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Related Party Transactions
 6 Months Ended
Jun. 30, 2021
Related Party Transactions  
Note 3 - Related Party Transactions

Note 3 – Related Party Transactions

 

Several 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 significant stockholder, and an immediate family of member of Mr. Jackson 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).

 

During the three months ended June 30, 2021 and June 30, 2020, Jackson Insurance and Bass invoiced HQI approximately $-0- and $101,000, respectively for premiums, taxes, and fees for these insurance policies. During the six months ended June 30, 2021 and June 30, 2020, Jackson Insurance and Bass invoiced HQI approximately $584,000 and $662,000, respectively for premiums, taxes, and fees for these insurance policies. 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.

 

During the three months ended June 30, 2021 and June 30, 2020, Insurance Technologies invoiced HQI approximately $90,000 and $50,000, respectively, for services provided pursuant to this agreement. During the six months ended June 30, 2021 and June 30, 2020, Insurance Technologies invoiced HQI approximately $193,000 and $100,000, respectively, for services provided pursuant to this agreement. We have retained a fulltime CIO and thus expect spending pursuant to this agreement to become immaterial in the third quarter of 2021 and onward.

 

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 21 Worlds Franchisees at June 30, 2021 that operated 57 of our 212 offices.

 

Transactions regarding the Worlds Franchisees are summarized below:

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

Franchisee royalties

 

$1,163,789

 

 

$1,089,020

 

 

$2,776,799

 

 

$2,462,895

 

 

Balances regarding the Worlds Franchisees are summarized below:

 

 

 

June 30,

2021

 

 

December 31,

2020

 

Due to franchisee

 

$816,392

 

 

$435,072

 

Risk management incentive program

 

 

957,278

 

 

 

499,199