XML 20 R9.htm IDEA: XBRL DOCUMENT v3.21.1
3. Related Party Transactions
 3 Months Ended
Mar. 31, 2021
Related Party Transactions [Abstract]  
Related Party Transactions

Some significant shareholders of HQI also own portions of Jackson Insurance Agency; Bass Underwriters, Inc; Insurance Technologies, Inc.; and a number of our franchisees.

 

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

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

 

Premiums, taxes, and fees invoiced by Jackson Insurance and Bass to HQI for these insurance policies during the three months ended March 31, 2021 and March 31, 2020 were approximately $584,000 and $561,000, respectively. Jackson Insurance and Bass do not retain the majority of the premiums invoiced to HQI, but they do retain a commission of approximately 9% - 15% of premiums.

 

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 the Snelling and Link acquisitions. This arrangement was reviewed and approved by the Audit Committee of our Board of Directors and is monitored by the Audit Committee twice annually.

 

During the three months ended March 31, 2021 and March 31, 2020, Insurance Technologies invoiced HQI approximately $102,000 and $50,000, respectively, for services provided pursuant to this agreement. We expect spending pursuant to this agreement to become immaterial in the third quarter of 2021.

 

The Worlds Franchisees

Mr. Jackson and immediate family members of Mr. Hermanns have significant ownership interests in, and Mr. Hermanns serves as manager of, certain of our franchisees (the “Worlds Franchisees”). There were 21 Worlds Franchisees at March 31, 2021 that operated 57 of our 212 offices.

 

Transactions regarding the Worlds Franchisees are summarized below:

 

    Three months ended  
    March 31, 2021     March 31, 2020  
Franchisee royalties   $ 1,613,009     $ 1,373,876  

 

Balances regarding the Worlds Franchisees are summarized below:

 

    March 31, 2021     December 31, 2020  
Due to franchisee   $ 632,335     $ 435,072  
Risk management incentive program liability     858,868       499,199