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Related Party Transactions | 9 Months Ended
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Sep. 30, 2021
Related Party Transactions |
Note 3 - Related Party Transactions | Note 3 - Related Party Transactions Prior to entering into any related party transaction, the Audit Committee shall review all relevant information available. The Audit Committee, in its sole discretion, may approve 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 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 a member of Mr. Jackson’s immediate family 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 September 30, 2021 and September 30, 2020, Jackson Insurance and Bass invoiced HQI approximately $117,000 and $178,000, respectively, for premiums, taxes, and fees for these insurance policies. During the nine months ended September 30, 2021 and September 30, 2020, Jackson Insurance and Bass invoiced HQI approximately $701,000 and $726,000, 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 September 30, 2021 and September 30, 2020, Insurance Technologies invoiced HQI approximately $5,000 and $50,000, respectively, for services provided pursuant to this agreement. During the nine months ended September 30, 2021 and September 30, 2020, Insurance Technologies invoiced HQI approximately $198,000 and $135,000, respectively, for services provided pursuant to this agreement. We have retained a fulltime CIO and thus spending pursuant to this agreement became immaterial in the third quarter of 2021. 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 24 Worlds Franchisees at September 30, 2021 that operated 58 of our 213 offices. Transactions regarding the Worlds Franchisees are summarized below:
|  | Three months ended |  |  | Nine months ended |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  |  | September 30, 2020 |
Franchisee royalties |  | $ | 1,137,369 |  |  | $ | 1,196,956 |  |  | $ | 3,914,167 |  |  | $ | 3,659,851 |
Balances regarding the Worlds Franchisees are summarized below:
|  | September 30, 2021 |  |  | December 31, 2020 |
Due to franchisee |  | $ | 1,149,206 |  |  | $ | 435,072 |
Risk management incentive program payable |  |  | 500,612 |  |  |  | 499,199 |

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39691-107864 + Details
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