UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
(Amendment No. 1)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, March 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number of the issuing entity:File Number: 001-40020
RELIANCE GLOBAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida | ||
(State or other jurisdiction of incorporation or organization) |
|
524210
(Primary Standard Industrial Code Classification Number)
46-3390293
I.R.S. Employer Identification Number
300 Blvd. of the Americas, Suite 105 Lakewood, NJ 08701
(Address of principal executive offices) (Zip Code)
732732-380-4600
(Address, including zip code, andRegistrant’s telephone number, including area code of registrant’s principal executive offices)code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | RELI | The Nasdaq Capital Market | ||
Series A Warrants | RELIW | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes: ☒ No:No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes Yes: ☒ No:No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company, in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).
Yes:Yes ☐ No:No ☒
At November 14,May 16, 2022 the registrant had shares of common stock, par value $0.086 per share, outstanding.outstanding (after giving effect to the 1-for-15 reverse stock split that became effective on February 23, 2023).
EXPLANATORY NOTE
Reliance Global Group, Inc. (the “Company”) filed its Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, with the Securities and Exchange Commission (“SEC”) on May 16, 2022 (the “Original Form 10-Q”). This Amendment No. 1 on Form 10-Q/A (“Amendment No. 1” or “Form 10-Q/A”) is being filed to:
(i) | reflect the restatement of earnings per share (“EPS”) information (the “Restatement”) in the condensed consolidated statements of operations for the three months ended March 31, 2022; |
(ii) | insert additional disclosure relating to the Restatement to Note 2; |
(iii) | replace Note 12 from the Original Form 10-Q in its entirety as a result of the Restatement; |
(iv) | revise share and per share information throughout the Form 10-Q/A to give effect to the 1-for-15 reverse stock split that became effective on February 23, 2023 (the “Reverse Split”); |
(v) | revise Part I, Item 4 to indicate that the Company’s disclosure controls and procedures were not effective as of March 31, 2022; |
(vi) | replace the exhibit index contained in Item 6 in its entirety; |
(vii) | provide current dated certifications; |
(viii) | correct certain immaterial errors on the cover sheet to the Form 10-Q/A. |
The Restatement is due to the Company performing an evaluation of its accounting in connection with the calculation of its basic and diluted EPS for the three months ended March 31, 2022, and identification of errors in such calculation for the prior period. On May 12, 2023, management concluded its evaluation and determined that the identified errors require the filing of Amendment No. 1, as further discussed in Notes 2 and 12 to the unaudited condensed consolidated financial statements included in this Form 10-Q/A.
The following items have been amended in this Amendment No. 1:
● | Part I — Item 1. Financial Statements | |
● | Part I – Item 4. Controls and Procedures | |
● | Part II – Item 6. Exhibits |
Except as described above, no other changes have been made to the Original Form 10-Q, and Amendment No. 1 does not modify, amend or update in any way revenue, expenses, net income (loss), or any of the financial or other information contained in the Original Form 10-Q. Amendment No. 1 does not reflect events that may have occurred subsequent to the filing date of the Original Form 10-Q other than adjusting, in the Items amended herein, common stock share and price per share information for the 1-for-15 reverse stock split that became effective February 23, 2023.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, 2022 | December 31, 2021 | |||||||||||||||
September 30, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 1,615,054 | $ | 4,136,180 | $ | 5,491,407 | $ | 4,136,180 | ||||||||
Restricted cash | 1,409,562 | 484,542 | 484,351 | 484,542 | ||||||||||||
Accounts receivable | 1,025,120 | 1,024,831 | 1,173,383 | 1,024,831 | ||||||||||||
Accounts receivable, related parties | 1,159 | 7,131 | 1,642 | 7,131 | ||||||||||||
Note receivables | - | - | ||||||||||||||
Other receivables | 37,674 | - | 7,336 | - | ||||||||||||
Prepaid expense and other current assets | 399,506 | 2,328,817 | 111,639 | 2,328,817 | ||||||||||||
Total current assets | 4,488,075 | 7,981,501 | 7,269,758 | 7,981,501 | ||||||||||||
Property and equipment, net | 199,030 | 130,359 | 147,140 | 130,359 | ||||||||||||
Right-of-use assets | 1,327,361 | 1,067,734 | 1,287,636 | 1,067,734 | ||||||||||||
Investment in NSURE, Inc. | 1,350,000 | 1,350,000 | 1,350,000 | 1,350,000 | ||||||||||||
Intangibles, net | 14,359,973 | 7,078,900 | 11,895,223 | 7,078,900 | ||||||||||||
Goodwill | 33,486,107 | 10,050,277 | 29,249,285 | 10,050,277 | ||||||||||||
Other non-current assets | 23,284 | 16,792 | 69,784 | 16,792 | ||||||||||||
Total assets | $ | 55,233,830 | $ | 27,675,563 | $ | 51,268,826 | $ | 27,675,563 | ||||||||
Liabilities and stockholders’ equity (deficit) | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and other accrued liabilities | $ | 1,221,583 | $ | 2,759,160 | $ | 1,043,117 | $ | 2,759,160 | ||||||||
Chargeback reserve | 1,585,435 | - | ||||||||||||||
Other payables | 1,241,341 | 81,500 | 80,033 | 81,500 | ||||||||||||
Chargeback reserve | 1,350,533 | - | ||||||||||||||
Short term Financing Agreements | 309,993 | - | ||||||||||||||
Current portion of long-term debt | 1,026,541 | 913,920 | 918,073 | 913,920 | ||||||||||||
Current portion of leases payable | 538,018 | 276,009 | 434,045 | 276,009 | ||||||||||||
Earn-out liability, current portion | 2,283,380 | 3,297,855 | 3,774,411 | 3,297,855 | ||||||||||||
Warrant commitment | - | 37,652,808 | - | 37,652,808 | ||||||||||||
Total current liabilities | 7,971,389 | 44,981,252 | 7,835,114 | 44,981,252 | ||||||||||||
Loans payable, related parties, less current portion | 1,679,560 | 353,766 | 342,996 | 353,766 | ||||||||||||
Long term debt, less current portion | 12,640,673 | 7,085,325 | 6,860,467 | 7,085,325 | ||||||||||||
Leases payable, less current portion | 833,395 | 805,326 | 871,234 | 805,326 | ||||||||||||
Earn-out liability, less current portion | 635,647 | 516,023 | 446,538 | 516,023 | ||||||||||||
Warrant liabilities | 3,107,578 | - | 23,660,144 | - | ||||||||||||
Total liabilities | 26,868,242 | 53,741,692 | 40,016,493 | 53,741,692 | ||||||||||||
Stockholders’ equity (deficit): | ||||||||||||||||
Preferred stock, $ par value; shares authorized and issued and outstanding as of September 30, 2022 and December 31, 2021 | - | - | ||||||||||||||
Common stock, $ par value; shares authorized and and issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 1,551,358 | 940,829 | ||||||||||||||
Preferred stock, $ | par value; shares authorized and and issued and outstanding as of March 31, 2022 and December 31, 2021, respectively781 | - | ||||||||||||||
Common stock, $ | par value; shares authorized and and issued and outstanding as of March 31, 2022 and December 31, 2021, respectively64,999 | 62,815 | ||||||||||||||
Additional paid-in capital | 34,314,591 | 26,451,187 | 35,304,698 | 27,329,201 | ||||||||||||
Stock subscription receivable | - | (20,000,000 | ) | - | (20,000,000 | ) | ||||||||||
Accumulated deficit | (7,500,361 | ) | (33,458,145 | ) | (24,118,145 | ) | (33,458,145 | ) | ||||||||
Total stockholders’ equity (deficit) | 28,365,588 | (26,066,129 | ) | 11,252,333 | (26,066,129 | ) | ||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 55,233,830 | $ | 27,675,563 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 51,268,826 | $ | 27,675,563 |
The accompanying notes are an integral part of these condensed consolidated financial statements
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | March 31, 2022 | March 31, 2021 | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | March 31, 2022 | March 31, 2021 | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Commission income | $ | 4,153,361 | $ | 2,581,636 | $ | 12,596,268 | $ | 7,096,213 | $ | 4,235,781 | $ | 2,323,730 | ||||||||||||
Total revenue | 4,153,361 | 2,581,636 | 12,596,268 | 7,096,213 | 4,235,781 | 2,323,730 | ||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Commission expense | 862,857 | 660,708 | 2,617,140 | 1,748,451 | 904,156 | 529,472 | ||||||||||||||||||
Salaries and wages | 2,114,730 | 1,188,267 | 6,373,697 | 3,217,441 | 2,082,175 | 918,545 | ||||||||||||||||||
General and administrative expenses | 1,253,097 | 755,130 | 5,465,384 | 2,961,881 | 2,453,070 | 1,004,401 | ||||||||||||||||||
Marketing and advertising | 726,115 | 65,010 | 1,922,520 | 143,110 | 587,022 | 23,079 | ||||||||||||||||||
Depreciation and amortization | 713,444 | 387,729 | 2,077,372 | 1,090,183 | 607,525 | 333,088 | ||||||||||||||||||
Total operating expenses | 5,670,243 | 3,056,844 | 18,456,113 | 9,161,066 | 6,633,948 | 2,808,585 | ||||||||||||||||||
Loss from operations | (1,516,882 | ) | (475,208 | ) | (5,859,845 | ) | (2,064,853 | ) | (2,398,167 | ) | (484,855 | ) | ||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Other expense, net | (280,340 | ) | (120,025 | ) | (580,900 | ) | (421,192 | ) | (107,797 | ) | (129,071 | ) | ||||||||||||
Recognition and change in fair value of warrant liabilities | 7,919,315 | - | 32,398,530 | - | 11,845,964 | - | ||||||||||||||||||
Total other income (expense) | 7,638,975 | (120,025 | ) | 31,817,630 | (421,192 | ) | 11,738,167 | (129,071 | ) | |||||||||||||||
Net income (loss) | $ | 6,122,093 | $ | (595,233 | ) | $ | 25,957,785 | $ | (2,486,045 | ) | $ | 9,340,000 | $ | (613,926 | ) | |||||||||
Basic earnings (loss) per share | $ | 0.35 | $ | (0.05 | ) | $ | 1.10 | $ | (0.25 | ) | $ | 2.46 | $ | (1.22 | ) | |||||||||
Diluted earnings (loss) per share | $ | (0.10 | ) | $ | (0.05 | ) | $ | (0.78 | ) | $ | (0.25 | ) | $ | (9.69 | ) | $ | (1.22 | ) | ||||||
Weighted average number of shares outstanding - Basic | 17,424,267 | 10,944,439 | 17,320,146 | 9,809,092 | 980,569 | 502,825 | ||||||||||||||||||
Weighted average number of shares outstanding - Diluted | 17,424,267 | 10,944,439 | 17,320,146 | 9,809,092 | 1,195,480 | 502,825 |
The accompanying notes are an integral part of these condensed consolidated financial statements
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reliance Global Group, Inc. | Reliance Global Group, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | Common stock | Common stock issuable | Additional paid-in | Subscription | Accumulated | Preferred stock | Common stock | Common stock issuable | Additional paid-in | Subscription | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | - | $ | - | 10,956,109 | $ | 940,829 | - | $ | - | $ | 26,451,187 | $ | (20,000,000 | ) | $ | (33,458,145 | ) | $ | (26,066,129 | ) | - | $ | - | $ | 62,815 | - | $ | - | $ | 27,329,201 | $ | (20,000,000 | ) | $ | (33,458,145 | ) | $ | (26,066,129 | ) | |||||||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 739,960 | - | - | 739,960 | - | - | - | - | - | - | 739,960 | - | - | 739,960 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued due to private placement | 9,076 | 781 | 2,670,892 | 229,694 | - | - | (230,424 | ) | 20,000,000 | - | 20,000,051 | 9,076 | 781 | 178,059 | 15,313 | - | - | (16,043 | ) | 20,000,000 | - | 20,000,051 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to acquisition of Medigap | - | - | 606,037 | 52,119 | - | - | 4,711,332 | - | - | 4,763,451 | - | - | 40,402 | 3,475 | - | - | 4,759,976 | - | - | 4,763,451 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of Series A warrants | - | - | 375,000 | 32,250 | - | - | 2,442,750 | - | - | 2,475,000 | - | - | 25,000 | 2,150 | - | - | 2,472,850 | - | - | 2,475,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of prefunded Series C Warrants in exchange for common shares | - | - | (3,276,929 | ) | (281,815 | ) | - | - | 281,815 | - | - | - | - | - | (218,462 | ) | (18,788 | ) | - | - | 18,788 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued for vested stock awards | - | - | 6,000 | 516 | - | - | (516 | ) | - | - | - | - | - | 400 | 34 | - | - | (34 | ) | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | - | - | - | 9,340,000 | 9,340,000 | - | - | - | - | - | - | - | - | 9,340,000 | 9,340,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 9,076 | $ | 781 | 11,337,109 | $ | 973,593 | - | $ | - | $ | 34,396,104 | $ | - | $ | (24,118,145 | ) | $ | 11,252,333 | 9,076 | $ | 781 | 755,806 | $ | 64,999 | - | $ | - | $ | 35,304,698 | $ | - | $ | (24,118,145 | ) | $ | 11,252,333 | ||||||||||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 179,083 | - | - | 179,083 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for conversion of Series C warrants | - | - | 3,276,929 | 281,815 | - | - | (280,479 | ) | - | - | 1,336 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | - | - | - | 10,495,691 | 10,495,691 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 9,076 | $ | 781 | 14,614,038 | $ | 1,255,408 | - | $ | - | $ | 34,294,708 | $ | - | $ | (13,622,454 | ) | $ | 21,928,443 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Share based compensation | - | - | - | - | - | - | 314,257 | - | - | 314,257 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for conversion of Series D warrants | - | - | 1,221,347 | 105,100 | - | - | (104,305 | ) | - | - | 795 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued due to conversion of preferred stock | (9,076 | ) | (781 | ) | 2,219,084 | 190,850 | - | - | (190,069 | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | - | - | - | 6,122,093 | 6,122,093 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | - | $ | - | 18,054,469 | $ | 1,551,358 | - | $ | - | $ | 34,314,591 | $ | - | $ | (7,500,361 | ) | $ | 28,365,588 |
The accompanying notes are an integral part of these condensed consolidated financial statements
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | in capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | capital | Deficit | Total | Reliance Global Group, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reliance Global Group, Inc. | Preferred stock | Common stock | Common stock issuable | Additional paid- | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | Common stock | Common stock issuable | Additional paid-in | Accumulated | Shares | Amount | Shares | Amount | Shares | Amount | in capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 395,640 | $ | 33,912 | 4,241,028 | $ | 363,517 | 23,341 | $ | 340,000 | $ | 11,559,239 | - | $ | (12,359,680 | ) | $ | (63,012 | ) | 395,640 | $ | 33,912 | $ | 24,315 | 1,556 | $ | 340,000 | $ | 11,898,441 | $ | (12,359,680 | ) | $ | (63,012 | ) | ||||||||||||||||||||||||||||||||||||||
Balance | 395,640 | $ | 33,912 | $ | 24,315 | 1,556 | $ | 340,000 | $ | 11,898,441 | $ | (12,359,680 | ) | $ | (63,012 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 246,966 | - | 246,966 | - | - | - | - | - | - | 246,966 | - | 246,966 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued for services | - | - | 15,000 | 1,290 | - | - | 89,760 | - | 91,050 | - | - | 1,000 | 86 | - | - | 90,964 | - | 91,050 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued due to public offering, net of offering costs of $1,672,852 | - | - | 1,800,000 | 154,800 | - | - | 8,954,348 | - | 9,109,148 | - | - | 120,000 | 10,320 | - | - | 9,098,828 | - | 9,109,148 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued due to private placement | - | - | 120,000 | 10,320 | - | - | 9,098,828 | - | 9,109,148 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over-allotment shares from offering, net of offering costs of $250,928 | - | - | 270,000 | 23,220 | - | - | 1,343,153 | - | 1,366,373 | - | - | 18,000 | 1,548 | - | - | 1,364,825 | - | 1,366,373 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants sold during public offering at quoted price | - | - | - | - | - | 20,700 | - | 20,700 | - | - | - | - | - | 20,700 | - | 20,700 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued due to conversion of preferred stock | (394,493 | ) | (33,812 | ) | 3,944,930 | 339,264 | - | - | (305,452 | ) | - | - | (394,493 | ) | (33,812 | ) | 22,618 | - | - | 11,194 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued due to conversion of debt | - | - | 633,333 | 54,467 | - | - | 3,745,533 | - | 3,800,000 | - | - | 3,631 | - | - | 3,796,369 | - | 3,800,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rounding shares related to initial public offering | - | - | 1,885 | - | (3 | ) | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to software purchase | - | - | 23,338 | 1,984 | (23,338 | ) | (340,000 | ) | 338,016 | - | - | - | - | 134 | (1,556 | ) | (340,000 | ) | 339,866 | - | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (613,926 | ) | (613,926 | ) | - | - | - | - | - | - | - | (613,926 | ) | (613,926 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | (613,926 | ) | (613,926 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | 1,147 | $ | 100 | 10,929,514 | $ | 938,542 | - | $ | - | $ | 25,992,263 | - | $ | (12,973,606 | ) | $ | 13,957,299 | 1,147 | $ | 100 | 728,634 | $ | 62,652 | - | $ | - | $ | 26,868,153 | $ | (12,973,606 | ) | $ | 13,957,299 | |||||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 183,132 | - | 183,132 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rounding shares related to initial public offering | 20 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to acquisition of Kush | - | - | 14,925 | 1,284 | - | - | 48,716 | - | 50,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (1,276,886 | ) | (1,276,886 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 1,167 | $ | 100 | 10,944,439 | $ | 939,826 | - | $ | - | $ | 26,224,111 | - | $ | (14,250,492 | ) | $ | 12,913,545 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 146,225 | - | 146,225 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rounding shares related to initial public offering | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to acquisition of Kush | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (595,233 | ) | (595,233 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | (595,233 | ) | (595,233 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 1,167 | $ | 100 | 10,944,439 | $ | 939,826 | - | $ | - | $ | 26,370,336 | - | $ | (14,845,725 | ) | $ | 12,464,537 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance | 1,147 | $ | 100 | 728,634 | $ | 62,652 | - | $ | - | $ | 26,868,153 | $ | (12,973,606 | ) | $ | 13,957,299 |
The accompanying notes are an integral p9rtpart of these condensed consolidated financial statements
Reliance Global Group, Inc. and Subsidiaries and Predecessor
Condensed Consolidated Statements of Cash Flows
(Unaudited)
2022 | 2021 | |||||||
Nine months ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 25,957,785 | $ | (2,486,045 | ) | |||
Adjustment to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | 2,077,372 | 1,090,183 | ||||||
Amortization of debt issuance costs and accretion of debt discount | 28,702 | 37,822 | ||||||
Non-cash lease expense | 30,451 | 2,331 | ||||||
Stock compensation expense | 1,233,300 | 667,373 | ||||||
Earn-out fair value and write-off adjustments | 132,445 | - | ||||||
Recognition and change in fair value of warrant liabilities | (32,398,530 | ) | - | |||||
Change in operating assets and liabilities: | ||||||||
Accounts payables and other accrued liabilities | (1,541,037 | ) | (314,045 | ) | ||||
Accounts receivable | 92,297 | (87,058 | ) | |||||
Accounts receivable, related parties | 5,972 | (7,131 | ) | |||||
Other receivables | (37,674 | ) | 3,825 | |||||
Other payables | 34,841 | (112 | ) | |||||
Charge back reserve | (133,940 | ) | - | |||||
Other non-current assets | (6,492 | ) | (14,992 | ) | ||||
Prepaid expense and other current assets | 2,346,510 | (196,471 | ) | |||||
Net cash used in operating activities | (2,177,998 | ) | (1,304,320 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (67,906 | ) | (24,257 | ) | ||||
Business acquisitions, net of cash acquired | (24,138,750 | ) | (1,608,586 | ) | ||||
Purchase of intangibles | (775,953 | ) | (331,054 | ) | ||||
Net cash used in investing activities | (24,982,609 | ) | (1,963,897 | ) | ||||
Cash flows from financing activities: | ||||||||
Principal repayments of debt | (663,016 | ) | (663,907 | ) | ||||
Proceeds from loan for business acquisition | 6,520,000 | - | ||||||
Payment of debt issuance costs | (214,257 | ) | - | |||||
Payments on earn-out liabilities | (1,627,296 | ) | (452,236 | ) | ||||
Proceeds from loans payable, related parties | 1,500,000 | 2,931 | ||||||
Payments of loans payable, related parties | (174,206 | ) | (504,899 | ) | ||||
Proceeds from exercise of warrants into common stock | 2,477,131 | - | ||||||
Repayments on short-term financing | (107,206 | ) | ||||||
Net proceeds from private placement issuance of shares and warrants | 17,853,351 | - | ||||||
Issuance of common stock | - | 10,496,221 | ||||||
Net cash provided by financing activities | 25,564,501 | 8,878,110 | ||||||
Net (decrease) increase in cash and restricted cash | (1,596,106 | ) | 5,609,893 | |||||
Cash and restricted cash at beginning of period | 4,620,722 | 529,581 | ||||||
Cash and restricted cash at end of period | $ | 3,024,616 | $ | 6,139,474 | ||||
Supplemental disclosure of cash and non-cash investing and financing transactions: | ||||||||
Cash paid for interest | $ | 562,800 | $ | 350,175 | ||||
Issuance of series D warrants | $ | 6,930,335 | $ | - | ||||
Issuance of placement agent warrants | $ | 1,525,923 | $ | - | ||||
Prepaid insurance acquired through short-term financing | $ | 417,199 | $ | - | ||||
Conversion of preferred stock into common stock | $ | 190,069 | $ | 339,264 | ||||
Conversion of debt into equity | $ | - | $ | 3,800,000 | ||||
Cashless conversion of series D warrants into common stock | $ | 36,761 | $ | - | ||||
Common stock issued pursuant to acquisition | $ | 4,763,451 | $ | 50,000 | ||||
Common stock issued in lieu of services | $ | - | $ | 91,050 | ||||
Issuance of common stock pursuant to the purchase of software | $ | - | $ | 340,000 | ||||
Acquisition of business deferred purchase price | $ | 1,125,000 | $ | - | ||||
Lease assets acquired in exchange for lease liabilities | $ | 628,004 | $ | 861,443 |
March 31, 2022 | March 31, 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 9,340,000 | $ | (613,926 | ) | |||
Adjustment to reconcile net income to net cash (used) provided by operating activities: | ||||||||
Depreciation and amortization | 607,528 | 333,087 | ||||||
Amortization of debt issuance costs and accretion of debt discount | 6,467 | 5,722 | ||||||
Non-cash lease expense | 4,042 | (4,704 | ) | |||||
Stock compensation expense | 739,960 | 352,299 | ||||||
Earn-out fair value and write-off adjustments | 407,071 | - | ||||||
Recognition and change in fair value of warrant liabilities | (11,845,964 | ) | - | |||||
Change in operating assets and liabilities: | ||||||||
Accounts payables and other accrued liabilities | (1,715,666 | ) | (893,505 | ) | ||||
Accounts receivable | (148,552 | ) | 181,556 | |||||
Accounts receivable, related parties | 5,489 | (7,131 | ) | |||||
Other receivables | (7,336 | ) | - | |||||
Other payables | (1,467 | ) | - | |||||
Charge back reserve | 100,962 | |||||||
Other non-current assets | (52,992 | ) | - | |||||
Prepaid expense and other current assets | 2,217,178 | - | ||||||
Net cash used in operating activities | (343,280 | ) | (646,602 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (4,108 | ) | - | |||||
Acquisition of business, net of cash acquired | (18,138,750 | ) | - | |||||
Purchase of intangibles | (249,235 | ) | - | |||||
Net cash used in investing activities | (18,392,093 | ) | - |
The accompanying notes are an integral part of these condensed consolidated financial statements
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Cash flows from financing activities: | ||||||||
Principal repayments of debt | (227,172 | ) | (213,994 | ) | ||||
Proceeds from loans payable, related parties | - | 177,824 | ||||||
Payments of loans payable, related parties | (10,770 | ) | (310,771 | ) | ||||
Proceeds from exercise of warrants into common stock | 2,475,000 | - | ||||||
Net proceeds from private placement issuance of shares and warrants | 17,853,351 | - | ||||||
Issuance of common stock | - | 10,481,938 | ||||||
Net cash provided by financing activities | 20,090,409 | 10,134,997 | ||||||
Net increase in cash and restricted cash | 1,355,036 | 9,488,395 | ||||||
Cash and restricted cash at beginning of period | 4,620,722 | 529,581 | ||||||
Cash and restricted cash at end of period | $ | 5,975,758 | $ | 10,017,976 | ||||
Supplemental disclosure of cash and non-cash investing and financing transactions: | ||||||||
Issuance of Series D Warrants | $ | 6,930,335 | $ | - | ||||
Issuance of placement agent warrants | $ | 1,525,923 | - | |||||
Conversion of common stock into Series C Warrants | $ | 281,815 | $ | - | ||||
Conversion of preferred stock into common stock | $ | - | $ | 339,264 | ||||
Cash paid for interest | $ | 105,447 | $ | 116,830 | ||||
Conversion of debt into equity | $ | - | $ | 3,800,000 | ||||
Common stock issued pursuant to acquisition | $ | 4,763,451 | $ | - | ||||
Common stock issued in lieu of services | $ | - | $ | 91,050 | ||||
Issuance of common stock pursuant to the purchase of software | $ | - | $ | 340,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements
6 |
Reliance Global Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1. SUMMARYORGANIZATION AND DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Reliance Global Group, Inc., formerly (formerly known as Ethos Media Network, Inc.) (“RELI”, “Reliance”, or the “Company”) was incorporated in Florida on August 2, 2013. In September 2018, Reliance Global Holdings, LLC (“Reliance Holdings”, or “Parent Company”), a related party acquired control of the Company. Ethos Media Network, Inc. was then renamed on October 18, 2018.
On May 1, 2021, the Company acquired J.P. Kush and Associates, Inc. (“Kush”), an independent healthcare insurance agency (See Note 3).
On January 10, 2022, the Company acquired Medigap Healthcare Insurance Company, LLC (“Medigap”), an independent healthcare agency (see Note 3)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim. The accompanying unaudited condensed consolidated financial informationstatements include the accounting of Reliance Global Group, Inc., and with the instructions for Form 10-Qits wholly owned subsidiaries. All intercompany transactions and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of recurring accruals) necessary for a fair presentationbalances have been included. Theseeliminated in consolidation. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2021 included in the Company’s annual report on Form 10-K.
Restatement of Previously Issued Financial Statements
Subsequent to the Company’s filing of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, with the Securities and Exchange Commission on May 16, 2022, the Company performed an evaluation of its accounting in connection with the calculation of its basic Earnings Per Share (“EPS”) and diluted EPS for the three months ended March 31, 2022, which concluded on May 12, 2023, and identified errors in such calculation. The accompanying unaudited condensederrors resulted from improper application of sequencing rules, a miscalculation of the numerator used in the determination of diluted EPS, and a miscalculation of the denominator used in the determination of weighted average shares outstanding for both basic EPS and diluted EPS, and the Company determined that the errors required adjustments of the previously issued financial statements for the quarter ended March 31, 2022. Accordingly, the Company restates its consolidated financial statements includefor the accountsidentified periods in this Form 10-Q/A as outlined further below and in Note 12 Earnings (Loss) Per Share.
The following table sets forth the effects of Reliance Global Group, Inc.the adjustments on affected items within the Company’s previously reported consolidated statements of operations for the three months ended March 31, 2022, and includes an increase to basic earnings per share in the amount of $ , an increase to diluted loss per share in the amount of $ , a decrease to weighted average number of shares outstanding – basic of shares, and a decrease to weighted average number of shares outstanding - diluted of shares.
SCHEDULE OF PREVIOUSLY REPORTED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2022 | ||||||||||||
As Reported | Adjustment | As Corrected | ||||||||||
Basic earnings (loss) per share | 1.95 | 0.51 | 2.46 | |||||||||
Diluted earnings (loss) per share | (6.30 | ) | (3.39 | ) | (9.69 | ) | ||||||
Weighted average number of shares outstanding – Basic | 1,215,016 | (234,447 | ) | 980,569 | ||||||||
Weighted average number of shares outstanding - Diluted | 1,573,285 | (377,805 | ) | 1,195,480 |
Additionally, please refer to Note 12. Earnings (Loss) Per Share, where the Company has corrected and replaced that Note in its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.entirety.
Liquidity
As of September 30,March 31, 2022, the Company’s reported cash and restricted cash aggregated balance was approximately $3,024,0005,976,000, current assets were approximately $4,488,0007,270,000, while current liabilities were approximately $7,971,0007,835,000. As of September 30,March 31, 2022, the Company had a working capital deficit of approximately $3,483,000565,000 and stockholders’ equity of approximately $28,366,00011,252,000. For the ninethree months ended September 30,March 31, 2022, the Company reported loss from operations of approximately $5,860,0002,398,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $32,399,00011,846,000, resulting in an overall net income of approximately $25,958,0009,340,000. For the nine months ended September 30, 2022, theThe Company reported negative cash flows from operations of approximately $2,178,000343,000. The Company completed a capital offering in January 2022 that raised net proceeds of approximately $17,853,00017,853,352. Management believes the Company’scompany’s financial position and its ability to raise capital to be reasonable and sufficient.sufficient, providing ample liquidity for the foreseeable future.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.
Cash and
Cash consists of checking accounts. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
7 |
Restricted Cash
CashRestricted cash includes cash pledged as collateral to secure obligations and/or all cash whose use is otherwise limited by contractual provisions.
The reconciliation of cash and restricted cash reported on our Condensed Consolidated Balance Sheets are reconciledwithin the applicable balance sheet accounts that sum to the total shown on our Condensed Consolidated Statements of Cash Flowscash and restricted cash presented in the statement of cash flows is as follows:
SCHEDULE OF RESTRICTED CASH IN STATEMENT OF CASH FLOW
September 30, 2022 | September 30, 2021 | March 31, 2022 | March 31, 2021 | |||||||||||||
Cash | $ | 1,615,054 | $ | 5,655,103 | $ | 5,491,407 | $ | 9,432,070 | ||||||||
Restricted cash | 1,409,562 | 484,371 | 484,351 | 585,906 | ||||||||||||
Total cash and restricted cash | $ | 3,024,616 | $ | 6,139,474 | $ | 5,975,758 | $ | 10,017,976 |
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recognized over an asset’s estimated useful life using the straight-line method beginning on the date an asset is placed in service. The Company regularly evaluates the estimated remaining useful lives of the Company’s property and equipment to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation. Maintenance and repairs are charged to expense as incurred. Estimated useful lives of the Company’s Property and Equipment are as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT
Useful Life (in years) | ||
Computer equipment | 5 | |
Office equipment and furniture | 7 | |
Leasehold improvements | Shorter of the useful life or the lease term |
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level 1 — Observable inputs reflectingthat reflect quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
Level 3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.
As of March 31, 2022 and December 31, 2021 respectively, the Company’s balance sheet includes certain financial instruments, including cash, notes receivables, accounts payable, and short and long-term debt. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. The carrying amounts of long-term debt approximate their fair value as the variable interest rates are based on a market index.
The Company’s Warrant Liabilities: Commitment and warrant liabilities (“Warrant Liabilities”) (see Note 13, Commitments and Contingencies) represent liability-classified derivative financial instruments recorded at fair value on a recurring basis. The fair value includes significant inputs unobservable in the market and thus are considered Level 3. The Company re-measuresmeasures fair value of its Level 3 warrant liabilitiesWarrant Liabilities at issuance date and subsequently at the balance sheet date, using a binomial option pricing model. The following summarizessignificant inputs used in estimating fair value not adjusting for any reverse stock splits, include the significant unobservable inputs:fair value of the underlying stock, expected term, risk free interest rate, and expected volatility, as follows:
SCHEDULE OF EARN OUT LIABILITY
September 30, 2022 | December 31, 2021 | |||||||
Stock price | $ | 0.78 | $ | 6.44 | ||||
Volatility | 105 | % | 90 | % | ||||
Time to expiry | 4.26 | 5 | ||||||
Dividend yield | 0 | % | 0 | % | ||||
Risk free rate | 4.10 | % | 1.10 | % |
SCHEDULE OF FAIR VALUE OF WARRANT COMMITMENT
March 31, 2022 | December 31, 2021 | |||||||
Stock price | $ | 4.31 | $ | 6.44 | ||||
Volatility | 90 | % | 90 | % | ||||
Time to expiry | 5 | 5 | ||||||
Dividend yield | 0 | % | 0 | % | ||||
Risk free rate | 2.4 | % | 1.10 | % | ||||
Warrant liability, measurement input |
The following reconciles the fair valuevalues of the liability classified warrants:
SCHEDULE OF RECONCILES WARRANT COMMITMENT
1 | 2 | 3 | 4 | |||||||||||||
Three and Nine Months ended September 30, 2022 | ||||||||||||||||
Series B Warrant Commitment | Series B warrant liabilities | Placement agent warrants | Total | |||||||||||||
Beginning balance | $ | 37,652,808 | $ | - | $ | - | $ | 37,652,808 | ||||||||
Initial recognition | - | 55,061,119 | 1,525,923 | 56,587,042 | ||||||||||||
Unrealized (gain) loss | 17,408,311 | (31,980,437 | ) | (946,461 | ) | (15,518,587 | ) | |||||||||
Warrants exercised or transferred | (55,061,119 | ) | (55,061,119 | ) | ||||||||||||
Ending balance, March 31, 2022 | $ | - | $ | 23,080,682 | $ | 579,462 | $ | 23,660,144 | ||||||||
Unrealized (gain) loss | - | (12,322,737 | ) | (310,514 | ) | (12,633,251 | ) | |||||||||
Ending balance, June 30, 2022 | $ | - | $ | 10,757,945 | $ | 268,948 | $ | 11,026,893 | ||||||||
Beginning balance | $ | - | $ | 10,757,945 | $ | 268,948 | $ | 11,026,893 | ||||||||
Unrealized (gain) loss | - | (7,726,161 | ) | (193,154 | ) | (7,919,315 | ) | |||||||||
Ending balance, September 30, 2022 | - | 3,031,784 | 75,794 | 3,107,578 | ||||||||||||
Ending balance | - | 3,031,784 | 75,794 | 3,107,578 |
Series B Warrant Commitment | Series B warrant liabilities | Placement agent warrants | Total | |||||||||||||
March 31, 2022 | ||||||||||||||||
Series B Warrant Commitment | Series B warrant liabilities | Placement agent warrants | Total | |||||||||||||
Beginning balance | $ | 37,652,808 | $ | - | $ | - | $ | 37,652,808 | ||||||||
Initial recognition | - | 55,061,119 | 1,525,923 | 56,587,042 | ||||||||||||
Unrealized (gain) loss | 17,408,311 | (31,980,437 | ) | (946,461 | ) | (15,518,587 | ) | |||||||||
Warrants exercised or transferred | (55,061,119 | ) | (55,061,119 | ) | ||||||||||||
Ending balance | $ | - | $ | 23,080,682 | $ | 579,462 | $ | 23,660,144 |
1 | 2 | Series B Warrant Commitment | Total | |||||||||||||
December 31, 2021 | December 31, 2021 | |||||||||||||||
Series B Warrant Commitment | Total | Series B Warrant Commitment | Total | |||||||||||||
Beginning balance | $ | - | $ | - | $ | - | $ | - | ||||||||
Initial recognition | 20,244,497 | 20,244,497 | 20,244,497 | 20,244,497 | ||||||||||||
Unrealized (gain) loss | 17,408,311 | 17,408,311 | 17,408,311 | 17,408,311 | ||||||||||||
Warrants exercised or transferred | - | - | ||||||||||||||
Ending balance | $ | 37,652,808 | $ | 37,652,808 | $ | 37,652,808 | $ | 37,652,808 |
Earn-out liabilities:The Company generally values itsCompany’s contingent accrued earn-out business acquisition consideration liabilities are considered Level 3 fair value liability instruments requiring period fair value assessments. These contingent consideration liabilities were recorded at fair value on the acquisition date and are re-measured quarterly based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are unobservable in the market, they are categorized as Level 3.
As of March 31, 2022 and December 31, 2021 respectively, the earn-out liabilities usingliability account balance as reported in the condensed consolidated balance sheets is $4,220,949 and $3,813,878. At March 31, 2022 and December 31, 2021, the current portion of the earn-out liability is $3,774,411 and $3,297,855, respectively, and the non-current earn out liability, net of current portion was $446,538 and $516,023, respectively. In fair valuing these instruments, the income valuation approach. Keyapproach is applied and key valuation inputs include contingent payment arrangement terms, projected revenues and cash flows, rate of return, and probability assessments. The following table summarizes the significant unobservable inputs used in the fair value measurements:
SCHEDULE OF FAIR VALUE MEASUREMENTS
The Company values its Level 3 earn-out liability related to the Barra Acquisition using a Monte Carlo simulation in a risk-neutral framework (a special case of the Income Approach). The following summarizes the significant unobservable inputs:
SCHEDULE OF EARN OUT LIABILITY
| ||||
Undiscounted remaining earn out payments are approximately $3,291,8834,345,000 as of September 30, 2022. TheMarch 31, 2022.
8 |
For the Company’s earn-out liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table reconciles fair valueprovides a reconciliation of earn-out liabilitiesthe beginning and ending balances for each category therein, and gains or losses recognized during the period ending September 30, 2022:ended March 31, 2022 and December 31, 2021:
SCHEDULE OF GAIN OR LOSSES RECOGNIZED FAIR VALUE
September 30, 2022 | December 31, 2021 | |||||||
Beginning balance – January 1 | $ | 3,813,878 | $ | 2,931,418 | ||||
Acquisitions and Settlements | (1,027,296 | ) | 1,160,562 | |||||
Period adjustments: | ||||||||
Fair value changes included in earnings* | 132,445 | (278,102 | ) | |||||
Ending balance | $ | 2,919,027 | $ | 3,813,878 | ||||
Less: Current portion | (2,283,380 | ) | (3,297,855 | ) | ||||
Ending balance, less current portion | 635,647 | 516,023 |
March 31, 2022 | December 31, 2021 | |||||||
Beginning balance - January 1 | $ | 3,813,878 | $ | 2,931,418 | ||||
Acquisitions and Settlements: | - | - | ||||||
JP Kush Acquisition | - | 1,694,166 | ||||||
CCS Write-off | - | (81,368 | ) | |||||
Altruis partial settlement | - | (452,236 | ) | |||||
- | - | |||||||
Period adjustments: | ||||||||
Fair value changes and accretion included in earnings* | 407,071 | (278,102 | ) | |||||
Ending balance | $ | 4,220,949 | $ | 3,813,878 |
* | Recorded as a reduction to general and administrative expenses |
Investment in Nsure
On February 19, 2020, the Company entered into a securities purchase agreement with NSURE, Inc. (“NSURE”), which was further amended on October 8, 2020, and as amended provides that the Company may invest up to an aggregate of $5,700,000Quantitative Information about Level 3 Fair Value Measurements in NSURE to be funded in three tranches. In exchange, the Company will receive a total of shares of NSURE’s Class A Common Stock.
DuringSignificant unobservable inputs used in the courseearn-out fair value measurements of calendar year 2020 and by October 8, 2020, the Company funded the first tranche, $Company’s contingent consideration liabilities designated as Level 3 are as follows:
1,350,000SCHEDULE OF FAIR VALUE MEASUREMENTS in exchange for
March 31, 2022 | December 31, 2021 | |||||||
Fair value | $ | 4,220,949 | $ | 3,813,878 | ||||
Valuation technique | Discounted cash flow | Discounted cash flow | ||||||
Significant unobservable input | Projected revenue and probability of achievement | Projected revenue and probability of achievement |
394,029 shares. The second tranche allowed the Company to acquire an additional
209,075Deferred Financing Costs shares at a price of $ per share by no later than December 30, 2020. The third full tranche allowed the Company to purchase an additional shares at a purchase price of $ after December 20, 2020, but no later than March 31, 2021.
The Company didhas recorded deferred financing costs as a result of fees incurred by the Company in conjunction with its debt financing activities. These costs are amortized to interest expense using the straight-line method which approximates the interest rate method over the term of the related debt. As of March 31, 2022 and December 31, 2021, unamortized deferred financing costs were $129,791, and $134,528, respectively and are netted against the related debt.
Business Combinations
The Company accounts for its business combinations using the acquisition method of accounting. Under the acquisition method, assets acquired, liabilities assumed, and consideration transferred are recorded at the date of acquisition at their respective fair values. Definite-lived intangible assets are amortized over the expected life of the asset. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination provides for contingent consideration such as earn-outs, the Company records the contingent consideration at fair value at the acquisition date. The Company remeasures fair value as of each reporting date and changes resulting from events after the acquisition date, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not fund tranches twore-measured and threeits subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value and accretion costs are recognized in earnings.
9 |
Identifiable Intangible Assets, net
Finite-lived intangible assets such as customer relationships assets, trademarks and tradenames are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging from 3 to 20 years. Finite-lived intangible assets are reviewed for impairment or obsolescence whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of intangible assets is measured by a comparison of the carrying amount of the asset to the future undiscounted net cash flows expected to be generated by that asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the estimated fair value. No impairment was recognized during the periods presented.
Goodwill and other indefinite-lived intangibles
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is assigned to a reporting unit on the acquisition date and tested for impairment at least annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. Similarly, indefinite-lived intangible assets (if any) other than goodwill are tested annually or more frequently if indicated, for impairment. If impaired, intangible assets are written down to fair value based on the expected discounted cash flows.
Financial Instruments
The Company evaluates issued financial instruments for classification as either equity or liability based on an assessment of the financial instrument’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the financial instruments issued are freestanding pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and, if applicable whether the financial instruments meet all of the requirements for equity classification under ASC 815, including whether the financial instruments are indexed to the Company’s own Common Stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance and as of each subsequent reporting period end date while the financial instruments are outstanding. Financial instruments that are determined to be liabilities under ASC 480 or ASC 815 are held at their initial fair value and remeasured to fair value at each subsequent reporting date, with changes in fair value recorded as a non-operating, non-cash loss or gain, as applicable.
The Company’s financial instruments consist of derivatives related to the warrants issued with the securities purchase agreement as discussed in Note 9, Warrant Liabilities. The accounting treatment of derivative financial instruments requires that we record the derivatives at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date. Upon the determination that an instrument is no longer subject to derivative accounting, the fair value of the derivative instrument at the date of such determination will be reclassified to paid in capital.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606 Revenue from Contracts with Customers which at its core, recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.
The Company’s revenue is primarily comprised of agency commissions earned from insurance carriers (the “Customer” or “Carrier”) related to insurance plans produced through brokering, producing and servicing agreements between insurance carriers and members. The Company defines a “Member” as an individual, family or entity currently covered or seeking insurance coverage.
The Company focuses primarily on agency services for insurance products in the required timeframes, thus,“Healthcare” and property and casualty, which includes auto (collectively “P&C”) space, with nominal activity in the life insurance and bond sectors. Healthcare includes plans for individuals and families, Medicare supplements, ancillary and small businesses. The Company also earns revenue in the “Insurance Marketing” space as discussed further below.
Consideration for all agency services typically is based on commissions calculated by applying contractual commission rates to policy premiums. For P&C, commission rates are applied to premiums due, whereas for healthcare, commission rates, including override commissions, are applied to monthly premiums received by the Carrier.
The Company has two forms of billing practices, “Direct Bill” and “Agency Bill”. With Direct Bill, Carriers bill and collect policy premium payments directly from Members without any involvement from the Company. Commissions are paid to the Company relinquished its rights underby the Carrier in the following month. With Agency Bill, the Company bills Members premiums due and remits them to Carriers net of commission earned.
The following outlines the core principles of ASC 606:
Identification of the contract, or contracts, with a customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to any additional NSURE shares asidebe transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the ones already acquired with tranche one.customer’s intent and ability to pay the promised consideration.
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Identification of the performance obligations in the contract. Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
Determination of the transaction price. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer.
Allocation of the transaction price to the performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.
Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company satisfies performance obligations either over time or at a point in time, as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised good or service to the customer.
Healthcare revenue recognition:
The Company measuresidentifies a contract when it has a binding agreement with a Carrier, the NSURE sharesCustomer, to provide agency services to Members.
There typically is one performance obligation in contracts with Carriers, to perform agency services that culminate in monthly premium cash collections by the Carrier. The performance obligation is satisfied through a combination of agency services including, marketing carrier’s insurance plans, soliciting Member applications, binding, executing and servicing insurance policies on a continuous basis throughout a policy’s life cycle which includes and culminates with the Customer’s collection of monthly premiums. No commission is earned if cash is not received by Carrier. Thus, commission revenue is earned only after a month’s cash receipts from Members’ dues is received by the Customer. Each month’s Carrier cash collections is considered a separate unit sold and transferred to the Customer i.e., the satisfaction of that month’s performance obligation.
Transaction price is typically stated in a contract and usually based on a commission rate applied to Member premiums paid and received by Carrier. The Company generally continues to receive commission payments from Carriers until a Member’s plan is cancelled or the Company terminates its agency agreement with the Carrier. Upon termination, the Company normally will no longer receive any commissions from Carriers even on business still in place. In some instances, trailing commissions could occur which would be recognized similar to other Healthcare revenue. With one performance obligation, allocation of transaction price is normally not necessary.
Healthcare typically utilizes the Direct Bill method.
The Company recognizes revenue at a point in time, when it satisfies its monthly performance obligation and control of the service transfers to the Customer. Transfer occurs when Member insurance premium cash payments are received by the Customer. The Customer’s receipt of cash is the culmination and complete satisfaction of the Company’s performance obligation, and the earnings process is complete.
With Direct Bill, since the amount of monthly Customer cash receipts is unknown to the Company until the following month when notice is provided by Customer to Company, the Company accrues revenue at each period end. Any estimated revenue accrued and recognized at a period-end is trued up for financial reporting per actual revenue earned as provided by the Customer during the following month.
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P&C revenue recognition:
The Company identifies a contract when it has a binding agreement with a Carrier, the Customer, to provide agency services to Members.
There typically is one performance obligation in contracts with Customers, to perform agency services to solicit, receive proposals and bind insurance policies culminating with policy placement. Commission revenue is earned at the time of policy placement.
Transaction price is typically stated in a contract and usually based on commission rates applied to Member premiums due. With one performance obligation, allocation of transaction price is normally not necessary.
P&C utilizes both the Agency Bill and Direct Bill methods, depending on the Carrier.
The Company recognizes revenue at a point in time when it satisfies its performance obligation and control of the service transfers to the Customer. Transfer occurs when the policy placement process is complete.
With both Direct Bill and Agency Bill, the Company accrues commission revenue in the period policies are placed. With Agency Bill, payment is typically received from Members in the month earned, however with Direct Bill, payment is typically received from Carriers in the month subsequent to acquisitionthe commissions being earned.
Insurance Marketing revenue recognition:
Medigap, a consolidated wholly owned subsidiary of the Company earns commission revenue by selling bound insurance policies with all renewal rights to insurance marketing organizations (the “IM Customer”). The IM Customers utilize innovative actuarial models to value and price policies purchased based on future projections. IM Customers pay a one-time commission per policy purchased to selling agencies based on a pre-agreed formula outlined in accordance with ASC 321-10-35-2, at cost less impairment since no readily determinable fair valuethe parties’ contractual agreement. Commission payments are subject to chargeback in the event a policy is availablecancelled or lapses within 3 months of a policy’s effective date or until the first three payments are received from the insured party, depending on the IM Customer Contract.
The Company identifies a contract when it has a binding agreement to sell issued insurance policies to the Company.IM Customer.
There is one performance obligation in IM Customer contracts, to sell the rights in Company procured issued insurance policies to the IM Customer. The investmentperformance obligation is reviewed for impairment atsatisfied when the rights to an issued policy have been transferred to the IM Customer.
Transaction price is stated in a contract and is a set range of commission amounts based on each reporting period by qualitatively assessing any indicators demonstrating fairpolicy sold. There are two variable components to consideration received:
a) | Commissions are only earned once a policy is “Placed”, defined as, an active policy sold to the IM Customer where the IM Customer has received the initial insurance carrier payment with respect to such policy. The Company requires end-user insured parties to pay the initial premium to the insurance carrier upon issuance of a policy. Insurance carrier in turn pays IM Customer its initial payment soon thereafter. Thus, upon sale of an issued policy to IM Customer, the Company has provided a bound issued policy and ensured first premium payment has been completed by insured party. This results in virtual assurance that the IM Customer will receive its initial insurance carrier payment, and it is more than probable that a significant revenue reversal will not occur. The Company thus considers all policies sold to the IM Customer to be Placed for revenue recognition purposes. | |
b) | Commission revenue is subject to chargeback in full if a policy is cancelled or lapses within three months from the policy effective date or if the insured party does not make the first three payments of the policy. The Company uses historical activity as well as current factors to estimate the unconstrained variable consideration for recognition per the expected value method. A chargeback reserve liability is credited for the difference between cash consideration received and variable consideration recognized. At each reporting period, the Company remeasures the chargeback reserve liability and recognizes any change as an increase or decrease to the then current period revenue. As of March 31, 2022 and December 31, 2021, the chargeback reserve liability was $1,585,435and $0, respectively. |
With one performance obligation, allocation of the investmenttransaction price is less than carrying value. normally not necessary.
The Company did not observe any price changes resulting from orderly transactions for identical or similar assets for the periods ended September 30, 2022 or September 30, 2021. ASC 321-10-50-4 further requires an entity to disclose unrealized gains and losses for periods that relate to equity securities heldrecognizes revenue at a reporting date. To-date,point in time when it satisfies its performance obligation and control of an insurance policy transfers to the IM Customer. Transfer of control occurs when the Company has not recognized any unrealized gains or losses onsubmits the NSURE security.Policy to the IM Customer.
In accordance with ACS 321-10-35-3,IM Customers generally pay the Company performedweekly, and accruals are recorded as necessary at period end.
Other revenue policies: Insurance commissions earned from Carriers for life insurance products are recorded gross of amounts due to agents, with a qualitative assessmentcorresponding commission expense for downstream agent commissions being recorded as commission expense within the condensed consolidated statements of operations.
When applicable, commission revenue is recognized net of any deductions for estimated commission adjustments due to determine iflapses, policy cancellations, and revisions in coverage.
The Company could earn additional revenue from contingent commissions, profit-sharing, override and bonuses based on meeting certain revenue or profit targets established periodically by the investment may be impaired. After considering the indicators contained in ASC 321-10-35-3a –3e,Carriers (collectively, “Contingent Commissions”). Contingent Commissions are earned when the Company determinedachieves targets established by Carriers. The Carriers notify the Company when it has achieved the target. The Company recognizes revenue for any Contingent Commissions at the time it is reasonably assured that a significant revenue reversal is not probable, which is generally when a Carrier notifies the investment was not impaired.
Revenue RecognitionCompany that it is on track or has earned a Contingent Commission.
The following table disaggregates the Company’s revenue by line of business, showing commissions earned:
SCHEDULE OF DISAGGREGATION REVENUE
Three Months ended September 30, 2022 | Medical/Life | Property and Casualty | Total | |||||||||||||||||||||
Three Months ended March 31, 2022 | Medical/Life | Property and Casualty | Total | |||||||||||||||||||||
Regular | ||||||||||||||||||||||||
EBS | $ | 212,384 | $ | - | $ | 212,384 | $ | 221,184 | $ | - | $ | 221,184 | ||||||||||||
USBA | 13,732 | - | 13,732 | 13,587 | - | 13,587 | ||||||||||||||||||
CCS/UIS | - | 76,035 | 76,035 | - | 43,881 | 43,881 | ||||||||||||||||||
Montana | 426,591 | - | 426,591 | 506,721 | - | 506,721 | ||||||||||||||||||
Fortman | 259,255 | 186,860 | 446,115 | 332,600 | 197,260 | 529,860 | ||||||||||||||||||
Altruis | 896,012 | - | 896,012 | 1,304,872 | - | 1,304,872 | ||||||||||||||||||
Kush | 366,219 | - | 366,219 | 438,591 | - | 438,591 | ||||||||||||||||||
Medigap | 1,331,593 | - | 1,331,593 | 1,177,085 | - | 1,177,085 | ||||||||||||||||||
Barra | 83,615 | 301,065 | 384,680 | |||||||||||||||||||||
$ | 3,589,401 | $ | 563,960 | $ | 4,153,361 | $ | 3,994,640 | $ | 241,141 | $ | 4,235,781 |
Nine Months ended September 30, 2022 | Medical/Life | Property and Casualty | Total | |||||||||
Regular | ||||||||||||
EBS | $ | 645,217 | $ | - | $ | 645,217 | ||||||
USBA | 39,638 | - | 39,638 | |||||||||
CCS/UIS | - | 177,111 | 177,111 | |||||||||
Montana | 1,385,017 | - | 1,385,017 | |||||||||
Fortman | 949,189 | 589,924 | 1,539,113 | |||||||||
Altruis | 3,056,257 | - | 3,056,257 | |||||||||
Kush | 1,230,259 | - | 1,230,259 | |||||||||
Medigap | 3,868,654 | - | 3,868,654 | |||||||||
Barra | 153,539 | 501,463 | 655,002 | |||||||||
$ | 11,327,770 | $ | 1,268,498 | $ | 12,596,268 |
Three Months ended September 30, 2021 | Medical/Life | Property and Casualty | Total | |||||||||
Regular | ||||||||||||
EBS | 226,233 | - | 226,233 | |||||||||
USBA | 18,241 | - | 18,241 | |||||||||
CCS/UIS | - | 120,762 | 120,762 | |||||||||
Montana | 343,546 | - | 343,546 | |||||||||
Fortman | 357,638 | 194,218 | 551,856 | |||||||||
Altruis | 807,775 | - | 807,775 | |||||||||
Kush | 513,223 | - | 513,223 | |||||||||
$ | 2,266,656 | $ | 314,980 | $ | 2,581,636 |
Nine Months ended September 30, 2021 | Medical/Life | Property and Casualty | Total | |||||||||
Regular | ||||||||||||
EBS | $ | 642,428 | $ | - | $ | 642,428 | ||||||
USBA | 45,861 | - | 45,861 | |||||||||
CCS/UIS | - | 274,928 | 274,928 | |||||||||
Montana | 1,283,402 | - | 1,283,402 | |||||||||
Fortman | 884,073 | 628,327 | 1,512,400 | |||||||||
Altruis | 2,558,653 | - | 2,558,653 | |||||||||
Kush | 778,541 | - | 778,541 | |||||||||
$ | 6,192,958 | $ | 903,255 | $ | 7,096,213 |
The following, are customers representing 10% or more of total revenue:
SCHEDULE OF CONCENTRATIONS OF REVENUES
Insurance Carrier | 2022 | 2021 | ||||||
For the three months ended September 30, | ||||||||
Insurance Carrier | 2022 | 2021 | ||||||
LTC Global | 27 % | -% | ||||||
Priority Health | 21 % | 27% | ||||||
BlueCross BlueShield | 10 % | 24% |
Three Months ended March 31, 2021 | Medical/Life | Property and Casualty | Contingent commission | Total | ||||||||||||
Regular | ||||||||||||||||
EBS | 208,994 | - | - | 208,994 | ||||||||||||
USBA | 12,225 | - | - | 12,225 | ||||||||||||
CCS/UIS | - | 88,818 | - | 88,818 | ||||||||||||
Montana | 535,116 | - | - | 535,116 | ||||||||||||
Fortman | 249,801 | 207,772 | - | 457,573 | ||||||||||||
Altruis | 1,021,004 | - | - | 1,021,004 | ||||||||||||
2,027,140 | 296,590 | - | 2,323,730 |
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Insurance Carrier | 2022 | 2021 | ||||||
For the Nine months ended September 30, | ||||||||
Insurance Carrier | 2022 | 2021 | ||||||
LTC Global | 27 | % | - | % | ||||
Priority Health | 24 | % | 30 | % | ||||
BlueCross BlueShield | 10 | % | 25 | % |
NoGeneral and Administrative
General and administrative expenses primarily consist of personnel costs for the Company’s administrative functions, professional service fees, office rent, all employee travel expenses, and other general costs.
Marketing and Advertising
The Company’s direct channel expenses primarily consist of costs for e-mail marketing and newspaper advertisements. The Company’s online advertising channel expense primarily consist of social media ads. Advertising costs for both direct and online channels are expensed as incurred.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The fair value of the stock-based payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date unless there is a contractual term for services in which case such compensation would be amortized over the contractual term. As the Reliance Global Group, Inc. Equity Incentive Plan 2019 was adopted in January of 2019, the Company lacks the historical basis to estimate forfeitures and will recognize forfeitures as they occur.
Leases
The Company recognizes leases in accordance with Accounting Standards Codification Topic 842, “Leases” (“ASC 842” or “ASU 2016-12”). This standard provides enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases are recognized as a single Customerlease expense, generally on a straight-line basis.
The Company is the lessee in a contract when the Company obtains the right to use an asset. We currently lease real estate and office space under non-cancelable operating lease agreements. When applicable, consideration in a contract is allocated between lease and non-lease components. Lease payments are discounted using the implicit discount rate in the lease. If the implicit discount rate for the lease cannot be readily determined, the Company uses an estimate of its incremental borrowing rate. The Company did not have any contracts accounted for more than 10%as finance leases as of March 31, 2021, or 2020. Operating leases are included in the line items right-of-use assets, current portion of leases payable, and leases payable, less current portion in the condensed consolidated balance sheets. Right-of-use (“ROU”) asset represents the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligations to make lease payments arising from the lease, both of which are recognized based on the present value of the Company’s commission revenues. The lossfuture minimum lease payments over the lease term at the commencement date. Leases with a lease term of any significant customer, including Priority Health, BlueCross BlueShield and LTC Global could have a material adverse effect12 months or less at inception are not recorded on the Company.condensed consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statement of operations. The Company determines a lease’s term by agreement with lessor and includes lease extension options and variable lease payments when option and/or variable payments are reasonably certain of being exercised or paid.
Income Taxes
The Company recorded no income tax expense for the three and nine months ended September 30, 2022 and 2021 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.
As of September 30, 2022 and December 31, 2021, the Company provided a full valuation allowance against its netrecognizes deferred tax assets sinceand liabilities using enacted tax rates for the Company believeseffect of temporary differences between the book and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. In evaluating its ability to recover deferred tax assets within the jurisdiction in which they arise, the Company considers all available positive and negative evidence, including the expected reversals of taxable temporary differences, projected future taxable income, taxable income available via carryback to prior years, tax planning strategies, and results of recent operations. The Company assesses the realizability of its deferred tax assets, including scheduling the reversal of its deferred tax assets and liabilities, to determine the amount of valuation allowance needed. Scheduling the reversal of deferred tax asset and liability balances requires judgment and estimation. The Company believes the deferred tax liabilities relied upon as future taxable income in its assessment will notreverse in the same period and jurisdiction and are of the same character as the temporary differences giving rise to the deferred tax assets that will be realized.
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Seasonality
A greater number of the Company’s Medicare-related health insurance plans are sold in the fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage. The majority of the Company’s individual and family health insurance plans are sold in the annual open enrollment period as defined under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. Individuals and families generally are not able to purchase individual and family health insurance outside of these open enrollment periods, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state.
Prior Period Adjustments
The
During the June 30, 2021 quarterly financial reporting close process, the Company identified certain immaterial adjustments impacting the prior reporting periods.period. Specifically, the Company identified adjustments to correct certain asset, liability and equity accounts in relation to historical purchase price allocation accounting, adjustments to true up accounts receivable and retained earnings for certain historical accrued revenues and true ups ofup the common stock issuable account.
The Company has also separately reclassified its purchase software from property, plant and equipment to intangible assets which had no impact on the condensed consolidated statement of operations.
The Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. (SAB) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and ASC 250, Accounting Changes and Error Corrections.
Accordingly, the Company’s comparative condensed consolidated financial statements and impacted notes have been revised from amounts previously reported to reflect these adjustments. The following table illustrates the impact on previously reported amounts and adjusted balances presented in the condensed consolidated financial statements for the period ended September 30,March 31, 2022.
SUMMARIZES THE CHANGES TO THE PREVIOUSLY ISSUED FINANCIAL INFORMATION
Account | 12/31/2020 As reported | Adjustment | 12/31/2020 Adjusted | 3/31/2021 As reported | Adjustment | 3/31/2021 Adjusted | ||||||||||||||||||
Earn-out liability | 2,631,418 | 300,000 | 2,931,418 | |||||||||||||||||||||
Goodwill | 9,265,070 | (503,345 | ) | 8,761,725 | ||||||||||||||||||||
Earn-out liability-Closing balance as of December 31, 2020 | 2,631,418 | 300,000 | 2,931,418 | |||||||||||||||||||||
Goodwill-Closing balance as of December 31, 2020 | 9,265,070 | (503,345 | ) | 8,761,725 | ||||||||||||||||||||
Common stock issuable-Closing balance as of December 31, 2020 | 822,116 | (482,116 | ) | 340,000 | ||||||||||||||||||||
Additional paid-in-capital-Closing balance as of December 31, 2020 | 11,377,123 | 182,116 | 11,559,239 | |||||||||||||||||||||
Accumulated Deficit-Closing balance as of December 31, 2020 | (12,482,281 | ) | 122,601 | (12,359,680 | ) | |||||||||||||||||||
Common stock issuable | 822,116 | (482,116 | ) | 340,000 | 482,116 | (482,116 | ) | - | ||||||||||||||||
Accumulated Deficit | (13,123,609 | ) | 150,003 | (12,973,606 | ) | |||||||||||||||||||
Additional paid-in-capital | 11,377,123 | 182,116 | 11,559,239 | 25,810,147 | 182,116 | 25,992,263 | ||||||||||||||||||
Accumulated Deficit | (12,482,281 | ) | 122,601 | (12,359,680 | ) | |||||||||||||||||||
Commission income | 2,296,328 | 27,402 | 2,323,730 | |||||||||||||||||||||
Total Revenue | 2,296,328 | 27,402 | 2,323,730 | |||||||||||||||||||||
Net Loss | (641,328 | ) | 27,402 | (613,926 | ) | |||||||||||||||||||
EPS | (0.09 | ) | (0.01 | ) | (0.08 | ) |
Account | 3/31/2021 As reported | Adjustment | 3/31/2021 Adjusted | |||||||||
Common stock issuable | 482,116 | (482,116 | ) | 0 | ||||||||
Additional paid-in-capital | 25,810,147 | 182,116 | 25,992,263 | |||||||||
Accumulated Deficit | (13,123,609 | ) | 150,003 | (12,973,606 | ) |
Recently Issued Accounting Pronouncements
We doIn June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), which requires the measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financing Instruments—Credit Losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. On November 15, 2019, the FASB delayed the effective date of FASB ASC Topic 326 for certain small public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition. The Company does not expect any recentlycurrently believe the adoption of this standard will have a significant impact on its financial statements, given its history of minimal bad debt expense relating to trade accounts receivable.
In December 2019, the FASB issued accounting pronouncementsASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the general principles in Topic 740 and simplifies other areas of the existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this pronouncement January 1, 2021 which did not have a material effect on ourthe condensed consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted ASU 2020-06 on January 1, 2022, which did not have a material impact on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022 with early adoption permitted. The Company elected to early adopt ASU 2021-08 as of January 1, 2022, which did not have a material impact on the condensed consolidated financial statements.
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NOTE 2.3. STRATEGIC INVESTMENTS AND BUSINESS COMBINATIONS
As of March 31, 2022, we have acquired nine insurance brokerages (see table below), including both acquisitions of affiliated companies (i.e., owned by Reliance Holdings before the acquisition) and unaffiliated companies. As our acquisition strategy continues, our reach within the insurance arena can provide us with the ability to offer lower rates, which could boost our competitive position within the industry.
Acquired | Date | Location | Line of Business | Status | ||||
U.S. Benefits Alliance, LLC (USBA) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
Employee Benefit Solutions, LLC (EBS) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
Commercial Solutions of Insurance Agency, LLC (CCS or Commercial Solutions) | December 1, 2018 | New Jersey | P&C – Trucking Industry | Unaffiliated | ||||
Southwestern Montana Insurance Center, Inc. (Southwestern Montana or Montana) | April 1, 2019 | Montana | Group Health Insurance | Unaffiliated | ||||
Fortman Insurance Agency, LLC (Fortman or Fortman Insurance) | May 1, 2019 | Ohio | P&C and Health Insurance | Unaffiliated | ||||
Altruis Benefits Consultants, Inc. (Altruis) | September 1, 2019 | Michigan | Health Insurance | Unaffiliated | ||||
UIS Agency, LLC (UIS) | August 17, 2020 | New York | Health Insurance | Unaffiliated | ||||
J.P. Kush and Associates, Inc. (Kush) | May 1, 2021 | Michigan | Health Insurance | Unaffiliated | ||||
Medigap Healthcare Insurance Company, LLC (Medigap) | January 10, 2022 | Florida | Health Insurance | Unaffiliated |
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J.P. Kush and Associates, Inc. Transaction
On May 1, 2021, the Company entered into a Purchase Agreement with J.P. Kush and Associates, Inc. whereby the Company shall purchase the business and certain assets noted within the Purchase Agreement (the “Kush Acquisition”) for a total purchase price of $3,644,166. The purchase price was paid with a cash payment of $1,900,000, $50,000 in restricted shares of the Company’s common stock, in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and an earn-out payment.
The Kush Acquisition was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the Kush Acquisition was calculated as follows:
SCHEDULE OF ALLOCATION OF PURCHASE PRICE
Description | Fair Value | Weighted Average Useful Life (Years) | ||||
Accounts receivable | $ | 291,414 | ||||
Trade name and trademarks | 685,400 | 5 | ||||
Customer relationships | 551,000 | 10 | ||||
Non-competition agreements | 827,800 | 5 | ||||
Goodwill | 1,288,552 | Indefinite | ||||
Purchase consideration allocated | $ | 3,644,166 |
Goodwill of $1,288,552 arising from the Kush Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the Kush Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the Kush Acquisition incurred were $58,092 recorded as a component of General and administrative expenses. The approximate revenue and net profit for the acquired business as a standalone entity per ASC 805 from January 1, 2021 to April 30, 2021 was $500,000 and $, respectively.
Pro Forma Information
The results of operations of J.P. Kush and Associates, Inc. will be included in the Company’s consolidated financial statements as of the date of acquisition through the current period end. The following supplemental approximate pro forma combined financial information assumes that the acquisition had occurred at the beginning of the three months ended March 31, 2021:
SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION
March 31, | ||||
2021 | ||||
Revenue | $ | 2,695,843 | ||
Net Income (Loss) | $ | (450,868 | ) | |
Earnings (Loss) per common share, basic | $ | (0.90 | ) | |
Earnings (Loss) per common share, diluted | $ | (0.90 | ) |
Medigap Healthcare Insurance Company, LLC Transaction
On January 10, 2022, pursuant to an asset purchase agreement, dated December 21, 2021, the Company completed the acquisition of all of the assets of Medigap Healthcare Insurance Company, LLC (“Medigap”) pursuant to which the Company purchased all of the assets of Medigap for a purchase price in the amount of $20,096,250, consisting of: (i)of payment to Medigap of (i) $18,138,750in cash and (ii) the issuanceissuing to Medigap ofseller shares of the Company’s restricted common stock in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The purchase price is subject to post-closing adjustment to reconcile certain pre-closing credits and liabilities of the parties. The shares issued to Medigap as part of the purchase price are further subject to lock up arrangements pursuant to which 50% of thethose shares may be sold after the one-year anniversary of the date of closing ofClosing the transactionAPA and the balance of the shares may be sold after the second-year anniversary of the date of closing ofunder the transaction.APA.
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The acquisition of Medigap was accounted for as a business combination in accordance with the acquisition method pursuant to FASB Topic No. 805, Business Combination (ASC 805). Accordingly, the total purchase consideration was allocated to the assets acquired, and liabilities assumed based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The preliminary allocation of the purchase price in connection with the acquisition of Medigap was calculated as follows:
SCHEDULE OF ALLOCATION OF PURCHASE PRICE
Description | Fair Value | Weighted Average Useful Life (Years) | Fair Value | Weighted Average Useful Life (Years) | ||||||||||
Property, plant and equipment | $ | 20,666 | 5 | $ | 20,666 | 5 | ||||||||
Right-of-use asset | 317,787 | 317,787 | ||||||||||||
Trade names | 340,000 | 15 | 340,000 | 15 | ||||||||||
Customer relationships | 4,550,000 | 12 | 4,550,000 | 12 | ||||||||||
Technology | 67,000 | 3 | 67,000 | 3 | ||||||||||
Backlog | 210,000 | 1 | 210,000 | 1 | ||||||||||
Chargeback reserve | (1,484,473 | ) | (1,484,473 | ) | ||||||||||
Lease liability | (317,787 | ) | (317,787 | ) | ||||||||||
Goodwill | 19,199,008 | Indefinite | 19,199,008 | Indefinite | ||||||||||
$ | 22,902,201 | $ | 22,902,201 |
Trade name was measured at fair value using the relief-from-royalty method under the income approach. Significant inputs used to measure the fair value include an estimate of projected revenue from the trade name, a pre-tax royalty rate of 0.5%0.5% and a discount rate of 11.0%11.0%.
Customer relationships were measured at fair value using the multiple-period excess earnings method under the income approach. Significant inputs used to measure the fair value include an estimate of projected revenue and costs associated with existing customers, and a discount rate of 11.0%11.0%.
Technology was measured at fair value using the cost replacement method of the cost approach. Significant inputs used to measure the fair value include an estimate of cost to replace, an obsolescence rate of 40.3%40.3%.
The value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of the acquisition date, using the income approach to discount back to present value the cash flows attributable to the backlog, using a discount rate of 11.0%11.0%.
Goodwill of $19,199,008arising from the acquisition of Medigap consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Medigap is currently expected to be deductible for income tax purposes. Total acquisition costs for the acquisition of Medigap incurred were $94,065recorded as a component of General and administrative expenses.
The approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from January 10, 2022 to September 30,March 31, 2022 was $3,868,6541,177,000 and a loss of $, respectively.
Pro Forma Information
The results of operations of Medigap will be included in the Company’s consolidated financial statements as of the date of acquisition through the current period end. The following supplemental pro-forma financial informationpro forma approximate combined financial information assumes that the acquisition had occurred at the beginning of the ninethree months ended September 30,March 31, 2022 and 2021:
SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
Revenue | $ | 4,659,451 | $ | 3,602,106 | ||||
Net Income (Loss) | $ | 9,355,584 | $ | (566,903 | ) | |||
Earnings (Loss) per common share, basic | $ | 7.65 | $ | 1.2 | ) | |||
Earnings (Loss) per common share, diluted | $ | 1.80 | $ | 1.2 | ) |
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Revenue | $ | 12,962,843 | $ | 10,931,340 | ||||
Net Income (Loss) | $ | 25,971,268 | $ | (2,344,977 | ) | |||
Earnings (Loss) per common share, basic | $ | 1.10 | $ | (0.24 | ) | |||
Earnings (Loss) per common share, diluted | $ | (0.78 | ) | $ | (0.24 | ) |
NOTE 4. INVESTMENT IN NSURE, INC.
Barra & Associates, LLC Transaction
On April 26, 2022,February 19, 2020, the Company entered into an asseta securities purchase agreement (the “APA”with NSURE, Inc. (“NSURE”) whereas the Company may invest up to an aggregate of $20,000,000 in NSURE which will be funded with Barra & Associates, LLC (“Barra”) pursuantthree tranches. In exchange, the Company will receive a total of shares of NSURE’s Class A Common Stock, which represents 35% of the outstanding shares. The first tranche of $ was paid immediately upon execution of the agreement. As a result of the first tranche, the Company received shares of NSURE’s Class A Common Stock. The second tranche of $ and third tranche of $ have not occurred as of March 31, 2022. The Company will use the cost method of acquisition for the initial recognition method of this investment. Once the Company determines that it can exercise significant influence over NSURE, it will begin to account for its investment under the equity method. On June 1, 2020, the Company invested an additional $200,000 and received shares of NSURE Class A Common Stock. On August 5, 2020 and August 20, 2020, the Company invested an additional $100,000 and $50,000, respectively, for which the Company purchased allreceived shares of NSURE Class A common stock. As of March 31, 2022, the assets of Barra & Associates, LLC on April 26, 2022 for a purchase price in the amount ofinvestment balance is $7,725,0001,350,000 in cash, with $6,000,000 paid to Barra at closing, $1,125,000 payable in six months from closing, and a final estimated earnout of $600,000 payable over two years from closing, based upon meeting stated milestones. The source of the cash payment was $6,520,000 in funds borrowed from Oak Street Lending (“Loan”), the Company’s existing lender pursuant to a Fifth Amendment to Credit Agreement and Promissory Note, of even date. The purchase price is subject to post-closing adjustment to reconcile certain pre-closing credits and liabilities of the parties..
On February 10, 2020, the Company issued acquisitionCompany received proceeds of Barra was accounted$1,000,000 for as a business combination in accordance with the acquisition method pursuant to FASB Topic No. 805, Business Combination (ASC 805). Accordingly, the total purchase consideration was allocated to the assets acquired, and liabilities assumed based on their respective estimated fair values. The acquisition methodissuance of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.these common shares. shares of common stock to a third-party individual for the purpose of raising capital to fund the Company’s investment in NSURE, Inc. The
The preliminary allocation of the purchase price in connection with the acquisition of Barra was calculated as follows:NOTE 5. PROPERTY AND EQUIPMENT
SCHEDULE OF ALLOCATION OF PURCHASE PRICE
Description | Fair Value | Weighted Average Useful Life (Years) | ||||||
Acquired accounts receivable | $ | 92,585 | ||||||
Property, plant and equipment | 8,593 | 7 | ||||||
Right-of-use asset | 122,984 | |||||||
Trade names | 22,000 | 4 | ||||||
Customer relationships | 550,000 | 10 | ||||||
Agency relationships | 2,585,000 | 10 | ||||||
Developed technology | 230,000 | 5 | ||||||
Lease liability | (122,984 | ) | ||||||
Goodwill | 4,236,822 | Indefinite | ||||||
$ | 7,725,000 |
Trade name was measured at fair value using the relief-from-royalty method under the income approach. Significant inputs used to measure the fair value include an estimate of projected revenue from the trade name, a pre-tax royalty rate of 0.5% and a discount rate of 19.5%.
CustomerProperty and Agency relationships were measured at fair value usingequipment consists of the multiple-period excess earnings method under the income approach. Significant inputs used to measure the fair value include an estimate of projected revenue and costs associated with existing customers, and a discount rate of 19.5%.following:
SCHEDULE OF PROPERTY AND EQUIPMENTS
March 31, 2022 | December 31, 2021 | |||||||
Computer equipment | $ | 79,379 | $ | 72,110 | ||||
Office equipment and furniture | 48,616 | 36,157 | ||||||
Leasehold Improvements | 94,486 | 89,819 | ||||||
Property and equipment | 222,481 | 198,086 | ||||||
Less: Accumulated depreciation | (75,341 | ) | (67,727 | ) | ||||
Property and equipment, net | $ | 147,140 | $ | 130,359 |
Developed technology was measured at fair value using the cost replacement method of the cost approach. Significant inputs usedDepreciation expense associated with property and equipment, as adjusted to measure the fair value include an estimate of costreclassify certain software assets to replace, an obsolescence rate of 28.6%.
Goodwill of $4,236,822 arising from the acquisition of Barra consisted of the value of the employee workforceintangibles, is included within depreciation and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Barra is currently expected to be deductible for income tax purposes. Total acquisition costs incurred through September 30, 2022 for the acquisition of Barra were $72,793 recorded as a component of General and administrative expenses.
The approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from April 26, 2022 to September 30, 2022 was $655,002 and a loss of $, respectively.
Pro Forma Information
The results of operations of Barra will be includedamortization in the Company’s condensed consolidated financial statements as of operations and is, $7,614 and $2,658 for the date of acquisition through the current period end. The following supplemental pro forma financial information approximate combined financial information assumes that the acquisition had occurred at the beginning of the ninethree months ended September 30,March 31, 2022 and 2021:2021, respectively.
SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Revenue | $ | 13,143,889 | $ | 8,370,850 | ||||
Net Income (Loss) | $ | 26,192,218 | $ | (1,940,384 | ) | |||
Earnings (Loss) per common share, basic | $ | 1.11 | $ | (0.20 | ) | |||
Earnings (Loss) per common share, diluted | $ | (0.76 | ) | $ | (0.20 | ) |
NOTE 3.6. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2020 the Company reorganized its reporting structure into a single operating unit. All of the acquisitions made by the Company are in one industry insurance agencies. These agencies operate in a very similar economic and regulatory environment. The Company has one executive who is responsible for the operations of the insurance agencies. This executive reports directly to the Chief Financial Officer (“CFO”) on a quarterly basis. Additionally, the CFO who is responsible for the strategic direction of the Company reviews the operations of the collective insurance agency business as opposed to an office-by-office view. In accordance with guidance in ASC 350-20-35-45, all the Company’s goodwill will be reassigned to a single reporting unit.
For the year ended December 31, 2021 the Company assessed goodwill in accordance with ASC 350-20-35-3, analyzing the relevant qualitative factors. The Company noted that it was not more likely than not that the fair value of the reporting unit is less than its carrying amount, thus determining that the two-step goodwill impairment test was not required. Pursuant to the qualitative assessment, the Company concluded that goodwill was not impaired and this conclusion remains reasonable as of March 31, 2022.
The following table rolls forward the Company’s goodwill balance for the periods ending September 30,March 31, 2022 and December 31, 2021.2021. As discussed in Note 12 - Prior Period Adjustments, a $(503,345) adjustment was identified for goodwill which impacted the closing December 31, 2020 balance in the same amount. Accordingly, the December 31, 2020 balance is adjusted in the following table from the originally reported balance of $9,265,070 to $8,761,725.
SCHEDULE OF IMPAIRMENT OF GOODWILL
Goodwill | Goodwill | |||||||
December 31, 2020 | $ | 8,761,725 | $ | 8,761,725 | ||||
Goodwill recognized in connection with Kush acquisition on May 1, 2021 | 1,288,552 | $ | 1,288,552 | |||||
December 31, 2021 | 10,050,277 | $ | 10,050,277 | |||||
Goodwill recognized in connection with Medigap acquisition on January 10, 2022 | 19,199,008 | $ | 19,199,008 | |||||
Goodwill recognized in connection with Barra acquisition on April 26, 2022 | 4,236,822 | |||||||
September 30, 2022 | $ | 33,486,107 | ||||||
March 31, 2022 | $ | 29,249,285 |
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The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of September 30,March 31, 2022:
SCHEDULE OF INTANGIBLE ASSETS AND WEIGHTED-AVERAGE REMAINING AMORTIZATION PERIOD
Weighted Average Remaining Amortization period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Amortization period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||
Trade name and trademarks | 4.6 | $ | 2,141,858 | $ | (897,390 | ) | $ | 1,244,468 | 5.1 | $ | 2,117,475 | $ | (701,666 | ) | $ | 1,415,809 | ||||||||||||||||
Internally developed software | 4.3 | 1,530,537 | (210,443 | ) | 1,320,094 | 4.4 | 881,586 | (67,682 | ) | 813,904 | ||||||||||||||||||||||
Customer relationships | 9.3 | 11,922,290 | (1,793,319 | ) | 10,128,971 | 9.7 | 8,787,290 | (1,239,562 | ) | 7,547,728 | ||||||||||||||||||||||
Purchased software | 0.4 | 665,137 | (568,039 | ) | 97,098 | 0.3 | 562,327 | (499,846 | ) | 62,481 | ||||||||||||||||||||||
Video Production Assets | 0.3 | 50,000 | (36,621 | ) | 13,379 | 0.8 | 50,000 | (9,863 | ) | 40,137 | ||||||||||||||||||||||
Non-competition agreements | 2.1 | 3,504,810 | (2,003,505 | ) | 1,501,305 | 2.6 | 3,504,809 | (1,653,617 | ) | 1,851,192 | ||||||||||||||||||||||
Contracts Backlog | 0.3 | 210,000 | (155,342 | ) | 54,658 | 0.8 | 210,000 | (46,028 | ) | 163,972 | ||||||||||||||||||||||
$ | 20,024,632 | $ | (5,664,659 | ) | $ | 14,359,973 | $ | 16,113,487 | $ | (4,218,264 | ) | $ | 11,895,223 |
The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of December 31, 2021:
Weighted Average Remaining Amortization period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||
Trade name and trademarks | 3.5 | $ | 1,777,475 | $ | (609,822 | ) | $ | 1,167,653 | ||||||||
Internally developed software | 4.7 | 595,351 | (28,443 | ) | 566,908 | |||||||||||
Customer relationships | 7.7 | 4,237,290 | (1,048,726 | ) | 3,188,564 | |||||||||||
Purchased software | 0.6 | 562,327 | (452,985 | ) | 109,342 | |||||||||||
Video Production Assets | 1.0 | 20,000 | - | 20,000 | ||||||||||||
Non-competition agreements | 2.9 | 3,504,809 | (1,478,376 | ) | 2,026,433 | |||||||||||
$ | 10,697,252 | $ | (3,618,352 | ) | $ | 7,078,900 |
Amortization expense, as adjusted for certain software reclassifications is, $599,911 and $283,569 for the three months ended March 31, 2022 and 2021, respectively.
The following table reflects expected amortization expense as of September 30,March 31, 2022, for each of the following five years and thereafter:
SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS
1 | ||||||||
Years ending December 31, | Amortization Expense | Amortization Expense | ||||||
2022 (remainder of year) | $ | 707,166 | $ | 1,823,253 | ||||
2023 | 2,536,548 | 2,064,243 | ||||||
2024 | 2,158,445 | 1,771,983 | ||||||
2025 | 1,764,541 | 1,325,184 | ||||||
2026 | 1,504,660 | 1,064,552 | ||||||
Thereafter | 5,688,613 | 3,846,008 | ||||||
Total | $ | 14,359,973 | $ | 11,895,223 |
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NOTE 4.7. LONG-TERM DEBTACCOUNTS PAYABLE AND SHORT-TERM FINANCINGSACCRUED LIABILITIES
Significant components of accounts payable and accrued liabilities were as follows:
Long-Term DebtSCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
March 31, 2022 | December 31, 2021 | |||||||
Accounts payable, | $ | 824,129 | $ | 547,117 | ||||
Accrued expenses | 116,619 | 2,170,215 | ||||||
Accrued credit card payables | 75,459 | 36,103 | ||||||
Other accrued liabilities | 26,910 | 5,725 | ||||||
Accounts payable and accrued liabilities | $ | 1,043,117 | $ | 2,759,160 |
NOTE 8. LONG-TERM DEBT
The composition of the long-term debt follows:
SCHEDULE OF LONG TERM DEBT
September 30, 2022 | December 31, 2021 | |||||||
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $12,942 and $14,606 as of September 30, 2022 and December 31, 2021, respectively | $ | 442,368 | $ | 485,317 | ||||
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of $15,713 and $17,626 as of September 30, 2022 and December 31, 2021, respectively | 715,816 | 785,826 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $9,613 and $11,027 as of September 30, 2022 and December 31, 2021, respectively | 811,699 | 884,720 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $38,298 and $42,660 as of September 30, 2022 and December 31, 2021, respectively | 2,045,048 | 2,226,628 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $43,749 and $48,609 as of September 30, 2022 and December 31, 2021, respectively | 3,337,241 | 3,616,754 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of Barra, net of deferred financing costs of $204,958 and $0 as of September 30, 2022 and December 31, 2021, respectively | 6,315,042 | - | ||||||
13,667,214 | 7,999,245 | |||||||
Less: current portion | (1,026,541 | ) | (913,920 | ) | ||||
Long-term debt | $ | 12,640,673 | $ | 7,085,325 |
March 31, 2022 | December 31, 2021 | |||||||
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $14,051 and $14,606 as of March 31, 2022 and December 31, 2021, respectively | $ | 470,249 | $ | 485,317 | ||||
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of $16,988 and $17,626 as of March 31, 2022 and December 31, 2021, respectively | 762,051 | 785,826 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $10,556 and $11,027 as of March 31, 2022 and December 31, 2021, respectively | 859,892 | 884,720 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $41,206 and $42,660 as of March 31, 2022 and December 31, 2021, respectively | 2,164,855 | 2,226,628 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $46,989 and $48,609 as of March 31, 2022 and December 31, 2021, respectively | 3,521,493 | 3,616,754 | ||||||
7,778,540 | 7,999,245 | |||||||
Less: current portion | (918,073 | ) | (913,920 | ) | ||||
Long-term debt | $ | 6,860,467 | $ | 7,085,325 |
Oak Street Funding LLC – Term Loans and Credit Facilities
During the year ended December 31, 2018 the Company entered into two debt agreements with Oak Street Funding LLC. On August 1, 2018, EBS and USBA entered into a Credit Agreement with Oak Street Funding LLC (“Oak Street”) whereby EBS and USBA borrowed $750,000 from Oak Street under a Term Loan. The Term Loan is secured by certain assets of the Company. Interest accrues at 5.00% on the basis of a 360-day year, maturing 120 months from the Amortization Date (September 25, 2018). The Company incurred debt issuance costs associated with the Term Loan in the amount of $22,188. On December 7, 2018, CCS entered into a Facility with Oak Street whereby CCS borrowed $1,025,000 from Oak Street under a senior secured amortizing credit facility. The borrowing rate under the Facility is a variable rate equal to Prime +1.50% and matures 10 years from the closing date. The Company incurred debt issuance costs associated with the Facility in the amount of $25,506, which were deferred and are amortized over the length of the Facility.
During the year ended December 31, 2019 the Company entered in Credit Agreements with Oak Street on April 1, 2019, May 1, 2019 and September 5, 2019 whereby the Company borrowed a total amount of $7,912,000 from Oak Street under the Term Loans. The Term Loans are secured by certain assets of the Company. The borrowing rates under the Facility is a variable rate equal to Prime + 2.00% and matures 10 years from the closing date. The Company recorded debt issuance costs associated with the aforementioned loans in total of $181,125. Aggregated cumulative maturities of long-term obligations (including the Term Loan and the Facility), excluding deferred financing costs, as of March 31, 2022 are:
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SCHEDULE OF CUMULATIVE MATURITIES OF LONG-TERM LOANS AND CREDIT FACILITIESOBLIGATIONS
Fiscal year ending December 31, | Maturities of Long-Term Debt | |||
2022 (remainder of year) | $ | 211,904 | ||
2023 | 1,168,585 | |||
2024 | 1,482,266 | |||
2025 | 1,616,891 | |||
2026 | 1,760,367 | |||
Thereafter | 7,752,474 | |||
Total | 13,992,487 | |||
Less: debt issuance costs | (325,273 | ) | ||
Total | $ | 13,667,214 |
Short-Term Financings
The Company financed certain annual insurance premiums through the use of two short-term notes, payable in nine and ten equal monthly installments of $42,894 and $4,456 at interest rates of 7.51% and 7.95%, per annum respectively. Policies financed include directors and officers and errors and omissions insurance coverage with premium financing recognized in 2022 and 2021 of $417,199 and $0, respectively. Outstanding balances as of September 30, 2022 and December 31, 2021, respectively were $309,993 and $0.
Fiscal year ending December 31, | Maturities of Long-Term Debt | |||
2022 (remainder of year) | $ | 682,348 | ||
2023 | 957,233 | |||
2024 | 1,010,835 | |||
2025 | 1,069,437 | |||
2026 | 1,130,416 | |||
Thereafter | 3,058,062 | |||
Total | 7,908,331 | |||
Less debt issuance costs | (129,791 | ) | ||
Total | $ | 7,778,540 |
NOTE 5.9. WARRANT LIABILITIESWarrant Liabilities
Series B Warrants
On December 22, 2021 the Company entered into a securities purchase agreement with several institutional buyers for the purchase and sale of (i) warrants to purchase up to an aggregate of up to 9,779,952651,997 shares of the Company’s common stock, par value $per share at an exercise price of $4.0961.35 per share, (ii) an aggregate of shares of Common Stock, and (iii) shares of the Company’s newly-designated Series B convertible preferred stock, par value $ per share, with a stated value of $ per share, initially convertible into an aggregate of shares of Common Stock at a conversion price of $4.0961.35 per share, each a freestanding financial instrument, (the “Private Placement”). The aggregate purchase price for the Common Shares, the Preferred Shares and the Warrants wasis approximately $.
By entering into the Private Placement on December 22, 2021, the Company entered into a commitment to issue the Common Shares, Preferred Shares and Series B Warrants on the Initial Closing Date for a fixed price and exercise price, as applicable. The commitment to issue Series B Warrants (the “Warrant Commitment”) represents a derivative financial instrument, other than an outstanding share, that, at inception, has both of the following characteristics: (i) embodies a conditional obligation indexed to the Company’s equity. The Company classified the commitment to issue the warrants as a derivative liability because it represents a written option that does not qualify for equity accounting The Company initially measured the derivative liability at its fair value and will subsequently remeasure the derivative liability, at fair value with changes in fair value recognized in earnings. An option pricing model was utilized to calculate the fair value of the Warrant Commitment. The Company initially recorded $17,652,808 of non-operating unrealized losses within the recognition and change in fair value of warrant liabilities account for the year ended December 31, 2021.31,2021. The Private Placement closed on January 4, 2022, at which time the Company remeasured the derivative liability for the warrants issued in the transaction. The Company recognized $7,726,161 and $34,621,02414,572,126 of non-operating unrealized gains within the recognition and change in fair value of warrant liabilities account on the condensed consolidated statement of operations for the three and nine months ended September 30,March 31, 2022, respectively, related to the subsequent changes in its fair value through September 30,March 31, 2022. A corresponding derivative liability of $3,031,78423,080,682 is included on Company’s condensed consolidated balance sheet as of September 30,March 31, 2022. The closing of the Private Placement settled the subscription receivable reported on the Company’s balance sheet as of December 31, 2021.
Placement Agent Warrants
In connection with the Private Placement, the Company issued 244,53916,303 warrants to the placement agent for the Private Placement. The warrants were issued as compensation for the Placement Agent’splacement agent’s services. The Placement Agent Warrants are: (i) exercisable on any day after the six (6) month anniversary of the issue date, (ii) expire five years after the closing of the Private Placement, and (iii) exercisable at $4.0961.35 per share. The Placement Agent Warrants contain terms that may require the Company to transfer assets to settle the warrants. Therefore, the Placement Agent Warrants are classified as a derivative liability measured at fair value of $1,525,923 on the date of issuance and will be remeasured each accounting period with the changes in fair value reported in earnings. The Placement Agent Warrants are considered financing expense fees paid to the Placement Agent. Since the financing expenses relate to a derivative liability measured at fair value, this financing expense of $1,525,923, along with non-operating unrealized gains of $193,154 and $1,450,129946,461, were included in the recognition and change in fair value of warrant liabilities account on the condensed consolidated statement of operations for the three and nine months ended September 30,March 31, 2022, respectively, A corresponding derivative liability of $75,794579,463 is included on Company’s condensed consolidated balance sheet as of September 30,March 31, 2022.
NOTE 10. SIGNIFICANT CUSTOMERS
Customers and IM Customers representing 10% or more of total revenue are presented in the table below:
SCHEDULE OF CONCENTRATIONS OF REVENUES
For the three months ended March 31, | ||||||||
Insurance Carrier | 2022 | 2021 | ||||||
BlueCross BlueShield | 10 | % | 22 | % | ||||
Priority Health | 30 | % | 35 | % | ||||
LTC Global | 25 | % | - | % |
No other single Customer or IM Customer accounted for more than 10% of the Company’s commission revenues. The loss of any significant customer, including Priority Health, BlueCross BlueShield and LTC Global could have a material adverse effect on the Company.
NOTE 6.11. EQUITY
Preferred Stock
The Company has been authorized to issue shares of $ par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.
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Each share of Series A Convertible Preferred Stock shall have ten (10) votes per share and may be converted into ten (10) shares of $January 2022,the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, issued par value common stock. The holders of the Series A Convertible Preferred Stock shall be entitled to receive, when, if and as declared by the Board, out of funds legally available therefore, cumulative dividends payable in cash. The annual interest rate at which cumulative preferred dividends will accrue on each share of Series A Convertible Preferred Stock is 0%. In , stock options and the like with respect to such shares, plus any accumulated but unpaid dividends (whether or not earned or declared) on the Series A Convertible Preferred Stock, and (ii) the amount such holder would have received if such holder has converted its shares of its newly designated Series B convertible preferredA Convertible Preferred Stock to common stock, through the Private Placement for the purpose of raising capital. subject to but immediately prior to such liquidation.
The Series B convertible preferred stockConvertible Preferred Stock shall have no voting rights and initially each share may be converted into shares of the Company’s$ par value common stock. The holders of the Series B convertible preferred stockConvertible Preferred Stock are not entitled to receive any dividends other than anypayable, except that holder of Series B Preferred would be entitled to receive dividends paid on account of the common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holdersHolders shall be entitled to receive out of the assets, whether capital or surplus, of the CompanyCorporation the same amount that a holder of common stockCommon Stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stockCommon Stock which amounts shall be paid pari-passupari passu with all holders of common stock.
Common Stock..
During August
In January 2022, allthe Company issued shares of its newly designated Series B convertible preferred stock through the Private Placement for the purpose of raising capital. See Note 9 - Warrant Liabilities for proceeds received by the Company.
As of March 31, 2022 and December 31, 2021, there were shares of Series A Convertible Preferred Stock were converted by third parties intoissued and outstanding, and 2,219,084 and shares of common stock.Series B convertible Preferred Stock, respectively, issued and outstanding.
Common Stock
The Company has been authorized to issue entitlesshall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution. shares of common stock, $ par value. Each share of issued and outstanding common stock
In February 2021, the Company issued 12,420,000 for the issuance of these common shares. shares of common stock through a stock offering for the purpose of raising capital. The Company received gross proceeds of $
In February 2021, Reliance Global Holdings, LLC, a related party, converted $3,800,000 of outstanding debt into shares of common stock. The conversion considered the fair market value of the stock on the day of conversion of $90.00 for total shares issued as a result of .
In May 2021, the Company issued shares of common stock pursuant to the acquisition of the Kush Acquisition.
In January 2022, the Company issued shares of common stock through the Private Placement for the purpose of raising capital. See Note 59 - Warrant Liabilities for proceeds received by the Company.
In January 2022, the Company issued shares of common stock pursuant to the Medigap Acquisition.
In January 2022, upon agreement with Series A warrant holders, warrants were exercised at a price of $6.6099.00 into of the Company’s common stock.
In March 2022, the Company issued shares of the Company’s common stock due to the vesting of 400 stock awards pursuant to an employee agreement.
In May and June 2022, 3,276,929 Series C prepaid warrants were exchanged for 3,276,929 shares of the Company’s common stock.
In July 2022, 1,221,347 Series D prepaid warrants were exchanged for 1,221,347 shares of the Company’s common stock.
As of September 30,March 31, 2022 and December 31, 2021, there were and 10,956,109 shares of Common Stock outstanding, respectively.
Stock Options
During the year ended December 31, 2019, the Company adopted the Reliance Global Group, Inc. 2019 Equity Incentive Plan (the “Plan”) under which options exercisable for shares of common stock have been or may be granted to employees, directors, consultants, and service providers. A total of shares of common stock are reserved for issuance under the Plan. At March 31, 2022, there were shares of common stock reserved for future awards under the Plan. The Company issues new shares of common stock from the shares reserved under the Plan upon exercise of options.
The Plan is administered by the Board of Directors (the “Board”). The Board is authorized to select from among eligible employees, directors, and service providers those individuals to whom options are to be granted and to determine the number of shares to be subject to, and the terms and conditions of the options. The Board is also authorized to prescribe, amend, and rescind terms relating to options granted under the Plan. Generally, the interpretation and construction of any provision of the Plan or any options granted hereunder is within the discretion of the Board.
The Plan provides that options may or may not be Incentive Stock Options (ISOs) within the meaning of Section 422 of the Internal Revenue Code. Only employees of the Company are eligible to receive ISOs, while employees, non-employee directors, consultants, and service providers are eligible to receive options which are not ISOs, i.e. “Non-Statutory Stock Options.” The options granted by the Board in connection with its adoption of the Plan were Non-Statutory Stock Options.
The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model or the value of the services provided, whichever is more readily determinable. The Black-Scholes option pricing model takes into account, as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the term of the option.
SCHEDULE OF THE STOCK OPTIONS GRANTED, FORFEITED OR EXPIRED
Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at December 31, 2021 | $ | 232.50 | $ | - | ||||||||||||
Granted | - | - | - | - | ||||||||||||
Forfeited or expired | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Outstanding at March 31, 2022 | $ | 232.50 | - |
Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at December 31, 2020 | $ | 231.45 | $ | - | ||||||||||||
Granted | - | - | - | - | ||||||||||||
Forfeited or expired | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Outstanding at March 31, 2021 | $ | 228.30 | $ | - |
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SCHEDULE OF NON - VESTED STOCK OPTIONS
Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | ||||||||||||
Non-vested at December 31, 2021 | 3,587 | $ | 227.10 | |||||||||||
Granted | - | - | - | |||||||||||
Vested | - | - | ||||||||||||
Forfeited or expired | - | - | - | |||||||||||
Non-vested at March 31, 2022 | 3,587 | $ | 227.10 | |||||||||||
Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | ||||||||||
Non-vested at December 31, 2020 | 10,636 | $ | 200.85 | |||||||||
Granted | - | - | - | |||||||||
Vested | - | - | ||||||||||
Forfeited or expired | - | - | - | |||||||||
Non-vested at March 31, 2021 | 10,636 | $ | 223.05 |
For the three months ended March 31, 2022, the Board did not approve any options to be issued pursuant to the Plan.
As of March 31, 2022, the Company determined that the options granted had a total fair value of $ , which will be amortized in future periods through February 2024. During the three months ended March 31, 2022, the Company recognized $ of compensation expense relating to the stock options granted to employees, directors, and consultants. As of March 31, 2022, unrecognized compensation expense totaled $ which will be recognized on a straight-line basis over the vesting period or requisite service period through February 2024.
The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on March 31, 2022. The market value as of March 31, 2022 was $ based on the closing bid price for March 31, 2022.
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As of March 31, 2021 the Company determined that the options granted had a total fair value of $ . During the three months ended March 31, 2021, the Company recognized $ of compensation expense relating to the stock options granted to employees, directors, and consultants. As of March 31, 2021, unrecognized compensation expense totaled $ .
The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on March 31, 2021. The market values as of March 31, 2021 was $ based on the closing bid price for March 31, 2021.
The Company estimated the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models require the Company to make predictive assumptions regarding future stock price volatility, recipient exercise behavior, and dividend yield. The Company estimated the future stock price volatility using the historical volatility over the expected term of the option. The expected term of the options was computed by taking the mid-point between the vesting date and expiration date. The following assumptions were used in the Black-Scholes option-pricing model, not accounting for any reverse splits:
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||
Exercise price | $ | - $ | $ | - $ | ||||
Expected term | to years | to years | ||||||
Risk-free interest rate | - | % | - | % | ||||
Estimated volatility | - | % | - | % | ||||
Expected dividend | - | - | ||||||
Option price at valuation date | $ | - $ | $ | - $ |
Warrants
Series A Warrants
In conjunction withAs a part of the Company’s initial public offering, the Company issued 2,070,000138,000 Series A Warrants which wereWarrants. These warrants are classified as equity warrants because of provisions, pursuant to the warrant agreement, that permit the holder obtain a fixed number of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge. The warrants were recorded at a value per the offering of $0.01.$0.15. The warrants may be exercised at any point from the effective date until the 5-year5-year anniversary of issuance and are not subject to standard antidilutionanti-dilution provisions. The Series A Warrants are exercisable at a per share exercise price equal to 110% of the public offering price of one share of common stock and accompanying Series A Warrant, $6.0099.00. Series A warrant holdersPer Common Stock above, of these warrants were exercised Series A warrants in January 2022, resulting in of Series A warrants remaining issued and outstanding as of September 30,at March 31, 2022.
Series C and D Warrants
In January 2022, as a result of the Private Placementissuance of common stock in the January 2022 stock offering and the Medigap Acquisition, the Company received a deficiency notification from Nasdaq indicating violation of Listing Rule 5365(a). As part of its remediation plan, in March 2022, the Company entered into Exchange Agreements with the holders of common stock issued in January 2022. Pursuant to the Exchange Agreements, the Company issued 3,276,929218,462 Series C prepaid warrants in exchange for 3,276,929218,462 shares of the Company’s common stock. Additionally, as compensation for entering into the Exchange Agreements, the Company issued 1,222,49881,500 Series D prepaid warrants to the Private PlacementJanuary 2022 stock offering investors for no additional consideration. The fair value of the Series D prepaid warrants was treated as a deemed dividend and accordingly was treated as a reduction from income available to common stockholders in the calculation of earnings per share. Refer to Note 7,12, Earnings (Loss) Per Share for additional information.
The Series C and D Warrants are equity classified pursuant to the warrant agreement provisions that permit holders to obtain a fixed number of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge. The warrants expire on the fifth anniversary of the respective issuance dates and are exercisable at a per share exercise price equal to $0.001.
In May and June 2022, the Series C prepaid warrants were converted for shares of the Company’s common stock for a conversion price of $0.001. Through September 30, 2022, the Company has received payments of $1,336 for these issuances.
In July 2022, the Series D prepaid warrants were converted into shares of the Company’s common stock for a conversion price of $0.001 through both cash and cashless exercises. Proceeds of $795 were received in conjunction with the cash exercise.
Equity-based Compensation
Between February and MayIn 2021, three employees received a signing bonus of shares of the Company’s common stock to be issued after the completion of a service period ranging from one to three years of service. The shares granted in 2021 were valued at $ . For the three months ended March 31, 2022, threecompensation expense on these grants totaled $ .
In 2022, two existing employees were awarded bonusesa bonus consisting of shares of the Company’s common stock to be vested immediately. The shares granted in 2022 were valued at $. For the three months ended March 31, 2022, compensation expense.expense on these grants totaled $. As of September 30,March 31, 2022 these shares have not been issued.
In April 2022 , pursuant to an agreement between the Company and an executive, the executive will be compensated with 60,000 shares of the Company’s common stock. These shares vest quarterly over a three-year period. The shares granted were valued at $178,200 at the date of the grant. ForTotal stock compensation expense for the three and nine months ended September 30,March 31, 2022 compensation expense on this grantand 2021 was $ and $ , respectively. As of September 30, 2022, no shares were issued under this contract.
Pursuant to an equity-based compensation program at one of the Company’s subsidiaries which provides agents the ability to earn and receive restricted stock awards upon completion of agreed upon service requirements, the Company granted 303,143 restricted stock awards which were immediately vested. Stocks earned are restricted for twelve months. The stocks were valued at $and recognized as stock-based compensation for the three and nine months ended September 30, 2022.respectively
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Basic earnings per common share (“EPS”)EPS applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding.
If there is a loss from operations, diluted EPS is computed in the same manner as basic EPS is computed. Similarly, if the Company has net income but its preferred dividend adjustment made in computing income available to common stockholders results in a net loss available to common stockholders, diluted EPS would be computed in the same manner as basic EPS.
SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS
Three Months | Three Months | |||||||
ended | ended | |||||||
September 30, 2022 | September 30, 2021 | |||||||
Net income (loss) | $ | 6,122,093 | $ | (595,233 | ) | |||
Deemed dividend | - | - | ||||||
Net income (loss), numerator, basic computation | 6,122,093 | (595,233 | ) | |||||
Recognition and change in fair value of Series B warrant liability | (7,726,161 | ) | - | |||||
Recognition and change in fair value of Placement Agent warrant liability | (193,154 | ) | ||||||
Net income (loss), numerator, diluted computation | $ | (1,797,222 | ) | $ | (595,233 | ) | ||
Weighted average common shares | 16,491,942 | 10,944,439 | ||||||
Effect of series C warrants | - | - | ||||||
Effect of Series D warrants | 623,285 | - | ||||||
Effect of weighted average vested stock awards | 309,040 | |||||||
Weighted average shares - denominator basic computation | 17,424,267 | 10,944,439 | ||||||
Effect of dilutive securities | - | - | ||||||
Weighted average shares, as adjusted - denominator diluted computation | 17,424,267 | 10,944,439 | ||||||
Earnings (loss) per common share – basic | $ | 0.35 | $ | (0.05 | ) | |||
Earnings (loss) per common share – diluted | (0.10 | ) | (0.05 | ) |
Nine Months | Nine Months | |||||||
ended | ended | |||||||
September 30, 2022 | September 30, 2021 | |||||||
Net income (loss) | $ | 25,957,785 | $ | (2,486,045 | ) | |||
Deemed dividend | (6,930,335 | ) | - | |||||
Net income (loss), numerator, basic computation | 19,027,450 | (2,486,045 | ) | |||||
Recognition and change in fair value of Series B warrant liability | (32,474,324 | ) | ||||||
Net income (loss), numerator, diluted computation | $ | (13,446,874 | ) | $ | (2,486,045 | ) | ||
Weighted average shares | 14,308,069 | 9,809,092 | ||||||
Effect of series C warrants | 1,819,213 | |||||||
Effect of Series D warrants | 1,019,803 | - | ||||||
Effect of weighted average vested stock awards | 173,061 | - | ||||||
Weighted average shares - denominator basic computation | 17,320,146 | 9,809,092 | ||||||
Effect of dilutive securities | - | - | ||||||
Weighted average shares, as adjusted - denominator diluted computation | 17,320,146 | 9,809,092 | ||||||
Earnings (loss) per common share - basic | $ | 1.10 | $ | (0.25 | ) | |||
Earnings (loss) per common share - diluted | $ | (0.78 | ) | $ | (0.25 | ) |
The gain in fair value of the Series B warrants for the three and nine months September 30, 2022 is included in the numerator of the dilutive EPS calculation to eliminate the effects of the warrants that have been recorded in net income as the impact is dilutive. The gain in fair value of the Placement Agent warrants for the three months September 30, 2022 is included in the numerator of the dilutive EPS calculation to eliminate the effects of the warrants that have been recorded in net income as the impact is dilutive. For the nine months ended September 30, 2022, as the fair value change in the Placement Agent warrants is a loss, the addback of the loss would result in anti-dilution and therefore is not included in the numerator of dilutive EPS.
Three Months Ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
Net income (loss) | $ | 9,340,000 | $ | (613,926 | ) | |||
Deemed dividend | (6,930,335 | ) | - | |||||
Net income (loss), numerator, basic computation | 2,409,665 | (613,926 | ) | |||||
Recognition and change in fair value of warrant liabilities | (13,992,664 | ) | - | |||||
Net income (loss), numerator, diluted computation | $ | (11,582,999 | ) | $ | (613,926 | ) | ||
Weighted average shares - denominator basic computation | 980,569 | 502,825 | ||||||
Effect of Series B warrant liabilities | 214,911 | - | ||||||
Weighted average shares, as adjusted - denominator diluted computation | 1,195,480 | 502,825 | ||||||
Earnings (loss) per common share - basic | $ | 2.46 | $ | (1.22 | ) | |||
Earnings (loss) per common share - diluted | $ | (9.69 | ) | $ | (1.22 | ) |
The potential impact of the 9,779,950 and Series B and Placement Agent warrants are excluded from the denominator of the dilutive EPS calculation for the three and nine months ended September 30, 2022 as the average market price for both periods does not exceed the exercise price of the warrants, resulting in anti-dilutive securities.
SCHEDULE OF DILUTIVE NET LOSS PER COMMONANTI-DILUTIVE SECURITIES IN WEIGHTED AVERAGE SHARES
1 | 2 | |||||||
For the three months ended | ||||||||
September 30, 2022 | September 30, 2021 | |||||||
Shares subject to outstanding common stock options | 163,925 | 163,925 | ||||||
Shares subject to outstanding Series A warrants | 1,695,000 | 2,070,000 | ||||||
Shares subject to preferred stock | 2,219,084 | 11,670 | ||||||
Shares subject to unvested stock awards | 61,280 | 15,655 |
1 | 2 | |||||||||||||||
For the nine months ended | For the Three Months Ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | March 31, 2022 | March 31, 2021 | |||||||||||||
Shares subject to outstanding common stock options | 163,925 | 163,925 | 10,928 | 10,928 | ||||||||||||
Shares subject to outstanding Series A warrants | 1,695,000 | 2,070,000 | 113,000 | 138,000 | ||||||||||||
Shares subject to outstanding Placement Agent warrants | 244,539 | - | ||||||||||||||
Shares subject to preferred stock | 2,219,084 | 11,670 | ||||||||||||||
Shares subject to unvested stock awards | 61,280 | 15,655 | 661 | 1,200 | ||||||||||||
Diluted net loss per common share | 61,280 | 15,655 | ||||||||||||||
Shares subject to conversion of Series B preferred stock | 147,939 | - | ||||||||||||||
Weighted-average anti-dilutive securities | 147,939 | - |
NOTE 8.13. LEASES
Operating Leases
ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. The standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease, initially measured at the present value of the lease payments. The Company’s leases consist of operating leases on buildings and office space.
In accordance with ASU 2016-02, right-of-use assets are amortized over the life of the underlying leases. Lease expense for the three months ended September 30,March 31, 2022 and 2021 was $159,624145,662 and $97,265 respectively. Operating lease expense for the nine months ended September 30, 2022 and 2021 was $434,798 and $220,79868,268 respectively. As of September 30,March 31, 2022, the weighted average remaining lease term and weighted average discount rate for the operating leases were 3.864.41 years and 5.72%5.77% respectively.
Future minimum lease payment under these operating leases consisted of the following:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENT
Year ending December 31, | Operating Lease Obligations | Operating Lease Obligations | ||||||
2022 | $ | 157,633 | $ | 371,025 | ||||
2023 | 570,275 | 439,110 | ||||||
2024 | 269,908 | 172,690 | ||||||
2025 | 144,124 | 112,923 | ||||||
2026 | 113,738 | 113,736 | ||||||
Thereafter | 268,202 | 268,197 | ||||||
Total undiscounted operating lease payments | 1,523,880 | 1,477,681 | ||||||
Less: Imputed interest | 152,467 | 172,402 | ||||||
Present value of operating lease liabilities | $ | 1,371,413 | $ | 1,305,279 |
NOTE 9.14. COMMITMENTS AND CONTINGENCIES
Legal Contingencies
The Company is subject to various legal proceedings and claims, either asserted or unasserted, arising in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows, and accordingly, no legal contingencies are accrued as of September 30,March 31, 2022 and December 31, 2021. Litigation relating to the insurance brokerage industry is not uncommon. As such the Company, from time to time have been, subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future.
Earn-out liabilities
The Company has recognized a number of earn-out liabilities resulting from contingent consideration provisions included in business combination agreements. Earn-out consideration is normally earned by acquirees when they meet or exceed pre-agreed upon earnings targets.
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As discussed in Note 2 - Prior Period Adjustments, a $300,000 adjustment was identified for earn-out liabilities which impacted the closing December 31, 2020 balance in the same amount. Accordingly, the December 31, 2020 balance is adjusted in the following table from the originally reported balance of $2,631,418 to $2,931,418.
The following outlines changes to the Company’s earn-out liability balances inclusive of accumulated accretion for the respective periodsperiod ended September 30,March 31, 2022 and December 31, 2021:
SCHEDULE OF EARN-OUT LIABILITY
Fortman | Montana | Altruis | Kush | Barra | Total | CCS | Fortman | Montana | Altruis | Kush | Total | |||||||||||||||||||||||||||||||||||||
Ending balance December 31, 2021 | $ | 515,308 | $ | 615,969 | $ | 992,868 | $ | 1,689,733 | $ | - | $ | 3,813,878 | $ | - | $ | 515,308 | $ | 615,969 | $ | 992,868 | $ | 1,689,733 | $ | 3,813,878 | ||||||||||||||||||||||||
Changes due to acquisitions | - | - | - | - | 600,000 | 600,000 | ||||||||||||||||||||||||||||||||||||||||||
Changes due to fair value adjustments | - | 29,522 | 37,741 | - | 339,808 | 407,071 | ||||||||||||||||||||||||||||||||||||||||||
Changes due to business combinations | ||||||||||||||||||||||||||||||||||||||||||||||||
Changes due to payments | (34,430 | ) | (326,935 | ) | (84,473 | ) | (1,181,458 | ) | - | (1,627,296 | ) | |||||||||||||||||||||||||||||||||||||
Changes due to fair value adjustments | 186,122 | 37,741 | (212,609 | ) | 201,191 | (80,000 | ) | 132,445 | ||||||||||||||||||||||||||||||||||||||||
Ending balance September 30, 2022 | $ | 667,000 | $ | 326,775 | $ | 695,786 | $ | 709,466 | $ | 520,000 | $ | 2,919,027 | ||||||||||||||||||||||||||||||||||||
Changes due to write-offs | ||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance March 31, 2022 | $ | - | $ | 544,830 | $ | 653,710 | $ | 992,868 | $ | 2,029,541 | $ | 4,220,949 |
CCS | Fortman | Montana | Altruis | Kush | Total | |||||||||||||||||||
Ending balance December 31, 2020 | $ | 81,368 | $ | 432,655 | $ | 522,553 | $ | 1,894,842 | $ | - | $ | 2,931,418 | ||||||||||||
Changes due to business combinations | - | - | - | - | 1,694,166 | 1,694,166 | ||||||||||||||||||
Changes due to payments | - | - | - | (452,236 | ) | - | (452,236 | ) | ||||||||||||||||
Changes due to fair value adjustments | - | 82,653 | 93,416 | (449,738 | ) | (4,433 | ) | (278,102 | ) | |||||||||||||||
Changes due to write-offs | (81,368 | ) | - | - | - | - | (81,368 | ) | ||||||||||||||||
Ending balance December 31, 2021 | $ | - | $ | 515,308 | $ | 615,969 | $ | 992,868 | $ | 1,689,733 | $ | 3,813,878 |
COVID-19 pandemic contingencies
The spread of the coronavirus (COVID-19) outbreak in the United States has resulted in economic uncertainties which may negatively impact the Company’s business operations. While the disruption is expected to be temporary, there is uncertainty surrounding the duration and extent of the impact. The impact of the coronavirus outbreak on the financial statements cannot be reasonably estimated at this time.
Adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment could harm our business and our business strategy. While we do not anticipate any material impact to our business operations as a result of the coronavirus, in the event of a major disruption caused by the outbreak of pandemic diseases such as coronavirus, we may lose the services of our employees or experience system interruptions, which could lead to diminishment of our business operations. Any of the foregoing could harm our business and delay the implementation of our business strategy and we cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business.
Management is actively monitoring the global situation on its financial condition, liquidity, operations, industry and workforce.
NOTE 15. INCOME TAXES
The Company did not have any material uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued related to unrecognized benefits as a component income tax expense (benefit). The Company did not recognize any interest or penalties, nor did it have any interest or penalties accrued as of March 31, 2022 and December 31, 2021.
The Company’s income tax provision for interim periods is generally determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising in the quarter. For the three months ended March 31, 2022, however, the Company calculates its income tax expense by applying to any pre-tax loss/income an effective tax rate determined as if the year-to-date period is the annual period. Using this method, for the three months ended March 31, 2022, its estimated annual effective tax rate from continuing operation was 0% and the resulting income tax expense was $0. We believe that, at this time, this method for determining the effective tax rate is more reliable than projecting an annual effective tax rate due to the uncertainty of estimating annual pre-tax loss/income under the impact of the COVID-19 pandemic. The Company’s estimated annual effective tax rate differs from the U.S. statutory tax rate primarily due to a valuation allowance recorded against the deferred tax assets. Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using applicable tax rates. A valuation allowance is recorded against deferred tax assets if it is not more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the deferred tax assets in future, the Company has recorded a full valuation allowance against its net deferred tax assets.
The calculation of the Company’s tax liabilities also involves assessment of uncertainties in the application of complex tax laws and regulations in the applicable jurisdictions, and a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of technical merits. The Company’s policy is to record interest and penalties accrued related to unrecognized benefits as a component of income tax expense (benefit). The Company did not have any material uncertain tax positions, and there were no amounts for penalties or interest recorded as of March 31, 2022. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its positions.
NOTE 10.16. RELATED PARTY TRANSACTIONS
On September 13, 2022, theThe Company issued entered into a promissory note to YES Americana Group, LLC, a related party entity for the principal sum of $1,500,000 (the “Note”). The Note matures on January 15, 2024, bearing interest of 0% per annum for the first six months, and 5% per annum thereafter, payable monthly. In the event the Note is not paid by the maturity date, the loan will automatically be extended for an additional year until January 15, 2025, and if necessary, extended again for one additional year through January 15, 2026.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Reliance Global Group, Inc. (formerly known as Ethos Media Network, Inc.) was incorporated in Florida on August 2, 2013. In September 2018,Loan Agreement with Reliance Global Holdings, LLC, a related party purchased a controlling interest inunder common control. There is no term to the Company. Ethos Media Network, Inc. was renamed Reliance Global Group, Inc. on October 18, 2018.
We operateloan, and it bears no interest. Repayment will be made as a diversified company engaging in business in the insurance market, as well as other related sectors. Our focus is to grow the Company by pursuing an aggressive acquisition strategy, initially and primarily focused upon wholesale and retail insurance agencies.has business cash flows. The Company is controlled by the same management team as Reliance Global Holdings, LLC (“Reliance Holdings”), a New York based firm that is the owner and operator of numerous companies with core interests in real estate and insurance. Our relationship with Reliance Holdings provides us with significant benefits: (1) experience, knowledge, and industry relations; (2) a source of acquisition targets currently under Reliance Holdings’ control; and (3) financial and logistics assistance. We are led and advised by a management team that offers over 100 years of combined business expertise in real estate, insurance, and the financial service industry.
In the insurance sector, our management has extensive experience acquiring and managing insurance portfolios in several states, as well as developing specialized programs targeting niche markets. Our primary strategy is to identify specific risk to reward arbitrage opportunities and develop these on a national platform, thereby increasing revenues and returns, and then identify and acquire undervalued wholesale and retail insurance agencies with operations in growing or underserved segments, expand and optimize their operations, and achieve asset value appreciation while generating interim cash flows.
As part of our growth and acquisition strategy, we continue to survey the current insurance market for value-add acquisition opportunities. As of September 30, 2022, we have acquired ten insurance agencies, including both affiliated and unaffiliated companies and long term, we seek to conduct all transactions and acquisitions through our direct operations.
Over the next 12 months, we plan to focus on the expansion and growth of our business through continued asset acquisitions in insurance markets and organic growth of our current insurance operations through geographic expansion and market share growth.
Further, we launched our 5MinuteInsure.com (“5MI”) Insurtech platform during 2021 which expanded our national footprint. 5MI is a high-tech proprietary tool developed by us as a business to consumer portal which enables consumers to instantly compare quotes from multiple carriers and purchase their car and home insurance in a time efficient and effective manner. 5MI taps into the growing number of online shoppers and utilizes advanced artificial intelligence and data mining techniques, to provide competitive insurance quotes in around 5 minutes with minimal data input neededproceeds from the consumer. The platform launched duringvarious loans were utilized to fund the summeracquisitions of 2021USBA, EBS, CCS, SWMT, Fortman , Altruis, and currently operates in 46 states offering coverage with up to 30 highly rated insurance carriers.
With the acquisition of Barra, we launched RELI Exchange, our business-to-business (B2B) InsurTech platform and agency partner network that builds on the artificial intelligence and data mining backbone of 5MinuteInsure.com. Through RELI Exchange we on-board agency partners and provide them an InsurTech platform white labeled, designed and branded specifically for their business. This combines the best of digital and human capabilities by providing our agency partners and their customers quotes from multiple carriers within minutes. Since its inception, RELI Exchange, has increased its agent roster by more than 30%.
Business Trends and Uncertainties
The insurance intermediary business is highly competitive, and we actively compete with numerous firms for customers, properties and insurance companies, many of which have relationships with insurance companies, or have a significant presence in niche insurance markets that may give them an advantage over us. Other competitive concerns may include the quality of our products and services, our pricing and the ability of some of our customers to self-insure and the entrance of technology companies into the insurance intermediary business. A number of insurance companies are engaged in the direct sale of insurance, primarily to individuals, and do not pay commissions to agents and brokers.
Financial Instruments
The Company’s financial instruments as of September 30, 2022, consist of derivative warrants. These are accounted at fair value as of inception/issuance date, and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, (non-cash) gain or loss.
Insurance Operations
Our insurance operations focus on the acquisition and management of insurance agencies throughout the U.S. Our primary focus is to pinpoint undervalued wholesale and retail insurance agencies with operations in growing or underserved segments (including healthcare and Medicare, as well as personal and commercial insurance lines). We then focus on expanding their operations on a national platform and improving operational efficiencies in order to achieve asset value appreciation while generating interim cash flows. In the insurance sector, our management team has over 100 years of experiences acquiring and managing insurance portfolios in several states, as well as developing specialized programs targeting niche markets. We plan to accomplish these objectives by acquiring wholesale and retail insurance agencies it deems to represent a good buying opportunity (as opposed to insurance carriers) as insurance agencies bear no insurance risk. Once acquired, we plan to develop them on a national platform to increase revenues and profits through a synergetic structure. The Company is initially focused on segments that are underserved or growing, including healthcare and Medicare, as well as personal and commercial insurance lines.
Insurance Acquisitions and Strategic ActivitiesUIS.
As of March 31, 2022, and December 31, 2021 the balance sheet date, we have acquired ten insurance brokerages (see table below), including both acquisitions of affiliated companies (i.e., owned by Reliance Holdings before the acquisition) related party loan payable was $343,000 and unaffiliated companies. As our acquisition strategy continues, our reach within the insurance arena can provide us with the ability to offer lower rates, which could boost our competitive position within the industry.$354,000 respectively.
| ||||||||
At March 31, 2022 and December 31, 2021, Reliance Holdings owned approximately 36% and 33%, respectively, of the common stock of the Company.
J.P. Kush and Associates, Inc. Transaction
NOTE 17. SUBSEQUENT EVENTS
On May 1, 2021, we entered into a Purchase Agreement with J.P. Kush and Associates, Inc. whereby we purchased the business and certain assets noted within the Purchase Agreement (the “Kush Acquisition”) for a total purchase price of $3,644,166. The purchase price was paid with a cash payment of $1,900,000, $50,000 in restricted shares of our common stock, in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and an earn-out payment.
The Kush Acquisition was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the Kush Acquisition was calculated as follows:
Description | Fair Value | Weighted Average Useful Life (Years) | ||||||
Accounts receivable | $ | 291,414 | ||||||
Trade name and trademarks | 685,400 | 5 | ||||||
Customer relationships | 551,000 | 10 | ||||||
Non-competition agreements | 827,800 | 5 | ||||||
Goodwill | 1,288,552 | Indefinite | ||||||
$ | 3,644,166 |
Goodwill of $1,288,552 arising from the Kush Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the Kush Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the Kush Acquisition incurred were $58,092 recorded as a component of General and administrative expenses. The approximate revenue and net profit for the acquired business as a standalone entity per ASC 805 from January 1, 2021 to April 30, 2021 was $380,349 and $166,667, respectively, and from January 1, 2020 to December 31, 2020, $1,141,047 and $500,000, respectively.
Medigap Healthcare Insurance Agency, LLC Transaction
On January 10, 2022, pursuant to an asset purchase agreement, dated December 21, 2021, we completed the acquisition of all of the assets of Medigap Healthcare Insurance Company, LLC (“Medigap”) for a purchase price of $20,096,250 consisting of: (i) payment to Medigap of $18,138,750 in cash and (ii) the issuance to Medigap of 606,037 shares of the Company’s restricted common stock in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The purchase price is subject to post-closing adjustment to reconcile certain pre-closing credits and liabilities of the parties. The shares issued to Medigap as part of the purchase price are subject to lock up arrangements pursuant to which 50% of the shares may be sold after the one-year anniversary of the date of closing of the transaction and the balance of the shares may be sold after the second-year anniversary of the date of closing of the transaction.
The acquisition of Medigap was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the acquisition of Medigap was calculated as follows:
Description | Fair Value | Weighted Average Useful Life (Years) | ||||||
Property, plant and equipment | $ | 20,666 | 6 | |||||
Right-of-use asset | 317,787 | |||||||
Trade name and trademarks | 340,000 | 15 | ||||||
Customer relationships | 4,550,000 | 12 | ||||||
Technology | 67,000 | 3 | ||||||
Backlog | 210,000 | 1 | ||||||
Chargeback reserve | (1,484,473 | ) | ||||||
Lease liability | (317,787 | ) | ||||||
Goodwill | 19,199,008 | Indefinite | ||||||
$ | 22,902,201 |
Goodwill of $19,199,008 arising from the acquisition of Medigap consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Medigap is currently expected to be deductible for income tax purposes. Total acquisition costs for the acquisition of Medigap incurred were $94,065 recorded as a component of General and administrative expenses. The approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from January 10, 2022 to September 30, 2022 was $3,868,654 and a loss of $693,861, respectively.
Barra & Associates, LLC Transaction
On April 26, 2022, wethe Company entered into an asset purchase agreement (the “APA”) with Barra & Associates,&Associates, LLC (“Barra”Seller”) pursuant to which the Company purchased all of the assets of Barra & Associates, LLC on April 26, 2022 for a purchase price in the amount of $7,725,000$7,500,000 to be paid to Barra in cash, with $6,000,000 $6,000,000 paid to Barra at closing, $1,125,000 $1,125,000 payable in ninesix months from closing, and a final earnout of $600,000 $375,000 payable over two years from closing based upon meeting stated milestones. The APA contains standard, commercial representations and warranties and covenants. Closing of the acquisition (“Barra Acquisition”) occurred simultaneously with the execution of the APA. The source of the cash payment was $6,520,000 is $980,000 in cash from the Company’s funds and $6,520,000 in funds borrowed from Oak Street Lending (“Loan”), ourthe Company’s existing lender pursuant to a Fifth Amendment to Credit Agreement and Promissory Note, of even date. The purchase price is subject to post-closing adjustment to reconcile certain pre-closing credits and liabilities of the parties.
The acquisitionOn April 26, 2022, the Company closed on a debt agreement with Oak Street to borrow a principal amount of $6,520,000 from Oak Street under a term loan to fund the Barra was accounted for as a business combination in accordance with the acquisition methodAcquisition pursuant to FASB Topic No. 805, Business Combination (ASC 805). Accordingly,a Fifth Amendment to Credit Agreement and Promissory Note, of even date. The borrowing rate under the total purchase consideration was allocatedfacility is variable and equal to Prime + 2.50%, except that during the assets acquired, and liabilities assumed based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values asinitial period of the acquisition date.loan, the rate is Prime + 2.75%. The process for estimatingloan matures 10 years from the fair values of identifiable intangible assetsclosing date and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.service fee is .50% per year.
The preliminary allocation of the purchase price in connection with the acquisition of Medigap was calculated as follows:
Description | Fair Value | Weighted Average Useful Life (Years) | ||||||
Acquired accounts receivable | $ | 92,585 | ||||||
Property, plant and equipment | 8,593 | 7 | ||||||
Right-of-use asset | 122,984 | |||||||
Trade names | 22,000 | 4 | ||||||
Customer relationships | 550,000 | 10 | ||||||
Developed technology | 230,000 | 5 | ||||||
Agency relationships | 2,585,000 | 10 | ||||||
Lease liability | (122,984 | ) | ||||||
Goodwill | 4,236,822 | Indefinite | ||||||
$ | 7,725,000 |
Goodwill of $4,236,822 arising from the acquisition of Barra consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Barra is currently expected to be deductible for income tax purposes. Total acquisition costs incurred through September 30, 2022 for the acquisition of Barra were 72,793 recorded as a component of General and administrative expenses.
The approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from April 26, 2022 to September 30, 2022 was $655,002 and a loss of $182,603, respectively.
Recent Developments
Private Placement
On December 22, 2021, we entered into a securities purchase agreement with several institutional buyers for the purchase and sale of (i) warrants to purchase up to an aggregate of 9,779,952 shares of the Company’s common stock, par value $0.086 per share at an exercise price of $4.09 per share, (ii) an aggregate of 2,670,892 shares of Common Stock, and (iii) 9,076 shares of the Company’s newly-designated Series B convertible preferred stock, par value $0.086 per share, with a stated value of $1,000 per share, initially convertible into an aggregate of 2,219,084 shares of Common Stock at a conversion price of $4.09 per share in a private placement (the “Private Placement”).
On January 5, 2022, pursuant to the securities purchase agreement dated December 22, 2021, the Private Placement was closed. The Private Placement resulted in aggregate gross proceeds to us of approximately $20,000,000, before deducting placement agent fees and other offering expenses payable by us. The Warrants are exercisable upon issuance and will expire five years from the date of issuance. In connection with the Private Placement, we issued to the placement agent warrants to purchase 244,539 shares of the Company’s Common Stock at an exercise price of $4.09 per share (the “Placement Agent Warrants”). The Placement Agent Warrants have substantially the same terms as the Warrants issued in the Private Placement.
During August 2022, all 9,076 Series B Convertible Preferred Stock were converted by third parties into 2,219,084 shares of common stock.
Nasdaq Notification and Warrant Exchange
On January 31, 2022, we received a deficiency notification from Nasdaq regarding the issuance of shares in the Medigap Acquisition and Private Placement in violation of Listing Rule 5635(a). This rule requires an issuer to obtain shareholder approval with respect to an acquisition paid for from the proceeds of a sale of common stock of the issuer which equals or exceeds 20% of the shares of the issuer, issued and outstanding prior to the acquisition. The Company submitted a remediation plan under which the Nasdaq granted us an extension to implement the required changes until May 10, 2022.
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As part of its remediation plan, on March 22, 2022 we entered into Exchange Agreements with the holders of common stock issued in January 2022 resulting from the Medigap Acquisition and Private Placement. Pursuant to the Exchange Agreements, we issued 3,276,929 Series C prepaid warrants in exchange for 3,276,929 shares of our common stock that were previously issued. Additionally, to compensate the Private Placement investors for entering into the Exchange Agreements, we issued 1,222,498 Series D prepaid warrants to such investors for no additional consideration on the same date. The fair value of the Series D prepaid warrants upon issuance was $6,930,335; such amount was treated as a deemed dividend and accordingly reduced income available to common stockholders for the period. Shares of common stock underlying the Series C and D prepaid warrants are treated as outstanding for purposes of calculating basic and diluted earnings per share. The Series C warrants were exercised during the quarter ended June 30, 2022. The Series D warrants were exercised during the quarter ended September 30, 2022.
Stock Split
On January 21, 2021 we effected a reverse split of the issued and outstanding shares of common stock in a ratio of 1:85.71 which simultaneously occurred with the Company’s uplisting to the Nasdaq Capital Market. The Company has adjusted all of share and per share numbers to take into account this reverse stock split.
Results of Operations
Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021
The following table sets forth our revenue and operating expenses for each of the years presented.
September 30, 2022 | September 30, 2021 | |||||||
Revenue | ||||||||
Commission income | $ | 4,153,361 | $ | 2,581,636 | ||||
Total revenue | 4,153,361 | 2,581,636 | ||||||
Operating expenses | ||||||||
Commission expense | 862,857 | 660,708 | ||||||
Salaries and wages | 2,114,730 | 1,188,267 | ||||||
General and administrative expenses | 1,253,097 | 755,130 | ||||||
Marketing and advertising | 726,115 | 65,010 | ||||||
Depreciation and amortization | 713,444 | 387,729 | ||||||
Total operating expenses | 5,670,243 | 3,056,844 | ||||||
Loss from operations | (1,516,882 | ) | (475,208 | ) | ||||
Other expense, net | 7,638,975 | (120,025 | ) | |||||
Total Other income (expense) | 7,638,975 | (120,025 | ) | |||||
Net income (loss) | 6,122,093 | (595,233 | ) |
Revenues
The Company’s revenue is primarily comprised of commission paid by health insurance carriers or their representatives related to insurance plans that have been purchased by a member who used our services. We define a member as an individual currently covered by an insurance plan, including individual and family, Medicare-related, small business, and ancillary plans, for which the Company is entitled to receive compensation from an insurance carrier.
We had revenues of $4.2 million for the three months ended September 30, 2022, as compared to $2.6 million for the three months ended September 30, 2021. The increase of $1.6 million or 61% is primarily driven by organic growth and the additional insurance agencies acquired in 2022.
Commission expense
We had total commission expense of $863,000 for the three months ended September 30, 2022 compared to $661,000 for the three months ended September 30, 2021. The increase of $202,000 or 31% is primarily driven by organic growth and the additional insurance agencies acquired in 2022.
Salaries and wages
We reported $2.1 million of salaries and wages expense for the three months ended September 30, 2022 compared to $1.2 million for the three months ended September 30, 2021. The increase of $926,000 or 78% is a result of the Company’s growth driven by expanded operations, both organic and due to the additional insurance agencies acquired in 2022.
General and administrative expenses
We had total general and administrative expenses of $1.3 million for the three months ended September 30, 2022, as compared to $755,000 for the three months ended September 30, 2021. The increase in expense of $498,000 or 66% is a result of the Company’s growth driven by expanded operations, both organic and due to the additional insurance agencies acquired in 2022.
Marketing and advertising
We reported $726,000 of marketing and advertising expense for the three months ended September 30, 2022 compared to $65,000 for the three months ended September 30, 2021. The increase of $661,000 or 1,017% is primarily a result of Medigap’s direct business to consumer marketing model deployed through social media platforms, in addition to overall increased branding and outreach efforts to achieve greater industry presence.
Depreciation and amortization
We reported $713,000 of depreciation and amortization expense for the three months ended September 30, 2022 compared to $388,000 for the three months ended September 30, 2021. The increase of $326,000 or 84% is primarily a result of our acquired tangible and intangible assets through business combinations.
Other income and expense
We reported $7.6 million of other income for the three months ended September 30, 2022 compared to $120,000 of other expense for the three months ended September 30, 2021. The increase of $7.8 million or 6,464% is attributable primarily to the change in fair value of warrant liabilities of $7.9 million driven by various factors including the Company’s stock price as of the period close, offset by interest expense.
Comparison of the Nine months ended September 30, 2022 to the Nine months ended September 30, 2021
The following table sets forth our revenue and operating expenses for each of the periods presented.
September 30, 2022 | September 30, 2021 | |||||||
Revenue | ||||||||
Commission income | $ | 12,596,268 | $ | 7,096,213 | ||||
Total revenue | 12,596,268 | 7,096,213 | ||||||
Operating expenses | ||||||||
Commission expense | 2,617,140 | 1,748,451 | ||||||
Salaries and wages | 6,373,697 | 3,217,441 | ||||||
General and administrative expenses | 5,465,384 | 2,961,881 | ||||||
Marketing and advertising | 1,922,520 | 143,110 | ||||||
Depreciation and amortization | 2,077,372 | 1,090,183 | ||||||
Total operating expenses | 18,456,113 | 9,161,066 | ||||||
Loss from operations | (5,859,845 | ) | (2,064,853 | ) | ||||
Total Other income (expense) | 31,817,630 | (421,192 | ) | |||||
Net income (loss) | $ | 25,957,785 | $ | (2,486,045 | ) |
Revenues
We had revenues of $12.6 million for the nine months ended September 30, 2022, as compared to $7.1 for the nine months ended September 30, 2021. The increase of $5.5 million or 78% is primarily driven by organic growth and the additional insurance agencies acquired in 2022.
Commission expense
We had total commission expense of $2.6 million for the nine months ended September 30, 2022 compared to $1.7 million for the nine months ended September 30, 2021. The increase of $0.9 million or 50% is primarily driven by organic growth and the additional insurance agencies acquired in 2022.
Salaries and wages
We reported $6.4 million of salaries and wages expense for the nine months ended September 30, 2022 compared to $3.2 million for the nine months ended September 30, 2021. The increase of $3.2 million or 98% is primarily driven by expanded operations, both organic and due to the additional insurance agencies acquired in 2022.
General and administrative expenses
We had total general and administrative expenses of $5.5 million for the nine months ended September 30, 2022, as compared to $3.0 million for the nine months ended September 30, 2021. The increase in expense of $2.5 million or 85% is primarily driven by expanded operations, both organic and due to the additional insurance agencies acquired in 2022.
Marketing and advertising
We reported $1.9 million of marketing and advertising expense for the nine months ended September 30, 2022 compared to $143,000 for the nine months ended September 30, 2021. The increase of $1.8 million or 1,243% is primarily a result of Medigap’s direct business to consumer marketing model deployed through social media platforms, in addition to overall increased branding and outreach efforts to achieve greater industry presence.
Depreciation and amortization
We reported $2.1 million of depreciation and amortization expense for the nine months ended September 30, 2022 compared to $1.1 million for the nine months ended September 30, 2021. The increase of $1.0 million or 91% is a result of the assets we acquired through business combinations.
Other income and expense
We reported $31.8 million of other income for the nine months ended September 30, 2022 compared to a loss of $421,000 for the nine months ended September 30, 2021. The increase of $32.2 million or 7,654% is attributable primarily to the recognition and change in fair value of warrant liabilities of $32.4 million driven by various factors including the Company’s stock price as of the period close, offset by interest expense.
Liquidity and capital resources
As of September 30, 2022, we had a cash balance of $3.0 million and a working capital deficit of $3.5 million compared with a cash balance of $4.6 million and working capital deficit of $37 million at December 31, 2021. The increase in working capital is primarily attributable to the issuance of the derivative warrant liability commitments, effectively reclassifying them from current to non-current liabilities.
The spread of the coronavirus (COVID-19) outbreak in the United States has resulted in economic uncertainties which may negatively impact our business operations. While the disruption is expected to be temporary, there is uncertainty surrounding the duration and extent of the impact. Currently we have not seen any material financial impact as a result of the coronavirus outbreak. However, management is actively monitoring the global situation on its financial condition, liquidity, operations, industry and workforce.
Adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment could harm our business and our business strategy. While we do not anticipate any material impact to our business operations as a result of the coronavirus, in the event of a major disruption caused by the outbreak of pandemic diseases such as coronavirus, we may lose the services of our employees or experience system interruptions, which could lead to diminishment of our business operations. Any of the foregoing could harm our business and delay the implementation of our business strategy and we cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business.
Inflation
The Company generally may be impacted by rising costs for certain inflation-sensitive operating expenses such as labor, employee benefits, and facility leases. The Company believes inflation could have a material impact to pricing and operating expenses in future periods due to the state of the economy and current inflation rates.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements as such term is defined in Regulation S-K.
Cash Flows
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Net cash used in operating activities | $ | (2,177,998 | ) | $ | (1,304,320 | ) | ||
Net cash used in investing activities | (24,982,609 | ) | (1,963,897 | ) | ||||
Net cash provided by financing activities | 25,564,501 | 8,878,110 | ||||||
Net (decrease) increase in cash, cash equivalents, and restricted cash | $ | (1,596,106 | ) | $ | 5,609,893 |
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2022 was $2.2 million, which includes net income of $26.0 million offset by non-cash income of $28.9 million principally related to recognition and change in fair value of warrant liabilities of $32.4 million, offset by an earn-out fair value adjustment of $132,445, share based compensation expense of $1.2 million, and depreciation and amortization of $2.1 million, as well as changes of net working capital items in the amount of $760,000 principally due to a decrease in accounts receivable of $92,000, a decrease in prepaid expense and other current assets of $2.3 million, an increase in other payables of $35,000, offset by decreases in accounts payable and accrued expenses of $1.5 million and decrease of the chargeback reserve of $134,000.
Investing Activities
During the nine months ended September 30, 2022, cash flows used in investing activities were $25.0 million compared to cash flow used in investing activities of $2.0 million for the nine months ended September 30, 2021. The cash used relates to cash paid for the acquisition of Medigap and Barra of $24.1 million, the purchase of property and equipment of $68,000 and cash paid of $776,000 for intangible assets.
Financing Activities
During the nine months ended September 30, 2022, cash provided by financing activities was $25.6 million as compared to $8.9 million for the nine months ended September 30, 2021. The net cash provided by financing activities is primarily related to proceeds from the Private Placement offering in January 2022. The net proceeds from the issuance of these shares was $17.9 million. Additionally, we received proceeds of $2.5 million from the exercise of Series A warrants, $6.5 million through loan proceeds received for a business acquisition and $1.5 million through a related party loan. These were offset by debt principal repayments of $663,000, payment of debt issuance costs of $214,000, payment of a related party loan of $174,000, payments on the earn out liability of $1.6 million and short term financing of $107,000.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, and our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal year 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
OurThe Company determined it had a material weakness in its disclosure controls and procedures as it pertains to earnings per share (EPS) for the three months ended March 31, 2022. During the quarter ended March 31, 2023, the Company mitigated this deficiency by consulting with qualified advisors that have in-depth EPS expertise. These advisors will assist the Company in the calculations and disclosures of EPS for future reporting periods. Pursuant to the above, our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based on the evaluation, management has concluded that the Company’s disclosure controls and procedures were effectiveMarch 31, 2022, concluding them to be ineffective as of September 30, 2022.such date.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings.
We are subject to various legal proceedings and claims, either asserted or unasserted, arising in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows, and accordingly, no legal contingencies are accrued as of September 30, 2022. Litigation relating to the insurance brokerage industry is not uncommon. As such we, from time to time have been, subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future.
Item 1A. Risk Factors.PART II
Investing in our common stock involves a high degree of risk. You should consider carefully the information disclosed in Part I, Item1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2021. Except as set forth below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock.
Our shares of common stock are currently listed on The Nasdaq Capital Market. If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market, such as the corporate governance requirements, minimum bid price requirement or the minimum stockholder’s equity requirement, The Nasdaq Stock Market LLC may take steps to delist our common stock. Any delisting would likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase their common stock when they wish to do so.
On September 27, 2022, we received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying us that for the preceding 30 consecutive business days (August 15, 2022 through September 26, 2022), our common stock did not maintain a minimum closing bid price of $1.00 per share (“Minimum Bid Price Requirement”) as required by Nasdaq Listing Rule 5550(a)(2). The notice has no immediate effect on the listing or trading of our common stock which will continue to trade on The Nasdaq Capital Market under the symbol “RELI”. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we initially have a compliance period of 180 calendar days, or until March 27, 2023, to regain compliance with Nasdaq Listing Rules. Compliance can be achieved automatically and without further action if the closing bid price of our common stock is at or above $1.00 for a minimum of ten consecutive business days at any time during the compliance period, in which case Nasdaq will notify us of our compliance and the matter will be closed. If, however, we do not achieve compliance with the Minimum Bid Price Requirement by March 27, 2023, we may be eligible for additional time to comply; however, such additional time is not guaranteed and is subject to the discretion of Nasdaq. In order to be eligible for such additional time, we will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and must notify Nasdaq in writing of our intention to cure the deficiency during the second compliance period
We intend to attempt to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any action taken by us would result in our common stock meeting The Nasdaq listing requirements, or that any such action would stabilize the market price or improve the liquidity of our common stock. Any perception that we may not regain compliance or a delisting of our common stock by Nasdaq could adversely affect our ability to attract new investors, decrease the liquidity of the outstanding shares of our common stock, reduce the price at which such shares trade and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholder. In addition, delisting of our common stock from Nasdaq could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing in our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None that have not been previously disclosed in our filings with the SEC.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits
The following exhibits are filed with this Form 10-K.or furnished herewith, as the case may be.
*Filed herewith
* | Filed herewith |
** | Furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q statementreport to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Lakewood, State of New Jersey on November 14, 2022.authorized.
Reliance Global Group, Inc. | |||
Date: May 18, 2023 | By: | /s/ Ezra Beyman | |
Ezra Beyman | |||
Chief Executive Officer | |||
(principal executive officer) | |||
Date: May 18, 2023 | By: | /s/ | |
Date: November 14, 2022
Joel Markovits | ||
Chief Financial Officer | ||
(principal financial officer and principal accounting officer) |
Date: November 14, 2022
31 |