☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 2,~~November 1, 2022, there were ~~19,117,173~~19,755,511 shares of the registrant’s common stock, $0.001 par value, outstanding.


		June 30,			December 31,				September 30,			December 31,
		2022			2021				2022			2021
		(Unaudited)							(Unaudited)
ASSETS	ASSETS							ASSETS
Current assets:
Cash and cash equivalents		$	4,217,454		$	8,427,858			$	7,093,892		$	8,427,858
Accounts receivable, less allowance for doubtful accounts of $1,728,974 and $840,522 as of June 30, 2022 and December 31, 2021, respectively			50,649,305			39,948,973
Accounts receivable, less allowance for doubtful accounts of $2,077,647 and $840,522 as of September 30, 2022 and December 31, 2021, respectively										52,062,227			39,948,973
Prepaid expenses and other current assets			2,873,278			1,952,566				3,066,114			1,952,566
Total current assets			57,740,037			50,329,397				62,222,233			50,329,397

Goodwill			82,348,892			80,621,503				82,479,469			80,621,503
Intangible assets, net			37,613,677			39,118,940				35,580,863			39,118,940
Property and equipment, net, and other assets			4,586,868			5,596,566				5,985,649			5,596,566
Total assets		$	182,289,474		$	175,666,406			$	186,268,214		$	175,666,406
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	35,101,039		$	30,195,696			$	34,541,040		$	30,195,696
Other current liabilities			5,572,579			6,195,170				5,791,000			6,195,170
Current portion of notes payable			1,158,800			1,329,109				1,158,800			1,329,109
Total current liabilities			41,832,418			37,719,975				41,490,840			37,719,975

Notes payable, net			66,401,030			62,409,201				70,315,054			62,409,201
Other long-term liabilities			707,214			1,908,966				2,079,709			1,908,966
Total liabilities			108,940,662			102,038,142				113,885,603			102,038,142

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued or outstanding as of June 30, 2022 and December 31, 2021			—			—
Common stock, $0.001 par value, 200,000,000 shares authorized, 19,117,173 and 19,045,988 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			19,117			19,046
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2022 and December 31, 2021										—			—
Common stock, $0.001 par value, 200,000,000 shares authorized, 19,290,925 and 19,045,988 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively										19,291			19,046
Additional paid-in capital			171,072,754			170,318,199				171,792,714			170,318,199
Accumulated deficit			(97,743,059	)		(96,708,981	)			(99,429,394	)		(96,708,981	)
Total stockholders’ equity			73,348,812			73,628,264				72,382,611			73,628,264
Total liabilities and stockholders’ equity		$	182,289,474		$	175,666,406			$	186,268,214		$	175,666,406

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Revenue	$	76,904,788		$	36,858,083		$	148,426,956		$	71,960,074		$	73,358,293		$	37,366,740		$	221,785,249		$	109,326,814
Cost of revenue		62,236,397			30,047,604			122,510,150			58,709,717			61,174,960			30,514,034			183,685,111			89,223,751
Gross profit		14,668,391			6,810,479			25,916,806			13,250,357			12,183,333			6,852,706			38,100,138			20,103,063
Operating expenses:
Selling, general, and administrative		9,298,367			5,060,231			18,642,829			9,322,791			9,332,721			5,307,635			27,975,550			14,630,426
Depreciation and amortization		2,470,390			408,652			4,835,252			815,935			2,473,339			508,456			7,308,591			1,324,391
Total operating expenses		11,768,757			5,468,883			23,478,081			10,138,726			11,806,060			5,816,091			35,284,141			15,954,817
Operating income		2,899,634			1,341,596			2,438,725			3,111,631			377,273			1,036,615			2,815,997			4,148,246
Interest expense		(1,588,827	)		(549,677	)		(3,145,412	)		(1,111,139	)		(1,911,989	)		(542,848	)		(5,057,400	)		(1,653,987	)
Income (loss) before taxes		1,310,807			791,919			(706,687	)		2,000,492			(1,534,716	)		493,767			(2,241,403	)		2,494,259
Income tax expense		160,576			92,613			327,391			154,446			151,619			108,003			479,011			262,449
Net income (loss)		1,150,231			699,306			(1,034,078	)		1,846,046			(1,686,335	)		385,764			(2,720,414	)		2,231,810

Net income (loss) applicable to common stockholders	$	1,150,231		$	699,306		$	(1,034,078	)	$	1,846,046		$	(1,686,335	)	$	385,764		$	(2,720,414	)	$	2,231,810
Net income (loss) per share applicable to common stockholders
Basic	$	0.06		$	0.04		$	(0.05	)	$	0.10		$	(0.09	)	$	0.02		$	(0.14	)	$	0.12
Diluted	$	0.05		$	0.03		$	(0.05	)	$	0.09		$	(0.09	)	$	0.02		$	(0.14	)	$	0.11
Weighted average number of common shares outstanding
Basic		19,278,730			18,823,273			19,261,775			18,665,010			19,368,192			18,984,979			19,297,636			18,784,722
Diluted		21,348,821			20,500,624			19,261,775			20,044,660			19,368,192			21,307,854			19,297,636			20,704,270

The accompanying notes are an integral part of these condensed consolidated financial statements.


					Additional					Total							Additional						Total
	Common Stock				Paid-in		Accumulated			Stockholders’			Common Stock				Paid-in			Accumulated			Stockholders’
	Shares		Par Value		Capital		Deficit			Equity			Shares		Par Value		Capital			Deficit			Equity
Balance, December 31, 2021		19,045,988	$	19,046	$	170,318,199	$	(96,708,981	)	$	73,628,264			19,045,988	$	19,046	$	170,318,199		$	(96,708,981	)	$	73,628,264
Stock-based compensation		—		—		258,638		—			258,638			—		—		258,638			—			258,638
Net loss		—		—		—		(2,184,309	)		(2,184,309	)		—		—		—			(2,184,309	)		(2,184,309	)
Balance, March 31, 2022		19,045,988	$	19,046		170,576,837		(98,893,290	)		71,702,593			19,045,988		19,046		170,576,837			(98,893,290	)		71,702,593
Stock-based compensation		—		—		326,894		—			326,894			—		—		326,894			—			326,894
Stock option exercises		53,465		53		92,375		—			92,428			53,465		53		92,375			—			92,428
Shares issued for Employee Stock Purchase Plan options		17,720		18		76,648		—			76,666			17,720		18		76,648			—			76,666
Net income		—		—		—		1,150,231			1,150,231			—		—		—			1,150,231			1,150,231
Balance, June 30, 2022		19,117,173	$	19,117	$	171,072,754	$	(97,743,059	)	$	73,348,812			19,117,173		19,117		171,072,754			(97,743,059	)		73,348,812
Stock-based compensation														—		—		412,715			—			412,715
Release of deferred stock units														28,650		29		(29	)		—			—
Stock option exercises														145,102		145		307,274			—			307,419
Net loss														—		—		—			(1,686,335	)		(1,686,335	)
Balance, September 30, 2022														19,290,925	$	19,291	$	171,792,714		$	(99,429,394	)	$	72,382,611


					Additional						Total						Additional						Total
	Common Stock				Paid-in			Accumulated			Stockholders’		Common Stock				Paid-in			Accumulated			Stockholders’
	Shares		Par Value		Capital			Deficit			Equity		Shares		Par Value		Capital			Deficit			Equity
Balance, December 31, 2020		18,413,419	$	18,413	$	166,424,597		$	(98,400,038	)	$	68,042,972		18,413,419	$	18,413	$	166,424,597		$	(98,400,038	)	$	68,042,972
Stock-based compensation		—		—		309,610			—			309,610		—		—		309,610			—			309,610
Stock option and warrant exercises		276,388		277		253,112			—			253,389		276,388		277		253,112			—			253,389
Net income		—		—		—			1,146,740			1,146,740		—		—		—			1,146,740			1,146,740
Balance, March 31, 2021		18,689,807	$	18,690		166,987,319			(97,253,298	)		69,752,711		18,689,807		18,690		166,987,319			(97,253,298	)		69,752,711
Stock-based compensation		—		—		506,391			—			506,391		—		—		506,391			—			506,391
Release of deferred stock units		7,742		8		(8	)		—			—		7,742		8		(8	)		—			—
Stock option and warrant exercises		19,167		19		41,103			—			41,122		19,167		19		41,103			—			41,122
Shares issued for Employee Stock Purchase Plan options		22,937		23		38,965			—			38,988		22,937		23		38,965			—			38,988
Net income		—		—		—			699,306			699,306		—		—		—			699,306			699,306
Balance, June 30, 2021		18,739,653	$	18,740	$	167,573,770		$	(96,553,992	)	$	71,038,518		18,739,653		18,740		167,573,770			(96,553,992	)		71,038,518
Stock-based compensation														—		—		325,739			—			325,739
Stock option exercises														62,706		62		231,044			—			231,106
Net income														—		—		—			385,764			385,764
Balance, September 30, 2021														18,802,359	$	18,802	$	168,130,553		$	(96,168,228	)	$	71,981,127

The accompanying notes are an integral part of these condensed consolidated financial statements.


	For the Six Months Ended June 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Cash flows from operating activities:
Net income (loss)	$	(1,034,078	)	$	1,846,046		$	(2,720,414	)	$	2,231,810
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		370,393			225,598			571,738			345,463
Amortization of intangibles		4,616,795			731,129			6,969,692			1,194,215
Amortization of debt issuance costs and discounts		650,664			413,597			978,386			615,570
Provision for doubtful accounts		731,955			40,620			1,143,757			28,550
Stock-based compensation		585,532			816,001			998,247			1,141,740
Changes in operating assets and liabilities:
Accounts receivable		(11,255,199	)		(6,384,432	)		(13,079,923	)		(8,440,187	)
Prepaid expenses and other current assets		(918,076	)		(432,110	)		(1,110,912	)		(393,504	)
Security deposits and other assets		701,209			(6,982	)		(850,290	)		(341,792	)
Accounts payable and accrued liabilities		3,619,871			7,730,509			3,076,785			6,698,584
Other liabilities		(1,866,667	)		203,391			(295,959	)		285,791
Net cash provided by (used in) operating activities		(3,797,601	)		5,183,367			(4,318,893	)		3,366,240
Cash flows from investing activities:
Purchase of property and equipment		(402,025	)		(154,737	)		(627,216	)		(436,438	)
Purchase of intangible assets		(311,532	)		(63,840	)		(631,615	)		(79,215	)
Acquisition, net of cash acquired		(3,137,758	)		(2,319,977	)		(3,137,758	)		(2,319,977	)
Net cash used in investing activities		(3,851,315	)		(2,538,554	)		(4,396,589	)		(2,835,630	)
Cash flows from financing activities:
Proceeds from credit facilities		36,046,989			29,293,503			59,023,146			48,448,941
Repayments of credit facilities		(35,396,710	)		(29,441,722	)		(54,353,819	)		(47,498,738	)
Proceeds from long-term debt		3,500,000			—			3,500,000			—
Repayments of long-term debt		(835,061	)		(298,505	)		(1,124,774	)		(461,468	)
Proceeds from shares issued for Employee Stock Purchase Plan		76,666			38,988			76,666			38,988
Proceeds from stock option exercises		92,428			294,511
Proceeds from stock option and warrant exercises								399,847			525,617
Debt issuance costs		(45,800	)		—			(139,550	)		—
Net cash provided by (used in) financing activities		3,438,512			(113,225	)
Net cash provided by financing activities								7,381,516			1,053,340
Net increase (decrease) in cash and cash equivalents		(4,210,404	)		2,531,588			(1,333,966	)		1,583,950
Cash and cash equivalents at beginning of period		8,427,858			7,516,260			8,427,858			7,516,260
Cash and cash equivalents at end of period	$	4,217,454		$	10,047,848		$	7,093,892		$	9,100,210

Supplemental cash flow information:
Cash paid for interest	$	2,403,567		$	716,366		$	3,918,191		$	1,057,476
Cash paid for income taxes	$	214,060		$	238,547		$	359,327		$	294,101

The accompanying notes are an integral part of these condensed consolidated financial statements.

3. Acquisitions

RWS

On December 7, 2021, QSS, a wholly-owned subsidiary of Quest, entered into a Membership Interest Purchase Agreement (the "MIPA"), effective as of November 30, 2021, among QSS, Rome Holdings, LLC, M&A Business Consulting, Inc., and solely for purposes of Section 5.3(a) of the MIPA, Anthony J. DiIenno, Sr., RWS Investors, LLC and ATAR RWS Investors, LLC, pursuant to which QSS acquired all of the outstanding membership interests of RWS. RWS is a provider of independent environmental services, particularly in the commercial property and industrial markets and is located in Chadds Ford, PA. The RWS acquisition strengthens our presence across key markets, particularly in commercial property management and adds to our industrial market base. The total purchase price for RWS was $33.0 million in cash subject to certain adjustments set forth in the MIPA. We funded the acquisition primarily with a term note to Monroe Capital Management Advisors, LLC (“Monroe Capital”), as further discussed in Note 7, which is secured by a first priority lien on substantially all of QRHC's tangible and intangible assets.

The following table sets forth the purchase consideration paid and the amount of assets acquired and liabilities assumed as of the acquisition date:


Sources of consideration paid:
Cash (1)		$	32,048,438			$	32,048,438
Other (2)			1,964,562				1,964,562
		$	34,013,000			$	34,013,000
Purchase price allocation:
Accounts receivable, net (3)			7,888,586				7,888,586
Other assets			1,103,253				1,103,253
Machinery and equipment, net			494,614				494,614
Intangible assets			25,390,000				25,390,000
Goodwill			8,085,748				8,216,325
Current liabilities			(8,949,201	)			(9,079,778	)
		$	34,013,000			$	34,013,000

(1) Financed with Monroe Capital term loan	(1) Financed with Monroe Capital term loan				(1) Financed with Monroe Capital term loan
(2) Net working capital	(2) Net working capital				(2) Net working capital
(3) Gross receivables of $10,359,526, net of allowance of $2,470,940	(3) Gross receivables of $10,359,526, net of allowance of $2,470,940				(3) Gross receivables of $10,359,526, net of allowance of $2,470,940

The purchase price allocation is preliminary and was based on information existing at the acquisition date. Accordingly, the purchase price allocation is subject to change. The purchase price allocation was adjusted in the ~~six~~nine months ended ~~June~~September 30, 2022, which resulted in an increase to goodwill and current liabilities of approximately $~~1.2~~1.3 million. We expect to complete our purchase price allocation as soon as reasonably possible, not to exceed one year from the acquisition date. Further adjustments could be made to our preliminary estimates of accounts receivable, other assets, current liabilities and goodwill.

Goodwill represents the amount by which the purchase price exceeds the estimated fair value of the net assets acquired and primarily reflects future synergies. The goodwill related to the RWS acquisition is not deductible for income tax purposes.

The following table presents unaudited pro forma information for the three and ~~six~~nine months ended ~~June~~September 30, 2021 as if the RWS acquisition had occurred at the beginning of our 2021 fiscal year. The unaudited pro forma information includes adjustments for amortization expense on definite lived intangible assets acquired, interest expense on debt incurred related to the acquisition, certain management adjustments, and the related income tax effects.


	Three months ended			Six months ended			Three months ended			Nine months ended
	June 30, 2021			June 30, 2021			September 30, 2021			September 30, 2021
Pro Forma	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenue	$	50,085,144		$	96,901,966		$	51,155,885		$	148,057,851
Net loss	$	(831,182	)	$	(1,354,713	)	$	(846,442	)	$	(2,201,155	)
Net loss per share - basic and diluted	$	(0.04	)	$	(0.07	)	$	(0.05	)	$	(0.12	)

The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the RWS acquisition had been effected on the dates previously set forth, nor is it indicative of the future operating results or financial position in combination.

On February 10, 2022, we acquired an independent environmental services company that primarily services customers in the northeast region of the United States for approximately $3.35 million. This acquisition was paid in cash and was financed with a draw down on the term loan pursuant to the Credit Agreement (as defined in Note 7). The purchase price was allocated to the acquired assets, primarily customer relationship intangibles and goodwill.

4. Property and Equipment, net, and Other Assets

At ~~June~~September 30, 2022 and December 31, 2021, property and equipment, net, and other assets consisted of the following:


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
	(Unaudited)				(Unaudited)
Property and equipment, net of accumulated depreciation of $2,136,181 and $1,771,376 as of June 30, 2022 and December 31, 2021, respectively	$	2,560,454	$	2,542,120
Property and equipment, net of accumulated depreciation of $2,326,677 and $1,771,376 as of September 30, 2022 and December 31, 2021, respectively					$	2,584,301	$	2,542,120
Right-of-use operating lease asset		1,028,384		1,945,438		2,448,531		1,945,438
Security deposits and other assets		998,030		1,109,008		952,817		1,109,008
Property and equipment, net, and other assets	$	4,586,868	$	5,596,566	$	5,985,649	$	5,596,566

We compute depreciation using the straight-line method over the estimated useful lives of the property and equipment. Depreciation expense for the three months ended ~~June~~September 30, 2022 was $~~196,820~~201,345, including $~~79,588~~80,903 of depreciation expense reflected within “Cost of revenue” in our condensed consolidated statements of operations as it related to assets used in directly servicing customer contracts and was $~~370,393~~571,738 for the ~~six~~nine months ended ~~June~~September 30, 2022, including $~~151,936~~232,839 of depreciation expense reflected within “Cost of revenue.” Depreciation expense for the three months ended ~~June~~September 30, 2021 was $~~115,463~~119,865, including $~~72,416~~74,495 of depreciation expense reflected within “Cost of revenue,” and was $~~225,598~~345,463 for the ~~six~~nine months ended ~~June~~September 30, 2021, including $~~140,792~~215,287 reflected within “Cost of revenue.”

We recorded right-of-use operating lease assets related to our office leases in accordance with ASC 842. Refer to Note 8, Leases for additional information.

On February 20, 2018 (the “Closing Date”), we entered into an Asset Purchase Agreement with Earth Media Partners, LLC to sell certain assets of our wholly owned subsidiary, Earth911, Inc., in exchange for a 19% interest in Earth Media Partners, LLC, which was recorded as an investment in the amount of $246,585 as of the Closing Date, and a potential future earn-out amount of approximately $350,000. The net assets sold related to the Earth911.com website business and consisted primarily of the website and its content and customers, deferred revenue, and accounts receivable as of the Closing Date. Earth911, Inc. was subsequently renamed Quest Sustainability Services, Inc. The carrying amount of our investment in Earth Media Partners, LLC is included in “Security deposits and other assets” above and we have an accrued receivable in the amount of $327,667 and $339,667 related to the earn-out included as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

5. Goodwill and Other Intangible Assets

The components of goodwill and other intangible assets were as follows:


June 30, 2022 (Unaudited)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net
September 30, 2022 (Unaudited)								Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net
Finite lived intangible assets:
Customer relationships	5 years	$	39,250,000	$	5,883,854	$	33,366,146	5 years	$	39,250,000	$	7,846,356	$	31,403,644
Software	7 years		2,322,800		1,637,614		685,186	7 years		2,641,435		1,768,842		872,593
Trademarks	7 years		2,006,020		226,731		1,779,289	7 years		2,007,468		298,397		1,709,071
Non-compete agreements	3 years		2,250,000		466,944		1,783,056	3 years		2,250,000		654,445		1,595,555
Total finite lived intangible assets		$	45,828,820	$	8,215,143	$	37,613,677		$	46,148,903	$	10,568,040	$	35,580,863


December 31, 2021	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net
Finite lived intangible assets:
Customer relationships	5 years	$	36,820,000	$	1,999,355	$	34,820,645
Software	7 years		2,030,754		1,416,638		614,116
Trademarks	7 years		1,716,533		87,632		1,628,901
Non-compete agreements	3 years		2,150,000		94,722		2,055,278
Total finite lived intangible assets		$	42,717,287	$	3,598,347	$	39,118,940


	Carrying Amount		Carrying Amount
Changes in goodwill:
Goodwill balance at December 31, 2021	$	80,621,503	$	80,621,503
Addition related to acquisition		543,397		543,397
RWS purchase price allocation adjustment		1,183,992		1,314,569
Goodwill balance at June 30, 2022	$	82,348,892
Goodwill balance at September 30, 2022			$	82,479,469

We compute amortization using the straight-line method over the useful lives of the finite lived intangible assets. Amortization expense related to finite lived intangible assets was $~~2,353,159~~2,352,897 and $~~365,605~~463,087 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Amortization expense related to finite lived intangible assets was $~~4,616,795~~6,969,692 and $~~731,129~~1,194,215 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

We have 0no indefinite-lived intangible assets other than goodwill. $~~66.8~~67.0 million of the goodwill is not deductible for tax purposes, while $15.5 million of goodwill is deductible over its tax-basis life.

We performed our annual impairment analysis for goodwill and other intangible assets in the third quarter of ~~2021~~2022 with 0no impairment recorded.

6. Current Liabilities

The components of Accounts payable and accrued liabilities were as follows:


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
	(Unaudited)				(Unaudited)
Accounts payable	$	31,312,936	$	26,434,732	$	29,885,211	$	26,434,732
Accrued taxes		970,431		797,394		1,118,346		797,394
Employee compensation		1,262,241		1,864,145		2,159,764		1,864,145
Operating lease liability - current portion		440,065		868,799		416,709		868,799
Other		1,115,366		230,626		961,010		230,626
	$	35,101,039	$	30,195,696	$	34,541,040	$	30,195,696

Refer to Note 8, Leases for additional disclosure related to the operating lease liability.

The components of Other current liabilities were as follows:


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
	(Unaudited)				(Unaudited)
Deferred seller consideration, net	$	1,281,716	$	1,183,153	$	1,330,997	$	1,183,153
Deferred consideration - earn-out		1,846,000		1,290,000		1,846,000		1,290,000
Deferred revenue		2,444,863		3,722,017		2,614,003		3,722,017
	$	5,572,579	$	6,195,170	$	5,791,000	$	6,195,170

Deferred seller consideration in connection with our 2020 acquisition of Green Remedies Waste and Recycling, Inc. (“Green Remedies”) is payable in either cash or shares of our common stock, at our option, in October 2022. As of ~~June~~September 30, 2022 and December 31, 2021, the unamortized portion of OID on the deferred seller consideration was $~~60,409~~11,128 and $158,972, respectively.

The current portion of earn-out consideration related to other acquisitions was $1,846,000 as of ~~June~~September 30, 2022 and $1,290,000 at December 31, 2021.

7. Notes Payable and Other Long-term Liabilities

Our debt obligations are as follows:


		Interest Rate	June 30,			December 31,				Interest Rate	September 30,			December 31,
		(1)	2022			2021				(1)	2022			2021
			(Unaudited)								(Unaudited)
Monroe Term Loan (2)		8.06%	$	61,384,151		$	58,585,000			9.06%	$	61,228,651		$	58,585,000
Green Remedies Promissory Note (3)		3.00%		1,906,395			2,040,607			3.00%		1,772,182			2,040,607
PNC ABL Facility (4)		3.06%		7,885,016			7,234,737			4.56%		11,904,062			7,234,737
Total notes payable				71,175,562			67,860,344					74,904,895			67,860,344
Less: Current portion of long-term debt				(1,158,800	)		(1,329,109	)				(1,158,800	)		(1,329,109	)
Less: Unamortized debt issuance costs				(2,326,082	)		(2,637,483	)				(2,238,842	)		(2,637,483	)
Less: Unamortized OID				(340,068	)		(391,493	)				(314,356	)		(391,493	)
Less: Unamortized OID warrant				(949,582	)		(1,093,058	)				(877,843	)		(1,093,058	)
Notes payable, net			$	66,401,030		$	62,409,201				$	70,315,054		$	62,409,201
(1) Interest rates as of June 30, 2022
(1) Interest rates as of September 30, 2022									(1) Interest rates as of September 30, 2022
(2) Bears interest at LIBOR rate plus Applicable Margin ranging from 5.5%-7.5%	(2) Bears interest at LIBOR rate plus Applicable Margin ranging from 5.5%-7.5%								(2) Bears interest at LIBOR rate plus Applicable Margin ranging from 5.5%-7.5%
(3) Stated interest rate of 3.0%, discounted cash flow rate of 13%	(3) Stated interest rate of 3.0%, discounted cash flow rate of 13%								(3) Stated interest rate of 3.0%, discounted cash flow rate of 13%
(4) Bears interest at a Base rate, as defined, plus a margin of 0.75% to 1.25%	(4) Bears interest at a Base rate, as defined, plus a margin of 0.75% to 1.25%								(4) Bears interest at a Base rate, as defined, plus a margin of 0.75% to 1.25%

We capitalize financing costs we incur related to implementing our debt arrangements. We record these debt issuance costs associated with our revolving credit facility and our term loan as a reduction of long-term debt, net and amortize them over the contractual life of the related debt arrangements. The table below summarizes changes in debt issuance costs.


	June 30,			September 30,
	2022			2022
	(Unaudited)			(Unaudited)
Debt issuance costs
Beginning balance	$	2,637,483		$	2,637,483
Financing costs deferred		45,800			139,550
Less: Amortization expense		(357,201	)		(538,191	)
Debt issuance costs, net of accumulated amortization	$	2,326,082		$	2,238,842

Revolving Credit Facility

On August 5, 2020, QRHC and certain of its domestic subsidiaries entered into a Loan, Security and Guaranty Agreement (the “PNC Loan Agreement”), which was subsequently amended on October 19, 2020 and December 7, 2021, with BBVA USA (which was subsequently succeeded in interest by PNC Bank, National Association (“PNC”)), as a lender, and as administrative agent, collateral agent, and issuing bank, which provides for a credit facility (the “ABL Facility”) comprising the following:

•

An asset-based revolving credit facility in the maximum principal amount of $15.0 million with a sublimit for issuance of letters of credit of up to 10% of the maximum principal amount of the revolving credit facility. Each loan under the revolving credit facility bears interest, at the borrowers’ option, at either the Base Rate, plus a margin ranging from 0.75% to 1.25% (~~3.06~~4.56% as of ~~June~~September 30, 2022), or the LIBOR Lending Rate for the interest period in effect, plus a margin ranging from 1.75% to 2.25% (0no borrowings as of ~~June~~September 30, 2022). The maturity date of the revolving credit facility is April 19, 2025. The revolving credit facility contains an accordion feature permitting the revolving credit facility to be increased by up to $10 million.

•

An equipment loan facility in the maximum principal amount of $2.0 million. Loans under the equipment loan facility may be requested at any time until August 5, 2023. Each loan under the equipment loan facility bears interest, at the borrowers’ option, at either the Base Rate, plus 1.75%, or the LIBOR Lending Rate for the Interest Period in effect, plus 2.75%. The maturity date of the equipment loan facility is April 19, 2025.

The PNC Loan Agreement contains certain financial covenants, including a minimum fixed charge coverage ratio. In addition, the PNC Loan Agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matter customarily restricted in such agreements. The PNC Loan Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, change of control, and failure of any guaranty or security document supporting the PNC Loan Agreement to be in full force and effect. Upon the occurrence of an event of default, the outstanding obligations under the PNC Loan Agreement may be accelerated and become immediately due and payable.

As of ~~June~~September 30, 2022, the ABL Facility borrowing base availability was $15,000,000, of which $~~7,885,016~~11,904,062 principal was outstanding.

It is possible that LIBOR may be phased out beginning in 2023. The ABL Facility provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. However, there can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR beginning in 2023 and will work with PNC to ensure any transition away from LIBOR will have minimal

impact on our financial condition. We, however, can provide no assurances regarding the impact of the discontinuation of LIBOR on the interest rate that we would be required to pay or on our financial condition.

Monroe Term Loan

On October 19, 2020, QRHC and certain of its domestic subsidiaries entered into a Credit Agreement (the “Credit Agreement”), dated as of October 19, 2020, which was subsequently amended on September 3, 2021, December 1, 2021, December 7, 2021, and August 9, 2022 with Monroe Capital, as administrative agent for the lenders thereto. Among other things, the Credit Agreement provides for the following:

•

A senior secured term loan facility in the outstanding principal amount of $~~61.4~~61.2 million as of ~~June~~September 30, 2022. The senior secured term loan accrues interest at the LIBOR Rate for LIBOR Loans plus the Applicable Margin; provided, that if the provision of LIBOR Loans becomes unlawful or unavailable, then interest will be payable at a rate per annum equal to the Base Rate from time to time in effect plus the Applicable Margin for Base Rate Loans. The maturity date of the term loan facility is October 19, 2025 (the "Maturity Date"). The senior secured term loan will amortize in aggregate annual amounts equal to 1.00% of the original principal amount of the senior secured term loan facility with the balance payable on the Maturity Date. Proceeds of the senior secured term loan are permitted to be used for Permitted Acquisitions (as defined in the Credit Agreement).

•

A delayed draw term loan facility in the maximum principal amount of $12.5 million. Loans under the delayed draw term loan facility may be requested at any time until March 31, 2023. Pricing and maturity for the outstanding principal amount of the delayed draw term loan shall be the same as for the senior secured term loan. Proceeds of the delayed draw term loan are to be used for Permitted Acquisitions.

•

An accordion term loan facility in the maximum principal amount of $5.3 million. Loans under the accordion loan facility may be requested at any time until the Maturity Date. Each accordion term loan shall be on the same terms as those applicable to the senior secured term loan. Proceeds of accordion term loans are permitted to be used for Permitted Acquisitions.

The Credit Agreement contains certain financial covenants, including a minimum fixed charge coverage ratio and a senior net leverage ratio. In addition, the Credit Agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, change of control, and failure of any guaranty or security document supporting the Credit Agreement to be in full force and effect. Upon the occurrence of an event of default, the outstanding obligations under the Credit Agreement may be accelerated and become immediately due and payable.

At the same time as the borrowing of the initial $11.5 million under the Credit Agreement in October 2020, in a separate agreement, we issued Monroe Capital a warrant to purchase 500,000 shares of QRHC’s common stock exercisable immediately. For the delayed draw term loan facility, we issued a separate warrant to purchase 350,000 shares upon drawing on this facility on October 19, 2021. Both warrants have an exercise price of $1.50 per share and an expiration date of March 19, 2028. We estimated the value of the warrants issued using the Black Scholes option pricing model and recorded a debt discount of approximately $766,000 in 2020 for the

500,000-share warrant and $536,000 in 2021 for the 350,000-share warrant which are being amortized over the term of the Credit Agreement. We also executed a letter agreement that provides that the warrant holder will receive minimum net proceeds of $1 million less any net proceeds received from the sale of the warrant shares, which is conditional on the full exercise and sale of all the warrant shares at the same time and upon a date two years after the closing date of such agreement.

Green Remedies Promissory Note

On October 19, 2020, we issued an unsecured subordinated promissory note to Green Remedies in the aggregate principal amount of $2,684,250, payable commencing on January 1, 2021 in quarterly installments through October 1, 2025 and subject to an interest rate of 3.0% per annum.

Interest Expense

The amount of interest expense related to borrowings for the three months ended ~~June~~September 30, 2022 and 2021 was $~~1,286,412~~1,577,669 and $~~347,124~~334,946, respectively. The amount of interest expense related to borrowings for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was $~~2,519,731~~4,097,400 and $~~695,430~~1,030,377, respectively. Debt issuance costs of $~~3,155,156~~3,248,906 are being amortized to interest expense over the lives of the related debt arrangements. As of ~~June~~September 30, 2022, the unamortized portion of the debt issuance costs was $~~2,326,082~~2,238,842. The amount of interest expense related to the amortization of debt issuance costs for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was $~~357,201~~538,191 and $~~177,435~~266,153, respectively. Debt discount (“OID”) of $2,210,148 is being amortized to interest expense over the lives of the related debt and consideration arrangements. As of ~~June~~September 30, 2022, the unamortized portion

of OIDs was $~~1,289,650~~1,192,199. The amount of interest expense related to the amortization of OID costs for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 is $~~293,464~~440,196 and $~~236,162~~349,418, respectively.

Other long-term liabilities


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
	(Unaudited)				(Unaudited)
Deferred consideration - earn-out	$	225,000	$	781,000	$	225,000	$	781,000
Operating lease liability - long-term portion		478,047		1,123,799		1,850,542		1,123,799
Other		4,167		4,167		4,167		4,167
	$	707,214	$	1,908,966	$	2,079,709	$	1,908,966

We recorded deferred consideration in connection with certain business acquisitions. We valued the earn-out liability using a Monte Carlo simulation. The inputs used in estimating the fair value of the earn-out liability represent Level 3 inputs under the fair value hierarchy.

8. Leases

Our leases are primarily related to office space and are classified as operating leases.

On September 29, 2022, we executed an amendment to our corporate office lease in The Colony, TX, pursuant to which we reduced the amount of square space rented to approximately 16,200 square feet and extended the term of the office lease from October 2022 to December 31, 2027.

Lease Costs

For the three months ended ~~June~~September 30, 2022 and 2021 we recorded approximately $~~217,000~~207,000 and $158,000, respectively, of fixed cost operating lease expense. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, we recorded approximately $~~462,000~~669,000 and $~~317,000~~475,000, respectively, of fixed cost operating lease expense. Our operating lease expense is offset by a minimum annual incentive of $93,600received from a local Economic Development Council, which iswas accrued monthly ~~and will continue~~ over the term of the initial corporate office lease through August 2022. ~~This minimum annual incentive is $93,600~~ ~~effective September 2020 through the remainder of the lease term.~~

Effective December 1, 2019, we subleased a portion of our corporate office space to a single tenant. The sublease agreement is accounted for as an operating lease and we ~~recognize~~recognized sublease income as an offset to operating lease expense on a straight-line basis over the term of the sublease agreement through August 2022. Sublease income, net of amortized leasing costs, for the ~~six~~nine months ended ~~June~~September 30, 2022 was approximately $~~26,000~~39,000.

Cash paid for operating leases approximated operating lease expense and non-cash right of use asset amortization for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. We did not obtain any new operating lease right-of-use assets in the ~~six~~nine months ended ~~June~~September 30, 2022.

The future minimum lease payments required under our office leases as of ~~June~~September 30, 2022 are as follows:


	Amount			Amount
2022	$	366,251		$	80,781
2023		240,171			593,696
2024		210,560			572,212
2025		123,586			493,364
2026		85,044			482,604
2027					357,303
Total lease payments		1,025,612			2,579,960
Less: Interest		(107,500	)		(312,709	)
Present value of lease liabilities	$	918,112		$	2,267,251

Balance Sheet Classification

The table below presents the lease related assets and liabilities recorded on the balance sheet. Right-of-use assets and related liabilities related to finance leases at ~~June~~September 30, 2022 are de minimis.


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Operating Leases:	(Unaudited)				(Unaudited)
Right-of-use operating lease asset:
Property and equipment, net and other assets	$	1,028,384	$	1,945,438	$	2,448,531	$	1,945,438

Lease Liabilities:
Accounts payable and accrued liabilities	$	440,065	$	868,799	$	416,709	$	868,799
Other long-term liabilities		478,047		1,123,799		1,850,542		1,123,799
Total operating lease liabilities	$	918,112	$	1,992,598	$	2,267,251	$	1,992,598

9. Revenue

Operating Revenues

We provide businesses with services to reuse, recycle, and dispose of a wide variety of waste streams and recyclables generated by their operations. Service revenues are primarily generated from fees charged for our collection, transfer, disposal and recycling services and from sales of commodities by our recycling operations. In addition, we have product sales and other revenue primarily from sales of products such as antifreeze and windshield washer fluid, equipment, as well as minor ancillary services.

Revenue Recognition

We recognize revenue as services are performed or products are delivered. For example, we recognize revenue as waste and recyclable material are collected or when products are delivered. We recognize revenue net of any contracted pricing discounts or rebate arrangements.

We generally recognize revenue for the gross amount of consideration received as we are generally the primary obligor (or principal) in our contracts with customers as we hold complete responsibility to the customer for contract fulfillment. Depending on the key terms of the arrangement, which may include situations in which we are not primarily obligated, we do not have credit risk, or we determine amounts earned using fixed percentage or fixed fee schedules, we may record the revenue net of certain cost amounts. We had certain management fee contracts accounted for under the net basis method with net revenue of $~~139,656~~92,475 and $0 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. We had net revenue from management fee contracts accounted for under the net basis method of $~~299,976~~392,451 and $0 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. We record amounts collected from customers for sales tax on a net basis.

Disaggregation of Revenue

The following table presents our revenue disaggregated by source. ~~NaN~~Two customers accounted for 21.0% of revenue for the three months ended September 30, 2022 and one customer accounted for ~~15.9~~14.5% of revenue for the nine months ended September 30, 2022. Two customers accounted for 39.4% and ~~16.2~~43.8% of revenue for the three and ~~six~~nine months ended ~~June 30, 2022, respectively. Two customers accounted for~~ ~~45.4% and~~ ~~46.1% of revenue for the three and six months ended June~~September 30, 2021, respectively. We operate primarily in the United States, with minor services in Canada.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2022		2021		2022		2021
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue Type:
Services	$	74,317,692	$	34,595,901	$	143,039,300	$	67,300,484	$	70,895,554	$	35,267,085	$	213,934,853	$	102,567,569
Product sales and other		2,587,096		2,262,182		5,387,656		4,659,590		2,462,739		2,099,655		7,850,396		6,759,245
Total revenue	$	76,904,788	$	36,858,083	$	148,426,956	$	71,960,074	$	73,358,293	$	37,366,740	$	221,785,249	$	109,326,814

Our incremental direct costs of obtaining a customer contract are generally deferred and amortized to selling, general, and administrative expense or as a reduction to revenue (depending on the nature of the cost) over the estimated life of the customer contract. We classify our contract acquisition costs as current or noncurrent based on the timing of when we expect to recognize the amortization and are included in other assets.

As of ~~June~~September 30, 2022 and December 31, 2021, we had $$5~~670,000~~67,500 and $775,000 of deferred contract costs, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, we amortized $102,500 and $~~205,000~~307,500, respectively, of deferred contract costs to

selling, general, and administrative expense. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, we amortized $50,000 and $~~100,000~~150,000, respectively, of deferred contract costs to selling, general, and administrative expense.

We bill certain customers in advance, and, accordingly, we defer recognition of related revenues as a contract liability until the services are provided and control is transferred to the customer. As of ~~June~~September 30, 2022 and December 31, 2021, we had $~~2,444,863~~2,614,003 and $3,722,017, respectively, of deferred revenue which was classified in “Other current liabilities.”

12. Stockholders’ Equity

Preferred Stock – Our authorized preferred stock consists of 10,000,000 shares of preferred stock with a par value of $0.001, of which 0no shares have been issued or are outstanding.

Common Stock – Our authorized common stock consists of 200,000,000 shares of common stock with a par value of $0.001, of which ~~19,117,173~~19,290,925 and 19,045,988 shares were issued and outstanding as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

Employee Stock Purchase Plan – On September 17, 2014, our stockholders approved our 2014 Employee Stock Purchase Plan (as amended, the “ESPP”). On May 16, 2022, we issued 17,720 shares to employees for $76,666 under our ESPP for options that vested and were exercised. We recorded expense of $~~41,031~~63,369 and $~~16,934~~24,586 related to the ESPP for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Warrants – The following table summarizes the warrants issued and outstanding as of ~~June~~September 30, 2022:

Warrants Issued and Outstanding as of June 30, 2022

Warrants Issued and Outstanding as of September 30, 2022

Date of

Exercise

Shares of

Date of

Exercise

Shares of

Description

Issuance

Expiration

Common Stock

Issuance

Expiration

Common Stock

Exercisable Warrants

10/19/2020

3/19/2028

1.50

500,000

10/19/2020

3/19/2028

1.50

500,000

Exercisable Warrants

10/19/2021

3/19/2028

1.50

350,000

10/19/2021

3/19/2028

1.50

350,000

Total warrants issued and outstanding

850,000

Total warrants issued and outstanding

850,000

Stock Options – We recorded stock option expense of $~~379,168~~730,037 and $~~408,130~~575,437 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The following table summarizes the stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2022:


	Stock Options						Stock Options
					Weighted-						Weighted-
				Exercise	Average					Exercise	Average
	Number			Price Per	Exercise Price		Number			Price Per	Exercise Price
	of Shares			Share	Per Share		of Shares			Share	Per Share
Outstanding at December 31, 2021		3,280,585		$1.17 — $23.20	$	2.87		3,280,585		$1.17 — $23.20	$	2.87
Granted		276,389		$4.09 — $7.20	$	5.26		359,889		$4.08 — $7.20	$	4.99
Exercised		(53,465	)	$1.51 — $3.98	$	1.73		(198,567	)	$1.51 — $6.40	$	2.01
Cancelled/Forfeited		(8,001	)	$1.94 — $3.98	$	2.12		(58,001	)	$1.94 — $6.06	$	5.35
Outstanding at June 30, 2022		3,495,508		$1.17 — $23.20	$	3.08
Outstanding at September 30, 2022								3,383,906		$1.17 — $23.20	$	3.10

Deferred Stock Units – Effective September 1, 2019, nonemployee directors can elect to receive all or a portion of their annual retainers in the form of deferred stock units (“DSUs”). The DSUs are recognized at their fair value on the date of grant. Each DSU represents the right to receive 1one share of our common stock following the completion of a director’s service. During the ~~six~~nine months ended ~~June~~September 30, 2022, we granted ~~3,610~~5,317 DSUs and recorded director compensation expense of $~~19,280~~29,211 related to the grants. In addition, during the ~~six~~nine months ended ~~June~~September 30, 2022 we granted ~~8,170~~35,201 DSUs to executive employees and recorded compensation expense of $~~146,053~~175,629, which includes an accrual of anticipated bonus expense to be paid in DSUs for certain executive employees. During the ~~six~~nine months ended ~~June~~September 30, 2021, we granted ~~64,698~~81,249 DSUs and recorded director compensation expense of $~~271,124~~384,708 related to the grants. In addition, during the ~~six~~nine months ended ~~June~~September 30, 2021, we granted ~~13,333~~49,775 DSUs to executive employees and recorded compensation expense of $~~119,812~~157,009. We had ~~209,925~~210,013 and 198,145 DSUs outstanding at ~~June~~September 30, 2022 and December 31, 2021, respectively.

13. Net Income (Loss) per Share

We compute basic net income per share using the weighted average number of shares of common stock outstanding plus the number of common stock equivalents for DSUs during the period. We compute diluted net income per share using the weighted average number of shares of common stock outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods where losses are reported, the weighted average number of shares of common stock outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of outstanding stock options, warrants and shares issued pursuant to a Consideration Agreement as discussed in Note 6. Dilutive potential securities are excluded from the computation of earnings per share if their effect is antidilutive. The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method.

The computation of basic and diluted net income (loss) per share attributable to common stockholders is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021		2022			2021		2022			2021		2022			2021
	(Unaudited)				(Unaudited)					(Unaudited)					(Unaudited)
Numerator:
Net income (loss) applicable to common stockholders	$	1,150,231	$	699,306	$	(1,034,078	)	$	1,846,046	$	(1,686,335	)	$	385,764	$	(2,720,414	)	$	2,231,810
Denominator:
Weighted average common shares outstanding, basic		19,278,730		18,823,273		19,261,775			18,665,010		19,368,192			18,984,979		19,297,636			18,784,722
Effect of dilutive common shares		2,070,091		1,677,351		—			1,379,650		—			2,322,875		—			1,919,548
Weighted average common shares outstanding, diluted		21,348,821		20,500,624		19,261,775			20,044,660		19,368,192			21,307,854		19,297,636			20,704,270
Net income (loss) per share:
Basic	$	0.06	$	0.04	$	(0.05	)	$	0.10	$	(0.09	)	$	0.02	$	(0.14	)	$	0.12
Diluted	$	0.05	$	0.03	$	(0.05	)	$	0.09	$	(0.09	)	$	0.02	$	(0.14	)	$	0.11
Anti-dilutive securities excluded from diluted net income (loss) per share:
Stock options		638,157		436,018		375,657			484,081		318,157			413,518		318,157			151,018
Warrants		—		—		—			—		—			—		—			—
Total anti-dilutive securities excluded from net income (loss) per share		638,157		436,018		375,657			484,081		318,157			413,518		318,157			151,018

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in or incorporated by reference into this Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, and markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Form 10-Q include statements regarding the impact, if any, of the adoption of the ASU on our consolidated financial statements; the impact of the ~~COVID-19~~Coronavirus Disease 2019 (”COVID-19”) pandemic on our results of operations and any changes to inflation rates; exposure to significant interest, currency, or credit risks arising from our financial instruments; and sufficiency of our cash and cash equivalents, borrowing capacity, and cash generated from operations to fund our operations for the next 12 months. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Form 10-Q reflect our views as of the date of this Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors, including the impact of our business acquisitions in 2022 and 2021 on future results, the state of the U.S. economy in general, general economic conditions and the potential effect of inflationary pressures and increased interest rates on our cost of doing business, could cause actual results to differ materially from those indicated by the forward-looking statements and other risks detailed from time to time in our reports to the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”).

We were incorporated in Nevada in July 2002 under the name BlueStar Financial Group, Inc. On July 16, 2013, we acquired all of the issued and outstanding membership interests of Quest Resource Management Group, LLC, or Quest, held by Quest Resource Group LLC, or QRG, comprising 50% of the membership interests of Quest, or the Quest Interests. Our wholly owned subsidiary, Quest Sustainability Services, Inc., or QSS (formerly known as Earth911, Inc.), held the remaining 50% of the membership interests of Quest for several years. Concurrently with our acquisition of the Quest Interests, we assigned the Quest Interests to QSS so that QSS now holds 100% of the issued and outstanding membership interests of Quest. On October 28, 2013, we changed our name to Quest Resource Holding Corporation, or QRHC. On October 19, 2020, Quest acquired substantially all of the assets used in the business of Green Remedies Waste and Recycling, Inc., a leading provider of independent environmental services, particularly in multi-family housing, located in Burlington, NC. On December 7, 2021, QSS acquired all of the outstanding membership interests of RWS Facility Services, LLC (“RWS”), a full-service management company engaged in the brokering of recycling, waste and sustainability solutions, located in Chadds Ford, PA. See Note 3 to our condensed consolidated financial statements for more information regarding the acquisitions. The results for the three and ~~six~~nine months ended ~~June~~September 30, 2022 reflect the impact of the RWS acquisition, but the prior year period does not.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on and relates primarily to the operations of QRHC and Quest (collectively, “we,” “us,” “our,” or “our company”).

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021 Operating Results

The following table summarizes our operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
	(Unaudited)						(Unaudited)						(Unaudited)						(Unaudited)
Revenue	$	76,904,788		$	36,858,083		$	148,426,956		$	71,960,074		$	73,358,293		$	37,366,740		$	221,785,249		$	109,326,814
Cost of revenue		62,236,397			30,047,604			122,510,150			58,709,717			61,174,960			30,514,034			183,685,111			89,223,751
Gross profit		14,668,391			6,810,479			25,916,806			13,250,357			12,183,333			6,852,706			38,100,138			20,103,063
Operating expenses:
Selling, general, and administrative		9,298,367			5,060,231			18,642,829			9,322,791			9,332,721			5,307,635			27,975,550			14,630,426
Depreciation and amortization		2,470,390			408,652			4,835,252			815,935			2,473,339			508,456			7,308,591			1,324,391
Total operating expenses		11,768,757			5,468,883			23,478,081			10,138,726			11,806,060			5,816,091			35,284,141			15,954,817
Operating income		2,899,634			1,341,596			2,438,725			3,111,631			377,273			1,036,615			2,815,997			4,148,246
Interest expense		(1,588,827	)		(549,677	)		(3,145,412	)		(1,111,139	)		(1,911,989	)		(542,848	)		(5,057,400	)		(1,653,987	)
Income (loss) before taxes		1,310,807			791,919			(706,687	)		2,000,492			(1,534,716	)		493,767			(2,241,403	)		2,494,259
Income tax expense		160,576			92,613			327,391			154,446			151,619			108,003			479,011			262,449
Net income (loss)	$	1,150,231		$	699,306		$	(1,034,078	)	$	1,846,046		$	(1,686,335	)	$	385,764		$	(2,720,414	)	$	2,231,810

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 compared to Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021

In response to the global COVID-19 pandemic crisis, we have prioritized the health and safety of our employees, customers and subcontractors and continue to work to support their needs. While we continue to implement actions to mitigate the effects of this crisis on our business and operations, the uncertainty around the duration and economic impact of this crisis makes it difficult for management to predict the future impact on our business operations and financial performance.

~~To date,~~Previously, we have experienced some limitations in employee resources resulting from travel restrictions and “stay at home” orders. Despite these restrictions, we ~~continue~~continued to efficiently manage supply chain requirements of our customers and subcontractors. The waste management and recycling services we provide are ~~currently~~ designated an essential critical infrastructure business under the President’s COVID-19 guidance, the continued operation of which is vital for national public health, safety, and national economic security. While some of our customers shut down or scaled back their businesses in the short term, other customers operating in the restaurant, grocery, automotive and certain specialty retail industries, which may be considered as essential businesses in different jurisdictions or who are more capable of working remotely than other industries, have continued to operate.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the severity and duration of the crisis and the impact of actions taken and that will be taken to contain COVID-19 or treat its impact. These future impacts are highly uncertain and cannot be predicted with confidence. The economic impact from COVID-19 or other global crises may adversely impact our results of operations in the future and may affect the credit condition of some of our customers, which could increase delays in customer payments and credit losses.

The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. For example, as noted above, the COVID-19 pandemic resulted in widespread unemployment, economic slowdown and extreme volatility in the capital markets. Similarly, the current conflict between Ukraine and Russia has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Inflation can adversely affect us by increasing our costs, including salary costs. Any significant increases in inflation and related ~~increase~~increases in interest rates could have a material adverse effect on our business, results of operations and financial condition.

For the quarter ended ~~June~~September 30, 2022, revenue was ~~$76.9~~$73.4 million, an increase of ~~$40.0~~$36.0 million, or ~~109%~~96%, compared to ~~$36.9~~$37.4 million for the quarter ended ~~June~~September 30, 2021. The increase for the quarter was primarily due to increased demand including the impact of heightened customer production levels, increased services from certain new and continuing customers, and revenue of $26.5 million for the quarter from the acquired customer base related to the business acquisitions, partially offset by lower values for certain recycled materials compared to a year ago and lower levels of services due to reduced operations at certain other customers. For the ~~six~~nine months ended ~~June~~September 30, 2022, revenue was ~~$148.4~~$221.8 million, an increase of ~~$76.5~~$112.5 million, or ~~106%~~103%, compared to ~~$72.0~~ $109.3

million for the ~~quarter~~nine months ended ~~June~~September 30, 2021. The increase was primarily due to increased demand including the impact of heightened customer production levels, increased value for recycled materials compared to a year ago, increased services from certain new and continuing customers, and revenue of ~~$28.4~~$81.3 million for the ~~quarter and $54.8 million for the six~~nine months ended ~~June~~September 30, 2022 ~~respectively,~~ from the acquired customer base related to the business acquisitions, ~~that occurred after June 30, 2021,~~ partially offset by

lower levels of services due to reduced operations at certain other customers. See Note 3 to our condensed consolidated financial statements for a discussion of certain acquisitions during 2022 and 2021.

Cost of revenue increased ~~$32.2~~$30.7 million to ~~$62.2~~$61.2 million for the quarter ended ~~June~~September 30, 2022 from ~~$30.0~~$30.5 million for the quarter ended ~~June~~September 30, 2021. The increase was primarily due to the same reasons impacting the increase in revenue including ~~$22.5~~$23.5 million from the acquired customer base related to the business acquisitions in 2022 and 2021. Cost of revenue increased ~~$63.8~~$94.5 million to ~~$122.5~~$183.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$58.7~~$89.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase was primarily due to the same reasons impacting the increase in revenue including ~~$45.2~~$68.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022 from the acquired customer base related to the business ~~acquisitions after June 30, 2021.~~acquisitions.

Gross profit for the quarter ended ~~June~~September 30, 2022 was ~~$14.7~~$12.2 million, an increase of ~~$7.9~~$5.3 million, compared to ~~$6.8~~$6.9 million for the quarter ended ~~June~~September 30, 2021. The gross profit margin was ~~19.1%~~16.6% for the ~~second~~third quarter of 2022 compared with ~~18.5%~~18.3% for the ~~second~~third quarter of 2021. Gross profit for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$25.9~~$38.1 million, an increase of ~~$12.7~~$18.0 million, compared to ~~$13.3~~$20.1 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The gross profit margin was ~~17.5%~~17.2% for the ~~six~~nine months ended ~~June~~September 30, 2022 compared with 18.4% for the ~~six~~nine months ended ~~June~~September 30, 2021. The changes in gross profit and gross profit margin percentage for the quarter ~~and six months~~ ended ~~June~~September 30, 2022 were primarily due to the net effect of the impact of increased services from certain new and continuing customers, the business operations acquired, ~~after June~~change in the mix of services and relative gross profit margins from new and acquired customer base, lower value for certain recycled materials compared to a year ago, and reduced operations at certain other customers. The changes in gross profit and gross profit margin percentage for the nine months ended September 30, ~~2021,~~2022 were primarily due to the net effect of the impact of increased services from certain new and continuing customers, the business operations acquired, change in the mix of services and relative gross profit margins from new and acquired customer base, increased value for certain recycled materials compared to a year ago, and reduced operations at certain other customers.

Revenue, gross profit, and gross profit margins are affected period to period by the volumes of waste and recycling materials generated by our customers, the frequency and type of services provided, the price and mix of the services provided, commodity price changes for recycled materials, the cost and mix of subcontracted services provided in any one reporting period, and the timing of ~~acquisitions.~~acquisitions and integration. Volumes of waste and recycling materials generated by our customers is impacted period to period based on several factors including their production or sales levels, demand of their product or services in the market, supply chain reliability, and labor force stability, among other business factors. If the impact of these factors either individually or in the aggregate cause a significant decline in the volume of waste and recycling materials generated by our customers, it could have an adverse effect on our revenues, gross profit, and gross profit margins.

Operating expenses were approximately $11.8 million and ~~$5.5~~$5.8 million for the quarters ended ~~June~~September 30, 2022 and 2021, respectively, an increase of ~~$6.3~~$6.0 million. The increase in operating expenses was primarily related to the business operations acquired ~~after the quarter ended June 30, 2021~~ and totaled ~~$4.7~~$4.3 million for the quarter ended ~~June~~September 30, 2022. Operating expenses were approximately ~~$23.5~~$35.3 million and ~~$10.1~~$16.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, an increase of ~~$13.3~~$19.3 million. The increase in operating expenses was primarily related to the business operations acquired ~~after June 30, 2021~~ and totaled ~~$9.4~~$13.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022.

Selling, general, and administrative expenses were $9.3 million and ~~$5.1~~$5.3 million for the quarters ended ~~June~~September 30, 2022 and 2021, respectively, an increase of approximately ~~$4.2~~$4.0 million. The increase primarily relates to increases in labor related expenses of ~~$2.7~~$2.6 million, acquisition/integration related expenses of ~~$551,000,~~$274,000, inclusive of professional fees of ~~$524,000,~~$226,000, travel/marketing expenses of ~~$56,000~~$182,000 and other administrative expenses of ~~$950,000.~~$753,000. Selling, general, and administrative expenses were ~~$18.6~~$28.0 million and ~~$9.3~~$14.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, an increase of approximately ~~$9.3~~$13.3 million. The increase primarily relates to increases in labor related expenses of ~~$5.1~~$7.7 million, acquisition/integration related expenses of ~~$1.8~~$1.6 million, inclusive of professional fees of ~~$1.7~~$1.5 million, travel/marketing expenses of ~~$104,000~~$449,000 and other administrative expenses of ~~$1.7~~$2.4 million.

Operating expenses for the quarters ended ~~June~~September 30, 2022 and 2021 included depreciation and amortization of approximately $2.5 million and ~~$409,000,~~$509,000, respectively, an increase of approximately ~~$2.1~~$2.0 million. The increase in depreciation and amortization was primarily related to the business operations acquired ~~after the quarter ended June 30, 2021~~ and totaled ~~$2.0~~$1.9 million for the quarter ended ~~June~~September 30, 2022. Operating expenses for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 included depreciation and amortization of approximately ~~$4.8~~$7.3 million and ~~$816,000,~~$1.3 million, respectively, an increase of approximately ~~$4.0~~$6.0 million. The increase in depreciation and amortization was primarily related to the business operations acquired ~~after June 30, 2021~~ and totaled ~~$3.9~~$5.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022.

Interest expense was ~~$1.6~~$1.9 million and ~~$550,000~~$543,000 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, an increase of approximately ~~$1.0~~$1.4 million. Interest expense was ~~$3.1~~$5.1 million and ~~$1.1~~$1.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, an increase of approximately ~~$2.0~~$3.4 million. The increase is due to an increase in debt, primarily related to the acquisitions in 2021 and ~~2022.~~2022 and the increase in base interest rates. We are amortizing debt issuance costs of $3.2 million and OID of $2.2 million to interest expense over the life of the related debt arrangements as discussed in Note 7 to our condensed consolidated financial statements.

We recorded a provision for income tax of ~~$161,000~~$152,000 and ~~$93,000~~$108,000 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. We recorded a provision for income tax of ~~$327,000~~$479,000 and ~~$154,000~~$262,000 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The provision for income tax is primarily attributable to state tax obligations based on current estimated state tax apportionments for states with no net operating loss carryforwards.

We recorded a full valuation allowance against all our deferred tax assets (“DTAs”) as of both ~~June~~September 30, 2022 and December 31, 2021. We intend on maintaining a full valuation allowance on our DTAs until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current taxable and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 to 24 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the level of profitability that we are able to actually achieve.

Net ~~income~~loss for the quarter ended ~~June~~September 30, 2022 was ~~$1.15~~$(1.7) million compared to net income of ~~$699,000~~$386,000 for the quarter ended ~~June~~September 30, 2021. Net loss for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$(1.0)~~$(2.7) million compared to net income of ~~$1.8~~$2.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The explanations above detail the majority of the changes related to the change in net results.

Our operating results, including revenue, operating expenses, and operating margins, will vary from period to period depending on commodity prices of recycled materials, the volumes and mix of services provided, as well as customer mix during the reporting period, and the timing of ~~acquisitions.~~acquisitions and integration.

Net ~~income~~loss per basic and diluted share attributable to common stockholders was ~~$0.06 and $0.05, respectively,~~$(0.09), for the quarter ended ~~June~~September 30, 2022 compared to net income per basic and diluted share of ~~$0.04 and $0.03, respectively,~~$0.02, for the quarter ended ~~June~~September 30, 2021. Net loss per basic and diluted share attributable to common stockholders was ~~$(0.05)~~$(0.14) per share for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to net income per basic and diluted share of ~~$0.10~~$0.12 and ~~$0.09,~~$0.11, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2021.

The basic and diluted weighted average number of shares of common stock outstanding were approximately ~~19.3~~19.4 million ~~and 21.3 million, respectively,~~ for the three months ended ~~June~~September 30, 2022. The basic and diluted weighted average number of shares of common stock outstanding were approximately ~~18.8~~19.0 million and ~~20.5~~21.3 million, respectively, for the three months ended ~~June~~September 30, 2021. The basic and diluted weighted average number of shares of common stock outstanding was approximately 19.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The basic and diluted weighted average number of shares of common stock outstanding were approximately ~~18.7~~18.8 million and ~~20.0~~20.7 million, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2021.

In the quarter ended ~~June~~September 30, 2022, Adjusted EBITDA, a non-GAAP financial measure, increased ~~161%~~57% to ~~$6.6~~$3.8 million, from $2.5 million for the same period in 2021. For the ~~six~~nine months ended ~~June~~September 30, 2022, Adjusted EBITDA increased ~~100%~~86% to ~~$10.3~~$14.1 million from ~~$5.1~~$7.6 million for the same period in 2021.

We use the non-GAAP measurement of earnings before interest, taxes, depreciation, amortization, stock-related compensation charges, and other adjustments, or “Adjusted EBITDA,” to evaluate our performance. Adjusted EBITDA is a non-GAAP measure that is also frequently used by analysts, investors and other interested parties to evaluate the market value of companies considered to be in similar businesses. We suggest that Adjusted EBITDA be viewed in conjunction with our reported financial results or other financial information prepared in accordance with GAAP. For the three and ~~six~~nine months ended ~~June~~September 30, 2022 other adjustments of ~~$113,000~~$176,000 and ~~$309,000,~~$484,000, respectively, included ~~recruiting~~severance costs, project costs, and certain administrative fees related to borrowings. For the three and ~~six~~nine months ended ~~June~~September 30, 2021 other adjustments of ~~$64,000~~$42,000 and ~~$117,000,~~$160,000, respectively, included recruiting costs, severance costs and certain administrative fees related to borrowings.

The following table reflects Adjusted EBITDA for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


	As Reported				As Reported					As Reported					As Reported
	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021		2022			2021		2022			2021		2022			2021
	(Unaudited)				(Unaudited)					(Unaudited)					(Unaudited)
Net income (loss)	$	1,150,231	$	699,306	$	(1,034,078	)	$	1,846,046	$	(1,686,335	)	$	385,764	$	(2,720,414	)	$	2,231,810
Depreciation and amortization		2,549,979		481,067		4,987,188			956,727		2,554,242			582,951		7,541,430			1,539,678
Interest expense		1,588,827		549,677		3,145,412			1,111,139		1,911,989			542,848		5,057,400			1,653,987
Stock-based compensation expense		326,894		506,391		585,532			816,001		412,715			325,739		998,247			1,141,740
Acquisition, integration and related costs		668,047		116,513		1,973,982			135,989		327,308			463,928		2,301,424			599,917
Other adjustments		113,017		64,093		308,876			117,435		175,581			42,189		484,343			159,624
Income tax expense		160,576		92,613		327,391			154,446		151,619			108,003		479,011			262,449
Adjusted EBITDA	$	6,557,571	$	2,509,660	$	10,294,303		$	5,137,783	$	3,847,119		$	2,451,422	$	14,141,441		$	7,589,205

Adjusted net income, a non-GAAP financial measure, was ~~$4.0~~$863,000 for the quarter ended September 30, 2022, compared with $1.2 million for the quarter ended ~~June 30, 2022, compared with $1.1 million for the quarter ended June~~September 30, 2021. Adjusted net income ~~a non-GAAP financial measure,~~ was ~~$5.3~~$6.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared with ~~$2.6~~$3.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021. We present adjusted net income and adjusted net income per diluted share, both non-GAAP financial measures, supplementally because they are widely used by investors as a valuation measure in the solid waste industry. Management uses adjusted net income and adjusted net income per diluted share as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We provide adjusted net income to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income has limitations due to the fact that it excludes items that have an impact on our financial condition and results of operations. Adjusted net income and adjusted net income per diluted share are not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate these non-GAAP financial measures differently. Our adjusted net income and adjusted net income per diluted share for the quarter and the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, are calculated as follows:


		As Reported				As Reported						As Reported					As Reported
		Three Months Ended June 30,				Six Months Ended June 30,						Three Months Ended September 30,					Nine Months Ended September 30,
		2022		2021		2022			2021			2022			2021		2022			2021
Reported net income (loss) (a)		$	1,150,231	$	699,306	$	(1,034,078	)	$	1,846,046		$	(1,686,335	)	$	385,764	$	(2,720,414	)	$	2,231,810
Amortization of intangibles (b)			2,221,364		289,037		4,395,819			577,680			2,221,669			386,400		6,617,488			964,080
Acquisition, integration and related costs (c)			668,047		116,513		1,973,982			135,989			327,308			463,928		2,301,424			599,917
Adjusted net income		$	4,039,642	$	1,104,856	$	5,335,723		$	2,559,715		$	862,642		$	1,236,092	$	6,198,498		$	3,795,807

Diluted earnings (loss) per share:
Reported net income (loss)		$	0.05	$	0.03	$	(0.05	)	$	0.09		$	(0.09	)	$	0.02	$	(0.14	)	$	0.11
Adjusted net income		$	0.19	$	0.05	$	0.25		$	0.13		$	0.04		$	0.06	$	0.29		$	0.18

Weighted average number of common shares outstanding:
Diluted (d)			21,348,821		20,500,624		21,541,344			20,044,660			21,642,213			21,307,854		21,575,003			20,704,270

(a) Applicable to common stockholders	(a) Applicable to common stockholders										(a) Applicable to common stockholders
(b) Reflects the elimination of the non-cash amortization of acquisition-related intangible assets	(b) Reflects the elimination of the non-cash amortization of acquisition-related intangible assets										(b) Reflects the elimination of the non-cash amortization of acquisition-related intangible assets
(c) Reflects the add back of acquisition/integration related transaction costs	(c) Reflects the add back of acquisition/integration related transaction costs										(c) Reflects the add back of acquisition/integration related transaction costs
(d) Reflects adjustment for dilution as adjusted net income is positive	(d) Reflects adjustment for dilution as adjusted net income is positive										(d) Reflects adjustment for dilution as adjusted net income is positive

As of ~~June~~September 30, 2022 and December 31, 2021, we had ~~$4.2~~$7.1 million and $8.4 million in cash and cash equivalents, respectively. Working capital was ~~$15.9~~$20.7 million and $12.6 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

We derive our primary sources of funds for conducting our business activities from operating revenues; borrowings under our credit facilities; and the placement of our equity securities to investors. We require working capital primarily to carry accounts receivable,

service debt, purchase capital assets, fund operating expenses, address unanticipated competitive threats or technical problems, withstand adverse economic conditions, fund potential acquisition transactions, and pursue goals and strategies.

We believe our existing cash and cash equivalents of ~~$4.2~~$7.1 million, our borrowing availability under our $15.0 million ABL Facility (as defined and discussed in Note 7 to our condensed consolidated financial statements), and cash expected to be generated from operations will be sufficient to fund our operations for the next 12 ~~months.~~months and thereafter for the foreseeable future. Our known current- and long-term uses of cash include, among other possible demands, capital expenditures, lease payments and repayments to service debt and other long-term obligations. We have no agreements, commitments, or understandings with respect to any such placements of our securities and any such placements could be dilutive to our stockholders.

The following discussion relates to the major components of our cash flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

Net cash used in operating activities was ~~$(3.8)~~$(4.3) million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared with net cash provided by operating activities of ~~$5.2~~$3.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021.

Net cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2022 related primarily to the net effect of the following:

Net cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2021 related primarily to the net effect of the following:

Our business, including revenue, operating expenses, and operating margins, may vary depending on the blend of services we provide to our customers, the terms of customer contracts, commodity contracts, and our business volume levels. Fluctuations in net accounts receivable are generally attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers, and the inception, increase, modification, or termination of customer relationships. Our operating activities may require additional cash in the future from our debt facilities and/or equity financings depending on the level of our operations.

Cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was ~~$3.9~~$4.4 million and ~~$2.5~~$2.8 million, respectively. Cash used in 2022 relates mainly to the $3.1 million net purchase of the assets of a Northeast-based independent environmental services company on February 10, 2022. Cash used in 2021 related primarily to the $2.3 million purchase of the assets of an Atlanta-based independent environmental services company on June 30, 2021. Other investing activities are primarily from purchases of property and equipment and intangible assets.

Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$3.4~~$7.4 million compared to net ~~cashed used in~~cash provided by financing activities of ~~$(113,000)~~$1.1 million for the ~~six~~nine months ended ~~June~~September 30, 2021. Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily from term loan proceeds used to finance the February 2022 acquisition of an independent environmental services company, ~~and from~~ net borrowings on our ABL Facility, and proceeds from stock option exercises, partially offset by repayments of notes payable. Net cash ~~used in~~provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 was primarily related to net ~~repayments~~borrowings on our ABL ~~Facility.~~Facility and from proceeds from stock option exercises. See Note 7 to our condensed consolidated financial statements for a discussion of the ABL Facility and other notes payable.

WeAlthough the overall economy has experienced some inflationary pressures, we do not believe that inflation had a material impact on us during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. We believe that current inflationary increases in costs, such as fuel,

labor, and certain capital items, can be addressed by our flexible pricing structures and cost recovery fees allowing us to recover certain of the cost of inflation from our customer base. Consistent with industry practice, many of our contracts allow us to pass through certain costs to our customers or adjust pricing. Although we believe that we should be able to offset many cost increases that result from inflation in the ordinary course of business, we may be required to absorb at least

part of these costs increases due to competitive pressures or delays in timing of rate increases. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of ~~inflation.~~inflation and increases in interest rates.

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include carrying amounts of accounts receivable, goodwill and other intangible assets, stock-based compensation expense, deferred taxes and the fair value of assets and liabilities acquired in asset acquisitions. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report. There have been no changes in our critical accounting policies during the first ~~six~~nine months of 2022.

We have no off-balance sheet debt or similar obligations. We have no transactions or obligations with related parties that are not disclosed, consolidated into, or reflected in our reported results of operations or financial position. We do not guarantee any third-party debt.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~June~~September 30, 2022.

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our Company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. We base the design of any system of controls in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are

subject to risks. Over time, internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.

We may be subject to legal proceedings in the ordinary course of business. As of the date of this Quarterly Report on Form 10-Q, we are not aware of any legal proceedings to which we are a party that we believe could have a material adverse effect on us.

The following risk factor supplements the risk factors described in Item 1A of our 2021 Annual Report and should be read in conjunction with the risk factors described in our 2021 Annual Report:

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

All of the borrowings under the Company’s senior secured credit facilities bear interest at variable rates. As a result, an increase in interest rates, whether due to an increase in market interest rates or an increase in our own cost of borrowing, would increase the cost of servicing our debt even though the amount borrowed remained the same resulting in our net income and cash flows, including cash available for servicing our indebtedness, to decrease correspondingly. The impact of such an increase would be more significant than it would be for some other companies because of our substantial debt.

~~None.~~On October 19, 2022, we issued 166,516 shares of common stock, with a market value of $1,342,125, to Green Remedies pursuant to that certain Consideration Agreement, dated October 19, 2020, between QRHC and Green Remedies, entered into in connection with the Green Remedies acquisition. This issuance reflects the second of two equal installments payable to Green Remedies in either cash or shares of QRHC’s common stock, at our option, on the first and second anniversaries of the closing date of the acquisition.

On August 9, 2022, the Company and certain of its domestic subsidiaries entered into a letter agreement (the “Monroe Letter Agreement”) amendment the Credit Agreement, with Monroe Capital as the Administrative Agent for the Lenders, and the Lenders. Capitalized terms not otherwise defined herein have the meanings set forth in the Credit Agreement. Among other things, the Monroe Letter Agreement provides for the extension of the Term D Loan Availability Period (as defined in the Credit Agreement) through March 31, 2023 and increasing the threshold for unsecured debt under corporate credit cards for business related expenses in the ordinary course of business under the negative covenant regarding debt from $375,000 to $4,000,000. The foregoing summary of the Monroe Letter Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Monroe Letter Agreement, which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.None.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)		2

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		23

Item 4. Controls and Procedures		23

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		2425

Item 1A. Risk Factors		2425

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2425

Item 3. Defaults Upon Senior Securities		2425

Item 4. Mine Safety Disclosures		2425

Item 5. Other Information		2425

Item 6. Exhibits		2425

Signatures		26


Exhibit No.		Exhibit
10.1		Mutual Separation Agreement and Release, dated April 22, 2022, by and between the Company and Laurie L. Latham (incorporated by reference to the Company’s Form 8-K, filed with the Commission on April 26, 2022)
~~10.2~~		Letter Agreement, dated August 9, 2022, by and among Quest Resource Holding Corporation, Quest Resource Management Group, LLC and each of its Affiliates that are or may from time to time become parties thereto, the financial institutions that are or may from time to time become parties thereto, and Monroe Capital Management Advisors, LLC as administrative agent for the lenders
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer
32.2		Section 1350 Certification of Chief Financial Officer
101		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements (unaudited), tagged as blocks of text and including detailed tags
104		Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)


	QUEST RESOURCE HOLDING CORPORATION

Date: ~~August 15,~~November 14, 2022	By:	/s/ S. Ray Hatch
	S. Ray Hatch
	President and Chief Executive Officer

Date: ~~August 15,~~November 14, 2022	By:	/s/ ~~Laurie L. Latham~~Brett W. Johnston
	~~Laurie L. Latham~~Brett W. Johnston
	Senior Vice President and Chief Financial Officer


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐