Delaware
|
|
91-2079472
|
(State of incorporation or organization)
|
|
(I.R.S. employer identification no.
|
|
|
|
111 Springhall Drive, Goose Creek, SC 29445
|
||
(Address of principal executive offices) (Zip Code)
|
||
|
|
|
Registrant’s telephone number, including area code:
(843)
723-7400
|
Common Stock, $0.001 par value
|
|
HQI
|
|
The NASDAQ Stock Market LLC
|
Title
of each class
|
|
Trading
Symbol(s)
|
|
Name of
each exchange on which registered
|
|
Page
|
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
|
19
|
|
24
|
|
24
|
|
|
|
PART II. OTHER
INFORMATION
|
|
|
|
25
|
|
25
|
|
27
|
|
27
|
|
27
|
|
28
|
|
June
30,
2020
|
December
31,
2019
|
ASSETS
|
(unaudited)
|
|
Current
assets
|
|
|
Cash
|
$13,746,445
|
$4,187,450
|
Accounts
receivable, net of allowance for doubtful accounts
|
19,646,917
|
28,201,279
|
Notes
receivable
|
2,190,431
|
3,419,458
|
Prepaid expenses,
deposits, and other assets
|
1,097,399
|
188,560
|
Prepaid workers'
compensation
|
1,899,899
|
822,938
|
Other
assets
|
-
|
201,440
|
Total current
assets
|
38,581,091
|
37,021,125
|
Property and
equipment, net
|
2,788,683
|
1,900,686
|
Intangible assets,
net
|
23,978
|
-
|
Notes receivable,
net of current portion and reserve
|
6,799,848
|
7,990,251
|
Total
assets
|
$48,193,600
|
$46,912,062
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$85,359
|
$253,845
|
Other current
liabilities
|
1,143,872
|
1,893,846
|
Accrued benefits
and payroll taxes
|
1,520,677
|
1,113,904
|
Due to
franchisees
|
2,744,587
|
3,610,596
|
Risk management
incentive program liability
|
2,021,605
|
1,811,917
|
Workers'
compensation claims liability
|
2,884,656
|
2,327,869
|
Total current
liabilities
|
10,400,756
|
11,011,977
|
Workers'
compensation claims liability, net of current portion
|
1,871,457
|
1,516,633
|
Franchisee
deposits
|
1,423,635
|
1,412,924
|
Deferred tax
liability
|
618,376
|
1,688,446
|
Total
liabilities
|
14,314,224
|
15,629,980
|
Commitments and
contingencies (Note 8)
|
|
|
Stockholders'
equity
|
|
|
Preferred stock -
$0.001 par value, 1,000,000 shares authorized; none
issued
|
-
|
-
|
Common stock -
$0.001 par value, 30,000,000 shares authorized; 13,575,123 and
13,518,036 shares issued and outstanding, respectively
|
13,575
|
13,518
|
Additional paid-in
capital
|
28,149,667
|
27,584,610
|
Retained
earnings
|
5,716,134
|
3,683,954
|
Total stockholders'
equity
|
33,879,376
|
31,282,082
|
Total liabilities
and stockholders' equity
|
$48,193,600
|
$46,912,062
|
|
Three months ended
|
Six months ended
|
||
|
June 30,
2020
|
June 30,
2019
|
June 30,
2020
|
June 30,
2019
|
Franchise
royalties
|
$2,639,287
|
$2,981,420
|
$6,344,529
|
$6,137,556
|
Service
revenue
|
261,703
|
257,245
|
676,441
|
573,359
|
Total
revenue
|
2,900,990
|
3,238,665
|
7,020,970
|
6,710,915
|
Selling,
general and administrative expenses
|
1,931,076
|
871,444
|
5,184,447
|
2,423,865
|
Depreciation
and amortization
|
32,402
|
21,393
|
64,215
|
35,430
|
Income
from operations
|
937,512
|
2,345,828
|
1,772,308
|
4,251,620
|
Other
miscellaneous income
|
288,837
|
218,471
|
539,545
|
246,860
|
Interest
and other financing expense
|
(17,850)
|
(230,404)
|
(29,139)
|
(415,376)
|
Net income before
income taxes
|
1,208,499
|
2,333,895
|
2,282,714
|
4,083,104
|
Provision for
income taxes
|
51,497
|
48,181
|
250,534
|
99,606
|
Income
from continuing operations
|
1,157,002
|
2,285,714
|
2,032,180
|
3,983,498
|
Income from
discontinued operations, net of tax
|
-
|
20,382
|
-
|
40,083
|
Net
income
|
$1,157,002
|
$2,306,096
|
$2,032,180
|
$4,023,581
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
Continuing
operations
|
$0.09
|
$0.23
|
$0.15
|
$0.40
|
Discontinued
operations
|
-
|
-
|
-
|
-
|
Total
|
$0.09
|
$0.23
|
$0.15
|
$0.40
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
Continuing
operations
|
$0.09
|
$0.23
|
$0.15
|
$0.40
|
Discontinued
operations
|
-
|
-
|
-
|
-
|
Total
|
$0.09
|
$0.23
|
$0.15
|
$0.40
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
Basic
|
13,547,950
|
9,939,668
|
13,540,599
|
9,939,668
|
Diluted
|
13,549,727
|
9,939,668
|
13,542,758
|
9,939,668
|
|
Common
stock
|
|
|
|
|
Six months ended
|
Shares
|
Par
value
|
Additional
paid-in
capital
|
Retained
earnings
|
Total
stockholders' equity
|
Balance
at December 31, 2019
|
13,518,036
|
$13,518
|
$27,584,610
|
$3,683,954
|
$31,282,082
|
Stock-based
compensation
|
-
|
-
|
565,057
|
-
|
565,057
|
Restricted
common stock granted for services
|
57,087
|
57
|
-
|
-
|
57
|
Net
income for the quarter or year
|
-
|
-
|
-
|
2,032,180
|
2,032,180
|
Balance
at June 30, 2020
|
13,575,123
|
$13,575
|
$28,149,667
|
$5,716,134
|
$33,879,376
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
9,939,668
|
$9,940
|
$6,938,953
|
$3,973,933
|
$10,922,826
|
Net
distributions
|
-
|
-
|
(1,785,833)
|
-
|
(1,785,833)
|
Net
income for the quarter or year
|
-
|
-
|
-
|
4,023,581
|
4,023,581
|
Balance
at June 30, 2019
|
9,939,668
|
$9,940
|
$5,153,120
|
$7,997,514
|
$13,160,574
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
Balance
at March 31, 2020
|
13,536,742
|
$13,537
|
$27,907,344
|
$4,559,132
|
$32,480,013
|
Stock-based
compensation
|
-
|
-
|
242,323
|
-
|
242,323
|
Restricted
common stock granted for services
|
38,381
|
38
|
-
|
-
|
38
|
Net
income for the quarter or year
|
-
|
-
|
-
|
1,157,002
|
1,157,002
|
Balance
at June 30, 2020
|
13,575,123
|
$13,575
|
$28,149,667
|
$5,716,134
|
$33,879,376
|
|
|
|
|
|
|
Balance
at March 31, 2019
|
9,939,668
|
$9,940
|
$5,903,146
|
$5,691,418
|
$11,604,504
|
Net
distributions
|
-
|
-
|
(750,026)
|
-
|
(750,026)
|
Net
income for the quarter or year
|
-
|
-
|
-
|
2,306,096
|
2,306,096
|
Balance
at June 30, 2019
|
9,939,668
|
$9,940
|
$5,153,120
|
$7,997,514
|
$13,160,574
|
|
Six months ended
|
|
|
June 30,
2020
|
June 30,
2019
|
Cash flows from operating activities
|
|
|
Net
income
|
$2,032,180
|
$4,023,580
|
Loss
from discontinued operations
|
-
|
(40,083)
|
Net
income from continuing operations
|
2,032,180
|
3,983,497
|
Adjustments
to reconcile net income to net cash used in
operations:
|
|
|
Depreciation
and amortization
|
64,215
|
35,430
|
Allowance
for losses on notes receivable
|
1,598,673
|
-
|
Stock
based compensation
|
565,114
|
-
|
Deferred
taxes
|
(1,070,070)
|
-
|
Gain
on disposition of property and equipment
|
-
|
(189,591)
|
Changes
in operating assets and liabilities:
|
|
|
Accounts
receivable
|
8,554,362
|
199,059
|
Prepaid
expenses, deposits, and other assets
|
(908,839)
|
(24,693)
|
Prepaid
workers' compensation
|
(1,076,961)
|
(758,410)
|
Accounts
payable
|
(168,486)
|
(35,752)
|
Risk
management incentive program liability
|
209,688
|
361,202
|
Other
current liabilities
|
(787,765)
|
89,162
|
Accrued
benefits and payroll taxes
|
406,773
|
356,425
|
Due
to franchisees
|
(866,009)
|
1,442,586
|
Workers'
compensation claims liability
|
911,611
|
-
|
Net
cash provided by operating activities - continuing
operations
|
9,464,486
|
5,458,915
|
Net
cash provided by (used in) operating activities - discontinued
operations
|
201,440
|
(3,911,066)
|
Net
cash provided by operating activities
|
9,665,926
|
1,547,849
|
Cash flows from investing activities
|
|
|
Purchase
of property and equipment
|
(952,212)
|
(261,064)
|
Proceeds
from the sale of property and equipment
|
-
|
563,795
|
Purchase
of intangible assets
|
(23,978)
|
-
|
Proceeds
from payments on notes receivable
|
1,002,858
|
-
|
Cash
issued for notes receivable
|
(182,101)
|
(24,505)
|
Net
change in franchisee deposits
|
10,711
|
704,800
|
Net
cash (used in) provided by investing activities
|
(144,722)
|
983,026
|
Cash flows from financing activities
|
|
|
Payments
to affiliates
|
-
|
(2,025,062)
|
Proceeds
from affiliates
|
37,791
|
-
|
Net
distributions to Legacy HQ members
|
-
|
(1,785,833)
|
Net
cash provided by (used in) financing activities
|
37,791
|
(3,810,895)
|
Net increase (decrease) in cash
|
9,558,995
|
(1,280,020)
|
Cash, beginning of period
|
4,187,450
|
1,291,317
|
Cash, end of period
|
$13,746,445
|
$11,297
|
Supplemental disclosure of cash flow information
|
|
-
|
Interest
paid
|
29,139
|
415,376
|
Income
taxes paid
|
1,665,099
|
-
|
|
Three
months ended
|
Six
months ended
|
||
|
June
30,
2020
|
June
30,
2019
|
June
30,
2020
|
June
30,
2019
|
HireQuest
Direct
|
$2,468,581
|
$2,756,048
|
$6,029,984
|
$5,646,762
|
HireQuest
|
170,706
|
225,372
|
314,545
|
490,794
|
Total
|
$2,639,287
|
$2,981,420
|
$6,344,529
|
$6,137,556
|
|
Three months ended
|
Six months ended
|
||
|
June 30,
2020
|
June 30,
2019
|
June 30,
2020
|
June 30,
2019
|
Weighted
average number of common shares used in basic net income per common
share
|
13,547,950
|
9,939,668
|
13,540,599
|
9,939,668
|
Dilutive
effects of stock options
|
1,777
|
-
|
2,159
|
-
|
Weighted
average number of common shares used in diluted net income per
common share
|
13,549,727
|
9,939,668
|
13,542,758
|
9,939,668
|
|
|
Fair value
|
|
|
Level
|
June 30,
2020
|
December 31,
2019
|
Cash
|
1
|
$13,746,445
|
$4,187,450
|
Notes
receivable
|
2
|
8,990,279
|
11,409,709
|
Accounts
receivable
|
2
|
19,646,917
|
28,201,279
|
Closing
share price on July 15, 2019
|
$5.76
|
Common
stock
|
4,677,487
|
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)
|
Purchase
price allocation
|
$26,942,325
|
|
Three months ended
|
Six months ended
|
||
|
June 30,
2020
|
June 30,
2019
|
June 30,
2020
|
June 30,
2019
|
Revenue
|
$-
|
$202,579
|
$-
|
$382,326
|
Cost of staffing
services
|
-
|
170,960
|
-
|
320,248
|
Gross
profit
|
-
|
31,619
|
-
|
62,078
|
SG&A
|
-
|
4,443
|
-
|
8,634
|
Net
income before tax
|
-
|
27,176
|
-
|
53,444
|
Provision
for income taxes
|
-
|
6,794
|
-
|
13,361
|
Net
income
|
$-
|
$20,382
|
$-
|
$40,083
|
|
Three months
ended
|
Six months
ended
|
||
|
June
30,
2020
|
June
30,
2019
|
June
30,
2020
|
June
30,
2019
|
Franchisee
royalties
|
$1,089,020
|
$1,659,716
|
$2,462,895
|
$3,293,498
|
|
June
30,
2020
|
December
31,
2019
|
Due
to franchisee
|
$773,247
|
$993,495
|
Risk
management incentive program
|
988,817
|
1,027,960
|
|
Shares
|
Weighted average grant date price
|
Non-vested,
December 31, 2019
|
255,634
|
$7.18
|
Granted
|
57,087
|
6.48
|
Vested
|
(27,705)
|
6.48
|
Non-vested,
June 30, 2020
|
285,016
|
7.10
|
|
Number of shares underlying options
|
Weighted average exercise price per share
|
Weighted average grant date fair value
|
Outstanding,
December 31, 2019
|
29,165
|
$7.20
|
$3.76
|
Granted
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
Outstanding,
June 30, 2020
|
29,165
|
7.20
|
3.76
|
|
Number of shares underlying options
|
Weighted average exercise price per share
|
Weighted average grant date fair value
|
Non-vested,
December 31, 2019
|
5,416
|
$5.48
|
$3.01
|
Granted
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
Vested
|
(2,187)
|
5.50
|
3.05
|
Non-vested,
June 30, 2020
|
3,229
|
5.47
|
2.98
|
|
Number of shares underlying options
|
Weighted
average exercise price per share
|
Weighted
average remaining contractual life (years)
|
Aggregate
intrinsic value
|
Outstanding
|
29,165
|
$7.20
|
4.22
|
$26,984
|
Exercisable
|
25,936
|
7.41
|
3.78
|
6,997
|
Balance
as of December 31, 2019
|
$9,702,471
|
Notes
issued
|
54,524
|
Accrued
interest
|
40,793
|
Payments
received
|
(916,074)
|
Change
in valuation allowance
|
(405,314)
|
Balance
as of June 30, 2020
|
$8,476,400
|
Balance
as of December 31, 2018
|
$1,707,238
|
Accrued
interest
|
86,785
|
Payments
received
|
(86,785)
|
Change
in valuation allowance
|
(1,193,359)
|
Balance
as of June 30, 2020
|
$513,879
|
|
Three months ended
|
Six months ended
|
||||||
|
June 30, 2020
|
June 30, 2019
|
June 30, 2020
|
June 30, 2019
|
||||
Franchise
royalties
|
$2,639
|
91.0%
|
$2,981
|
92.1%
|
$6,345
|
90.4%
|
$6,138
|
91.5%
|
Service
revenue
|
262
|
9.0%
|
257
|
7.9%
|
676
|
9.6%
|
573
|
8.5%
|
Total
revenue
|
2,901
|
100.0%
|
3,239
|
100.0%
|
7,021
|
100.0%
|
6,711
|
100.0%
|
Selling,
general and administrative expenses
|
1,931
|
66.6%
|
871
|
26.9%
|
5,184
|
73.8%
|
2,424
|
36.1%
|
Depreciation
and amortization
|
32
|
1.1%
|
21
|
0.7%
|
64
|
0.9%
|
35
|
0.5%
|
Income
from operations
|
938
|
32.3%
|
2,346
|
72.4%
|
1,772
|
25.2%
|
4,252
|
63.4%
|
Other
miscellaneous income
|
289
|
10.0%
|
218
|
6.7%
|
540
|
7.7%
|
247
|
3.7%
|
Interest
and other financing expense
|
(18)
|
-0.6%
|
(230)
|
-7.1%
|
(29)
|
-0.4%
|
(415)
|
-6.2%
|
Net income before income taxes
|
1,208
|
41.7%
|
2,334
|
72.1%
|
2,283
|
32.5%
|
4,083
|
60.8%
|
Provision for income taxes
|
51
|
1.8%
|
48
|
1.5%
|
251
|
3.6%
|
100
|
1.5%
|
Income
from continuing operations
|
1,157
|
39.9%
|
2,286
|
70.6%
|
2,032
|
28.9%
|
3,983
|
59.4%
|
Income from
discontinued operations, net of
tax
|
-
|
0.0%
|
20
|
0.6%
|
-
|
0.0%
|
40
|
0.6%
|
Net
income
|
$1,157
|
39.9%
|
$2,306
|
71.2%
|
$2,032
|
28.9%
|
$4,024
|
60.0%
|
|
Three months ended
|
Six Months ended
|
||
|
June 30,
2020
|
June 30,
2019
|
June 30,
2020
|
June 30,
2019
|
Franchise
sales
|
$44,073,695
|
$51,758,168
|
$100,536,300
|
$99,142,642
|
Company-owned
sales
|
-
|
202,579
|
-
|
382,326
|
System-wide
sales
|
$44,073,695
|
$51,960,747
|
$100,536,300
|
$99,524,968
|
Franchised
Offices, December 31, 2019
|
147
|
Closed
in 2020
|
(13)
|
Opened
in 2020
|
2
|
Franchised
Offices, June 30, 2020
|
136
|
Exhibit No.
|
|
Description
|
|
HireQuest, Inc. 2019 Equity Incentive Plan (incorporated by
reference to Appendix A to the Company’s Definitive Proxy
Statement on Schedule 14A, filed with the SEC on April 29,
2020).
|
|
|
Certification of Chief Executive Officer - § 302 Certification
(filed herewith).
|
|
|
Certification of Chief Financial Officer - § 302 Certification
(filed herewith).
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. § 1350, as adopted in § 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
101.INS
|
|
XBRL Instance Document (filed herewith).
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document (filed
herewith).
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document (filed
herewith).
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document (filed
herewith).
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document (filed
herewith).
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document (filed
herewith).
|
/s/ Richard
Hermanns |
|
/s/ Cory
Smith
|
|
Richard
Hermanns
|
|
Cory
Smith
|
|
President and Chief Executive
Officer
|
|
Chief Financial
Officer
|
|
/s/ Richard Hermanns
|
|
/s/ Cory Smith
|
Richard Hermanns
|
|
Cory Smith
|
President and Chief Executive Officer
|
|
Chief Financial Officer
|
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Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Aug. 10, 2020 |
|
Document And Entity Information | ||
Entity Registrant Name | HireQuest, Inc. | |
Entity Central Index Key | 0001140102 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation, State or Country Code | DE | |
Entity File Number | 000-53088 | |
Entity Common Stock, Shares Outstanding | 13,590,465 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2020 |
Statement - Consolidated Condensed Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Stockholders' equity | ||
Preferred stock par value | $ .001 | $ 0.001 |
Preferred stock shares authorized | 1,000,000 | 1,000,000 |
Preferred stock shares issued | 0 | 0 |
Common stock par value | $ .001 | $ 0.001 |
Common stock shares authorized | 30,000,000 | 30,000,000 |
Common stock shares issued | 13,575,123 | 13,518,036 |
Common stock shares outstanding | 13,575,123 | 13,518,036 |
Consolidated Condensed Statements of Income (Operations) (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Revenue | $ 2,900,990 | $ 3,238,665 | $ 7,020,970 | $ 6,710,915 |
Selling, general, and administrative expenses | 1,931,076 | 871,444 | 5,184,447 | 2,423,865 |
Depreciation and amortization | 32,402 | 21,393 | 64,215 | 35,430 |
Income from operations | 937,512 | 2,345,828 | 1,772,308 | 4,521,620 |
Other miscellaneous income | 288,837 | 218,471 | 539,545 | 246,860 |
Interest and other financing expense | (17,850) | (230,404) | (29,139) | (415,376) |
Net income before income taxes | 1,208,499 | 2,333,895 | 2,282,714 | 4,083,104 |
Provision for income taxes | 51,497 | 48,181 | 250,534 | 99,606 |
Income from continuing operations | 1,157,002 | 2,285,714 | 2,032,180 | 3,983,498 |
Income from discontinued operations, net of tax | 0 | 20,382 | 0 | 40,083 |
Net income | $ 1,157,002 | $ 2,306,096 | $ 2,032,180 | $ 4,023,581 |
Basic earnings per share | ||||
Continuing operations | $ 0.09 | $ 0.23 | $ 0.15 | $ 0.4 |
Discontinued operations | 0 | 0 | 0 | 0 |
Total | 0.09 | 0.23 | 0.15 | 0.4 |
Diluted earnings per share | ||||
Continuing operations | 0.09 | 0.23 | 0.15 | 0.4 |
Discontinued operations | 0 | 0 | 0 | 0 |
Total | $ 0.09 | $ 0.23 | $ 0.15 | $ 0.4 |
Weighted average shares outstanding | ||||
Basic | 13,547,950 | 9,939,668 | 13,540,599 | 9,939,668 |
Diluted | 13,549,727 | 9,939,668 | 13,542,758 | 9,939,668 |
Franchise Royalties | ||||
Revenue | $ 2,639,287 | $ 2,981,420 | $ 6,344,529 | $ 6,137,556 |
Service Revenue | ||||
Revenue | $ 261,703 | $ 257,245 | $ 676,441 | $ 573,359 |
1. Basis of Presentation and Summary of Significant Accounting Policies |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Summary of Significant Accounting Policies | HireQuest, Inc. (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of on-demand labor solution providers in the light industrial and blue-collar segments of the staffing industry. Through our franchisees, we provide various types of temporary personnel via two business models operating under the trade names “HireQuest Direct” and “HireQuest.” 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.
Basis of Presentation We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. 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.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2019. Results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other period.
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 the 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 are included in our financial statements for all periods subsequent to the Merger. For additional information related to the Merger, see Note 2 – Acquisitions.
Consolidation The consolidated financial statements include the accounts of HQI and all of its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated.
U.S. GAAP requires the primary beneficiary of a variable interest entity (“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 the beneficiary. We provide acquisition financing to some of our franchisees that could result in our having to absorb losses. This results in some franchisees being considered VIEs. We have reviewed our relationship with each of these franchisees and determined that we are not the primary beneficiary of any of these entities. Accordingly, these entities have not been consolidated.
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 and the collectability of our notes receivable will depend on future developments, including the duration, spread, and intensity of the pandemic, all of which are uncertain and difficult to predict. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, the pandemic has had a material adverse effect on our business and results of operations. If the pandemic continues to be a severe worldwide health crisis, the disease could have a material adverse effect on our future business, results of operations, financial condition, and cash flows.
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 accrual, our deferred taxes, the reserve for losses on notes receivable, and the estimated fair value of assets acquired and liabilities assumed.
Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable consist of amounts due for labor services from customers of franchisees and of previously company-owned offices. At June 30, 2020 and December 31, 2019, substantially all of our accounts receivable were due from customers of franchisees. We own the accounts receivable from labor services provided by our franchisees until they age beyond 84 days. When accounts receivable age beyond 84 days, they are charged back to our franchisees. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable.
For labor services originally provided by 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 $129,000 and $168,000 at June 30, 2020 and December 31, 2019, respectively.
Revenue Recognition Our primary source of revenue comes from royalty fees based on the operation of our franchised offices. Royalty fees from our HireQuest Direct business model are based on a percentage of sales for services our franchisees provide to customers, which ranges from 6% 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. We present revenue on a net basis as agent as opposed to a gross basis as principal. We recognize revenue 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 on behalf of temporary employees. Because these performance obligations are interrelated, we do not consider them to be individually distinct and therefore account for them as a single performance obligation. Because our franchisees receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Franchise royalties are billed on a weekly basis. We also offer various incentive programs for franchisees including royalty incentives, royalty credits, and other support initiatives. Royalty fees are reduced to reflect any incentives earned or credits granted under these programs. These incentives and credits are provided to encourage new office development, organic growth, and to limit workers' compensation exposure. We present franchise royalty fees net of these incentives and credits.
Below are summaries of our franchise royalties disaggregated by brand:
Service revenue, which forms the other component of our total revenue, consists of interest we charge our franchisees on overdue customer accounts receivable and other fees for optional services we provide. We recognize interest income based on the effective interest rate applied to the outstanding principal balance of overdue accounts. We recognize revenue from optional services as we provide them.
Workers’ Compensation Claims Liability We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Annually, we engage an independent actuary to estimate the future costs of these claims. Quarterly, we use development factors provided by an independent actuary to estimate the future costs of these claims. We make adjustments as necessary on an ongoing basis. If the actual costs of the claims exceed the amount estimated, we may incur additional charges.
Workers’ Compensation Risk Management Incentive Program (“RMIP”) Our RMIP is designed to incentivize our franchises to keep our temporary employees safe and control their exposure to large workers’ compensation claims. We accomplish this by refunding our franchisees a portion of the premium they pay for workers’ compensation insurance if they keep their workers’ compensation loss ratios below specified thresholds.
Notes Receivable Notes receivable consist primarily of amounts due to us related to the financing of franchised offices. 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 office 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. Our allowance for losses on notes receivable was approximately $1.6 million and $-0- at June 30, 2020 and December 31, 2019, respectively.
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. The fair value of stock awards is based on the quoted price of our common stock on the grant date. We use the Black-Scholes valuation model to determine the value of option awards.
Intangible Assets – Internal Use Software We capitalize costs to develop or purchase computer software for internal use which are incurred during the application development stage. These costs include fees paid to third-parties for development services and payroll costs for employees' time spent developing the software. We expense costs incurred during the preliminary project stage along with post-implementation stages as we incur them.
Capitalized development costs will be amortized on a straight-line basis over the estimated useful life of the software. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.
Earnings per Share We calculate basic earnings per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. 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 June 30, 2020 totaled approximately 29,000.
We use the treasury stock method to calculate the diluted common shares outstanding which were as follows:
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 approximates the outstanding principal balance, net of estimates for losses, and is reviewed for impairment at least annually.
Discontinued Operations During the third quarter of 2019, we sold substantially all of the offices we acquired in the Merger with Command Center. Accordingly, we present the assets and liabilities, operating results, and cash flows for these previously company-owned offices as discontinued operations separate from our continuing operations for all periods presented in our consolidated financial statements and footnotes, unless indicated otherwise.
Recently Adopted Accounting Pronouncements 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. 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, 2022, 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 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard 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, or cash flows.
|
2. Acquisitions |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | On July 15, 2019, Command Center completed its acquisition of Legacy HQ in accordance with the terms of the Agreement and Plan of Merger dated April 8, 2019. Upon the closing of the Merger, all of the membership interests in Hire Quest Holdings, LLC 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 July 15, 2019.
The following table summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date:
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3. Discontinued Operations |
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Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations | Prior to September 2019, we operated a number of company-owned offices. Subsequently, all of these company-owned offices were sold, the vast majority becoming franchisees, and we now no longer operate any company-owned offices. Operating results from company-owned offices are included in our consolidated financial statements as discontinued operations. The income from discontinued operations as reported on our consolidated statements of operations was comprised of the following amounts:
We continue to be involved with the offices we sold through franchise agreements. The term of our franchise agreements is five years, subject to renewal at the end of the current term. Franchise royalties from sold locations that subsequently became franchisees for the three months ended June 30, 2020 and June 30, 2019 were approximately $570,000 and $-0-, respectively. For the six months ended June 30, 2020 and June 30, 2019, these franchise royalties were approximately $1.4 million and $-0-, respectively.
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4. Related Party Transactions |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | Some significant shareholders of HQI also own portions of Hire Quest Financial, LLC; Hirequest Insurance Company; Brave New World Services, LLC, formerly known as Hire Quest LTS, LLC; Jackson Insurance Agency, Bass Underwriters, Inc; Insurance Technologies, Inc.; and a number of our franchisees.
Hire Quest Financial LLC (“HQF”) Richard Hermanns, our CEO, Chairman of our Board, and most significant stockholder, and Edward Jackson, a member of our Board and a significant stockholder, own a majority of HQF, a financial services entity.
On July 14, 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 June 30, 2020 and December 31, 2019, HQI was not indebted to HQF for any amount. We do not have any current or planned business dealings with HQF.
Hirequest Insurance Company (“HQ Ins.”) Mr. Hermanns, his wife, his adult daughter, a trust established for the benefit of his children, and Mr. Jackson, collectively own a majority of HQ Ins., a North Carolina protected cell captive insurance company. Effective March 1, 2010, Hire Quest, LLC purchased a deductible reimbursement insurance policy from HQ Ins. to cover losses up to the $500,000 per claim deductible on the Hire Quest, LLC high-deductible workers’ compensation policy originally obtained through AIG and, later, through ACE American Insurance Company. Hire Quest, LLC terminated its policy with HQ Ins. on July 15, 2019 upon the closing of the Merger.
Premiums invoiced by HQ Ins. to HQI and Legacy HQ for workers compensation deductible reimbursement insurance during the quarters ended June 30, 2020 and June 30, 2019 were $-0- and approximately $1.8 million, respectively. Premiums invoiced by HQ Ins. to HQI and Legacy HQ for workers compensation deductible reimbursement insurance during the two quarters ended June 30, 2020 and June 30, 2019 were $-0- and approximately $3.6 million, respectively. We do not have any current or planned business dealings with HQ Ins. other than cooperating to close Legacy HQ's workers' compensation claims.
Brave New World Services, LLC, (“BNW”) formerly known as Hire Quest LTS, LLC Mr. Jackson and Mr. Hermanns' son-in-law collectively own a majority of BNW.
Historically, BNW employed the personnel at Legacy HQ headquarters. HQI terminated this relationship on July 15, 2019 upon the closing of the Merger. Amounts invoiced by BNW to HQI and Legacy HQ for payroll services during the three months ended June 30, 2020 and June 30, 2019 were $-0- and approximately $11,000, respectively. Amounts invoiced by BNW to HQI and Legacy HQ for payroll services during the six months ended June 30, 2020 and June 30, 2019 were $-0- and approximately $17,000, respectively. We do not have any current or planned business dealing with BNW.
Jackson Insurance Agency ("Jackson Insurance") and Bass Underwriters, Inc. ("Bass") Mr. Jackson owns a majority of Jackson Insurance. An immediate family member, owns the remainder. Mr. Jackson, Mr. Hermanns, and irrevocable trusts set up by each of them, collectively own a majority of Bass, a large managing general agent. Jackson Insurance and Bass brokered Legacy HQ's property, casualty, general liability, and cybersecurity insurance prior to the Merger. Since July 15, 2019, they have continued to broker these same policies for HQI. Jackson Insurance also brokers certain insurance policies on behalf of some of our franchisees, including the franchisees containing significant ownership interests of Mr. Jackson and immediate family members of Mr. Hermanns.
Jackson Insurance and Bass did not invoice HQI or Legacy HQ for premiums, taxes, or fees during the quarter ended June 30, 2020 or June 30, 2019. Premiums, taxes, and fees invoiced by Jackson Insurance and Bass to HQI and Legacy HQ for these insurance policies during the six months ended June 30, 2020 and June 30, 2019 were approximately $662,000 and $240,000, respectively. Jackson Insurance and Bass do not retain the majority of the premiums invoiced to HQI and Legacy HQ, but they do retain a commission of approximately 9% - 15% of premiums.
Insurance Technologies, Inc. ("Insurance Technologies") Mr. Jackson, Mr. Hermanns, and irrevocable trusts set up by each of them, collectively own a majority of Insurance Technologies, an IT development and security firm. On October 24, 2019, HQI entered into an agreement with Insurance Technologies to add certain cybersecurity protections to our existing information technology systems and to assist in developing future information technology systems within our HQ Webconnect software. This arrangement was reviewed and approved by the Audit Committee of our Board of Directors.
During the three months ended June 30, 2020, Insurance Technologies invoiced HQI approximately $50,000 for services provided pursuant to this agreement. Insurance Technologies invoiced HQI approximately $101,000 during the six months ended June 30, 2020.
The Worlds Franchisees Mr. Jackson and immediate family members of Mr. Hermanns have significant ownership interests in certain of our franchisees (the “Worlds Franchisees”). There were 20 Worlds Franchisees at June 30, 2020 that operated 48 of our 136 offices.
Transactions regarding the Worlds Franchisees are summarized below:
Balances regarding the Worlds Franchisees are summarized below:
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5. Line of Credit |
6 Months Ended |
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Jun. 30, 2020 | |
Debt Disclosure [Abstract] | |
Line of Credit | In July 2019, we entered into an agreement with Branch Banking and Trust Company, now Truist Bank (“Truist”), for a $30 million line of credit with a $15 million sublimit for letters of credit. At June 30, 2020, $9.1 million was utilized by outstanding letters of credit that secure our obligations to our workers’ compensation insurance carrier and $1.0 million was utilized by a letter of credit that secures our paycard funding account, leaving $19.9 million potentially available under the agreement for additional borrowings.
This line of credit is scheduled to mature on May 31, 2024. Outstanding borrowings under the loan agreement currently bear interest at a variable rate equal to the Daily One Month London Interbank Offering Rate (“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 June 30, 2020 the effective interest rate was 1.44%. A non-use fee of between 0.125% and 0.250% accrues on the unused portion of the line of credit. As collateral for repayment of any and all obligations under this agreement, we granted Truist 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.
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6. Workers' Compensation Insurance and Reserves |
6 Months Ended |
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Jun. 30, 2020 | |
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, Legacy HQ terminated its deductible reimbursement policy with HQ Ins. We 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 most recent policy, which expired on March 1, 2020, ACE provided insurance for covered losses and expenses in excess of $500,000 per incident. Command Center’s ACE policy included 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 were 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, we are effectively self-insured. Per our contractual agreements with ACE, we must provide collateral deposits of approximately $9.1 million, which we accomplished by providing a letter of credit under our agreement with Truist.
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.
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7. Stock Based Compensation |
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Share-based Payment Arrangement, Noncash Expense [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | Employee Stock Incentive Plan In November 2016, our stockholders approved a stock incentive plan (the “2016 Plan”) under which we were authorized to grant awards for up to 500,000 shares of our common stock over the 10-year life of the plan. In June 2020, our stockholders approved a new stock incentive plan (the “2019 Plan”) that replaced the 2016 Plan. Under the terms of the 2019 Plan, we are authorized to grant awards for up to 1.5 million shares of our common stock over the 10-year life of the plan. Outstanding awards under the 2016 Plan remain in effect according to the terms of the plan and the award documents.
In September 2019, our Board approved a share purchase match program to encourage ownership and further align the interests of key employees and directors with those of our shareholders. Under this program, we will match 20% of any shares of our common stock purchased on the open market by key employees and directors up to $25,000 in aggregate value per individual within any one-year period. These shares vest on the second anniversary of the date on which the matched shares were purchased. During 2020, we issued 19,612 shares valued at approximately $115,000 under this program. During 2019, we issued 1,639 shares valued at approximately $10,000 under this program.
In June 2020, we issued 30,000 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $188,000 to non-employee members of our Board of Directors for services. These shares vest equally over the following three months.
In April 2020, we issued 8,381 shares of restricted common stock pursuant to the 2016 Plan valued at approximately $53,000 to certain members of our Board of Directors for their services in lieu of cash compensation. Of these 8,381 shares, 6,985 shares vest equally over the following three months, and the remaining 1,396 shares vest on the second anniversary of the date of grant.
In January 2020, we issued 10,124 shares of restricted common stock pursuant to the 2016 Plan valued at approximately $70,000 to certain members of our Board of Directors for their services in lieu of cash compensation. Of these 10,124 shares, 8,436 shares vested equally over the following three months, and the remaining 1,688 shares vest on the second anniversary of the grant date. Also in January 2020, we issued 8,582 shares of restricted common stock pursuant to our share purchase match program valued at approximately $59,000.
In November 2019, we issued 9,833 shares of restricted common stock pursuant to the 2016 Plan valued at approximately $59,000 to certain members of our Board of Directors for their services in lieu of cash compensation. Of these 9,833 shares, 8,194 shares vested equally over the following three months, and the remaining 1,639 shares vest on the second anniversary of the date of grant. Also in November of 2019, we issued 4,202 shares of restricted common stock pursuant to the 2016 Plan valued at $25,000 to an employee in lieu of cash for a bonus, which vested equally over the following three months.
In September 2019, we issued 160,000 shares of restricted common stock to certain key employees pursuant to the 2016 Plan valued at approximately $1.1 million for services, and to encourage retention. 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 on June 14, 2020, the day before our annual stockholder meeting, and the remainder vesting in equal portions on each of the first two anniversaries of that date.
The following table summarizes our restricted stock outstanding at December 31, 2019, and changes during the six months ended June 30, 2020.
Stock options that were outstanding at Command Center were deemed to be issued on the date of the Merger. Outstanding awards continue to remain in effect according to the terms of the Command Center 2008 Plan, the 2016 Plan, and the corresponding award documents. There were approximately 26,000 and 24,000 stock options vested at June 30, 2020 and December 31, 2019, respectively .
The following table summarizes our stock options outstanding at December 31, 2019, and changes during the six months ended June 30, 2020:
The following table summarizes our non-vested stock options outstanding at December 31, 2019, and changes during the six months ended June 30, 2020:
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 $6.19 at June 30, 2020:
At June 30, 2020, there was unrecognized stock-based compensation expense totaling approximately $1.1 million relating to non-vested options and restricted stock grants that will be recognized over the next 3.2 years.
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8. Commitments and Contingencies |
6 Months Ended |
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Jun. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Franchise Acquisition Indebtedness New franchisees financed the purchase of several offices with promissory notes. In some instances, this financing resulted in certain franchises being considered VIEs. 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 VIEs on June 30, 2020 and December 31, 2019 was approximately $2.3 million and $2.5 million, respectively.
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 June 30, 2020.
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9. Income Tax |
6 Months Ended |
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Jun. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Tax | Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year and changes in tax law and tax rates. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or the tax environment changes.
Our effective tax rate for the three and six months ended June 30, 2020 was 4.5% and 12.3%, respectively. The bulk of the difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit. This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences result from state income taxes, certain non-deductible expenses, and tax effects of stock-based compensation. Our effective tax rate for the three and six months ended June 30, 2019 was 2.1% and 2.5%, respectively. The bulk of the difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results primarily from the Company being a pass-through entity before the Merger on July 15, 2019.
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10. Notes Receivable |
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Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Receivable | Some franchisees, as well as the purchaser of our previously owned California locations, have borrowed funds from us primarily to finance the initial purchase price of office assets. Notes outstanding net of allowance for losses were approximately $9.0 million and $11.4 million as of June 30, 2020 and December 31, 2019, respectively.
Notes receivable bear interest at a fixed rate between 6.0% and 10.0%. Notes are generally secured by the assets of each office and the ownership interests in the franchise. We report interest income on notes as other miscellaneous income in our consolidated statements of operations. This interest income was approximately $176,000 and $3,000 during the three months ended June 30, 2020 and June 30, 2019, respectively, and approximately $374,000 and $3,000 in the six months ended June 30, 2020 and June 30, 2019, respectively.
We estimate the allowance for losses for franchisees separately from the allowance for losses from non-franchisees because of the level of detailed sales information available to us with respect to the former. There have been no historic losses for either segment.
Based on our review of the financial condition of the borrowers, the underlying collateral value, and the potential future impact of COVID-19 on certain borrowers’ economic performance and estimated future cash flows, we have established an allowance of approximately $1.6 million as of June 30, 2020 for potentially uncollectible notes receivable. There were no notes receivable in default as of June 30, 2020.
The following table summarizes changes in our notes receivable balance to franchisees:
The following table summarizes changes in our notes receivable balance to non-franchisees:
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11. Subsequent Events |
6 Months Ended |
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Jun. 30, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | In July 2020, we issued 8,874 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $55,000 to certain members of our Board of Directors for their services in lieu of cash compensation. Of these 8,874 shares, 7,396 shares vest equally over the following three months, and the remaining 1,478 shares vest on the second anniversary of the date of grant. Also in July 2020, we issued 6,468 shares of restricted common stock pursuant to our share purchase match program valued at approximately $40,000.
Effective July 2020, our Board of Directors authorized a one-year repurchase plan for up to 1 million shares of our common stock. Through August 10, 2020, we have repurchased 1,922 shares of common stock at an aggregate price of approximately $12,000, resulting in an average share price of $6.20 per share. These shares will be held in treasury.
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1. Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. 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.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2019. Results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other period.
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 the 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 are included in our financial statements for all periods subsequent to the Merger. For additional information related to the Merger, see Note 2 – Acquisitions.
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Consolidation | The consolidated financial statements include the accounts of HQI and all of its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated.
U.S. GAAP requires the primary beneficiary of a variable interest entity (“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 the beneficiary. We provide acquisition financing to some of our franchisees that could result in our having to absorb losses. This results in some franchisees being considered VIEs. We have reviewed our relationship with each of these franchisees and determined that we are not the primary beneficiary of any of these entities. Accordingly, these entities have not been consolidated.
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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 and the collectability of our notes receivable will depend on future developments, including the duration, spread, and intensity of the pandemic, all of which are uncertain and difficult to predict. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, the pandemic has had a material adverse effect on our business and results of operations. If the pandemic continues to be a severe worldwide health crisis, the disease could have a material adverse effect on our future business, results of operations, financial condition, and cash flows.
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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 accrual, our deferred taxes, the reserve for losses on notes receivable, and the estimated fair value of assets acquired and liabilities assumed.
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Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable consist of amounts due for labor services from customers of franchisees and of previously company-owned offices. At June 30, 2020 and December 31, 2019, substantially all of our accounts receivable were due from customers of franchisees. We own the accounts receivable from labor services provided by our franchisees until they age beyond 84 days. When accounts receivable age beyond 84 days, they are charged back to our franchisees. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable.
For labor services originally provided by 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 $129,000 and $168,000 at June 30, 2020 and December 31, 2019, respectively.
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Revenue Recognition | Our primary source of revenue comes from royalty fees based on the operation of our franchised offices. Royalty fees from our HireQuest Direct business model are based on a percentage of sales for services our franchisees provide to customers, which ranges from 6% 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. We present revenue on a net basis as agent as opposed to a gross basis as principal. We recognize revenue 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 on behalf of temporary employees. Because these performance obligations are interrelated, we do not consider them to be individually distinct and therefore account for them as a single performance obligation. Because our franchisees receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Franchise royalties are billed on a weekly basis. We also offer various incentive programs for franchisees including royalty incentives, royalty credits, and other support initiatives. Royalty fees are reduced to reflect any incentives earned or credits granted under these programs. These incentives and credits are provided to encourage new office development, organic growth, and to limit workers' compensation exposure. We present franchise royalty fees net of these incentives and credits.
Below are summaries of our franchise royalties disaggregated by brand:
Service revenue, which forms the other component of our total revenue, consists of interest we charge our franchisees on overdue customer accounts receivable and other fees for optional services we provide. We recognize interest income based on the effective interest rate applied to the outstanding principal balance of overdue accounts. We recognize revenue from optional services as we provide them.
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Workers' Compensation Claims Liability | We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Annually, we engage an independent actuary to estimate the future costs of these claims. Quarterly, we use development factors provided by an independent actuary to estimate the future costs of these claims. We make adjustments as necessary on an ongoing basis. If the actual costs of the claims exceed the amount estimated, we may incur additional charges.
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Workers' Compensation Risk Management Incentive Program | Our RMIP is designed to incentivize our franchises to keep our temporary employees safe and control their exposure to large workers’ compensation claims. We accomplish this by refunding our franchisees a portion of the premium they pay for workers’ compensation insurance if they keep their workers’ compensation loss ratios below specified thresholds.
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Notes Receivable | Notes receivable consist primarily of amounts due to us related to the financing of franchised offices. 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 office 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. Our allowance for losses on notes receivable was approximately $1.6 million and $-0- at June 30, 2020 and December 31, 2019, respectively.
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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. The fair value of stock awards is based on the quoted price of our common stock on the grant date. We use the Black-Scholes valuation model to determine the value of option awards.
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Intangible Assets - Internal Use Software | We capitalize costs to develop or purchase computer software for internal use which are incurred during the application development stage. These costs include fees paid to third-parties for development services and payroll costs for employees' time spent developing the software. We expense costs incurred during the preliminary project stage along with post-implementation stages as we incur them.
Capitalized development costs will be amortized on a straight-line basis over the estimated useful life of the software. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.
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Earnings per Share | We calculate basic earnings per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. 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 June 30, 2020 totaled approximately 29,000.
We use the treasury stock method to calculate the diluted common shares outstanding which were as follows:
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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 approximates the outstanding principal balance, net of estimates for losses, and is reviewed for impairment at least annually.
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Discontinued Operations | During the third quarter of 2019, we sold substantially all of the offices we acquired in the Merger with Command Center. Accordingly, we present the assets and liabilities, operating results, and cash flows for these previously company-owned offices as discontinued operations separate from our continuing operations for all periods presented in our consolidated financial statements and footnotes, unless indicated otherwise.
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Recent Accounting Pronouncements | 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. 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, 2022, 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 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard 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, or cash flows.
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1. Basis of Presentation and Summary of Significant Accounting Policies (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of revenue |
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Diluted common shares outstanding |
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Fair value of cash, notes receivable and accounts receivable |
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2. Acquisitions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Identifiable assets acquired and liabilities assumed |
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3. Discontinued Operations (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued operations |
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4. Related Party Transactions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related party balances |
Balances regarding the Worlds Franchisees are summarized below:
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7. Stock Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement, Noncash Expense [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock outstanding |
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Stock options outstanding |
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Nonvested stock options outstanding |
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Intrinsic value |
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10. Notes Receivable (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in notes receivable | The following table summarizes changes in our notes receivable balance to franchisees:
The following table summarizes changes in our notes receivable balance to non-franchisees:
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1. Basis of Presentation and Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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Revenue | $ 2,639,287 | $ 2,981,420 | $ 6,344,529 | $ 6,137,556 |
HireQuest Direct | ||||
Revenue | 2,468,581 | 2,756,048 | 6,029,984 | 5,646,762 |
HireQuest | ||||
Revenue | $ 170,706 | $ 225,372 | $ 314,545 | $ 490,794 |
1. Basis of Presentation and Summary of Significant Accounting Policies (Details 1) - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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Earnings Per Share [Abstract] | ||||
Weighted average number of common shares used in basic net income per common share | 13,547,950 | 9,939,668 | 13,540,599 | 9,939,668 |
Dilutive effects of stock options | 1,777 | 0 | 2,159 | 0 |
Weighted average number of common shares used in diluted net income per common share | 13,549,727 | 9,939,668 | 13,542,758 | 9,939,668 |
1. Basis of Presentation and Summary of Significant Accounting Policies (Details 2) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|---|---|
Cash | $ 13,746,445 | $ 4,187,450 | $ 11,297 | $ 1,291,317 |
Notes receivable | 9,000,000 | 11,400,000 | ||
Level 1 | ||||
Cash | 13,746,445 | 4,187,450 | ||
Level 2 | ||||
Notes receivable | 8,990,279 | 11,409,709 | ||
Accounts receivable | $ 19,646,917 | $ 28,201,279 |
1. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
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Accounting Policies [Abstract] | |||
Allowance for doubtful accounts on receivables | $ 129,000 | $ 168,000 | |
Allowance for losses on notes receivable | $ 1,598,673 | $ 0 | |
Outstanding common stock equivalents | 29,000 | 29,000 |
2. Acquisitions (Details) |
6 Months Ended |
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Jun. 30, 2020
USD ($)
$ / shares
| |
Closing share price on July 15, 2019 | $ / shares | $ 6.19 |
Legacy HQ | |
Closing share price on July 15, 2019 | $ / shares | $ 5.76 |
Stock issued | $ 4,677,487 |
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) |
Purchase price allocatiob | $ 26,942,325 |
3. Discontinued Operations (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Net income | $ 0 | $ 20,382 | $ 0 | $ 40,083 |
Command Center | ||||
Revenue | 0 | 202,579 | 0 | 382,326 |
Cost of staffing services | 0 | 170,960 | 0 | 320,248 |
Gross profit | 0 | 31,619 | 0 | 62,078 |
Gain on sale | 0 | 4,443 | 0 | 8,634 |
SG&A | 0 | 27,176 | 0 | 53,444 |
Net income before tax | 0 | 6,794 | 0 | 13,361 |
Provision (benefit) for income taxes | $ 0 | $ 20,382 | $ 0 | $ 40,083 |
4. Related Party Transactions (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
Related Party Transactions [Abstract] | |||||
Due to franchisees | $ 773,247 | $ 773,247 | $ 993,495 | ||
Risk management incentive program liability | 988,817 | 988,817 | $ 1,027,960 | ||
Franchise royalties | $ 1,089,020 | $ 1,659,716 | $ 2,462,895 | $ 3,293,498 |
4. Related Party Transactions (Details Narrative) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2020
USD ($)
Locations
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
Locations
|
Jun. 30, 2019
USD ($)
|
Dec. 31, 2019
USD ($)
|
|
Hire Quest Financial LLC | |||||
Debt | $ 0 | $ 0 | $ 0 | ||
Hire Quest Insurance | |||||
Related party transaction expenses | 0 | $ 1,800,000 | 0 | $ 3,600,000 | |
Brave New World Services, LLC | |||||
Related party transaction expenses | $ 0 | 11,000 | $ 0 | $ 17,000 | |
Worlds Franchisees | |||||
Franchised and owned branch locations | Locations | 20 | 20 | |||
Jackson Insurance | |||||
Related party transaction expenses | $ 240,000 | $ 662,000 |
7. Stock Based Compensation (Details) |
6 Months Ended |
---|---|
Jun. 30, 2020
$ / shares
shares
| |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Non-vested, beginning | shares | 255,634 |
Granted | shares | 57,087 |
Vested | shares | (27,705) |
Non-vested, ending | shares | 285,016 |
Weighted average grant date price, beginning | $ / shares | $ 7.18 |
Granted | $ / shares | 6.48 |
Vested | $ / shares | 6.48 |
Weighted average grant date price, ending | $ / shares | $ 7.10 |
7. Stock Based Compensation (Details 1) |
6 Months Ended |
---|---|
Jun. 30, 2020
$ / shares
shares
| |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Number of options outstanding, beginning | shares | 29,165 |
Granted | shares | 0 |
Forfeited | shares | 0 |
Exercised | shares | 0 |
Number of options outstanding, ending | shares | 29,165 |
Weighted Average Exercise Price Per Share | |
Outstanding, beginning | $ 7.20 |
Granted | 0 |
Forfeited | 0 |
Exercised | 0 |
Outstanding, ending | 7.20 |
Weighted Average Grant Date Fair Value Per Share | |
Outstanding, beginning | 3.76 |
Granted | 0 |
Forfeited | 0 |
Exercised | 0 |
Outstanding, ending | $ 3.76 |
7. Stock Based Compensation (Details 2) |
6 Months Ended |
---|---|
Jun. 30, 2020
$ / shares
shares
| |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Number of nonvested options outstanding, beginning | shares | 5,416 |
Granted | shares | 0 |
Forfeited | shares | 0 |
Vested | shares | (2,187) |
Number of nonvested options outstanding, ending | shares | 3,229 |
Weighted Average Exercise Price Per share | |
Outstanding, beginning | $ 5.48 |
Granted | .00 |
Forfeited | .00 |
Vested | 5.50 |
Outstanding, ending | 5.47 |
Outstanding, beginning | 3.01 |
Granted | .00 |
Forfeited | .00 |
Vested | 3.05 |
Outstanding, ending | $ 2.98 |
7. Stock Based Compensation (Details 3) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Dec. 31, 2019 |
|
Share-based Payment Arrangement, Noncash Expense [Abstract] | ||
Number of options, outstanding | 29,165 | 29,165 |
Weighted average exercise price per share, outstanding | $ 7.20 | $ 7.20 |
Weighted average remaining contractual life (years), outstanding | 4 years 2 months 19 days | |
Aggregate intrinsic value, outstanding | $ 26,984 | |
Number of options, exercisable | 25,936 | |
Weighted average exercise price per share, exercisable | $ 7.41 | |
Weighted average remaining contractual life (years), exercisable | 3 years 9 months 11 days | |
Aggregate intrinsic value, exercisable | $ 6,997 |
7. Stock Based Compensation (Details Narrative) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Options vested | 2,187 | |
Closing price of common stock | $ 6.19 | |
Unrecognized share-based compensation expense | $ 1,100,000 | |
Unrecognized share-based compensation expense period of recogntion | 3 years 2 months 12 days | |
2016 Stock Incentive Plan | ||
Options vested | 26,000 | 24,000 |
9. Income Tax (Details Narrative) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Income Tax Disclosure [Abstract] | ||||
Effective tax rate | 4.50% | 2.10% | 12.30% | 2.50% |
10. Notes Receivable (Details) |
6 Months Ended |
---|---|
Jun. 30, 2020
USD ($)
| |
Notes receivable, beginning | $ 11,400,000 |
Notes receivable, ending | 9,000,000 |
Franchisees | |
Notes receivable, beginning | 9,702,471 |
Notes issued | 54,524 |
Accrued interest | 40,793 |
Payments received | (916,074) |
Change in valuation allowance | (405,314) |
Notes receivable, ending | 8,476,400 |
Non-franchisees | |
Notes receivable, beginning | 1,707,238 |
Notes issued | 0 |
Accrued interest | 86,785 |
Payments received | (86,785) |
Change in valuation allowance | (1,193,359) |
Notes receivable, ending | $ 513,879 |
10. Notes Receivable (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
Accounts and Financing Receivable, after Allowance for Credit Loss [Abstract] | |||||
Notes receivable | $ 9,000,000 | $ 9,000,000 | $ 11,400,000 | ||
Interest income on franchisee notes | $ 176,000 | $ 3,000 | $ 374,000 | $ 3,000 |
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