transactions below. July sale: The aggregate purchase price for the July Franchise Assets consisted of approximately (i) $4.7 million paid in the form of promissory notes accruing interest at an annual rate of 6% issued by the buyers to the Company plus (ii) the right to receive 2% of annual sales in excess of $3.2 million in the aggregate for the franchise territory containing Phoenix, AZ for 10 years, up to a total aggregate amount of $2.0 million. We sold a subset of these July Franchise Assets to buyers in which some of our directors and significant shareholders have direct or indirect interests, or the Worlds Buyers (see Note 3 – Related Party Transactions Contemporaneously with the sale of these assets, we entered into an agreement with Hire Quest Financial, LLC, or HQF, an affiliate of two of our directors, Richard Hermanns and Edward Jackson, who are also our two largest shareholders, 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. September sale The aggregate purchase price for the September Franchise Assets consisted of approximately $9.7 million paid in the form of five-year promissory notes accruing interest at an annual rate of 6% issued by the buyer to the Company. Subsequent to the end of our third quarter, we received a $3.0 million cash payment on these notes. In accordance with an agreement with the buyer, this cash payment also triggered a discount in the purchase price equal to 10% of the cash payment, or $300,000. Both the July 15, 2019 and September 29, 2019 purchase agreements contain negotiated representations, warranties, covenants, and indemnification provisions by the parties which are believed to be customary for transactions of this type. The related-party transactions contain covenants and warranties similar to those contained in all other transactions. The California Purchase Agreement: Restructuring charges reserve During the quarter ended September 29, 2019, we accrued approximately $595,000 as a restructuring charges reserve liability. This liability relates to one-time Merger-related expenses including, among other things, the expense for certain Command Center employees to relocate to Goose Creek, South Carolina, termination benefits for employees of Command Center, rebranding our branches pursuant to our name change, elimination of staff redundancies, and other costs that we will continue to incur under various contracts that provide no future economic benefit to us. We expect to fully amortize this liability by the end of the first quarter of 2020. |
3. Related Party Transactions
3. Related Party Transactions | 9 Months Ended |
Sep. 29, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | HQI shares some common ownership with Hire Quest Financial, LLC; Hire Quest Insurance, LLC; Brave New World Services, LLC, formerly known as Hire Quest LTS, LLC; Bass Underwriters, Inc. and its related entities; a number of our franchisees; and the not-for-profit Higher Quest Foundation, Inc. Hire Quest Financial LLC, or HQF Richard Hermanns, our President, CEO, Chairman of the Board, and most significant shareholder, and Edward Jackson, a member of our Board and a significant shareholder, collectively own a majority of HQF. Prior to March 20, 2018, Legacy HQ had an agreement with HQF to provide finance and insurance related services and a line of credit. The management fee charged by HQF, which included the interest charge on the line of credit, amounted to 2% of the sales of our franchisee-owned and Company-owned locations, also known as system-wide sales. Legacy HQ terminated this arrangement in March 2018 and there is no amount included in our statement of operations for quarters ended September 29, 2019 and September 30, 2018. Amounts included in our statements of operations for the three quarters ended September 30, 2018 are approximately $249,000. During the year ended December 31, 2018, Legacy HQ 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 15, 2019, Legacy HQ 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 between Legacy HQ and Command Center. At September 29, 2019 and December 31, 2018, HQI owed HQF approximately $-0- and $6.7 million, respectively. Hire Quest Insurance, or HQ Ins. Mr. Hermanns, certain of his immediate family members, a dynasty trust under his control, Mr. Jackson, and certain of his immediate family members collectively own a majority of HQ Ins. HQ Ins. is a North Carolina protected cell captive insurance company. Effective March 1, 2010, Legacy HQ purchased a deductible reimbursement insurance policy from HQ Ins. to cover losses up to the $500,000 per claim deductible on the Legacy HQ high-deductible workers’ compensation policy originally obtained through AIG and, later through ACE American Insurance Company (see Note 5, Workers’ Compensation Premiums paid by Legacy HQ to HQ Ins. for workers compensation insurance during the quarter ended September 29, 2019 and September 30, 2018 are approximately $262,000 and $2.0 million, respectively. Premiums paid by Legacy HQ to HQ Ins. for workers compensation insurance during the three quarters ended September 29, 2019 and September 30, 2018 are approximately $3.6 million and $5.5 million, respectively. Brave New World Services, LLC, formerly known as Hire Quest LTS, or HQ LTS Mr. Jackson and a relative of Mr. Hermanns collectively own a majority of HQ LTS. Historically, it employed the personnel at Legacy HQ headquarters. HQI terminated this relationship on July 15, 2019 upon the closing of the Merger. Payroll service fees paid to HQ LTS during the quarter ended September 29, 2019 and September 30, 2018 are approximately $7,000 and $13,000, respectively. Payroll service fees paid to HQ LTS during the three quarters ended September 29, 2019 and September 30, 2019 are approximately $19,000 and $28,000, respectively. HQ LTS now occupies independent office space and employs an independent staff to manage its operations. Jackson Insurance Agency and Bass Underwriters, Inc., or collectively, Bass Mr. Hermanns and Mr. Jackson collectively are the majority owners of Bass Underwriters. Mr. Jackson and Mr. Hermanns are also significant or majority shareholders of the following entities related to Bass: Bulldog Premium Finance LLC, Gridiron Insurance Underwriters, Inc., Insurance Technologies, Inc., and Genesis Educational Services of Florida, Inc. Mr. Jackson owns a majority stake in Jackson Insurance Agency. Jackson Insurance Agency has historically brokered Legacy HQ’s, and since July 15, 2019 has brokered HQI’s property, casualty, general liability, and cybersecurity insurance. It also brokers certain insurance policies on behalf of some of our franchisees, including the Worlds Franchisees. Premiums paid through Bass for various insurance policies during the quarter ended September 29, 2019 and September 30, 2018 are approximately $369,000 and $18,000, respectively. Premiums paid to Bass during the three quarters ended September 29, 2019 and September 30, 2018 are approximately $608,000 and $209,000, respectively. Bass does not retain the majority of the premiums but does profit by making a commission. The Worlds Franchisees Mr. Hermanns and Mr. Jackson have direct or indirect ownership interests in certain of our franchisees, or the Worlds Franchisees. There were 20 Worlds Franchisees at September 29, 2019 that operated 62 of our 152 branch office locations. There were 23 Worlds Franchisees that operated 50 of our 97 branches at December 31, 2018. Balances regarding the Worlds Franchisees at September 29, 2019 and December 31, 2018 are summarized below: September 29, 2019 December 31, 2018 Due to (from) franchisees $ 71,509 $ (254,943 ) Risk management incentive program liability 817,857 988,562 Transactions regarding the Worlds Franchisees for the quarter and three quarters ended September 29, 2019 and September 30, 2018 are summarized below: Quarter ended Three quarters ended September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018 Franchise royalties 1,786,975 1,375,439 5,529,777 4,500,617 Risk management incentive program liability relates to a program we sponsor for our franchisees whereby we pay our franchisees an amount equal to a percentage of the premium they pay for workers’ compensation insurance if they keep their workers' compensation loss ratios below specific thresholds. This program, which we call the Risk Management Incentive Program, incentivizes our franchisees to keep our temporary employees safe and to control their exposure to large workers' compensation claims. |
4. Debt
4. Debt | 9 Months Ended |
Sep. 29, 2019 | |
Debt Disclosure [Abstract] | |
Debt | In July 2019, we entered into an agreement with Branch Banking and Trust Company, or BB&T, for a $30 million line of credit with a $15 million sublimit for letters of credit. The current agreement bears interest at a variable rate equal to the Daily One Month London Interbank Offering Rate plus a margin between 1.25% and 1.75%. The margin is determined based on the value of our net collateral, which is equal to our total collateral plus unrestricted cash less the outstanding balance, if any, under this agreement. At September 29, 2019 the effective interest rate was 3.5%. A non-use fee of between 0.125% and 0.250% will accrue on the unused portion of the line of credit. As collateral for repayment of any and all obligations under this agreement, we granted BB&T a security interest in substantially all of our operating assets and the operating assets of our subsidiaries. This 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 agreement requires us to comply with a fixed charge coverage ratio of at least 1.10:1.00. This covenant will be tested quarterly on a rolling four quarter basis commencing with the four quarter period ending September 30, 2020. Our obligations under the line of credit are subject to acceleration upon the occurrence of an event of default as defined in the Loan Agreement. At September 29, 2019, we have two letters of credit with BB&T for approximately $9.8 million that secure our obligations to our workers’ compensation insurance carrier and reduces the amount available to us under this agreement. For additional information related to these letters of credit, see Note 5 – Workers’ Compensation. In March 2018, Legacy HQ entered into a $5 million line of credit agreement with BB&T with an interest rate of LIBOR plus 1.75%. The line was collateralized by substantially all Legacy HQ assets and contained certain restrictive covenants. There were no borrowings on the line of credit at December 31, 2018. It was terminated in July 2019 upon the execution of the current agreement. Prior to March 20, 2018, the Legacy HQ had a $16 million line of credit with HQF. The line was collateralized by substantially all Legacy HQ assets and a personal guarantee of the CEO of Legacy HQ. In lieu of interest, use of the line of credit was included in the management fee of 2% of system-wide sales as described above in Note 3 – Related Party Transactions |
5. Workers' Compensation
5. Workers' Compensation | 9 Months Ended |
Sep. 29, 2019 | |
Insurance [Abstract] | |
Workers' Compensation | Beginning in March 2014, Legacy HQ obtained its workers’ compensation insurance through Chubb Limited and ACE American Insurance Company, or, collectively, ACE, in all states in which it operated, other than monopolistic jurisdictions. The ACE policy was a high deductible policy where Legacy HQ had primary responsibility for all claims, with ACE providing insurance for covered losses and expenses in excess of $500,000 per incident. In addition to the ACE policy, Legacy HQ purchased a deductible reimbursement insurance policy from HQ Ins. to cover losses up to the $500,000 deductible with ACE. This resulted in Legacy HQ effectively being fully insured during this time period. Effective July 15, 2019, we terminated our deductible reimbursement policy with HQ Ins. and have assumed the primary responsibility for all claims up to deductible occurring on or after July 15, 2019. We assumed the Legacy HQ policy with ACE. Command Center also obtained its workers’ compensation insurance through ACE. Pursuant to Command Center’s policy, ACE provides insurance for covered losses and expenses in excess of $500,000 per incident. Command Center’s current ACE policy includes a one-time obligation for the Company to pay any single claim filed under the Command Center policy within a policy year that exceeds $500,000 (if any), but only up to $750,000 for that claim. All other claims within the policy year are subject to the $500,000 deductible. Effective July 15, 2019, as a condition of the Merger, we assumed all of the workers’ compensation claims of Command Center. We also assumed Command Center’s workers’ compensation policy with ACE. Prior to its policy with ACE, Legacy HQ obtained its workers compensation policy through AIG. Under these high deductible programs, HQI is effectively self-insured. Per our contractual agreements with ACE, we must provide collateral deposits of approximately $9.8 million, which are accomplished through letters of credit under our line of credit with BB&T. For workers’ compensation claims originating in Washington, North Dakota, Ohio, and Wyoming, we pay workers’ compensation insurance premiums and obtain full coverage under mandatory state administered programs. Our liability associated with claims in these jurisdictions is limited to premium payments based upon the amount of payroll paid within each jurisdiction. Accordingly, our consolidated financial statements reflect only the mandated workers’ compensation insurance premium liability for workers’ compensation claims in these jurisdictions. |
6. Analysis of Franchise Locati
6. Analysis of Franchise Locations | 9 Months Ended |
Sep. 29, 2019 | |
Analysis Of Franchise Locations | |
Analysis of Franchise Locations | Below is a summary of changes in the number of franchised and owned branch locations: Franchised branches, December 31, 2017 79 Closed in 2018 (3 ) Opened in 2018 21 Franchised branches, December 31, 2018 97 Closed in 2019 (5 ) Opened in 2019 60 Franchised branches, September 29, 2019 152 |
7. Stockholders' Equity
7. Stockholders' Equity | 9 Months Ended |
Sep. 29, 2019 | |
Stockholders' equity | |
Stockholders' Equity | Tender Offer In June 2019, we commenced an issuer tender offer to purchase up to 1,500,000 shares of our common stock at a fixed price of $6.00 per share. This tender offer expired on July 25, 2019, and we accepted for purchase approximately 1.4 million shares for an aggregate cost of approximately $8.4 million, excluding fees and expenses. |
8. Stock Based Compensation
8. Stock Based Compensation | 9 Months Ended |
Sep. 29, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Stock Based Compensation | Employee Stock Incentive Plan Pursuant to the Merger, we adopted Command Center’s existing Stock Incentive Plans and will honor all outstanding option awards in accordance with the pre-existing terms of these plans. Our 2008 Stock Incentive Plan, or the 2008 Plan, which permitted the grant of up to 533,333 equity awards, expired in January 2016. In November 2016, our stockholders approved a new stock incentive plan, the 2016 Plan, under which we are authorized to grant awards for up to 500,000 shares of our common stock over the 10 year life of the plan. Stock options that were outstanding at Command Center were deemed to be issued on the date of the acquisition. Outstanding awards continue to remain in effect according to the terms of the 2008 Plan and the corresponding award documents. There were approximately 55,000 and -0- stock options vested at September 29, 2019 and December 31, 2018, respectively. The following table summarizes our stock options outstanding at December 31, 2018, and changes during the period ended September 29, 2019. Number of shares underlying options Weighted average exercise price per share Weighted average grant date fair value Outstanding, December 31, 2018 - $ - $ - Granted 160,831 5.86 3.18 Forfeited (100,000 ) 5.70 3.16 Outstanding, September 29, 2019 60,831 6.11 3.20 The following table summarizes our non-vested stock options outstanding at December 31, 2018, and changes during the period ended September 29, 2019: Number of shares underlying options Weighted average exercise price per share Weighted average grant date fair value Non-vested, December 31, 2018 - $ - $ - Granted 84,523 5.56 3.05 Forfeited (57,857 ) 5.70 6.16 Vested (21,250 ) 5.09 2.93 Non-vested, September 29, 2019 5,417 5.48 3.01 The following table summarizes information about our outstanding stock options, and reflects the intrinsic value recalculated based on the closing price of our common stock of $7.00 at September 27, 2019: Number of shares underlying options Weighted average exercise price per share Weighted average remaining contractual life (years) Aggregate intrinsic value Outstanding 60,831 $ 6.11 6.65 $ 109,267 Exercisable 55,415 6.17 6.46 37,916 The following table summarizes information about our stock options outstanding, and reflects the weighted average contractual life at September 29, 2019: Outstanding options Vested options Range of exercise prices Number of shares underlying options Weighted average remaining contractual life (years) Number of shares exercisable Weighted average remaining contractual life (years) $ 4.80 - 7.00 44,582 8.28 39,166 8.24 $ 7.01 - 8.76 16,249 2.17 16,249 2.17 In September 2019, we issued 160,000 shares of restricted common stock pursuant to the 2016 Plan valued at approximately $1.1 million for services, and to encourage retention, to certain employees. These shares vest over four years, with 50% vesting on September 1, 2021, and 6.25% vesting each quarter thereafter for the next eight quarters. Also in September 2019, we issued 90,000 shares of restricted common stock pursuant to the 2016 Plan valued at $648,000 for services to non-employee members of our board of directors. These shares vest equally over approximately three years with the first vesting occurring the day before our annual shareholder meeting to be held in 2020, and the remainder vesting in equal portions on each of the first two anniversaries of that date. At September 29, 2019, there was unrecognized stock-based compensation expense totaling approximately $1.6 million relating to non-vested options and restricted stock grants that will be recognized over the next 3.8 years. |
9. Commitments and Contingencie
9. Commitments and Contingencies | 9 Months Ended |
Sep. 29, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Leases At September 29, 2019, we had an operating lease for our previous corporate headquarters in Lakewood, CO. We determined the discount rate used to calculate the present value of future minimum lease payments based on our incremental borrowing rate and consistent with financing terms currently in place with financial institutions. The weighted average discount rate on our operating leases is 5.0%. The weighted average remaining lease term on our operating lease is 1.3 years. Below is a table of our future minimum operating lease commitments for the remainder of the current year and for the next five years, and a reconciliation to the lease liability recognized on our consolidated balance sheet. The amount necessary to reduce our minimum lease payments to present value was calculated using our incremental borrowing rate. Year 1 Year 2 Thereafter Total Future minimum lease payments $ 40,922 $ 153,316 $ 12,155 $ 206,392 Lease liability interest (2,174 ) (4,003 ) - (6,177 ) Lease liability as of September 29, 2019 $ 38,747 $ 149,314 $ 12,155 $ 200,215 Lease expense for both the quarter and the three quarters ended September 29, 2019 was approximately $296,000. There was no lease expense in 2018. Legal Proceedings From time to time, we are involved in various legal and administrative proceedings. With the best information currently available to us, we do not expect material uninsured losses to arise from any of these matters. We believe the outcome of these matters, even if determined adversely, will not have a material adverse effect on our business, financial condition or results of operations. There have been no material changes in our legal proceedings as of September 29, 2019. |
10. Employee Retirement Plan
10. Employee Retirement Plan | 9 Months Ended |
Sep. 29, 2019 | |
Employee Benefit and Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Employee Retirement Plan | HQ LTS sponsored a 401(k) Plan for Legacy HQ’s headquarters employees who met certain eligibility requirements. This Plan allowed eligible employees to make annual pre-tax contributions up to the lesser of 20% of their eligible compensation or the limit established by the Internal Revenue Service. Matching contributions to the employees’ account were approximately $36,000 for the three quarters ended September 29, 2019 and $50,000 for the year ended December 31, 2018. Under this Plan, Legacy HQ could also make discretionary non-elective contributions. No discretionary non-elective contributions were made by Legacy HQ during 2019 or 2018. |
11. Income Tax
11. Income Tax | 9 Months Ended |
Sep. 29, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Tax | Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The provision for income taxes for the interim periods differs from the amount that would be provided by applying the statutory U.S. federal income tax rate to pre-tax income primarily because of state income taxes. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year and changes in tax law and tax rates. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or as the tax environment changes. |
1. Overview and Summary of Si_2
1. Overview and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 29, 2019 | |
Accounting Policies [Abstract] | |
Nature of Business | HireQuest, Inc. (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of branch offices providing on-demand labor solutions in the light industrial and blue-collar segments of the staffing industry. We provide various types of temporary personnel through two business models operating under the trade names “HireQuest Direct,” previously known as “Trojan Labor,” and “HireQuest,” previously known as “Acrux Staffing.” HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest specializes primarily in skilled and semi-skilled industrial personnel as well as clerical and secretarial personnel. Currently, we have more than 150 franchised branches in 30 states and the District of Columbia. Prior to September 29, 2019, when we finalized our conversion of all company-owned branches to franchise-owned branches, we also owned and operated a number of branches. We provide employment to more than 85,000 individuals annually working for thousands of clients in various industries including construction, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail. We provide staffing, marketing, funding, software, and administrative services to our franchisees. Prior to September 29, 2019, we provided the same services to our owned temporary staffing locations. HQI is the product of the merger between Command Center, Inc., or Command Center, with Hire Quest Holdings, LLC, and its wholly-owned subsidiary, Hire Quest, LLC, which we collectively refer to as Legacy HQ. We refer to this merger as the Merger. Upon the closing of the Merger, all of the ownership interests in Hire Quest Holdings, LLC were converted into the right to receive an aggregate amount of shares representing 68% of the total shares of the Company’s common stock outstanding immediately after the closing. For additional information related to the Merger, see Note 2 – Acquisitions |
Basis of Presentation | We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial reporting and rules and regulations of the United States Securities and Exchange Commission, or SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of our management, all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the financial position, results of operations, and cash flows for the fiscal periods presented have been included. You should read these consolidated financial statements in conjunction with the audited consolidated financial statements and accompanying notes of Hire Quest, LLC included in our Form 8-K/A filed with the SEC on August 23, 2019. The results of operations for the quarter and the three quarters ended September 29, 2019 are not necessarily indicative of the results expected for the full fiscal year, or for any other fiscal period. |
Fiscal Period End | As of January 1, 2019, we changed our financial reporting period from a calendar year to a fiscal year. Our fiscal year end is the Sunday closest to the last day of December. Our fiscal quarters end on the last Sunday closest to the last day in March, June and September. This change in fiscal year end and fiscal quarter end did not have a material effect on the comparability of the periods presented. |
Consolidation | The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates | The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions underlie our workers’ compensation claim liabilities, the allowance for doubtful accounts, and our deferred taxes. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivables consist of amounts due for labor services from customers of franchises and of previously owned locations. At September 29, 2019, approximately 78% and 22% of our accounts receivables were due from franchise and owned locations, respectively. At December 31, 2018, approximately 99% and 1% of our accounts receivable were due from franchise and owned locations, respectively. We own accounts receivable from labor services provided by franchisees. We charge accounts receivable that remain uncollected beyond 84 days after the invoice date back to the franchisee. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable. For labor services provided by previously owned locations, we record accounts receivable at face value less an allowance for doubtful accounts. We determine the allowance for doubtful accounts based on historical write-off experience, the age of the receivable, other qualitative factors and extenuating circumstances, and current economic data which represents our best estimate of the amount of probable losses on these accounts receivable, if any. We review the allowance for doubtful accounts periodically and write off past due balances when it is probable that the receivable will not be collected. Our allowance for doubtful accounts on receivables generated by owned locations was approximately $362,000 and $-0- at September 29, 2019 and December 31, 2018, respectively. |
Revenue Recognition | We account for revenue when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Our revenue arises from (1) royalties paid by our franchisees, (2) revenues from company-owned locations, and (3) interest we charge our franchisees on overdue accounts. We invoice customers every week and generally do not require payment prior to the delivery of service. Substantially all of our contracts include payment terms of 30 days or less and are short-term in nature. Because of our payment terms, there are no significant contract assets or liabilities. We do not extend payment terms beyond one year. Revenue from franchise royalties is based on a percentage of sales generated by the franchisee and recognized at the time the underlying sales occur. We recognize revenue from company-owned locations at the time we satisfy our performance obligation, which is the transfer of services. Because our customers receive and consume the benefits of our services simultaneously, we typically satisfy our performance obligations when we provide our services. We report revenue net of customer credits, discounts, and taxes collected from customers that we remit to taxing authorities. We recognize revenue from interest on overdue accounts receivable related to franchisee sales when they age past forty-two days. |
Leases | Operating leases are included in right-of-use asset and lease current and long-term liabilities. We recognize lease expense for operating leases on a straight-line basis over the lease term, and include it in selling, general and administrative expenses. If any of our leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent, we do not include the variable portion of these lease payments in our right-of-use asset or lease liabilities. We expense these variable payments when we incur the obligation to pay them and include them in lease expense as part of selling, general and administrative expenses. We measure lease right-of-use assets and lease liabilities using the present value of future minimum lease payments over the lease term at the lease commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives we received. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We estimate the incremental borrowing rates based on what we would be required to pay for a collateralized loan over a similar term. |
Business Combinations | We account for business acquisitions under the acquisition method of accounting by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. We record as goodwill the excess of the cost of the acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed. We expense acquisition related costs as we incur them. |
Reserve on Notes Receivable | In connection with the Merger and to execute on our strategy to convert company-owned locations to franchisee-owned locations, we sold the operating assets of the Command Center owned branches to new and existing franchisees during the fiscal quarter ended September 29, 2019. We received consideration for these assets primarily in the form of promissory notes. We record these notes receivable at their face value net of a reserve. We determine the reserve based on historical experience, the ratio of the note receivable compared to the estimated value of the branch, and other qualitative factors and extenuating circumstances. We review this reserve on notes receivable periodically. The reserve was approximately $1.3 million at September 29, 2019 and $-0- at December 31, 2018, respectively. |
Earnings per Share | Basic earnings per share is calculated by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding, and does not include the impact of any potentially dilutive common stock equivalents. Diluted earnings per share reflect the potential dilution of securities that could share in our earnings through the conversion of common shares issuable via outstanding stock options, except where their inclusion would be anti-dilutive. Outstanding common stock equivalents at September 29, 2019 and September 30, 2018 totaled approximately 61,000 and -0-, respectively. Diluted common shares outstanding were calculated using the treasury stock method and are as follows: Quarter ended Three quarters ended September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018 Weighted average number of common shares used in basic net income per common share 12,927,634 9,939,668 10,939,318 9,939,668 Dilutive effects of stock options - - - - Weighted average number of common shares used in diluted net income per common share 12,927,634 9,939,668 10,939,318 9,939,668 |
Recent Accounting Pronouncements | Recently adopted accounting pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued new revenue recognition guidance under Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers, that supersedes the existing revenue recognition guidance under GAAP. The new standard focuses on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services. On January 1, 2019, we adopted the new revenue recognition guidance using the modified retrospective method for all open contracts and related amendments. Results for reporting periods beginning after January 1, 2019 are presented under the new revenue recognition guidance, while prior period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance. The adoption of this new guidance did not have a material impact on our consolidated financial statements. In February 2016, the FASB issued guidance on lease accounting. The new guidance continues to classify leases as either finance or operating, but results in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance was effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standard using the transition relief provided in the July amendment. We have elected the three practical expedients allowed for implementation of the new standard, but have not utilized the hindsight practical expedient. Accordingly, we did not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; or 3) initial direct costs for any existing leases. As a result of adopting this guidance, we recognized a right-of-use asset, and corresponding lease liability, of approximately $200,000 as of July 15, 2019, the date the guidance became effective for us because of the Merger between Legacy HQ and Command Center. Had we adopted this guidance at the beginning of the year, the effect to our balance sheet would have been substantially the same as with the mid-year adoption. The adoption of this guidance did not have a material impact on expense recognition. The difference between the right-of-use assets and lease liabilities relates to the deferred rent liability balance as of the end of fiscal 2018 associated with the leases capitalized. The deferred rent liability, which was the difference between the straight-line lease expense and cash paid, reduced the right-of-use asset upon adoption. Recently issued accounting pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today's “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures. We do not expect other accounting standards that the FASB or other standards-setting bodies have issued to have a material impact on our financial position, results of operations, and cash flows. |
1. Overview and Summary of Si_3
1. Overview and Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 29, 2019 | |
Accounting Policies [Abstract] | |
Diluted common shares outstanding | Quarter ended Three quarters ended September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018 Weighted average number of common shares used in basic net income per common share 12,927,634 9,939,668 10,939,318 9,939,668 Dilutive effects of stock options - - - - Weighted average number of common shares used in diluted net income per common share 12,927,634 9,939,668 10,939,318 9,939,668 |
2. Acquisitions (Tables)
2. Acquisitions (Tables) | 9 Months Ended |
Sep. 29, 2019 | |
Business Combinations [Abstract] | |
Identifiable assets acquired and liabilities assumed | Stock issued 4,677,487 Closing share price on July 15, 2019 $ 5.76 Total allocable purchase price $ 26,942,325 Accounts receivable $ 10,480,907 Cash and cash equivalents 5,376,543 Identifiable intangible assets 16,881,428 Other current assets 850,711 Property, plant and equipment, net 281,186 Other non-current assets 2,820,650 Current liabilities (4,128,063 ) Deferred tax liability (3,974,473 ) Other liabilities (1,646,564 ) Preliminary purchase price $ 26,942,325 |
Pro forma information | Quarter ended Three quarters ended September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018 Royalty revenue $ 20,615,713 $ 21,216,830 $ 27,063,188 $ 27,513,503 Net income 416,040 817,715 3,515,142 3,717,119 Basic earnings per share $ 0.03 $ 0.06 $ 0.24 $ 0.28 Basic weighted average shares outstanding 14,633,639 13,222,334 14,622,670 13,281,839 Diluted earnings per share $ 0.03 $ 0.06 $ 0.24 $ 0.28 Diluted weighted average shares outstanding 14,643,436 13,229,795 14,623,959 13,289,045 |
3. Related Party Transactions (
3. Related Party Transactions (Tables) | 9 Months Ended |
Sep. 29, 2019 | |
Related Party Transactions [Abstract] | |
Related party balances | September 29, 2019 December 31, 2018 Due to (from) franchisees $ 71,509 $ (254,943 ) Risk management incentive program liability 817,857 988,562 Quarter ended Three quarters ended September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018 Franchise royalties 1,786,975 1,375,439 5,529,777 4,500,617 |
6. Analysis of Franchise Loca_2
6. Analysis of Franchise Locations (Tables) | 9 Months Ended |
Sep. 29, 2019 | |
Analysis Of Franchise Locations | |
Franchised and owned branch locations | Franchised branches, December 31, 2017 79 Closed in 2018 (3 ) Opened in 2018 21 Franchised branches, December 31, 2018 97 Closed in 2019 (5 ) Opened in 2019 60 Franchised branches, September 29, 2019 152 |
8. Stock Based Compensation (Ta
8. Stock Based Compensation (Tables) | 9 Months Ended |
Sep. 29, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Stock options outstanding | Number of shares underlying options Weighted average exercise price per share Weighted average grant date fair value Outstanding, December 31, 2018 - $ - $ - Granted 160,831 5.86 3.18 Forfeited (100,000 ) 5.70 3.16 Outstanding, September 29, 2019 60,831 6.11 3.20 |
Nonvested stock options outstanding | Number of shares underlying options Weighted average exercise price per share Weighted average grant date fair value Non-vested, December 31, 2018 - $ - $ - Granted 84,523 5.56 3.05 Forfeited (57,857 ) 5.70 6.16 Vested (21,250 ) 5.09 2.93 Non-vested, September 29, 2019 5,417 5.48 3.01 |
Intrinsic value | Number of shares underlying options Weighted average exercise price per share Weighted average remaining contractual life (years) Aggregate intrinsic value Outstanding 60,831 $ 6.11 6.65 $ 109,267 Exercisable 55,415 6.17 6.46 37,916 |
Summary of stock by price range | Outstanding options Vested options Range of exercise prices Number of shares underlying options Weighted average remaining contractual life (years) Number of shares exercisable Weighted average remaining contractual life (years) $ 4.80 - 7.00 44,582 8.28 39,166 8.24 $ 7.01 - 8.76 16,249 2.17 16,249 2.17 |
9. Commitments and Contingenc_2
9. Commitments and Contingencies (Tables) | 9 Months Ended |
Sep. 29, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Future minimum operating lease commitments | Year 1 Year 2 Thereafter Total Future minimum lease payments $ 40,922 $ 153,316 $ 12,155 $ 206,392 Lease liability interest (2,174 ) (4,003 ) - (6,177 ) Lease liability as of September 29, 2019 $ 38,747 $ 149,314 $ 12,155 $ 200,215 |
1. Overview and Summary of Si_4
1. Overview and Summary of Significant Accounting Policies (Details) - shares | 3 Months Ended | 9 Months Ended | ||
Sep. 29, 2019 | Sep. 30, 2018 | Sep. 29, 2019 | Sep. 30, 2018 | |
Earnings per share - basic and diluted: | ||||
Dilutive effects of stock options | 0 | 0 | 0 | 0 |
1. Overview and Summary of Si_5
1. Overview and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | |
Sep. 29, 2019 | Sep. 30, 2018 | Dec. 28, 2018 | |
Allowance for doubtful accounts on receivables | $ 362,000 | $ 0 | |
Reserve on notes receivable | $ 1,300,000 | 0 | |
Outstanding common stock equivalents | 61,000 | 0 | |
Right-of-use assets | $ 174,461 | $ 0 | |
Accounts Receivables | Franchise Locations | |||
Concentration risk | 78.00% | 99.00% | |
Accounts Receivables | Owned Locations | |||
Concentration risk | 22.00% | 1.00% |
2. Acquisitions (Details)
2. Acquisitions (Details) - Legacy HQ | 9 Months Ended |
Sep. 29, 2019USD ($)$ / shares | |
Stock issued | $ 4,677,487 |
Closing share price on July 15, 2019 | $ / shares | $ 5.76 |
Total allocable purchase price | $ 26,942,325 |
Accounts receivable | 10,480,907 |
Cash and cash equivalents | 5,376,543 |
Identifiable intangible assets | 16,881,428 |
Other current assets | 850,711 |
Property, plant and equipment, net | 281,186 |
Other non-current assets | 2,820,650 |
Current liabilities | (4,128,063) |
Deferred tax liability | (3,974,473) |
Other liabilities | (1,646,564) |
Preliminary purchase price | $ 26,942,325 |
2. Acquisitions (Details 1)
2. Acquisitions (Details 1) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 29, 2019 | Sep. 30, 2018 | Sep. 29, 2019 | Sep. 30, 2018 | |
Business Combinations [Abstract] | ||||
Royalty revenue | $ 20,615,713 | $ 21,216,830 | $ 27,063,188 | $ 27,513,503 |
Net income | $ 416,040 | $ 817,715 | $ 3,515,142 | $ 3,717,119 |
Basic earnings per share | $ 0.03 | $ 0.06 | $ 0.24 | $ 0.28 |
Basic weighted average shares outstanding | 14,633,639 | 13,222,334 | 14,622,670 | 13,281,839 |
Diluted earnings per share | $ 0.03 | $ 0.06 | $ 0.24 | $ 0.28 |
Diluted weighted average shares outstanding | 14,643,436 | 13,229,795 | 14,623,959 | 13,289,045 |
2. Acquisitions (Details Narrat
2. Acquisitions (Details Narrative) | Sep. 29, 2019USD ($) |
Business Combinations [Abstract] | |
Restructuring charges reserve liability | $ 595 |
3. Related Party Transactions_2
3. Related Party Transactions (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 29, 2019 | Sep. 30, 2018 | Sep. 29, 2019 | Sep. 30, 2018 | Dec. 28, 2018 | |
Related Party Transactions [Abstract] | |||||
Due to (from) franchisees | $ 71,509 | $ 71,509 | $ (254,943) | ||
Risk management incentive program liability | 817,857 | 817,857 | $ 988,562 | ||
Franchise royalties | $ 1,786,975 | $ 1,375,439 | $ 5,529,777 | $ 4,500,617 |
3. Related Party Transactions_3
3. Related Party Transactions (Details Narrative) | 3 Months Ended | 9 Months Ended | ||||
Sep. 29, 2019USD ($)Locations | Sep. 30, 2018USD ($) | Sep. 29, 2019USD ($)Locations | Sep. 30, 2018USD ($) | Dec. 28, 2018USD ($)Locations | Dec. 29, 2017Locations | |
Franchised and owned branch locations | Locations | 152 | 152 | 97 | 79 | ||
Hire Quest Financial LLC | ||||||
Related party transaction expenses | $ 249,000 | |||||
Intercompany debt | $ 0 | $ 0 | $ 6,700,000 | |||
Hire Quest Insurance | ||||||
Related party transaction expenses | 262,000 | $ 2,000,000 | 3,600,000 | 5,500,000 | ||
Brave New World Services, LLC | ||||||
Related party transaction expenses | 7,000 | 13,000 | 19,000 | 28,000 | ||
Jackson Insurance Agency and Bass Underwriters, Inc. | ||||||
Related party transaction expenses | $ 369,000 | $ 18,000 | $ 608,000 | $ 209,000 | ||
Worlds Franchisees | ||||||
Franchised and owned branch locations | Locations | 62 | 62 | 50 |
4. Debt (Details Narrative)
4. Debt (Details Narrative) | Sep. 29, 2019USD ($) |
Debt Disclosure [Abstract] | |
Letter of credit | $ 9,800,000 |
6. Analysis of Franchise Loca_3
6. Analysis of Franchise Locations (Details) - Locations | 9 Months Ended | 12 Months Ended |
Sep. 29, 2019 | Dec. 28, 2018 | |
Analysis Of Franchise Locations | ||
Franchised and owned branch locations, beginning | 97 | 79 |
Closed | (5) | (3) |
Opened | 60 | 21 |
Franchised and owned branch locations, ending | 152 | 97 |
8. Stock Based Compensation (De
8. Stock Based Compensation (Details) | 9 Months Ended |
Sep. 29, 2019$ / sharesshares | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Number of options outstanding, beginning balance | shares | 0 |
Options granted | shares | 160,831 |
Options forfeited | shares | (100,000) |
Number of options outstanding, ending balance | shares | 60,831 |
Weighted Average Exercise Price Per Share | |
Outstanding at beginning of period | $ .00 |
Granted | 5.86 |
Forfeited | 5.70 |
Outstanding at end of period | 6.11 |
Weighted Average Grant Date Fair Value Per Share | |
Outstanding at beginning of period | .00 |
Granted | 3.18 |
Forfeited | 3.16 |
Outstanding at end of period | $ 3.20 |
8. Stock Based Compensation (_2
8. Stock Based Compensation (Details 1) | 9 Months Ended |
Sep. 29, 2019$ / sharesshares | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Number of nonvested options outstanding, beginning balance | shares | 0 |
Granted | shares | 84,523 |
Forfeited | shares | (57,857) |
Vested | shares | (21,250) |
Number of nonvested options outstanding, ending balance | shares | 5,417 |
Weighted Average Exercise Price Per share | |
Outstanding nonvested at beginning of period | $ .00 |
Granted | 5.56 |
Forfeited | 5.70 |
Vested | 5.09 |
Outstanding nonvested at end of period | 5.48 |
Outstanding nonvested at beginning of period | .00 |
Granted | 3.05 |
Forfeited | 6.16 |
Vested | 2.93 |
Outstanding nonvested at end of period | $ 3.01 |
8. Stock Based Compensation (_3
8. Stock Based Compensation (Details 2) - USD ($) | 9 Months Ended | |
Sep. 29, 2019 | Dec. 28, 2018 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | ||
Number of options, outstanding | 60,831 | 0 |
Weighted average exercise price per share, outstanding | $ 6.11 | $ .00 |
Weighted average remaining contractual life (years), outstanding | 6 years 7 months 24 days | |
Aggregate intrinsic value, outstanding | $ 109,267 | |
Number of options, exercisable | 55,415 | |
Weighted average exercise price per share, exercisable | $ 6.17 | |
Weighted average remaining contractual life (years), exercisable | 6 years 5 months 16 days | |
Aggregate intrinsic value, exercisable | $ 37,916 |
8. Stock Based Compensation (_4
8. Stock Based Compensation (Details 3) - shares | 9 Months Ended | |
Sep. 29, 2019 | Dec. 28, 2018 | |
Number of options, outstanding | 60,831 | 0 |
Weighted average remaining contractual life (years), outstanding | 6 years 7 months 24 days | |
Number of options, exercisable | 55,415 | |
Weighted average remaining contractual life (years), exercisable | 6 years 5 months 16 days | |
4.80 - 7.00 | ||
Number of options, outstanding | 44,582 | |
Weighted average remaining contractual life (years), outstanding | 8 years 3 months 11 days | |
Number of options, exercisable | 39,166 | |
Weighted average remaining contractual life (years), exercisable | 8 years 2 months 26 days | |
7.01 - 8.76 | ||
Number of options, outstanding | 16,249 | |
Weighted average remaining contractual life (years), outstanding | 2 years 2 months 1 day | |
Number of options, exercisable | 16,249 | |
Weighted average remaining contractual life (years), exercisable | 2 years 2 months 1 day |
8. Stock Based Compensation (_5
8. Stock Based Compensation (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 29, 2019 | Dec. 28, 2018 | |
Options vested | 21,250 | |
Unrecognized share-based compensation expense | $ 1,600,000 | |
Unrecognized share-based compensation expense period of recogntion | 3 years 9 months 18 days | |
2016 Stock Incentive Plan | ||
Options vested | 55,000 | 76,000 |
9. Commitments and Contingenc_3
9. Commitments and Contingencies (Details) | Sep. 29, 2019USD ($) |
Year 1 | $ 38,747 |
Year 2 | 149,314 |
Thereafter | 12,155 |
Total | 200,215 |
Future Minimum Lease Payments | |
Year 1 | 40,922 |
Year 2 | 153,316 |
Thereafter | 12,155 |
Total | 206,392 |
Lease Liability Interest | |
Year 1 | (2,174) |
Year 2 | (4,003) |
Thereafter | 0 |
Total | $ (6,177) |
9. Commitments and Contingenc_4
9. Commitments and Contingencies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 29, 2019 | Sep. 28, 2018 | Sep. 29, 2019 | Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Weighted average discount rate, operating leases | 5.00% | 5.00% | ||
Weighted average remaining lease term, operating leases | 1 year 3 months 18 days | 1 year 3 months 18 days | ||
Lease expense | $ 296,000 | $ 0 | $ 296,000 | $ 0 |
10. Employee Retirement Plan (D
10. Employee Retirement Plan (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 29, 2019 | Dec. 28, 2018 | |
Employee Benefit and Share-based Payment Arrangement, Noncash Expense [Abstract] | ||
Matching contributions to the employees' accounts | $ 36,000 | $ 50,000 |