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, SearchPath, and Sales Consultants specialize in executive placement and consultant services.

On* December 1, 2025,HQ MRI Corporation (“HQ MRI”), a wholly-owned subsidiary of the Company, entered into a Contribution Agreement with MRINetwork Operations (“MRINO”), which became effective and closed on January 1, 2026.Under this agreement, HQ MRI contributed certain assets and liabilities associated with its permanent placement franchise base, including those necessary for day-to-day operations, in exchange for approximately 40% of the ownership interest in MRINO. The contract-staffing assets of the MRINetwork were excluded from the transaction and retained by HQ MRI. Please refer toNote2 - Investment in MRINetwork Operations* for additional information.

As of* March 31, 2026*, we had 257 franchisee-owned offices and1 company-owned office in 39 states, the District of Columbia, and 1 country outside of the United States. We are the employer of record to approximately 75 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, 2025*. Results for the interim periods presented arenot necessarily indicative of the results expected for the full year or for any other period.

Share Repurchase Plan

From time to time, we repurchase shares of our common stock pursuant to a share repurchase program approved by our Board of Directors. Repurchased shares are initially recorded as treasury stock and are periodically retired and cancelled. The excess of the repurchase price over the par value of the shares is allocated to retained earnings in accordance with applicable accounting guidance. Direct costs associated with share repurchases are included as part of the cost of the shares acquired. Repurchased shares that are retired reduce the number of shares issued and outstanding.

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.

In addition, in connection with the formation of MRINO on* January 1, 2026,we evaluated our investment under U.S GAAP, including considerationof MRINO’s capitalization and our involvement in providing initial funding. We determined that, although MRINO is a VIE, we donot* have the power to direct the activities that most significantly impact MRINO’s economic performance. Accordingly, we arenot the primary beneficiary, and the investment is accounted for under the equity method of accounting.

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.

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.

Marketing and Advertising

We expense advertising and marketing costs as we incur them. These costs were approximately $368 thousand and $378 thousand during thethree months ended* March 31, 2026* and* March 31, 2025*, 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 had 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): Disaggregation of Income Statement Expenses" 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* September 2025,the FASB issued ASU2025*-06, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic350-40): Targeted Improvements to the Accounting for Internal-Use Software.” ASU2025-06 eliminates references to project stages and instead requires an entity to start capitalizing software costs once both of the following criteria have been met: (1) management has authorized and committed to funding the software project, and (2) it is probable that the project will be completed and the software will be used for its intended function. ASU2025-06 is effective for fiscal years beginning after* December 15, 2027*and interim reporting periods within those annual reporting periods. The guidance can be applied on a prospective basis, a modified basis for in-process projects or a retrospective basis, and early adoption is permitted. We are currently evaluating the impact of this ASU.

In* December 2025,the FASB issued ASU2025*-11, “Interim Reporting (Topic270): Narrow-Scope Improvements.” ASU2025-11 clarifies the applicability of interim reporting guidance under ASC270 and reorganizes certain interim disclosure requirements to improve consistency and navigability within the Codification. The ASU also introduces a disclosure principle requiring entities to disclose events and changes that occur after the end of the most recent annual reporting period that have a material impact on the entity. ASU2025-11 is effective for interim reporting periods within annual reporting periods beginning after* December 15, 2027,and early adoption is permitted. We are currently evaluating the impact this ASU may*have on our consolidated financial statements and related disclosures.

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Note2 - Investment in MRINetwork Operations

Transaction Overview

On* January 1, 2026,HQ MRI contributed certain assets associated with the permanent placement franchise base of MRI to MRINO, a newly formed entity, in exchange for an approximate 40% ownership interest. We evaluated our interest under U.S. GAAP and determined that we donot* have a controlling financial interest in MRINO and we arenot the primary beneficiary of a VIE. Accordingly, the investment is accounted for under the equity method of accounting.

The assets transferred consisted primarily of franchise agreements and related prepaid assets. In connection with these franchise agreements, we had previously recorded deferred revenue related to nonrefundable upfront franchise fees and capitalized contract costs (broker fees).

Upon closing, we wereno longer the franchisor for the MRI permanent placement franchise base andno longer have continuing involvement as the franchisor or remaining performance obligations associated with the transferred franchise agreements.

Accounting for the Transaction

The transaction was accounted for as a transfer of nonfinancial assets to a noncustomer. Control of the transferred assets passed to MRINO on* January 1, 2026,and we derecognized the related assets and liabilities at that time. Deferred revenue associated with upfront franchise fees was derecognized upon transfer of the underlying contracts as weno* longer have performance obligations. Capitalized contract costs were derecognized concurrently with the related contracts. These amounts were included in the carrying value of net assets derecognized in determining the gain on the transaction. The equity interest received was measured at fair value on the date of the transaction and recorded as an equity method investment which is included in the line item "Investment in unconsolidated affiliate" on our Consolidated Balance Sheets.

Post-Formation Funding

At formation, MRINO had limited initial working capital, and it was expected that HQI would provide funding to support initial operations. During thethree months ended* March 31, 2026,we funded approximately $480 thousand of MRINO-related costs. We evaluated the nature of this funding and determined that the amount representing our proportionate ownership, or approximately $192 thousand, was considered in determining the overall transaction economics from a market participant perspective. Accordingly, this amount was reflected as an adjustment to the gain on divestiture. The remaining portion of the funding of approximately $286 thousand is expected to be reimbursed based on contractual arrangements by MRINO and has been recorded as a note receivable as of March 31, 2026.*

Gain on Divestiture

We recognized a gain on divestiture of approximately $248 thousand during thethree months ended* March 31, 2026,*which is included in the line item "Gain on divestiture" on our Consolidated Statements of Income. The gain represents the difference between the fair value of the equity interest received, adjusted as described below, and the carrying value of the net assets derecognized.

The fair value of the equity interest received was determined based on a valuation of MRINO utilizing an income approach based on discounted cash flows, which incorporated Level3 inputs, including projected future cash flows, estimated profitability, terminal growth assumptions and discount rates reflecting the risks associated with the business and projected cash flows. Management, with the assistance of athird-party valuation specialist, evaluated the reasonableness of the significant assumptions utilized in the valuation.

The components of the gain calculation were as follows (in thousands):

Equity Method Investment

HQI’s investment in MRINO is accounted for under the equity method of accounting. The initial carrying value of the investment was based on the fair value of the equity interest received at the transaction date. During thethree months ended* March 31, 2026,we increased our investment by approximately $192 thousand related to our proportionate share of funding provided to MRINO which represents an additional capital contribution to MRINO. We report our share of MRINO’s results of operations on athree*-month lag, as MRINO’s financial information isnot available on a sufficiently timely basis. Accordingly, our results for thethree months ended* March 31, 2026donot* include our share of MRINO’s earnings or losses for that period. The use of a reporting lag is applied consistently from period to period.

We evaluate events and transactions occurring between MRINO’s reporting date and our reporting date for materiality and record adjustments, as necessary, to reflect the impact of any significant intervening events.

We will recognize our share of MRINO’s earnings or losses in future periods in accordance with U.S. GAAP.

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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, directors of HQI, and immediate family members of certain 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 Chief Executive Officer, 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* March 31, 2026* and* March 31, 2025*, Jackson Insurance and Bass invoiced HQI approximately $1.4 million and $1.5 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* March 31, 2026* and* March 31, 2025*, Insurance Technologies invoiced HQI approximately $46 thousand and $91 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* March 31, 2026* that operated 67 of our 257 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. 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* March 31, 2026* 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* March 31, 2026* 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* March 31, 2026* the effective interest rate was approximately 4.7%. 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* March 31, 2026*, 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 seeNote6* - 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. We maintain company-owned life insurance policies related to our nonqualified deferred compensation plan carried at their cash surrender value which approximates their fair value.

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**

Stock Repurchase Plan

In* December 2025,our Board of Directors authorized aone*-year repurchase plan pursuant to which we can repurchase up to $20 million of our outstanding common stock. The following table summarizes information related to purchases of our common stock during thethree months ended* March 31, 2026*:

Subsequent to* March 31, 2026and through the filing date of this Quarterly Report on Form10*-Q, we repurchased an additional approximately 54 thousand shares of our common stock for an aggregate cost of approximately $572 thousand under this program.

Dividend

The following common share dividends were paid during2026 and2025:

Treasury Stock Retirement

During thethree months ended* March 31, 2026,we retired 48,849 shares of treasury stock that had been repurchased in prior periods. These shares were formally cancelled and areno* longer held in treasury.

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 three months of2026, we issued 980 shares valued at approximately $12 thousand under this program. During thefirst three months of2025, we issued 681 shares valued at approximately $9 thousand under this program.

In thefirst three months of2026, we issued 5,882 shares of restricted common stock pursuant to the2019 Plan valued at approximately $70 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these,4,902 shares vested equally over thethree months post grant. The remaining 980 shares were issued pursuant to our share purchase match program. Also in thefirst three months of2026, we issued 75,000 shares of restricted common stock to key employees for services in lieu of cash compensation valued at approximately $893 thousand that vest over 4 years.

In thefirst three months of2025, we issued 4,096 shares of restricted common stock pursuant to the2019 Plan valued at approximately $55 thousand to members of our Board of Directors for their services in lieu of cash compensation. Of these,3,415 shares vested equally over thethree months post grant. The remaining 681 shares were issued pursuant to our share purchase match program.

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The following table summarizes our restricted stock outstanding at* December 31, 2025*, and changes during thethree months ended* March 31, 2026*.

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* March 31, 2026* and* December 31, 2025*.

The following table summarizes our stock options outstanding at* December 31, 2025*, and changes during thethree months ended* March 31, 2026*.

There wereno non-vested stock options outstanding at* March 31, 2026* or at* December 31, 2025*.

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 $9.98 at* March 31, 2026*.

At* March 31, 2026*, there was unrecognized stock-based compensation expense totaling approximately $1.0 million relating to non-vested restricted stock grants that will be recognized over the next 3.9 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* March 31, 2026* and* March 31, 2025* totaled approximately 126 thousand and 109 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

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

Indefinite-lived intangible assets

The following table reflects our indefinite-lived intangible assets:

Finite-lived intangible assets

The following table reflects our finite-lived intangible assets:

Amortization expense related to intangible assets totaled approximately $724 thousand and $696 thousand for thethree months ended* March 31, 2026* and* March 31, 2025*, 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 at* March 31, 2026* and at* December 31, 2025*.

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* March 31, 2026*.

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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* March 31, 2026* and* March 31, 2025* was 14.4 % and 10.5%, 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 federal hiring tax credits. 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 $3 thousand and $23 thousand for thethree months ended* March 31, 2026* and* March 31, 2025*, respectively.

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.

Intangible assets associated with discontinued operations consist of a customer list with a net carrying value of approximately $672 thousand at* March 31, 2026* and* December 31, 2025*.

The net loss from discontinued operations as reported in our Consolidated Statements of Income 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 $6.7 million as of* March 31, 2026* and* December 31, 2025*, 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 Income. Interest income was approximately $100 thousand and $134 thousand during thethree months ended* March 31, 2026* and* March 31, 2025*, 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 $1.2 million as of* March 31, 2026* and* December 31, 2025*, respectively, for credit losses.

The following table summarizes our notes receivable balance to franchisees:

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