Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Mar. 27, 2020 | Jun. 30, 2019 | |
Document And Entity Information | |||
Entity Registrant Name | HireQuest, Inc. | ||
Entity Central Index Key | 0001140102 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity a Well-known Seasoned Issuer | No | ||
Entity a Voluntary Filer | No | ||
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 Interactive Data Current | Yes | ||
Entity Incorporation, State or Country Code | DE | ||
Entity File Number | 000-53088 | ||
Entity Public Float | $ 5,737,000 | ||
Entity Common Stock, Shares Outstanding | 13,536,472 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 |
Statement - Consolidated Conden
Statement - Consolidated Condensed Balance Sheets (Unaudited) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Current assets | ||
Cash and restricted cash | $ 4,187,450 | $ 1,291,317 |
Accounts receivable | 28,201,279 | 20,725,170 |
Notes receivable, net of reserve | 3,419,458 | 0 |
Prepaid expenses, deposits and other | 188,560 | 0 |
Prepaid workers' compensation | 822,938 | 0 |
Due from affiliates | 0 | 209,685 |
Current assets of discontinued operations | 201,440 | 0 |
Total current assets | 37,021,125 | 22,226,172 |
Property and equipment, net | 1,900,686 | 2,045,881 |
Notes receivable, net of current portion | 7,990,251 | 85,500 |
Deposits and other assets | 0 | 8,334 |
Total assets | 46,912,062 | 24,365,887 |
Current liabilities | ||
Accounts payable | 253,845 | 53,435 |
Other current liabilities | 1,893,846 | 95,223 |
Accrued benefits and payroll taxes | 1,113,904 | 504,035 |
Due to affiliates | 0 | 7,740,083 |
Due to franchisees | 3,610,596 | 2,430,448 |
Risk management incentive program liability | 1,811,917 | 1,852,328 |
Workers' compensation claims liability | 2,327,868 | 0 |
Total current liabilities | 11,011,977 | 12,675,552 |
Workers compensation claims liability, less current portion | 1,516,633 | 0 |
Franchisee deposits | 1,412,924 | 767,509 |
Deferred tax liability | 1,688,446 | 0 |
Total liabilities | 15,629,980 | 13,443,061 |
Commitments and contingencies (Note 11) | ||
Stockholders' equity | ||
Preferred stock - $0.001 par value, 416,666 shares authorized; none issued | 0 | 0 |
Common stock - $0.001 par value, 30,000,000 shares authorized; 13,518,036 and 9,939,668 shares issued and outstanding, respectively | 13,518 | 9,940 |
Additional paid-in capital | 27,584,610 | 6,938,953 |
Retained earnings | 3,683,954 | 3,973,933 |
Total stockholders' equity | 31,282,082 | 10,922,826 |
Total liabilities and stockholders' equity | $ 46,912,062 | $ 24,365,887 |
Statement - Consolidated Cond_2
Statement - Consolidated Condensed Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2019 | Dec. 31, 2018 |
Stockholders' equity | ||
Preferred stock par value | $ .001 | $ .001 |
Preferred stock shares authorized | 416,666 | 416,666 |
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 | 13,518,036 | 9,939,668 |
Common stock shares outstanding | 13,518,036 | 9,939,668 |
Consolidated Condensed Statemen
Consolidated Condensed Statements of Income (Operations) (Unaudited) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Revenue | $ 5,872,670 | $ 3,535,166 | $ 15,876,460 | $ 12,329,628 |
Selling, general, and administrative expenses | 3,131,312 | 1,339,504 | 12,692,297 | 5,325,000 |
Depreciation and amortization | 324,502 | 66,252 | 400,132 | 92,608 |
Income from operations | 2,416,856 | 2,129,410 | 2,784,031 | 6,912,020 |
Other miscellaneous income (expense) | (616) | 41,112 | 751,077 | 189,796 |
Interest and other financing expense | (37,748) | (5,000) | (559,585) | (19,697) |
Net income before income taxes | 2,378,492 | 2,165,522 | 2,975,523 | 7,082,119 |
Provision for income taxes | (1,399,406) | (13,277) | 3,480,996 | 21,029 |
Income (loss) from continuing operations | 3,777,898 | 2,178,799 | (505,473) | 7,061,090 |
Income (loss) from discontinued operations, net of tax | (315,067) | 11,421 | 215,494 | 56,097 |
Net income (loss) | $ 3,462,831 | $ 2,190,220 | $ (289,979) | $ 7,117,187 |
Basic earnings (loss) per share | ||||
Continuing operations | $ .28 | $ 0.22 | $ (.05) | $ 0.71 |
Discontinued operations | (0.02) | .00 | 0.02 | 0.01 |
Basic earnings (loss) per share | .26 | 0.22 | (.03) | 0.72 |
Diluted earnings (loss) per share | ||||
Continuing operations | .28 | 0.22 | (.05) | 0.71 |
Discontinued operations | (0.02) | .00 | 0.02 | 0.01 |
Diluted earnings (loss) per share | $ .26 | $ 0.22 | $ (0.03) | $ 0.72 |
Weighted average shares outstanding: | ||||
Basic | 13,488,436 | 9,939,668 | 11,588,776 | 9,939,668 |
Diluted | 13,490,636 | 9,939,668 | 11,588,776 | 9,939,668 |
Franchise Royalties | ||||
Revenue | $ 5,396,922 | $ 3,255,016 | $ 14,673,636 | $ 11,287,149 |
Service Revenue | ||||
Revenue | $ 475,748 | $ 280,150 | $ 1,202,824 | $ 1,042,479 |
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. 31, 2017 | 9,939,668 | |||
Beginning balance at Dec. 31, 2017 | $ 9,940 | $ 6,938,953 | $ 3,873,160 | $ 10,822,053 |
Net member (distributions) contributions | (7,016,414) | (7,016,414) | ||
Net income (loss) | 7,117,187 | 7,117,187 | ||
Ending balance, shares at Dec. 31, 2018 | 9,939,668 | |||
Ending balance at Dec. 31, 2018 | $ 9,940 | 6,938,953 | 3,973,933 | 10,922,826 |
Net member (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 | 255,162 | 255,162 | ||
Restricted common stock granted for services, shares | 250,000 | |||
Restricted common stock granted for services | $ 250 | 428,227 | 428,477 | |
Common stock issued for services, shares | 14,035 | |||
Common stock issued for services | $ 14 | 74,399 | 74,413 | |
Common stock issued for the exercise of options, shares | 31,667 | |||
Common stock issued for the exercise of options | $ 32 | 161,845 | 161,877 | |
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) | (289,979) | (289,979) | ||
Ending balance, shares at Dec. 31, 2019 | 13,518,036 | |||
Ending balance at Dec. 31, 2019 | $ 13,518 | $ 27,584,610 | $ 3,683,954 | $ 31,282,082 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Cash flows from operating activities | ||
Net (loss) income | $ (289,979) | $ 7,117,187 |
Income from discontinued operations | (215,494) | 0 |
Net income (loss) from continuing operations | (505,473) | 7,117,187 |
Adjustments to reconcile net income to net cash used in operations: | ||
Depreciation and amortization | 400,132 | 92,608 |
Stock based compensation | 758,053 | 0 |
Deferred taxes | (1,242,501) | 0 |
Gain on disposition of property and equipment | (174,626) | (34,912) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (7,476,109) | (730,879) |
Prepaid expenses, deposits and other assets | 1,588,118 | 1,385 |
Prepaid workers' compensation | (334,177) | 0 |
Due from affiliates | 218,018 | 540,117 |
Accounts payable | 200,411 | 9,031 |
Risk management incentive program liability | (40,411) | 0 |
Other current liabilities | (203,153) | 0 |
Accrued benefits and payroll taxes | (1,402,184) | (453,510) |
Due to franchisees | 1,180,148 | (1,466,868) |
Workers' compensation claims liability | 2,004,591 | 0 |
Net cash (used in) provided by operating activities - continuing operations | (5,029,163) | 5,074,159 |
Net cash provided by operating activities - discontinued operations | 9,986,976 | 0 |
Net cash provided by operating activities | 4,957,813 | 5,074,159 |
Cash flows from investing activities | ||
Purchase of property and equipment | (507,602) | (411,309) |
Proceeds from the sale of property and equipment | 735,537 | 560,277 |
Proceeds from payments on notes receivable | 3,563,011 | 0 |
Cash acquired in acquisition | 5,376,543 | 0 |
Cash issued for notes receivable | 0 | (85,500) |
Net change in in franchisee deposits | 645,416 | 90,356 |
Net cash provided by investing activities | 9,812,905 | 153,824 |
Cash flows from financing activities: | ||
Payments on line of credit | 712,354 | 0 |
Payments to affiliates | (5,535,797) | 0 |
Proceeds from affiliates | 0 | 2,803,828 |
Purchase of treasury stock | (8,368,926) | 0 |
Net contributions (distributions) by HQ, LLC members | 1,155,907 | (7,016,414) |
Proceeds from the conversion of stock options | 161,877 | 0 |
Net cash used by financing activities | (11,874,585) | (4,212,586) |
Net increase in cash | 2,896,133 | 1,015,397 |
Cash, beginning of period | 1,291,317 | 275,920 |
Cash, end of period | 4,187,450 | 1,291,317 |
Supplemental disclosure of non-cash investing and financing activities | ||
Stock issued for acquistion | 26,942,325 | 0 |
Notes received for the sale of branches | 14,887,220 | 0 |
Accounts receivable received for the sale of branches | 2,204,286 | 0 |
Supplemental disclosure of cash flow information | ||
Interest paid | 559,585 | 0 |
Income taxes paid | $ 1,819,344 | $ 0 |
1. Overview and Summary of Sign
1. Overview and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 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 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 administrative personnel. As of December 31, 2019 we had 147 franchisee-owned offices in 32 states and the District of Columbia. We are the employer of record to approximately 67,000 employees annually, who in turn provide services 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. On September 29, 2019, we finalized the conversion of the last of our company-owned offices to franchise-owned offices. Between July 15, 2019 and that date, we also owned and operated offices. HQI is the product of a merger between Command Center, Inc. (“Command Center”), and Hire Quest Holdings, LLC, (“Hire Quest Holdings”). We refer to Hire Quest Holdings collectively with its wholly-owned subsidiary, Hire Quest, LLC, as “Legacy HQ.” We refer to this merger, which closed on July 15, 2019, as the “Merger.” Upon the closing of the Merger, all of the ownership interests in Legacy HQ were converted into the right to receive an aggregate number of shares representing 68% of the total shares of the Company’s common stock outstanding immediately after the Merger. Because the Legacy HQ security holders received a majority of the equity securities and voting rights of the combined company upon closing of the Merger, Legacy HQ is considered to be the accounting acquirer. This means that Legacy HQ will allocate the purchase price to the fair value of Command Center’s assets acquired and liabilities assumed on the acquisition date. This also means that 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 the Merger. For additional information related to the Merger, see Note 2 – Acquisitions Basis of Presentation We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented. Reporting Period End Date As of January 1, 2019, we changed our financial reporting period from a calendar year to a fiscal year. Then, in November of 2019, we changed our financial reporting period back to a calendar year. Because the fiscal quarter end dates coincided with the calendar quarter end dates in the first and second quarter, this change had no effect on the comparability of these financial statements. In the third quarter, there was a one-day difference between the fiscal quarter end date and the calendar quarter end date, which did not have a material effect on the comparability of that quarter. Consolidation The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. GAAP requires the primary beneficiary of a variable interest entity (a “VIE”), to consolidate that entity. To be the primary beneficiary of a VIE, an entity must have both the power to direct the activities that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. We provide acquisition financing to some of our franchisees that results in some of them being considered a VIE. We have reviewed these franchisees and determined that we are not the primary beneficiary of any of these entities, and accordingly, these entities have not been consolidated. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates. Significant estimates and assumptions underlie our workers’ compensation claim liabilities, our workers’ compensation Risk Management Incentive Program, our deferred taxes, and estimated fair value of assets and liabilities acquired. Revision During the fourth quarter of 2019, we identified a misstatement in the amount presented in our due to franchisee liability reported in prior years. The misstatement resulted from an accumulation of errors related to transferring items from the franchisee settlement statements to the Company’s general ledger. We determined these errors accumulated prior to 2018. The accumulated error would have been material to the financial statements as of December 31, 2019 if we applied it in its entirety to them. Pursuant to the guidance of Staff Accounting Bulletin No. 99, Materiality, we concluded that the errors were not material to any of our prior year consolidated financial statements. The accompanying consolidated balance sheet as of December 31, 2018 includes a cumulative revision relating to this misstatement. This revision did not have any material effect on income from operations, net income, or cash flows, nor did it affect our past compliance with debt covenants. This misstatement had no effect on our cash balances. The following table compares previously reported balances, adjustments, and revised balances as of December 31, 2018. Balance sheet changes Previously reported 2018 Adjustment Revised 2018 Due to franchisee $ 620,385 $ 1,810,063 $ 2,430,448 Retained earnings 5,783,996 (1,810,063 ) 3,973,933 Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable consist of amounts due for labor services from customers of franchises and of previously company-owned offices. At December 31, 2019, substantially all of our accounts receivable were due from franchises. At December 31, 2018, approximately 99% and 1% of our accounts receivable were due from franchises and previously company-owned offices, respectively. We own the accounts receivable from labor services provided by our franchises. Accounts receivable that age beyond 84 days are charged back to our franchises. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable. For labor services provided by previously company-owned offices, 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 accounts receivable generated by company-owned offices was approximately $168,000 and $-0- at December 31, 2019 and December 31, 2018, respectively. Revenue Recognition Our primary source of revenue comes from royalty fees based on the operation of our franchised locations. Royalty fees from our HireQuest Direct business line are based on a percentage of sales for services our franchisees provide to the ultimate customers and usually range from 5% to 8%. Royalty fees from our HireQuest business line are 4.5% of the payroll we fund plus 18% of the gross margin for the territory. Revenue is presented on a net basis as agent as opposed to a gross basis as principal, and recognized when we satisfy our performance obligations. Our performance obligations take the form of a franchise license and promised services. Promised services consist primarily of paying temporary employees, completing all payroll related statutory obligations, and providing workers' compensation insurance. These performance obligations are interrelated so we do not consider them to be individually distinct and therefore account for them as a single performance obligation. Service revenue consists of interest we charge our franchisees on overdue customer accounts receivable and other miscellaneous fees for optional services we provide. Interest income is recognized based on the effective interest rate applied to the outstanding principal balance. Revenue for optional services is recognized as services are provided. Below are summaries of our revenue disaggregated by brand: December 31, 2019 December 31, 2018 HireQuest Direct $ 13,621,998 $ 10,185,172 HireQuest 1,051,637 1,101,977 Total $ 14,673,636 $ 11,287,149 Workers’ Compensation Claims Liability We maintain reserves for workers’ compensation claims based on estimated future cost. This reserve includes claims that have been reported but not settled, as well as claims that been incurred but not reported. Annually, we use third party actuarial estimates of the future costs of these claims discounted by a 3% present value interest rate to estimate the amount of our reserves. Quarterly, we use development factors provided by a third-party actuary to estimate the amount of our reserves. Adjustments are made as necessary. If the actual cost of the claims exceeds the amount estimated, additional reserves may be required. Workers’ Compensation Risk Management Incentive Program We pay to our qualifying 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 refer to as the Risk Management Incentive Program, incentivizes our franchisees to keep our temporary employees safe and to control their exposure to large workers' compensation claims. Stock-Based Compensation Periodically, we issue restricted common shares or options to purchase our common shares to our officers, directors, or employees. We measure compensation costs for equity awards at their fair value on their grant date and expense these costs over the service period on a straight line basis. he fair value of option awards is determined using the Black-Scholes valuation model. Provision for Income Taxes We account for provision (benefit) for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those deferred amounts. We record valuation allowances for deferred tax assets that more likely than not will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Our policy is to recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in selling, general, and administrative expenses in our consolidated statements of operations. We have analyzed our filing positions in all jurisdictions where we are required to file returns, and found no positions th The Work Opportunity Tax Credit (“WOTC”) is a source of fluctuation in our effective income tax rate. The WOTC is designed to encourage the hiring of workers from certain disadvantaged targeted categories, and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. We estimate the amount of WOTC we expect to receive based on wages certified in the current period. 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 the portion of the purchase price that exceeds the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed as goodwill. We expense acquisition related costs as we incur them. Earnings per Share We calculate basic earnings (loss) per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. We do not include the impact of any potentially dilutive common stock equivalents in our basic earnings (loss) per share calculations. 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 December 31, 2019 totaled approximately 29,000. Diluted common shares outstanding were calculated using the treasury stock method and are as follows: Year ended December 31, 2019 December 31, 2018 Weighted average number of common shares used in basic net income per common share 11,588,776 9,939,668 Dilutive effects of stock options - - Weighted average number of common shares used in diluted net income per common share 11,588,776 9,939,668 Property and Equipment We record property and equipment at cost. We compute depreciation using the straight-line method over the estimated useful lives, typically three to five years. Repairs and maintenance are expensed as incurred. When assets are sold or retired, we eliminate cost and accumulated depreciation from the consolidated balance sheet and reflect a gain or loss in the consolidated statement of income. Advertising and Marketing Costs We expense advertising and marketing costs as we incur them. These were $449,000 and $7,000 in 2019, and 2018, respectively. The expense in 2019 included rebranding expenses incurred in relation to the Merger. These costs are included in general and administrative expenses. Fair Value Measures Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the measurement date. Our policy on fair value measures requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The policy establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The policy prioritizes the inputs into three levels that may be used to measure fair value: Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to their short-term nature.The fair value of notes receivable approximate the outstanding principal balance and are reviewed for impairment at least annually. Fair value Level December 31, 2019 December 31, 2018 Cash 1 $ 4,187,450 $ 1,291,317 Notes receivable 2 11,409,709 85,500 Accounts receivable 2 28,201,279 20,725,170 Discontinued Operations During the quarter ended September 29, 2019, we sold substantially all of the offices acquired in the Merger. Accordingly, the assets and liabilities, operating results, and cash flows for these businesses are presented as discontinued operations, separate from our continuing operations, for all periods presented in our consolidated financial statements and footnotes, unless indicated otherwise. Notes Receivable Notes receivable consist primarily of amounts due to us related to the financing of franchised locations. We report notes receivable at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally secured by the assets of each location and the ownership interests in the franchise. We monitor the financial condition of our franchisees and record provisions for estimated losses when we believe it is probable that our franchisees will be unable to make their required payments. O ur allowance for losses on notes receivable was $-0- at December 31, 2019 and December 31, 2018. Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”), issued new revenue recognition guidance under Accounting Standards Update (“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, 2018, we adopted the new revenue recognition guidance using the modified retrospective method for all open contracts and related amendments. 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 adopted as of January 1, 2019. The adoption of this guidance did not have a material impact on expense recognition. 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. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 was issued as a means to reduce the complexity of accounting for income taxes for those entities that fall within the scope of the accounting standard. The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. We are currently evaluating the impacts of adoption of the new guidance to our consolidated financial statements. 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 | 12 Months Ended |
Dec. 31, 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 (the “Merger Agreement”). Upon the closing of the Merger, all of the membership interests in Legacy HQ were converted into the right to receive 68% of the Company’s common stock outstanding immediately after the closing, or 9,939,668 shares. We accounted for the Merger as a reverse acquisition. As such, Legacy HQ is considered the accounting acquirer and Legacy HQ's historical financial statements replace Command Center’s historical financial statements following the completion of the Merger. The results of operations of both companies are included in our financial statements for all periods beginning July 15, 2019. 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 adjustment to the values presented below: Common stock 4,677,487 Closing share price on July 15, 2019 $ 5.76 Stock consideration $ 26,942,325 Accounts receivable $ 10,480,907 Cash and cash equivalents 5,376,543 Identifiable intangible assets 17,015,857 Other current assets 725,453 Property, plant and equipment, net 281,186 Right-of-use asset 1,642,695 Current liabilities (3,124,081 ) Lease liabilities (1,624,461 ) Deferred tax liability (2,930,947 ) Other liabilities (900,827 ) Preliminary purchase price allocation $ 26,942,325 The purchase consideration above differs from what was previously disclosed due to an immaterial adjustment to the identifiable intangible assets and the deferred tax liability. The identifiable intangible assets, portions of which consisted of customer lists, were allocated to the offices purchased. The following table presents the amount of Command Center’s revenue and net income since the July 15, 2019 acquisition date included in our consolidated statement of operations for the year ended December 31, 2019: From July 15, 2019 through December 31, 2019 Total revenue 1,768,550 Net income 1,171,677 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. Year ended December 31, 2019 December 31, 2018 Franchise royalties $ 16,176,219 $ 12,402,072 Net Income 5,090,045 6,381,936 Basic earnings per share $ 0.38 $ 0.48 Basic weighted average shares outstanding 13,294,201 13,266,840 Diluted earnings per share $ 0.38 $ 0.48 Diluted weighted average shares outstanding 13,294,736 13,266,840 These calculations reflect the decreased amortization expense, the decreased merger related expenses, 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 stockholders, 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.” |
3. Discontinued Operations
3. Discontinued Operations | 12 Months Ended |
Dec. 31, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued Operations | We sold the offices we acquired from Command Center to franchisees in the third quarter of 2019 through sales of operating office 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 offices outside of our franchise system to an unaffiliated third party, and we no longer conduct business in the state of California. A summary of total consideration received and assets sold is as follows: Notes receivable $ 14,884,620 Accounts receivable 2,204,286 Cash 221,845 Consideration received 17,310,751 Customer lists $ 17,015,857 Lease and utility deposits 100,009 Fixed assets 57,448 Gain 137,437 Sale price allocation $ 17,310,751 July Sale On July 15, 2019, we closed on the sale of certain assets related to the operations of company-owned offices in Conway and North Little Rock, AR; Flagstaff, Mesa, North Phoenix, Phoenix, Tempe, Tucson, and Yuma, AZ; Aurora and Thornton, CO; Atlanta, GA; College Park and Speedway, IN; Shreveport, LA; Baltimore and Landover, MD; Oklahoma City and Tulsa, OK; Chattanooga, Madison, Memphis, and Nashville, TN; Amarillo, Austin, Houston, Irving, Lubbock, Odessa, and San Antonio, TX; and Roanoke, VA, or collectively, the July Franchise Assets. In connection with their purchases, the buyers executed franchise agreements with us and became franchisees. The aggregate sale 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. Regarding the note related to the territory containing Phoenix, we estimated the future revenue streams of these locations to determine the fair value of this note, which was estimated to be $1.2 million. We sold a subset of these July Franchise Assets to buyers in which some of our directors and significant stockholders have direct or indirect interests (the “Worlds Buyers”). For more information related to the Worlds Buyers and other Worlds Franchisees, see Note 4 – Related Party Transactions Contemporaneously with the sale of these assets, we entered into an agreement with Hire Quest Financial, LLC ("HQF), an affiliate of a director, Edward Jackson, and our President and CEO, Richard Hermanns, who are also our two largest stockholders, 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 On September 29, 2019, we closed on the sale of certain assets related to company-owned offices in Coeur D’Alene, ID; Griffith, IN; Bloomington, Brooklyn Park, Cambridge, Hopkins, St. Paul, and Wilmar, MN; Bismarck, Dickinson, Fargo, Grand Forks, Minot, Watford City, and Williston, ND; Omaha and Bellevue, NE; Hillsboro, OR; Sioux Falls, SD; and Bellingham, Everett, Kent, Mt. Vernon, Seattle, Spokane, Tacoma, and Vancouver, WA , or collectively, the September Franchise Assets. We simultaneously entered into franchise agreements with affiliates of the buyer, pursuant to which the affiliates will operate these offices as franchisees under franchise agreements with us. 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. In early October, we received a $3.0 million cash payment on these notes. In accordance with an agreement with the buyer, this cash payment 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 Sale On September 27, 2019, we closed on the sale of substantially all of the operating and intangible assets of our four California offices in Corona, Hayward, Sacramento, and Fresno, or collectively the California Assets, to Resolute Enterprises, LLC, or Resolute, a Florida limited liability company and unaffiliated third party. We retained the net working capital of these offices. The aggregate purchase price for the California Assets consisted of $1.8 million paid in the form of a four-year promissory note accruing interest at an annual rate of 10% issued by Resolute to the Company. The promissory note is secured by the California Assets. The California Purchase Agreement contained negotiated representations, warranties, covenants, and indemnification provisions by the parties, which are believed to be customary for transactions of this type. The income from discontinued operations amounts as reported on our consolidated statements of operations was comprised of the following amounts: Year ended December 31, 2019 December 31, 2018 Revenue $ 13,932,769 $ 722,849 Cost of staffing services 9,946,836 629,448 Gross profit 3,985,933 93,401 Gain on sale 137,437 - SG&A 3,836,045 18,603 Net income before income taxes 287,325 74,798 Provision for income taxes 71,831 18,699 Net income $ 215,494 $ 56,097 We continue to be involved with all of the offices we sold through franchise agreements, with the exception of the offices sold in California. For the year ended December 31, 2019, approximately $1.4 million is included in royalty revenue in our consolidated statement of operations that originated from sold locations that subsequently became franchisees. The term of the franchise agreements is five years, however we expect the franchise agreements to be renewed at the end of the current term. |
4. Related Party Transactions
4. Related Party Transactions | 12 Months Ended |
Dec. 31, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | HQI shares some common ownership with Hire Quest Financial, LLC; Hirequest Insurance Company; Brave New World Services, LLC, formerly known as Hire Quest LTS, LLC; Bass Underwriters, Inc. and its related entities; Insurance Technologies, Inc., a number of our franchisees; and the not-for-profit Higher Quest Foundation, Inc. Hire Quest Financial LLC (“HQF”) Richard Hermanns, our President, CEO, Chairman of the Board, and most significant stockholder, and Edward Jackson, a member of our Board and a significant stockholder, 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 offices, also known as system-wide sales. Legacy HQ terminated this arrangement in March, 2018. Amounts included in our statements of operations for the year ended December 31, 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 December 31, 2019 and December 31, 2018, HQI owed HQF approximately $-0- and $6.7 million, respectively. Hirequest Insurance Company (“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 6 – Workers’ Compensation Insurance and Reserves Premiums paid by Legacy HQ to HQ Ins. for workers compensation insurance during the years ended December 31, 2019 and December 31, 2018 are approximately $3.6 million and $5.5 million, respectively. Brave New World Services, LLC, formerly known as Hire Quest LTS (“HQ LTS”) Mr. Jackson and a relative of Mr. Hermanns collectively own a majority of HQ LTS. Historically, HQ LTS 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 year ended December 31, 2019 and December 31, 2018 are approximately $19,000 and $38,000, respectively. Jackson Insurance Agency, Bass Underwriters, Inc., and Insurance Technologies, Inc. (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 stockholders 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 property, casualty, general liability, and cybersecurity insurance. Since July 15, 2019, it has brokered these same policies for HQI. It also brokers certain insurance policies on behalf of some of our franchisees, including the Worlds Franchisees. Premiums paid to Bass during the year ended December 31, 2019 and December 31, 2018 are approximately $613,000 and $212,000, respectively. Bass does not retain the majority of the premiums but does profit by making a commission. On October 24, 2019, we entered into an agreement with Insurance Technologies, an IT development and security firm, to add certain cybersecurity protections to our existing information technology systems and to assist in developing future information technology systems within our HQ Webconnect software. Insurance Technologies invoiced us $60,000 in 2019 pursuant to this agreement. The Worlds Franchisees Mr. Hermanns and Mr. Jackson have direct or indirect ownership interests in certain of our franchisees (the “Worlds Franchisees”). There were 20 Worlds Franchisees at December 31, 2019 that operated 57 of our 147 offices. There were 23 Worlds Franchisees that operated 50 of Legacy HQ’s 97 offices at December 31, 2018. Balances regarding the Worlds Franchisees are summarized below: December 31, 2019 December 31, 2018 Due from franchisee $ 993,495 $ 254,943 Risk management incentive program liability (asset) 1,027,960 ( 988,562 ) Transactions regarding the Worlds Franchisees are summarized below: Year ended December 31, 2019 December 31, 2018 Franchisee royalties $ 6,964,690 $ 5,900,637 |
5. Line of Credit
5. Line of Credit | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
Line of Credit | In July 2019, we entered into an agreement with Branch Banking and Trust Company, now Truist Bank (“BB&T”), for a $30 million line of credit with a $15 million sublimit for letters of credit. At December 31, 2019, $9.8 million was utilized by outstanding letters of credit that secure our obligations to our workers’ compensation insurance carrier, $1 million was utilized by a letter of credit that secures our paycard funding account, leaving $19.2 million available under the agreement for additional borrowings. For additional information related to the letter of credit securing our workers’ compensation obligations see Note 6 – Workers’ Compensation Insurance and Reserves. This line of credit is scheduled to mature on May 31, 2024. The current agreement bears interest at a variable rate equal to the Daily One Month London Interbank Offering Rate, or LIBOR, 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 the loan agreement. At December 31, 2019 the effective interest rate was 3.0%. 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. This agreement requires us to comply with a fixed charge coverage ratio of at least 1.10:1.00, which will be tested quarterly, on a rolling four quarter basis, commencing with the four quarters ending September 30, 2020. Our obligations under this agreement are subject to acceleration upon the occurrence of an event of default as defined in the loan agreement. 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, 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 4 – Related Party Transactions |
6. Workers' Compensation Insura
6. Workers' Compensation Insurance and Reserves | 12 Months Ended |
Dec. 31, 2019 | |
Insurance [Abstract] | |
Workers' Compensation Insurance and Reserves | Beginning in March 2014, Legacy HQ obtained its workers’ compensation insurance through Chubb Limited and ACE American Insurance Company (collectively, “ACE”), in all states in which it operated, other than monopolistic jurisdictions. The ACE policy was a high deductible policy pursuant to which 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 the deductible occurring on or after July 15, 2019. The primary responsibility of all claims occurring before July 15, 2019 remains with HQ Ins. 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, in connection with the Merger, we assumed all of the workers’ compensation claims of Command Center. We also assumed Command Center’s workers’ compensation policy with ACE. 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 we accomplished by providing letters of credit under our agreement with BB&T. For workers’ compensation claims originating in the monopolistic jurisdictions of 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. The following table reflects the changes in our workers compensation claims liability: December 31, 2019 December 31, 2018 Estimated future claims liabilities at the beginning of the period $ - $ - Claims paid during the period (1,237,977 ) - Additional future claims liabilities recorded during the period 5,082,478 - Estimated future claims liabilities at the end of the period $ 3,844,501 $ - |
7. Analysis of Franchised and C
7. Analysis of Franchised and Company-Owned Offices | 12 Months Ended |
Dec. 31, 2019 | |
Analysis Of Franchised And Company-owned Offices | |
Analysis of Franchised and Company-Owned Offices | Below is a summary of changes in the number of offices: Franchised offices, December 31, 2017 79 Closed in 2018 (3 ) Opened in 2018 21 Franchised offices, December 31, 2018 97 Closed in 2019 (10 ) Opened in 2019 60 Franchised offices, December 31, 2019 147 |
8. Stockholders' Equity
8. Stockholders' Equity | 12 Months Ended |
Dec. 31, 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. Issuance of Common Stock In October 2019, we issued 8,750 shares of stock pursuant to the exercise of 8,750 common stock options with a strike price of $5.50 for a total purchase price of $48,125. In December 2019, we issued 22,917 shares of stock pursuant to the exercise of 22,917 common stock options with weighted average strike price of $4.96 for a total purchase price of $113,752. |
9. Stock Based Compensation
9. Stock Based Compensation | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Stock Based Compensation | Employee Stock Incentive Plan Our 2008 Stock Incentive Plan (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. In September 2019, our Board approved a share purchase match program to encourage ownership and align the interests of key employees and directors. Under this program, we will match 20% of any shares of our commons stock purchased on the open market by key employees and directors up to $25,000 in aggregate value within any one-year period. These shares vest on the two year anniversary of the date on which the shares were purchased. We issued approximately 2,000 shares under this program in 2019. In September 2019, we issued 160,000 shares of restricted common stock 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 stockholder meeting to be held in 2020, and the remainder vesting in equal portions on each of the first two anniversaries of that date. In November 2019, we issued 9,833 shares of common stock valued at $58,506 to certain members of our Board of Directors for their services. Of these 9,833 shares, 8,194 shares vest equally over the following three months, and the remaining 1,639 shares vest equally over the following twenty-four months. Also in November of 2019, we issued 4,202 shares of common stock valued at $25,002 to an employee in lieu of cash for a bonus, which vest equally over the following three months. The following table summarizes our restricted stock outstanding at December 31, 2018, and changes during the period ended December 31, 2019. Shares Weighted average grant date price Non-vested, December 31, 2018 - $ - Granted 264,035 7.15 Vested (8,401 ) 6.19 Non-vested, December 31, 2019 255,634 7.18 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, the 2016 Plan, and the corresponding award documents. There were approximately 24,000 and -0- stock options vested at December 31, 2019 and December 31, 2018, respectively. The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities are based on the Company’s historical data and implied volatility. The Company uses historical data to estimate expected employee forfeitures of stock options. The expected life of options granted is management’s best estimate using recent and expected transactions. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The weighted-average assumptions used in the model were as follows: 2019 2018 Expected term (years) 2.3 - 8.9 - Expected volatility 46.8 - 63.1 % 0.0 % Dividend yield 0.0 % 0.0 % Risk-free rate 1.7 - 2.4 % 0.0 % Weighted average grant date fair value $ 3.18 $ - The following table summarizes our stock options outstanding at December 31, 2018, and changes during the period ended December 31, 2019. Number of shares underlying options Weighted average exercise price per share Weighted average grant date fair value Outstanding, December 31, 2018 - $ - $ - Granted 160,832 5.86 3.18 Forfeited (100,000 ) 5.70 3.16 Exercised (31,667 ) 5.11 2.71 Outstanding, December 31, 2019 29,165 7.20 3.76 The following table summarizes our non-vested stock options outstanding at December 31, 2018, and changes during the period ended December 31, 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 3.16 Vested (21,250 ) 5.21 2.76 Non-vested, December 31, 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 $7.09 at December 31, 2019: Number of shares underlying options Weighted average exercise price per share Weighted average remaining contractual life (years) Aggregate intrinsic value Outstanding 29,166 $ 7.20 4.72 $ 50,637 Exercisable 23,749 7.59 3.89 12,237 At December 31, 2019, there was unrecognized stock-based compensation expense totaling approximately $1.4 million relating to non-vested options and restricted stock grants that will be recognized over the next 3.7 years. |
10. Property and Equipment
10. Property and Equipment | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | The following table summarizes the book value of our assets and accumulated depreciation. December 31, 2019 December 31, 2018 Land $ 472,492 $ 487,492 Buildings and improvements 1,231,308 1,305,280 Furniture and fixtures 762,314 377,110 Construction in progress 62,751 157,350 Accumulated depreciation (628,179 ) (281,351 ) Total property and equipment, net $ 1,900,686 $ 2,045,881 Construction in progress consists primarily of capitalized costs related to an addition to our corporate headquarters and internally-developed software. Depreciation expense related to property and equipment totaled approximately $400,000 and $93,000 during the years ended December 31, 2019 and December 31, 2018, respectively. |
11. Commitments and Contingenci
11. Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Consulting Agreement As contemplated by the Merger Agreement, on July 15, 2019, we entered into a consulting arrangement with Dock Square. Pursuant to this consulting arrangement, Dock Square introduces prospective customers and expands relationships with our existing customers for which in return it is eligible to receive unregistered shares of our common stock, subject to certain performance metrics and vesting terms. The grant of any such shares by us would be based on our gross revenue generated from the services of Dock Square as measured over a 12 month period. Upon the grant of any such shares, 50% of such granted shares would vest immediately, and the remaining 50% of such granted shares would be subject to a vesting requirement linked to the gross revenue generated from the services of Dock Square measured over a 3 year period. We refer to any such shares as the “Performance Shares.” We anticipate the maximum aggregate number of Performance Shares issuable under the consulting arrangement would not exceed 1.6 million shares. Any Performance Shares would be in addition to the pro rata portion of the shares of our common stock that Dock Square’s members received as merger consideration at the closing of the Merger, along with the other investors in Legacy HQ. Dock Square would receive any declared and paid dividends on issued Performance Shares, including the unvested portion of such shares during the 3-year vesting measurement period, and the issued but unvested Performance Shares would vest upon a change of control. In addition, Dock Square received piggy-back registration rights with respect to its Performance Shares issued and vested at the time of such registration. To date, no shares have been issued to Doc Square as performance targets have not been met. Franchise Acquisition Indebtedness We financed the purchase of several offices by new franchises with notes receivable. In some instances, this financing resulted in certain franchises being considered VIE’s. We have determined that we are not required to consolidate these entities because we do not have the power to direct these entities’ daily operations. If these franchises default on these notes, we bear the risk of loss of the outstanding balance on these notes, less what we could recoup from the potential resale of the repossessed office. The balance due from the franchises determined to be VIE’s on December 31, 2019 was approximately $2.5 million. Legal Proceedings From time to time, we are involved in various legal and administrative proceedings. Based on 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 December 31, 2019. |
12. Income Tax
12. Income Tax | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Tax | In conjunction with the Merger, Legacy HQ changed its status as an S-corporation to a C-corporation, and changed the method of accounting for income taxes from the cash basis of accounting to the accrual basis of accounting. This change in accounting basis resulted in the recognition an additional income tax of approximately $4.3 million that will paid over the next four years. In relation to this change in accounting method, we have a deferred tax liability of approximately $3.4 million. The Merger also resulted in the recognition of intangible assets that had no basis for income tax purposes, with the subsequent sale of these intangible assets resulting in a taxable gain. The provision for income taxes is comprised of the following: December 31, 2019 December 31, 2018 Current: Federal $ 3,551,418 $ - State 996,510 39,728 Deferred: Federal (1,113,042 ) - State 46,110 - Provision for income taxes $ 3,480,996 $ 39,728 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred taxes are as follows: December 31, 2019 December 31, 2018 Deferred tax assets and liabilities Workers' compensation claims liability $ 947,023 $ - Depreciation and amortization 279,990 - Bad debt reserve 41,436 - Accrued vacation 37,771 - Cash to accrual Section 481 adjustment (3,000,216 ) - Stock based compensation 5,550 - Total deferred tax liability $ (1,688,446 ) $ - Management estimates that our effective tax rates was approximately 123% for 2019. The items accounting for the difference between income taxes computed at the statutory federal income tax rate and the income taxes reported on the statements of income are as follows: December 31, 2019 December 31, 2018 Income tax expense based on statutory rate $ 624,860 21.0 % $ - 0.0 % Permanent differences (789,810 ) (26.5 %) - 0.0 % State income taxes expense net of federal taxes 820,698 27.6 % - 0.0 % WOTC (498,000 ) (16.7 %) - 0.0 % HQ Conversion to C Corp 3,320,594 111.6 % - 0.0 % Other 2,654 0.1 % 39,728 0.6 % Total taxes (benefits) on income $ 3,480,996 117.1 % $ 39,728 0.6 % |
13. Notes Receivable
13. Notes Receivable | 12 Months Ended |
Dec. 31, 2019 | |
Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract] | |
Notes Receivable | Some franchisees have borrowed funds from us, primarily to finance the initial purchase price of franchised locations. Notes outstanding were approximately $11.4 million and $86,000 as of December 31, 2019 and December 31, 2018, respectively, net of allowance for losses. Notes receivable bear interest at a fixed rate between 6.0% and 10.0%. Notes are generally secured by the assets of each location and the ownership interests in the franchisee. Interest income on franchisee notes is reported in other miscellaneous income in our consolidated statements of operations and was approximately $280,000 and $16,000 in 2019 and 2018, respectively. Based on our review of the financial condition of our franchisees that have borrowed funds, we have not established any allowance for losses as of December 31, 2019 and December 31, 2018. The following table summarizes changes in our notes receivable balance: Balance as of December 31, 2017 $ - Notes issued 85,500 Payments received - Balance as of December 31, 2018 85,500 Notes issued 14,887,620 Payments received (3,563,411 ) Balance as of December 29, 2019 $ 11,409,709 |
14. Unaudited Quarterly Results
14. Unaudited Quarterly Results of Operations | 12 Months Ended |
Dec. 31, 2019 | |
Quarterly Financial Information Disclosure [Abstract] | |
Unaudited Quarterly Results of Operations | The following table displays our unaudited consolidated statement of operations for the fourth quarter ended December 31, 2019 and December 31, 2018: Quarter ended December 31, 2019 December 31, 2018 Franchise royalties $ 5,396,922 $ 3,255,016 Service revenue 475,748 280,150 Total revenue 5,872,670 3,535,166 Selling, general and administrative expenses 3,131,312 1,339,504 Depreciation and amortization 324,502 66,252 Income from operations 2,416,856 2,129,410 Other miscellaneous income (expense) (616 ) 41,112 Interest and other financing expense (37,748 ) (5,000 ) Net income before income taxes 2,378,492 2,165,522 Benefit for income taxes (1,399,406 ) (13,277 ) Income from continuing operations 3,777,898 2,178,799 Income (loss) from discontinued operations, net of tax (315,067 ) 11,421 Net income $ 3,462,831 $ 2,190,220 Basic earnings per share Continuing operations $ 0.28 $ 0.22 Discontinued operations (0.02 ) 0.00 Total $ 0.26 $ 0.22 Diluted earnings per share Continuing operations $ 0.28 $ 0.22 Discontinued operations (0.02 ) 0.00 Total $ 0.26 $ 0.22 Weighted average shares outstanding: Basic 13,488,436 9,939,668 Diluted 13,490,636 9,939,668 |
15. Subsequent Events
15. Subsequent Events | 12 Months Ended |
Dec. 31, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | COVID-19 Pandemic In December 2019, a novel strain of coronavirus disease ("COVID-19") was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The extent of COVID-19's effect on our operational and financial performance will depend on future developments, including the duration, spread, and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, if the pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect on the Company's business, results of operations, financial condition, and cash flows. |
1. Overview and Summary of Si_2
1. Overview and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Nature of Business | HireQuest, Inc. (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of 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 administrative personnel. As of December 31, 2019 we had 147 franchisee-owned offices in 32 states and the District of Columbia. We are the employer of record to approximately 67,000 employees annually, who in turn provide services 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. On September 29, 2019, we finalized the conversion of the last of our company-owned offices to franchise-owned offices. Between July 15, 2019 and that date, we also owned and operated offices. HQI is the product of a merger between Command Center, Inc. (“Command Center”), and Hire Quest Holdings, LLC, (“Hire Quest Holdings”). We refer to Hire Quest Holdings collectively with its wholly-owned subsidiary, Hire Quest, LLC, as “Legacy HQ.” We refer to this merger, which closed on July 15, 2019, as the “Merger.” Upon the closing of the Merger, all of the ownership interests in Legacy HQ were converted into the right to receive an aggregate number of shares representing 68% of the total shares of the Company’s common stock outstanding immediately after the Merger. Because the Legacy HQ security holders received a majority of the equity securities and voting rights of the combined company upon closing of the Merger, Legacy HQ is considered to be the accounting acquirer. This means that Legacy HQ will allocate the purchase price to the fair value of Command Center’s assets acquired and liabilities assumed on the acquisition date. This also means that 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 the Merger. For additional information related to the Merger, see Note 2 – Acquisitions |
Basis of Presentation | We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented. |
Reporting Period End Date | As of January 1, 2019, we changed our financial reporting period from a calendar year to a fiscal year. Then, in November of 2019, we changed our financial reporting period back to a calendar year. Because the fiscal quarter end dates coincided with the calendar quarter end dates in the first and second quarter, this change had no effect on the comparability of these financial statements. In the third quarter, there was a one-day difference between the fiscal quarter end date and the calendar quarter end date, which did not have a material effect on the comparability of that quarter. |
Consolidation | The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. GAAP requires the primary beneficiary of a variable interest entity (a “VIE”), to consolidate that entity. To be the primary beneficiary of a VIE, an entity must have both the power to direct the activities that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. We provide acquisition financing to some of our franchisees that results in some of them being considered a VIE. We have reviewed these franchisees and determined that we are not the primary beneficiary of any of these entities, and accordingly, these entities have not been consolidated. |
Use of Estimates | The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates. Significant estimates and assumptions underlie our workers’ compensation claim liabilities, our workers’ compensation Risk Management Incentive Program, our deferred taxes, and estimated fair value of assets and liabilities acquired. |
Revision | During the fourth quarter of 2019, we identified a misstatement in the amount presented in our due to franchisee liability reported in prior years. The misstatement resulted from an accumulation of errors related to transferring items from the franchisee settlement statements to the Company’s general ledger. We determined these errors accumulated prior to 2018. The accumulated error would have been material to the financial statements as of December 31, 2019 if we applied it in its entirety to them. Pursuant to the guidance of Staff Accounting Bulletin No. 99, Materiality, we concluded that the errors were not material to any of our prior year consolidated financial statements. The accompanying consolidated balance sheet as of December 31, 2018 includes a cumulative revision relating to this misstatement. This revision did not have any material effect on income from operations, net income, or cash flows, nor did it affect our past compliance with debt covenants. This misstatement had no effect on our cash balances. The following table compares previously reported balances, adjustments, and revised balances as of December 31, 2018. Balance sheet changes Previously reported 2018 Adjustment Revised 2018 Due to franchisee $ 620,385 $ 1,810,063 $ 2,430,448 Retained earnings 5,783,996 (1,810,063 ) 3,973,933 |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable consist of amounts due for labor services from customers of franchises and of previously company-owned offices. At December 31, 2019, substantially all of our accounts receivable were due from franchises. At December 31, 2018, approximately 99% and 1% of our accounts receivable were due from franchises and previously company-owned offices, respectively. We own the accounts receivable from labor services provided by our franchises. Accounts receivable that age beyond 84 days are charged back to our franchises. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable. For labor services provided by previously company-owned offices, 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 accounts receivable generated by company-owned offices was approximately $168,000 and $-0- at December 31, 2019 and December 31, 2018, respectively. |
Revenue Recognition | Our primary source of revenue comes from royalty fees based on the operation of our franchised locations. Royalty fees from our HireQuest Direct business line are based on a percentage of sales for services our franchisees provide to the ultimate customers and usually range from 5% to 8%. Royalty fees from our HireQuest business line are 4.5% of the payroll we fund plus 18% of the gross margin for the territory. Revenue is presented on a net basis as agent as opposed to a gross basis as principal, and recognized when we satisfy our performance obligations. Our performance obligations take the form of a franchise license and promised services. Promised services consist primarily of paying temporary employees, completing all payroll related statutory obligations, and providing workers' compensation insurance. These performance obligations are interrelated so we do not consider them to be individually distinct and therefore account for them as a single performance obligation. Service revenue consists of interest we charge our franchisees on overdue customer accounts receivable and other miscellaneous fees for optional services we provide. Interest income is recognized based on the effective interest rate applied to the outstanding principal balance. Revenue for optional services is recognized as services are provided. Below are summaries of our revenue disaggregated by brand: December 31, 2019 December 31, 2018 HireQuest Direct $ 13,621,998 $ 10,185,172 HireQuest 1,051,637 1,101,977 Total $ 14,673,636 $ 11,287,149 |
Workers' Compensation Claims Liability | We maintain reserves for workers’ compensation claims based on estimated future cost. This reserve includes claims that have been reported but not settled, as well as claims that been incurred but not reported. Annually, we use third party actuarial estimates of the future costs of these claims discounted by a 3% present value interest rate to estimate the amount of our reserves. Quarterly, we use development factors provided by a third-party actuary to estimate the amount of our reserves. Adjustments are made as necessary. If the actual cost of the claims exceeds the amount estimated, additional reserves may be required. |
Workers' Compensation Risk Management Incentive Program | We pay to our qualifying 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 refer to as the Risk Management Incentive Program, incentivizes our franchisees to keep our temporary employees safe and to control their exposure to large workers' compensation claims. |
Stock-Based Compensation | Periodically, we issue restricted common shares or options to purchase our common shares to our officers, directors, or employees. We measure compensation costs for equity awards at their fair value on their grant date and expense these costs over the service period on a straight line basis. he fair value of option awards is determined using the Black-Scholes valuation model. |
Provision for Income Taxes | We account for provision (benefit) for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those deferred amounts. We record valuation allowances for deferred tax assets that more likely than not will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Our policy is to recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in selling, general, and administrative expenses in our consolidated statements of operations. We have analyzed our filing positions in all jurisdictions where we are required to file returns, and found no positions th The Work Opportunity Tax Credit (“WOTC”) is a source of fluctuation in our effective income tax rate. The WOTC is designed to encourage the hiring of workers from certain disadvantaged targeted categories, and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. We estimate the amount of WOTC we expect to receive based on wages certified in the current period. |
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 the portion of the purchase price that exceeds the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed as goodwill. We expense acquisition related costs as we incur them. |
Earnings per Share | We calculate basic earnings (loss) per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. We do not include the impact of any potentially dilutive common stock equivalents in our basic earnings (loss) per share calculations. 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 December 31, 2019 totaled approximately 29,000. Diluted common shares outstanding were calculated using the treasury stock method and are as follows: Year ended December 31, 2019 December 31, 2018 Weighted average number of common shares used in basic net income per common share 11,588,776 9,939,668 Dilutive effects of stock options - - Weighted average number of common shares used in diluted net income per common share 11,588,776 9,939,668 |
Property and Equipment | We record property and equipment at cost. We compute depreciation using the straight-line method over the estimated useful lives, typically three to five years. Repairs and maintenance are expensed as incurred. When assets are sold or retired, we eliminate cost and accumulated depreciation from the consolidated balance sheet and reflect a gain or loss in the consolidated statement of income. |
Advertising and Marketing Costs | We expense advertising and marketing costs as we incur them. These were $449,000 and $7,000 in 2019, and 2018, respectively. The expense in 2019 included rebranding expenses incurred in relation to the Merger. These costs are included in general and administrative expenses. |
Fair Value Measures | Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the measurement date. Our policy on fair value measures requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The policy establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The policy prioritizes the inputs into three levels that may be used to measure fair value: Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to their short-term nature.The fair value of notes receivable approximate the outstanding principal balance and are reviewed for impairment at least annually. Fair value Level December 31, 2019 December 31, 2018 Cash 1 $ 4,187,450 $ 1,291,317 Notes receivable 2 11,409,709 85,500 Accounts receivable 2 28,201,279 20,725,170 |
Discontinued Operations | During the quarter ended September 29, 2019, we sold substantially all of the offices acquired in the Merger. Accordingly, the assets and liabilities, operating results, and cash flows for these businesses are presented as discontinued operations, separate from our continuing operations, for all periods presented in our consolidated financial statements and footnotes, unless indicated otherwise. |
Notes Receivable | Notes receivable consist primarily of amounts due to us related to the financing of franchised locations. We report notes receivable at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally secured by the assets of each location and the ownership interests in the franchise. We monitor the financial condition of our franchisees and record provisions for estimated losses when we believe it is probable that our franchisees will be unable to make their required payments. O ur allowance for losses on notes receivable was $-0- at December 31, 2019 and December 31, 2018. |
Recent Accounting Pronouncements | In May 2014, the Financial Accounting Standards Board (“FASB”), issued new revenue recognition guidance under Accounting Standards Update (“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, 2018, we adopted the new revenue recognition guidance using the modified retrospective method for all open contracts and related amendments. 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 adopted as of January 1, 2019. The adoption of this guidance did not have a material impact on expense recognition. 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. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 was issued as a means to reduce the complexity of accounting for income taxes for those entities that fall within the scope of the accounting standard. The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. We are currently evaluating the impacts of adoption of the new guidance to our consolidated financial statements. 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) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Prior period adjustment | Balance sheet changes Previously reported 2018 Adjustment Revised 2018 Due to franchisee $ 620,385 $ 1,810,063 $ 2,430,448 Retained earnings 5,783,996 (1,810,063 ) 3,973,933 |
Disaggregation of revenue | December 31, 2019 December 31, 2018 HireQuest Direct $ 13,621,998 $ 10,185,172 HireQuest 1,051,637 1,101,977 Total $ 14,673,636 $ 11,287,149 |
Diluted common shares outstanding | Year ended December 31, 2019 December 31, 2018 Weighted average number of common shares used in basic net income per common share 11,588,776 9,939,668 Dilutive effects of stock options - - Weighted average number of common shares used in diluted net income per common share 11,588,776 9,939,668 |
Carrying amount of cash and cash equivalents, accounts receivables, and accounts payable | Fair value Level December 31, 2019 December 31, 2018 Cash 1 $ 4,187,450 $ 1,291,317 Notes receivable 2 11,409,709 85,500 Accounts receivable 2 28,201,279 20,725,170 |
2. Acquisitions (Tables)
2. Acquisitions (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Business Combinations [Abstract] | |
Identifiable assets acquired and liabilities assumed | Common stock 4,677,487 Closing share price on July 15, 2019 $ 5.76 Stock consideration $ 26,942,325 Accounts receivable $ 10,480,907 Cash and cash equivalents 5,376,543 Identifiable intangible assets 17,015,857 Other current assets 725,453 Property, plant and equipment, net 281,186 Right-of-use asset 1,642,695 Current liabilities (3,124,081 ) Lease liabilities (1,624,461 ) Deferred tax liability (2,930,947 ) Other liabilities (900,827 ) Preliminary purchase price allocation $ 26,942,325 |
Pro forma information | The following table presents the amount of Command Center’s revenue and net income since the July 15, 2019 acquisition date included in our consolidated statement of operations for the year ended December 31, 2019: From July 15, 2019 through December 31, 2019 Total revenue 1,768,550 Net income 1,171,677 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. Year ended December 31, 2019 December 31, 2018 Franchise royalties $ 16,176,219 $ 12,402,072 Net Income 5,090,045 6,381,936 Basic earnings per share $ 0.38 $ 0.48 Basic weighted average shares outstanding 13,294,201 13,266,840 Diluted earnings per share $ 0.38 $ 0.48 Diluted weighted average shares outstanding 13,294,736 13,266,840 |
3. Discontinued Operations (Tab
3. Discontinued Operations (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued operations | Notes receivable $ 14,884,620 Accounts receivable 2,204,286 Cash 221,845 Consideration received 17,310,751 Customer lists $ 17,015,857 Lease and utility deposits 100,009 Fixed assets 57,448 Gain 137,437 Sale price allocation $ 17,310,751 The income from discontinued operations amounts as reported on our consolidated statements of operations was comprised of the following amounts: Year ended December 31, 2019 December 31, 2018 Revenue $ 13,932,769 $ 722,849 Cost of staffing services 9,946,836 629,448 Gross profit 3,985,933 93,401 Gain on sale 137,437 - SG&A 3,836,045 18,603 Net income before income taxes 287,325 74,798 Provision for income taxes 71,831 18,699 Net income $ 215,494 $ 56,097 |
4. Related Party Transactions (
4. Related Party Transactions (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Related Party Transactions [Abstract] | |
Related party balances | Balances regarding the Worlds Franchisees are summarized below: December 31, 2019 December 31, 2018 Due from franchisee $ 993,495 $ 254,943 Risk management incentive program liability (asset) 1,027,960 ( 988,562 ) Transactions regarding the Worlds Franchisees are summarized below: Year ended December 31, 2019 December 31, 2018 Franchisee royalties $ 6,964,690 $ 5,900,637 |
6. Workers' Compensation Insu_2
6. Workers' Compensation Insurance and Reserves (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Insurance [Abstract] | |
Changes in workers' compensation claims liability | December 31, 2019 December 31, 2018 Estimated future claims liabilities at the beginning of the period $ - $ - Claims paid during the period (1,237,977 ) - Additional future claims liabilities recorded during the period 5,082,478 - Estimated future claims liabilities at the end of the period $ 3,844,501 $ - |
7. Analysis of Franchise Locati
7. Analysis of Franchise Locations (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Analysis Of Franchised And Company-owned Offices | |
Franchised and owned branch locations | Franchised offices, December 31, 2017 79 Closed in 2018 (3 ) Opened in 2018 21 Franchised offices, December 31, 2018 97 Closed in 2019 (10 ) Opened in 2019 60 Franchised offices, December 31, 2019 147 |
9. Stock Based Compensation (Ta
9. Stock Based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Restricted stock outstanding | Shares Weighted average grant date price Non-vested, December 31, 2018 - $ - Granted 264,035 7.15 Vested (8,401 ) 6.19 Non-vested, December 31, 2019 255,634 7.18 |
Weighted-average assumptions used | 2019 2018 Expected term (years) 2.3 - 8.9 - Expected volatility 46.8 - 63.1 % 0.0 % Dividend yield 0.0 % 0.0 % Risk-free rate 1.7 - 2.4 % 0.0 % Weighted average grant date fair value $ 3.18 $ - |
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 160,832 5.86 3.18 Forfeited (100,000 ) 5.70 3.16 Exercised (31,667 ) 5.11 2.71 Outstanding, December 31, 2019 29,165 7.20 3.76 |
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 3.16 Vested (21,250 ) 5.21 2.76 Non-vested, December 31, 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 29,166 $ 7.20 4.72 $ 50,637 Exercisable 23,749 7.59 3.89 12,237 |
10. Property and Equipment (Tab
10. Property and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | December 31, 2019 December 31, 2018 Land $ 472,492 $ 487,492 Buildings and improvements 1,231,308 1,305,280 Furniture and fixtures 762,314 377,110 Construction in progress 62,751 157,350 Accumulated depreciation (628,179 ) (281,351 ) Total property and equipment, net $ 1,900,686 $ 2,045,881 |
12. Income Tax (Tables)
12. Income Tax (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Provision for income taxes | December 31, 2019 December 31, 2018 Current: Federal $ 3,551,418 $ - State 996,510 39,728 Deferred: Federal (1,113,042 ) - State 46,110 - Provision for income taxes $ 3,480,996 $ 39,728 |
Components of deferred tax assets/liabilities | December 31, 2019 December 31, 2018 Deferred tax assets and liabilities Workers' compensation claims liability $ 947,023 $ - Depreciation and amortization 279,990 - Bad debt reserve 41,436 - Accrued vacation 37,771 - Cash to accrual Section 481 adjustment (3,000,216 ) - Stock based compensation 5,550 - Total deferred tax liability $ (1,688,446 ) $ - |
Schedule of effective income tax rate reconciliation | December 31, 2019 December 31, 2018 Income tax expense based on statutory rate $ 624,860 21.0 % $ - 0.0 % Permanent differences (789,810 ) (26.5 %) - 0.0 % State income taxes expense net of federal taxes 820,698 27.6 % - 0.0 % WOTC (498,000 ) (16.7 %) - 0.0 % HQ Conversion to C Corp 3,320,594 111.6 % - 0.0 % Other 2,654 0.1 % 39,728 0.6 % Total taxes (benefits) on income $ 3,480,996 117.1 % $ 39,728 0.6 % |
13. Notes Receivable (Tables)
13. Notes Receivable (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract] | |
Changes in notes receivable | Balance as of December 31, 2017 $ - Notes issued 85,500 Payments received - Balance as of December 31, 2018 85,500 Notes issued 14,887,620 Payments received (3,563,411 ) Balance as of December 29, 2019 $ 11,409,709 |
14. Unaudited Quarterly Resul_2
14. Unaudited Quarterly Results of Operations (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Quarterly Financial Information Disclosure [Abstract] | |
Unaudited quarterly results of operations | Quarter ended December 31, 2019 December 31, 2018 Franchise royalties $ 5,396,922 $ 3,255,016 Service revenue 475,748 280,150 Total revenue 5,872,670 3,535,166 Selling, general and administrative expenses 3,131,312 1,339,504 Depreciation and amortization 324,502 66,252 Income from operations 2,856 2,129,410 Other miscellaneous income (expense) (616 ) 41,112 Interest and other financing expense (37,748 ) (5,000 ) Net income before income taxes 2,378,492 2,165,522 Benefit for income taxes (1,399,406 ) (13,277 ) Income from continuing operations 3,777,898 2,178,799 Income (loss) from discontinued operations, net of tax (315,067 ) 11,421 Net income $ 3,462,831 $ 2,190,220 Basic earnings per share Continuing operations $ 0.28 $ 0.22 Discontinued operations (0.02 ) 0.00 Total $ 0.26 $ 0.22 Diluted earnings per share Continuing operations $ 0.28 $ 0.22 Discontinued operations (0.02 ) 0.00 Total $ 0.26 $ 0.22 Weighted average shares outstanding: Basic 13,488,436 9,939,668 Diluted 13,490,636 9,939,668 |
1. Overview and Summary of Si_4
1. Overview and Summary of Significant Accounting Policies (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Due to franchisees | $ 3,610,596 | $ 2,430,448 |
Retained earnings | $ 3,683,954 | 3,973,933 |
Previously Reported | ||
Due to franchisees | 620,385 | |
Retained earnings | 5,783,996 | |
Adjustment | ||
Due to franchisees | 1,810,063 | |
Retained earnings | $ (1,810,063) |
1. Overview and Summary of Si_5
1. Overview and Summary of Significant Accounting Policies (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Revenue | $ 14,673,636 | $ 11,287,149 |
HireQuest Direct | ||
Revenue | 13,621,998 | 10,185,172 |
HireQuest | ||
Revenue | $ 1,051,637 | $ 1,101,977 |
1. Overview and Summary of Si_6
1. Overview and Summary of Significant Accounting Policies (Details 2) - shares | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Accounting Policies [Abstract] | ||||
Weighted average number of common shares used in basic net income per common share | 13,488,436 | 9,939,668 | 11,588,776 | 9,939,668 |
Dilutive effects of stock options | 0 | 0 | ||
Weighted average number of common shares used in diluted net income per common share | 13,490,636 | 9,939,668 | 11,588,776 | 9,939,668 |
1. Overview and Summary of Si_7
1. Overview and Summary of Significant Accounting Policies (Details 3) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Cash | $ 4,187,450 | $ 1,291,317 | $ 275,920 |
Notes receivable | 11,409,709 | 85,500 | $ 0 |
Level 1 | |||
Cash | 4,187,450 | 1,291,317 | |
Level 2 | |||
Notes receivable | 11,409,709 | 85,500 | |
Accounts receivable | $ 28,201,279 | $ 20,725,170 |
1. Overview and Summary of Si_8
1. Overview and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Allowance for doubtful accounts on accounts receivables | $ 168,000 | $ 0 |
Outstanding common stock equivalents | 29,000 | |
Advertising and marketing costs | $ 449,000 | 7,000 |
Allowance for losses on notes receivable | $ 0 | $ 0 |
Accounts Receivables | Franchise Locations | ||
Concentration risk | 100.00% | 99.00% |
Accounts Receivables | Owned Locations | ||
Concentration risk | 0.00% | 1.00% |
2. Acquisitions (Details)
2. Acquisitions (Details) | 12 Months Ended |
Dec. 31, 2019USD ($)$ / shares | |
Closing share price on July 15, 2019 | $ / shares | $ 7.09 |
Legacy HQ | |
Stock issued | $ 4,677,487 |
Closing share price on July 15, 2019 | $ / shares | $ 5.76 |
Stock consideration | $ 26,942,325 |
Accounts receivable | 10,480,907 |
Cash and cash equivalents | 5,376,543 |
Identifiable intangible assets | 17,015,857 |
Other current assets | 725,453 |
Property, plant and equipment, net | 281,186 |
Right-of-use asset | 1,642,695 |
Current liabilities | (3,124,081) |
Lease liabilities | (1,624,461) |
Deferred tax liability | (2,930,947) |
Other liabilities | (900,827) |
Preliminary purchase price | $ 26,942,325 |
2. Acquisitions (Details 1)
2. Acquisitions (Details 1) - USD ($) | 6 Months Ended | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Command Center | |||
Revenue | $ 1,768,550 | ||
Net income | $ 1,171,677 | ||
Legacy HQ | |||
Revenue | $ 16,176,219 | $ 12,402,072 | |
Net income | $ 5,090,045 | $ 6,381,936 | |
Basic earnings per share | $ 0.38 | $ 0.48 | |
Basic weighted average shares outstanding | 13,294,201 | 13,266,840 | |
Diluted earnings per share | $ 0.38 | $ 0.48 | |
Diluted weighted average shares outstanding | 13,294,736 | 13,266,840 |
3. Discontinued Operations (Det
3. Discontinued Operations (Details) - Command Center | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Notes receivable | $ 14,884,620 |
Accounts receivable | 2,204,286 |
Cash | 221,845 |
Consideration received | 17,310,751 |
Customer lists | 17,015,857 |
Lease and utility deposits | 100,009 |
Fixed assets | 57,448 |
Gain | 137,437 |
Sale price allocation | $ 17,310,751 |
3. Discontinued Operations (D_2
3. Discontinued Operations (Details 1) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Net income (loss) | $ (315,067) | $ 11,421 | $ 215,494 | $ 56,097 |
Command Center | ||||
Revenue | 13,932,769 | 722,849 | ||
Cost of staffing services | 9,946,836 | 629,448 | ||
Gross profit (loss) | 3,985,933 | 93,401 | ||
Gain on sale | 137,437 | 0 | ||
SG&A | 3,836,045 | 18,603 | ||
Net income (loss) before income taxes | 287,325 | 74,798 | ||
Provision (benefit) for income taxes | 71,831 | 18,699 | ||
Net income (loss) | $ 215,494 | $ 56,097 |
4. Related Party Transactions_2
4. Related Party Transactions (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Due to franchisees | $ 3,610,596 | $ 2,430,448 |
Risk management incentive program liability (asset) | 1,811,917 | 1,852,328 |
Worlds Franchisees | ||
Due to franchisees | 993,495 | 254,943 |
Risk management incentive program liability (asset) | 1,027,960 | (988,562) |
Franchise royalties | $ 6,946,490 | $ 5,900,637 |
4. Related Party Transactions_3
4. Related Party Transactions (Details Narrative) | 12 Months Ended | ||
Dec. 31, 2019USD ($)Locations | Dec. 31, 2018USD ($)Locations | Dec. 31, 2017Locations | |
Franchised and owned branch locations | Locations | 147 | 97 | 79 |
Hire Quest Financial LLC | |||
Related party transaction expenses | $ 249,000 | ||
Intercompany debt | $ 0 | 6,700,000 | |
Hire Quest Insurance | |||
Related party transaction expenses | 3,600,000 | 5,500,000 | |
Brave New World Services, LLC | |||
Related party transaction expenses | 19,000 | 38,000 | |
Jackson Insurance Agency and Bass Underwriters, Inc. | |||
Related party transaction expenses | $ 613,000 | $ 212,000 | |
Worlds Franchisees | |||
Franchised and owned branch locations | Locations | 57 | 50 |
5. Line of Credit (Details Narr
5. Line of Credit (Details Narrative) | Dec. 31, 2019USD ($) |
Debt Disclosure [Abstract] | |
Letter of credit | $ 9,800,000 |
6. Workers' Compensation Insu_3
6. Workers' Compensation Insurance and Reserves (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Workers' Compensation Claims Liability | ||
Estimated future claims liabilities at the beginning of the period | $ 0 | $ 0 |
Claims paid during the period | (1,237,977) | 0 |
Additional future claims liabilities recorded during the period | 5,082,478 | 0 |
Estimated future claims liabilities at the end of the period | $ 3,844,501 | $ 0 |
7. Analysis of Franchise Loca_2
7. Analysis of Franchise Locations (Details) - Locations | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Analysis Of Franchised And Company-owned Offices | ||
Franchised and owned branch locations, beginning | 97 | 79 |
Closed | (10) | (3) |
Opened | 60 | 21 |
Franchised and owned branch locations, ending | 147 | 97 |
9. Stock Based Compensation (De
9. Stock Based Compensation (Details) | 12 Months Ended |
Dec. 31, 2019$ / sharesshares | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Non-vested, beginning | shares | 0 |
Granted | shares | 264,035 |
Vested | shares | (8,401) |
Non-vested, ending | shares | 255,634 |
Weighted average grant date price, beginning | $ / shares | $ .00 |
Granted | $ / shares | 7.15 |
Vested | $ / shares | 6.19 |
Weighted average grant date price, ending | $ / shares | $ 7.18 |
9. Stock Based Compensation (_2
9. Stock Based Compensation (Details 1) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Expected term (years) | 0 years | |
Expected volatility | 0.00% | |
Dividend yield | 0.00% | 0.00% |
Risk-free rate | 0.00% | |
Weighted average grant date fair value | $ 3.18 | $ .00 |
Minimum | ||
Expected term (years) | 2 years 3 months 18 days | |
Expected volatility | 46.80% | |
Risk-free rate | 1.70% | |
Maximum | ||
Expected term (years) | 8 years 10 months 24 days | |
Expected volatility | 63.10% | |
Risk-free rate | 2.40% |
9. Stock Based Compensation (_3
9. Stock Based Compensation (Details 2) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | ||
Number of options outstanding, beginning | 0 | |
Granted | 160,832 | |
Forfeited | (100,000) | |
Exercised | (31,667) | |
Number of options outstanding, ending | 29,165 | 0 |
Weighted Average Exercise Price Per Share | ||
Outstanding, beginning | $ .00 | |
Granted | 5.86 | |
Forfeited | 5.70 | |
Exercised | 5.11 | |
Outstanding, ending | 7.20 | $ .00 |
Weighted Average Grant Date Fair Value Per Share | ||
Outstanding, beginning | .00 | |
Granted | 3.18 | .00 |
Forfeited | 3.16 | |
Exercised | 2.71 | |
Outstanding, ending | $ 3.76 | $ .00 |
9. Stock Based Compensation (_4
9. Stock Based Compensation (Details 3) | 12 Months Ended |
Dec. 31, 2019$ / sharesshares | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Number of nonvested options outstanding, beginning | shares | 0 |
Granted | shares | 84,523 |
Forfeited | shares | (57,857) |
Vested | shares | (21,250) |
Number of nonvested options outstanding, ending | shares | 5,417 |
Weighted Average Exercise Price Per share | |
Outstanding, beginning | $ .00 |
Granted | 5.56 |
Forfeited | 5.70 |
Vested | 5.21 |
Outstanding, ending | 5.48 |
Outstanding, beginning | .00 |
Granted | 3.05 |
Forfeited | 3.16 |
Vested | 2.76 |
Outstanding, ending | $ 3.01 |
9. Stock Based Compensation (_5
9. Stock Based Compensation (Details 4) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | ||
Number of options, outstanding | 29,165 | 0 |
Weighted average exercise price per share, outstanding | $ 7.20 | $ .00 |
Weighted average remaining contractual life (years), outstanding | 4 years 8 months 19 days | |
Aggregate intrinsic value, outstanding | $ 50,637 | |
Number of options, exercisable | 23,749 | |
Weighted average exercise price per share, exercisable | $ 7.59 | |
Weighted average remaining contractual life (years), exercisable | 3 years 10 months 20 days | |
Aggregate intrinsic value, exercisable | $ 12,237 |
9. Stock Based Compensation (_6
9. Stock Based Compensation (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Options vested | 21,250 | |
Closing price of common stock | $ 7.09 | |
Unrecognized share-based compensation expense | $ 1,400,000 | |
Unrecognized share-based compensation expense period of recogntion | 3 years 8 months 12 days | |
2016 Stock Incentive Plan | ||
Options vested | 24,000 | 0 |
10. Property and Equipment (Det
10. Property and Equipment (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Accumulated depreciation | $ (628,179) | $ (281,351) |
Property and equipment, net | 1,900,686 | 2,045,881 |
Land | ||
Property and equipment, gross | 472,492 | 487,492 |
Buildings and Improvements | ||
Property and equipment, gross | 1,231,308 | 1,305,280 |
Furniture and Fixtures | ||
Property and equipment, gross | 762,314 | 377,110 |
Construction in Progress | ||
Property and equipment, gross | $ 62,751 | $ 157,350 |
10. Property and Equipment (D_2
10. Property and Equipment (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 400,000 | $ 93,000 |
12. Income Tax (Details)
12. Income Tax (Details) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Current: | ||||
Federal | $ 3,551,418 | $ 0 | ||
State | 996,510 | 39,728 | ||
Deferred: | ||||
Federal | (1,113,042) | 0 | ||
State | 46,110 | 0 | ||
Provision for income taxes | $ (1,399,406) | $ (13,277) | $ 3,480,996 | $ 21,029 |
12. Income Tax (Details 1)
12. Income Tax (Details 1) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Income Tax Disclosure [Abstract] | ||
Workers' compensation claims liability | $ 947,023 | $ 0 |
Depreciation and amortization | 279,990 | 0 |
Bad debt reserve | 41,436 | 0 |
Accrued vacation | 37,771 | 0 |
Cash to accrual Section 481 adjustment | (3,000,216) | 0 |
Stock compensation | 5,550 | 0 |
Total deferred tax liability | $ (1,688,446) | $ 0 |
12. Income Tax (Details 2)
12. Income Tax (Details 2) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||||
Income tax expense (benefit) based on statutory rate, amount | $ 624,860 | $ 0 | ||
Permanent differences, amount | (789,810) | 0 | ||
State income taxes expense net of federal taxes, amount | 820,698 | 0 | ||
WOTC, amount | (498,000) | 0 | ||
HQ Conversion to C Corp, amount | 3,320,594 | 0 | ||
Other, amount | 2,654 | 39,728 | ||
Total taxes (benefits) on income, amount | $ (1,399,406) | $ (13,277) | $ 3,480,996 | $ 21,029 |
Income tax expense (benefit) based on statutory rate | 21.00% | 0.00% | ||
Permanent differences | (26.50%) | 0.00% | ||
State income taxes expense net of federal taxes | 27.60% | 0.00% | ||
WOTC | (16.70%) | 0.00% | ||
HQ Conversion to C Corp | 111.60% | 0.00% | ||
Other | 0.10% | 0.60% | ||
Total taxes (benefits) on income | 117.10% | 0.60% |
13. Notes Receivable (Details)
13. Notes Receivable (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract] | ||
Notes receivable, beginning | $ 85,500 | $ 0 |
Notes issued | 14,887,620 | 85,500 |
Payments received | (3,563,411) | 0 |
Notes receivable, ending | $ 11,409,709 | $ 85,500 |
13. Notes Receivable (Details N
13. Notes Receivable (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract] | |||
Notes receivable | $ 11,409,709 | $ 85,500 | $ 0 |
Interest income on franchisee notes | $ 280,000 | $ 16,000 |
14. Unaudited Quarterly Resul_3
14. Unaudited Quarterly Results of Operations (Details) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Revenue | $ 5,872,670 | $ 3,535,166 | $ 15,876,460 | $ 12,329,628 |
Selling, general, and administrative expenses | 3,131,312 | 1,339,504 | 12,692,297 | 5,325,000 |
Depreciation and amortization | 324,502 | 66,252 | 400,132 | 92,608 |
Income from operations | 2,416,856 | 2,129,410 | 2,784,031 | 6,912,020 |
Other miscellaneous income (expense) | (616) | 41,112 | 751,077 | 189,796 |
Interest and other financing expense | (37,748) | (5,000) | (559,585) | (19,697) |
Net income before income taxes | 2,378,492 | 2,165,522 | 2,975,523 | 7,082,119 |
Benefit for income taxes | (1,399,406) | (13,277) | 3,480,996 | 21,029 |
Income from continuing operations | 3,777,898 | 2,178,799 | (505,473) | 7,061,090 |
Income (loss) from discontinued operations, net of tax | (315,067) | 11,421 | 215,494 | 56,097 |
Net income | $ 3,462,831 | $ 2,190,220 | $ (289,979) | $ 7,117,187 |
Basic earnings per share | ||||
Continuing operations | $ .28 | $ 0.22 | $ (.05) | $ 0.71 |
Discontinued operations | (0.02) | .00 | 0.02 | 0.01 |
Total | .26 | 0.22 | (.03) | 0.72 |
Diluted earnings per share | ||||
Continuing operations | .28 | 0.22 | (.05) | 0.71 |
Discontinued operations | (0.02) | .00 | 0.02 | 0.01 |
Total | $ .26 | $ 0.22 | $ (0.03) | $ 0.72 |
Weighted average shares outstanding: | ||||
Basic | 13,488,436 | 9,939,668 | 11,588,776 | 9,939,668 |
Diluted | 13,490,636 | 9,939,668 | 11,588,776 | 9,939,668 |
Franchise Royalties | ||||
Revenue | $ 5,396,922 | $ 3,255,016 | $ 14,673,636 | $ 11,287,149 |
Service Revenue | ||||
Revenue | $ 475,748 | $ 280,150 | $ 1,202,824 | $ 1,042,479 |