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4. Related Party Transactions

3 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

Related Party Transactions

Some 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, Bass Underwriters, Inc. and its related entities; Insurance Technologies, Inc.; and a number of our franchisees.

Hire Quest Financial LLC (“HQF”)

Richard Hermanns, our President, 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 between Legacy HQ and Command Center. At March 31, 2020 and December 31, 2019, HQI was not indebted to HQF for any amount. We currently have no business dealings with HQF.

Hirequest Insurance Company (“HQ Ins.”)

Mr. Hermanns, 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 originally obtained through AIG and, later, through ACE American Insurance Company. Hire Quest, LLC terminated its policy with HQ Ins. on July 15, 2019 upon the closing of the Merger. For additional information related to our workers’ compensation insurance, see Note 6 – Workers’ Compensation Insurance and Reserves.

Premiums invoiced by HQ Ins. to Legacy HQ for workers compensation deductible reimbursement insurance during the quarters ended March 31, 2020 and March 31, 2019 were approximately $-0- and $1.8 million, respectively. We currently have no business dealings with HQ Ins.

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

Mr. Jackson and Mr. Hermanns' son-in-law collectively own a majority of HQ LTS.

Historically, HQ LTS employed the personnel at Legacy HQ headquarters. HQI terminated this relationship on July 15, 2019 upon the closing of the Merger. HQ LTS invoiced us approximately $7,000 during the quarter ended March 31, 2019. We currently have no business dealings with HQ LTS.

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

Mr. Jackson owns a majority of Jackson Insurance. Mr. Jackson, Mr. Hermanns, and irrevocable trusts set up by each of them, collectively own a majority of Bass, a large managing general agent. Jackson Insurance and Bass brokered Legacy HQ's property, casualty, general liability, and cybersecurity insurance prior to the Merger. Since July 15, 2019, they have brokered these same policies for the Company. Jackson Insurance also brokers certain insurance policies on behalf of some of our franchisees, including the Worlds Franchisees.

Premiums, taxes, and fees invoiced by Jackson Insurance and Bass for the Company's 2020 polices were approximately $561,000 in the first quarter of 2020. These entities invoiced Hire Quest, LLC approximately $240,000 in the first quarter of 2019. Jackson Insurance and Bass do not retain the majority of the premiums, but they do retain a commission of approximately 9% - 15% of premiums depending on the market.

Insurance Technologies, Inc. ("Insurance Technologies")

Mr. Jackson, Mr. Hermanns, and irrevocable trusts set up by each of them, collectively are the majority owners of Insurance Technologies, an IT development and security firm. On October 24, 2019, the Company 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. Insurance Technologies invoiced the Company approximately $50,000 in the first quarter of 2020 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 20 Worlds Franchisees at March 31, 2020 that operated 48 of our 135 offices.

Balances regarding the Worlds Franchisees are summarized below:

		March 31, 2020				December 31, 2019
Due to franchisee		$	1,034,194			$	993,495
Risk management incentive program			1,186,135				1,027,960

Transactions regarding the Worlds Franchisees are summarized below:

		Quarter ended
		March 31, 2020				March 31, 2019
Franchisee royalties		$	1,373,876			$	1,633,782