Note 2 - Acquisitions

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

Note 2 - Acquisitions

Business Combinations

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. (collectively “Dubin”) in accordance with the terms of an Asset Purchase Agreement dated  January 19, 2022  for approximately $2.5 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. From the date of acquisition through   December 31, 2022, the fair value of assets acquired were adjusted in conjunction with a third-party valuation. These adjustments included an increase in customer relationships of approximately $972 thousand, a decrease in customer lists of approximately $772 thousand, and the recognition of approximately $200 thousand of goodwill. The following table summarizes the revised 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	$	1,600
Customer lists		200
Accounts receivable		462
Goodwill		200
Purchase price allocation	$	2,462

Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Dubin. Goodwill is deductible for income tax purposes.

The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Dubin had occurred on   January 1, 2021, (b) all of Dubin’s operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred.  The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $19 thousand and approximately $47 thousand are included in our consolidated statement of income for the three months ended June 30, 2023, and June 30, 2022, respectively, and approximately $49 thousand and approximately $53 thousand are included in our consolidated statement of income for the six months ended June 30, 2023, and June 30, 2022, respectively. 

	Three months ended				Six months ended
	June 30, 2023 (Actual)		June 30, 2022		June 30, 2023 (Actual)		June 30, 2022
Total revenue	$	8,990	$	9,288	$	18,848	$	17,785
Net income		2,008		4,386		4,638		5,466
Basic earnings per share	$	0.15	$	0.32	$	0.34	$	0.40
Basic weighted average shares outstanding		13,720		13,607		13,699		13,591
Diluted earnings per share	$	0.15	$	0.32	$	0.34	$	0.40
Diluted weighted average shares outstanding		13,817		13,691		13,779		13,686

These calculations reflect increased amortization expense, increased payroll expense, increased SG&A expense, the elimination of gains 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 divided Dubin into separate businesses and sold certain assets related to the operations of one 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 during the three months ended March 31, 2022. Subsequently, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in the loss of approximately $628 thousand, which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the year ended   December 31, 2022 resulting in a net recognized gain of approximately $150 thousand. The remaining assets related to the operations of the other acquired locations have not been sold and as of   December 31, 2022 are classified as held-for-sale and the operating results are reported as “Income from discontinued operations, net of tax.” We are actively working to sell these assets. In the meantime, we operate the Philadelphia location as company-owned.

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 $7.0 million, inclusive of a prescribed amount of net 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. From the date of acquisition through June 30, 2023, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in customer lists of approximately $375 thousand, a decrease in accounts receivable of approximately $3 thousand, and the recognition of approximately $375 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired as of the acquisition date (in thousands). 

Cash consideration	$	6,707
Net working capital payable		336
Total consideration	$	7,043
Customer lists	$	4,000
Accounts receivable		2,668
Goodwill		375
Purchase price allocation	$	7,043

Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Temporary Alternatives. Goodwill is deductible for income tax purposes.

The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Temporary Alternatives had occurred on January 1, 2021, (b) all of Temporary Alternative’s operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred.  The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $129 thousand and approximately $141 thousand are included in our consolidated statement of income for the three months ended June 30, 2023, and June 30, 2022, respectively, and approximately $269 thousand and approximately $190 thousand are included in our consolidated statement of income for the six months ended June 30, 2023, and June 30, 2022, respectively. 

	Three months ended				Six months ended
	June 30, 2023 (Actual)		June 30, 2022		June 30, 2023 (Actual)		June 30, 2022
Total revenue	$	8,990	$	9,288	$	18,848	$	17,431
Net income		2,008		4,590		4,638		6,237
Basic earnings per share	$	0.15	$	0.34	$	0.34	$	0.46
Basic weighted average shares outstanding		13,720		13,607		13,699		13,591
Diluted earnings per share	$	0.15	$	0.34	$	0.34	$	0.46
Diluted weighted average shares outstanding		13,817		13,691		13,779		13,686

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 2022. 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 franchisee that purchased these assets is a related party. See Note 3 - Related Party Transactions for more information regarding the Worlds Franchisees.

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 $11.4 million, inclusive of a $1.5 million note payable and 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. From the date of acquisition through June 30, 2023, the fair value of assets acquired and liabilities assumed were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in customer relationships of approximately $389 thousand, a decrease in trade name of approximately $111 thousand, an increase in accounts receivable of approximately $363 thousand, a decrease in other current assets of approximately $34 thousand, an increase in other current liabilities of approximately $64 thousand, and the recognition of approximately $500 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):

Cash consideration	$	9,600
Net working capital payable		328
Note payable		1,500
Total consideration	$	11,428
Customer relationships	$	7,700
Trade name		1,400
Accounts receivable		3,386
Other current assets		94
Goodwill		500
Current liabilities assumed		(1,652	)
Purchase price allocation	$	11,428

Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Northbound. Goodwill is deductible for income tax purposes.

The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Northbound had occurred on January 1, 2021, (b) all of Northbound's operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred.  The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $257 thousand and approximately $351 thousand are included in our consolidated statement of income for the three months ended June 30, 2023, and June 30, 2022, respectively and approximately $520 thousand and approximately $451 thousand are included in our consolidated statement of income for the six months ended June 30, 2023, and June 30, 2022, respectively. 

	Three months ended				Six months ended
	June 30, 2023 (Actual)		June 30, 2022		June 30, 2023 (Actual)		June 30, 2022
Total revenue	$	8,990	$	9,288	$	18,848	$	17,621
Net income		2,008		4,579		4,638		6,547
Basic earnings per share	$	0.15	$	0.34	$	0.34	$	0.48
Basic weighted average shares outstanding		13,720		13,607		13,699		13,591
Diluted earnings per share	$	0.15	$	0.34	$	0.34	$	0.48
Diluted weighted average shares outstanding		13,817		13,691		13,779		13,686

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 Northbound acquisition, we entered into an amortizing term loan from the seller for $1.5 million scheduled to mature on March 1, 2025 that bears interest at 4.0%. The term loan is unsecured and subordinated to our senior instruments (Bank of America revolving credit agreement). The Northbound term loan is payable in 36 monthly installments beginning on April 1, 2022 until March 1, 2025. We  may prepay the Northbound term loan in whole or in part at any time or from time to time without penalty or premium by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment.

Immediately after 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 $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 for the three months ended March 31, 2022. The franchisee that purchased these operating assets is a related party. For more information. See Note 3 - Related Party Transactions regarding the Worlds Franchisees. Subsequently, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in the loss of approximately $389 thousand, which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the nine months ended September 30, 2022.

MRI

On  December 12, 2022, we completed our acquisition of certain assets of MRI in accordance with the terms of an Asset Purchase Agreement dated   November 16, 2022, for approximately $13.3 million, inclusive of $60 thousand of contingent consideration and net working capital of approximately $223 thousand. MRI provides executive placement as well as commercial staffing. The acquisition of MRI will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base.

The following table summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date:

Cash consideration	$	13,000
Contingent consideration		60
Net working capital payable		223
Total consideration	$	13,283
Customer relationships	$	5,640
Trade name		2,180
Royalty receivable		575
Current assets		581
Goodwill		4,795
Current liabilities assumed		(488	)
Purchase price allocation	$	13,283

Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of MRI. Goodwill is deductible for income tax purposes.

The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of MRI had occurred on   January 1, 2021, (b) all of MRI's operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $1.9 million and approximately$4.3 million are included in our consolidated statement of income for the three and six months ended June 30, 2023, respectively. 

	Three months ended				Six months ended
	June 30, 2023 (Actual)		June 30, 2022		June 30, 2023 (Actual)		June 30, 2022
Total revenue	$	8,990	$	10,936	$	18,848	$	20,569
Net income		2,008		5,914		4,638		7,772
Basic earnings per share	$	0.15	$	0.43	$	0.34	$	0.57
Basic weighted average shares outstanding		13,720		13,607		13,699		13,591
Diluted earnings per share	$	0.15	$	0.43	$	0.34	$	0.57
Diluted weighted average shares outstanding		13,817		13,691		13,779		13,686