C~~onsolidated Balance Sheets~~See accompanying notes to consolidated financial statements.

C~~onsolidated~~Consolidated Statements of Changes in ~~Stockholders’~~Stockholders’ Equity

HireQuest, Inc. (together with its subsidiaries, “HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of offices providing ~~on-demand labor~~direct-dispatch and commercial staffing solutions in the light industrial and blue-collar segments of the staffing industry and traditional commercial staffing. Our franchisees provide various types of temporary personnel through two business models operating under the trade names “HireQuest ~~Direct,”~~Direct”, “HireQuest”, “Snelling”, “LINK Staffing”, “DriverQuest”, “HireQuest~~” “Snelling,” “LINK Staffing,”~~ Health”, and ~~“DriverQuest.”~~“Northbound Executive Search”. HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest, Snelling, and ~~Link~~LINK Staffing specialize primarily in skilled and semi-skilled industrial personnel, clerical and administrative personnel, and permanent placement services. DriverQuest specializes in both commercial and non-CDL drivers serving a variety of industries and applications. HireQuest Health specializes in skilled personnel in the medical and dental industries. Northbound Executive Search specializes in executive placement and consultant services in the financial services industry.

On January 24, 2022 we completed our acquisition of Temporary Alternatives, Inc. (“Temporary Alternatives”) to acquire three locations in west Texas and New Mexico for $7.0 million, inclusive of a prescribed amount of working capital. Temporary Alternatives is a staffing division of dmDickason Personnel Services, a family-owned company based in El Paso, TX. On February 21, 2022 we completed our acquisition of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively, “Dubin”). We acquired their staffing operations for $2.5 million, inclusive of a prescribed amount of working capital. Dubin provides executive placement services and commercial staffing in the Philadelphia metropolitan area. On February 28, 2022 we completed our acquisition of Northbound Executive Search, LTD. (“Northbound”) to acquire their operations for $11.4 million, inclusive of a prescribed amount of working capital. Northbound provides executive placement and short-term consultant services primarily to blue-chip clients in the financial services industry.

On March 1, 2021, we completed our acquisition of Snelling Staffing and affiliates (“Snelling”). We acquired substantially all of the operating assets and assumed certain liabilities of Snelling for a purchase price of approximately $17.9 million. On March 22, 2021, we completed our asset acquisition of ~~Link~~LINK Staffing and affiliates (“~~Link”~~LINK”) in which we acquired all of the franchise relationships and certain other assets of ~~Link~~LINK for a purchase price of approximately ~~$11.2~~$11.1 million. On October 1, 2021 we completed our acquisition of Recruit Media, Inc. (“Recruit Media”). We purchased all of the outstanding shares of Recruit Media for approximately $4.4 million, subject to customary representations and warranties. On December 6, 2021 we completed the acquisition of the Dental Power Staffing division from Dental Power International, Inc. ("DPI") for $1.9 million.

For additional information related to these transactions, see Note 2 - Acquisitions.

As of ~~September~~June 30, ~~2021~~2022 we had ~~213~~223 franchisee-owned offices and 2 company owned offices in 3638 states and the District of Columbia. We are the employer of record to approximately ~~80,000~~75,000 employees annually, who in turn provide services to thousands of clients in various industries including construction, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, retail, and ~~retail.~~dental practices. We provide ~~staffing,~~employment, marketing, working capital funding, software, and administrative services to our franchisees.

We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report filed on Form ~~10-K~~10-K for the year ended December 31, ~~2020.~~2021. Results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other period.

The consolidated financial statements include the accounts of HQI and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.

U.S. GAAP requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate that entity. To be the primary beneficiary of a VIE, an entity must have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that are significant to the beneficiary. We provide acquisition financing to some of our franchisees that could result in our having to absorb losses. This results in some franchisees being considered VIEs. We have reviewed our relationship with each of these franchisees and determined that we are not the primary beneficiary of any of these entities. Accordingly, we have not consolidated these entities.

In December 2019, a novel strain of coronavirus disease ("COVID-19") was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The extent of COVID-19's ultimate effect on our operational and financial performance and the collectability of our notes receivable will depend on future developments, including the duration, spread, and intensity of the pandemic, all of which are uncertain and difficult to predict. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, the pandemic has so far had a material adverse effect on our business and results of operations. If the pandemic continues to be a severe worldwide health crisis, it could continue to have a material adverse effect on our future business, results of operations, financial condition, and cash flows.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates.

Significant estimates and assumptions underlie our workers’ compensation claim liabilities, our workers’ compensation risk management incentive program accrual, our deferred taxes, the reserve for losses on notes receivable, and the estimated fair value of assets acquired and liabilities ~~assumed.~~assumed, including goodwill.

Accounts receivable consist of amounts due for labor services from customers of franchisees, accounts receivable purchased in acquisitions, and of accounts receivable originating at, or attributable to, company-owned locations. ~~At September 30, 2021 and at December 31, 2020, all of our net accounts receivable were due from customers of franchisees.~~ We own the accounts receivable from labor services provided by our franchisees until they age beyond a date agreed upon with each respective franchisee between 42 and 84 days. When accounts receivable age beyond the agreed-upon date, or are otherwise deemed uncollectable, they are charged back to our franchisees. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable.

For staffing services provided by company-owned offices, and for purchased accounts receivable, we record accounts receivable at face value less an allowance for doubtful accounts. We determine the allowance for doubtful accounts based on historical write-off experience, the age of the receivable, other qualitative factors and extenuating circumstances, and current economic data which represents our best estimate of the amount of probable losses on these accounts receivable, if any. We review the allowance for doubtful accounts periodically and write off past due balances when it is probable that the receivable will not be collected. Our allowance for doubtful accounts on company-owned and purchased accounts receivable was approximately $58 thousand and $26 thousand at June 30, 2022,and December 31, 2021, respectively.

Our primary source of revenue comes from royalty fees based on the operation of our franchised offices. Royalty fees from our HireQuest Direct business model are based on a percentage of sales for services our franchisees provide to customers, which ranges from 6%6.0% to 8%8.0%. Royalty fees from our HireQuest business line, including HireQuest franchisees, DriverQuest franchisees, the Northbound franchisee, the HireQuest Health franchisees, and Snelling and ~~Link~~LINK franchisees who executed new franchise agreements upon closing, are 4.5% of the payroll we fund plus ~~18%~~18.0% of the gross margin for the territory. Royalty fees from the Snelling and ~~Link~~LINK franchise agreements assumed and not renegotiated at closing range from 5.0% to 8.0% of sales for services our franchisees provide to customers. ~~In addition to royalty fees, we also charge a license fee to some locations that utilize our intellectual property that are not franchisees. License fees are 9% of the gross margin for the location.~~ Our franchisees are responsible for taking customer orders, providing customers with services, establishing the prices charged for services, and controlling other aspects related to providing service to customers prior to the service being transferred to the customer, such as determining which temporary employees to dispatch to the customer and establishing pay rates for the temporary employees. Accordingly, we present revenue from franchised locations on a net basis as agent as opposed to a gross basis as principal. With company owned locations, we control the conditions under which we provide services to customers. Accordingly, we present revenue from owned locations on a gross basis as principal.

WeFor franchised locations, we recognize revenue when we satisfy our performance obligations. Our performance obligations primarily take the form of a franchise license and promised services. Promised services consist primarily of paying temporary employees, completing all statutory payroll related obligations, and providing workers' compensation insurance on behalf of temporary employees. Because these performance obligations are interrelated, we do not consider them to be individually distinct and therefore account for them as a single performance obligation. Because our franchisees receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Franchise royalties are billed on a weekly basis. We also offer various incentive programs for franchisees including royalty incentives, royalty credits, and other support initiatives. These incentives and credits are provided to encourage new office development and organic growth, and to limit workers' compensation exposure. We present franchise royalty fees net of these incentives and credits.

For owned locations, we account for revenue when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Revenue derived from owned locations is recognized at the time we satisfy our performance obligation. Our contracts have a single performance obligation, which is the transfer of services. Because our customers receive and consume the benefits of our services simultaneously, our performance obligations are satisfied when our services are provided. Revenue from owned locations is reported net of customer credits, discounts, and taxes collected from customers that are remitted to taxing authorities. Our customers are invoiced every week and we rarely require payment prior to the delivery of service. Substantially all of our contracts include payment terms of 30 days or less and are short-term in nature. Because of our payment terms with our customers, there are no significant contract assets or liabilities. We do not extend payment terms beyond one year.

Below are summaries of our franchise royalties disaggregated by business ~~model:~~model (in thousands):

Service revenue, which forms the other component of our total revenue, consists of interest we charge our franchisees on overdue customer accounts receivable, trademark license fees, and other fees for optional services we provide. We recognize interest income based on the effective interest rate applied to the outstanding principal balance of overdue accounts. ~~We recognize revenue from trademark~~Trademark license fees ~~as we earn them.~~are charged to some locations that utilize our intellectual property that are not franchisees. Trademark license fees are 9.0% of the gross margin for the location and are recognized when earned. We recognize revenue from optional services as we provide them.

Notes receivable from franchisees consist primarily of amounts due to us related to the financing of franchised locations. We report notes receivable from franchisees at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally secured by the assets of each location and the ownership interests in the franchise. We monitor the financial condition of our debtors and record provisions for estimated losses when we believe it is probable that our debtors will be unable to make their required payments. We evaluate the potential impairment of notes receivable based on various analyses, including estimated discounted future cash flows, at least annually and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When a note receivable is deemed impaired, we discontinue accruing interest and only recognize interest income when payment is received. Our allowance for losses on notes receivable was approximately ~~$1.9~~$405 thousand at June 30, 2022 and December 31, 2021.

Notes receivable from non-franchisees consist primarily of amounts due to us from the sale of non-core assets acquired after an acquisition. We report notes receivable from non-franchisees at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally unsecured. We monitor the financial condition of our debtors and evaluate the potential impairment of notes receivable based on various analyses, including estimated discounted future cash flows, at least annually and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When a note receivable is deemed impaired, we discontinue accruing interest and only recognize interest income when payment is received. Our impairment reserve on notes receivable from non-franchisees was approximately $1.7 million and ~~$1.6~~$1.5 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Intangible assets acquired are recorded at fair value. We test our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We test our indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the carrying value exceeds the fair value, we recognize an impairment in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. There were 0 intangible asset impairment charges in 2022 or 2021.

Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives, which ranges from 7 to 15 years. Our finite-lived intangible assets include acquired franchise agreements, acquired customer lists, internally developed software, and purchased software. Our indefinite-lived intangible assets include acquired domain names and trade names. For additional information related to significant additions to intangible assets, see Note 2 - Acquisitions.

Intangible assets internally developed are measured at cost. ~~The~~We capitalize costs ~~of acquired intangible assets consist of their~~to develop or purchase ~~price. Subsequent~~computer software for internal use which are incurred during the application development stage. These costs are capitalized only if it is probable that they will increase the future economic benefits associated with the specific asset. All other costs are expensed as incurred. The costs of internally developed intangibles consist ofinclude fees paid to third parties for development services and payroll costs for employees' time spent ~~on development~~developing the software. We expense costs when incurred ~~during the application development stage. Costs originating~~ during the preliminary project stage and the post-implementation ~~state are expensed as incurred. Intangible~~stage. Capitalized development costs will be amortized on a straight-line basis over the estimated useful life of the software. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.

The table below reflects information related to our intangible assets ~~are reviewed~~(in thousands).

Goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business combinations. Goodwill is measured for impairment at least annually, ~~and/~~or whenever events and circumstances arise that indicate an impairment may exist. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. We test for goodwill impairment at the reporting unit level. In assessing the value of goodwill, assets and liabilities are assigned to a reporting unit and the appropriate valuation methodologies are used to determine fair value at the reporting unit level. At June 30, 2022 we had a single reporting unit.

~~Intangible assets are amortized using the straight-line method over their estimated useful lives.~~ The table below ~~reflects information related to~~summarizes our ~~finite-lived intangible assets. For additional information related to significant additions to intangible assets, see~~goodwill at ~~Note 2 - Acquisitions.~~December 31, 2021 and changes during the six months ended June 30, 2022 (in thousands):

We calculate basic earnings ~~(loss)~~ per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. We do not include the impact of any potentially dilutive common stock equivalents in our basic earnings ~~(loss)~~ per share calculations. Diluted earnings per share reflect the potential dilution of securities that could share in our earnings through the conversion of common shares issuable via outstanding stock options and unvested restricted shares, except where their inclusion would be anti-dilutive. Outstanding common stock equivalents at ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 totaled approximately ~~229,000~~193 thousand and ~~17,000,~~328 thousand, respectively.

We use the treasury stock method to calculate the diluted common shares outstanding which were as ~~follows:~~follows (in thousands):

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the measurement date. Our policy on fair value measures requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The policy establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The policy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The carrying amounts of cash, accounts receivable, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the net book value and balances are reviewed for impairment at least annually. The fair value of the term loan payable approximates its carrying value. ~~--The~~The fair value of impaired notes receivable are determined based on estimated future payments discounted back to present value using the notes effective interest rate.

	September 30, 2021								*June 30, 2022*
Description	Total		Level 1		Level 2		Level 3
(in thousands)										*Total*		*Level 1*		*Level 2*		*Level 3*
Cash	$	4,789,400	$	4,789,400	$	0	$	-	$	1,128	$	1,128	$	0	$	0
Notes receivable		4,172,481		-		4,172,481		-		3,946		0		3,946		0
Accounts receivable		38,433,760		-		38,433,760		-		45,676		0		45,676		0
Notes receivable - impaired		139,594		-				139,594		72		0		0		72
Total assets at fair value	$	47,535,235	$	4,789,400	$	42,606,241	$	139,594	$	50,822	$	1,128	$	49,622	$	72

Term loan payable	$	3,118,461	$	-	$	3,118,461	$	-
Term loans payable									$	4,299	$	0	$	4,299	$	0
Line of credit										2,839		0		2,839		0
Total liabilities at fair value	$	3,118,461	$	-	$	3,118,461	$	-	$	7,138	$	0	$	7,138	$	0

	December 31, 2020
Description	Total		Level 1		Level 2		Level 3
Cash	$	13,667,434	$	13,667,434	$	0	$	-
Notes receivable		7,618,191		-		7,618,191		-
Accounts receivable		21,344,499		-		21,344,499		-
Notes receivable - impaired		447,034		-				447,034
Total assets at fair value	$	43,077,158	$	13,667,434	$	28,962,690	$	447,034

For additional information related to our impaired notes receivable, see Note 10 - Notes Receivable.

We have a savings plan that qualifies under Section 401(k) of the Internal Revenue Code. Under our 401(k) plan, eligible employees may contribute a portion of their pre-tax earnings, subject to certain limitations. As a benefit, we match 100% of each employee’s first3% of contributions, then 50% of each employee’s contribution beyond 3%, up to a maximum match of 4% of the employee’s eligible earnings. Matching expense related to our savings plan totaled approximately $17 thousand and $16 thousand during the three months ended June 30, 2022 and June 30, 2021, respectively. Matching expense totaled approximately $30 thousand and $27 thousand during the six months ended June 30, 2022 and June 30, 2021, respectively.

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

In June 2016, the FASB issued ASU ~~2016-13,~~2016-13, Financial Instruments - Credit Losses (Topic ~~326)~~326): Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today's “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This guidance is effective for annual periods beginning after December 15, 2022, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

We do not expect other accounting standards that the FASB or other standards-setting bodies have issued to have a material impact on our financial position, results of operations, or cash flows.

On March 1, 2021, we completed our acquisition of certain assets of Snelling in accordance with the terms of the Asset Purchase Agreement dated January 29, 2021 ~~(the~~(the “Snelling Agreement”). Snelling is a ~~67-year-old~~67-year-old staffing company headquartered in Richardson, TX. Pursuant to the Snelling Agreement, HQ Snelling Corporation (“HQ Snelling”), our wholly-owned subsidiary, acquired substantially all of the operating assets and assumed certain liabilities of the sellers for a purchase price of approximately $17.9 million. Also on March 1, 2021, HQ Snelling entered into the First Amendment to the Purchase Agreement, pursuant to which HireQuest, Inc. agreed to advance $2.1 million to the sellers at closing so the seller could facilitate payment on behalf of HQ Snelling to settle accrued payroll liabilities HQ Snelling assumed pursuant to the Snelling Agreement. ~~Substantially all of the locations where~~Where we assumed franchisor status in this transaction, locations converting to the HireQuest model have subsequently signed our HireQuest franchise agreement ~~and~~but will continue to operate under the Snelling tradename.

The following table summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date. ~~During~~From the ~~quarter ended September 30,~~date of acquisition through December 31, 2021, adjustments to the fair value of assets ~~received~~acquired and liabilities assumed were adjusted in conjunction with the net working capital reconciliation. These adjustments included an increase in accounts receivable of approximately ~~$247,000,~~$1.1 million, a decrease in other current assets of approximately ~~$9,000,~~$9 thousand, an increase in current liabilities of approximately ~~$77,000,~~$77 thousand, an increase in other liabilities of approximately $217 thousand, and an increase in the bargain purchase gain of approximately ~~$2,000. These estimates are preliminary, pending final evaluation~~$662 thousand. No adjustments were made during 2022.

The following table summarizes the estimated fair values of ~~certain~~the identifiable assets acquired and liabilities ~~and therefore are subject to revisions that may result in adjustments to~~assumed as of the ~~values presented below:~~acquisition date (in thousands):

The bargain purchase is attributable to the financial position of the seller and because there were few suitable potential buyers. This gain is included in the line item, “Other miscellaneous income (expense),” in our consolidated statement of income.

The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Snelling had occurred on January 1, ~~2020.~~2020, (b) all of Snelling’s operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that ~~date:~~date. Gross profit attributable to the acquiree of approximately $681 thousand and approximately $1.9 million is included in our consolidated statement of income for the three and six months ended June 30, 2022, respectively.

These calculations reflect increased amortization expense, increased payroll expense, the elimination of gains associated with the transaction, the elimination of transaction related costs, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2020.

In connection with the acquisition, we sold the 10 locations that had been company-owned by Snelling located in Bakersfield, CA; Albany, NY; Arlington Heights, IL; Amherst, NY; Dallas, TX; Hayward, CA; Hoffman Estates, IL; Lathrop, CA; Ontario, CA; and Tracy, CA. Two of these locations were sold to franchisees. Four locations were sold to a ~~third-party~~third-party purchaser. Four offices were sold to a California purchaser (the “California Purchaser”) and operate under the Snelling name pursuant to a license agreement with us. The aggregate sale price for these 10 locations consisted of (i) $1.0 million in the form of a promissory note that bears interest at 6.0% per annum, (ii) the right to receive 1.5% of revenue generated at the Ontario location for the next 12 months, subject to certain conditions being satisfied (the "California Conditions"), (iii) the right to receive 2.5% of revenue generated at the Tracy and Lathrop locations for the next 12 months, subject to the California Conditions, (iv) the right to receive 2.0% of revenue generated at the Princeton location for the next 36 months, and (v) approximately $1 million in cash. There were no0 remaining company-owned locations at March 31, 2021. One of the California locations operates pursuant to a license agreement whereby the California Purchaser licenses the Snelling trademark and pays us a royalty of 9% of their gross margin. In conjunction with the sale of assets acquired in this transaction, we recognized a gain of approximately ~~$638,000~~$638 thousand which is reflected on the line item, "Other miscellaneous income," in our consolidated statement of income.

On January 24, 2022 we completed our acquisition of certain assets of Temporary Alternatives in accordance with the terms of an Asset ~~Acquisition~~Purchase Agreement dated January 10, 2022, including 3 locations in West Texas and New Mexico for $7.0 million, inclusive of a prescribed amount of working capital. Temporary Alternatives is a staffing division of dmDickason Personnel Services, a family-owned company based in El Paso, TX. The acquisition of Temporary Alternatives will expand our national footprint into West Texas and grow our franchise base.

The fair values of the assets acquired were determined based on information available to us. From the date of acquisition through ~~Link Staffing~~June 30, 2022, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in customer lists of approximately $375 thousand, a decrease in accounts receivable of approximately $3 thousand, and the recognition of approximately $375 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired as of the acquisition date (in thousands).

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

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

These calculations reflect increased amortization expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021.

In connection with the acquisition, we sold certain assets related to the operations of the acquired locations. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was approximately $2.9 million. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.1 million which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income. The franchisee is a related party - see Note 3 - Related Party Transactions for more information regarding the Worlds Franchisees. We provisionally recognized a loss of approximately $1.5 million. Subsequently, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in the loss of approximately $375 thousand, which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the three months ended June 30, 2022.

On February 21, 2022 we completed our acquisition of the staffing operations of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively “Dubin”) in accordance with the terms of an Asset Purchase Agreement dated January 19, 2022 for approximately $2.5 million, inclusive of a prescribed amount of working capital. Dubin provides executive placement services and commercial staffing in the Philadelphia metro area. The acquisition of Dubin will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base.

The fair values of the assets acquired were determined based on information available to us. From the date of acquisition through June 30, 2022, the fair value of assets acquired were adjusted in conjunction with a third-party valuation. These adjustments included an increase in customer relationships of approximately $972 thousand, a decrease in customer lists of approximately $772 thousand, and the recognition of approximately $200 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired as of the acquisition date (in thousands):

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

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

These calculations reflect increased amortization expense, increased payroll expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021.

In connection with the acquisition, we divided Dubin into separate businesses and sold certain assets related to the operations of one of the acquired locations. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was $350 thousand. In conjunction with the sale of assets acquired in this transaction, we recognized a gain of approximately $150 thousand which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income. We provisionally recognized a loss of approximately $478 thousand. Subsequently, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in the loss of approximately $628 thousand, which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the three months ended June 30, 2022. The elimination of the provisional loss resulted in a net gain for the six months ended June 30, 2022.

The remaining assets related to the operations of the other acquired locations have not been sold and as of June 30, 2022 are classified as available-for-sale and the operating results are reported as “Income from discontinued operations, net of tax.” We are actively working to sell these assets. In the meantime, we operate the Philadelphia Snelling franchise as company-owned. The income from discontinued operations amounts as reported on our consolidated statements of income is comprised of the following amounts (in thousands):

On February 28, 2022 we completed our acquisition of certain assets of Northbound Executive Search, LTD (“Northbound”) in accordance with the terms of an Asset Purchase Agreement dated January 25, 2022, for approximately $11.4 million, inclusive of a prescribed amount of working capital. Northbound provides executive placement and short-term consultant services primarily to blue chip clients in the financial services industry. The acquisition of Northbound will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base.

The fair values of the assets acquired and the liabilities assumed were determined based on information available to us. From the date of acquisition through June 30, 2022, the fair value of assets acquired and liabilities assumes were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in customer relationships of approximately $389 thousand, a decrease in trade name of approximately $111 thousand, an increase in accounts receivable of approximately $308 thousand, a decrease in other current assets of approximately $34 thousand, an increase in other current liabilities of approximately $79 thousand, and the recognition of approximately $500 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):

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

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

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

Immediately after the acquisition, we sold certain assets related to the operations of the acquired locations. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate ale price for the operating assets was $6.4 million. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.3 million which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income. The franchisee is a related party - see Note 3 - Related Party Transactions for more information regarding the Worlds Franchisees. We provisionally recognized a loss of approximately $1.7 million. Subsequently, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in the loss of approximately $389 thousand, which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the three months ended June 30, 2022.

On March 22, 2021, we completed our acquisition of the franchise relationships and ~~certain other~~similar assets of ~~Link~~LINK in accordance with the terms of the Asset Purchase Agreement dated February 12, 2021 ~~(the "Link~~(the "LINK Agreement"). ~~Link~~LINK is a family-owned staffing company headquartered in Houston, TX. Pursuant to the ~~Link~~LINK Agreement, HQ Link Corporation ("HQ Link"), our wholly-owned subsidiary, acquired franchise agreements for approximately 35 locations, and other assets of ~~Link~~LINK Staffing for a purchase price of $11.1 million. Substantially all of the locations where we assumed franchisor status in this transaction have subsequently signed our HireQuest franchise agreement and all but oneoperate under the Snelling tradename.

The following table summarizes the estimated fair values of the identifiable assets acquired as of the acquisition ~~date:~~date (in thousands):

We determined the ~~Link~~LINK transaction was an asset acquisition for accounting purposes as substantially all of the fair value of the gross assets acquired was concentrated in the franchise agreements. Accordingly, no pro forma financial information is presented.

We assigned six of the franchise agreements we purchased in the transaction, all located in California, to the California Purchaser. These six franchisees operate pursuant to a ~~Link~~LINK trademark sublicense agreement whereby they pay us 9% of the gross margin of their offices in exchange for a sublicense to utilize the ~~Link~~LINK tradename. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.9 million which is reflected on the line item, "Other miscellaneous income," in our consolidated statement of income.

On October 1, 2021 we completed our acquisition of Recruit Media in accordance with the Stock Purchase Agreement dated October 1, 2021 (the “Recruit Agreement”). Pursuant to the Recruit Agreement, we purchased all of the outstanding shares of Recruit Media for approximately $4.4 million, subject to customary representations and warranties. Recruit Media was a pre-revenue IT company whose intellectual property will allow us to accelerate improvements to our platform. The following table summarizes the values of the identifiable assets acquired as of the acquisition date (in thousands):

We determined the Recruit Media transaction was an asset acquisition for accounting purposes as it did not meet the definition of a business. Accordingly, no pro forma financial information is presented.

On December 6, 2021, we completed our acquisition of the Dental Power Staffing division (“Dental Power”) in accordance with the terms of the Asset Purchase Agreement dated November 2, 2021 (the "Dental Power Agreement") for $1.9 million. DPI is a 46-year-old dental staffing company headquartered in Carrboro, North Carolina. Dental Power is a provider of temporary, long-term contract, and direct-hire staffing services to dental practices across the U.S. The addition of Dental Power brings additional resources and experience to HQI that will help expedite growth into a new staffing vertical.

The following table summarizes the values of the identifiable assets acquired as of the acquisition date (in thousands):

Prior to entering into ~~any~~a related party transaction which is disclosable pursuant to Item 404 of Regulation S-K, the Audit Committee ~~shall review~~reviews all relevant information available. The Audit Committee, in its sole discretion, may approve the related party transaction only if it determines, in good faith and under all circumstances, that the transaction is in the best interests of the Company and its shareholders. The Audit Committee, in its sole discretion, may also impose conditions as it deems appropriate on the Company or the related party in connection with the approval of the related party transaction.

Several significant shareholders and directors of HQI also own portions of Jackson Insurance ~~Agency;~~Agency, Bass Underwriters, ~~Inc;~~Inc., Insurance Technologies, Inc.;, and a number of our ~~franchisees.~~franchisees (in whole or in part).

Jackson Insurance Agency ("Jackson Insurance") and Bass Underwriters, Inc. ("Bass")

~~Mr.~~Edward Jackson, a member of our Board and significant stockholder, and a member of Mr. Jackson’s immediate family own Jackson Insurance. Mr. Jackson, ~~Mr.~~Richard Hermanns, our CEO, Chairman of our Board, and most significant stockholder, and irrevocable trusts set up by each of them, collectively own a majority of Bass, a large managing general agent.

~~Bass purchased~~In March of 2021, we sold approximately $5.3 million of ~~6.0%~~ notes receivable to Bass, without recourse. Virtually all of the notes sold to Bass originated from the sale of branch locations acquired in the 2019 merger with Command Center, Inc. These notes were sold at ~~book value in March 2021. For additional information related~~their current outstanding principal value. The proceeds from the sale of these notes were used to ~~this transaction, see~~ ~~Note 10 - Notes Receivable~~.help finance the Snelling and LINK transactions.

Jackson Insurance and Bass brokered property, casualty, general liability, and cybersecurity insurance for a series of predecessor entities (“Legacy HQ”) prior to the merger with Command Center, Inc. (the “Merger”). Since July 15, 2019, they have continued to broker these same policies for HQI. Jackson Insurance also brokers certain insurance policies on behalf of some of our franchisees, including the Worlds Franchisees (defined below).

During the three months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, Jackson Insurance and Bass invoiced HQI approximately ~~$117,000~~$145 thousand and ~~$178,000,~~$0, respectively, for premiums, taxes, and fees ~~for~~related to these insurance policies. During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, Jackson Insurance and Bass invoiced HQI approximately ~~$701,000~~$252 thousand and ~~$726,000,~~$584 thousand, respectively, for premiums, taxes, and fees ~~for~~related to these insurance policies. Jackson Insurance and Bass ~~do not retain the majority of the premiums invoiced to HQI, but they do~~ retain a commission of approximately 9% - 15% of premiums.

Mr. Jackson, Mr. Hermanns, and irrevocable trusts set up by each of them, collectively own a majority of Insurance Technologies, an IT development and security firm. On October 24, 2019, HQI entered into an agreement with Insurance Technologies to add certain cybersecurity protections to our existing information technology systems and to assist in developing future information technology systems within our HQ Webconnect software. In addition, Insurance Technologies assisted with the IT diligence and integration process with respect to the Snelling and ~~Link~~LINK acquisitions.

During the three months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, Insurance Technologies invoiced HQI approximately ~~$5,000~~$27 thousand and ~~$50,000,~~$90 thousand, respectively, for services provided pursuant to this agreement. During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, Insurance Technologies invoiced HQI approximately ~~$198,000~~$37 thousand and ~~$135,000,~~$193 thousand, respectively, for services provided pursuant to this agreement. We have retained a ~~fulltime~~full time CIO since June, 2021 and thus spending pursuant to this agreement ~~became immaterial~~decreased significantly beginning in the third quarter of 2021.

Mr. Jackson and immediate family members of Mr. Hermanns have significant ownership interests in certain of our franchisees (the “Worlds Franchisees”). There were 2425 Worlds Franchisees at ~~September~~June 30, ~~2021~~2022 that operated 5864 of our ~~213~~225 offices. Concurrent with the acquisitions of Temporary Alternatives and Northbound, we sold a portion of the assets acquired to entities partially owned by the Worlds Franchisees. The 2 franchises and 4 locations from these acquisitions are included in the numbers above. Gross proceeds from the sale of Temporary Alternatives was $2.9 million and we recognized a loss of $1.1 million. Gross proceeds from the sale of Northbound was $6.4 million and we recognized a loss of $1.3 million.

~~Transactions~~Concurrent with the Snelling acquisition in 2021 we sold the Princeton, NJ assets acquired to an entity partially owned by the Worlds Franchisees. Gross proceeds from the sale of Princeton was $81 thousand and we recognized a gain of $81 thousand.

Other transactions regarding the Worlds Franchisees are summarized ~~below:~~below (in thousands):

Balances regarding the Worlds Franchisees are summarized ~~below:~~below (in thousands):

In June 2021, we entered into a loan agreement with Truist Bank (“Truist”) for a $60 million revolving line of credit with a $20 million sublimit for letters of credit and a $3.2 million term loan. The credit facilities are ~~provided by~~set up to facilitate a syndication of lenders with Truist acting as the administrative agent. The line of credit is subject to a borrowing base that is derived from our accounts receivable, subject to certain reserves and other limitations. Under the agreement, Truist may also make swingline loans available in its discretion. As of June 30, 2022, Truist remains the only lender.

All loans made under the line of credit are scheduled to mature on June 29, 2026. The line of credit and swingline loans bear interest at a variable rate equal to: (a) for LIBOR index rate loans, the Daily One Month London Interbank Offering Rate, (“LIBOR”) plus a margin between 1.25% and 1.75% per annum or; (b), for base rate loans, the then applicable base rate plus a margin between 0.25% and 0.75% per annum. The margin is determined based on our average excess availability, which is generally equal to our total collateral less the outstanding balance, if any, under the loan agreement. At ~~September~~June 30, ~~2021~~2022 the effective interest rate was approximately ~~1.8%~~ 3.4%. A non-use fee of ~~0.250%~~0.25% accrues on the unused portion of the line of credit. As collateral for repayment of any and all obligations under this agreement, we granted Truist a security interest in substantially all of our operating assets and the operating assets of our subsidiaries. This agreement, and other loan documents, contain customary representations and warranties, affirmative and negative covenants, including without limitation, those covenants governing indebtedness, liens, fundamental changes, restrictions on certain payments, including dividends, unless certain conditions are met, transactions with affiliates, investments, and the sale of assets. This agreement requires us to comply with a fixed charge coverage ratio of at least 1.25:1.00, and a leverage ratio of not more than 3.0:1.0, tested monthly on a rolling ~~twelve-month~~twelve-month basis. At ~~September~~June 30, ~~2021~~2022 we were in compliance with these covenants. Our obligations under this agreement are subject to acceleration upon the occurrence of an event of default as defined in the loan agreement.

At ~~September~~June 30, ~~2021,~~2022, approximately ~~$14.3~~$10.7 million of availability under the line of credit was utilized by outstanding letters of credit that secure our obligations to our workers’ compensation insurance carrier, ~~and $500,000~~$500 thousand was utilized by a letter of credit that secures our paycard funding ~~account. This~~account, and approximately $200 thousand was utilized as a reserve against the Northbound term loan. The Truist loan agreement replaces our prior $30 million line of credit. For additional information related to the letter of credit securing our workers’ compensation obligations see Note 5 - ~~Workers’~~Workers’ Compensation Insurance and Reserves.

The Truist term loan is scheduled to mature on June 29, 2036 and bears interest at a variable rate equal to LIBOR plus a margin of 2.0%. At ~~September~~June 30, ~~2021~~2022 the effective interest rate was approximately ~~2.1%~~3.7%. The term loan will be paid in equal monthly installments based upon a 15-year amortization of the original principal amount of the term loan, provided that any remaining principal balance is due and payable in full on the earlier of the date of termination of the commitments on the line of credit and June 29, 2036. The term loan is collateralized by all real property owned by us. The proceeds of approximately $3.2 million were used to pay off our prior credit facility and to pay transaction related fees and expenses.

The loan agreement contains hardwired mechanics for the replacement of LIBOR with a rate based upon the secured overnight financing rate (“SOFR”) published by the Federal Reserve Bank of New York or a successor administrator upon LIBOR’s cessation or other benchmark transition event set forth in the loan agreement, together with a spread adjustment.

The Truist line of credit and the Truist term loan are cross collateralized, cross defaulted and coterminous.

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

Beginning in March 2014, Legacy HQ obtained its workers’ compensation insurance through Chubb Limited and ACE American Insurance Company (collectively, “ACE”), in all states in which it operated, other than monopolistic jurisdictions. The ACE policy was a high deductible policy pursuant to which Legacy HQ had primary responsibility for all claims with ACE providing insurance for covered losses and expenses in excess of ~~$500,000~~$500 thousand per incident. In addition to the ACE policy, Legacy HQ purchased a deductible reimbursement insurance policy from Hirequest Insurance Company (“HQ Ins.”), a captive insurer, to cover losses up to the ~~$500,000~~$500 thousand deductible with ACE. This resulted in Legacy HQ effectively being fully insured during this time period. Effective July 15, 2019, Legacy HQ terminated its deductible reimbursement policy with HQ Ins. We assumed the primary responsibility for all claims up to the deductible occurring on or after July 15, 2019. The primary responsibility for all claims occurring before July 15, 2019 remains with HQ Ins.

Command Center, the predecessor entity that acquired Legacy HQ in 2019, also obtained its workers’ compensation insurance through ACE. Pursuant to Command Center’s most recent policy, which expired on March 1, 2020, ACE provided insurance for covered losses and expenses in excess of ~~$500,000~~$500 thousand per incident. Command Center’s ACE policy included a ~~one-time~~one-time obligation for the Company to pay any single claim filed under the Command Center policy within a policy year that exceeds ~~$500,000~~$500 thousand (if any), but only up to ~~$750,000~~$750 thousand for that claim. All other claims within the policy year were subject to the ~~$500,000~~$500 thousand deductible. Effective July 15, 2019, in connection with the Merger, we assumed all of the workers’ compensation claims of Command Center. We also assumed Command Center’s workers’ compensation policy with ACE.

Under these high deductible programs, we are effectively self-insured. Per our contractual agreements with ACE, we must provide collateral deposits of approximately ~~$14.3~~$10.7 million, which we accomplished by providing a letter of credit under our agreement with Truist. ~~The amount of our current letter of credit includes an additional amount of $5.2 million that was issued in conjunction with the Snelling transaction.~~

For workers’ compensation claims originating in the monopolistic jurisdictions of North Dakota, Ohio, Washington, and Wyoming, we pay workers’ compensation insurance premiums and obtain full coverage under mandatory state administered programs. Our liability associated with claims in these jurisdictions is limited to premium payments based upon the amount of payroll paid within each jurisdiction. Accordingly, our consolidated financial statements reflect only the mandated workers’ compensation insurance premium liability for workers’ compensation claims in these jurisdictions.

In the third quarter of 2020, we initiated the payment of a quarterly ~~dividend. We~~dividend and intend to continue to pay a quarterly dividend, based on our business results and financial position. The following common share dividends were paid during ~~2021~~2022 and ~~2020:~~2021 (total paid in thousands):

Effective July 2020, our Board of Directors authorized a one-year repurchase plan for up to 1 million shares of our common stock. During the year ended December 31, 2020, we purchased 23,638 shares of our common stock at an aggregate cost of approximately $146,000 resulting in an average price of $6.20 per share. These shares are held in treasury. Additionally, there were 9,454 restricted shares that did not meet their vesting criteria, which are also held in treasury. We have not purchased any shares of our common stock during 2021.

In December 2019, our Board approved the 2019 HireQuest, Inc. Equity Incentive Plan (the ~~“2019~~“2019 Plan”). Subject to adjustment in accordance with the terms of the 2019 Plan, no more than ~~1,500,000~~1.5 million shares of common stock are available in the aggregate for the grant of awards under the 2019 Plan. No more than ~~1,000,000~~1 million shares may be issued in the aggregate pursuant to the exercise of incentive stock options. In addition, no more than ~~250,000~~250 thousand shares may be issued in the aggregate to any employee or consultant, and no more than ~~50,000~~50 thousand shares may be issued in the aggregate to any non-employee director in any ~~twelve-month~~twelve-month period.Shares of common stock available for distribution under the Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. The 2019 Plan was approved by our shareholders in June 2020 and became effective as of that date.

In September 2019, our Board approved a share purchase match program to encourage ownership and further align the interests of key employees and directors with those of our shareholders. Under this program, we will match 20% of any shares of our common stock purchased on the open market by or granted in lieu of cash compensation to key employees and directors up to ~~$25,000~~$25 thousand in aggregate value per individual within any calendar year. These shares vest on the second anniversary of the date on which the matched shares were purchased if the individual is still employed by the Company and certain other vesting criteria are met. During the first ~~nine~~six months of ~~2021,~~2022, we issued approximately ~~5,000~~6 thousand shares valued at approximately ~~$73,000~~$97 thousand under this program. During ~~2020,~~the firstsix months of 2021, we issued approximately ~~20,000~~4 thousand shares valued at approximately ~~$118,000~~$61 thousand under this program.

~~Thus far in 2021,~~In the firstsix months of 2022, we have issued ~~45,929~~7,776 shares of restricted common stock pursuant to the 2019 Plan valued at approximately ~~$913,000~~$138 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these, ~~43,274~~6,480 shares vested equally over the following three months. The remaining ~~2,655~~1,296 shares were issued pursuant to our share purchase match program.

Also in ~~2021,~~the firstsix months of 2022, we have issued ~~50,000~~44,871 shares of restricted common stock ~~to key employees~~ pursuant to the 2019 Plan valued at approximately ~~$919,000~~$764 thousand to key employees for their services in lieu of cash compensation. Of these, 41,066 shares vested equally over the following three months. The remaining 3,805 shares were issued pursuant to our share purchase match program. In addition, we issued 28,735 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $537 thousand to the vast majority of our workforce for services and to encourage retention. These shares vest ~~over four years, with 50% vesting~~ on ~~their second~~the first anniversary ~~and 6.25% vesting each quarter thereafter for~~of the ~~next eight quarters. Also in~~ date of grant.

In the firstsix months of 2021, we issued ~~2,280 shares of restricted common stock to certain employees and board members pursuant to our share purchase match program valued at approximately $34,000.~~

~~In 2020, we issued 81,943~~42,211 shares of restricted common stock pursuant to the 2019 Plan valued at approximately ~~$539,000~~$845 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these, ~~61,868~~40,176 shares vested equally over the following three months. The remaining ~~20,075~~2,035 shares were issued pursuant to our share purchase match program.

Also in ~~2020,~~the firstsix months of 2021, we issued ~~25,000~~2,280 shares of restricted common stock to ~~an employee pursuant to the 2019 Plan valued at approximately $179,000 for services,~~certain Board members and to encourage retention. These shares vest over four years, with 50% vesting on September 11, 2021, and 6.25% vesting each quarter thereafter for the next eight quarters. Also in 2020, we issued 1,742 shares of restricted common stock to certain employees pursuant to our share purchase match program valued at approximately ~~$12,000.~~$34 thousand.

The following table summarizes our restricted stock outstanding at December 31, ~~2020,~~2021, and changes during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022 (number of shares in thousands).

Stock options that were outstanding at Command Center were deemed to be issued on the date of the Merger. Outstanding awards continue to remain in effect according to the terms of the Command Center 2008 Plan, the Command Center 2016 Plan, and the corresponding award documents. There were approximately ~~17,000 and 15,000~~13 thousand stock options vested at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021.

The following table summarizes our stock options outstanding at December 31, ~~2020,~~2021, and changes during the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022 (number of shares in thousands).

~~The following table summarizes our~~There were no non-vested stock options outstanding at June 30, 2022 or at December 31, ~~2020, and changes during the nine months ended September 30, 2021:~~2021.

The following table summarizes information about our outstanding stock options, and reflects the intrinsic value recalculated based on the closing price of our common stock of ~~$19.33~~$14.09 at ~~September~~June 30, ~~2021:~~2022 (number of shares in thousands).

At ~~September~~June 30, ~~2021,~~2022, there was unrecognized stock-based compensation expense totaling approximately ~~$1.3~~$1.4 million relating to non-vested restricted stock grants that will be recognized over the next ~~3.9~~3.4 years.

New franchisees financed the purchase of several offices with promissory notes. In some instances, this financing resulted in certain franchises being considered VIEs. We have determined that we are not required to consolidate these entities because we do not have the power to direct these entities’ daily operations. If these franchises default on these notes, we bear the risk of loss of the outstanding balance on these notes, less what we could recoup from the potential resale of the repossessed office. The balance due from the franchises determined to be VIEs was approximately $3.1 million and ~~$2.1~~$2.9 million on ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

From time to time, we are involved in various legal and administrative proceedings. Based on information currently available to us, we do not expect material uninsured losses to arise from any of these matters. We believe the outcome of these matters, even if determined adversely, will not have a material adverse effect on our business, financial condition or results of operations. There have been no material changes in our legal proceedings as of ~~September~~June 30, ~~2021.~~2022.

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year and changes in tax law and tax rates. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or the tax environment changes.

Our effective tax rate for continuing operations during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 was ~~9.2%~~15.1% and ~~17.0%~~20.1%, respectively. Our effective tax rate for continuing operations during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 was ~~4.1%~~14.9% and ~~14.1%~~1.3%, respectively. The bulk of the difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results from the bargain purchase gain, which is recorded net of deferred taxes and is treated as a permanent difference, and the federal Work Opportunity Tax Credit, which is designed to encourage employers to hire workers from certain targeted groups with higher-than-average unemployment rates. Other differences result from state income taxes, certain non-deductible expenses, and tax effects of stock-based compensation.

We use an intra-period tax allocation is to allocate total income tax expense (or benefit) to the different components of continuing operations and discontinued operations. This allocation uses a with and without methodology to determine income tax expense for discontinued operations. Tax expense allocated to discontinued operations was $43 thousand for the three months ended June 30, 2022, and $57 thousand for the six months ended June 30, 2022. There were no discontinued operations in 2021.

Several franchisees ~~as well as the purchaser of our previously owned California locations,~~ borrowed funds from us primarily to finance the initial purchase price of office assets, including intangible assets. In March of 2021, we sold approximately $5.3 million of notes receivable to Bass, a related party. Virtually all of the notes sold to Bass originated from the sale of branch locations acquired in the Merger. These notes were sold at their current outstanding principal value. The proceeds from the sale of these notes were used to finance the Snelling and Link transactions.

Notes outstanding, net of allowance for losses, were approximately ~~$4.3~~$4.0 million and ~~$8.1~~$3.9 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Notes receivable generally bear interest at a fixed rate between 6.0% and 10.0%. Notes receivable are generally secured by the assets of each office and the ownership interests in the franchise. We report interest income on notes receivable as other miscellaneous income in our consolidated statements of operations. Interest income was approximately ~~$54,000~~$54 thousand and ~~$177,000~~$96 thousand during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively. Interest income was approximately ~~$285,000~~$147 thousand and ~~$551,000~~$231 thousand during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively.

We estimate the allowance for losses for franchisees separately from the allowance for losses from non-franchisees because of the level of detailed sales information available to us with respect to the former.

Based on our review of the financial condition of the borrowers, the underlying collateral value, and the potential future impact of ~~COVID-19~~the economy on certain borrowers’ economic performance and estimated future cash flows, we have established an allowance of approximately ~~$1.9 million and $1.6 million~~$405 thousand as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively,~~2021 for potentially uncollectible notes ~~receivable.~~receivable from franchisees.

The following table summarizes our notes receivable balance to ~~franchisees:~~franchisees (in thousands):

In connection with the Snelling acquisition, we sold certain California locations that had been company-owned by Snelling to the California purchaser (the “California Purchaser”). These locations are permitted to operate under the Snelling trademark pursuant to a license agreement paying us a royalty of 9% of their gross margin. The aggregate sale price for these locations consisted of cash, a promissory note that bears interest at 6.0% per annum, plus the right to receive a portion of revenue generated, subject to certain conditions being satisfied (the "California Conditions"). Similarly, in connection with the LINK acquisition, we assigned certain franchise agreements we purchased in the transaction, all located in California, to the California Purchaser. These franchisees operate pursuant to a LINK trademark sublicense agreement whereby they pay us 9% of the gross margin of their offices in exchange for a sublicense to utilize the LINK tradename.

During 2020, ~~one of our debtors~~ the California Purchaser experienced significant economic hardships due to the impacts of ~~COVID-19.~~COVID-19 and the related government mandates in the state. As a result, we restructured ~~one note~~a portion of the notes receivable in an effort to increase the probability of repayment. We granted near-term payment concessions to help the debtor attempt to improve its financial condition so it may eventually be able to repay the amount due. InDuring the ~~quarter~~three months ended ~~September~~June 30, ~~2021, this debtor defaulted on the~~2022 we have been asked to provide a third forbearance agreement and avoid foreclosure action. We are currently negotiating the terms and conditions related to that agreement. As part of the forbearance we ~~recognized~~will likely have to forgive additional payments due on the notes. After reviewing the potential outcomes, we recorded an additional impairment ~~in the value of this note~~ of approximately ~~$307,000. We~~$233 thousand at June 30, 2022, bringing the note balance down to approximately $71 thousand, which we expect to collect before the end of 2022.

For notes to non-franchisees, we recognized interest income on this note of approximately $-0- and ~~$44,000~~$96 thousand during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively. We recognized interest income on this note of approximately ~~$83,000~~$41 thousand and ~~$130,000~~$231 thousand during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively.

The following table summarizes our non-franchisee note receivable balance that has been deemed ~~impaired:~~impaired (in thousands):

~~During the quarter ended September 30, 2021, we incurred an additional impairment~~

On October 1, 2021 we completed our acquisition of Recruit Media, Inc. (“Recruit Media”) in accordance with the Stock Purchase Agreement dated October 1, 2021 (the “Recruit Agreement”) between HireQuest, Inc., (the “Buyer”) Recruit Media, Inc., Jeffrey Nussbaum, Ira Bell, and Joshua Sachs (collectively, the “Sellers”). Pursuant to the Recruit Agreement, we purchased all of the outstanding shares of Recruit Media for approximately $4.35 million, subject to customary representations and warranties. Recruit Media is an IT company whose intellectual property will allow us to accelerate improvements to our platform.

On November 3, 2021 we entered into a definitive agreement with Dental Power International, Inc. (“Dental Power”) to acquire their Dental Power Staffing division (“DPS”) for $1.48 million. Dental Power is a 46-year-old dental staffing company headquartered in Carrboro, North Carolina. DPS is a leading provider of temporary, long-term contract, and direct-hire staffing services to dental practices across the U.S. The addition of DPS will bring additional resources and experience to HQI that will help expedite growth into a new staffing vertical.

~~On November 8, 2021 our Board declared a $0.06 per common share cash dividend to shareholders of record as of December 1, 2021, which will be paid on December 15, 2021.~~

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. See "Special Note Regarding Forward-Looking Statements" below for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additionally, we use a non-GAAP financial measure and a key performance indicator to evaluate our results of operations. For important information regarding the use of such non-GAAP measure, including a reconciliation to the most comparable GAAP measure, see the section titled ~~“Use~~"Use of Non-GAAP Financial ~~Measures”~~Measure: Adjusted EBITDA" below. For important information regarding the use of such key performance indicator, see the section titled “Key Performance Indicator: System-Wide Sales” below.

This Quarterly Report on Form 10-Q and other documents incorporated herein by reference include, and our officers and other representatives may sometimes make or provide, certain estimates and other forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act, including, among others, statements with respect to future revenue, franchise sales, system-wide sales, and the growth thereof; net income and Adjusted EBITDA (a Non-GAAP Financial Measure); the impact of any global pandemic including COVID-19; operating results; dividends and shareholder returns; anticipated benefits of mergers or ~~acquisitions including those we have completed in 2021;~~acquisitions; intended office openings or closings; expectations of the effect on our financial condition of claims and litigation; strategies for customer retention and growth; strategies for risk management; and all other statements that are not purely historical and that may constitute statements of future expectations. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and similar references to future periods.

While we believe these statements are accurate, forward-looking statements are not historical facts and are inherently uncertain. They are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. We cannot assure you that these expectations will materialize, and our actual results may be significantly different. Therefore, you should not place undue reliance on these forward-looking statements. Important factors that may cause actual results to differ materially from those contemplated in any forward-looking statements made by us include the following: the level of demand and financial performance of the temporary staffing industry; the financial performance of our franchisees; our and our franchisees’ customers’ ability to navigate successfully the challenges posed by current global supply disruptions and inflation, including with respect to energy prices; the impacts of COVID-19 or other diseases or pandemics; changes in customer demand; the extent to which we are successful in gaining new long-term relationships with customers or retaining existing ones, ~~and~~ the level of service failures that could lead customers to use competitors’ services; significant investigative or legal proceedings including, without limitation, those brought about by the existing regulatory environment or changes in the regulations governing the temporary staffing industry and those arising from the action or inaction of our franchisees and temporary employees; strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses; disruptions to our technology network including computer systems and ~~software;~~software whether resulting from a cyber-attack or otherwise; natural events such as severe weather, fires, floods, and earthquakes, or man-made or other disruptions of our operating ~~systems;~~systems or the economy including by war; the factors discussed in the “Risk Factors” section in our most recent Annual Report on Form 10-K, which we filed with the SEC on March ~~25, 2021;~~15, 2022; and the other factors discussed in this Quarterly Report and our Annual Report.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. The Company disclaims any obligation to update or revise any forward-looking statement, whether written or oral, that may be made from time to time, based on the occurrence of future events, the receipt of new information, or otherwise, except as required by law.

We are a nationwide franchisor of ~~on-demand labor~~offices providing direct-dispatch and commercial staffing solutions ~~providers~~ in the light industrial and blue-collar segments of the staffing ~~industry. We were formed~~industry and traditional commercial staffing. Our franchisees provide various types of temporary personnel through two business models operating under the ~~merger between Hire Quest Holdings, LLC (“Hire Quest Holdings”)~~trade names “HireQuest Direct”, “HireQuest”, “Snelling”, “LINK Staffing”, “DriverQuest”, “HireQuest Health”, and ~~Command Center, Inc. We refer to Hire Quest Holdings~~“Northbound Executive Search”. HireQuest Direct specializes primarily in unskilled and ~~its wholly-owned subsidiary, Hire Quest, LLC, collectively as Legacy HQ. We refer to this merger, which closed on July 15, 2019, as~~semi-skilled industrial and construction personnel. HireQuest, Snelling, and LINK specialize primarily in skilled and semi-skilled industrial personnel, clerical and administrative personnel, and permanent placement services. DriverQuest specializes in both commercial and non-CDL drivers serving a variety of industries and applications. HireQuest Health specializes in skilled personnel in the ~~Merger.~~medical and dental industries. Northbound Executive Search specializes in executive placement and consultant services in the financial services industry. As of ~~September~~June 30, ~~2021,~~2022 we had ~~approximately 213~~223 franchisee-owned offices and 2 company owned offices in 3638 states and the District of Columbia. We ~~also licensed the use of our trademarks to offices in California. Our franchisees~~ provide employment for an estimated ~~80,000 individuals~~75,000 temporary employees annually working for thousands of clients in many industries including construction, recycling, warehousing, logistics, auctioneering, manufacturing, ~~disaster cleanup, janitorial, special events,~~ hospitality, landscaping, and retail.

~~Recent Developments~~The COVID-19 pandemic materially adversely impacted our business in 2020 and, to a much lesser extent, into 2021. Comparisons between 2022 and 2021 should be viewed through a COVID-19 lens with the understanding that for the six-month period ended June 30, 2021 our revenues and expenses were impacted by COVID and lower than they otherwise would have been. A full economic recovery has been slow to occur, and it is uncertain if businesses will remain fully open, or another broad shutdown will occur due to a variant or new strain. The long-term effectiveness of economic stabilization efforts, including government payments to affected citizens and industries, and government vaccination efforts, is also uncertain. Also affecting comparisons between 2022 and 2021 were the acquisitions consummated in 2021 and 2022 as described below.

On March 1, 2021, we completed our acquisition of certain assets of Snelling Staffing ("Snelling") in accordance with the terms of the Asset Purchase Agreement dated January 29, 2021 (the “Snelling Agreement”). At the time of acquisition, Snelling isStaffing was a 67-year-old staffing company headquartered in Richardson, TX. Pursuant to the Snelling Agreement, HQ Snelling Corporation (“HQ Snelling”), our wholly-owned subsidiary, acquired approximately 47 offices and substantially all of the operating assets, and assumed certain liabilities of the sellers for a purchase price of ~~approximately~~ $17.9 million, subject to customary adjustments for net working ~~capital.~~capital plus further adjustment of $7.2 million of collateral released to the sellers by their workers' compensation insurer (the "Snelling Acquisition"). Also on March 1, 2021, HQ Snelling entered into the First Amendment to the Purchase Agreement, pursuant to which HireQuest, Inc. agreed to advance $2.1 million to be paid to the sellers at closing ~~so the seller could facilitate payment on behalf of HQ Snelling~~ to ~~settle~~be used to pay accrued payroll liabilities that HQ Snelling assumed pursuant to the Snelling Agreement. ~~Substantially all~~We funded this acquisition with existing cash on hand and a draw on our existing line of ~~the locations where we assumed franchisor status in this transaction have subsequently signed our HireQuest franchise agreement but continue to use the Snelling name.~~credit with Truist Bank ("Truist").

In connection with the acquisition, we sold the 10 locations that had been company-owned by Snelling. Two of these, we sold to franchisees. Four offices were sold to a third-party purchaser. Four offices were sold to a California purchaser (the “California Purchaser”) and operate under the Snelling name pursuant to a license agreement with us. The aggregate sale price for these 10 locations consisted of (i) $1.0 million in the form of a promissory note that bears interest at 6.0%, (ii) the right to receive 1.5% of revenue generated at the Ontario location for the next 12 months, (iii) the right to receive 2.5% of revenue generated at the Tracy and Lathrop locations for the next 12 months, (iv) the right to receive 2.0% of revenue generated at the Princeton location for the next 36 months, and (v) approximately $1 million in cash. There were no remaining company-owned locations as of March 31, 2021.

One of the California locations operates pursuant to a license agreement whereby they license the Snelling trademark and pay us a royalty of 9% of their gross margin. We expect that the California Purchaser will convert the remaining three California locations to franchisees at which point these franchisees will begin to pay us 9% of their gross margin.

On March 22, 2021, we completed our acquisition of the franchise relationships and certain other assets of ~~Link~~LINK Staffing (“LINK”) in accordance with the terms of the Asset Purchase Agreement dated February 12, 2021 (the ~~"Link~~"LINK Agreement"). ~~Link is~~At the time of acquisition LINK was a family-owned staffing company headquartered in Houston, TX. Pursuant to the ~~Link~~LINK Agreement, HQ Link Corporation ("HQ Link"), our wholly-owned subsidiary, acquired ~~franchise agreements for~~ approximately 35 ~~locations,~~franchised offices, customer lists and contracts, and other assets of ~~Link Staffing~~LINK for a purchase price of $11.1 ~~million. Substantially all of the locations where we assumed franchisor status in~~million (the "LINK Acquisition"). We funded this ~~transaction have subsequently signed our HireQuest franchise agreement and now operating as Snelling.~~acquisition with existing cash on hand.

We assigned six of the franchise agreements we purchased in the transaction, all located in California, to the California Purchaser. These six franchisees operate pursuant to a Link trademark sublicense agreement whereby they pay us 9% of the gross margin of their offices in exchange for a sublicense to utilize the Link tradename.

On October 1, 2021 we completed our acquisition of Recruit Media, Inc. (“Recruit Media”) in accordance with the terms of the Stock Purchase Agreement dated October 1, 2021 (the “Recruit Agreement”~~) between HireQuest, Inc., (the “Buyer”) Recruit Media, Inc., Jeffrey Nussbaum, Ira Bell, and Joshua Sachs (collectively, the “Sellers”~~). Pursuant to the Recruit Agreement, we purchased all of the outstanding shares of common stock of Recruit Media for approximately ~~$4.35 million, subject to customary representations and warranties.~~$4.4 million. Recruit Media is ~~an IT company~~a tuck-in acquisition whose intellectual property ~~will allow~~compliments our technological structure, allowing us to accelerate improvements to our platform. We funded this acquisition with existing cash on hand and a draw on our existing line of credit with Truist.

On ~~November 3,~~December 6, 2021 we ~~entered into a definitive agreement with~~completed our acquisition of the Dental Power Staffing division ("Dental Power") of Dental Power International, Inc. (“~~Dental Power”~~DPI”) ~~to acquire their Dental Power Staffing division (“DPS”)~~in accordance with the terms of a definitive agreement, dated November 2, 2021, for ~~$1.48~~approximately $1.9 million. ~~Dental Power~~DPI is a 46-year-old dental staffing company headquartered in Carrboro, North ~~Carolina. DPS is a leading provider of~~Carolina with long-standing client relationships in the dental industry. providing temporary, long-term contract, and direct-hire staffing services to dental practices across the U.S. As of June 30, 2022, all of the operations acquired from DPI remain company owned. We funded this acquisition with existing cash on hand and a draw on our existing line of credit with Truist.

On January 24, 2022 we completed our acquisition of ~~DPS~~certain assets of Temporary Alternatives in accordance with the terms of the Asset Purchase Agreement dated January 10, 2022 , including three locations in West Texas and New Mexico for approximately $7.0 million, inclusive of a prescribed amount of working capital. Temporary Alternatives is a staffing division of dmDickason Personnel Services, a family-owned company based in El Paso, TX. The acquisition of Temporary Alternatives will ~~bring additional resources~~expand our national footprint into West Texas and ~~experience to HQI that~~grow our franchise base, and we immediately entered into a franchise agreement and sold the non-working capital assets acquired. We funded this acquisition with existing cash on hand and a draw on our existing line of credit with Truist.

On February 21, 2022 we completed our acquisition of the staffing operations of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively “Dubin”) in accordance with the terms of an Asset Purchase Agreement dated January 19, 2022 for approximately $2.5 million, inclusive of a prescribed amount of working capital. Dubin provides executive placement services and commercial staffing in the Philadelphia metro area. The acquisition of Dubin will help expedite growth into a new staffing ~~vertical.~~

~~COVID-19~~vertical, expand our national footprint, and grow our franchise base. We funded this acquisition with existing cash on hand, deferred purchase payments, and a draw on our existing line of credit with Truist. We divided Dubin into separate businesses and sold certain customer related assets of one of the acquired locations to a new franchisee. The remaining assets related to the operations of the other acquired locations have not been sold and as of June 30, 2022 are classified as available-for-sale. In the meantime, we operate the Philadelphia Snelling franchise as company-owned.

The ~~coronavirus pandemic has significantly impacted~~Northbound Acquisition

On February 28, 2022 we completed our ~~operations. With widespread infection~~acquisition of certain assets of Northbound Executive Search, LTD (“Northbound”) in accordance with the terms of an Asset Purchase Agreement dated January 25, 2022, for approximately $11.4 million, inclusive of a prescribed amount of working capital. Northbound provides executive placement and short-term consultant services primarily to blue chip clients in the ~~United States~~financial services industry. The acquisition of Northbound will help expedite growth into a new staffing vertical, expand our national footprint, and abroad, national, state, and local authorities recommended social distancing and took dramatic action, including ordering the workforce to stay home, banning all non-essential businesses from operating, refusing to issue new building permits, and invalidating current building permits causing work to stop at many of our jobsites. These measures, while intended to protect human life, have had, and are expected to continue to have, adverse impacts on our business and the economy as a whole. While most states have advanced significantly into the reopening process, it is unclear when, or if, a full economic recovery will occur. It is also unclear whether businesses will remain open, or another broad shutdown will occur. The long-term effectiveness of economic stabilization efforts, including government payments to affected citizens and industries, and government vaccination efforts, is also uncertain.

~~We entered 2021 with a strong balance sheet. Our current assets exceeded current liabilities by approximately $16 million. We were able to complete three acquisitions and significantly increase~~grow our franchise base, ~~without incurring any debt.~~and we immediately entered into a franchise agreement and sold the customer-related assets acquired. We ~~have been able to remain profitable throughout the pandemic. Still, the sweeping~~funded this acquisition with existing cash on hand, seller financing of $1.5 million, and ~~persistent nature of the COVID-19 pandemic has depressed~~a draw on our system-wide sales and resulting franchise royalties. While we did not see major impacts on system-wide sales and resulting revenue until the final few weeks of the first quarter of 2020, these depressed sales have continued through the quarter ended September 30, 2021. On a month-to-month basis, our system-wide sales have consistently trended closer to historically normal numbers. However, we continue to expect negative impacts on system-wide sales and resulting franchise royalties in the coming quarters, and potentially into next year. Some of the depression in sales has been offset by the effect of the acquisitions we made in the first quarter of 2021. It remains unclear how long we will stay at this comparatively reduced level of sales, and the evolving nature of the pandemic makes reliable predictions extremely difficult.

From March 2020 through September 30, 2021, our franchisees have closed or consolidated 13 offices at least, in part, due to the financial impacts of COVID-19. All of these closures occurred in 2020. Of these closures, 11 were in metropolitan areas where our franchisees still maintain at least one office that we expect can service customers of the closed or consolidated offices. The other two offices did not historically produce significant amounts of system-wide sales or resulting revenue. It is possible that other offices may still be forced to close. Some of our franchisees may experience economic hardship or even failure. In general, those franchisees whose businesses are oriented towards construction, manufacturing, logistics, or waste services have been less impacted to date than those whose businesses are more focused on hospitality, catering, special events, or auto auction services.

As discussed more fully below, we reduced liquidity in the first nine months of 2021, as we used cash to complete two acquisitions in that time period. As a result, our cash balance decreased by approximately $8.9 million from $13.7 million at year end to $4.8 million at September 30, 2021. Our October 1, 2021 purchase of Recruit Media reduced this cash balance by another approximate $4.4 million. When combined with our borrowing capacity under our newexisting line of credit ~~and minimal debt, we expect that we have sufficient liquidity to continue our operations for the foreseeable future, even under the current circumstances presented by COVID-19. That said, the impact~~with Truist.

Results of ~~capital or credit is difficult to predict and may be significant~~Operations

Any of the above factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially negatively impact our revenue, net income, and other results of operations, reduce system-wide sales, cause office closings or cause us to lose franchisees, and impact our liquidity position, possibly significantly. The duration or magnitude of any such impacts cannot be predicted at this time.

The following table displays our consolidated statements of operations for the interim periods ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020 (in thousands, except percentages).~~2021. Percentages reflect the line item as a percentage of total ~~revenue.~~revenue (in thousands, except percentages).

	Three months ended										Nine months ended										Three months ended										Six months ended
	September 30, 2021					September 30, 2020					September 30, 2021					September 30, 2020					June 30, 2022					June 30, 2021					June 30, 2022					June 30, 2021
Franchise royalties	$	6,540		95.0	%	$	3,219		95.1	%	$	15,250		95.4	%	$	9,563		91.9	%	$	7,220		77.7	%	$	5,451		95.5	%	$	13,793		79.1	%	$	8,710		95.6	%
Staffing revenue, owned locations																						1,288		13.9	%		-		0.0	%		2,392		13.7	%		-		0.0	%
Service revenue		341		5.0	%		164		4.9	%		741		4.6	%		841		8.1	%		780		8.4	%		256		4.5	%		1,248		7.2	%		399		4.4	%
Total revenue		6,881		100.0	%		3,383		100.0	%		15,991		100.0	%		10,404		100.0	%		9,288		100.0	%		5,707		100.0	%		17,433		100.0	%		9,109		100.0	%
Cost of staffing revenue, owned locations																						947		10.2	%		-		0.0	%		1,709		9.8	%		-		0.0	%
Gross profit																						8,341		89.8	%		5,707		100.0	%		15,724		90.2	%		9,109		100.0	%
Selling, general and administrative expenses		3,044		44.2	%		1,358		40.1	%		8,927		55.8	%		6,542		62.9	%		3,530		38.0	%		2,041		35.8	%		6,367		36.5	%		5,882		64.6	%
Depreciation and amortization		366		5.3	%		32		1.0	%		1,065		6.7	%		97		0.9	%		610		6.6	%		366		6.4	%		1,176		6.7	%		699		7.7	%
Income from operations		3,471		50.4	%		1,993		58.9	%		5,999		37.5	%		3,765		36.2	%		4,201		45.2	%		3,300		57.8	%		8,181		46.9	%		2,528		27.8	%
Other miscellaneous income		90		1.3	%		392		11.6	%		4,132		25.8	%		932		9.0	%		1,458		15.7	%		30		0.5	%		(1,922	)	(11.0	)%		3,811		41.8	%
Interest income																						54		0.6	%		96		1.7	%		147		0.8	%		231		2.5	%
Interest and other financing expense		(42	)	-0.6	%		(10	)	-0.3	%		(67	)	-0.4	%		(39	)	-0.4	%		(109	)	(1.2	)%		(20	)	(0.4	)%		(157	)	(0.9	)%		(25	)	(0.3	)%
Net income before income taxes		3,519		51.1	%		2,375		70.2	%		10,064		62.9	%		4,658		44.8	%		5,604		60.3	%		3,406		59.7	%		6,249		35.8	%		6,545		71.9	%
Provision for income taxes		325		4.7	%		404		11.9	%		408		2.6	%		655		6.3	%		847		9.1	%		686		12.0	%		934		5.4	%		83		0.9	%
Net income from continuing operations																						4,757		51.2	%		2,720		47.7	%		5,315		30.5	%		6,462		70.9	%
Income from discontinued operations, net of tax																						134		1.4	%		-		0.0	%		179		1.0	%		-		0.0	%
Net income	$	3,194		46.4	%	$	1,971		58.3	%	$	9,656		60.4	%	$	4,003		38.5	%	$	4,891		52.7	%	$	2,720		47.7	%	$	5,494		31.5	%	$	6,462		70.9	%
Non-GAAP data
Adjusted EBITDA	$	5,294		76.9	%	$	2,922		86.4	%	$	11,234		70.3	%	$	7,677		73.8	%	$	5,913		63.7	%	$	4,407		77.2	%	$	11,220		64.4	%	$	5,940		65.2	%

Earnings before interest, taxes, depreciation and amortization, and non-cash compensation, or ~~adjusted~~Adjusted EBITDA, is a non-GAAP measure that represents our net income before interest expense, income tax expense, depreciation and amortization, non-cash compensation, compliance costs related to the work opportunity tax credit (“WOTC”) and other charges we consider unusual and/or non-recurring. We utilize ~~adjusted~~Adjusted EBITDA as a financial measure as management believes investors find it a useful tool to perform more meaningful comparisons and evaluations of past, present, and future operating results. We believe it is a complement to net income and other financial performance measures. Adjusted EBITDA is not intended to represent or replace net income as defined by U.S. GAAP and should not be considered as an alternative to net income or any other measure of performance prescribed by U.S. GAAP.

We use ~~adjusted~~Adjusted EBITDA to measure our financial performance because we believe interest, taxes, depreciation and amortization, non-cash compensation, WOTC-related costs and other non-recurring charges bear little or no relationship to our operating performance. By excluding interest expense, ~~adjusted~~Adjusted EBITDA measures our financial performance irrespective of our capital structure or how we finance our operations. By excluding taxes on income, we believe ~~adjusted~~Adjusted EBITDA provides a basis for measuring the financial performance of our operations excluding factors that are beyond our control. By excluding depreciation and amortization expense, ~~adjusted~~Adjusted EBITDA measures the financial performance of our operations without regard to their historical cost. By excluding non-cash compensation, ~~adjusted~~Adjusted EBITDA provides a basis for measuring the financial performance of our operations excluding the value of our restricted stock and stock option awards. By excluding WOTC related costs, ~~adjusted~~Adjusted EBITDA provides a basis for measuring the financial performance of our operations excluding the costs associated with qualifying for this tax credit. In addition, by excluding certain non-recurring charges, ~~adjusted~~Adjusted EBITDA provides a basis for measuring financial performance without ~~non-recurring charges.~~such items. In addition, our Credit Agreement requires us to comply with a fixed charge coverage ratio and a leverage ratio, both of which include Adjusted EBITDA substantially as defined above. For all of these reasons, we believe that ~~adjusted~~Adjusted EBITDA provides us, and investors, with information that is relevant and useful in evaluating our business.

However, because ~~adjusted~~Adjusted EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our fixed and intangible assets. In addition, because ~~adjusted~~Adjusted EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt, nor does it show trends in interest costs due to changes in our financing or changes in interest rates. Adjusted EBITDA, as defined by us, may not be comparable to ~~adjusted~~Adjusted EBITDA as reported by other companies that do not define ~~adjusted~~Adjusted EBITDA exactly as we define the term. Because we use ~~adjusted~~Adjusted EBITDA to evaluate our financial performance, we reconcile it to net income, which is the most comparable financial measure calculated and presented in accordance with U.S. ~~GAAP.~~GAAP below (in thousands).

Three Months Ended ~~September~~June 30, 2022 Compared to the Three Months Ended June 30, 2021

Our total revenue consists of franchise royalties, staffing revenue with respect to our owned locations, and service revenue. Gross profit includes total revenue less the cost of staffing services at owned locations. Once a company-owned office is sold, disposed of, or otherwise classified as available-for-sale, it would not be reflected in gross profit and instead reported as “Income from discontinued operations, net of tax.”

Gross profit for the three months ended June 30, 2022 was approximately $8.3 million compared to $5.7 million for the three months ended June 30, 2021, an increase of 46.2%. Gross profit as a percentage of system-wide sales was 6.9% for the three months ended June 30, 2022 versus 6.4% for the three months ended June 30, 2021. The 60-basis point improvement was primarily due to increased service revenue and the Gross Profit from the company owned locations.

Franchise royalties for the three months ended ~~September~~June 30, ~~2021~~2022 were approximately ~~$6.5~~$7.2 million, an increase of ~~103.2%~~32.5% from ~~$3.2~~$5.5 million for the three months ended ~~September~~June 30, ~~2020.~~2021. This increase is consistent with the 33.7% increase in underlying system-wide-sales for the quarter ended June 30, 2022 compared to the prior year quarter. Approximately ~~$1.6 million~~ $418 thousand of this increase in royalties was due to the Snelling, LINK, Northbound, Temporary Alternatives and ~~Link~~Dubin acquisitions and approximately ~~$1.7~~ $1.4 million was due to organic ~~growth this year~~growth. Our net effective royalty rate (as a percentage of external system-wide sales) held steady at 6.1% for the three-month period ended June 30, 2022 and 2021. Our net effective royalty rate will generally fluctuate due to mix of business among the various royalty models we operate under, as well as incentives we offer during the ~~negative effects~~year. A summary of ~~COVID-19 were less pronounced in~~franchise royalties for the ~~quarter~~three months ended ~~September~~June 30, 2022 and June 30, 2021 ~~than in the prior year quarter.~~are as follows (in thousands):

Service revenue consists of interest we charge our franchisees on overdue customer accounts receivable ~~trademark license fees,~~ and other miscellaneous fees for optional services we provide. Direct costs to provide certain services are reflected as a reduction in service revenue. As accounts receivable age over 42 days, our franchisees pay us interest on these accounts equal to 0.5% of the amount of the uncollected receivable each 14-day period. Accounts ~~receivable~~that age over 84 days are charged back to the franchisee ~~at a date agreed upon between the Company~~ and ~~the respective franchisee between 42 and 84 days, at which time they are~~ no longer ~~charged~~incur interest. Some of our franchisees elect to charge back accounts that age over 42 days in order to avoid the interest charge. In addition to royalty fees, we also charge a license fee to some locations that utilize our intellectual property that are not franchisees. License fees are 9% of the gross margin for the location. We have no employees and provide no services at the licensed locations.

Service revenue for the three months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$341,000,~~$780 thousand, an increase of $524 thousand from ~~approximately $164,000 for~~ the three months ended ~~September~~June 30, ~~2020.~~2021, when service revenue was approximately $256 thousand. This increase was largely due to the ~~introduction~~growth in the number of ~~trademark license fees this year~~franchisee locations and ~~increased fees~~corresponding service-related fees. Due to the timing of certain services and the related costs to provide them, we have incurred a disproportionate amount of service revenue in the three months ended June 30, 2022 and do not expect the same trend to continue in the next two quarters. The remaining increase relates to interest and follows the overall increase in accounts receivable, although relatively few age over 42 days and result in service revenue for ~~optional services.~~us. Many of our franchisees have elected to charge back accounts early in order to avoid the interest charge. Therefore, there will not be a proportionally large increase in service revenue even when there is a large increase in accounts receivable. We pride ourselves on maintaining quality, creditworthy customers who pay timely. The Company does not strive to increase interest on aged accounts receivable.

Following the December 2021 acquisition of Dental Power, we have a platform to build a customer base in the dental-oriented sector of the staffing industry, which we expect will benefit our entire system by increasing revenue opportunities under the HireQuest Health brand. As of June 30, 2022, all of the operations acquired from DPI remain company owned, but franchisees in 19 locations are operating under the HireQuest Health banner. Although we may franchise Dental Power operations in the future, we currently have no firm plans in place to do so. For the three months ended June 30, 2022, staffing revenue from owned locations was $1.3 million. We had no company owned locations during the three months ended June 30, 2021.

SG&A expenses for the three months ended ~~September~~June 30, ~~2021~~2022 were approximately ~~$3.0~~$3.5 million, an increase ~~of 124.2%~~ from ~~$1.4~~$2.0 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The increase in SG&A expenses primarily relates to salaries and benefits, which increased $766 thousand as a result of additional headcount to keep pace with growth in system-wide sales as a result of the 2021 and 2022 acquisitions, plus organic growth. In addition, Compensation expense in the three months ended June 30, 2022 includes an accrual of approximately $303 thousand for executive bonuses. There was no such accrual in the three months ended June 30, 2021. Compensation-related expenses remain by far the largest component of SG&A.

For the three months ended June 30, 2022, SG&A also includes a $233 thousand impairment charge related to notes receivable due from non-franchisees. During 2020, the California Purchaser experienced significant economic hardships due to the impacts of COVID-19 and the related government mandates in the state. As a result, we restructured a portion of the notes receivable in an effort to increase the probability of repayment. We granted near-term payment concessions to help the debtor attempt to improve its financial condition so it may eventually be able to repay the amount due. During the three months ended June 30, 2022 we were asked to provide a third forbearance agreement and avoid foreclosure action. We are currently negotiating the terms and conditions related to that agreement. As part of the forbearance we will likely have to forgive additional payments due on the notes. After reviewing the potential outcomes, we recorded an additional impairment of approximately $233 thousand at June 30, 2022, bringing the note balance down to approximately $71 thousand, which we expect to collect before the end of 2022.

For the three months ended June 30, 2022, other miscellaneous income was approximately $1.5 million, compared to income of $30 thousand for the three months ended June 30, 2021. In the three months ended June 30, 2022, we recognized approximately $1.4 million in gains resulting from the conversion of the Temporary Alternatives, Dubin and Northbound acquisitions to franchises. The gain is actually a partial reversal of the $3.6 million loss recognized in the first quarter of 2022 due to valuation adjustments as the accounting for those transactions was being finalized.

The remaining other miscellaneous income for the three months ended June 30, 2022, and income for the three months ended June 30, 2021, is primarily gross rents from leasing excess space at our corporate headquarters to third parties. We lease approximately 3,220 square feet of office space in our headquarters to unaffiliated companies. These leases are at the market rate. Rental income for the three months ended June 30, 2022 is higher than the three months ended June 30, 2021 after completion of the new building adjacent to our corporate headquarters.

Interest income and expense

Interest income for the three months ended June 30, 2022 was approximately $54 thousand compared to $96 thousand for the three months ended June 30, 2021. Interest income represents interest related to the financing of franchised locations, and one note to the California Purchaser. The decrease is primarily related to stopping the accrual of interest on the impaired notes to non-franchisees.

Interest and other financing expense relates primarily to the Revolving Credit and Term Loan Agreement with Truist. Interest and other financing expense increased from $20 thousand at June 30, 2021 to $109 thousand at June 30, 2022. Interest and other financing expense will fluctuate as we utilize the line of credit for acquisitions or other short-term liquidity needs. Due to the acquisitions in the first quarter of 2022, we carried a larger balance on our line of credit for most of the quarter ended June 30, 2022.

Provision for income tax

Income tax expense was approximately $847 thousand for the three months ended June 30, 2022. We estimate an annual projected effective tax rate (ETR) for the year to determine income tax expense (benefit) in the interim periods. The estimated annual ETR does not include tax effects from significant unusual or infrequently occurring items. Such items are accounted for discretely during the period in which they occur. The ETR is primarily driven by the federal Work Opportunity Tax Credit, which is included as part of income tax expense because it can be claimed only on the income tax return and can be realized only through the existence of taxable income. Other significant items affecting our tax rate are and windfall tax deductions related to stock-based compensation, overall limits on executive compensation. Our ETR for the three months ended June 30, 2022 was 15.1%.

Income tax expense for the three months ended June 30, 2021 was approximately $686 thousand. The annual ETR included the non-taxable bargain purchase gain recognized in 2021. Bargain purchase gains are recorded net of deferred taxes, and are treated as permanent differences, resulting in a lower ETR in the period recorded. Our ETR for the three months ended June 30, 2021 was 20.1%.

Table of Contents

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Gross Profit

Gross profit for the six months ended June 30, 2022 was approximately $15.7 million compared to $9.1 million for the six months ended June 30, 2021, an increase of 72.6%. This increase is ~~related~~consistent with the 51.6% increase in underlying system-wide-sales for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. In addition, the net effective royalty rate was higher in the six months ended June 30, 2022 than it was in the six months ended June 30, 2021. Gross profit as a percentage of system-wide sales was 7.1% for the six-month period ended June 30, 2022 versus 6.2% for the six months ended June 30, 2021. The 90-basis point improvement was primarily due to increased ~~compensation costs of approximately $350,000, increased stock-based compensation costs of approximately $459,000, an increase in~~service revenue and the ~~reserve on our notes receivable of approximately $307,000, and a legal settlement of $200,000 related to a class-action lawsuit filed in California.~~

~~Nine Months Ended September~~~~30, 2021~~

Gross Profit from the company-owned location.

Franchise Royalties

Franchise royalties for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were approximately ~~$15.2~~$13.8 million, an increase of ~~59.5%~~58.4% from ~~$9.6~~$8.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Approximately ~~$3.4~~$3.3 million of this increase in royalties was due to ~~the~~th e Snelling and ~~Link~~LINK acquisitions ~~as a result of which we experienced additional royalties in seven of the nine months this quarter,~~ and approximately ~~$2.3~~ $1.8 million was due to organic ~~growth this year as~~growth. Our net effective royalty rate (as a percentage of external system-wide sales) increased from 6.0% for the ~~negative effects~~six months ended June 30, 2021 to 6.3% for the six months ended June 30, 2022. Our net effective royalty rate will fluctuate due to mix of ~~COVID-19 were less pronounced~~business among the various royalty models we offer and will generally be higher in the ~~nine~~early portion of the year until volume related discounted rates become effective. A summary of franchise royalties for the six months ended ~~September~~June 30, 2022 and June 30, 2021 than in the prior year period. While system-wide sales, and resulting franchise royalties, have been slowly approaching historical levels on a month-over-month basis since the beginning of April of last year, we expect decreased royalty revenue to persist throughout the remainder of this year, and perhaps beyond, relative to pre-pandemic levels.

~~Table of Contents~~

are as follows (in thousands):

	Six months ended
	June 30, 2022		June 30, 2021
Franchise royalties from pre-existing locations	$	8,400	$	6,553
Franchise royalties from 2021 acquisitions		4,699		2,157
Franchise royalties from 2022 acquisitions		694		-
Franchise royalties	$	13,793	$	8,710

Service Revenue

Service revenue consists of interest we charge our franchisees on overdue customer accounts receivable and other miscellaneous fees for optional services we provide. Direct costs to provide certain services are reflected as a reduction in Service Revenue. As accounts receivable age over 42 days, our franchisees pay us interest on these accounts equal to 0.5% of the amount of the uncollected receivable each 14-day period. Accounts that age over 84 days are charged back to the franchisee and no longer incur interest. Some of our franchisees elect to charge back accounts that age over 42 days in order to avoid the interest charge. In addition to royalty fees, we also charge a license fee to some locations that utilize our intellectual property that are not franchisees. License fees are 9% of the gross margin for the location. We have no employees and provide no services at the licensed locations. These license fees are included in service revenue.

Service revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$741,000, a decrease~~$1.2 million, an increase from approximately ~~$841,000~~$399 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. This ~~decrease~~increase was ~~primarily~~largely due to ~~lower interest income, which was partially offset by~~the introduction of trademark license fees after the March 2021 Acquisitions. In addition, we experienced strong growth in the number of franchisee locations and the related service-related fees.

Due to the timing of certain services and the related costs to provide them, we have incurred a disproportionate amount of service revenue in the first half of 2022 and do not expect the same trend to continue in the last two quarters. The remaining increase relates to interest and follows the overall increase in accounts receivable, although relatively few age over 42 days and result in service revenue for us. In addition, for the six months ended June 30, 2022, several franchisees elected to charge back accounts early in order to avoid the interest charge. Therefore, there will not be a proportionally large increase in service revenue even when there is a large increase in accounts receivable. We pride ourselves on maintaining quality, creditworthy customers who pay timely. The Company does not strive to increase interest on aged accounts receivable.

Staffing Revenue, Owned Locations

Following the December 2021 acquisition of Dental Power, we have a platform to build a customer base in the dental-oriented sector of the staffing industry, which we expect will benefit our entire system by increasing revenue opportunities under the HireQuest Health brand. As of June 30, 2022, all of the operations acquired from DPI remain company owned. Although we may franchise these operations in the future, we currently have no firm plans in place to do so. For the six months ended June 30, 2022, staffing revenue from owned locations was approximately $2.4 million. We had no company owned locations during the six months ended June 30, 2021.

Selling, General, and Administrative Expenses

SG&A expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were approximately ~~$8.9~~$6.4 million, an increase of ~~36.4%~~8.3% from ~~$6.5~~$5.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020. This~~2021. The increase isin SG&A expenses primarily relates to salaries and benefits, which increased approximately $590 thousand as a result of additional headcount to keep pace with growth in system-wide sales as a result of the 2021 and 2022 acquisitions, plus the organic growth. In addition, compensation expense in the six months ended June 30, 2022 includes an accrual of approximately $657 thousand for executive bonuses. There was no such accrual in the six months ended June 30, 2021, although the six months ended June 30, 2021 includes the entire 2020 executive bonus of $1.1 million. We have historically recognized discretionary bonuses in the first quarter of the fiscal year following the year to which the bonus related. Beginning in the fourth quarter of 2021, we changed our methodology and now recognize the expense during the year to which the bonus relates, resulting in the accrual described in the preceding sentence.

For the six months ended June 30, 2022, SG&A also includes a $233 thousand impairment charge related to notes receivable due from non-franchisees. During 2020, the California Purchaser experienced significant economic hardships due to the impacts of COVID-19 and the related government mandates in the state. As a result, we restructured a portion of the notes receivable in an effort to increase the probability of repayment. We granted near-term payment concessions to help the debtor attempt to improve its financial condition so it may eventually be able to repay the amount due. During the three months ended June 30, 2022 we were asked to provide a third forbearance agreement and avoid foreclosure action. We are currently negotiating the terms and conditions related to that agreement. As part of the forbearance we will likely have to forgive additional payments due on the notes. After reviewing the potential outcomes, we recorded an additional impairment of approximately $233 thousand at June 30, 2022 , bringing the note balance down to approximately $71 thousand, which we expect to collect before the end of 2022.

These increases were offset by a decrease in SG&A expenses relating to a reduction in workers compensation expenses of approximately $602 thousand, primarily as a result of aggressive claims management and lower experience rates. The reduction in workers compensation expenses is mostly a reflection of our efforts to reduce the long-tail exposure from Snelling pre-acquisition claims. In addition, the six months ended June 30, 2021 included acquisition-related expenses of approximately $1.6 million. ~~In addition, we saw increased compensation costs~~Acquisition-related expenses for the six months ended June 30, 2022 were only $88 thousand.

Other income and expense

Other income and expense consists of depreciation, amortization, interest income, rent received from sub-tenants, and other non-operating income and expense.

Table of Contents

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2022 was approximately $1.2 million, compared to $699 thousand for the six months ended June 30, 2021. We own our corporate headquarters, a building of approximately ~~$598,000, an~~15,000 square feet, in Goose Creek, South Carolina. This building serves as our base of operations for nearly all of the employees who provide franchisee support functions. In late 2021, we completed the construction of a 10,000 square foot building adjacent to our corporate headquarters and a supporting parking lot. Depreciation increased by approximately $39 thousand in the six months ended June 30, 2022 due to this addition. The remaining increase of $438 thousand was primarily due to additional amortization stemming from acquisitions. We acquired $21.9 million of franchise agreements and $9.0 million of other intangibles in ~~stock-based compensation~~acquisitions during 2021 and $14.9 million of other intangibles in acquisitions during the six months ended June 30, 2022. Of the $14.9 million in other intangibles, only $3.7 million are indefinite lived and not amortized. Future years will continue to have significant amortization expense until the underlying intangibles are disposed of, impaired or fully amortized. Future acquisitions are expected to further increase tangible and intangible assets on our balance sheet, and correspondingly increase depreciation and amortization.

Other income and expense

For the six months ended June 30, 2022, other miscellaneous income (loss) was a loss of approximately ~~$463,000, a $200,000 legal settlement,~~$1.9 million, compared to income of $3.8 million for the six months ended June 30, 2021. In the six months ended June 30, 2022, we recognized approximately $2.2 million in losses resulting from the conversion of the Temporary Alternatives, Dubin and ~~a relative~~Northbound acquisitions to franchises.

The remaining increase of other miscellaneous income during the six months ended June 30, 2022 represents gross rents from leasing excess space at our corporate headquarters to third parties. We lease approximately 3,220 square feet of office space in ~~charges related~~our headquarters to ~~workers’ compensation of approximately $735,000.~~unaffiliated companies. These increases were partially offset by a decrease in bad debt expense of approximately $269,000, and a reduction in charges related to reserves placed on our notes receivable of approximately $1.3 million.

~~Miscellaneous Income~~

~~Miscellaneous~~leases are at the market rate. Rental income for the ~~nine~~six months ended ~~September~~June 30, 2022 is higher than the six months ended June 30, 2021 ~~was approximately $4.1 million, an increase~~after completion of ~~approximately $3.2 million, from $932,000 for~~ the ~~nine~~new building adjacent to our corporate headquarters.

Other miscellaneous income in the six months ended ~~September~~June 30, ~~2020. This increase is primarily due to~~2021 includes a bargain purchase gain of approximately ~~$5.0~~$4.9 million ~~recognized as part of~~from the Snelling ~~transaction.~~acquisition (adjusted to $5.6 million in later quarters), which is recorded net of deferred taxes. This gain was partially offset by ~~a net loss~~losses during the six months ended June 30, 2021 on the transfer of unwanted assets acquired in the LINK transaction of approximately ~~$1.2 million in relation~~$1.9 million. The remaining items of other miscellaneous income consist of small gains and losses resulting from the conversion of Snelling owned stores to franchises, and gross rents from leasing excess space at our corporate headquarters to third parties.

Interest income and expense

Interest income for the six months ended June 30, 2022 was approximately $147 thousand compared to $231 thousand for the six months ended June 30, 2021. Interest income represents interest related to the ~~sale~~financing of ~~acquired assets.~~

franchised locations, and one note to the California Purchaser. The decrease is consistent with a decrease in principal related to the financing of franchised locations. In March 2021, we sold approximately $5.3 million of notes receivable to Bass for no gain or loss in order to mitigate credit risk and potential future losses. In addition, during the six months ended June 30, 2022 we stopped accruing interest on the impaired notes receivable from non-franchisees.

Interest and other financing expense relates primarily to the Revolving Credit and Term Loan Agreement with Truist. Interest and other financing expense increased from $25 thousand at June 30, 2021 to $157 thousand at June 30, 2022. Interest and other financing expense will fluctuate as we utilize the line of credit for acquisitions or other short-term liquidity needs. Due to the acquisitions in the six months ended June 30, 2022, we carried a larger balance on our line of credit for most of the period.

Provision for income tax

Income tax expense was approximately $934 thousand for the six months ended June 30, 2022. We estimate an annual projected effective tax rate (ETR) for the year to determine income tax expense (benefit) in the interim periods. The estimated annual ETR does not include tax effects from significant unusual or infrequently occurring items. Such items are accounted for discretely during the period in which they occur. The ETR is primarily driven by the federal Work Opportunity Tax Credit, which is included as part of income tax expense because it can be claimed only on the income tax return and can be realized only through the existence of taxable income. Other significant items affecting our tax rate are and windfall tax deductions related to stock-based compensation, overall limits on executive compensation. Our ETR for the six months ended June 30, 2022 was 14.9%.

Income tax expense for the six months ended June 30, 2021 was approximately $83 thousand. The tax expense includes the non-taxable bargain purchase gain recognized in 2021. Bargain purchase gains are recorded net of deferred taxes, and are treated as permanent differences, resulting in a lower ETR in the period recorded. We do not expect that benefit to reoccur, but generally expect that our effective tax rate will be significantly lower than statutory rates due to ongoing Work Opportunity Tax Credits and stock-based compensation.

Liquidity and Capital Resources

Overview

Our major source of liquidity and capital is cash generated from our ongoing ~~operations.~~operations consisting of royalty revenue, staffing revenue from owned locations, and service revenue. We also receive principal and interest payments on notes ~~receivable. We also sold approximately $5.3 million~~receivable that we issued in connection with the conversion of ~~these notes at face value~~company-owned or acquired offices to ~~Bass in the first quarter of 2021 to generate cash for two acquisitions.~~franchised offices. In addition, we have the capacity to borrow under our line of credit with ~~Truist.~~

Truist, (see "Revolving Credit and Term Loan Agreement with Truist" below).

On ~~September~~June 30, ~~2021,~~2022, our current assets exceeded our current liabilities by approximately ~~$24.9~~$22.2 million. Our current assets included approximately ~~$4.8~~$1.1 million of cash and ~~$38.4~~$45.7 million of net accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements. We used approximately ~~$4.4~~$19.1 million of cash ~~in our October 1 acquisition of Recruit Media.~~during the six months ended June 30, 2022 for acquisitions. Our largest current liabilities ~~include~~as of June 30, 2022 included approximately ~~$6.4~~$12.3 million due to our franchisees on pending settlement statements, $4.7 million related to our workers’ compensation claims liability, ~~$7.3~~and $2.8 million ~~due to~~of borrowings under our ~~franchisees on upcoming settlement statements, and $4.1 million in other current liabilities.~~

~~In June 2021, we entered into a loan agreement with Truist for a $60 million~~ line of ~~credit with a $20 million sublimit for letters~~credit.

Table of credit and a $3.2 million term loan. This agreement provides for a borrowing base that is derived from our accounts receivable, subject to certain reserves and other limitations. At September 30, 2021, approximately $14.3 million of availability under the line of credit was utilized by outstanding letters of credit that secure our obligations to our workers’ compensation insurance carrier and $500,000 was utilized by a letter of credit that secures our paycard funding account. Based on our eligible collateral, we had approximately $13.6 million available under the agreement for potential additional borrowings under the terms of the line of credit at September 30, 2021. A more detailed description of our loan agreement, line of credit and term loan is contained in “~~Note 4 - Line of Credit and Term Loan~~~~” and is incorporated herein by reference.~~

Contents

Our working capital requirements are driven largely by temporary employee payroll, ~~and accounts receivable from customers. Since receipts lag employee pay -~~ which is typically daily or weekly, -and weekly cash settlements with our franchises. Since collections from accounts receivable lag employee pay our working capital requirements increase as system-wide sales increase, and vice-versa. When the economy contracts, our cash balance tends to increase in the short-term as payroll funding requirements decrease and aged accounts receivable are converted to cash upon collection. As the economy recovers, our cash balance generally decreases and accounts receivable increase.

We believe that our current cash balance, together with the future cash generated from operations, and our borrowing capacity under our line of credit, will be sufficient to satisfy our working capital needs, capital asset purchases, and other liquidity requirements associated with our continuing operations for ~~at least~~ the next 12 months. We also believe that future cash generated from operations, principal and interest payments on notes receivable, and our borrowing capacity under our line of credit, will be sufficient to satisfy our working capital needs, capital asset purchases, future dividends, and other liquidity requirements associated with our continuing operations beyond the next 12 months.

Our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors including overall liquidity in the capital or credit markets, the state of the economy and our credit strength as viewed by potential lenders. We cannot provide assurances that we will have future access to the capital or credit markets on acceptable terms. ~~The impact of~~We expect our borrowing costs to increase as the ~~COVID-19 crisis on availability of capital or credit is difficult~~Federal Reserve raises its benchmark interest rates in an effort to ~~predict and may be significant.~~bring down inflation.

~~Table of Contents~~

Operating Activities

During the ~~nine~~six months ended ~~September~~June 30, 2022, cash generated by continuing operating activities was approximately $8.7 million and included net income of approximately $5.3 million, adjusted by non-cash items including a net loss on the sale of intangible assets acquired of approximately $2.2 million, depreciation and amortization in the amount of $1.2 million, and stock-based compensation of $1.3 million. These provisions were partially offset by changes in operating assets and liabilities requiring cash of approximately $1.2 million. During the six months ended June 30, 2021, cash generated by operating activities was approximately ~~$14.8~~$11.3 million and included net income of approximately ~~$9.7~~$6.5 million, adjusted by non-cash items including a net loss on the sale of intangible assets acquired of approximately $1.2 million, depreciation and amortization in the amount of $700 thousand, and stock-based compensation of $569 thousand. These provisions were partially offset by a bargain purchase gain recognized in relation to an acquisition of approximately $5.0 million, and changes in operating assets and liabilities requiring cash of approximately $1.0 million. Cash for the six months ended June 30, 2021 was also boosted by the return of a workers’ compensation claim deposit of approximately $7.2 million which was acquired in the Snelling transaction ~~a net loss on~~

During the six months ended June 30, 2022, cash used by investing activities was approximately $10.0 million and included cash paid for acquisitions of approximately $19.1 million. This use was partially offset by the proceeds from the sale of ~~intangible assets acquired~~purchased locations of approximately $1.2 million, an increase in the amount due to franchisees of approximately $3.7 million, and an increase in other current liabilities of approximately $2.8 million. These provisions were partially offset by a gain recognized in relation to an acquisition of approximately $5.0 million and an increase in accounts receivable of approximately $4.7$9.3 million. During the ~~nine~~six months ended September 30, 2020, cash provided by operating activities was approximately $6.9 million and included net income of approximately $4.0 million, and a decrease in accounts receivable of approximately $4.2 million. These provisions were partially offset by an increase in prepaid workers’ compensation of approximately $1.2 million, and a decrease in the amount due to our franchisees of approximately $1.3 million.

~~During the nine months ended September~~June 30, 2021, cash used by investing activities was approximately ~~$23.9~~$24.0 million and included cash paid for acquisitions of approximately $28.8 million. This use was ~~partially~~ offset by ~~the~~ proceeds from the sale of notes receivable of approximately $5.3 million and the sale of purchased locations of approximately $1.0 million. During the nine months ended September 30, 2020, cash used by investing activities was approximately $6,000 and included the purchase of property and equipment of approximately $1.2 million. This use was partially offset by proceeds from the payment on notes receivable of approximately $1.6 million.

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, cash provided by financing activities was approximately ~~$255,000~~$751 thousand and included net proceeds from ~~a term loan payable~~our revolving line of credit of approximately ~~$3.2~~$2.7 million. This provision was offset by the payment of approximately ~~$2.3~~$1.6 million in ~~dividends.~~dividends and net payments on our term loan of $266 thousand. During ~~2020,~~2021, cash ~~used~~provided by financing activities was approximately ~~$824,000~~$1.2 million and included initiation of the term loan of approximately $3.2 million offset by the payment of dividends totaling approximately $1.5 million, and debt issuance costs of $476 thousand related to establishing our line of credit.

On June 29, 2021 the Company and all of its subsidiaries as borrowers (collectively, the "Borrowers") entered into a ~~dividend of approximately $678,000~~Revolving Credit and Term Loan Agreement with Truist Bank, as Administrative Agent, and the ~~purchase~~lenders from time to time made a party thereto (the "Credit Agreement"), pursuant to which the lenders extended the Borrowers (i) a $60 million revolving line of ~~treasury~~credit with a $20 million sublimit for letters of credit (the "Line of Credit") and (ii) a $3,153,500 term loan (the "Term Loan"). Truist Bank may also make Swingline Loans available in its discretion. The Credit Agreement replaced the Company's prior $30 million credit facility with BB&T, now Truist. The Credit Agreement provides for a borrowing base on the Line of Credit that is derived from the Borrowers' accounts receivable subject to certain reserves and other limitations. Interest will accrue on the outstanding balance of the Line of Credit at a variable rate equal to (a) the LIBOR Index Rate plus a margin between 1.25% and 1.75% per annum or (b) the then applicable Base Rate, as that term is defined in the Credit Agreement plus a margin between 0.25% and 0.75% per annum. In each case, the applicable margin is determined by the Company's Average Excess Availability on the Line of Credit, as defined in the Credit Agreement. Interest will accrue on the Term Loan at a variable rate equal to (a) the LIBOR Index Rate plus 2.0% per annum or (b) the then applicable Base Rate plus 1.0% per annum. In addition to interest on outstanding principal under the Credit Agreement, the Borrowers will pay a commitment fee on the unused portion of the Line of Credit in an amount equal to 0.25% per annum. All loans made pursuant to the Line of Credit mature on June 29, 2026. The Term Loan will be paid in equal monthly installments based upon a 15-year amortization of the original principal amount of the Term Loan and will be payable in monthly installments with the remaining principal balance due and payable in full on the earlier of the date of termination of the commitments on the Line of Credit and June 29, 2036.

The Credit Agreement and other loan documents contain customary representations and warranties, affirmative, and negative covenants, including without limitation, those covenants governing indebtedness, liens, fundamental changes, restricting certain payments including dividends unless certain conditions are met, transactions with affiliates, investments, engaging in business other than the current business of the Borrowers and business reasonably related thereto, sale/leaseback transactions, speculative hedging, and sale of assets. The Credit Agreement and other loan documents also contain customary events of default including, without limitation, payment default, material breaches of representations and warranties, breach of covenants, cross-default on material indebtedness, certain bankruptcies, certain ERISA violations, material judgments, change in control, termination or invalidity of any guaranty or security documents, and defaults under other loan documents. The Credit Agreement also requires the Borrowers, on a consolidated basis, to comply with a fixed charge coverage ratio of at least 1.25:1.00 and a leverage ratio of not more than 3.0:1.0. The obligations under the Credit Agreement and other loan documents are secured by substantially all of the assets of the Borrowers as collateral including, without limitation, their accounts and notes receivable, stock of ~~approximately $146,000.~~the Company's subsidiaries, and intellectual property and the real estate owned by HQ Real Property Corporation.

The Company utilized the proceeds of the Term Loan (i) first to pay off its prior credit facility, and (ii) second, to pay transaction fees and expenses incurred in connection with closing the transactions described above. The Company intends to utilize the proceeds of any loans made under the Line of Credit and the remainder of the Term Loan for working capital, acquisitions, required letters of credit, and general corporate purposes in accordance with the terms of the Credit Agreement. On March 1, 2022, our workers' compensation provider agreed to reduce the required collateral deposit from $14.3 million to $10.7 million. The collateral is currently accomplished by delivering letters of credit under the Credit Agreement.

At June 30, 2022, availability under the line of credit was approximately $27.0 million based on eligible collateral, less letter of credit reserves, bank product reserves, and current advances.

Many leading economists predict high rates of inflation will continue through 2022. We do not believe inflation has had a material effect on our Company’s results of operations as inflation generally results in higher rates per hour that can offset any slowdown in organic growth opportunities. This might not be the case if inflation continues to grow. A prolonged period of high inflation may also impact our ability to carry out our acquisition strategy. On the other hand, if business conditions deteriorate, it may be easier for us to identify an acquisition candidate.

In late 2019, there was an outbreak of a new strain of coronavirus (COVID) first identified in Wuhan, Hubei Province, China, which has since spread globally. On March 11, 2020, the World Health Organization declared COVID a pandemic. Further, the COVID outbreak has resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID, such as travel bans and restrictions, quarantines, “shelter-in-place,” “stay-at-home,” total lock-down orders, business limitations or shutdowns and similar orders. As a result, the COVID pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, and created significant volatility and disruption of financial markets.

More recently, more contagious variants of COVID, such as the Delta and Omicron variants, have emerged and spread globally, which has caused some governments to reimplement various measures, or impose new restrictions, in an effort to lessen the spread of COVID and its variants. While we do not expect COVID to impact our operations, it could impact our acquisition strategy, positively or negatively. The extent to which new opportunities are presented to us will depend on future developments, which remain highly uncertain and cannot be predicted with confidence.

We refer to total sales generated by our franchisees as “franchise sales.” For ~~the~~any period prior to their conversion to franchises, we refer to sales at company-owned and operated offices as “company-owned sales.” In turn, we refer to the sum of franchise sales and company-owned sales as “system-wide sales.” In other words, system-wide sales include sales at all offices, whether owned and operated by us or by our franchisees. In addition, system-wide sales includes sales at company-owned offices that are classified as discontinued operations. System-wide sales is a key performance ~~indicator. While~~indicator, although we do not record system-wide sales as ~~revenue, management~~revenue. Management believes that information on system-wide sales is important to understanding our financial performance because those sales are the basis on which we calculate and record much of our franchise royalty revenue, are directly related to all other royalty revenue and service revenue and are indicative of the financial health of our franchisee base. Management uses system-wide sales to benchmark current operating levels to historic operating levels. System-wide sales should not be considered as an alternative to revenue.

During the ~~three and nine~~six months ended ~~September~~June 30, 2022, nearly all of our offices were franchised with the only exceptions being the Dental Power location acquired in the fourth quarter of 2021 and ~~September~~a portion of the Dubin operations acquired in the first quarter of 2022. The Dubin operations are presented in the consolidated financial statements as discontinued operations because they are considered held-for-sale. During the six months ended June 30, ~~2020,~~2021, all of our offices were franchised. ~~As such, system-wide sales for these periods were all derived from franchised offices.~~

The following table ~~displays~~reflects our system-wide sales broken into its components for the ~~interim~~ periods ~~ended September 30, 2021 and September 30, 2020 (in thousands, except percentages).~~indicated. Percentages indicate the change in system-wide sales relative to the comparable prior ~~period.~~period (in thousands, except percentages).

Approximately $36.4 million of system-wide sales during the three months ended June 30, 2022 was due to the 2021 acquisitions, and approximately $8.4 million was due to the 2022 acquisitions. For the six months ended June 30, 2022, approximately $68.6 million was due to the 2021 acquisitions and approximately $10.6 million was due to the 2022 acquisitions. For the three and six months ended June 30, 2021 approximately $31.8 million and $38.5 million was due to the 2021 acquisitions, respectively.

We examine the number of offices we open and close every period. The number of offices is directly tied to the amount of royalty and service revenue we earn. Our franchisees opened four offices in the first quarter of 2022 and did not close any.

The following table accounts for the number of offices opened and closed or consolidated in the first ~~nine~~three months of ~~2021.~~2022.

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and, as such, are not required to provide the information required by this Item.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, management concluded that these disclosure controls and procedures were not effective as of the end of such period as a result of the material weakness disclosed below.

As previously reported, we identified a material weakness in our internal control over financial reporting as we did not have sufficient accounting resources available to handle the volume of technical accounting issues and provide adequate review functions.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management is committed to maintaining a strong internal control environment and is taking action to remediate the material weakness in internal control over financial reporting, including evaluating hiring additional staff in the accounting department and engaging third party professionals with acquisition expertise.

Management believes the foregoing efforts will effectively remediate the material weakness. As management continues to evaluate and work to improve internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify or supplement the remediation plan described above. Management cannot assure you, however, when the Company will remediate such weakness, nor can management be certain of whether additional actions will be required or the costs of any such actions.

Notwithstanding the material weakness, which still existed as of ~~September~~June 30, ~~2021,~~2022, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, have concluded that the consolidated financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with accounting principles generally accepted in the United States.

On December 1, 2021 we hired David S. Burnett as CFO. We believe that the addition of Mr. Burnett materially strengthened our internal control over financial reporting. Management continues to take action to remediate the material weakness in internal control over financial reporting, including hiring additional staff in the accounting department and engaging third party professionals with the appropriate technical expertise.

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible. We have made significant progress towards remediation and continue to implement our remediation plan for the material weakness in internal control over financial reporting described above. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

From time to time we are involved in various legal and administrative proceedings. Based on information currently available to us, we do not expect material uninsured losses to arise from any of these matters. We believe the outcomes of these proceedings, even if determined adversely, will not have a material adverse effect on our business, financial condition, results of operations, or liquidity and capital resources.

~~The following risk~~Our business, financial condition, and operating results can be affected by a number of factors, ~~have been updated from~~whether currently known or unknown, including but not limited to those described below and in Part I, Item 1A of our ~~risk factors previously disclosed in our Annual Report filed~~most recent annual report on Form 10-K ~~for year ended December 31, 2020~~which we filed with the SEC on March ~~25, 2021.~~15, 2022 under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results, and stock price. Except as set forth below, there have been no material changes to the risk factors included in our Form 10-K for the year ended December 31, 2021, filed with the SEC on March 15, 2022.

~~Risks Related~~If our goodwill is impaired, we will record a non-cash charge to ~~our Business and Industry~~

Our business continues to be adversely impacted by the COVID-19 Pandemic, and the related governmental reactions to the COVID-19 Pandemic, and we expect adverse business and economic conditions to continue into the future.

The outbreak of the COVID-19 pandemic across the globe, as well as the related governmental responses, continues to negatively impact the economies across the country in which we operate. In addition, health concerns related to the outbreak, and in some cases the lack of access to childcare, have negatively impacted our supply of temporary employees. The demand for staffing services is significantly affected by general economic conditions. The economic downturn and uncertainties related to the duration of the COVID-19 pandemic adversely impacted, and continues to impact our results of operations, cash flows, and financial position.

The extent to which the COVID-19 pandemic, including any variants, continues to adversely impact our business depends on future developments of the pandemic and related governmental responses, such as the efficacy, distribution, and government requirements related to the COVID-19 vaccines. Due to the ongoing uncertain nature of the pandemic, we are not able to predict with certainty the timing or the extent of the recovery.

~~New business initiatives will cause us to incur additional expenditures and may have an adverse effect on our core business.~~

We expect to expand our business by entering new business initiatives as part of our growth strategy. New business initiatives, strategic business partners, or changes in the composition of our business can be distracting to our management and disruptive to our operations, causing our core business and results of operations to suffer materially. New business initiatives and entering new markets could involve significant unanticipated challenges and risks and divert management’s attention away from our core business.

~~Our level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability to react to changes in the economy.~~

Our new revolving line of credit with Truist Bank (“Truist”) contains restrictive covenants that require us to maintain certain financial conditions, which we may fail to meet if there is a material decrease in our profitability or liquidity. Our failure to comply with these restrictive covenants could result in an event of default, which, if not cured or waived, would require us to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and ~~financial condition~~the amount of the charge may be material. At least annually, or whenever events or circumstances arise indicating impairment may exist, we review goodwill for impairment as required by generally accepted accounting principles in the United States. The estimated fair value of our goodwill could ~~be materially adversely affected by increased costs and rates.~~

~~Our major source~~change if there are future changes in our capital structure, cost of ~~liquidity and~~debt, interest rates, capital ~~is cash generated from~~expenditure levels, ability to perform at levels that were forecasted or a permanent change to our ongoing operations. We also receive principal and interest payments on notes receivable. We must have sufficient sources of liquidity to meet our working capital requirements, fund our workers’ compensation collateral requirements, service our outstanding term loan, and finance growth opportunities. Without sufficient liquidity,market capitalization. In the future, we may ~~not be able~~need to ~~pursue accretive business opportunities.~~

Ifreduce the carrying amount of goodwill by taking a non-cash charge to our ~~debt level significantly increases~~results of operations. Such a charge would have the effect of reducing goodwill with a corresponding impairment expense and may have a material effect upon our reported results. The additional expense may reduce our reported profitability or increase our reported losses in future periods and could negatively affect the ~~future, it could have significant consequences on~~market for our ongoing operations including requiring us to dedicate a significant portion of our cash flow from operations to servicing debt rather than using it to execute our strategic initiatives, such as acquisitions; limitingsecurities, our ability to obtain ~~additional debt financing for future working~~other sources of capital, ~~capital expenditures, or other worthwhile endeavors;~~ and ~~limiting our ability to react to changes in the market.~~

~~Acquisitions~~ may generally have ~~an adverse~~a negative effect on our ~~business.~~

We will likely continue making acquisitions a part of our growth initiative. This strategy may be impeded, and we may not achieve our long-term growth goals if acquisition candidates are not available under acceptable terms. Additionally, we may have difficulty integrating acquired companies into our operational software, and financial reporting systems and may not effectively manage or divest acquired companies to achieve expected growth.future operations.

Future acquisitions could result in incurring additional debt and contingent liabilities, an increase in interest expense, amortization expense, and non-recurring charges related to integration efforts. Acquisitions we announceOur results of operations could be ~~viewed negatively~~adversely affected by ~~investors, which~~economic and political conditions globally and the effects of these conditions on our and our franchisees’ customers’ businesses and levels of business activity. The Russian invasion of Ukraine and the resulting economic sanctions imposed by the United States and other countries, along with certain international organizations, have impacted the global economy, including by exacerbating inflationary pressures created by COVID-related supply chain disruptions, and given rise to potential global security issues that may adversely affect ~~the price~~international business and economic conditions. Although we have no operations in Russia or Ukraine, certain of our ~~common stock. Acquisitions can also~~or our franchisees’ customers may have been or may in the future be impacted by these events. The ongoing effects of the hostilities and sanctions may not be limited to Russia and Russian companies and may spill over to and negatively impact other regional and global economic markets. A prolonged conflict may result in increased inflation, rising energy prices and an even more constrained supply chain, and thus may exacerbate the ~~addition of goodwill~~inflationary global economic environment. At this time, the extent and intangible assets to our financial statements, and we may be required to record a significant charge in our financial statements during the period in which we determine an impairment of our acquired goodwill and intangible assets has occurred, which would negatively impact our financial results. The potential loss of key executives, franchisees, clients, and other business partners of businesses we acquire may adversely impact the valueduration of the ~~assets, operations, or business we acquire. These events could cause material harm~~military action, resulting sanctions and future economic and market disruptions, and resulting effects on the Company, are impossible to ~~our business, and adversely affect our operations and financial condition.~~predict

~~The COVID-19 Vaccination and Testing Emergency Temporary Standard issued by OSHA and related compliance efforts could have a material adverse effect on our business and the economy as a whole.~~

We are subject to the Emergency Temporary Standard published in the Federal Register by OSHA on November 5, 2021 which requires employers of 100 or more employees to adopt written policies requiring all employees to be fully vaccinated against COVID-19 or to submit to regular COVID-19 testing and wear a face covering (the “Vaccine Mandate”). The Vaccine Mandate, and other similar regulations related to federal contractors and healthcare workers, could materially adversely impact our business or the economy as a whole. Given the nature of our franchised operation in which our franchisees control day-to-day interactions with our employees, it may be difficult to ensure total compliance. Proposed fines for non-compliance are significant and, if imposed against us, could have a material adverse impact on our results of operations and liquidity. In addition, some employees may choose to voluntarily remove themselves from the workforce in response to the Vaccine Mandate or other similar regulations. If a sufficient number of workers are unable or unwilling to comply with the Vaccine Mandate, the economy as a whole may suffer which may have an adverse impact on our results of operations. In addition, the costs to comply with the Vaccine Mandate and similar regulations, including the costs associated with required paid time off to receive a vaccine and paid sick leave to recover from side effects and the costs to develop appropriate technological solutions to ensure compliance, could have a material adverse effect on our business and financial results.

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, hereunto duly authorized.

Delaware		91-2079472
(State of incorporation or organization)		(I.R.S. employer identification no.

111 Springhall Drive, Goose Creek, SC 29445
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (843) 723-7400

Common Stock, $0.001 par value		HQI	~~HQI~~		The NASDAQ Stock Market LLC
Title of each class		Trading Symbol(s)		Name of each exchange on which registered

Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27	29
Item 4.	Controls and Procedures	27	30

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28	31
Item 1A.	Risk Factors	28	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29	31
Item 5.	Other Information	29	31
Item 6.	Exhibits	30	31
	Signatures	31	32

(in thousands, except par value data)	*June 30, 2022*			*December 31, 2021*
ASSETS	(unaudited)
Current assets
Cash	$	1,128		$	1,256
Accounts receivable, net of allowance for doubtful accounts		45,676			38,239
Notes receivable		1,494			1,481
Prepaid expenses, deposits, and other assets		1,023			659
Prepaid workers' compensation		1,293			369
Current assets held for sale - discontinued operations		213			0
Total current assets		50,827			42,004
Property and equipment, net		4,438			4,454
Workers’ compensation claim payment deposit		1,231			948
Franchise agreements, net		18,103			18,848
Other intangible assets, net		11,265			8,078
Goodwill		1,075			0
Other assets		432			334
Notes receivable, net of current portion and reserve		2,524			2,686
Total assets	$	89,895		$	77,352
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	629		$	1,126
Line of credit		2,839			171
Term loans payable		654			210
Other current liabilities		3,296			2,658
Accrued payroll, benefits, and payroll taxes		2,381			3,687
Due to franchisees		12,254			7,496
Risk management incentive program liability		1,945			1,632
Workers' compensation claims liability		4,651			4,491
Total current liabilities		28,649			21,471
Term loan payable, net of current portion		3,645			2,856
Deferred tax liability		0			473
Workers' compensation claims liability, net of current portion		3,534			3,759
Franchisee deposits		2,179			2,058
Total liabilities		38,007			30,617
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock - $0.001 par value, 1,000 shares authorized; none issued		0			0
Common stock - $0.001 par value, 30,000 shares authorized; 13,827 and 13,745 shares issued, respectively		14			14
Additional paid-in capital		31,781			30,472
Treasury stock, at cost - 40 shares		(146	)		(146	)
Retained earnings		20,239			16,395
Total stockholders' equity		51,888			46,735
Total liabilities and stockholders' equity	$	89,895		$	77,352

	September 30, 2021			December 31, 2020
	(unaudited)
ASSETS
Current assets
Cash	$	4,789,400		$	13,667,434
Accounts receivable, net of allowance for doubtful accounts		38,433,759			21,344,499
Notes receivable		1,380,704			2,178,299
Prepaid expenses, deposits, and other assets		947,845			344,091
Prepaid workers' compensation		1,161,025			1,434,583
Total current assets		46,712,733			38,968,906
Property and equipment, net		3,848,260			3,193,379
Workers’ compensation claim payment deposit		947,650			623,452
Deferred tax asset		0			79,379
Franchise agreements, net		19,179,530			0
Other intangible assets, net		780,524			342,697
Other assets		357,944			0
Notes receivable, net of current portion and reserve		2,931,371			5,887,229
Total assets	$	74,758,012		$	49,095,042
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	537,193		$	457,490
Term loan payable		210,233			0
Other current liabilities		4,052,078			1,322,764
Accrued benefits and payroll taxes		2,078,659			743,431
Due to affiliates		95,959			67,398
Due to franchisees		7,305,952			3,228,777
Risk management incentive program liability		1,164,598			858,482
Workers' compensation claims liability		6,359,143			2,777,734
Total current liabilities		21,803,815			9,456,076
Workers' compensation claims liability, net of current portion		2,400,955			1,806,334
Deferred tax liability		511,238			0
Term loan payable, net of current portion		2,908,228			0
Franchisee deposits		2,012,026			1,468,359
Total liabilities		29,636,262			12,730,769
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock - $0.001 par value, 1,000,000shares authorized; none issued		0			0
Common stock - $0.001 par value, 30,000,000shares authorized; 13,726,884, and 13,628,675shares issued, respectively		13,727			13,629
Additional paid-in capital		30,231,201			28,811,389
Treasury stock, at cost -33,092shares		(146,465	)		(146,465	)
Retained earnings		15,023,287			7,685,720
Total stockholders' equity		45,121,750			36,364,273
Total liabilities and stockholders' equity	$	74,758,012		$	49,095,042

	*Three months ended*						*Six months ended*
(in thousands, except per share data)	*June 30, 2022*			*June 30, 2021*			*June 30, 2022*			*June 30, 2021*
Franchise royalties	$	7,220		$	5,451		$	13,793		$	8,710
Staffing revenue, owned locations		1,288			0			2,392			0
Service revenue		780			256			1,248			399
Total revenue		9,288			5,707			17,433			9,109
Cost of staffing revenue, owned locations		947			0			1,709			0
Gross profit		8,341			5,707			15,724			9,109
Selling, general and administrative expenses		3,530			2,041			6,367			5,882
Depreciation and amortization		610			366			1,176			699
Income from operations		4,201			3,300			8,181			2,528
Other miscellaneous income (expense)		1,458			30			(1,922	)		3,811
Interest income		54			96			147			231
Interest and other financing expense		(109	)		(20	)		(157	)		(25	)
Net income before income taxes		5,604			3,406			6,249			6,545
Provision for income taxes		847			686			934			83
Net income from continuing operations		4,757			2,720			5,315			6,462
Income from discontinued operations, net of tax		134			0			179			0
Net income	$	4,891		$	2,720		$	5,494		$	6,462

Basic earnings per share
Continuing operations	$	0.35		$	0.20		$	0.39		$	0.47
Discontinued operations		0.01			0			0.01			0
Total	$	0.36		$	0.20		$	0.40		$	0.47

Diluted earnings per share
Continuing operations	$	0.35		$	0.20		$	0.39		$	0.47
Discontinued operations		0.01			0			0.01			0
Total	$	0.36		$	0.20		$	0.40		$	0.47

Weighted average shares outstanding
Basic		13,607			13,611			13,591			13,607
Diluted		13,691			13,864			13,686			13,834

	Common stock				Treasury stock			Additional paid-in		Retained			Total stockholders'
Nine months ended	Shares		Par value		Amount			capital		earnings			equity
Balance at December 31, 2020		13,628,675	$	13,629	$	(146,465	)	$	28,811,389	$	7,685,720		$	36,364,273
Stock-based compensation		-		0		0			1,419,812		0			1,419,812
Common stock dividends		-		0		0			0		(2,318,479	)		(2,318,479	)
Restricted common stock granted for services		98,209		98		0			0		0			98
Net income		-		0		0			0		9,656,046			9,656046
Balance at September 30, 2021		13,726,884	$	13,727	$	(146,465	)	$	30,231,201	$	15,023,287		$	45,121,750

Balance at December 31, 2019		13,518,036	$	13,518	$	0		$	27,584,610	$	3,683,954		$	31,282,082
Stock-based compensation		-		0		0			956,452		0			956,452
Stock-based compensation		-		0		0			0		(677,869	)		(677,869	)
Restricted stock granted for services		97,569		98		0			0		0			98
Purchase of treasury stock		-		0		(146,465	)		0		0			(146,465	)
Net income		-		0		0			0		4,003,313			4,003,313
Balance at September 30, 2020		13,615,605	$	13,616	$	(146,465	)	$	28,541,062	$	7,009,398		$	35,417,611

Three months ended
Balance at June 30, 2021		13,673,166	$	13,673	$	(146,465	)	$	29,380,206	$	12,650,723		$	41,898,137
Stock-based compensation		-		0					850,995		0			850,995
Common stock dividends		-		0		0			0		(821,627	)		(821,627	)
Restricted common stock granted for services		53,718		54		0			0		0			54
Net income		-		0		0			0		3,194,191			3,194,191
Balance at September 30, 2021		13,726,884	$	13,727	$	(146,465	)	$	30,231,201	$	15,023,287		$	45,121,750

Balance at June 30, 2020		13,575,123	$	13,575	$	0		$	28,149,667	$	5,716,134		$	33,879,376
Stock-based compensation		-		0		0			391,395		0			391,395
Common stock dividends		-		0		0			0		(677,869	)		(677,869	)
Restricted stock granted for services		40,482		41		0			0		0			41
Purchase of treasury stock		-		0		(146,465	)		0		0			(146,465	)
Net income		-		0		0			0		1,971,133			1,971,133
Balance at September 30, 2020		13,615,605	$	13,616	$	(146,465	)	$	28,541,062	$	7,009,398		$	35,417,611

	*Common stock*				*Treasury stock*			*Additional*		*Retained*			*Total stockholders'*
Six months ended (in thousands)	*Shares*		*Par value*		*Amount*			*paid-in capital*		*earnings*			*equity*
Balance at December 31, 2021		13,745	$	14	$	(146	)	$	30,472	$	16,395		$	46,735
Stock-based compensation		-		0		0			1,309		0			1,309
Common stock dividends		-		0		0			0		(1,650	)		(1,650	)
Restricted common stock granted for services		82		0		0			0		0			0
Net income		-		0		0			0		5,494			5,494
Balance at June 30, 2022		13,827	$	14	$	(146	)	$	31,781	$	20,239		$	51,888

Balance at December 31, 2020		13,629	$	14	$	(146	)	$	28,811	$	7,685		$	36,364
Stock-based compensation		-		0		0			569		0			569
Common stock dividends		-		0		0			0		(1,497	)		(1,497	)
Restricted stock granted for services		44		0		0			0		0			0
Net income		-		0		0			0		6,462			6,462
Balance at June 30, 2021		13,673	$	14	$	(146	)	$	29,380	$	12,650		$	41,898

Three months ended
Balance at March 31, 2022		13,823	$	14	$	(146	)	$	30,951	$	16,176		$	46,995
Stock-based compensation		-		0		0			830		0			830
Common stock dividends		-		0		0			0		(828	)		(828	)
Restricted common stock granted for services		4		0		0			0		0			0
Net income		-		0		0			0		4,891			4,891
Balance at June 30, 2022		13,827	$	14	$	(146	)	$	31,781	$	20,239		$	51,888

Balance at March 31, 2021		13,638	$	14	$	(146	)	$	29,079	$	10,747		$	39,694
Stock-based compensation		-		0		0			301		0			301
Common stock dividends		-		0		0			0		(817	)		(817	)
Restricted stock granted for services		35		0		0			0		0			0
Net income		-		0		0			0		2,720			2,720
Balance at June 30, 2021		13,673	$	14	$	(146	)	$	29,380	$	12,650		$	41,898

	Nine months ended
	September 30, 2021			September 30, 2020
Cash flows from operating activities
Net income	$	9,656,046		$	4,003,313
Adjustments to reconcile net income to net cash used in operations:
Depreciation and amortization		1,021,519			96,654
Non-cash interest		23,864			0
Allowance for losses on notes receivable		307,440			1,598,673
Stock based compensation		1,419,910			956,550
Deferred taxes		(1,034,912	)		(1,415,261	)
Loss on disposition of intangible assets		1,222,546			0
Bargain purchase gain		(4,961,147	)		0
Changes in operating assets and liabilities:
Accounts receivable		(4,549,138	)		4,176,715
Prepaid expenses, deposits, and other assets		(508,303	)		(990,773	)
Prepaid workers' compensation		273,558			(1,155,571	)
Accounts payable		(239,554	)		248,346	)
Risk management incentive program liability		306,116			(792,923	)
Other current liabilities		2,703,856			(228,992	)
Accrued benefits and payroll taxes		(764,772	)		974,215
Due to franchisees		3,681,726			(1,299,224	)
Workers' compensation claim payment deposit		6,976,380			0
Workers' compensation claims liability		(714,900	)		1,063,682
Net cash provided by operating activities - continuing operations		14,820,235			6,738,712
Net cash provided by operating activities - discontinuing operations		0			201,440
Net cash provided by operating activities		14,820,235			6,940,152
Cash flows from investing activities
Purchase of acquisitions		(28,973,538	)		0
Purchase of property and equipment		(712,706	)		(1,154,966	)
Proceeds from the sale of purchased locations		997,367			0
Proceeds from the sale of notes receivable		5,261,111			0
Proceeds from payments on notes receivable		476,927			1,565,169
Cash issued for notes receivable		(808,252	)		(276,030	)
Investment in intangible asset		(437,827	)		(186,705	)
Net change in franchisee deposits		147,364			46,411
Net cash used in investing activities		(24,049,554	)		(6,121	)
Cash flows from financing activities
Proceeds from term loan payable		3,153,500			0
Payments on term loan payable		(35,039	)
Payments related to debt issuance		(477,258	)		0
Proceeds from affiliates		28,561			0
Purchase of treasury stock		0			(146,465	)
Payment of dividends		(2,318,479	)		(677,869	)
Net cash provided by (used in) financing activities		351,285			(824,334	)
Net (decrease) increase in cash		(8,878,034	)		6,109,697
Cash, beginning of period		13,667,434			4,187,450
Cash, end of period	$	4,789,400		$	10,297,147
Supplemental disclosure of non-cash investing and financing activities
Notes receivable issued for the sale of branches		1,247,040			0
Accounts receivable received for the sale of branches		0			0
Supplemental disclosure of cash flow information
Interest paid		42,997			39,174
Income taxes paid, net of refunds		1,239,710			1,914,935

		*June 30, 2022*							*December 31, 2021*
	*Estimated useful life*	*Gross*		*Accumulated amortization*			*Net*		*Gross*		*Accumulated amortization*			*Net*
*Finite-lived intangible assets:*
Franchise agreements	15 years	$	19,916	$	(1,813	)	$	18,103	$	19,916	$	(1,068	)	$	18,848
Customer lists	10 years		3,462		(108	)		3,354		2,089		(239	)		1,850
Purchased software	7 years		3,200		(343	)		2,857		3,200		(114	)		3,086
Internally developed software	7 years		1,428		0			1,428		916		0			916
Total finite-lived intangible assets			28,006		(2,264	)		25,742		26,121		(1,421	)		24,700
*Indefinite-lived intangible assets:*
Domain name	Indefinite		2,226		-			2,226		2,226		-			2,226
Trade name	Indefinite		1,400		-			1,400		0		-			0
Total intangible assets		$	31,632	$	(2,264	)	$	29,368	$	28,347	$	(1,421	)	$	26,926

		September 30, 2021							December 31, 2020
	Estimated useful life	Gross		Accumulated amortization			Net		Gross		Accumulated amortization		Net
Finite-lived intangible assets:
Franchise agreements	15 years	$	19,916,453	$	(736,923	)	$	19,179,530	$	0	$	0	$	0
Internally developed software	3 to 10 years		780,524		0			780,524		342,697		0		342,697
Total finite-lived intangible assets		$	20,696,977	$	(736,923	)	$	19,960,054	$	342,697	$	0	$	342,697

Goodwill balance at December 31, 2021	$	0
Goodwill recorded on acquisition of Temporary Alternatives		375
Goodwill recorded on acquisition of Dubin		200
Goodwill recorded on acquisition of Northbound		500
Goodwill balance at June 30, 2022	$	1,075

Cash	$	17,850,627
Cash consideration				$	17,851

Accounts receivable	$	12,540,122		$	13,418
Workers' compensation deposit		7,200,000			7,200
Franchise agreements		11,034,000			11,034
Customer lists		1,690,000			1,690
Other current assets		100,578			100
Workers' compensation claims liability		(4,890,930	)		(4,891	)
Accrued payroll		(2,100,000	)		(2,100	)
Current liabilities		(740,163	)		(740	)
Other liabilities		(2,021,833	)		(2,239	)
Bargain purchase		(4,961,147	)		(5,621	)
Purchase price allocation	$	17,850,627		$	17,851

Cash consideration	$	6,707
Net working capital payable		336
Total consideration	$	7,043

Customer lists	$	4,000
Accounts receivable		2,668
Goodwill		375
Purchase price allocation	$	7,043

Cash consideration	$	2,100
Note payable & net working capital payable		362
Total consideration	$	2,462

Customer relationships	$	1,600
Customer lists		200
Accounts receivable		462
Goodwill		200
Purchase price allocation	$	2,462

Cash consideration	$	9,858
Note payable		1,500
Total consideration	$	11,358

Customer relationships	$	7,700
Trade name		1,400
Accounts receivable		3,331
Other current assets		94
Goodwill		500
Current liabilities assumed		(1,667	)
Purchase price allocation	$	11,358

Cash	$	11,122,911
Cash consideration			$	11,123

Franchise agreements		10,886,178		10,886
Notes receivable		236,733		237
Purchase price allocation	$	11,122,911	$	11,123

Cash consideration	$	3,283
Liabilities assumed		1,044
Transaction costs		23
Total consideration	$	4,350

Purchased software		3,200
Domain name		2,226
Deferred tax liability		(1,076	)
Purchase price allocation	$	4,350

Cash consideration	$	1,480
Contingent consideration		382
Total consideration	$	1,862

Customer lists	$	1,862

Declaration date	*Dividend*		*Total paid*
March 1, 2021	$	0.05	$	680
June 1, 2021		0.06		817
September 1, 2021		0.06		822
December 1, 2021		0.06		822
March 1, 2022		0.06		822
June 1, 2022		0.06		827

Declaration date	Dividend		Total paid
September 15, 2020	$	0.05	$	677,869
December 15, 2020		0.05		679,779
March 15, 2021		0.05		680,247
June 15, 2021		0.06		816,604
September 15, 2021		0.06		821,628

	Shares			Weighted average grant date price		*Shares*			*Weighted average grant date price*
Non-vested, December 31, 2020		267,507			7.21
Non-vested, December 31, 2021							196		$	11.26
Granted		98,209			19.00		82			17.68
Vested		(154,227	)		10.64		(98	)		12.14
Non-vested, September 30, 2021		211,489			10.26
Non-vested, June 30, 2022							180			13.73

	Number of shares underlying options		Weighted average exercise price per share		Weighted average grant date fair value
Outstanding, December 31, 2020		17,082	$	6.10	$	3.36
Granted		-		0		0
Outstanding, September 30, 2021		17,082		6.10		3.36

	*Number of shares underlying options*		*Weighted average exercise price per share*		*Weighted average grant date fair value*
Outstanding, December 31, 2021		13	$	5.47	$	2.98
Granted		0		0		0
Outstanding, June 30, 2022		13		5.47		2.98

		Number of shares underlying options				Weighted average exercise price per share				Weighted average remaining contractual life (years)				Aggregate intrinsic value
Outstanding and exercisable			17,082			$	6.10				4.92			$	226,079

		*Number of shares underlying options*				*Weighted average exercise price per share*				*Weighted average remaining contractual life (years)*				*Aggregate intrinsic value*
Outstanding and exercisable			13			$	5.47				5.7			$	111

~~Franchised offices,~~Offices, December 31, 2020		139
~~Closed in 2021~~		-
~~Opened in 2021~~		10
Purchased in 2021 (net of sold locations)		6465
~~Franchised offices, September 30,~~Opened in 2021		14
Closed in 2021		(1	)
Offices, December 31, 2021	~~213~~	217
Opened in 2022		8
Purchased in 2022		3
Closed in 2022		(3	)
Offices, June 30, 2022		225

ExhibitNo.		Description
~~10.1~~31.1		Employment Agreement, dated as of July 15, 2021, among HQ LTS Corporation, HireQuest, Inc., and Cory Smith (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 19, 2021).
~~10.2~~		Employment Agreement, dated as of September 1, 2021, among HQ LTS Corporation, HireQuest, Inc., and John McAnnar (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 7, 2021).
~~31.1~~		Certification of Richard Hermanns, Chief Executive Officer of HireQuest, Inc. pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2		Certification of ~~Cory Smith,~~David S. Burnett, Chief Financial Officer of HireQuest, Inc. pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1		Certification of Richard Hermanns, Chief Executive Officer of HireQuest, Inc., and ~~Cory Smith,~~David S. Burnett, Chief Financial Officer of HireQuest, Inc., pursuant to 18 U.S.C. Section 1350, as adopted in Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS		Inline XBRL Instance Document (filed herewith)
101.SCH		Inline XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)

104
30

~~Table of Contents~~Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

/s/ Richard Hermanns	August 9, 2022	~~November 11, 2021~~
Richard Hermanns	Date
President and Chief Executive Officer



/s/ ~~Cory Smith~~David S. Burnett	August 9, 2022	~~November 11, 2021~~
~~Cory Smith~~David S. Burnett	Date
Chief Financial Officer