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Note 3 - Related Party Transactions

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note 3 - Related Party Transactions

Prior to entering into a related party transaction which is disclosable pursuant to Item 404 of Regulation S-K, 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 (in whole or in part).

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

Edward Jackson, a member of our Board and significant stockholder, and a member of Mr. Jackson’s immediate family own Jackson Insurance. Mr. Jackson, Richard 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.

In March of 2021, we sold approximately $5.3 million of notes receivable to Bass, without recourse. Virtually all of the notes sold to Bass originated from the sale of branch locations acquired in the 2019 merger with Command Center, Inc. These notes were sold at their current outstanding principal value. The proceeds from the sale of these notes were used to help finance the Snelling and LINK transactions.

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, 2022 and June 30, 2021, Jackson Insurance and Bass invoiced HQI approximately $145 thousand and $0, respectively, for premiums, taxes, and fees related to these insurance policies. During the six months ended June 30, 2022 and June 30, 2021, Jackson Insurance and Bass invoiced HQI approximately $252 thousand and $584 thousand, respectively, for premiums, taxes, and fees related to these insurance policies. Jackson Insurance and Bass 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, 2022 and June 30, 2021, Insurance Technologies invoiced HQI approximately $27 thousand and $90 thousand, respectively, for services provided pursuant to this agreement. During the six months ended June 30, 2022 and June 30, 2021, Insurance Technologies invoiced HQI approximately $37 thousand and $193 thousand, respectively, for services provided pursuant to this agreement. We have retained a full time CIO since June, 2021 and thus spending pursuant to this agreement decreased significantly beginning 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 25 Worlds Franchisees at June 30, 2022 that operated 64 of our 225 offices. Concurrent with the acquisitions of Temporary Alternatives and Northbound, we sold a portion of the assets acquired to entities partially owned by the Worlds Franchisees. The two franchises and four locations from these acquisitions are included in the numbers above. Gross proceeds from the sale of Temporary Alternatives was $2.9 million and we recognized a loss of $1.1 million. Gross proceeds from the sale of Northbound was $6.4 million and we recognized a loss of $1.3 million.

Concurrent with the Snelling acquisition in 2021 we sold the Princeton, NJ assets acquired to an entity partially owned by the Worlds Franchisees. Gross proceeds from the sale of Princeton was $81 thousand and we recognized a gain of $81 thousand.

Other transactions regarding the Worlds Franchisees are summarized below (in thousands):

		*Three months ended*								*Six months ended*
		*June 30, 2022*				*June 30, 2021*				*June 30, 2022*				*June 30, 2021*
Franchisee royalties		$	2,181			$	1,164			$	4,265			$	2,777

Balances regarding the Worlds Franchisees are summarized below (in thousands):

		*June 30, 2022*				*December 31, 2021*
Due to franchisee		$	2,118			$	535
Risk management incentive program liability			593				703