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Note 2 - Acquisitions | 3 Months Ended
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Mar. 31, 2022
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | Note 2 - Acquisitions Business Combinations Snelling Staffing On March 1, 2021, we completed our acquisition of certain assets of Snelling in accordance with the terms of the Asset Purchase Agreement dated January 29, 2021 (the “Snelling Agreement”). Snelling is a 67-year-old staffing company headquartered in Richardson, TX. Pursuant to the Snelling Agreement, HQ Snelling Corporation (“HQ Snelling”), our wholly-owned subsidiary, acquired substantially all of the operating assets and assumed certain liabilities of the sellers for a purchase price of approximately $17.9 million. Also on March 1, 2021, HQ Snelling entered into the First Amendment to the Purchase Agreement, pursuant to which HireQuest, Inc. agreed to advance $2.1 million to the sellers at closing so the seller could facilitate payment on behalf of HQ Snelling to settle accrued payroll liabilities HQ Snelling assumed pursuant to the Snelling Agreement. Where we assumed franchisor status in this transaction, locations converting to the HireQuest model have subsequently signed our HireQuest franchise agreement but will continue to operate under the Snelling tradename. The following table summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date. From the date of acquisition through December 31, 2021, adjustments to the fair value of assets received and liabilities assumed were adjusted in conjunction with the net working capital reconciliation. These adjustments included an increase in accounts receivable of approximately $1.1 million, a decrease in other current assets of approximately $9 thousand, an increase in current liabilities of approximately $77 thousand, an increase in other liabilities of approximately $217 thousand, and an increase in the bargain purchase gain of approximately $662 thousand. The following table summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
Cash |  | $ | 17,851 |
Accounts receivable |  | $ | 13,418 |
Workers' compensation deposit |  |  | 7,200 |
Franchise agreements |  |  | 11,034 |
Customer lists |  |  | 1,690 |
Other current assets |  |  | 100 |
Workers' compensation claims liability |  |  | (4,891 | )
Accrued payroll |  |  | (2,100 | )
Current liabilities |  |  | (740 | )
Other liabilities |  |  | (2,239 | )
Bargain purchase |  |  | (5,621 | )
Purchase price allocation |  | $ | 17,851 |
The bargain purchase is attributable to the financial position of the seller and because there were few suitable potential buyers. This gain is included in the line item, “Other miscellaneous income,” in our consolidated statement of income. The following table presents unaudited pro forma information assuming the acquisition of Snelling had occurred on January 1, 2021. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on that date:
|  | Three months ended |
(in thousands) |  | March 31, 2022 |  |  | March 31, 2021 |
Royalty revenue |  | $ | 6,573 |  |  | $ | 4,070 |
Net income |  |  | 603 |  |  |  | 997 |
Basic earnings per share |  | $ | 0.04 |  |  | $ | 0.07 |
Basic weighted average shares outstanding |  |  | 13,528 |  |  |  | 13,603 |
Diluted earnings per share |  | $ | 0.04 |  |  | $ | 0.07 |
Diluted weighted average shares outstanding |  |  | 13,660 |  |  |  | 13,739 |
These calculations reflect increased amortization expense, increased payroll expense, the elimination of gains associated with the transaction, the elimination of transaction related costs, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2020. In connection with the acquisition, we sold the 10 locations that had been company-owned by Snelling located in Bakersfield, CA; Albany, NY; Arlington Heights, IL; Amherst, NY; Dallas, TX; Hayward, CA; Hoffman Estates, IL; Lathrop, CA; Ontario, CA; and Tracy, CA. Two of these locations were sold to franchisees. Four locations were sold to a third-party purchaser. Four offices were sold to a California purchaser (the “California Purchaser”) and operate under the Snelling name pursuant to a license agreement with us. The aggregate sale price for these 10 locations consisted of (i) $1.0 million in the form of a promissory note that bears interest at 6.0% per annum, (ii) the right to receive 1.5% of revenue generated at the Ontario location for the next 12 months, subject to certain conditions being satisfied (the "California Conditions"), (iii) the right to receive 2.5% of revenue generated at the Tracy and Lathrop locations for the next 12 months, subject to the California Conditions, (iv) the right to receive 2.0% of revenue generated at the Princeton location for the next 36 months, and (v) approximately $1 million in cash. There were no remaining company-owned locations at March 31, 2021. One of the California locations operates pursuant to a license agreement whereby the California Purchaser licenses the Snelling trademark and pays us a royalty of 9% of their gross margin. In conjunction with the sale of assets acquired in this transaction, we recognized a gain of approximately $638 thousand which is reflected on the line item, "Other miscellaneous income," in our consolidated statement of income. Temporary Alternatives On January 24, 2022 we completed our acquisition of certain assets of Temporary Alternatives in accordance with the terms of an Asset Purchase Agreement dated January 10, 2022, including three locations in West Texas and New Mexico for $5.25 million, inclusive of a prescribed amount of working capital. Temporary Alternatives is a staffing division of dmDickason Personnel Services, a family-owned company based in El Paso, TX. The acquisition of Temporary Alternatives will expand our national footprint into West Texas and grow our franchise base. The fair values of the assets acquired were determined based on information available to us. Additional information is being gathered to finalize the provisional measurements with respect to the fair value of the assets acquired. Accordingly, the measurement of the assets acquired may change upon finalization of the valuation and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. The following table summarizes the provisional values of the identifiable assets acquired as of the acquisition date (in thousands).
Cash consideration |  | $ | 6,706 |
Net working capital payable |  |  | 340 |
Total consideration |  | $ | 7,046 |
Customer lists |  | $ | 4,375 |
Accounts receivable |  |  | 2,671 |
Purchase price allocation |  | $ | 7,046 |
The following table presents unaudited pro forma information assuming the acquisition of Temporary Alternatives had occurred on January 1, 2021. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on that date. Gross profit attributable to the acquiree of $47 thousand is included in our consolidated statement of income for the three months ended March 31, 2022.
|  | Three months ended |
(in thousands, except per share data) |  | March 31, 2022 |  |  | March 31, 2021 |
Total revenue |  | $ | 8,143 |  |  | $ | 3,681 |
Net income |  |  | 1,648 |  |  |  | 3,938 |
Basic earnings per share |  | $ | 0.12 |  |  | $ | 0.29 |
Basic weighted average shares outstanding |  |  | 13,526 |  |  |  | 13,603 |
Diluted earnings per share |  | $ | 0.12 |  |  | $ | 0.29 |
Diluted weighted average shares outstanding |  |  | 13,659 |  |  |  | 13,799 |
These calculations reflect increased amortization expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021. In connection with the acquisition, we sold certain assets related to the operations of the acquired locations. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was approximately $2.9 million. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.5 million which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income. The Dubin Group, Inc., and Dubin Workforce Solutions On February 21, 2022 we completed our acquisition of the staffing operations of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (“Dubin”) in accordance with the terms of an Asset Purchase Agreement dated January 19, 2022 for approximately $2.4 million, inclusive of a prescribed amount of working capital. Dubin provides executive placement services and commercial staffing in the Philadelphia metro area. The acquisition of Dubin will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base. The fair values of the assets acquired were determined based on information available to us. Additional information is being gathered to finalize the provisional measurements with respect to the fair value of the assets acquired. Accordingly, the measurement of the assets acquired may change upon finalization of the valuation and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. The following table summarizes the provisional values of the identifiable assets acquired as of the acquisition date (in thousands):
Cash consideration |  | $ | 2,100 |
Note payable & net working capital payable |  |  | 362 |
Total consideration |  | $ | 2,462 |
Customer relationships |  | $ | 1,172 |
Customer lists |  |  | 828 |
Accounts receivable |  |  | 462 |
Purchase price allocation |  | $ | 2,462 |
The following table presents unaudited pro forma information assuming the acquisition of Dubin had occurred on January 1, 2021. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on that date. Gross profit attributable to the acquiree of $5 thousand is included in our consolidated statement of income for the three months ended March 31, 2022.
|  | Three months ended |
(in thousands, except per share data) |  | March 31, 2022 |  |  | March 31, 2021 |
Total revenue |  | $ | 8,497 |  |  | $ | 3,156 |
Net income |  |  | 1,092 |  |  |  | 3,269 |
Basic earnings per share |  | $ | 0.08 |  |  | $ | 0.24 |
Basic weighted average shares outstanding |  |  | 13,526 |  |  |  | 13,603 |
Diluted earnings per share |  | $ | 0.08 |  |  | $ | 0.24 |
Diluted weighted average shares outstanding |  |  | 13,659 |  |  |  | 13,799 |
These calculations reflect increased amortization expense, increased payroll expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021. In connection with the acquisition, we sold certain assets related to the operations of the acquired locations. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was $350 thousand. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $478 thousand which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income. Northbound Executive Search On February 28, 2022 we completed our acquisition of certain assets of Northbound Executive Search, LTD (“Northbound”) in accordance with the terms of an Asset Purchase Agreement dated January 25, 2022, for approximately $11.0 million, inclusive of a prescribed amount of working capital. Northbound provides executive placement and short-term consultant services primarily to blue chip clients in the financial services industry. The acquisition of Northbound will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base. The fair values of the assets acquired and the liabilities assumed were determined based on information available to us. Additional information is being gathered to finalize the provisional measurements with respect to the fair value of the assets acquired and liabilities assumed. Accordingly, the measurement of the assets acquired and liabilities assumed may change upon finalization of the valuation and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. The following table summarizes the provisional values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
Cash consideration |  | $ | 9,663 |
Note payable |  |  | 1,500 |
Total consideration |  | $ | 11,163 |
Customer relationships |  | $ | 8,089 |
Trade name |  |  | 1,511 |
Accounts receivable |  |  | 3,023 |
Other current assets |  |  | 128 |
Current liabilities assumed |  |  | (1,588 | )
Purchase price allocation |  | $ | 11,163 |
The following table presents unaudited pro forma information assuming the acquisition of Dubin had occurred on January 1, 2021. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on that date. Gross profit attributable to the acquiree of $96 thousand is included in our consolidated statement of income for the three months ended March 31, 2022.
|  | Three months ended |
(in thousands, except per share data) |  | March 31, 2022 |  |  | March 31, 2021 |
Total revenue |  | $ | 8,333 |  |  | $ | 3,601 |
Net income |  |  | 1,969 |  |  |  | 3,889 |
Basic earnings per share |  | $ | 0.15 |  |  | $ | 0.29 |
Basic weighted average shares outstanding |  |  | 13,526 |  |  |  | 13,603 |
Diluted earnings per share |  | $ | 0.14 |  |  | $ | 0.28 |
Diluted weighted average shares outstanding |  |  | 13,659 |  |  |  | 13,799 |
These calculations reflect increased amortization expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021. In connection with the acquisition, we sold certain assets related to the operations of the acquired locations. In connection with their purchase, the buyers exectued franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was $6.4 million. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.7 million which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income. Discontinued operations The operating results from the potion of the Dubin assets that have not been sold are reported as “Income from discontinued operations, net of tax.” We are actively working to sell these assets and expect to do so in the near future. The income from discontinued operations amounts as reported on our consolidated statements of income is comprised of the following amounts:
|  | Three months ended |
(in thousands) |  |  | March 31, 2022 |
Revenue |  | $ | 154 |
Cost of staffing services |  |  | 83 |
Gross profit |  |  | 72 |
SG&A |  |  | 13 |
Net income before tax |  |  | 59 |
Provision for income taxes |  |  | 14 |
Net income |  | $ | 45 |
Asset Acquisitions Link Staffing On March 22, 2021, we completed our acquisition of the franchise relationships and certain other assets of Link in accordance with the terms of the Asset Purchase Agreement dated February 12, 2021 (the "Link Agreement"). Link is a family-owned staffing company headquartered in Houston, TX. Pursuant to the Link Agreement, HQ Link Corporation ("HQ Link"), our wholly-owned subsidiary, acquired franchise agreements for approximately 35 locations, and other assets of Link Staffing for a purchase price of $11.1 million. Substantially all of the locations where we assumed franchisor status in this transaction have subsequently signed our HireQuest franchise agreement and operate under the Snelling tradename. The following table summarizes the estimated fair values of the identifiable assets acquired as of the acquisition date (in thousands):
Cash |  | $ | 11,123 |
Franchise agreements |  |  | 10,886 |
Notes receivable |  |  | 237 |
Purchase price allocation |  | $ | 11,123 |
We determined the Link transaction was an asset acquisition for accounting purposes as substantially all of the fair value of the gross assets acquired was concentrated in the franchise agreements. Accordingly, no pro forma financial information is presented. We assigned six of the franchise agreements we purchased in the transaction, all located in California, to the California Purchaser. These six franchisees operate pursuant to a Link trademark sublicense agreement whereby they pay us 9% of the gross margin of their offices in exchange for a sublicense to utilize the Link tradename. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.9 million which is reflected on the line item, "Other miscellaneous income," in our consolidated statement of income. Recruit Media On October 1, 2021 we completed our acquisition of Recruit Media in accordance with the Stock Purchase Agreement dated October 1, 2021 (the “Recruit Agreement”). Pursuant to the Recruit Agreement, we purchased all of the outstanding shares of Recruit Media for approximately $4.4 million, subject to customary representations and warranties. Recruit Media is an IT company whose intellectual property will allow us to accelerate improvements to our platform. The following table summarizes the values of the identifiable assets acquired as of the acquisition date (in thousands):
Cash consideration |  | $ | 3,283 |
Liabilities assumed |  |  | 1,044 |
Transaction costs |  |  | 23 |
Total consideration |  | $ | 4,350 |
Purchased software |  |  | 3,200 |
Domain name |  |  | 2,226 |
Deferred tax liability |  |  | (1,076 | )
Purchase price allocation |  | $ | 4,350 |
We determined the Recruit Media transaction was an asset acquisition for accounting purposes as it did not meet the definition of a business. Accordingly, no pro forma financial information is presented. Dental Power On December 6, 2021, we completed our acquisition of the Dental Power Staffing division (“DPS”) in accordance with the terms of the Asset Purchase Agreement dated November 2, 2021 (the "Dental Power Agreement") for $1.9 million. Dental Power is a 46-year-old dental staffing company headquartered in Carrboro, North Carolina. DPS is a provider of temporary, long-term contract, and direct-hire staffing services to dental practices across the U.S. The addition of DPS brings additional resources and experience to HQI that will help expedite growth into a new staffing vertical. The following table summarizes the values of the identifiable assets acquired as of the acquisition date (in thousands):
Cash consideration |  | $ | 1,480 |
Contingent consideration |  |  | 382 |
Total consideration |  | $ | 1,862 |
Customer lists |  | $ | 1,862 |
The contingent consideration consists of estimated future payments based on the achievement of performance metrics over the following 3 years. We determined the Dental Power transaction was an asset acquisition for accounting purposes as substantially all of the fair value of the gross assets acquired was concentrated in the customer list. Accordingly, no pro forma financial information is presented.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 + Details
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