UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☑

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

For the quarterly period ended September 30, ~~2020~~

2021

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

Commission File Number 000-53088

~~HIREQUEST, INC.~~

~~(Exact name of registrant as specified in its Charter)~~

~~Delaware~~		~~91-2079472~~ HIREQUEST, INC.
(Exact name of registrant as specified in its Charter)

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

Securities registered pursuant to Section 12(b) of the Act:

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

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

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

Indicate by check mark whether the Registrant is a large accelerated filer ☐, an accelerated filer ☐, a non-accelerated filer ☑,☒, a smaller reporting company ☑,☒, or an emerging growth company ☐ (as defined in Rule 12b-2 of the Exchange Act).

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

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

☒

Number of shares of issuer's common stock outstanding at November ~~11, 2020: 13,595,583~~

10, 2021: 13,735,096

HireQuest, Inc.

T~~able~~

Table of Contents

PART I. FINANCIAL INFORMATION

Table of Contents

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HireQuest, Inc.

Consolidated Balance Sheets

September 30,
2020

December 31,
2019

ASSETS

(unaudited)

Current assets

Cash
$10,297,147
$4,187,450
Accounts receivable, net of allowance for doubtful accounts
  24,024,564
  28,201,279
Notes receivable
  2,144,118
  3,419,458
Prepaid expenses, deposits, and other assets
  1,179,333
  188,560
Prepaid workers' compensation
  1,978,509
  822,938
Other assets
  -
  201,440
Total current assets
  39,623,671
  37,021,125
Property and equipment, net
  2,958,998
  1,900,686
Intangible assets, net
  186,705
  -
Notes receivable, net of current portion and reserve
  6,377,779
  7,990,251
Total assets
$49,147,153
$46,912,062
LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities


Accounts payable
$5,499
$253,845
Other current liabilities
  1,664,854
  1,893,846
Accrued benefits and payroll taxes
  2,088,119
  1,113,904
Due to franchisees
  2,311,372
  3,610,596
Risk management incentive program liability
  1,018,994
  1,811,917
Workers' compensation claims liability
  3,165,056
  2,327,869
Total current liabilities
  10,253,894
  11,011,977
Workers' compensation claims liability, net of current portion
  1,743,128
  1,516,633
Franchisee deposits
  1,459,335
  1,412,924
Deferred tax liability
  273,185
  1,688,446
Total liabilities
  13,729,542
  15,629,980
Commitments and contingencies (Note 9)


Stockholders' equity


Preferred stock - $0.001 par value, 1,000,000 shares authorized; none issued
  -
  -
Common stock - $0.001 par value, 30,000,000 shares authorized; 13,615,605 and 13,518,036 shares issued, respectively
  13,616
  13,518
Additional paid-in capital
  28,541,062
  27,584,610
Treasury stock, at cost – 33,092 and -0- shares, respectively
  (146,465)
  -
Retained earnings
  7,009,398
  3,683,954
Total stockholders' equity
  35,417,611
  31,282,082
Total liabilities and stockholders' equity
$49,147,153
$46,912,062

~~See accompanying notes to consolidated financial statements.~~

~~Table of Contents~~

	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

Table of Contents

HireQuest, Inc.

Consolidated Statements of ~~Operations~~

Income

(unaudited)

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

Franchise royalties
$3,218,606
$3,139,158
$9,563,135
$9,276,714
Service revenue
  164,074
  153,717
  840,515
  727,077
Total revenue
  3,382,680
  3,292,875
  10,403,650
  10,003,791
Selling, general and administrative expenses
  1,357,725
  7,393,380
  6,542,171
  9,817,245
Depreciation and amortization
  32,438
  40,200
  96,654
  75,630
Income (loss) from operations
  1,992,517
  (4,140,705)
  3,764,825
  110,916
Other miscellaneous income
  392,709
  504,833
  932,254
  751,693
Interest and other financing expense
  (10,035)
  (106,461)
  (39,174)
  (521,838)
Net income (loss) before income taxes
  2,375,191
  (3,742,333)
  4,657,905
  340,771
Provision for income taxes
  404,058
  4,716,731
  654,592
  4,816,337
Income (loss) from continuing operations
  1,971,133
  (8,459,064)
  4,003,313
  (4,475,566)
Income from discontinued operations, net of tax
  -
  682,674
  -
  722,756
Net income (loss)
$1,971,133
$(7,776,390)
$4,003,313
$(3,752,810)





Basic earnings (loss) per share




Continuing operations
$0.15
$(0.65)
$0.30
$(0.41)
Discontinued operations
  -
  0.05
  -
  0.07
Total
$0.15
$(0.60)
$0.30
$(0.34)





Diluted earnings (loss) per share




Continuing operations
$0.15
$(0.65)
$0.30
$(0.41)
Discontinued operations
  -
  0.05
  -
  0.07
Total
$0.15
$(0.60)
$0.30
$(0.34)






Weighted average shares outstanding



Basic
  13,573,086
  12,927,634
  13,551,507
  10,939,318
Diluted
  13,574,863
  12,927,634
  13,553,619
  10,939,318

~~See accompanying notes to consolidated financial statements.~~

~~Table of Contents~~

	Three months ended						Nine months ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Franchise royalties	$	6,540,125		$	3,218,606		$	15,249,667		$	9,563,135
Service revenue		341,258			164,074			741,027			840,515
Total revenue		6,881,383			3,382,680			15,990,694			10,403,650
Selling, general and administrative expenses		3,044,358			1,357,725			8,926,751			6,542,173
Depreciation and amortization		366,027			32,438			1,064,863			96,654
Income from operations		3,470,998			1,992,517			5,999,080			3,764,823
Other miscellaneous income		89,774			392,709			4,132,054			932,254
Interest and other financing expense		(41,943	)		(10,035	)		(66,860	)		(39,174	)
Net income before income taxes		3,518,829			2,375,191			10,064,274			4,657,903
Provision for income taxes		324,638			404,058			408,228			654,592
Net income	$	3,194,191		$	1,971,133		$	9,656,046		$	4,003,311

Earnings per share
Basic	$	0.24		$	0.15		$	0.72		$	0.30
Diluted	$	0.23		$	0.15		$	0.71		$	0.30

Weighted average shares outstanding
Basic		13,482,303			13,573,086			13,461,252			13,551,507
Diluted		13,621,938			13,574,863			13,587,585			13,553,619

Table of Contents

HireQuest, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

Common stock

Treasury Stock

Additional paid-in

Retained

Total stockholders'

Nine months ended

Shares

Par value

Amount

capital

earnings

equity

Balance at December 31, 2019
  13,518,036
$13,518
$-
$27,584,610
$3,683,954
$31,282,082
Stock-based compensation
  -
  -
  -
  956,452
  -
  956,452
Common stock dividends
  -
  -
  -
  -
  (677,869)
  (677,869)
Restricted common stock granted for services
  97,569
  98
  -
  -
  -
  98
Purchase of treasury stock
  -
  -
  (146,465)
  -
  -
  (146,465)
Net income
  -
  -
  -
  -
  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







Balance at December 31, 2018
  9,939,668
$9,940
$-
$6,938,953
$3,973,933
$10,922,826
Net contributions
  -
  -
  -
  1,155,907
  -
  1,155,907
Merger with Command Center, Inc.
  4,677,487
  4,677
  -
  26,937,648
  -
  26,942,325
Stock-based compensation
  -
  -
  -
  352,915
  -
  352,915
Restricted stock granted for services
  250,000
  250
  -
  -
  -
  250
Common stock purchased and retired
  (1,394,821)
  (1,395)
  -
  (8,367,531)
  -
  (8,368,926)
Net loss
  -
  -
  -
  -
  (3,752,810)
  (3,752,810)
Balance at September 29, 2019
  13,472,334
$13,472
$-
$27,017,892
$221,123
$27,252,487
Three months ended






Balance at June 30, 2020
  13,575,123
$13,575
$-
$28,149,667
$5,716,134
$33,879,376
Stock-based compensation
  -
  -
  -
  391,395
  -
  391,395
Common stock dividends
  -
  -
  -
  -
  (677,869)
  (677,869)
Restricted common stock granted for services
  40,482
  41
  -
  -
  -
  41
Purchase of treasury stock
  -
  -
  (146,465)
  -
  -
  (146,465)
Net income
  -
  -
  -
  -
  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







Balance at June 30, 2019
  9,939,668
$9,940
$-
$5,153,120
$7,997,513
$13,160,573
Net contributions
  -
  -
  -
  2,941,740
  -
  2,941,740
Merger with Command Center, Inc.
  4,677,487
  4,677
  -
  26,937,648
  -
  26,942,325
Stock-based compensation
  -
  -
  -
  352,915
  -
  352,915
Restricted stock granted for services
  250,000
  250
  -
  -
  -
  250
Common stock purchased and retired
  (1,394,821)
  (1,395)
  -
  (8,367,531)
  -
  (8,368,926)
Net loss
  -
  -
  -
  -
  (7,776,390)
  (7,776,390)
Balance at September 29, 2019
  13,472,334
$13,472
$-
$27,017,892
$221,123
$27,252,487

~~See accompanying notes to consolidated financial statements.~~

~~Table of Contents~~

	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

Table of Contents

HireQuest, Inc.

Consolidated Statements of Cash Flows

(unaudited)

Nine months ended

September 30,
2020

September 29,
2019

Cash flows from operating activities

Net income (loss)
$4,003,313
$(3,752,810)
Income from discontinued operations
  -
  722,756
Net income (loss) from continuing operations
  4,003,313
  (4,475,566)
Adjustments to reconcile net income to net cash used in operations:


Depreciation and amortization
  96,654
  75,630
Allowance for losses on notes receivable
  1,598,673
  -
Stock based compensation
  956,550
  353,165
Deferred taxes
  (1,415,261)
  283,666
Gain on disposition of property and equipment
  -
  (528,786)
Changes in operating assets and liabilities:


Accounts receivable
  4,176,715
  (12,728,327)
Prepaid expenses, deposits, and other assets
  (990,773)
  1,284,002
Prepaid workers' compensation
  (1,155,571)
  (765,910)
Due from affiliates
  -
  209,570
Accounts payable
  (248,346)
  (91,354)
Risk management incentive program liability
  (792,923)
  -
Other current liabilities
  (228,992)
  4,153,022
Accrued benefits and payroll taxes
  974,215
  (526,930)
Due to franchisees
  (1,299,224)
  4,718,335
Deposits and other long-term assets
  -
  8,334
Workers' compensation claims liability
  1,063,682
  431,042
Net cash provided by (used in) operating activities - continuing operations
  6,738,712
  (7,600,107)
Net cash used in operating activities - discontinued operations
  201,440
  6,400,550
Net cash provided by (used in) operating activities
  6,940,152
  (1,199,557)
Cash flows from investing activities


Purchase of property and equipment
  (1,154,966)
  (284,919)
Proceeds from the sale of property and equipment
  -
  573,840
(Purchase) sale of intangible assets
  (186,705)
  221,845
Proceeds from payments on notes receivable
  1,565,169
  -
Cash issued for notes receivable
  (276,030)
  (55,380)
Net change in franchisee deposits
  46,411
  665,654
Net cash (used in) provided by investing activities
  (6,121)
  1,121,040
Cash flows from financing activities


Net change in line of credit
  -
  7,602,202
Payments to affiliates
  -
  (5,450,192)
Purchase of treasury stock
  (146,465)
  (8,368,926)
Payment of dividends
  (677,869)
  -
Proceeds from the sale of common stock in Command Center acquisition
  -
  5,376,543
Net contributions by Legacy HQ members
  -
  1,155,907
Net cash (used in) provided by financing activities
  (824,334)
  315,534
Net increase in cash
  6,109,697
  237,017
Cash, beginning of period
  4,187,450
  1,291,317
Cash, end of period
$10,297,147
$1,528,334
Supplemental disclosure of non-cash investing and financing activities


Stock issued for acquisition
  -
  26,942,325
Notes receivable issued for the sale of branches
  -
  14,887,220
Accounts receivable received for the sale of branches
  -
  2,204,286
Supplemental disclosure of cash flow information

  -
Interest paid
  39,174
  521,837
Income taxes paid
  1,914,935
  -

~~See accompanying notes to consolidated financial statements.~~

~~Table of Contents~~

	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

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HireQuest, Inc.

Notes to Consolidated Financial Statements

Note 1 ~~– Basis of Presentation~~- Overview and Summary of Significant Accounting Policies

Nature of Business

HireQuest, Inc. ~~(“HQI,~~(together with its subsidiaries, “HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of offices providing on-demand labor ~~solution providers~~solutions in the light industrial and blue-collar segments of the staffing ~~industry. Through our~~industry and traditional commercial staffing. Our franchisees we provide various types of temporary personnel ~~via~~through two business models operating under the trade names “HireQuest ~~Direct”~~Direct,” “HireQuest,” “Snelling,” “LINK Staffing,” and ~~“HireQuest.~~“DriverQuest.” HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest, ~~specializes~~Snelling, and Link specialize primarily in skilled and semi-skilled industrial personnel, ~~as well as~~ clerical and administrative ~~personnel.~~

personnel, and permanent placement services. DriverQuest specializes in commercial drivers serving a variety of industries and applications.

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 Staffing and affiliates (“Link”) in which we acquired all of the franchise relationships and certain other assets of Link for a purchase price of approximately $11.2 million. For additional information related to these transactions, see Note 2 - Acquisitions.

As of September 30, 2021 we had 213 franchisee-owned offices in 36 states and the District of Columbia. We are the employer of record to approximately 80,000 employees annually, who in turn provide services to thousands of clients in various industries including construction, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, and retail. We provide staffing, marketing, working capital funding, software, and administrative services to our franchisees.

Basis of Presentation

We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) ~~for interim financial reporting and rules and regulations of the Securities and Exchange Commission (“SEC”)~~. ~~Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.~~ In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report filed on Form 10-K for the year ended December 31, ~~2019.~~2020. Results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other period.

HQI is the product of a merger between Command Center, Inc. (“Command Center”) and Hire Quest Holdings, LLC (“Hire Quest Holdings”). We refer to Hire Quest Holdings collectively with its wholly owned subsidiary, Hire Quest, LLC, as “Legacy HQ.” We refer to this merger, which closed on July 15, 2019, as the “Merger.” Upon the closing of the Merger, all of the ownership interests in Legacy HQ were converted into the right to receive an aggregate number of shares representing 68% of the total shares of the Company’s common stock outstanding immediately after the Merger. Because the Legacy HQ security holders received a majority of the equity securities and voting rights of the combined company upon the closing of the Merger, Legacy HQ is considered to be the accounting acquirer. This means Legacy HQ will allocate the purchase price to the fair value of the Command Center assets acquired and liabilities assumed on the acquisition date. This also means that Legacy HQ’s historical financial statements replace Command Center’s historical financial statements following the completion of the Merger. The results of operations of the combined company are included in our financial statements for all periods subsequent to the Merger. For additional information related to the Merger, see ~~Note 2 – Acquisitions~~.

Consolidation

The consolidated financial statements include the accounts of HQI and all of its ~~wholly owned~~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.

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus disease ("COVID-19") was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The extent of COVID-19's 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.

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Use of Estimates

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

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

~~Property and Equipment~~

We record property and equipment at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets. Computers, furniture, and equipment are typically three to five years, and buildings are typically 30 years. Repairs and maintenance are expensed as incurred. When assets are sold or retired, we eliminate cost and accumulated depreciation from the consolidated balance sheet and reflect a gain or loss in the consolidated statement of income.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist of amounts due for labor services from customers of franchisees and of ~~previously~~accounts receivable originating at company-owned ~~offices.~~locations. At September 30, ~~2020~~2021 and at December 31, ~~2019, substantially~~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 ~~84 days,~~the agreed-upon date, they are charged back to our franchisees. Accordingly, we do not record an allowance for doubtful accounts on these accounts receivable.

For labor services originally provided by company-owned offices, we record accounts receivable at face value less an allowance for doubtful accounts. We determine the allowance for doubtful accounts based on historical write-off experience, the age of the receivable, other qualitative factors and extenuating circumstances, and current economic data which represents our best estimate of the amount of probable losses on these accounts receivable, if any. We review the allowance for doubtful accounts periodically and write off past due balances when it is probable that the receivable will not be collected. Our allowance for doubtful accounts on accounts receivable generated by company-owned offices was approximately $92,000 and $168,000 at September 30, 2020 and December 31, 2019, respectively.

Revenue Recognition

Our primary source of revenue comes from royalty fees based on the operation of our franchised offices. Royalty fees from our HireQuest Direct business model are based on a percentage of sales for services our franchisees provide to customers, which ranges from 6% to 8%. Royalty fees from our HireQuest business line, including HireQuest franchisees, DriverQuest franchisees, and Snelling and Link franchisees who executed new franchise agreements upon closing, are 4.5% of the payroll we fund plus 18% of the gross margin for the territory. WeRoyalty fees from the Snelling and 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 on a net basis as agent as opposed to a gross basis as principal.

We recognize revenue when we satisfy our performance obligations. Our performance obligations take the form of a franchise license and promised services. Promised services consist primarily of paying temporary employees, completing all 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. ~~Royalty fees are reduced to reflect any incentives earned or credits granted under these programs.~~ These incentives and credits are provided to encourage new office development and organic growth, and to limit workers' compensation exposure. We present franchise royalty fees net of these incentives and credits.

Below are summaries of our franchise royalties disaggregated by ~~brand:~~

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

HireQuest Direct
$3,023,166
$2,906,856
$9,053,150
$8,553,618
HireQuest
  195,440
  232,302
  509,985
  723,096
Total
$3,218,606
$3,139,158
$9,563,135
$9,276,714

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business model:

	Three months ended				Nine months ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
HireQuest Direct	$	4,045,150	$	3,023,166	$	9,957,275	$	9,053,150
HireQuest		2,494,975		195,440		5,292,392		509,985
Total	$	6,540,125	$	3,218,606	$	15,249,667	$	9,563,135

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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 license fees as we earn them. We recognize revenue from optional services as we provide them.

~~Workers’ Compensation Claims Liability~~

We maintain reserves for workers’ compensation claims based on their estimated future cost. These reserves include claims that have been reported but not settled, as well as claims that have been incurred but not reported. Annually, we engage an independent actuary to estimate the future costs of these claims. Quarterly, we use development factors provided by an independent actuary to estimate the future costs of these claims. We make adjustments as necessary. If the actual costs of the claims exceed the amount estimated, we may incur additional charges.

~~Workers’ Compensation Risk Management Incentive Program (“RMIP”)~~

Our RMIP is designed to incentivize our franchises to keep our temporary employees safe and control exposure to large workers’ compensation claims. We accomplish this by paying our franchisees an amount equivalent to a percentage of the amount they pay for workers’ compensation insurance if they keep their workers’ compensation loss ratios below specified thresholds.

Notes Receivable

Notes receivable consist primarily of amounts due to us related to the financing of franchised ~~offices.~~locations. We report notes receivable at the principal balance outstanding less an allowance for losses. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance. Notes receivable are generally secured by the assets of each ~~office~~location and the ownership interests in the franchise. We monitor the financial condition of our ~~franchisees~~debtors and record provisions for estimated losses when we believe it is probable that our ~~franchisees~~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 ~~$1.6~~$1.9 million and ~~$-0-~~$1.6 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~Stock-Based Compensation~~

Periodically, we issue restricted common shares or options to purchase our common shares to our officers, directors, or employees. We measure compensation costs for equity awards at their fair value on their grant date and expense these costs over the service period on a straight-line basis. ~~The fair value of stock awards is based on the quoted price of our common stock on the grant date.~~ ~~We use the Black-Scholes valuation model to determine the value of option awards.~~

Intangible Assets ~~– Internal Use Software~~

~~We capitalize~~

Intangible assets acquired or internally developed are measured at cost. The costs ~~to develop or~~of acquired intangible assets consist of their purchase ~~computer software for internal use which~~price. Subsequent costs are ~~incurred during~~capitalized only if it is probable that they will increase the ~~application development stage. These~~future economic benefits associated with the specific asset. All other costs ~~include~~are expensed as incurred. The costs of internally developed intangibles consist of fees paid to third parties for development services and payroll costs for employees' time spent ~~developing~~on development incurred during the ~~software. We expense costs when incurred~~application development stage. Costs originating during the preliminary project stage and post-implementation state are expensed as incurred. Intangible assets are reviewed for impairment at least annually and/or whenever events and circumstances arise that indicate impairment may exist.

Intangible assets are amortized using the ~~post-implementation stage.~~

~~Capitalized development costs will be amortized on a~~ straight-line ~~basis~~method over ~~the~~their estimated useful ~~life of the software.~~lives. The ~~capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect~~table below reflects information related to ~~certain external factors, including, but not limited~~our finite-lived intangible assets. For additional information related to ~~technological and economic feasibility, and estimated economic life.~~

~~Savings Plan~~

~~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~~significant additions to certain limitations. As a benefit, we match 100% of each employee’s first 3% of contributions, then 50% of each employee’s contribution beyond 3%, up to a maximum match of 4% of the employee’s eligible earnings.

intangible assets, see Note 2 - Acquisitions.

		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

Earnings per Share

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 30, 2021 and September 30, 2020 totaled approximately ~~17,000.~~

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229,000 and 17,000, respectively.

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We use the treasury stock method to calculate the diluted common shares outstanding which were as follows:

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

Weighted average number of common shares used in basic net income per common share
  13,573,086
  12,927,634
  13,551,507
  10,939,318
Dilutive effects of stock options
  1,777
  -
  2,112
  -
Weighted average number of common shares used in diluted net income per common share
  13,574,863
  12,927,634
  13,553,619
  10,939,318

	Three months ended				Nine months ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Weighted average number of common shares used in basic net income per common share		13,482,303		13,573,086		13,461,252		13,551,507
Dilutive effects of unvested restricted stock and stock options		139,635		1,777		126,333		2,112
Weighted average number of common shares used in diluted net income per common share		13,621,938		13,574,863		13,587,585		13,553,619

Fair Value Measures

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

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

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

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

The carrying amounts of cash, ~~and cash equivalents,~~ accounts receivable, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the ~~outstanding principal balance,~~ net ~~of estimates for losses,~~book value and isbalances are reviewed for impairment at least annually.

Fair value

Level

September 30,
2020

December 31,
2019

Cash
  1
$10,297,147
$4,187,450
Notes receivable
  2
  8,521,897
  11,409,709
Accounts receivable
  2
  24,024,564
  28,201,279

~~Discontinued Operations~~

~~During the third quarter of 2019, we sold substantially all~~ The fair value of the ~~offices we acquired in the Merger. Accordingly, we~~term loan payable approximates its carrying value. --The fair value of impaired notes receivable are determined based on estimated future payments discounted back to present the assets and liabilities, operating results, and cash flows for these previously company-owned offices as discontinued operations separate from our continuing operations for all periods presented in our consolidated financial statements and footnotes, unless indicated otherwise.

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~~Recently Adopted Accounting Pronouncements~~

In February 2016, the FASB issued guidance on lease accounting. The new guidance continues to classify leases as either finance or operating, but results in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance was effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standardvalue using the ~~transition relief provided in the July amendment.~~

We have elected the three practical expedients allowed for implementation of the new standard, but have not utilized the hindsight practical expedient. Accordingly, we did not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; or 3) initial direct costs for any existing leases.

As a result of adopting this guidance, we recognized a right-of-use asset, and corresponding lease liability, of approximately $200,000 adopted as of January 1, 2019. The adoption of this guidance did not have a material impact on expense recognition. The deferred rent liability, which was the difference between the straight-line lease expense and cash paid, reduced the right-of-use asset upon adoption.

notes effective interest rate.

	September 30, 2021
Description	Total		Level 1		Level 2		Level 3
Cash	$	4,789,400	$	4,789,400	$	0	$	-
Notes receivable		4,172,481		-		4,172,481		-
Accounts receivable		38,433,760		-		38,433,760		-
Notes receivable - impaired		139,594		-				139,594
Total assets at fair value	$	47,535,235	$	4,789,400	$	42,606,241	$	139,594

Term loan payable	$	3,118,461	$	-	$	3,118,461	$	-
Total liabilities at fair value	$	3,118,461	$	-	$	3,118,461	$	-

	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.

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Recently Issued Accounting Pronouncements

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

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard was issued as a means to reduce the complexity of accounting for income taxes for those entities that fall within the scope of the accounting standard. The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. We are currently evaluating the impacts of adoption of the new guidance to our consolidated financial statements.

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

Note 2 –- Acquisitions

Business Combinations

Snelling Staffing

On ~~July 15, 2019, Command Center~~March 1, 2021, we completed ~~its~~our acquisition of ~~Legacy HQ. Upon~~certain assets of Snelling in accordance with the ~~closing~~terms of the ~~Merger,~~Asset Purchase Agreement dated January 29, 2021 (the “Snelling Agreement”). Snelling is a 67-year-old staffing company headquartered in Richardson, TX. Pursuant to the Snelling Agreement, HQ Snelling Corporation (“HQ Snelling”), our wholly-owned subsidiary, acquired substantially all of the ~~membership interests in Hire Quest Holdings, LLC were converted~~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 ~~right~~First Amendment to ~~receive 68%~~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 ~~Company’s common stock outstanding immediately after~~locations where we assumed franchisor status in this transaction have subsequently signed our HireQuest franchise agreement and will continue to operate under the ~~closing, or 9,939,668 shares.~~

We accounted for the Merger as a reverse acquisition. As such, Legacy HQ is considered the accounting acquirer and Legacy HQ's historical financial statements replace Command Center’s historical financial statements following the completion of the Merger. The results of operations of the combined company are included in our financial statements for all periods beginning July 15, 2019.

The fair value of the purchase consideration is calculated based on the Company's stock price on the NASDAQ Capital Market as it is considered to be more reliable than the fair value of the membership interests of a private company, Legacy HQ. Consideration is calculated based on the Company's closing share price of $5.76 on July 15, 2019.

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Snelling tradename.

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

date. During the quarter ended September 30, 2021, adjustments to the fair value of assets received and liabilities assumed were adjusted in conjunction with the net working capital reconciliation. These adjustments included an increase in accounts receivable of approximately $247,000, a decrease in other current assets of approximately $9,000, an increase in current liabilities of approximately $77,000, and an increase in the bargain purchase gain of approximately $2,000. These estimates are preliminary, pending final evaluation of certain assets and liabilities, and therefore are subject to revisions that may result in adjustments to the values presented below:

Cash	$	17,850,627

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

~~Closing share price on July 15, 2019~~	$~~5.76~~
~~Common stock~~	~~4,677,487~~ 11
~~Stock consideration~~	$~~26,942,325~~
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~~Accounts receivable~~	$~~10,480,907~~
~~Cash and cash equivalents~~	~~5,376,543~~
~~Identifiable intangible assets~~	~~17,015,857~~
~~Other current assets~~	~~725,453~~
~~Property, plant and equipment, net~~	~~281,186~~
~~Right-of-use asset~~	~~1,642,695~~
~~Current liabilities~~	~~(3,124,081~~)
~~Lease liabilities~~	~~(1,624,461~~)
~~Deferred tax liability~~	~~(2,930,947~~)
~~Other liabilities~~	~~(900,827~~)
~~Purchase price allocation~~	$~~26,942,325~~

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

The following table presents ~~the~~ unaudited pro forma information assuming the ~~Merger~~acquisition of Snelling had occurred on January 1, ~~2018.~~2020. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on that date:

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

Royalty revenue
$3,218,606
$3,139,158
$9,563,135
$9,276,714
Net income
  1,971,133
  504,651
  4,003,313
  3,515,142
Basic earnings per share
$0.15
$0.04
$0.30
$0.27
Basic weighted average shares outstanding
  13,573,086
  13,238,818
  13,551,507
  13,281,839
Diluted earnings per share
$0.15
$0.04
$0.30
$0.27
Diluted weighted average shares outstanding
  13,574,863
  13,248,615
  13,553,619
  13,289,045

	Three months ended				Nine months ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Royalty revenue	$	6,540,125	$	4,107,668	$	16,060,138	$	12,396,954
Net income		3,192,570		2,409,593		7,045,183		5,433,066
Basic earnings per share	$	0.24	$	0.18	$	0.52	$	0.40
Basic weighted average shares outstanding		13,482,303		13,573,086		13,461,252		13,551,507
Diluted earnings per share	$	0.24	$	0.18	$	0.52	$	0.40
Diluted weighted average shares outstanding		13,621,938		13,574,863		13,587,585		13,553,619

These calculations reflect ~~the decreased~~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 ~~Merger~~acquisition closed on January 1, ~~2018.~~

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~~Note 3 – Discontinued Operations~~

~~Prior to October 2019,~~2020.

In connection with the acquisition, we ~~operated a number of~~sold the 10 locations that had been company-owned ~~offices. All~~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 ~~company-owned~~locations were sold to franchisees. Four locations were sold to a third-party purchaser. Four offices were sold to a California purchaser (the “California Purchaser”) and operate under the ~~vast majority becoming franchisees,~~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, (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 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 ~~now no longer operate any company-owned offices. Operating results from company-owned offices are included~~recognized a gain of approximately $638,000 which is reflected on the line item, "Other miscellaneous income," in our consolidated statement of income.

Asset Acquisition

Link Staffing

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

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

Cash	$	11,122,911

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

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

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

Note 3 - Related Party Transactions

Prior to entering into any related party transaction, the Audit Committee shall review 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 ~~following amounts:~~

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

Revenue
$-
$13,551,950
$-
$13,934,276
Cost of staffing services
  -
  9,390,509
  -
  9,710,757
Gross profit
  -
  4,161,441
  -
  4,223,519
Gain on sale
  -
  393,697
  -
  393,697
Selling, general and administrative expense
  -
  (3,644,907)
  -
  (3,653,541)
Net income before tax
  -
  910,231
  -
  963,675
Provision for income taxes
  -
  227,557
  -
  240,919
Net income
$-
$682,674
$-
$722,756

~~We continue to be involved~~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 ~~offices we sold through franchise agreements. The term of our franchise agreement is five years, subject to renewal at the end~~approval of the current term. Franchise royalties from sold locations that subsequently became franchisees were approximately $681,000 and $708,000, for the three months ended September 30, 2020 and September 29, 2019 respectively. Franchise royalties from these locations were approximately $2.0 million and $708,000 for the nine months ended September 30, 2020 and September 29, 2019, respectively.

~~Note 4 – Related Party Transactions~~

~~Some~~related party transaction.

Several significant shareholders of HQI also own portions of ~~Hire Quest Financial, LLC; Hirequest Insurance Company; Brave New World Services, LLC, formerly known as Hire Quest LTS, LLC;~~ Jackson Insurance ~~Agency,~~Agency; Bass Underwriters, Inc; Insurance Technologies, Inc.; and a number of our franchisees.

~~Hire Quest Financial LLC (“HQF”)~~

Richard Hermanns, our CEO, Chairman of our Board, and most significant stockholder, and Edward Jackson, a member of our Board and a significant stockholder, own a majority of HQF, a financial services entity.

On July 14, 2019, Legacy HQ conveyed approximately $2.2 million of accounts receivable to HQF. These transfers were used to pay down intercompany debt obligations. The intercompany debt was entirely extinguished prior to the Merger. At September 30, 2020 and December 31, 2019, HQI was not indebted to HQF for any amount. We do not have any current or planned business dealings with HQF.

~~Hirequest Insurance Company (“HQ Ins.”)~~

Mr. Hermanns, his wife, his adult daughter, a trust established for the benefit of his children, and Mr. Jackson, collectively own a majority of HQ Ins., a North Carolina protected cell captive insurance company. Effective March 1, 2010, Hire Quest, LLC purchased a deductible reimbursement insurance policy from HQ Ins. to cover losses up to the $500,000 per claim deductible on the Hire Quest, LLC high-deductible workers’ compensation policy. Hire Quest, LLC terminated its policy with HQ Ins. on July 15, 2019 upon the closing of the Merger.

Premiums invoiced by HQ Ins. to HQI and Legacy HQ for workers compensation deductible reimbursement insurance during the three months ended September 30, 2020 and September 29, 2019 were $-0- and approximately $262,000, respectively. Premiums invoiced by HQ Ins. to HQI and Legacy HQ for workers compensation deductible reimbursement insurance during the nine months ended September 30, 2020 and September 29, 2019 were $-0- and approximately $3.6 million, respectively. We do not have any current or planned business dealings with HQ Ins. other than cooperating to close Legacy HQ's workers' compensation claims.

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~~Brave New World Services, LLC, (“BNW”) formerly known as Hire Quest LTS, LLC~~

~~Mr. Jackson and Mr. Hermanns' family members collectively own a majority of BNW.~~

Historically, BNW employed the personnel at Legacy HQ headquarters. HQI terminated this relationship on July 15, 2019 upon the closing of the Merger. Amounts invoiced by BNW to HQI and Legacy HQ for payroll services during the three months ended September 30, 2020 and September 29, 2019 were $-0- and approximately $7,000, respectively. Amounts invoiced by BNW to HQI and Legacy HQ for payroll services during the nine months ended September 30, 2020 and September 29, 2019 were $-0- and approximately $19,000, respectively. We do not have any current or planned direct business dealings with BNW. Since BNW now serves as a management company for the Worlds Franchisees (defined below), we will have a franchisor-franchisee relationship with BNW's customers.

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

Mr. Jackson, ~~owns~~ a ~~majority~~member of our Board and significant stockholder, and a member of Mr. Jackson’s immediate family own Jackson Insurance. ~~An immediate family member owns the remainder.~~ Mr. Jackson, Mr. 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 approximately $5.3 million of 6.0% notes receivable at book value in March 2021. For additional information related to this transaction, see Note 10 - Notes Receivable.

Jackson Insurance and Bass brokered ~~Legacy HQ's~~ property, casualty, general liability, and cybersecurity insurance for a series of predecessor entities (“Legacy HQ”) prior to the ~~Merger.~~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).

~~Premiums, taxes, and fees invoiced by Jackson Insurance and Bass to HQI and Legacy HQ for these insurance policies during~~

During the three months ended September 30, ~~2020~~2021 and September ~~29, 2019 were approximately $178,000 and $369,000, respectively. Premiums, taxes, and fees invoiced by~~30, 2020, Jackson Insurance and Bass toinvoiced HQI approximately $117,000 and ~~Legacy HQ~~$178,000, respectively, for premiums, taxes, and fees for these insurance ~~policies during~~policies. During the nine months ended September 30, ~~2020~~2021 and September ~~29, 2019 were~~30, 2020, Jackson Insurance and Bass invoiced HQI approximately $701,000 and $726,000, respectively for premiums, taxes, and ~~$608,000, respectively.~~fees for these insurance policies. Jackson Insurance and Bass do not retain the majority of the premiums invoiced to HQI, ~~and Legacy HQ,~~ but they do retain a commission of approximately 9% - 15% of premiums.

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Insurance Technologies, Inc. ("Insurance Technologies")

Mr. Jackson, Mr. Hermanns, and irrevocable trusts set up by each of them, collectively own a majority of Insurance Technologies, an IT development and security firm. On October 24, 2019, HQI entered into an agreement with Insurance Technologies to add certain cybersecurity protections to our existing information technology systems and to assist in developing future information technology systems within our HQ Webconnect software. ~~This arrangement was reviewed~~In addition, Insurance Technologies assisted with the IT diligence and ~~approved by~~integration process with respect to the ~~Audit Committee of our Board of Directors~~Snelling and ~~is monitored by the Audit committee on an ongoing basis.~~

Link acquisitions.

During the three months ended September 30, 2021 and September 30, 2020, Insurance Technologies invoiced HQI approximately $5,000 and $50,000, respectively, for services provided pursuant to this agreement. ~~Insurance Technologies invoiced HQI approximately $135,000 during~~During the nine months ended September 30, ~~2020.~~

2021 and September 30, 2020, Insurance Technologies invoiced HQI approximately $198,000 and $135,000, respectively, for services provided pursuant to this agreement. We have retained a fulltime CIO and thus spending pursuant to this agreement became immaterial in the third quarter of 2021.

The Worlds Franchisees

Mr. Jackson and immediate family members of Mr. Hermanns have significant ownership interests in certain of our franchisees (the “Worlds Franchisees”). There were 2124 Worlds Franchisees at September 30, ~~2020~~2021 that operated 4858 of our ~~138~~213 offices.

Transactions regarding the Worlds Franchisees are summarized below:

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

Franchisee royalties
$1,196,956
$1,723,981
$3,659,851
$5,017,479

Three months ended

Nine months ended

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

Franchisee royalties

1,137,369

1,196,956

3,914,167

3,659,851

Balances regarding the Worlds Franchisees are summarized below:

September 30,
2020

December 31,
2019

Due to franchisee
$497,397
$993,495
Risk management incentive program
914,464
1,027,960

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	September 30, 2021		December 31, 2020
Due to franchisee	$	1,149,206	$	435,072
Risk management incentive program payable		500,612		499,199

Note ~~5 –~~4 - Line of Credit

and Term Loan

In ~~July 2019,~~June 2021, we entered into ana loan agreement with ~~Branch Banking and Trust Company, now~~ Truist Bank (“Truist”), for a ~~$30~~$60 million revolving line of credit with a ~~$15~~$20 million sublimit for letters of ~~credit. At September 30, 2020, approximately $9.1~~credit and a $3.2 million ~~was utilized by outstanding letters of~~term loan. The credit ~~that secure our obligations to our workers’ compensation insurance carrier and $1.0 million was utilized~~facilities are provided by a ~~letter~~syndication of ~~credit that secures our paycard funding account, leaving $19.9 million potentially available under~~lenders with Truist acting as the ~~agreement for additional borrowings~~.

~~This~~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.

All loans made under the line of credit are scheduled to mature on ~~May 31, 2024. Outstanding borrowings under the loan agreement currently~~June 29, 2026. The line of credit and swingline loans bear interest at a variable rate equal toto: (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 ~~the value of~~ our ~~net collateral,~~average excess availability, which is generally equal to our total collateral ~~plus unrestricted cash~~ less the outstanding balance, if any, under the loan agreement. At September 30, ~~2020~~2021 the effective interest rate was ~~1.40%~~approximately 1.8%. A non-use fee of ~~between 0.125% and~~ 0.250% accrues on the unused portion of the line of credit. As collateral for repayment of any and all obligations under this agreement, we granted Truist a security interest in substantially all of our operating assets and the operating assets of our subsidiaries. This agreement, and other loan documents, contain customary ~~events of default~~representations and warranties, affirmative and negative covenants, including ~~but not limited to~~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 ~~sales~~the sale of assets. This agreement requires us to comply with a fixed charge coverage ratio of at least ~~1.10:~~1.25:1.00, and a leverage ratio of not more than 3.0:1.0, tested ~~quarterly,~~monthly on a rolling ~~four quarter~~twelve-month basis. At September 30, ~~2020,~~2021 we were in compliance with ~~this covenant.~~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 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. This 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 ~~6 –~~5 - Workers’ Compensation Insurance and Reserves.

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The 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 30, 2021 the effective interest rate was approximately 2.1%. 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.

Note 5 - Workers’ Compensation Insurance and Reserves

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

Command Center, the predecessor entity that acquired Legacy HQ ~~policy with ACE.~~

~~Command Center~~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 per incident. Command Center’s ACE policy included a one-time obligation for the Company to pay any single claim filed under the Command Center policy within a policy year that exceeds $500,000 (if any), but only up to $750,000 for that claim. All other claims within the policy year were subject to the $500,000 deductible. Effective July 15, 2019, in connection with the Merger, we assumed all of the workers’ compensation claims of Command Center. We also assumed Command Center’s workers’ compensation policy with ACE.

Under these high deductible programs, we are effectively self-insured. Per our contractual agreements with ACE, we must provide collateral deposits of approximately ~~$9.1~~$14.3 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.

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Note 6 - Stockholders’ Equity

Dividend

In the third quarter of ~~Contents~~

~~Note 7 – Stockholders’ Equity~~

2020, we initiated the payment of a quarterly dividend. We 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 and 2020:

Treasury Stock

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 ~~three months~~year ended ~~September 30,~~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 ~~the~~their vesting ~~criteria. These shares~~criteria, which are also held in treasury.

~~Dividend~~

On September 15, 2020, we declared and paid a $0.05 per common share dividend to shareholders of record as of the close of business on September 1, 2020. This amounted to an aggregate cash payment of approximately $678,000. We ~~intend to continue to pay this dividend on a quarterly basis, based on our business results and financial position.~~

~~Note 8 – Stock Based Compensation~~

~~Employee Stock Incentive Plan~~

~~In November 2016, our stockholders approved a stock incentive plan (the “2016 Plan”) under which we were authorized to grant awards for up to 500,000~~have not purchased any shares of our common stock ~~over~~during 2021.

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

Note 7 - Stock Based Compensation

Employee Stock Incentive Plan

In December 2019, our Board approved the ~~10-year life of the plan. In June 2020, our stockholders approved a new stock incentive plan~~2019 HireQuest, Inc. Equity Incentive Plan (the “2019 Plan”) ~~that replaced the 2016 Plan. Under~~. Subject to adjustment in accordance with the terms of the 2019 Plan, ~~we are authorized to grant awards for up to 1.5 million~~no more than 1,500,000 shares of ~~our~~ common stock ~~over~~are available in the ~~10-year life~~aggregate for the grant of ~~the plan. Outstanding~~ awards under the ~~2016 Plan remain~~2019 Plan. No more than 1,000,000 shares may be issued in ~~effect according~~the aggregate pursuant to the ~~terms~~exercise of incentive stock options. In addition, no more than 250,000 shares may be issued in the ~~plan~~aggregate to any employee or consultant, and no more than 50,000 shares may be issued in the ~~award documents.~~

aggregate to any non-employee director in any 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 byto key employees and directors up to $25,000 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 ~~with~~employed by the ~~Company.~~Company and certain other vesting criteria are met. During the first nine months of 2021, we issued approximately 5,000 shares valued at approximately $73,000 under this program. During 2020, we issued ~~20,014~~approximately 20,000 shares valued at approximately $118,000 under this program. ~~During~~

Thus far in 2021, we have issued 45,929 shares of restricted common stock pursuant to the 2019 ~~we issued 1,639 shares~~Plan valued at approximately ~~$10,000 under this~~$913,000 to members of our Board of Directors for their services in lieu of cash compensation. Of these, 43,274 shares vested equally over the following three months. The remaining 2,655 shares were issued pursuant to our share purchase match program.

Also in 2021, we issued 50,000 shares of restricted common stock to key employees pursuant to the 2019 Plan valued at approximately $919,000 for services, and to encourage retention. These shares vest over four years, with 50% vesting on their second anniversary, and 6.25% vesting each quarter thereafter for the next eight quarters. Also in 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 ~~September~~2020, we issued 81,943 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $539,000 to members of our Board of Directors for their services in lieu of cash compensation. Of these, 61,868 shares vested equally over the following three months. The remaining 20,075 shares were issued pursuant to our share purchase match program.

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Also in 2020, we issued 25,000 shares of restricted common stock to an employee pursuant to the 2019 Plan valued at approximately $179,000 for services, 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 ~~September~~ 2020, we issued ~~140~~1,742 shares of restricted common stock to certain employees pursuant to our share purchase match program valued at approximately ~~$2,000.~~

In July 2020, we issued 8,874 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $55,000 to non-employee members of our Board of Directors for services. Of these, 7,396 shares have vested and the remaining 1,478 shares vest on the second anniversary of the date of grant. Also in July 2020, we issued 6,468 shares of restricted common stock pursuant to our share purchase match program valued at approximately $40,000.

In June 2020, we issued 30,000 shares of restricted common stock pursuant to the 2019 Plan valued at approximately $188,000 to non-employee members of our Board of Directors for services. These shares vested equally over the following three months.

In April 2020, we issued 8,381 shares of restricted common stock pursuant to the 2016 Plan valued at approximately $53,000 to certain members of our Board of Directors for their services in lieu of cash compensation. Of these, 6,985 shares vested equally over the following three months, and the remaining 1,396 shares vest on the second anniversary of the date of grant.

In January 2020, we issued 10,124 shares of restricted common stock pursuant to the 2016 Plan valued at approximately $70,000 to certain members of our Board of Directors for their services in lieu of cash compensation. Of these, 8,436 shares vested equally over the following three months, and the remaining 1,688 shares vest on the second anniversary of the grant date. Also in January 2020, we issued 8,582 shares of restricted common stock pursuant to our share purchase match program valued at approximately $59,000.

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In November 2019, we issued 9,833 shares of restricted common stock pursuant to the 2016 Plan valued at approximately $59,000 to certain members of our Board of Directors for their services in lieu of cash compensation. Of these, 8,194 shares vested equally over the following three months, and the remaining 1,639 shares vest on the second anniversary of the date of grant. Also in November of 2019, we issued 4,202 shares of restricted common stock pursuant to the 2016 Plan valued at $25,000 to an employee in lieu of cash for a bonus, which vested equally over the following three months.

In September 2019, we issued 160,000 shares of restricted common stock to certain key employees pursuant to the 2016 Plan valued at approximately $1.1 million for services and to encourage retention. These shares vest over four years, with 50% vesting on September 1, 2021, and 6.25% vesting each quarter thereafter for the next eight quarters. Also in September 2019, we issued 90,000 shares of restricted common stock pursuant to the 2016 Plan valued at $648,000 for services to non-employee members of our Board of Directors. One third of these shares vested on June 14, 2020, and the remainder will vest in equal proportions on the first two anniversaries of that date.

$12,000.

The following table summarizes our restricted stock outstanding at December 31, ~~2019,~~2020, and changes during the nine months ended September 30, ~~2020.~~

Shares

Weighted average grant date price

Non-vested, December 31, 2019
  255,634
$7.18
Granted
  97,570
  6.60
Forfeited
  (1,954)
  6.92
Vested
  (62,777)
  6.34
Non-vested, September 30, 2020
  288,473
  7.97

2021.

	Shares			Weighted average grant date price
Non-vested, December 31, 2020		267,507			7.21
Granted		98,209			19.00
Vested		(154,227	)		10.64
Non-vested, September 30, 2021		211,489			10.26

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 ~~24,000~~15,000 stock options vested at September 30, ~~2020~~2021 and December 31, ~~2019, respectively ..~~

2020, respectively.

The following table summarizes our stock options outstanding at December 31, ~~2019,~~2020, and changes during the nine months ended September 30, ~~2020:~~

Number of shares underlying options

Weighted average exercise price per share

Weighted average grant date fair value

Outstanding, December 31, 2019
  29,165
$7.20
$3.76
Forfeited
  (12,083)
  8.76
  4.34
Outstanding, September 30, 2020
  17,082
  6.10
  3.36

2021:

	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

The following table summarizes our non-vested stock options outstanding at December 31, ~~2019,~~2020, and changes during the nine months ended September 30, ~~2020:~~

Number of shares underlying options

Weighted average exercise price per share

Weighted average grant date fair value

Non-vested, December 31, 2019
  5,416
$5.48
$3.01
Vested
  (3,228)
  5.47
  2.98
Non-vested, September 30, 2020
  2,188
  5.50
  3.05

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2021:

	Number of shares underlying options			Weighted average exercise price per share		Weighted average grant date fair value
Non-vested, December 31, 2020		2,188		$	5.50	$	3.05
Vested		(2,188	)		5.50		3.05
Non-vested, September 30, 2021		-			0		0

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 ~~$7.61~~$19.33 at September 30, ~~2020:~~

Number of shares underlying options

Weighted average exercise price per share

Weighted average remaining contractual life (years)

Aggregate intrinsic value

Outstanding
  17,082
$6.10
  5.92
$39,703
Exercisable
  14,894
  6.18
  5.66
  23,053

2021:

		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

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At September 30, ~~2020,~~2021, there was unrecognized stock-based compensation expense totaling approximately ~~$1.0~~$1.3 million relating to non-vested ~~options and~~ restricted stock grants that will be recognized over the next ~~2.9~~3.9 years.

Note ~~9 –~~8 - Commitments and Contingencies

Franchise Acquisition Indebtedness

New franchisees financed the purchase of several offices with promissory notes. In some instances, this financing resulted in certain franchises being considered VIEs. We have determined that we are not required to consolidate these entities because we do not have the power to direct these entities’ daily operations. If these franchises default on these notes, we bear the risk of loss of the outstanding balance on these notes, less what we could recoup from the potential resale of the repossessed office. The balance due from the franchises determined to be VIEs was approximately $3.1 million and $2.1 million on September 30, ~~2020~~2021 and December 31, ~~2019 was approximately $2.2 million and $2.5 million,~~2020, respectively.

Legal Proceedings

From time to time, we are involved in various legal and administrative proceedings. Based on information currently available to us, we do not expect material uninsured losses to arise from any of these matters. We believe the outcome of these matters, even if determined adversely, will not have a material adverse effect on our business, financial condition or results of operations. There have been no material changes in our legal proceedings as of September 30, ~~2020.~~

2021.

Note ~~10 –~~9 - Income Tax

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

Our effective tax rate for the three months ended September 30, 2021 and September 30, 2020 was 9.2% and 17.0%, respectively. Our effective tax rate for the nine months ended September 30, 2021 and September 30, 2020 was ~~17.0%~~4.1% and 14.1%, respectively. The bulk of the difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results ~~primarily~~ from the bargain purchase gain, which is recorded net of deferred taxes and is treated as a permanent difference, and the federal Work Opportunity Tax ~~Credit. This tax credit~~Credit, which is designed to encourage employers to hire workers from certain targeted groups with ~~higher than average~~higher-than-average unemployment rates. Other differences result from state income taxes, certain non-deductible expenses, and tax effects of stock-based compensation. Our effective tax rate for the three and nine months ended September 29, 2019 was negative 126.0% and 1,413.4%, respectively. The bulk of the difference between the statutory federal income tax rate of 21.0% and our effective income tax rate is related to Legacy HQ having been a pass-through entity before the Merger, and subsequently changing to the accrual basis of accounting from the cash basis of accounting for tax reporting purposes.

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Note ~~11 –~~10 - Notes Receivable

~~Some~~

Several franchisees, as well as the purchaser of our previously owned California locations, ~~have~~ borrowed funds from us primarily to finance the initial purchase price of office assets. 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 ~~$8.5~~$4.3 million and ~~$11.4~~$8.1 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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. ~~This interest~~Interest income was approximately ~~$177,000~~$54,000 and ~~$88,000~~$177,000 during the three months ended September 30, ~~2020~~2021 and September ~~29, 2019, respectively,~~30, 2020, respectively. Interest income was approximately $285,000 and ~~approximately~~ $551,000 ~~and $91,000~~ during the nine months ended September 30, ~~2020~~2021 and September ~~29, 2019,~~30, 2020, respectively.

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We estimate the allowance for losses for franchisees separately from the allowance for losses from non-franchisees because of the level of detailed sales information available to us with respect to the former. ~~There have been no historic losses for either segment.~~

Based on our review of the financial condition of the borrowers, the underlying collateral value, and the potential future impact of COVID-19 on certain borrowers’ economic performance and estimated future cash flows, we have established an allowance of approximately $1.9 million and $1.6 million as of September 30, 2021 and December 31, 2020, respectively, for potentially uncollectible notes receivable. ~~There were no notes receivable in default as of September 30, 2020.~~

The following table summarizes ~~changes in~~ our notes receivable balance to franchisees:

~~Balance as of December 31, 2019~~	$~~9,702,471~~
~~Notes issued~~	~~84,629~~
~~Accrued interest~~	~~60,986~~
~~Payments received~~	~~(1,434,755~~)
~~Change in valuation allowance~~	~~(405,313~~)
~~Balance as of September 30, 2020~~	$~~8,008,018~~

	September 30, 2021			December 31, 2020
Note receivable	$	4,577,795		$	8,023,807
Allowance for losses		(405,313	)		(405,313	)
Notes receivable, net	$	4,172,482		$	7,618,494

During 2020, one of our debtors experienced significant economic hardships due to the impacts of COVID-19. As a result, we restructured one note 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. In the quarter ended September 30, 2021, this debtor defaulted on the forbearance agreement and we recognized an additional impairment in the value of this note of approximately $307,000. We recognized interest income on this note of approximately $-0- and $44,000 during the three months ended September 30, 2021 and September 30, 2020, respectively. We recognized interest income on this note of approximately $83,000 and $130,000 during the nine months ended September 30, 2021 and September 30, 2020, respectively.

The following table summarizes ~~changes~~our note receivable balance that has been deemed impaired:

	September 30, 2021			December 31, 2020
Note receivable	$	1,640,393		$	1,640,393
Allowance for losses		(1,500,800	)		(1,193,359	)
Notes receivable, net	$	139,593		$	447,034

During the quarter ended September 30, 2021, we incurred an additional impairment of approximately $307,000 which is included in selling, general and administrative expenses in our ~~notes receivable balance~~consolidated statement of income.

Note 11 - Subsequent Events

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.

~~Balance as of December 31, 2019~~	$~~1,707,238~~
~~Accrued interest~~	~~130,414~~ 19
~~Payments received~~	~~(130,414~~)
~~Change in valuation allowance~~	~~(1,193,359~~) Table of Contents
~~Balance as of September 30, 2020~~	$~~513,879~~

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I~~tem~~

Item 2. 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. 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 of Non-GAAP Financial Measures” below. For important information regarding the use of such key performance indicator, see the section titled “Key Performance Indicator: System-Wide Sales” below.

Special Note Regarding Forward-Looking Statements

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, ~~(a non-GAAP financial measure),~~ and the growth thereof; the impact of any global pandemic including ~~the novel coronavirus disease (“COVID-19”);~~COVID-19; operating results; dividends and shareholder returns; anticipated benefits of ~~the merger with Command Center, Inc.,~~mergers or ~~the conversion to the franchise model;~~acquisitions including those we have completed in 2021; 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 ~~occur,~~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; 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 including, without limitation, successful integration following the merger with Command Center, Inc.;~~businesses; disruptions to our technology network including computer systems and software; natural events such as severe weather, fires, floods, and earthquakes, or man-made or other disruptions of our operating systems; the factors discussed in the “Risk Factors” section ~~herein and~~ in our most recent Annual Report on Form 10-K, which we filed with the SEC on March ~~30, 2020;~~25, 2021; 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.

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Overview

We are a nationwide franchisor of on-demand labor solutions providers in the light industrial and blue-collar segments of the staffing industry. We were formed through the merger between Hire Quest Holdings, LLC (“Hire Quest Holdings”) and Command Center, Inc. We refer to Hire Quest Holdings and its ~~wholly owned~~wholly-owned subsidiary, Hire Quest, LLC, collectively as Legacy HQ. We refer to this merger, which closed on July 15, 2019, as the Merger. As of September 30, ~~2020,~~2021, we had ~~138~~approximately 213 franchisee-owned offices in 3036 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 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.

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Recent Developments

Snelling Staffing Acquisition

On March 1, 2021, we completed our acquisition of ~~Contents~~

certain assets of Snelling in accordance with the terms of the Asset Purchase Agreement dated January 29, 2021 (the “Snelling Agreement”). Snelling is a 67-year-old staffing company headquartered in Richardson, TX. Pursuant to the Snelling Agreement, HQ Snelling Corporation (“HQ Snelling”), our wholly-owned subsidiary, acquired substantially all of the operating assets and assumed certain liabilities of the sellers for a purchase price of approximately $17.9 million, subject to customary adjustments for net working capital. 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 we assumed franchisor status in this transaction have subsequently signed our HireQuest franchise agreement but continue to use the Snelling name.

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.

Link Staffing Acquisition

Recruit Media Acquisition

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.

Dental Power Acquisition

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COVID-19

The coronavirus pandemic has significantly impacted our operations. With widespread infection in the United States 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 ~~several~~most states have advanced significantly into the reopening process, it is unclear when, or if, a full economic recovery will occur. ~~As cases of COVID-19 again appear to be on the rise in many locations, it~~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 ~~2020~~2021 with a strong balance sheet. Our current assets exceeded current liabilities by ~~more than $28~~approximately $16 million. ~~In the first nine months of 2020, we~~We were able to complete three acquisitions and significantly ~~improved~~increase our ~~liquidity position, primarily by converting accounts receivable into cash. Current assets improved from $37.0 million on December 31, 2019 to $39.6 million on September 30, 2020.~~franchise base without incurring any debt. We have ~~remained~~been able to remain profitable throughout the ~~first nine months of 2020.~~pandemic. Still, the sweeping and persistent nature of the COVID-19 pandemic has depressed our system-wide sales and resulting ~~revenue.~~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 ~~our third quarter.~~the quarter ended September 30, 2021. On a month-to-month basis, our system-wide sales have consistently ~~increased since April, however, they were lower than system-wide sales in the third quarter of 2019, and~~trended closer to historically normal numbers. However, we continue to expect negative impacts on system-wide sales and resulting ~~revenue~~franchise royalties in the ~~fourth~~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 ~~and likely beyond.~~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.

~~To date,~~

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. ~~Despite tough economic conditions, our franchisees have also opened 4 new offices in 2020.~~

In response to depressed economic conditions, we took measures to control and reduce selling, general, and administrative expense ("SG&A"). In addition, we placed a reserve of $1.6 million on the promissory notes we hold from our franchisees and the purchaser of our previously owned California offices.

As discussed more fully below, ~~our~~we reduced liquidity ~~position has improved since December 31, 2019 because~~in the first nine months of ~~decreased funding requirements for temporary employees and the decrease~~2021, as we used cash to complete two acquisitions in ~~our accounts receivable balance as amounts are collected and converted to cash.~~that time period. As a result, ~~we have been able to increase~~ our cash balance decreased by approximately ~~$6.1~~$8.9 million ~~through the third quarter of 2020~~ from ~~$4.2~~$13.7 million at year end to ~~$10.3~~$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 new line of credit and ~~absence of~~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 of the COVID-19 crisis on availability of capital or credit is difficult to predict and may be ~~significant.~~

significant

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.

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Results of Operations

Financial Summary

The following table displays our consolidated statements of operations for the interim periods ended September 30, ~~2020~~2021 and September ~~29, 2019~~30, 2020 (in thousands, except percentages). ~~Sales and expenses at company-owned offices are reflected on~~Percentages reflect the line item ~~“Income from discontinued~~as a percentage of total revenue.

	Three months ended										Nine months ended
	September 30, 2021					September 30, 2020					September 30, 2021					September 30, 2020
Franchise royalties	$	6,540		95.0	%	$	3,219		95.1	%	$	15,250		95.4	%	$	9,563		91.9	%
Service revenue		341		5.0	%		164		4.9	%		741		4.6	%		841		8.1	%
Total revenue		6,881		100.0	%		3,383		100.0	%		15,991		100.0	%		10,404		100.0	%
Selling, general and administrative expenses		3,044		44.2	%		1,358		40.1	%		8,927		55.8	%		6,542		62.9	%
Depreciation and amortization		366		5.3	%		32		1.0	%		1,065		6.7	%		97		0.9	%
Income from operations		3,471		50.4	%		1,993		58.9	%		5,999		37.5	%		3,765		36.2	%
Other miscellaneous income		90		1.3	%		392		11.6	%		4,132		25.8	%		932		9.0	%
Interest and other financing expense		(42	)	-0.6	%		(10	)	-0.3	%		(67	)	-0.4	%		(39	)	-0.4	%
Net income before income taxes		3,519		51.1	%		2,375		70.2	%		10,064		62.9	%		4,658		44.8	%
Provision for income taxes		325		4.7	%		404		11.9	%		408		2.6	%		655		6.3	%
Net income	$	3,194		46.4	%	$	1,971		58.3	%	$	9,656		60.4	%	$	4,003		38.5	%
Non-GAAP data
Adjusted EBITDA	$	5,294		76.9	%	$	2,922		86.4	%	$	11,234		70.3	%	$	7,677		73.8	%

Use of non-GAAP Financial Measures

Earnings before interest, taxes, depreciation and amortization, and non-cash compensation, or adjusted EBITDA, is a non-GAAP measure that represents our net income before interest expense, income tax expense, depreciation and amortization, non-cash compensation, costs related to the work opportunity tax credit (“WOTC”) and other charges we consider non-recurring. We utilize 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 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 EBITDA measures our financial performance irrespective of our capital structure or how we finance our operations. By excluding taxes on income, we believe 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 EBITDA measures the financial performance of our operations without regard to their historical cost. By excluding non-cash compensation, 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 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 EBITDA provides a basis for measuring financial performance without non-recurring charges. For all of these reasons, we believe that adjusted EBITDA provides us, and investors, with information that is relevant and useful in evaluating our business.

However, because 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 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 EBITDA as reported by other companies that do not define adjusted EBITDA exactly as we define the term. Because we use adjusted EBITDA to evaluate our financial performance, we reconcile it to net ~~of tax.”~~

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

Franchise royalties
$3,219
  95.1%
$3,139
  95.3%
$9,563
  91.9%
$9,277
  92.7%
Service revenue
  164
  4.9%
  154
  4.7%
  841
  8.1%
  727
  7.3%
Total revenue
  3,383
  100.0%
  3,293
  100.0%
  10,404
  100.0%
  10,004
  100.0%
Selling, general and administrative expenses
  1,358
  40.1%
  7,394
  224.5%
  6,542
  62.9%
  9,817
  98.1%
Depreciation and amortization
  32
  1.0%
  40
  1.2%
  97
  0.9%
  76
  0.8%
Income (loss) from operations
  1,993
  58.9%
  (4,141)
  -125.7%
  3,765
  36.2%
  111
  1.1%
Other miscellaneous income
  392
  11.6%
  505
  15.3%
  932
  9.0%
  752
  7.5%
Interest and other financing expense
  (10)
  -0.3%
  (106)
  -3.2%
  (39)
  -0.4%
  (522)
  -5.2%
Net income (loss) before income taxes
  2,375
  70.2%
  (3,742)
  -113.6%
  4,658
  44.8%
  341
  3.4%
Provision for income taxes
  404
  11.9%
  4,717
  143.3%
  655
  6.3%
  4,817
  48.1%
Income (loss) from continuing operations
  1,971
  58.3%
  (8,459)
  -256.9%
  4,003
  38.5%
  (4,476)
  -44.7%
Income from discontinued operations, net of tax
  -
  0.0%
  683
  20.7%
  -
  0.0%
  723
  7.2%
Net income (loss)
$1,971
  58.3%
$(7,776)
  -236.2%
$4,003
  38.5%
$(3,753)
  -37.5%

income, which is the most comparable financial measure calculated and presented in accordance with U.S. GAAP.

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	Three months ended				Nine months ended
	September 30, 2021		September 30, 2020		September 30, 2021			September 30, 2020
Net income	$	3,194,191	$	1,971,133	$	9,656,046		$	4,003,311
Interest expense		41,943		10,035		66,860			39,174
Provision for income taxes		324,638		404,058		408,228			654,592
Depreciation and amortization		366,027		32,438		1,064,863			96,654
Non-cash compensation		851,049		391,435		1,419,910			956,549
WOTC related costs		174,648		113,332		413,538			328,048
Non-recurring acquisition related charges, net		34,133		-		(2,102,898	)		-
Non-recurring charge to notes receivable		307,440		-		307,440			1,598,673
Adjusted EBITDA	$	5,294,069	$	2,922,431	$	11,233,987		$	7,677,002

Three Months Ended September 30, ~~2020~~

2021

Franchise Royalties

We charge our franchisees a royalty fee on gross billings to customers based on one of two models: the HireQuest Direct model or the HireQuest model. Under the HireQuest Direct model, the royalty fee charged ranges from 6% to 8% of gross billings. Royalty fees are charged at 8% for the first $1,000,000 of annual billing, with the royalty fee dropping ½ of 1% for every additional $1,000,000 of annual billing thereafter until the royalty fee is 6%. The smaller royalty fee is charged only on the incremental billing, resulting in an actual royalty fee at a blended rate between 6% and 8%. Under this model, we grant our franchisees credits for low margin business. Under the HireQuest model, the royalty fee is 4.5% of the temporary payroll we fund plus 18% of the gross margin for the territory.

Franchise royalties for the three months ended September 30, ~~2020~~2021 were approximately ~~$3.2~~$6.5 million, an increase of ~~2.5%~~103.2% from ~~$3.1~~$3.2 million for the three months ended September ~~29, 2019.~~30, 2020. Approximately ~~$681,000~~$1.6 million of this increase in royalties was due to the Snelling and Link acquisitions and approximately $1.7 million was due to organic growth this year as the negative effects of COVID-19 were less pronounced in the ~~third~~ quarter ~~2020 are attributable to the offices acquired through the Merger. Although we experienced a year-over-year increase in royalty revenue~~ended September 30, 2021 than in the third quarter 2020, average royalty revenue per office in that quarter was negatively impacted by decreased economic activity related to COVID-19. Although system-wide sales, and resulting franchise royalties, have been slowly increasing on a month-over-month basis since the beginning of April, we expect decreased royalty revenue for the remainder of 2020, and perhaps beyond, relative to historical levels.

prior year quarter.

Service Revenue

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. 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~~receivable 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 interest.

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Service revenue for the three months ended September 30, ~~2020~~2021 was approximately ~~$164,000, a slight~~$341,000, an increase from approximately ~~$154,000~~$164,000 for the three months ended September ~~29, 2019.~~

30, 2020. This increase was due to the introduction of trademark license fees this year and increased fees for optional services.

Selling, General, and Administrative Expenses

SG&A expenses for the three months ended September 30, ~~2020~~2021 were approximately ~~$1.4~~$3.0 million, ~~a decrease~~an increase of ~~81.6%~~124.2% from ~~$7.4~~$1.4 million for the three months ended September ~~29, 2019.~~30, 2020. This ~~significant decrease~~increase is ~~primarily~~ related to ~~Merger related~~increased compensation costs of approximately ~~$4.7 million incurred in 2019. In addition, we saw a decrease in charges related to workers’~~$350,000, increased stock-based compensation costs of approximately ~~$537,000,~~$459,000, an increase in the reserve on our notes receivable of approximately $307,000, and a ~~decrease in bad debt expense~~legal settlement of ~~approximately $272,000.~~

~~Miscellaneous Income~~

Miscellaneous income for the three months ended September 30, 2020 was approximately $392,000, a decrease of 22.2% from $505,000 for the three months ended September 29, 2019. In 2020, miscellaneous income was comprised primarily of interest income on notes receivable and a recovery$200,000 related to a ~~legal settlement, while~~class-action lawsuit filed in ~~2019 it was primarily comprised of a gain on the sale of intangible assets acquired in the Merger that were sold when the acquired locations were franchised.~~

California.

Nine Months Ended September30, ~~2020~~

2021

Franchise Royalties

Franchise royalties for the nine months ended September 30, ~~2020~~2021 were approximately ~~$9.6~~$15.2 million, an increase of ~~3.1%~~59.5% from ~~$9.3~~$9.6 million for the nine months ended September ~~29, 2019. Included in~~30, 2020. Approximately $3.4 million of this increase ~~are approximately $2.0 million of~~in royalties ~~attributable~~was due to the ~~offices acquired through~~Snelling and Link acquisitions, as a result of which we experienced additional royalties in seven of the ~~Merger. Royalty revenue~~nine months this quarter, and approximately $2.3 million was due to organic growth this year as the negative effects of COVID-19 were less pronounced in the nine months ended September 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 ~~few weeks of March 2020 began to be negatively impacted by decreased activity related to COVID-19. This negative impact continued through the third quarter. We~~year, we expect decreased royalty revenue ~~for~~to persist throughout the remainder of ~~2020,~~this year, and perhaps beyond, relative to ~~historical~~pre-pandemic levels.

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Service Revenue

Service revenue for the nine months ended September 30, ~~2020~~2021 was approximately ~~$841,000, an increase of 15.6%~~$741,000, a decrease from approximately ~~$727,000~~$841,000 for the nine months ended September ~~29, 2019.~~30, 2020. This ~~increase is related to the increase in franchised offices~~decrease was primarily due to ~~the Merger.~~

lower interest income, which was partially offset by trademark license fees.

Selling, General, and Administrative Expenses

SG&A expenses for the nine months ended September 30, ~~2020~~2021 were approximately ~~$6.5~~$8.9 million, ~~a decrease~~an increase of ~~33.4%~~36.4% from ~~$9.8~~$6.5 million for the nine months ended September ~~29, 2019. The majority~~30, 2020. This increase is primarily related to acquisition-related expenses of ~~this decrease is due to Merger related~~approximately $1.6 million. In addition, we saw increased compensation costs of approximately ~~$4.7 million incurred~~$598,000, an increase in ~~2019. We also saw~~stock-based compensation of approximately $463,000, a ~~decrease~~$200,000 legal settlement, and a relative increase in charges related to workers’ compensation of approximately ~~$743,000, and~~$735,000. These increases were partially offset by a decrease in bad debt expense of approximately ~~$284,000. These decreases were partially offset by an increase~~$269,000, and a reduction in ~~stock-based compensation~~charges related to reserves placed on our notes receivable of approximately $603,000 and a $1.6 million reserve placed on notes receivable we issued to finance the sale of offices acquired in the Merger. This reserve is directly related to the negative impact COVID-19 has had on the economy, the financial condition of our borrowers, and the value of the underlying collateral.

$1.3 million.

Miscellaneous Income

Miscellaneous income for the nine months ended September 30, ~~2020~~2021 was approximately ~~$932,000,~~$4.1 million, an increase of ~~24.0%~~approximately $3.2 million, from ~~$752,000~~$932,000 for the nine months ended September ~~29, 2019. In 2020, miscellaneous income~~30, 2020. This increase is primarily due to a bargain purchase gain of approximately $5.0 million recognized as part of the Snelling transaction. This gain was ~~comprised primarily~~partially offset by a net loss of ~~interest income on notes receivable, while~~approximately $1.2 million in ~~2019 miscellaneous income was made up primarily of gains related~~relation to the sale of ~~property and intangible~~acquired assets.

Liquidity and Capital Resources

Our major source of liquidity and capital is cash generated from our ongoing operations. We also receive principal and interest payments on notes ~~receivable, most~~receivable. We also sold approximately $5.3 million of ~~which were issued in connection with the sale of offices acquired~~these notes at face value to Bass in the ~~Merger.~~first quarter of 2021 to generate cash for two acquisitions. In addition, we have the capacity to borrow under our line of credit with Truist.

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On September 30, ~~2020,~~2021, our current assets exceeded our current liabilities by approximately ~~$29.4~~$24.9 million. Our current assets included approximately ~~$10.3~~$4.8 million of cash and ~~$24.0~~$38.4 million of accounts receivable, which our franchisees have billed to customers and which we own in accordance with our franchise agreements. We used approximately $4.4 million of cash in our October 1 acquisition of Recruit Media. Our largest current liabilities include approximately ~~$3.2~~$6.4 million related to our workers’ compensation claims liability, ~~$2.3~~$7.3 million due to our franchisees on upcoming settlement statements, and ~~$2.1~~$4.1 million in ~~accrued benefits~~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 of credit and ~~payroll taxes.~~

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.

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 –- 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 accounts receivable are converted to cash upon collection. We witnessed this in the first half of 2020. When the economy recovers, our cash balance tends to decrease and accounts receivable tend to increase. This trend explains the decrease in cash we experienced in the third quarter of 2020. It is difficult to predict whether this trend will continue in the fourth quarter as, traditionally, the final quarter of the year results in a smaller amount of new accounts receivable relative to the third quarter.

We believe that our current cash balance, together with the 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, and other liquidity requirements associated with our continuing operations for at least 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 the COVID-19 crisis on availability of capital or credit is difficult to predict and may be significant.

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Operating Activities

During the nine months ended September 30, 2021, cash generated by operating activities was approximately $14.8 million and included net income of approximately $9.7 million, the return of a workers’ compensation claim deposit of approximately $7.2 million which was acquired in the Snelling transaction, a net loss on the sale of intangible assets acquired 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 million. During the nine months ended September 30, 2020, cash ~~generated~~provided by operating activities was approximately $6.9 million and included net income of approximately $4.0 million, and a decrease in accounts receivable ~~which generated~~of approximately $4.2 million. These provisions were partially offset by an increase in prepaid workers’ compensation of approximately $1.2 million, ~~payments of income taxes of approximately $1.9 million,~~ and a decrease in the amount due to our franchisees of approximately $1.3 million.

Investing Activities

During ~~2019,~~the nine months ended September 30, 2021, cash used by ~~operating~~investing activities was approximately ~~$1.2~~$23.9 million and included ~~a net loss~~cash paid for acquisitions of approximately $28.8 million. This use was partially offset by the proceeds from ~~continuing operations~~the sale of ~~$4.5 million and an increase in accounts~~notes receivable of approximately ~~$12.7 million. These uses were partially offset by an increase in~~$5.3 million and the ~~amount due to our franchisees~~sale of purchased locations of approximately ~~$4.7 million and an increase in other current liabilities of approximately $4.2~~$1.0 million.

~~Investing Activities~~

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, most of which was related to the construction of a new building at our corporate headquarters.~~million. This use was partially offset by proceeds from the payment on notes receivable of approximately $1.6 million.

Financing Activities

During ~~2019,~~the nine months ended September 30, 2021, cash provided by ~~investing~~financing activities was approximately ~~$1.1 million~~$255,000 and included proceeds from ~~the sale of property and equipment~~a term loan payable of approximately ~~$574,000 and an increase in franchisee deposits of approximately $666,000. These provisions were partially~~$3.2 million. This provision was offset by the ~~purchase of property and equipment~~payment of approximately ~~$285,000.~~

~~Financing Activities~~

$2.3 million in dividends. During 2020, cash used by financing activities was approximately $824,000 and included the payment of a dividend of approximately $678,000 and the purchase of treasury stock of approximately $146,000. During 2019, cash provided by financing activities was approximately $316,000 and included cash received for the effective issuance of common stock in connection with the Merger of approximately $5.4 million and an increase in our line of credit of $7.6 million. These provisions were partially offset by the purchase of treasury stock of approximately $8.4 million, and a decrease in the amount due affiliates of approximately $5.5 million.

~~Non-GAAP Financial Measure:~~

Key Performance Indicator: System-Wide Sales

We refer to total sales generated by our franchisees as “franchise sales.” WeFor the period prior to their conversion to franchises, we refer to sales at company-owned and operated offices as “company-owned sales.” ~~Company-owned sales are reflected net of costs, expenses, and taxes associated with those sales on our financial statements as “Income from discontinued operations, net of tax.” We~~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. System-wide sales is a ~~non-GAAP financial measure.~~key performance indicator. While we do not record system-wide sales as 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 ~~interest charged on overdue accounts which we record under~~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 ~~are not intended to represent revenue as defined by U.S. GAAP, and such information~~ should not be considered as an alternative to ~~revenue or any other measure of performance prescribed by U.S. GAAP.~~

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revenue.

During the three and nine months ended September 30, 2021 and September 30, 2020, all of our offices were franchised. As such, system-wide sales for ~~the three and nine months ended September 30, 2020~~these periods were all derived from franchised offices.

The following table ~~reflects our~~displays system-wide sales ~~broken into its components~~ for the interim periods ~~indicated:~~

Three months ended

Nine months ended

September 30,
2020

September 29,
2019

September 30,
2020

September 29,
2019

Franchise sales
$55,626,751
$60,626,049
$156,163,051
$159,768,691
Company-owned sales
  -
  13,551,950
  -
  13,934,276
System-wide sales
$55,626,751
$74,177,999
$156,163,051
$173,702,967

~~System-wide sales were $55.6 million for the three months~~ ended September 30, 2021 and September 30, 2020 ~~down $18.6 million, or 25.0% compared to~~(in thousands, except percentages). Percentages indicate the ~~three months ended September 29, 2019. The decrease~~change in system-wide sales ~~is primarily a result of the effects of COVID-19. Additionally, because the Merger occurred on July 15, 2019, prior year third quarter results did not include system-wide sales attributable~~relative to the ~~merged locations from July 1 through July 14.~~

System-wide sales were $156.2 million for the nine months ended September 30, 2020, down $17.5 million, or 10.1% compared the nine months ended September 29, 2019. This decrease in system-wide sales is primarily a result of the effects of COVID-19. The decrease was partially offset by the effect of offices added in the Merger.

In the closing weeks of the first quarter of 2020, we experienced a substantial decline in week-over-week system-wide sales as a direct result of COVID-19. This depressed level of system-wide sales compared to historical averages continued throughout the third quarter and into the fourth quarter. We have started to see week-over-week system-wide sales improve, which has slowly begun to shrink the gap between 2020 and 2019 comparative week-over-week sales. We believe this trend is a result of many states reopening their economies. However, we still expect system-wide sales to be materially lower than historical averages in the fourth quarter of 2020, and likely into 2021. It is unclear when, or if, a full economic recovery will occur.

comparable prior period.

	Three months ended							Nine months ended
	September 30, 2021		September 30, 2020		Change			September 30, 2021			September 30, 2020		Change
System-wide sales	$	99,625	$	55,627		79.1	%	$	244,643	��	$	156,163		56.7	%

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Number of Offices

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 ~~two~~four offices in the ~~third~~first quarter and did not close ~~any~~

any.

The following table accounts for the number of offices opened and closed or consolidated in the first nine months of ~~2020.~~

2021.

Franchised offices, December 31, ~~2019~~2020	~~147~~	139
Closed in ~~2020~~2021	~~(13~~)	-
Opened in ~~2020~~2021	4	10
Purchased in 2021 (net of sold locations)		64
Franchised offices, September 30, ~~2020~~2021	~~138~~	213

Office closures and consolidations in 2020 were largely related to the economic impacts of COVID-19. These closures were mostly in metropolitan areas still serviced by other offices. Accordingly, we do not expect such closures and consolidations in-and-of themselves to have a material impact on our system-wide sales, revenue, or other results of operations. It is difficult to predict whether the impacts of COVID-19 will cause more closures.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing arrangements.

I~~tem~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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.

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I~~tem~~

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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 30, 2021, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, have concluded that ~~these disclosure controls~~the consolidated financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and ~~procedures are effective~~cash flows as of the ~~end of such period.~~ dates, and for the periods presented, in conformity with accounting principles generally accepted in the United States.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting during our ~~last~~ quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

P~~ART~~

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PART II. OTHER INFORMATION

I~~tem~~

Item 1. Legal Proceedings

From time to time we are involved in various legal and administrative proceedings. Based on information currently available to us, we do not expect material uninsured losses to arise from any of these matters. We believe the 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.

I~~tem~~

Item 1A. Risk Factors

~~Our business, financial condition, and operating results can be affected by a number of~~

The following risk factors ~~whether currently known or unknown, including but not limited to those described below and~~have been updated from our risk factors previously disclosed in ~~Part I, Item 1A of~~ our ~~most recent annual report~~Annual Report filed on Form 10-K ~~which we~~for year ended December 31, 2020 filed with the SEC on March ~~30, 2020 under~~25, 2021.

Risks Related to our Business and Industry

Our business continues to be adversely impacted by the ~~heading “Risk Factors,”~~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 ~~one~~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 ~~more~~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 ~~directly~~result in an event of default, which, if not cured or ~~indirectly, cause~~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 ~~actual~~results of operations and financial condition could be materially adversely affected by increased costs and ~~operating results~~rates.

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Our major source of liquidity and capital is cash generated from our ongoing operations. We also receive principal and interest payments on notes receivable. We must have sufficient sources of liquidity to ~~vary materially~~meet our working capital requirements, fund our workers’ compensation collateral requirements, service our outstanding term loan, and finance growth opportunities. Without sufficient liquidity, we may not be able to pursue accretive business opportunities.

If our debt level significantly increases in the future, it could have significant consequences on our ongoing operations including requiring us to dedicate a significant portion of our cash flow from ~~past,~~operations to servicing debt rather than using it to execute our strategic initiatives, such as acquisitions; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or ~~from anticipated future,~~other worthwhile endeavors; and limiting our ability to react to changes in the market.

Acquisitions may have an adverse 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 ~~condition~~reporting systems and ~~operating~~may not effectively manage or divest acquired companies to achieve expected growth.

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 announce could be viewed negatively by investors, which may adversely affect the price of our common stock. Acquisitions can also result in the addition of goodwill 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. ~~Any~~The potential loss of ~~these factors, in whole~~key executives, franchisees, clients, and other business partners of businesses we acquire may adversely impact the value of the assets, operations, or ~~in part,~~business we acquire. These events could ~~materially~~cause material harm to our business, and adversely affect our ~~business,~~operations and financial ~~condition, operating results,~~condition.

The COVID-19 Vaccination and ~~stock price. Except as set forth below, there~~Testing Emergency Temporary Standard issued by OSHA and related compliance efforts could have ~~been no~~a material ~~changes to the risk factors included in~~adverse effect on our ~~Form 10-K for the year ended December 31, 2019, filed with the SEC on March 30, 2020.~~

~~The coronavirus pandemic is a serious threat to health and economic well-being affecting our franchisees, employees, customers and the overall economy.~~

On March 11, 2020, the World Health Organization announced that infections of COVID-19 had become pandemic, and on March 13, 2020, the President of the United States announced a National Emergency relating to the disease. Since March 13, state and local authorities have taken dramatic action including, without limitation, ordering the workforce to stay home, banning all non-essential businesses from operating, implementing shelter in place orders, refusing to issue new building permits, and invalidating current building permits causing work to stop. There has been widespread infection in the United States and abroad, with a resulting catastrophic impact on human lives, including those of our franchisees and employees,business and the economy as a ~~whole, including~~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 ~~customers.~~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 ~~actions described above, national, state,~~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 ~~local authorities~~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 recommended social distancing and imposed quarantine and isolation measures on large portions of the population and additional mandatory business closures. These measures, while intended to protect human life, have had seriousa material adverse ~~impacts~~effect on our business and domestic and foreign economies. They have caused our system-wide sales and resulting revenue to decline. The extent and duration of this decline is uncertain. The ultimate and long-term effectiveness of economic stabilization efforts, including government payments to affected citizens and industries, such as the CARES Act and Paycheck Protection Program, is uncertain.

The sweeping and evolving nature of the COVID-19 pandemic makes it extremely difficult to predict how our business operations will be affected in the long term. But the overall economic impact of the pandemic has been highly negative to the general economy. Our operations have been disrupted by customers decreasing the amount of orders they place for temporary employees, safety measures we and our franchisees have put in place to prevent spread of the virus, and in other ways. The COVID-19 outbreak has had a negative impact on our operations, system-wide sales, and revenue as well as those of our franchisees. 13 of our franchised offices have closed or consolidated into other existing offices at least, in part, due to the impact of COVID-19. It is possible that additional offices may be forced to close. Some of our franchisees have experienced economic hardship including loss of customers or business. A small number of franchisees, as well as the purchaser of our California offices, have experienced difficulty in repaying their financing obligations to us, causing us to set aside a reserve of $1.6 million for that purpose as of September 30, 2020. Others may experience economic hardship or even failure. If the recent resurgence of the virus and infections continues to expand in the fourth quarter of the year, we may be forced to temporarily or permanently close other offices. Our customers may choose to voluntarily close their worksites.

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Any of the above factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, severely 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 of any such impacts cannot be predicted. We expect COVID-19 will continue to negatively impact customer demand throughout 2020, and likely beyond. While we expect some recovery in some markets in the final quarter of the year, the impact of COVID-19 on our sales and revenue will likely still be significant. We do not yet know the full extent of the impact of COVID-19 on our business, financial ~~condition and results of operations.~~

Difficult political or market conditions, natural disasters, global pandemics, or other unpredictable matters could affect our business in many ways including by reducing the amount of available temporary employees, reducing the amount of customer projects, or harming the overall economy which could materially reduce our revenue, earnings and cash flow and adversely affect our financial condition.

Our business is linked to conditions in the overall economy, such as those impacting the ability of our customers to obtain financing, the availability of temporary employees, changes in laws, and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, and pandemics. In particular, the outbreak of COVID-19 has materially affected our business by decreasing activity in the economy overall and negatively impacting the industries our customers are in, especially hospitality, event staffing, auto auctioneering, and similar industries. While we have encouraged our franchisees to implement specific policies which the CDC has suggested could help decrease the spread of COVID-19, and we have not experienced a significant number of infections among our employees, it is possible that COVID-19 could infect a large number of temporary employees removing them from the available worker pool. To date, we have experienced a decline in system-wide sales and resulting revenue due to decreased economic activity. Our franchisees have closed or consolidated 13 offices at least in part due to the negative impacts of the coronavirus. These factors are unpredictable and outside of our control. They may affect the level and volatility of securities prices and the liquidity and value of investments, including investments in our common stock.

~~Our operating and financial results and growth strategies are closely tied to the success of our franchisees.~~

With all of our offices being operated by franchisees, we are dependent on the financial success and cooperation of our franchisees. We have limited control over how our franchisees’ businesses are run, and the inability of franchisees to operate successfully could adversely affect our operating and financial results through decreased royalty payments or otherwise. If our franchisees incur too much debt, if their operating expenses increase, or if economic or sales trends deteriorate (including as a result of the global pandemic caused by COVID-19) such that they are unable to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or bankruptcy. To date, a small number of franchisees have had difficulty in servicing the debts they owe to us as a result of the financial impacts of COVID-19. We have placed a reserve on the notes receivable from those franchisees in the amount of approximately $405,000. In addition, franchisees have closed or consolidated 13 offices at least in part due to the impact of COVID-19. If a significant franchisee or a significant number of franchisees become financially distressed, our operating and financial results could be impacted through reduced or delayed royalty payments. A franchisee bankruptcy could have a substantial negative impact on our ability to collect payments due under such franchisee’s franchise agreement. Our success also depends on the willingness and ability of our franchisees to be incentivized to deliver excellent customer service, resolve any issues efficiently, and ensure customer retention. In addition, our success depends on the willingness and ability of our franchisees to implement major initiatives, which may include financial investment. Our franchisees may be unable to successfully implement strategies that we believe are necessary for their further growth, which in turn may harm our growth prospects and financial condition.

~~Our results of operations may be significantly affected by the ability of certain franchisees and the purchaser of our California offices to repay their loans to us.~~

Lending money to our franchisees for startup costs and short-term funding is an essential part of our business. While most of our franchisees have historically repaid their loans to us, for various reasons, a small number have not, and there is no guarantee that our franchisees will continue to repay their loans in the future. We extended, for us, unprecedented levels of purchase financing loans in 2019 in connection with the Merger and subsequent sales and conversions of company-owned offices to franchises. In addition, the purchaser of our California office assets financed the transaction by providing us a note for $1.8 million. As a result of the negative impacts of COVID-19, a small number of our franchisees and the California purchaser have already had difficulty in repaying their debts to us. To that end, we placed a reserve of approximately $1.6 million on our notes receivable. The risk of non-payment is affected, among other things, by:

~~Table of Contents~~

~~● The overall condition and results of operations of the particular franchise or operating entity;~~

~~● Changes in economic conditions that impact specific franchisees, the California purchaser, our industry, or the overall economy;~~

~~● The amount and duration of the loan;~~

~~● Credit risks of a particular borrower; and~~

~~● In terms of collateral, the value of the franchised business or California operations and any individual guarantee we have or have not obtained.~~

Our borrowers’ ability to repay their loans usually depends upon their successful operation of their business and income stream. Loans we extend to finance the purchase of office assets typically are our largest and riskiest loans; however, given their historical role in driving growth in our overall size and revenue streams, we intend to continue those lending efforts. At September 30, 2020, our loans receivable from franchisees and from the California purchaser, net of an approximately $1.6 million reserve, constituted 17.3% of our assets. If our franchisees or the California purchaser do not repay these loans, it may negatively impact our overall financial condition and results of operations.

I~~tem~~results.

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

~~Recent Sales of Unregistered Securities~~
~~We did not issue any unregistered securities during our most recent quarter.~~

~~Purchase of Equity Securities by the Issuer and Affiliated Purchasers~~
In July 2020, our Board of Directors authorized a one-year repurchase plan for up to 1 million shares of our common stock, with a maximum monthly cost of $100,000. During our most recent quarter, we purchased approximately 24,000 shares of our common stock at an aggregate cost of approximately $146,000 resulting in an average price of $6.20 per share. The following table summarizes in more detail our common stock purchased during our most recent quarter.

Total shares purchased

Average price per share

Total number of shares purchased as part of publicly announced plan

Approximate dollar value of shares that may be purchased under the plan

July
  23,638
$6.20
  23,638
  1,176,362
August
  -
  -
  23,638
  1,100,000
September
  -
  -
  23,638
  1,000,000
Total
  23,638
  6.20

I~~tem~~

None.

Item 5. Other Information

None.

I~~tem~~

Table of Contents

Item 6. Exhibits

Exhibit No.		Description
10.1		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 ~~Certification~~of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Cory Smith, Chief Financial Officer ~~- §~~of HireQuest, Inc. pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 ~~Certification~~of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Richard Hermanns, Chief Executive Officer of HireQuest, Inc., and Cory Smith, 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 ~~(filed~~(furnished herewith).
101.INS		XBRL Instance Document (filed herewith).
101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

Table of Contents

~~Table of Contents~~

SIGNATURES

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.

/s/ Richard Hermanns	November 11, 2021	~~November 12, 2020~~
Richard Hermanns	Date	~~Date~~
President and Chief Executive Officer



/s/ Cory Smith	November 11, 2021	~~November 12, 2020~~
Cory Smith	Date
Chief Financial Officer


~~Cory Smith~~	~~Date~~	31
~~Chief Financial Officer~~

		~~Page~~
Item 1.	Financial Statements		3
	Consolidated Balance Sheets		3
	Consolidated Statements of ~~Operations~~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
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25	27
Item 4.	Controls and Procedures	26	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	26	28
Item 1A.	Risk Factors	26	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28	29
Item 5.	Other Information	28	29
Item 6.	Exhibits	28	30
	Signatures	29	31

	September 30, 2020	December 31, 2019
ASSETS	(unaudited)
Current assets
Cash	$10,297,147	$4,187,450
Accounts receivable, net of allowance for doubtful accounts	24,024,564	28,201,279
Notes receivable	2,144,118	3,419,458
Prepaid expenses, deposits, and other assets	1,179,333	188,560
Prepaid workers' compensation	1,978,509	822,938
Other assets	-	201,440
Total current assets	39,623,671	37,021,125
Property and equipment, net	2,958,998	1,900,686
Intangible assets, net	186,705	-
Notes receivable, net of current portion and reserve	6,377,779	7,990,251
Total assets	$49,147,153	$46,912,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$5,499	$253,845
Other current liabilities	1,664,854	1,893,846
Accrued benefits and payroll taxes	2,088,119	1,113,904
Due to franchisees	2,311,372	3,610,596
Risk management incentive program liability	1,018,994	1,811,917
Workers' compensation claims liability	3,165,056	2,327,869
Total current liabilities	10,253,894	11,011,977
Workers' compensation claims liability, net of current portion	1,743,128	1,516,633
Franchisee deposits	1,459,335	1,412,924
Deferred tax liability	273,185	1,688,446
Total liabilities	13,729,542	15,629,980
Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock - $0.001 par value, 1,000,000 shares authorized; none issued	-	-
Common stock - $0.001 par value, 30,000,000 shares authorized; 13,615,605 and 13,518,036 shares issued, respectively	13,616	13,518
Additional paid-in capital	28,541,062	27,584,610
Treasury stock, at cost – 33,092 and -0- shares, respectively	(146,465)	-
Retained earnings	7,009,398	3,683,954
Total stockholders' equity	35,417,611	31,282,082
Total liabilities and stockholders' equity	$49,147,153	$46,912,062

	Three months ended		Nine months ended
	September 30, 2020	September 29, 2019	September 30, 2020	September 29, 2019
Franchise royalties	$3,218,606	$3,139,158	$9,563,135	$9,276,714
Service revenue	164,074	153,717	840,515	727,077
Total revenue	3,382,680	3,292,875	10,403,650	10,003,791
Selling, general and administrative expenses	1,357,725	7,393,380	6,542,171	9,817,245
Depreciation and amortization	32,438	40,200	96,654	75,630
Income (loss) from operations	1,992,517	(4,140,705)	3,764,825	110,916
Other miscellaneous income	392,709	504,833	932,254	751,693
Interest and other financing expense	(10,035)	(106,461)	(39,174)	(521,838)
Net income (loss) before income taxes	2,375,191	(3,742,333)	4,657,905	340,771
Provision for income taxes	404,058	4,716,731	654,592	4,816,337
Income (loss) from continuing operations	1,971,133	(8,459,064)	4,003,313	(4,475,566)
Income from discontinued operations, net of tax	-	682,674	-	722,756
Net income (loss)	$1,971,133	$(7,776,390)	$4,003,313	$(3,752,810)

Basic earnings (loss) per share
Continuing operations	$0.15	$(0.65)	$0.30	$(0.41)
Discontinued operations	-	0.05	-	0.07
Total	$0.15	$(0.60)	$0.30	$(0.34)

Diluted earnings (loss) per share
Continuing operations	$0.15	$(0.65)	$0.30	$(0.41)
Discontinued operations	-	0.05	-	0.07
Total	$0.15	$(0.60)	$0.30	$(0.34)

Weighted average shares outstanding
Basic	13,573,086	12,927,634	13,551,507	10,939,318
Diluted	13,574,863	12,927,634	13,553,619	10,939,318

	Common stock		Treasury Stock	Additional paid-in	Retained	Total stockholders'
Nine months ended	Shares	Par value	Amount	capital	earnings	equity
Balance at December 31, 2019	13,518,036	$13,518	$-	$27,584,610	$3,683,954	$31,282,082
Stock-based compensation	-	-	-	956,452	-	956,452
Common stock dividends	-	-	-	-	(677,869)	(677,869)
Restricted common stock granted for services	97,569	98	-	-	-	98
Purchase of treasury stock	-	-	(146,465)	-	-	(146,465)
Net income	-	-	-	-	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

Balance at December 31, 2018	9,939,668	$9,940	$-	$6,938,953	$3,973,933	$10,922,826
Net contributions	-	-	-	1,155,907	-	1,155,907
Merger with Command Center, Inc.	4,677,487	4,677	-	26,937,648	-	26,942,325
Stock-based compensation	-	-	-	352,915	-	352,915
Restricted stock granted for services	250,000	250	-	-	-	250
Common stock purchased and retired	(1,394,821)	(1,395)	-	(8,367,531)	-	(8,368,926)
Net loss	-	-	-	-	(3,752,810)	(3,752,810)
Balance at September 29, 2019	13,472,334	$13,472	$-	$27,017,892	$221,123	$27,252,487
Three months ended
Balance at June 30, 2020	13,575,123	$13,575	$-	$28,149,667	$5,716,134	$33,879,376
Stock-based compensation	-	-	-	391,395	-	391,395
Common stock dividends	-	-	-	-	(677,869)	(677,869)
Restricted common stock granted for services	40,482	41	-	-	-	41
Purchase of treasury stock	-	-	(146,465)	-	-	(146,465)
Net income	-	-	-	-	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

Balance at June 30, 2019	9,939,668	$9,940	$-	$5,153,120	$7,997,513	$13,160,573
Net contributions	-	-	-	2,941,740	-	2,941,740
Merger with Command Center, Inc.	4,677,487	4,677	-	26,937,648	-	26,942,325
Stock-based compensation	-	-	-	352,915	-	352,915
Restricted stock granted for services	250,000	250	-	-	-	250
Common stock purchased and retired	(1,394,821)	(1,395)	-	(8,367,531)	-	(8,368,926)
Net loss	-	-	-	-	(7,776,390)	(7,776,390)
Balance at September 29, 2019	13,472,334	$13,472	$-	$27,017,892	$221,123	$27,252,487

		Fair value
	Level	September 30, 2020	December 31, 2019
Cash	1	$10,297,147	$4,187,450
Notes receivable	2	8,521,897	11,409,709
Accounts receivable	2	24,024,564	28,201,279

	Shares	Weighted average grant date price
Non-vested, December 31, 2019	255,634	$7.18
Granted	97,570	6.60
Forfeited	(1,954)	6.92
Vested	(62,777)	6.34
Non-vested, September 30, 2020	288,473	7.97

	Number of shares underlying options	Weighted average exercise price per share	Weighted average grant date fair value
Outstanding, December 31, 2019	29,165	$7.20	$3.76
Forfeited	(12,083)	8.76	4.34
Outstanding, September 30, 2020	17,082	6.10	3.36

	Number of shares underlying options	Weighted average exercise price per share	Weighted average remaining contractual life (years)	Aggregate intrinsic value
Outstanding	17,082	$6.10	5.92	$39,703
Exercisable	14,894	6.18	5.66	23,053

	Total shares purchased	Average price per share	Total number of shares purchased as part of publicly announced plan	Approximate dollar value of shares that may be purchased under the plan
July	23,638	$6.20	23,638	1,176,362
August	-	-	23,638	1,100,000
September	-	-	23,638	1,000,000
Total	23,638	6.20