HireQuest, Inc.

Note1 - Overview and Summary of Significant Accounting Policies

Nature of Business

HireQuest, Inc., together with its subsidiaries, (“HQI,” the “Company,” “we,” us,” or “our”) is a nationwide franchisor of offices providing direct-dispatch, executive search, and commercial staffing solutions primarily in the light industrial and blue-collar segments of the staffing industry and traditional commercial staffing. Our franchisees provide various types of temporary personnel throughtwo primary business models operating under the trade names “HireQuest Direct”, “HireQuest”, “Snelling”, “DriverQuest”, “HireQuest Health”, "TradeCorp", "SearchPath", “Northbound Executive Search”, "Management Recruiters International", "Sales Consultants" and "MRI". HireQuest Direct specializes primarily in unskilled and semi-skilled industrial and construction personnel. HireQuest, Snelling and TradeCorp specialize primarily in skilled and semi-skilled industrial personnel, clerical and administrative personnel, and permanent placement services. DriverQuest specializes in both commercial and non-CDL drivers serving a variety of industries and applications. HireQuest Health specializes in skilled personnel in the medical and dental industries. Northbound Executive Search, MRI and SearchPath specialize in executive placement and consultant services.

On* December 30, 2024we completed our acquisition of Ready Temporary Staffing, LLC (“RTS”) for $1.4 million. RTS has been a premier provider of staffing services to the employers and workers in Colorado for over50* years. For additional information related to this transactions, seeNote2* - Acquisitions*.

As of* September 30, 2025*, we had 399 franchisee-owned offices and1 company-owned office in 43 states, the District of Columbia, and 13 countries outside of the United States. We are the employer of record to approximately 65 thousand employees annually, who in turn provide services to thousands of clients in various industries including construction, healthcare, recycling, warehousing, logistics, auctioneering, manufacturing, hospitality, landscaping, retail, and dental practices. We provide employment, 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”), and with the instructions to Article8 of Regulation S-X. 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 Form10-K for the year ended* December 31, 2024*. Results for the interim periods presented arenot necessarily indicative of the results expected for the full year or for any other period.

Consolidation

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

U.S. GAAP requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate that entity. To be the primary beneficiary of a VIE, an entity must have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that are significant to the beneficiary. We provide acquisition financing to some of our franchisees that could result in our having to absorb losses. This results in some franchisees being considered VIEs. We have reviewed our relationship with each of these franchisees and determined that we arenot the primary beneficiary of any of these entities. Accordingly, we havenot consolidated these entities.

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, our deferred taxes, our allowance for credit losses, potential impairment of goodwill and other intangibles, stock-based compensation, and estimated fair value of assets and liabilities acquired.

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Franchise Royalties

Below are summaries of our franchise royalties disaggregated by business model:

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. License fees are charged to some locations that utilize our intellectual property that arenot franchisees. License fees are 9.0% of the gross margin for the location and are recognized when earned. We recognize revenue from optional services as we provide them.

Advertising fund revenue includes contributions to our National Advertising Fund by franchisees. Revenue related to these contributions is based on a percentage of sales of certain franchised locations and is recognized as earned.

Deferred Compensation Plan

We offer a non-qualified defined contribution plan to eligible employees. Participating employees* mayelect to defer and contribute a portion of their eligible compensation. This plan allows participants to direct their account based on available investment options. As a benefit, we match 100% of each employee’sfirst* 3% of contributions, then 50% of each employee’s contribution beyond3%, up to a maximum match of 4% of the employee’s eligible earnings.

The deferred compensation liability is included in accrued wages and benefits on our Consolidated Balance Sheets. The total deferred compensation liability is funded through company-owned life insurance policies which are recorded in cash on our Consolidated Balance Sheets. The carrying value of company-owned life insurance policies is based on the cash surrender value of the policies, which approximates fair value. Changes in the cash surrender value, premiums incurred, and proceeds received relating to the company-owned life insurance policies are included in Selling, general and administrative expenses on our Consolidated Statements Income.

Marketing and Advertising

We expense advertising and marketing costs as we incur them. These costs were approximately $418 thousand and $318 thousand during thethree months ended* September 30, 2025* and* September 30, 2024*, respectively, and approximately $1.2 million and $924 thousand during thenine months ended* September 30, 2025* and* September 30, 2024*, respectively. These costs are included in general and administrative expenses.

Some of our MRI franchisees are required to pay an advertising fee equal to 0.5% -1.0% of total net sales, which supports national advertising designed to build brand awareness and drive traffic for both potential customers and potential candidates. The national advertising effort is administered by us, with franchisees providing input. Some examples include subscriptions to various job boards, the creation of digital content for social media, supporting investments in marketing-related software, and purchasing video and print media.

Recently Adopted Accounting Pronouncements

There wereno new accounting pronouncements adopted during the quarter that are expected to have a significant impact on our financial statements and related disclosures.

Recently Issued Accounting PronouncementsNot Yet Adopted**

In* November 2024,the Financial Accounting Standards Board ("FASB") issued ASU2024*-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic220*-40)which expands the required disclosures related to an entity’s expenses and address requests from investors for more granular information about the make-up of expenses in commonly presented expense captions such as selling, general, and administrative. This ASU is effective for fiscal years beginning after December 15, 2026,and interim periods beginning after December 15, 2027.We are currently evaluating the impact these changes may*have on our consolidated financial statements and related disclosures.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*) - Improvements to Income Tax Disclosures*, which requires enhancements and further transparency to certain income tax disclosures, primarily to the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after* December 15, 2024,*and will likely result in the required additional disclosures being included in our consolidated financial statements on either a prospective or retrospective basis, once adopted.

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Note2 - Acquisitions

Business Combinations

Ready Temporary Staffing

On* December 30, 2024,we completed our acquisition of certain assets of RTS with the terms of an Asset Purchase Agreement dated December 13, 2024,*includingtwo locations in Colorado, for $1.4 million. The acquisition of RTS expanded our presence in Colorado and grew our franchise base.

The fair values of the assets acquired and liabilities assumed were determined based on information available to us. The following table summarizes the values of the identifiable assets acquired and liabilities assumed as of the acquisition date.

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

The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of RTS had occurred on* January 1, 2023, (b) all of RTS’ operations had been converted to franchises on such date, and (c)none of the other acquisitions discussed in this Note2* had occurred. The unaudited pro forma information isnot necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date.

These calculations reflect increased amortization expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on* January 1, 2023.*

In connection with the acquisition, we sold certain assets related to the operations of the acquired locations to a related party. In connection with the purchase, the buyer executed a franchise agreement with us related to the RTS locations. The aggregate sale price for the operating assets was approximately $617 thousand. In conjunction with the sale of assets acquired in this transaction, we recognized a gain of approximately $139 thousand. For more information seeNote 3 - Related Party Transactions regarding the Worlds Franchisees.

Asset Acquisitions

EPIC Labor

On* September 30, 2024we completed our acquisition of the customer relationships of EPIC Labor ("EPIC") in accordance with the terms of the Asset Purchase Agreement dated September 30, 2024.EPIC was a premier provider of healthcare and life science staffing services to the employers in Arkansas for over25* years.

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

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

Immediately after the acquisition, we sold all of the assets acquired. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the assets was approximately $200 thousand. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $100 thousand.

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Note3 - Related Party Transactions

Prior to entering into a new related party transaction that is disclosable pursuant to Item404 of Regulation S-K, the Audit Committee reviews and monitors all relevant information available. In addition, the Audit Committee reviews a summary of related parties and related party transactions on a quarterly basis. The Audit Committee, in its sole discretion,* mayapprove the related party transaction only if it determines, in good faith and under all circumstances, that the transaction is in the best interests of the Company and its shareholders. The Audit Committee, in its sole discretion, may*also impose conditions as it deems appropriate on the Company or the related party in connection with the approval of the related party transaction.

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

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

Edward Jackson, a member of our Board and significant stockholder, and a member of Mr. Jackson’s immediate family own Jackson Insurance. Mr. Jackson, Richard Hermanns, our CEO, Chairman of our Board, and largest stockholder, and irrevocable trusts set up by each of them, collectively own a majority of Bass, a large managing general agent. Jackson Insurance and Bass broker property, casualty, general liability, and cybersecurity insurance for HQI. Jackson Insurance also brokers certain insurance policies on behalf of some of our franchisees, including the Worlds Franchisees (defined below).

During thethree months ended* September 30, 2025* and* September 30, 2024*, Jackson Insurance and Bass invoiced HQI approximately $190 thousand and $96 thousand, respectively, for premiums, taxes, and fees related to these insurance policies. During thenine months ended* September 30, 2025* and* September 30, 2024*, Jackson Insurance and Bass invoiced HQI approximately $1.8 millionand $1.7 million, respectively, for premiums, taxes, and fees related to these insurance policies. Jackson Insurance and Bass retain a commission of approximately 9% -15% of premiums.

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. In addition, Insurance Technologies assisted with the IT diligence and integration process with respect to acquisitions completed in2021.*

During thethree months ended* September 30, 2025* and* September 30, 2024*, Insurance Technologies invoiced HQI approximately $30 thousand and $134 thousand, respectively, for services provided pursuant to this agreement. During thenine months ended* September 30, 2025* and* September 30, 2024*, Insurance Technologies invoiced HQI approximately $176 thousand and $431 thousand, respectively, for services provided pursuant to this agreement.

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 34 Worlds Franchisees at* September 30, 2025* that operated 67 of our 399 franchisee-owned offices.

Other transactions regarding the Worlds Franchisees are summarized below:

Balances regarding the Worlds Franchisees are summarized below:

Note4 - Line of Credit and Term Loans

Revolving Credit Agreement with Bank of America, N.A.

On* February 28, 2023the Company and all of its subsidiaries as borrowers entered into a Revolving Credit Agreement (the "Credit Agreement") with Bank of America, N.A. for a $50,000,000 revolving facility (the “Senior Credit Facility”), which includes a $20,000,000 sublimit for the issuance of standby letters of credit. Approximately $2.2 million and $6.8 million was drawn on the Senior Credit Facility as of September 30, 2025* and* December 31, 2024,respectively. The Company also has aone*-time right, upon at leastten Business Days’ prior written notice to the bank to increase the maximum amount of the Senior Credit Facility to $60 million. As of* September 30, 2025* this hasnot been exercised. The Senior Credit Facility provides for certain financial covenants including maintaining an Asset Coverage Ratio of at least 1.0:1.0 at all times; maintaining a Total Funded Debt to Adjusted EBITDA Rationot exceeding 3.0:1.0; and maintaining, on a consolidated basis, a Fixed Charge Coverage Ratio of at least 1.25:1.0. As of* September 30, 2025* we were in compliance with all financial covenants.

Interest will accrue on the outstanding balance of the line of credit at a variable rate equal to (a) the Term SOFR Daily Floating Rate (as defined in the Credit Agreement) plus a margin between 1.00% and 1.75% per annum. In each case, the applicable margin is determined by the Company's Total Funded Debt to Adjusted EBITDA, as defined in the Credit Agreement. At* September 30, 2025* the effective interest rate was approximately 5.3%. The Senior Credit Facility will mature on* February 28, 2028.*

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The Credit Agreement and other loan documents contain customary representations and warranties, affirmative, and negative covenants, including without limitation, those covenants governing indebtedness, liens, fundamental changes, restricting certain payments including dividends unless certain conditions are met, transactions with affiliates, investments, engaging in business other than the current business of the Company and all of its subsidiaries and business reasonably related thereto, and sale/leaseback transactions. The Credit Agreement and other loan documents also contain customary events of default including, without limitation, payment default, material breaches of representations and warranties, breach of covenants, cross-default on material indebtedness, certain bankruptcies, certain ERISA violations, material judgments, change in control, termination or invalidity of any guaranty or security documents, and defaults under other loan documents. The obligations under the Credit Agreement and other loan documents are secured by substantially all of the assets of the Company and all of its subsidiaries as collateral including, without limitation, their accounts and notes receivable, intellectual property and the real estate owned by HQ Real Property Corporation.

At* September 30, 2025*, approximately $9.2 million of availability under the Senior Credit Facility was utilized by outstanding letters of credit that secure our obligations to our workers’ compensation insurance carrier, and $500 thousand was utilized by a letter of credit that secures our pay-card funding account. For additional information related to the letter of credit securing our workers’ compensation obligations seeNote5* - Workers’ Compensation Insurance and Reserves*.

Note5 - Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, accounts payable, the line of credit and all other current assets and liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the amortized cost basis as adjusted by an allowance for credit losses as we believe the stated interest rates reflects the prevailing market rates given our unique collateral position and the scarce capital resources willing to finance a franchise. The fair value of the term loan payable approximates its carrying value because current rates for similar borrowings donot have a material impact.

Note6 - Workers’** Compensation Insurance and Reserves**

We obtain our workers’ compensation insurance through Chubb Limited and ACE American Insurance Company (collectively, “ACE”) in all states in which we operate other than monopolistic jurisdictions. The ACE policies are large deductible policies where we have primary responsibility for all claims made. ACE provides insurance for covered losses and expenses in excess of $500 thousand per incident. Under these large deductible programs we are effectively self-insured. Per our contractual agreements with ACE we must provide a collateral deposit of $9.2 million, which we accomplish by providing a letter of credit under our agreement with Bank of America. 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, or hours worked, 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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Note7 - Stockholders’** Equity**

Dividend

Historically, we have paid a quarterly dividend. We intend to continue to pay a quarterly dividend based on our business results and financial position at the discretion of the Board. The following common share dividends were paid during2025 and2024:

Note8 - Stock Based Compensation

Employee Stock Incentive Plan

In* December 2019,our Board approved the2019* HireQuest, Inc. Equity Incentive Plan (the*“2019* Plan”). Subject to adjustment in accordance with the terms of the2019 Plan,no more than 1.5 million shares of common stock are available in the aggregate for the grant of awards under the2019 Plan.No more than 1 million shares* maybe issued in the aggregate pursuant to the exercise of incentive stock options. In addition,no more than 250 thousand shares maybe issued in the aggregate to any employee or consultant, andno* more than 50 thousand shares* maybe issued in the aggregate to any non-employee director, in anytwelve*-month period.** Shares of common stock available for distribution under the Plan mayconsist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. The2019 Plan was approved by our shareholders in* June 2020*and became effective as of that date.

In* September 2019,our Board approved a share purchase match program to encourage ownership and further align the interests of key employees and directors with those of our shareholders. Under this program, we will match 20% of any shares of our common stock purchased on the open market by or granted in lieu of cash compensation to key employees and directors up to $25 thousand in aggregate value per individual within any calendar year. These shares vest on thesecond* anniversary of the date on which the matched shares were purchased if the individual is still employed by the Company or still serves as a director and certain other vesting criteria are met. During thefirst nine months of2025, we issued 1,585 shares valued at approximately $18 thousand under this program. During thefirst nine months of2024, we issued 9,956 thousand shares valued at approximately $144 thousand under this program.

In thefirst nine months of2025, we issued 29,520 shares of restricted common stock pursuant to the2019 Plan valued at approximately $312 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these,27,935 shares vested equally over thethree months post grant. The remaining 1,585 shares were issued pursuant to our share purchase match program. Also in thefirst nine months of2025, we issued 2,000 shares of restricted common stock to a key employee for services in lieu of cash compensation valued at approximately $24 thousand that vest after 3 months.

In thefirst nine months of2024, we issued 55,894 shares of restricted common stock pursuant to the2019 Plan valued at approximately $688 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these,53,245 shares vested equally over thethree months post grant. The remaining 2,649 shares were issued pursuant to our share purchase match program. Also, in thefirst nine months of2024, we issued 5,270 shares pursuant to our share purchase match program to members of our Board of Directors valued at approximately $80 thousand. Also, in thefirst nine months of2024, we issued 2,037 shares pursuant to our share purchase match program to key employees valued at approximately $29 thousand.

Also, in thefirst nine months of2024, we issued 7,500 shares of restricted common stock pursuant to the2019 Plan that vest over 4 years and were valued at approximately $101 thousand to a key employee for services in lieu of cash compensation.

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The following table summarizes our restricted stock outstanding at* December 31, 2024*, and changes during thenine months ended* September 30, 2025*.

Stock options that were outstanding at Command Center were deemed to be issued on the date of the merger with Legacy HQ. Outstanding awards continue to remain in effect according to the terms of the Command Center2008 Plan, the Command Center2016 Plan, and the corresponding award documents. There were approximately 13 thousand stock options vested at* September 30, 2025* and* December 31, 2024*.

The following table summarizes our stock options outstanding at* December 31, 2024*, and changes during thenine months ended* September 30, 2025*.

There wereno non-vested stock options outstanding at* September 30, 2025* or at* December 31, 2024*.

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 $9.62 at* September 30, 2025*.

At* September 30, 2025*, there was unrecognized stock-based compensation expense totaling approximately $249 thousand relating to non-vested restricted stock grants that will be recognized over the next 2.9 years.

Note9 - Earnings per Share

We calculate basic earnings per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. We donot include the impact of any potentially dilutive common stock equivalents in our basic earnings 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, 2025* and* September 30, 2024* totaled approximately 62 thousand and 152 thousand, respectively.

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

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Note10 - Goodwill and Intangible Assets

Goodwill

Annual impairment test

During thethird quarter of2025, we completed our annual review of goodwill for potential impairment using a quantitative assessment for all of our reporting units. The fair value of each reporting unit was estimated using a weighting of a discounted cash flow model and prices of comparable businesses. As a result of this review, we concluded that the fair value of each reporting unit exceeded its carrying value and our goodwill wasnot impaired.

The table below reflects our goodwill and changes in the carrying value:

Indefinite-lived intangible assets

Annual impairment test

During thethird quarter of2025, we completed our annual review of indefinite-lived intangible assets for potential impairment using a quantitative assessment for all of our reporting units. The fair value of each asset was estimated using a weighting of a discounted cash flow model and prices of comparable businesses. As a result of this review, we concluded the carrying value of the MRI trade name exceeded its estimated fair value resulting in an impairment charge of $230 thousand which is reported on the line item "Goodwill and intangible asset impairment charge" on our Consolidated Statement of Operations.

The following table reflects our indefinite-lived intangible assets:

Finite-lived intangible assets

During thethird quarter of2025, we conducted a review of our finite-lived intangible assets for any indications of impairment. Also as part of this review we evaluated the estimated remaining useful life of the assets. As a result of this evaluation we revised the estimated useful life of the MRI franchise agreements from 15 years to 8 remaining years. This change in the estimated useful life will increase annual amortization expense by approximately $202 thousand. The related revision to the estimated remaining useful life is primarily attributable to industry and market conditions effecting the overall financial performance of the franchise base.

The following table reflects our finite-lived intangible assets:

Amortization expense related to intangible assets totaled approximately $713 thousand and $656 thousand for thethree months ended* September 30, 2025* and* September 30, 2024*, respectively, and approximately$2.1million and $2.0 million for thenine months ended* September 30, 2025* and* September 30, 2024*, respectively,

Note11 - Commitments and Contingencies

Franchise Acquisition Indebtedness

Some 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 arenot required to consolidate these entities because we donot 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(s). The balance due from the franchises determined to be VIEs was approximately $6.4 million and $6.9 million at* September 30, 2025* and at* December 31, 2024*, respectively.

Legal Proceedings

From time to time, we are involved in various legal and administrative proceedings. Based on information currently available to us, we donot expect material uninsured losses to arise from any of these matters. We believe the outcome of these matters, even if determined adversely, willnot have a material adverse effect on our business, financial condition or results of operations. There have beenno material changes in our legal proceedings as of* September 30, 2025*.

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Note12 - Income Tax

Our income tax provision during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, adjusted for any discrete items occurring during the relevant interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, butnot 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* maychange as new events occur, more experience is obtained, additional information becomes known, or the tax environment changes.*

Our effective tax rate for continuing operations during thethree months ended* September 30, 2025* and* September 30, 2024* was 5.4% and 25.1%, respectively. Our effective tax rate for continuing operations during thenine months ended* September 30, 2025* and* September 30, 2024* was 6.9% and 9.7%, respectively. The primary reason for the difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results from the federal Work Opportunity Tax Credit, which is designed to encourage employers to hire workers from certain targeted groups with higher-than-average unemployment rates. Other differences result from state income taxes, certain non-deductible expenses, and tax effects of stock-based compensation.

We use an intra-period tax allocation to allocate total income tax expense or benefit to the different components of continuing operations and discontinued operations. This allocation uses a with and without methodology to determine income tax expense for discontinued operations. Tax benefit allocated to discontinued operations was approximately $36 thousand and $14 thousand for thethree months ended* September 30, 2025* and* September 30, 2024*, respectively, and approximately $63 thousand and $49 thousand for thenine months ended* September 30, 2025* and* September 30, 2024*, respectively.

Impacts of Government Legislation

On* July 4, 2025,the “One Big Beautiful Bill Act” was signed into law, which includes significant changes to federal tax law and other regulatory provisions that mayimpact the Company. We are currently evaluating the provisions of the new law and the potential effects on our financial position, results of operations, and cash flows. However, the Company doesnot* expect the new law to have a material impact on its results of operations, financial condition, or liquidity.

Note13 - Segment Information

Management determined HQI is asingle reporting segment. The following table presents significant expenses regularly reviewed by our chief operating decision maker when determining resource allocation and assessing performance:

Other costs consist primarily of selling, general, and administrative costs and includes marketing and advertising, computer expenses, and legal and professional fees.

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Note14 - Discontinued Operations

In connection with the Dubin acquisition, certain assets acquired are still owned by us and classified as held-for-sale. When we acquired Dubin, there weretwo business lines. Dubin Workforce Solutions specialized in temporary labor assignments. The Dubin Group focused on permanent recruiting. We immediately sold the assets of Dubin Workforce Solutions to a new franchisee. There wasnot a franchisee identified for the Dubin Group portion of the business, however, we began marketing the franchise and classified it as held-for-sale immediately upon acquisition. We entered into an employment agreement with the seller to continue managing the business as a Company-owned location while it was held-for-sale. During2024, we actively solicited but didnot receive any reasonable offers to purchase the assets and, in response, have adjusted the price and increased efforts to grow the customer base. The franchise continues to be actively marketed at a price that is reasonable given its results of operation. We expect to complete a sale of these assets within the next12 months.

During thethird quarter of2025, we reviewed the intangible assets associated with discontinued operations for any indications of impairment. As a result of this review, we concluded the carrying value of the intangible asset associated with discontinued operations exceeded its estimated fair value resulting in an impairment charge of $100 thousand which is reported on the line item "Loss from discontinued operations, net of tax" on our Consolidated Statement of Operations. The fair value of discontinued operations was estimated using a discounted cash flow model. The related impairment is primarily attributable to industry and market conditions effecting the overall financial performance of this location. Intangible assets associated with discontinued operations consist of a customer list with a net carrying value of approximately $791 thousand and $891 thousand at* September 30, 2025* and* December 31, 2024*, respectively.

The net loss from discontinued operations as reported in our Consolidated Statements of Operations was comprised of the following amounts:

Note15 - Notes Receivable

Several franchisees borrowed funds from us primarily to finance the initial purchase price of office assets, including intangible assets.

Notes outstanding, net of allowance for losses, were approximately $6.9 million and $7.8 million as of* September 30, 2025* and* December 31, 2024*, 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 "Interest income" in our Consolidated Statements of Operations. Interest income was approximately $131 thousand and $138 thousand during thethree months ended* September 30, 2025* and* September 30, 2024*, respectively, and approximately $393 thousand and $424 thousand during thenine months ended* September 30, 2025* and* September 30, 2024*, respectively.

We estimate the allowance for credit losses for franchisees separately from the allowance for credit losses from non-franchisees because of the level of detailed sales information available to us with respect to our franchisees. Based on our review of available collateral historical information, current conditions, and reasonable and supportable forecasts, we have established an allowance of approximately $1.1 million and $773 thousand as of* September 30, 2025* and* December 31, 2024*, respectively, for credit losses.

The following table summarizes our notes receivable balance to franchisees:

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