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Note 3 - Related Party Transactions

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note 3 - Related Party Transactions

Prior to entering into any related party transaction, the Audit Committee reviews 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 and directors 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 March 31, 2022 and March 31, 2021, Jackson Insurance and Bass invoiced HQI approximately $107 thousand and $584 thousand, respectively, for premiums, taxes, and fees related to 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 March 31, 2022 and March 31, 2021, Insurance Technologies invoiced HQI approximately $14 thousand and $102 thousand, respectively, for services provided pursuant to this agreement. We have retained a full time 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 March 31, 2022 that operated 65 of our 226 offices. Concurrent with the acquisitions of Temporary Alternatives and Northbound, we sold a portion of the assets acquired to entites partially owned by the Worlds. The two franchises and four locations from these acquisitions are included in the numbers above.

Transactions regarding the Worlds Franchisees are summarized below:

		*Three months ended*
(in thousands)			*March 31, 2022*				*March 31, 2021*
Franchisee royalties		$	2,084			$	1,613

Balances regarding the Worlds Franchisees are summarized below:

(in thousands)			*March 31, 2022*				*March 31, 2021*
Due to franchisee		$	806			$	535
Risk management incentive program payable			568				704