HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma financial information presents the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of income based upon the combined historical financial statements of HireQuest, Inc. (“HQI” or the “Company”) and Link Staffing Services Corporation, Franlink, Inc., and Stafflink, Inc. (collectively “Link”), after giving effect to the Asset Purchase Agreement (the “Link Agreement”) between Link and HQ Link Corporation (“HQ Link”), a wholly-owned subsidiary of the Company, and the adjustments described in the accompanying notes.
On February 12, 2021, HQ Link entered into the Link Agreement with Link. Pursuant to the Link Agreement, HQ Link will acquire sellers’ franchise relationships and certain other assets of the sellers for a purchase price of approximately $11.1 million. Consummation of the transactions contemplated by the Link Agreement is subject to the satisfaction or waiver of customary closing conditions. The transaction was financed with cash-on-hand and the Company’s credit facility with Truist Bank and is not subject to any financing condition.
The unaudited pro forma condensed combined balance sheet as of September 30, 2020 reflects the transaction as if it occurred on September 30, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019 reflect the transaction as if it occurred on January 1, 2019.
The unaudited pro forma condensed combined financial information is for informational purposes only and does not purport to present what our results would actually have been had these transactions actually occurred on the dates presented or to project our results of operations or financial position for any future period. You should read the information set forth below together with the notes to the pro forma condensed combined financial statements, the Annual Report of the Company on Form 10-K for the year ended December 31, 2019 and the Quarterly Report of the Company on Form 10-Q for the nine months ended September 30, 2020, and the audited financial statements of Link for the fiscal years ended December 29, 2019 and December 30, 2018 and the unaudited financial statements for the fiscal quarters ended September 27, 2020 and September 29, 2019 included as Exhibit 99.1.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2020
| | HireQuest, Inc. | | Link Staffing Services Corp. | | Pro forma adjustments | | Pro forma condensed combined |
| ASSETS | | | | | | | | |
| Current assets | | | | | | | | |
| Cash | $ 10,297,147 | | $ 8,373,731 | | $ (17,973,731) | A | | $ 697,147 |
| Accounts receivable, net of allowance for doubtful accounts | 24,024,564 | | 7,555,508 | | (7,555,508) | B | | 24,024,564 |
| Notes receivable | 2,144,118 | | - | | - | | | 2,144,118 |
| Prepaid expenses, deposits, and other assets | 1,179,333 | | 855,763 | | (855,763) | B | | 1,179,333 |
| Prepaid workers' compensation | 1,978,509 | | 1,771,256
| | (1,771,256) | B | | 1,978,509 |
| Total current assets | 39,623,671 | | 18,556,258 | | (28,156,258) | | | 30,023,671 |
| Property and equipment, net | 2,958,998 | | 1,003,199 | | (1,003,199) | B | | 2,958,998 |
| Intangible assets, net | 186,705 | | 266,474 | | (266,474) | B | | 186,705 |
| Notes receivable, net of current portion and reserve | 6,377,779 | | 164,694
| | (164,694)
| B
| | 6,377,779 |
| Intangible assets, franchisee agreements | - | | - | | 11,100,000 | C | | 11,100,000 |
| Total assets | $ 49,147,153 | | $ 19,990,625
| | $ (18,490,625) | | | $ 50,647,153 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable | $ 5,499 | | $ 214,887 | | $ (214,887) | B | | $ 5,499 |
| Line of credit | - | | - | | 1,500,000 | D | | 1,500,000 |
| Other current liabilities | 1,664,854 | | 1,700,933 | | (1,700,933) | B | | 1,664,854 |
| Accrued benefits and payroll taxes | 2,088,119 | | 1,154,233 | | (1,154,233) | B | | 2,088,119 |
| Due to franchisees | 2,311,372 | | 587,232 | | (587,232) | B | | 2,311,372 |
| Risk management incentive program liability | 1,018,994 | | - | | - | | | 1,018,994 |
| Notes payable | - | | 16,498,327 | | (16,498,327) | B | | - |
| Workers' compensation claims liability | 3,165,056 | | 577,612 | | (577,612) | B | | 3,165,056 |
| Total current liabilities | 10,253,894 | | 20,733,224 | | (19,233,224) | | | 11,753,894 |
| Workers' compensation claims liability, net of current portion | 1,743,128 | | - | | - | | | 1,743,128 |
| Franchisee deposits | 1,459,335 | | - | | - | | | 1,459,335 |
| Deferred rent | - | | 29,817 | | (29,817) | | | - |
| Deferred tax liability | 273,185 | | - | | - | | | 273,185 |
| Total liabilities | 13,729,542 | | 20,763,041 | | (19,263,041) | | | 15,229,542 |
| Equity | | | - | | - | | | 1,743,128 |
| Total HireQuest, Inc. stockholders’ equity | 35,417,611 | | - | | - | | | 35,417,611 |
| Total Link stockholders’ equity | - | | (772,416) | | 772,416 | E | | - |
| Total stockholders' equity | 35,417,611 | | (772,416) | | 772,416 | | | 35,417,611 |
| Total liabilities and stockholders' equity | $ 49,147,153 | | $ 19,990,625
| | $ (18,490,625) | | | $ 50,647,153 |
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Three Months Ended September 30, 2020
| | HireQuest, Inc. | | Link Staffing Services Corp. | | Pro forma adjustments | | Pro forma condensed combined |
| Franchise royalties/Revenue | $ 3,218,606 | | $ - | | $ - | | | $ 3,218,606 |
| Service revenue | 164,074 | | 17,161,413 | | - | | | 17,325,487 |
| Cost of sales | - | | 15,487,475 | | - | | | 15,487,475 |
| Total revenue | 3,382,680 | | 1,673,938 | | - | | | 5,056,618 |
| Selling, general and administrative expenses | 1,357,725 | | 1,691,303 | | - | | | 3,049,028 |
| Depreciation and amortization | 32,438 | | 101,676 | | 185,000 | A | | 319,114 |
| Income (loss) from operations | 1,992,517 | | (119,041) | | (185,000) | | | 1,688,476 |
| Other miscellaneous income | 392,709 | | 21,575 | | - | | | 414,284
|
| Interest and other financing expense | (10,035) | | (84,897) | | - | | | (94,932) |
| Net income before income taxes | 2,375,191 | | (182,363) | | (185,000) | | | 2,007,828 |
| Provision (benefit) for income taxes | 404,058 | | 22,500 | | 45,510 | B | | 472,068 |
| Net income (loss) | $ 1,971,133 | | $ (204,863) | | $ (230,510) | | | $ 1,535,760 |
| | | | | | | | | |
| Earnings per share | | | | | | | | |
| Basic | $ 0.15 | | | | | | | $ 0.11 |
| Diluted | $ 0.15 | | | | | | | $ 0.11 |
| | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | |
| Basic | 13,573,086 | | | | | | | 13,573,086 |
| Diluted | 13,574,863 | | | | | | | 13,574,863 |
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Nine Months Ended September 30, 2020
| | HireQuest, Inc. | | Link Staffing Services Corp. | | Pro forma adjustments | | Pro forma condensed combined |
| Franchise royalties | $ 9,563,135 | | $ - | | $ - | | | $ 9,563,135 |
| Service revenue | 840,515 | | 48,760,965 | | - | | | 49,601,480 |
| Cost of sales | - | | 43,769,233 | | - | | | 43,769,233 |
| Total revenue | 10,403,650 | | 4,991,732 | | - | | | 15,395,382 |
| Selling, general and administrative expenses | 6,542,171 | | 5,702,535 | | - | | | 12,244,706 |
| Depreciation and amortization | 96,654 | | 303,641 | | 555,000 | A | | 955,295 |
| Income (loss) from operations | 3,764,825 | | (1,014,444) | | (555,000) | | | 2,195,381 |
| Other miscellaneous income | 932,254 | | 23,129 | | - | | | 955,383 |
| Interest and other financing expense | (39,174) | | (175,984) | | - | | | (215,158) |
| Net income before income taxes | 4,657,905 | | (1,167,299) | | (555,000) | | | 2,935,606 |
| Provision for income taxes | 654,592 | | 67,450 | | 136,530 | B | | 858,572 |
| Net income (loss) | $ 4,003,313 | | $ (1,234,749) | | $ (691,530) | | | $ 2,077,034 |
| | | | | | | | | |
| Earnings per share | | | | | | | | |
| Basic | $ 0.30 | | | | | | | $ 0.15 |
| Diluted | $ 0.30 | | | | | | | $ 0.15 |
| | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | |
| Basic | 13,551,507 | | | | | | | 13,551,507 |
| Diluted | 13,553,619 | | | | | | | 13,553,619 |
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 2019
| | HireQuest, Inc. | | Link Staffing Services Corp. | | Pro forma adjustments | | Pro forma condensed combined |
| Franchise royalties | $ 14,673,636 | | $ - | | $ - | | | $ 14,673,636 |
| Service revenue | 1,202,824 | | 85,034,061 | | - | | | 86,236,885 |
| Cost of sales | - | | 75,215,530 | | - | | | 75,215,530 |
| Total revenue | 15,876,460 | | 9,818,531 | | - | | | 25,694,991 |
| Selling, general and administrative expenses | 12,692,297 | | 9,634,564 | | - | | | 22,326,861 |
| Depreciation and amortization | 400,132 | | 65,000 | | 740,000 | A | | 1,205,132 |
| Income (loss) from operations | 2,784,031 | | 118,967 | | (740,000) | | | 2,162,998 |
| Other miscellaneous income | 751,077 | | 90,781 | | - | | | 841,858 |
| Interest and other financing expense | (559,585) | | (243,453) | | - | | | (803,038) |
| Net income before income taxes | 2,975,523 | | (33,705) | | (740,000) | | | 2,201,818 |
| Provision for income taxes | 3,480,996 | | 73,129 | | 182,040 | B | | 3,736,165 |
| Loss from continuing operations | (505,473) | | (106,834) | | (922,040) | | | (1,534,347) |
| Income from discontinued operations, net of tax | 215,494 | | - | | - | | | 215,494 |
| Net loss | $ (289,979) | | $ (106,834) | | $ (922,040) | | | $ (1,318,853) |
| | | | | | | | | |
| Basic and diluted earnings (loss) per share | | | | | | | | |
| Continuing operations | $ (0.05) | | | | | | | $ (0.12) |
| Discontinued operations | 0.02 | | | | | | | 0.02 |
| Total | $ (0.03) | | | | | | | $ (0.10) |
| | | | | | | | | |
| Basic and diluted weighted average shares outstanding | 11,588,776 | | | | | | | 11,588,776 |
See notes to pro forma condensed combined financial statements.
HireQuest, Inc.
Notes to Pro Forma Condensed Combined Financial Statements
Note 1 – Basis of Presentation
The historical financial information has been adjusted to give pro forma effect to events that are directly attributable to the Link Agreement and expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates. They have been prepared to illustrate the estimated effect of the Link Agreement and certain other adjustments.
Note 2 – Preliminary Purchase Price Allocation
Under the purchase method of accounting, the total purchase price of $11.1 million allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based on their preliminary estimated fair values. The fair value assessments are preliminary and are based upon available information and certain assumptions which the Company believes are reasonable. Actual results may differ materially from the unaudited pro forma condensed combined financial statements.
| Description | | Amount |
| Fair value of franchise agreements assumed | | $ 11,100,000 |
| Total allocated purchase price | | $ 11,100,000 |
Note 3 – Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
| | (A) - Adjustments to cash:
|
|
| Description | | Amount |
| Borrowing on line of credit | | $ 1,500,000 |
| Cash consideration paid for Link | | (11,100,000) |
| Link cash balance not acquired | | (8,373,731) |
| Pro forma adjustment to cash | | $ (17,973,731) |
| | (B) -Assets not acquired and liabilities not assumed pursuant to the Link Agreement.
|
|
| | (C) -Preliminary estimated value of franchise agreements assumed.
|
|
| | (D) - Borrowing on line of credit to fund transaction. |
|
| (E) -Adjustment to Link stockholders historical equity. |
|
Note 4 – Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Income
| | (A) -The newly acquired intangible assets consisting of assumed franchise agreements will be amortized on a straight-line basis over their estimated useful lives. The fair value assessment is preliminary and any changes to the preliminary values will have a direct impact on future earnings via amortization expense. |
|
| Description | | Estimated fair value | | Estimated useful life | | Three months ended September 30, 2020 | | Nine months ended September 30, 2020 | | Year ended December 31, 2019 |
| Franchise agreements | | $ 11,100,000 | | 15 years | | $ 185,000 | | $ 555,000 | | $ 740,000 |
| Pro forma adjustment to amortization expense | | | | | | $ 185,000 | | $ 555,000 | | $ 740,000 |
| | (B) - To record the income tax impact of the pro forma adjustments (A) above. |
|
| Description | | Three months ended September 30, 2020 | | Nine months ended September 30, 2020 | | Year ended December 31, 2019 |
| Pro forma change in income before income tax | | $ 185,000 | | $ 555,000 | | $ 740,000 |
| Combined Federal and State statutory rate | | 24.6% | | 24.6% | | 24.6% |
| Pro forma adjustment to provision for income taxes | | $ 45,510 | | $ 136,530 | | $ 182,040 |
