UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A10-Q

(Amendment No. 1)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended JuneSeptember 30, 20222023

 

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: 001-40020

 

RELIANCE GLOBAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Florida
Florida46-3390293

(State or other jurisdiction

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer

Identification No.)

 

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)

 

732-380-4600

(Registrant’s telephone number, including area 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 The 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 ☐

 

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☒ 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”company, in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filerSmaller reporting company
Emerging growth company  

 

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-2Rule 12b-2 of the Act).

 

Yes ☐ No

 

At August 15, 2022November 13, 2023, the registrant had 1,097,1382,473,859 shares of common stock, par value $0.086 per share, outstanding (after giving effect to the 1-for-15 reverse stock split that became effective on February 23, 2023).outstanding.

 

 

 

EXPLANATORY NOTE

Reliance Global Group, Inc. (the “Company”) filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, with the Securities and Exchange Commission (“SEC”) on August 15, 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 and six months ended June 30, 2022;
(ii)insert additional disclosure relating to the Restatement to Note 1;
(iii)replace Note 7 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 June 30, 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 and six months ended June 30, 2022, and identification of errors in such calculations. 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 1 and 7 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 Statements13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.24
Item 3. Quantitative and Qualitative Disclosures About Market Risk.32
Item 4. Controls and ProceduresProcedures.2032
PART II 
Item 1. Legal Proceedings.32
Item 1A. Risk Factors.32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.33
Item 3. Defaults Upon Senior Securities.33
Item 4. Mine Safety Disclosures.33
Item 5. Other Information.33
Item 6. Exhibits2033
Signatures21

 

 2

 

PART I

Item 1. Financial Statements

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

June 30,

2022

 

December 31,

2021

  

September 30, 2023

 December 31, 2022 
 

June 30,

2022

 

December 31,

2021

  (Unaudited)   
Assets                
Current assets:                
Cash $2,979,769  $4,136,180  $1,777,348  $505,410 
Restricted cash  1,417,635   484,542   1,409,909   1,404,359 
Accounts receivable  1,072,294   1,024,831   1,190,780   994,321 
Accounts receivable, related parties  54,414   7,131   21,078   18,292 
Accounts receivable  21,078   18,292 
Other receivables  813   11,464 
Prepaid expense and other current assets  576,691   2,328,817   299,522   245,535 
Current assets - discontinued operations  -   85,998 
Total current assets  6,100,803   7,981,501   4,699,450   3,265,379 
        
Property and equipment, net  164,017   130,359   145,962   162,767 
Right-of-use assets  1,421,474   1,067,734   878,672   1,018,952 
Investment in NSURE, Inc.  1,350,000   1,350,000   -   900,000 
Intangibles, net  14,751,751   7,078,900   11,675,526   13,439,369 
Goodwill  33,486,107   10,050,277   14,287,099   14,287,099 
Other non-current assets  23,284   16,792   23,283   23,284 
Other assets - discontinued operations  -   5,330,879 
Total assets $57,297,436  $27,675,563  $31,709,992  $38,427,729 
                
Liabilities and stockholders’ equity (deficit)        
Current liabilities:                
Accounts payable and other accrued liabilities $1,051,333  $2,759,160  $999,785  $951,382 
Chargeback reserve  1,559,541   - 
Short term financing agreements  114,394   154,017 
Current portion of loans payables, related parties  336,479   1,422,249 
Other payables  1,333,484   81,500   64,101   101,113 
Short term Financing Agreements  376,647     
Current portion of long-term debt  936,263   913,920   1,353,961   1,118,721 
Current portion of leases payable  528,902   276,009   348,492   339,937 
Earn-out liability, current portion  3,683,596   3,297,855 
Warrant commitment  -   37,652,808 
Current portion of earn-out liability  687,197   2,153,478 
Current liabilities - discontinued operations  -   1,600,636 
Total current liabilities  9,469,766   44,981,252   3,904,409   7,841,533 
                
Loans payable, related parties, less current portion  332,225   353,766   258,785   122,266 
Convertible debt, related parties, less current portion  161,855   1,500,000 
Long term debt, less current portion  12,935,649   7,085,325   11,380,567   12,349,673 
Leases payable, less current portion  930,623   805,326   561,041   714,068 
Earn-out liability, less current portion  673,837   516,023   -   556,000 
Warrant liabilities  11,026,893   -   1,580,380   6,433,150 
Noncurrent liabilities - discontinued operations  -   - 
Total liabilities  35,368,993   53,741,692   17,847,037   29,516,690 
Stockholders’ equity (deficit):        
Preferred stock, $0.086 par value; 750,000,000 shares authorized and 9,076 and 0 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  781   - 
Common stock, $0.086 par value; 133,333,333 shares authorized and 974,268 and 730,407 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  83,787   62,815 
Stockholders’ equity:        
Preferred stock, $0.086 par value; 750,000,000 shares authorized and 0 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively  -   - 
Common stock, $0.086 par value; 133,333,333 shares authorized and 2,304,375 and 1,219,573 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively  198,155   104,883 
Additional paid-in capital  35,466,329   27,329,201   43,639,612   35,798,139 
Stock subscription receivable  -   (20,000,000)
Accumulated deficit  (13,622,454)  (33,458,145)  (29,974,812)  (26,991,983)
Total stockholders’ equity (deficit)  21,928,443   (26,066,129)
Total liabilities and stockholders’ equity (deficit) $57,297,436  $27,675,563 
Total stockholders’ equity  13,862,955   8,911,039 
Total liabilities and stockholders’ equity $31,709,992  $38,427,729 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.

1
3 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 2022 2021 2022 2021 
 

Three months ended

June 30,

 

Six months ended

June 30,

 
 2022 2021 2022 2021  

Three Months Ended

September 30, 2023

 

Three Months Ended

September 30, 2022

 

Nine Months Ended

September 30, 2023

 

Nine Months Ended

September 30, 2022

 
Revenue                         
Commission income $4,207,126  $2,190,847  $8,442,907  $4,514,577  $3,275,583  $2,821,768  $10,410,591  $8,727,614 
Total revenue  4,207,126   2,190,847   8,442,907   4,514,577   3,275,583   2,821,768   10,410,591   8,727,614 
                                
Operating expenses                                
Commission expense $850,128  $558,271  $1,754,283  $1,087,743   796,001   695,020   2,701,601   2,143,562 
Salaries and wages  2,176,792   1,110,629   4,258,967   2,029,174   1,775,919   1,629,947   5,230,871   4,899,171 
General and administrative expenses  1,759,217   1,202,350   4,212,287   2,206,751   1,368,126   1,117,027   4,430,177   5,080,991 
Marketing and advertising  609,383   55,021   1,196,405   78,100   117,752   63,371   364,184   148,057 
Depreciation and amortization  756,403   369,366   1,363,928   702,454   652,839   651,395   1,962,066   1,901,140 
Total operating expenses  6,151,923   3,295,637   12,785,870   6,104,222   4,710,637   4,156,760   14,688,899   14,172,921 
                                
Loss from operations  (1,944,797)  (1,104,790)  (4,342,963)  (1,589,645)  (1,435,054)  (1,334,992)  (4,278,308)  (5,445,307)
                                
Other income (expense)                                
Other expense, net  (192,763)  (172,096)  (300,560)  (301,167)
Interest expense  (386,562)  (281,201)  (1,126,281)  (586,251)
Interest related parties  (32,475)  (1,730)  (125,104)  (5,189)
Interest expense  (32,475)  (1,730)  (125,104)  (5,189)
Other (expense) income, net  (310)   (4,909)  3,650   (4,414)
Recognition and change in fair value of warrant liabilities  12,633,251   -   24,479,215   -   1,715,397   7,919,315   4,389,120   32,398,530 
Total other income (expense)  12,440,488   (172,096)  24,178,655   (301,167)
Total other income  1,296,050   7,631,475   3,141,385   31,802,676 
                                
Net income (loss) $10,495,691  $(1,276,886) $19,835,692  $(1,890,812)
(Loss) income from continuing operations before tax $(139,004)   6,296,483  $(1,136,922)  26,357,370 
(Loss) income from discontinued operations before tax  -   (174,390)  (1,845,904)  (399,585)
Net (loss) income  (139,004)   6,122,093   (2,982,827)  25,957,784 
                                
Basic earnings (loss) per share $9.82  $(1.75) $12.59  $(3.06)
Diluted earnings (loss) per share $8.61  $(1.75) $(12.84) $(3.06)
Basic (loss) earnings per share                
Continuing operations $(0.05) $5.44  $(0.47) $18.16 
Discontinued Operations $-  $(0.15) $(0.75) $(0.37)
Basic (loss) earnings per share $(0.05) $5.29  $(1.22) $17.79 
                
Diluted (loss) earnings per share                
Continuing operations $(0.05) $4.83  $(0.47) $15.93 
Discontinued operations $-  $(0.14) $(0.75) $(0.33)
Diluted (loss) earnings per share $(0.05) $4.69  $(1.22) $15.60 
                
Weighted average number of shares outstanding - Basic  1,069,157   728,966   1,025,108   617,316   3,021,455   1,156,939   2,436,015   1,069,534 
Weighted average number of shares outstanding - Diluted  1,219,224   728,966   1,068,236   617,316   3,021,455   1,304,878   2,436,015   1,219,822 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.

 

2
4 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

  Shares  Amount  Shares  Amount  Shares  Amount  capital  Receivable  Deficit  Total 
  Reliance Global Group, Inc. 
  Preferred stock  Common stock  Common stock issuable  Additional paid-in  Subscription  Accumulated    
  Shares  Amount  Shares  Amount  Shares  Amount  capital  Receivable  Deficit  Total 
                               
Balance, December 31, 2021  -  $-   730,407  $62,815   -  $-  $27,329,201  $(20,000,000) $(33,458,145) $(26,066,129)
                                         
Share based compensation  -   -   -   -   -   -   739,960   -   -   739,960 
                                         
Shares issued due to private placement  9,076   781   178,059   15,313   -   -   (16,043)  20,000,000   -   20,000,051 
                                         
Shares issued pursuant to acquisition of Medigap  -   -   40,402   3,475   -   -   4,759,976   -   -   4,763,451 
                                         
Exercise of Series A warrants  -   -   25,000   2,150   -   -   2,472,850   -   -   2,475,000 
                                         
Issuance of prefunded Series C Warrants in exchange for common shares  -   -   (218,462)  (18,788)  -   -   18,788   -   -   - 
                                         
Shares issued for vested stock awards  -   -   400   34   -   -   (34)  -   -   - 
                                         
Net Income  -   -   -   -   -   -   -   -   9,340,000   9,340,000 
                                         
Balance, March 31, 2022  9,076  $781  $755,806  $64,999   -  $-  $35,304,698  $-  $(24,118,145) $11,252,333 
                                         
Share based compensation  -   -   -   -   -   -   179,083   -   -   179,083 
                                         
Exercise of Series C warrants into common shares  -   -   218,462   18,788   -   -   (17,452)  -   -   1,336 
                                         
Net Income  -   -   -   -   -   -   -   -   10,495,691   10,495,691 
                                         
Balance, June 30, 2022  9,076  $781   974,268  $83,787   -  $-  $35,466,329  $-  $(13,622,454) $21,928,443 
  Shares  Amount  Shares  Amount  capital  Receivable  Deficit  Total 
  Nine Months Ended September 30, 2023 
  Preferred Stock  Common Stock  Additional paid-in  Subscription  Accumulated    
  Shares  Amount  Shares  Amount  capital  Receivable  Deficit  Total 
                         
Balance, December 31, 2022      -  $          -   1,219,573  $104,883  $35,798,139  $                   -  $(26,991,983)  8,911,039 
                                 
Common shares issued for earnout liabilities  -   -   109,358   9,404   973,074   -   -   982,478 
                                 
Conversion of convertible debt, related parties  -   -   66,743   5,740   639,260   -   -   645,000 
                                 
Round up of shares due to reverse split  -   -   15,336   1,300   (5,946)  -   -   (4,646)
                                 
Shares issued in 2023 private placement  -   -   155,038   13,333   3,433,151   -   -   3,446,484 
                                 
Share-based compensation  -   -   -   -   43,797   -   -   43,797 
                                 
Net loss  -   -   -   -   -   -   (1,788,538)  (1,788,538)
                                 
Balance, March 31, 2023  -   -   1,566,048   134,660   40,881,475   -   (28,780,521)  12,235,614 
                                 
Common shares issued for services  -   -   112,557   9,681   368,314   -   -   377,995 
                                 
Common shares issued for earnout liabilities  -   -   352,260   30,294   1,403,406   -   -   1,433,700 
                                 
Shares issued for vested stock awards  -   -   22,219   1,911   (1,911)  -   -   - 
                                 
Share-based compensation  -   -   -   -   35,367   -   -   35,367 
                                 
Net loss  -   -   -   -   -   -   (1,055,287)  (1,055,287)
                                 
Balance, June 30, 2023  -   -   2,053,084   176,546   42,686,651   -   (29,835,808)  13,027,389 
                                 
Common shares issued for earnout liabilities          174,610   15,016   463,356           478,372 
                                 
Common shares issued for vested stock awards          3,017   259   3,510           3,769 
                                 
Share-based compensation              -   27,779           27,779 
                                 
Common shares issued for services          400   34   966           1,000 
                                 
Series B warrant exercise          73,264   6,300   457,350           463,650 
                                 
Net loss     -       -        -    (139,004)   (139,004)
                                 
Balance, September 30, 2023  -   -   2,304,375   198,155   43,639,612   -   (29,974,812)  13,862,955 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.

3
5 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

  Shares  Amount  Shares  Amount  Shares  Amount  capital   Deficit  Total 
  Reliance Global Group, Inc. 
  Preferred stock  Common stock  Common stock issuable  Additional paid-in   Accumulated    
  Shares  Amount  Shares  Amount  Shares  Amount  capital   Deficit  Total 
Balance, December 31, 2020  395,640  $33,912   282,735  $24,315   1,556  $340,000  $11,898,441 - $(12,359,680) $(63,012)
                                      
Share based compensation  -   -   -   -   -   -   246,966    -   246,966 
                                      
Shares issued for services  -   -   1,000   86   -   -   90,964    -   91,050 
                                      
Shares issued due to public offering, net of offering costs of $1,672,852  -   -   120,000   10,320   -   -   9,098,828    -   9,109,148 
                                      
Over-allotment shares from offering, net of offering costs of $250,928  -   -   18,000   1,548   -   -   1,364,825    -   1,366,373 
                                      
Warrants sold during public offering at quoted price  -   -   -   -   -   -   20,700    -   20,700 
                                      
Shares issued due to conversion of preferred stock  (394,493)  (33,812)  262,995   22,618   -   -   11,194   -   - 
                                      
Shares issued due to conversion of debt  -   -   42,222   3,631   -   -   3,796,369    -   3,800,000 
                                      
Rounding shares related to initial public offering  -   -   126   -   -   -   -    -   - 
                                      
Shares issued pursuant to software purchase  -   -   1,556   134   (1,556)  (340,000)  339,866    -   - 
                                      
Net loss  -   -   -   -   -   -   - -  (613,926)  (613,926)
                                      
Balance, March 31, 2021  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  -   -   995   86   -   -   49,915    -   50,000 
                                      
Net loss  -   -   -   -   -   -   - -  (1,276,886)  (1,276,886)
                                      
Balance, June 30, 2021  1,167  $100   729,629  $62,738   -  $-  $27,101,199 - $(14,250,492) $12,913,545 
  Shares  Amount  Shares  Amount  capital  Receivable  Deficit  Total 
  Nine Months Ended September 30, 2022 
  Preferred Stock  Common Stock  Additional paid-in  Subscription  Accumulated    
  Shares  Amount  Shares  Amount  capital  Receivable  Deficit  Total 
                         
Balance, December 31, 2021  -  $          -   730,407  $62,815  $27,329,201  $(20,000,000) $(33,458,145) $(26,066,129)
                                 
Share-based compensation  -   -   -   -   739,960   -   -   739,960 
                                 
Shares issued due to private placement  9,076   781   178,059   15,313   (16,043)  20,000,000   -   20,000,051 
                                 
Shares issued pursuant to acquisition of Medigap  -   -   40,402   3,475   4,759,976   -   -   4,763,451 
                                 
Exercise of Series A warrants  -   -   25,000   2,150   2,472,850   -   -   2,475,000 
Exercise of warrants  -   -   25,000   2,150   2,472,850   -   -   2,475,000 
                                 
Issuance of prefunded Series C Warrants in exchange for common shares  -   -   (218,462)  (18,788)  18,788   -   -   - 
                                 
Shares issued for vested stock awards  -   -   400   34   (34)  -   -   - 
                                 
Net Income  -   -   -   -   -   -   9,340,000   9,340,000 
                                 
Balance, March 31, 2022  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  -   -   218,462   18,788   (17,452)  -   -   1,336 
                                 
Net Income  -   -   -   -   -   -   10,495,691   10,495,691 
                                 
Balance, June 30, 2022  9,076  $781   974,268  $83,787  $35,466,329  $-  $(13,622,454) $21,928,443 
Balance  9,076  $781   974,268  $83,787  $35,466,329  $-  $(13,622,454) $21,928,443 
                                 
Share-based compensation  -   -   -   -   314,257   -   -   314,257 
                                 
Issuance of common stock for conversion of Series D warrants  -   -   81,423   7,002   (6,207)  -   -   795 
Issuance of common stock for conversion of warrants  -   -   81,423   7,002   (6,207)  -   -   795 
                                 
Shares issued due to conversion of preferred stock  (9,076)  (781)  147,939   12,723   (11,942)  -   -   - 
                                 
Net Income  -   -   -   -   -   -   6,122,093   6,122,093 
Net income (loss)  -   -   -   -   -   -   6,122,093   6,122,093 
                                 
Balance, September 30, 2022  -  $-   1,203,630  $103,512  $35,762,437  $-  $(7,500,361) $28,365,588 
Balance  -  $-   1,203,630  $103,512  $35,762,437  $-  $(7,500,361) $28,365,588 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.

4
6 

Reliance Global Group, Inc. and Subsidiaries and Predecessor

Condensed Consolidated Statements of Cash Flows

(Unaudited)

  2022  2021 
  Six months ended June 30, 
  2022  2021 
Cash flows from operating activities:        
Net income (loss) $19,835,692  $(1,890,812)
Adjustment to reconcile net income (loss) to net cash used in operating activities:        
Depreciation and amortization  1,363,928   702,454 
Amortization of debt issuance costs and accretion of debt discount  18,291   20,206 
Non-cash lease expense  24,450   1,534 
Stock compensation expense  919,043   521,148 
Earn-out fair value and write-off adjustments  354,963   - 
Recognition and change in fair value of warrant liabilities  (24,479,215)  - 
Change in operating assets and liabilities:        
Accounts payables and other accrued liabilities  (1,711,287)  (805,092)
Accounts receivable  45,122   75,212 
Accounts receivable, related parties  (47,283)  (7,131)
Other payables  126,984   - 
Charge back reserve  75,068   - 
Other non-current assets  (6,492)  (18,035)
Prepaid expense and other current assets  2,169,325   (92,736)
Net cash used in operating activities  (1,311,411)  (1,493,252)
         
Cash flows from investing activities:        
Purchase of property and equipment  (20,989)  - 
Business acquisitions, net of cash acquired  (24,138,750)  (1,608,586)
Purchase of intangibles  (466,190)  (152,990)
Net cash used in investing activities  (24,625,929)  (1,761,576)
         
Cash flows from financing activities:        
Principal repayments of debt  (447,908)  (432,833)
Proceeds from loan for business acquisition  6,520,000   - 
Payment of debt issuance costs  (214,257)  - 
Payments on earn-out liabilities  (411,408)  - 
Proceeds from loans payable, related parties  -   2,931 
Payments of loans payable, related parties  (21,541)  (508,307)
Proceeds from exercise of warrants into common stock  2,476,336   - 
Repayments on short-term financing  (40,552)    
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  25,714,021   9,558,012 
         
Net (decrease) increase in cash and restricted cash  (223,319)  6,303,184 
Cash and restricted cash at beginning of period  4,620,722   529,581 
Cash and restricted cash at end of period $4,397,403  $6,832,765 
         
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  $- 
Prepaid insurance acquired through short-term financing $417,199  $- 
Conversion of preferred stock into common stock $-  $339,264 
Cash paid for interest $218,528  $350,175 
Conversion of debt into equity $-  $3,800,000 
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  $0 
Lease assets acquired in exchange for lease liabilities $223,922  $861,443 
         
  

For the Nine Months Ended September 30,

 
  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net (loss) income  (2,982,827) $25,957,784 
Adjustment to reconcile net (loss) income to net cash used in operating activities:        
Depreciation and amortization  1,962,066   1,901,140 
Amortization of debt issuance costs and accretion of debt discount  35,163   28,702 
Non-cash lease expense  (4,192)  19,549 
Stock compensation expense  106,943   1,233,300 
Shares issued for services performed  289,995   - 
Recognition and change in fair value of warrant liability  (4,389,120)  (32,398,531)
Earn-out fair value adjustments  1,291,494   132,445 
Change in operating assets and liabilities:        
Accounts receivable  (196,459)  174,025 
Accounts receivable, related parties  (2,786)  5,972 
Other receivables  10,651   (31,981)
Prepaid expense and other current assets  34,136   2,346,510 
Other non-current assets  -   (6,491)
Accounts payables and other accrued liabilities  48,403   (1,642,938)
Other payables  (37,012)  34,841 
Net cash used in continuing operating activities  (3,833,545)  (2,245,673)
         
Net cash adjustments for discontinued operating activities  3,816,238   67,675 
         
Total net cash used in continuing and discontinued operating activities  (17,307)  (2,177,998)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment  (21,206)  (58,149)
Purchase of intangibles  (160,211)  (5,392,951)
Proceeds from sale of investment in NSURE  900,000   

-

 
Business acquisitions, net of cash acquired  -   (6,000,000)
Net cash provided by (used in) investing activities  718,583   (11,451,100)
         
Net cash used in discontinued investing activities  -   (13,531,509)
         
Total net cash provided by (used in) continuing and discontinued investing activities  718,583   (24,982,609)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from borrowings of debt  -   - 
Principal repayments of debt  (763,840)  (663,016)
Debt issuance costs  -   (214,257)
Loans acquired through acquisitions  -   6,520,000 
Issuance of common shares in exchange for Series C warrants      2,131 
Principal repayments of short-term financings  (21,923)  (107,206)
Payments of loans payable, related parties  (954,439)  (174,206)
Payments of convertible debt, related parties  (693,145)  1,500,000 
Cash payments on earn-out liability  (419,225)  (1,627,296)
Proceeds from exercise of warrants into common stock  -    2,475,000 
Private placement of shares and warrants  3,446,484   17,853,351 
Net cash provided by continuing financing activities  593,912   25,564,501 
         
Net cash used in discontinued financing activities  (17,700)  - 
         
Total net cash provided by continuing and discontinued financing activities  576,212   25,564,501 
         
Net increase in cash and restricted cash  1,277,488   (1,596,106)
Cash and restricted cash at beginning of year  1,909,769   4,620,722 
Cash and restricted cash at end of year  3,187,257   3,024,616 
         
SUPPLEMENTAL DISCLOSURE OF CASH AND NON-CASH TRANSACTIONS:        
Common stock issuance to settle earn-out liabilities  2,894,550   

-

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.

5
7 

Reliance Global Group, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

 

NOTE 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Reliance Global Group, Inc., formerly known as Ethos Media Network, Inc. (“RELI”, “Reliance”, or the “Company”), was incorporated in Florida on August 2, 2013.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q 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 presentation have been included. These 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 reportAnnual Report on Form 10-K for the year ended December 31, 2021.2022, as the same may be amended from time to time. Certain prior period amounts in the condensed consolidated financial statements and notes thereto have been reclassified to conform to the current period’s presentation.

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Reliance Global Group, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

Restatement of Previously Issued Financial Statements

Subsequent to the Company’s filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, with the Securities and Exchange Commission on August 15, 2022, the Company performed an evaluation of its accounting in connection with the calculations of its basic Earnings Per Share (“EPS”) and diluted EPS for the three and six month periods ended June 30, 2022, which concluded on May 12, 2023, and identified errors in such calculations. The errors 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 three and six months ended June 30, 2022. Accordingly, the Company restates its consolidated financial statements for the identified periods in this Form 10-Q/A as outlined further below and in Note 7 Earnings (Loss) Per Share.

The following table sets forth the effects of the adjustments on affected items within the Company’s previously reported consolidated statements of operations for the three months ended June 30, 2022, and includes an increase to basic earnings per share in the amount of $1.42, an increase to diluted earnings per share in the amount of $10.11, a decrease to weighted average number of shares outstanding – basic of 180,062 shares, and a decrease to weighted average number of shares outstanding - diluted of 180,062 shares.

SCHEDULE OF PREVIOUSLY REPORTED CONSOLIDATED STATEMENTS OF OPERATIONS

             
  Three Months Ended June 30, 2022 
  As Reported  Adjustment  As Corrected 
          
Basic earnings (loss) per share  8.40   1.42   9.82 
             
Diluted earnings (loss) per share  (1.50)  10.11   8.61 
             
Weighted average number of shares outstanding – Basic  1,249,219   (180,062)  1,069,157 
             
Weighted average number of shares outstanding - Diluted  1,399,286   (180,062)  1,219,224 

The following table sets forth the effects of the adjustments on affected items within the Company’s previously reported consolidated statements of operations for the six months ended June 30, 2022, and includes an increase to basic earnings per share in the amount of $1.34, an increase to diluted loss per share in the amount of $3.99, a decrease to weighted average number of shares outstanding – basic of 124,111 shares, and a decrease to weighted average number of shares outstanding - diluted of 274,080 shares.

          
  Six Months Ended June 30, 2022 
  As Reported  Adjustment  As Corrected 
          
Basic earnings (loss) per share  11.25   1.34   12.59 
             
Diluted earnings (loss) per share  (8.85)  (3.99)  (12.84)
             
Weighted average number of shares outstanding – Basic  1,149,219   (124,111)  1,025,108 
             
Weighted average number of shares outstanding - Diluted  1,342,315   (274,080)  1,068,236 

Additionally, please refer to Note 7. Earnings (Loss) Per Share, where the Company has corrected and replaced that Note in its entirety.

Liquidity

 

As of JuneSeptember 30, 2022,2023, the Company’s reported cash and restricted cash aggregated balance was approximately $4,397,0003,187,000, current assets were approximately $6,101,0004,699,000, while current liabilities were approximately $9,470,0003,904,000. As of JuneSeptember 30, 2022,2023, the Company had apositive working capital deficit of approximately $3,369,000795,000 and stockholders’ equity of approximately $21,928,00013,863,000. For the sixnine months ended JuneSeptember 30, 2022,2023, the Company reported loss from operations of approximately $4,343,0004,278,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $24,479,0004,389,000, resulting in net loss from continuing operations of approximately $1,137,000, a net loss from discontinued operations of approximately $1,846,000, resulting in an overall net incomeloss of approximately $19,836,000. For the six months ended June 30, 2022, the Company reported negative cash flows from operations of approximately $1,311,0002,983,000. The Company completed a capital offering in January 2022 that raisedMarch 2023, raising net proceeds of approximately $17,853,0003,446,000. Management

Although there can be no assurance that debt or equity financing will be available on acceptable terms, the Company believes the Company’sits financial position and its ability to raise capital to be reasonable and sufficient. Based on our assessment, we do not believe there are conditions or events that, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year of filing these financial statements with the Securities and Exchange Commission (“SEC”).

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.

 

6

Cash and Restricted Cash

 

Cash and restricted cash reported on our Condensed Consolidated Balance Sheetscondensed consolidated balance sheets are reconciled to the total shown on our Condensed Consolidated Statementscondensed consolidated statements of Cash Flowscash flows as follows:

SCHEDULE OF RESTRICTED CASH IN STATEMENT OF CASH FLOW 

 June 30, 2022 June 30, 2021  September 30, 2023 September 30, 2022 
Cash $2,979,769  $6,348,415  $1,777,348  $1,615,054 
Restricted cash  1,417,635   484,350   1,409,909   1,409,562 
Total cash and restricted cash $4,397,404  $6,832,765  $3,187,257  $3,024,616 

8

Fair Value of Financial Instruments

 

Level 1 — Observable inputs reflecting 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.

 

Warrant Liabilities: The Company re-measures the fair value of its Level 3 warrant liabilities at the balance sheet date, using a binomial option pricing model. The following summarizes the significant unobservable inputs not adjusting for any reverse stock splits:inputs:

SCHEDULE OF FAIR VALUE OF WARRANT COMMITMENTLIABILITY 

 June 30, 2022 December 31, 2021  September 30, 2023 December 31, 2022 
Stock price $2.11  $6.44  $2.49  $8.55 
Volatility  105%  90%  105.0%  105.0%
Time to expiry  4.51   5   3.26   4.01 
Dividend yield  0%  0%  0.0%  0.0%
Risk free rate  3.00%  1.10%  4.7%  4.1%
Warrants measurement input  4.7%  4.1%

 

The following reconciles fair value of the liability classified warrants:

SCHEDULE OF RECONCILES WARRANT COMMITMENT

   Series B Warrant Commitment   Series B warrant liabilities   Placement agent warrants  Total 
  Three and Six Months ended June 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  -   (12,322,737)  (310,514)  (12,633,251)
Ending balance, June 30, 2022  -   10,757,945   268,948   11,026,893 

 

   Series B Warrant Commitment   Total 
  December 31, 2021 
  Series B Warrant Commitment  Total 
Beginning balance $-  $- 
Initial recognition  20,244,497   20,244,497 
Unrealized gain  17,408,311   17,408,311 
Ending balance $37,652,808  $37,652,808 
  Series B Warrant Liabilities  Placement Agent Warrants  Total 
Beginning balance, December 31, 2022 $6,384,250  $48,900  $6,433,150 
Unrealized (gain) loss  (4,226,950)  (39,281)  (4,266,231)
Ending balance, March 31, 2023  2,157,300   9,619   2,166,919 
Unrealized (gain) loss  1,584,684   7,825   1,592,509 
Ending balance, June 30, 2023 $3,741,984  $17,444  $3,759,428 
Balance $3,741,984  $17,444  $3,759,428 
Unrealized (gain) loss $(1,703,333)  (12,064)  (1,715,397)
Warrants exercised or transferred  (463,651)  -   (463,651)
Ending balance, September 30, 2023 $1,575,000  $5,380  $1,580,380 
Balance $1,575,000  $5,380  $1,580,380 

Earn-out liabilities: The Company generally valuesutilizes two valuation methods to value its Level 3 earn-out liabilities, usinga) the income valuation approach.approach and b) the Monte Carlo simulation method. Key valuation and unobservable inputs for the income valuation approach include contingent payment arrangement terms, projected revenues and cash flows, raterates of return, discount rates and probability assessments. The following table summarizes the significantKey unobservable inputs usedfor the Monte Carlo simulation methods are summarized by the following (some presented in the fair value measurements:ranges):

SCHEDULE OF FAIR VALUE MEASUREMENTS

June 30, 2022December 31, 2021
Valuation techniqueDiscounted cash flowDiscounted cash flow
Significant unobservable inputProjected revenue and probability of achievementProjected revenue and probability of achievement

  September 30, 2023 
WACC Risk Premium:  13.5%
Volatility  50.0% – 105.0%
Credit Spread:  8.77% -10.4%
Payment Delay (days)  90 
Risk free rate  USD Yield Curve or 5.46% - 5.47%
Discounting Convention:  Mid-period 
Stock Price $2.49 
Dividend Yield  

0.00

%
Number of Iterations  

100,000

 

 

7
9 

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

June 30, 2022
WACC Risk Premium:14.6%
Volatility50%
Credit Spread:11%
Payment Delay (days)90%
Risk free rateUSD Yield Curve
Discounting Convention:Mid-period
Number of Iterations100,000

 

Undiscounted remaining earn out payments arewere approximately $4,697,644847,854 as of JuneSeptember 30, 2022.2023. The following table reconciles fair value of earn-out liabilities for the period ending Juneperiods ended September 30, 2023, and December 31, 2022:

SCHEDULE OF GAIN OR LOSSES RECOGNIZED FAIR VALUE 

  June 30, 2022  December 31, 2021 
Beginning balance – January 1 $3,813,878  $2,931,418 
         
Acquisitions and Settlements        
JP Kush Acquisition  -   1,694,166 
Barra Acquisition  600,000   - 
CCS Write-off  -   (81,368)
Altruis partial settlement  (84,473)  (452,236)
Montana final settlement  (326,935)  - 
         
Period adjustments:        
Fair value changes and accretion included in earnings*  354,963   (278,102)
         
Ending balance $4,357,433  $3,813,878 
Less: Current portion  (3,683,596)  (3,297,855)
Ending balance, less current portion  673,837   516,023 
  September 30, 2023  December 31, 2022 
Beginning balance – January 1 $2,709,478  $3,813,878 
         
Acquisitions and settlements  (3,260,403)  (1,104,925)
         
Period adjustments:        
Fair value changes included in earnings*  1,291,494   525 
Earn-out payable in common shares  (53,372)  

-

 
         
Ending balance  687,197   2,709,478 
Less: Current portion  (687,197)  (2,153,478)
Ending balance, less current portion $-  $556,000 

 

*Recorded as a reduction toin the general and administrative expenses caption on the condensed consolidated statements of operations.

Revenue Recognition

 

The following table disaggregates the Company’s revenue by line of business, showing commissions earned:

SCHEDULE OF DISAGGREGATION REVENUE

Three Months ended June 30, 2022 Medical/Life Property and Casualty Total 
Regular         
Three Months Ended September 30, 2023 Medical Life Property and Casualty Total 
                
EBS $184,851  $-  $184,851  $206,308  $8,900  $-  $215,208 
USBA  12,319   -   12,319   11,266   843   -   12,109 
CCS/UIS  -   57,195   57,195   -   -   62,197   62,197 
Montana  451,705   -   451,705   453,269   1,770   -   455,039 
Fortman  357,334   205,804   563,138   288,969   602   268,704   558,275 
Altruis  882,171   -   882,171   1,200,054   -   -   1,200,054 
Kush  425,449   -   425,449   331,240   -   -   331,240 
Medigap  1,359,976   -   1,359,976 
Barra  69,925   200,397   270,322 
 $3,743,730  $463,396  $4,207,126 
Reli Exchange  66,833   18,139   356,489   441,461 
Total $2,557,939  $30,254  $687,390  $3,275,583 

Nine Months Ended September 30, 2023 Medical  Life  Property and Casualty  Total 
                
EBS $646,259  $17,470  $-  $663,729 
USBA  33,956   2,266   -   36,222 
CCS/UIS  -   -   182,368   182,368 
Montana  1,384,060   10,105   -   1,394,165 
Fortman  887,605   2,675   700,169   1,590,449 
Altruis  4,268,727   -   -   4,268,727 
Kush  973,719   -   -   973,719 
Reli Exchange  182,638   103,341   1,015,233   1,301,212 
Total $8,376,964  $135,857  $1,897,770  $10,410,591 

 

8
10 

 

Six Months ended June 30, 2022 Medical/Life Property and Casualty  Total 
Regular            
Three Months Ended September 30, 2022 Medical  Life  Property and Casualty Total 
                
EBS $406,035  $-  $406,035  $206,906   5,478  $-  $212,384 
USBA  25,906   -   25,906   13,227   505   -   13,732 
CCS/UIS  -   101,077   101,077   -   -   76,035   76,035 
Montana  958,426   -   958,426   422,978   3,613   -   426,591 
Fortman  689,933   403,064   1,092,997   256,791   2,464   186,860   446,115 
Altruis  2,187,043   -   2,187,043   895,905   107   -   896,012 
Kush  864,040   -   864,040   366,043   176   -   366,219 
Medigap  2,537,061   -   2,537,061 
Barra  69,925   200,397   270,322 
 $7,738,369  $704,538  $8,442,907 
Reli Exchange  56,232   27,383   301,065   384,680 
Total $2,218,083   39,725  $563,960  $2,821,768 

 

Three Months ended June 30, 2021 Medical/Life  Property and Casualty  Total 
Regular            
EBS  207,201   -   207,201 
USBA  15,395   -   15,395 
CCS/UIS  -   65,348   65,348 
Montana  404,740   -   404,740 
Fortman  276,634   226,337   502,971 
Altruis  729,874   -   729,874 
Kush  265,318   -   265,318 
  $1,899,162  $291,685  $2,190,847 

Six Months ended June 30, 2021 Medical/Life Property and Casualty Total 
Regular            
Nine Months Ended September 30, 2022 Medical Life Property and Casualty Total 
               
EBS $416,195  $-  $416,195  $633,252   11,965  $-  $645,217 
USBA  27,620   -   27,620   38,610   1,028  -   39,638 
CCS/UIS  -   154,166   154,166   -    -  177,111   177,111 
Montana  939,856   -   939,856   1,379,307   5,710  -   1,385,017 
Fortman  526,435   434,109   960,544   943,852   5,337  589,924   1,539,113 
Altruis  1,750,878   -   1,750,878   3,053,474   2,783  -   3,056,257 
Kush  265,318   -   265,318   1,229,326   933  -   1,230,259 
            
 $3,926,302  $588,275  $4,514,577 
Reli Exchange  103,893   49,646  501,463   655,002 
Revenues $7,381,714   77,402 $1,268,498  $8,727,614 

 

The following are customers representing 10%10% or more of total revenue:

SCHEDULE OF CONCENTRATIONS OF REVENUES

Insurance Carrier 2022 2021 
     
 

For the three months ended

June 30,

  For the Three Months
Ended
September 30,
 
Insurance Carrier 2022 2021  2023 2022 
LTC Global  30%  -%
Priority Health  20%  31%  44%  30%
BlueCross BlueShield  -%  28%  21%  13%
Insurance carrier  21%  13%

 

9

Insurance Carrier 2022 2021 
     
 

For the six months ended

June 30,

  For the Nine Months
Ended
September 30,
 
Insurance Carrier 2022 2021  2023 2022 
Priority Health  37%  34%
BlueCross BlueShield  10%  25%  14%  13%
Priority Health  25%  33%
LTC Global  28%  -%
Insurance carrier  14%  13%

 

No other single Customercustomer accounted for more than 10% of the Company’s commission revenues.revenues during the three and nine months ended September 30, 2023 and 2022. The loss of any significant customer including Priority Health, BlueCross BlueShield and LTC Global could have a material adverse effect on the Company. Customers from 2022 were adjusted to reflect percentages of revenue from continued operations.

 

Income Taxes

 

The Company recorded no income tax expense for the three and sixnine months ended JuneSeptember 30, 20222023 and 20212022 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.

 

11

As of June September 30, 2022 2023 and December 31, 2021,2022, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Prior Period AdjustmentsDiscontinued Operations

 

The Company’s board of directors approved the discontinuation and abandonment of Medigap Healthcare Insurance Company, identified certain immaterial adjustments impacting prior reporting periods. Specifically,LLC (“Medigap”), a subsidiary of the Company, identified adjustmentseffective April 17, 2023, due to correct certain asset, liabilityMedigap’s sustained recurring losses stemming from amongst other factors, greater than anticipated revenue chargebacks. The Company was unable to divest its interest in Medigap for value, and equityaccordingly, operations were wound down in an orderly manner. In doing so, the Company transferred to its operating entity, Medigap’s customer relationships and internally developed and purchased software intangible assets, with net of amortization combined value of approximately $4,300,000, as well as, its short-term financing arrangement of $29,500, and each are respectively classified at their adjusted book values in the intangible assets and short term financing agreements accounts in relationthe condensed consolidated balance sheets for the periods ended September 30, 2023 and December 31, 2022. These assets have continued value to historical purchase price allocation accounting, historical accrued revenuesthe Company and true upshave not been impaired as the fair value exceeds carrying cost. Medigap’s remaining assets were considered to have no remaining asset value and were fully impaired. Certain liabilities and estimated liabilities as outlined in the tables herein, were discharged and/or written-off in conjunction with the Settlement Agreement (as defined below) because of them having a net zero dollar estimated liability value. Accordingly, the Company recognized a net of estimated liability adjustments gain/loss of approximately $0, and an impairment loss of approximately $4,400,000, presented in income (loss) from discontinued operations in the consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. As part of the common stock issuable account.abandonment, the Company cancelled third party contracts, settled outstanding vendor and other third-party obligations, ceased to enter new customer contracts via Medigap, and no further customer performance obligations existed. The Company does not expect further continuing involvement with Medigap, and in accordance with ASC 205-20-45-9, no corporate overhead has been allocated to discontinued operations.

Settlement Agreement

On June 30, 2023, the Company entered into a confidential settlement agreement and mutual release (the “Settlement Agreement”) with certain Medigap affiliated entities and persons, and the former owners of Medigap, whereby the Company would receive a settlement payment of $2,900,000 and was released from all past and future Medigap obligations and liabilities. The settlement payment was received in full by the Company in July 2023 and is recorded as income from discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.

 

The Company assessedfollowing tables present the materialitymajor components of assets and liabilities included in discontinued operations on 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.condensed consolidated balance sheets.

 

Accordingly, the Company’s comparative condensed consolidated financial statements and impacted notes have been revised from amounts previously reported to reflect these adjustments. SCHEDULE OF DISCONTINUED OPERATIONS ON CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS

  September 30, 2023  December 31, 2022 
Accounts receivable $    -  $73,223 
Accounts receivable, related parties  -   3,595 
Accounts receivable  -   3,595 
Other receivables  -   5,388 
Prepaid expense and other current assets  -   3,792 
Current Assets - Discontinued Operations $-  $85,998 
         
Condensed consolidated balance sheets - Current Assets - Discontinued Operations $-  $85,998 
         
Property and equipment, net  -  $24,116 
Right-of-use assets  -   163,129 
Intangibles, net  -   318,000 
Goodwill  -   4,825,634 
Other Assets - Discontinued Operations 

$

-  $5,330,879 
         
Condensed consolidated balance sheets - Other Assets - Discontinued Operations $-  $5,330,877 
         
Accounts payable and other accrued liabilities  -  $506,585 
Chargeback reserve  -   915,934 
Current portion of leases payable  -   178,117 
Current Liabilities - Discontinued Operations $-  $1,600,636 
         
Condensed consolidated balance sheets - Current Liabilities - Discontinued Operations $-  $1,600,636 

12

The following table illustratesrolls forward Medigap’s assets and liabilities from their carrying values pre-abandonment to their values post abandonment, and presents the impact on previously reported amountsof reclassifications, impairments, and adjusted balanceswrite-offs:

Medigap Related Assets Carrying Value Prior To Abandonment  Asset and Liability Transfers Retained by the Company  Asset Impairments and Liability Write-Offs  Carrying Value As of September 30, 2023 
             
Accounts receivable $56,398  $-  $(56,398) $        - 
Accounts receivable, related party  3,595   -   (3,595)  - 
Accounts receivable  3,595   -   (3,595)  - 
Other receivables  5,388   -   (5,388)  - 
Current assets – Medigap $65,381  $-  $(65,381) $- 
                 
Property and equipment, net $22,378  $-  $(22,378) $- 
Right-of-use assets  119,594   -   (119,594)  - 
Intangibles, net  4,570,536   (4,258,214 )1   (312,322)  - 
Goodwill  4,825,634   -   (4,825,634)  - 
Other assets - Medigap $9,538,142  $(4,258,214) $(5,279,928) $- 
                 
Total assets - Medigap $9,603,523  $(4,258,214) $(5,345,309) $- 
                 
Accounts payable and other accrued liabilities $4,157  $-  $(4,157) $- 
Short term financing agreements  29,500   (29,500)  -   - 
Chargeback reserve  831,725   -   (831,725 )2   - 
Current portion of leases payable  134,517   -   (134,517 )3   - 
Other liabilities  9,842   -   (9,842 )3   - 
Current liabilities - Medigap $1,009,741  $(29,500) $(980,241) $- 
                 
Total liabilities - Medigap $1,009,741  $(29,500) $(980,241) $- 
                 
Net assets and liabilities - Medigap $8,593,782  $(4,228,714) $(4,365,068) $- 

1Includes customer relationships and internally developed and purchased software intangible assets that have continued value to the Company and have not been impaired as the fair value exceeds carrying cost.
2Estimated liability write-off per net zero dollar estimated liability value.
3Liability discharge pursuant to the Settlement Agreement.

13

The following tables disaggregate the major classes of pretax gain and loss as presented in discontinued operations in the condensed consolidated financial statements for the period ended June 30, 2022.of operations.

SUMMARIZES THE CHANGES TO THE PREVIOUSLY ISSUED FINANCIAL INFORMATION

Account 

12/31/2020

As reported

  Adjustment  

12/31/2020

Adjusted

 
Earn-out liability  2,631,418   300,000   2,931,418 
Goodwill  9,265,070   (503,345)  8,761,725 
Common stock issuable  822,116   (482,116)  340,000 
Additional paid-in-capital  11,377,123   182,116   11,559,239 
Accumulated Deficit  (12,482,281)  122,601   (12,359,680)

 

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)

10
  

Three Months

Ended

September 30,

2023

  

Three Months

Ended

September 30,

2022

  

Nine Months

Ended

September 30,

2023

  

Nine Months

Ended

September 30,

2022

 
Income                
Commission income $         -  $1,331,593  $744,030  $3,868,654 
                 
Expenses                
Commission expense  -   167,837   110,639   473,578 
Salaries and wages  -   484,783   454,663   1,474,526 
General and administrative expenses  -   136,070   129,363   384,393 
Marketing and advertising  -   662,744   426,818   1,774,463 
Depreciation and amortization  -   62,048   7,283   176,233 
Other expenses (income)  -   (7,500)  (3,902)  (14,954)
Total discontinued operations expenses before impairments and write-offs  -   1,505,982   1,124,864   4,268,239 
Total discontinued operations income / (loss) before impairments and write-offs $-  $(174,390) $(380,834) $(399,585)
Gains and (losses) from recoveries and impairments / write-offs of discontinued operations assets and liabilities                
                 
Settlement Recovery $-   -  $2,900,000   - 
                 
Asset impairment losses                
Accounts receivable  -   -   56,398   - 
Accounts receivable, related parties  -   -   3,595   - 
Other receivables  -   -   5,388   - 
Property and equipment, net  -   -   22,378   - 
Right-of-use assets  -   -   119,593   - 
Intangibles, net  -   -   312,322   - 
Goodwill  -   -   4,825,634   - 
Total asset impairments  -   -   5,345,309   - 
                 
Liability write-off gains                
Accounts payable and other accrued liabilities  -   -   4,156   - 
Other payables  -   -   9,842   - 
Chargeback reserve  -   -   831,725   - 
Current portion of leases payable  -   -   134,517   - 
Total liability write-off gains  -   -   980,240   - 
                 
Discontinued operations net asset and liability impairments / write-offs gains and (losses)  -   -   4,365,070   - 
                 
Net gains and (losses) from recoveries and impairments / write-offs from discontinued operations assets and liabilities  -   -   (1,465,070)  - 
                 
Gain (loss) from discontinued operations before tax  -   (174,390)  (1,845,904)  (399,585)
                 
Consolidated statement of operations - Income (loss) from discontinued operations before tax $-  $(174,390) $(1,845,904) $(399,585)

 

Recently Issued Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.

NOTE 2. STRATEGIC INVESTMENTS AND BUSINESS COMBINATIONS

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”) 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 40,402 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 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 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) 
Property, plant and equipment $20,666   5 
Right-of-use asset  317,787     
Trade names  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     

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 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%.

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%.

 

11
14 

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%.

 

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 June 30, 2022 was $2,537,061 and a loss of $412,943, 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 information approximate combined financial information assumes that the acquisition had occurred at the beginning of the six months ended June 30, 2022 and 2021:

SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION

  June 30,  June 30, 
  2022  2021 
Revenue $8,809,482  $7,071,329 
Net Income (Loss) $19,849,175  $(1,796,767)
Earnings (Loss) per common share, basic $11.25  $2.85)
Earnings (Loss) per common share, diluted $8.85) $2.85)

Barra & Associates, LLC Transaction

On April 26, 2022, the Company entered into an asset purchase agreement (the “APA”) with Barra & Associates, LLC (“Barra”) 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 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.

The acquisition of Barra 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.

12

The preliminary allocation of the purchase price in connection with the acquisition of Barra was calculated as follows:

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%.

Customer and Agency 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 19.5%.

Developed 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 28.6%.

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 June 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 June 30, 2022 was $270,321 and a loss of $38,698, respectively.

Pro Forma Information

The results of operations of Barra 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 information approximate combined financial information assumes that the acquisition had occurred at the beginning of the six months ended June 30, 2022 and 2021:

SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION

  June 30,  June 30, 
  2022  2021 
Revenue $8,990,529  $5,364,335 
Net Income (Loss) $20,070,124  $(1,527,038)
Earnings (Loss) per common share, basic $11.40  $(2.40)
Earnings (Loss) per common share, diluted $(8.70) $(2.40)

13

 

NOTE 3.2. GOODWILL AND OTHER INTANGIBLE ASSETS

 

The following table rolls forward the Company’s goodwill balance for the periods ending Juneended September 30, 20222023, and December 31, 2021. As discussed in Note 1 - Prior Period Adjustments, a $(503,345) adjustment was identified2022, adjusted 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.discontinued operations.

SCHEDULE OF IMPAIRMENT OF GOODWILL

  Goodwill 
December 31, 2020 $8,761,725 
Goodwill recognized in connection with Kush acquisition on May 1, 2021 $1,288,552 
December 31, 2021 $10,050,277 
Goodwill recognized in connection with Medigap acquisition on January 10, 2022 $19,199,008 
Goodwill recognized in connection with Barra acquisition on April 26, 2022  4,236,822 
June 30, 2022 $33,486,107 
  Goodwill 
December 31, 2021 $10,050,277 
Goodwill recognized in connection with Barra acquisition on April 26, 2022  4,236,822 
December 31, 2022  14,287,099 
September 30, 2023 $14,287,099 

 

For the year ended December 31, 2022, due to a declining market capitalization attributed to Medigap’s performance, the Company performed a goodwill impairment test utilizing the Market Approach – Traded Market Value Method, concluding that the Company’s fair value and resultant net assets, implied a goodwill balance of $19,100,000 versus our goodwill balance prior to write-down of $33,400,000. Thus, the Company recognized a goodwill impairment loss of $14,373,374. As of June 30, 2023, the Company recognized an additional goodwill impairment of $4,825,634 upon the abandonment of Medigap.

The following table rolls forward the Company’s goodwill balance for the periods ended September 30, 2023, and December 31, 2022 inclusive of discontinued operations.

  Goodwill 
December 31, 2021 $10,050,277 
Goodwill recognized in connection with Medigap acquisition  19,199,008 
Goodwill recognized in connection with Barra acquisition  4,236,822 
Goodwill impairment (Medigap) during the year-ended December 31, 2022  (14,373,374)
December 31, 2022  19,112,733 
Goodwill impairment (Medigap) during the nine months ended September 30, 2023  (4,825,634)
September 30, 2023 $14,287,099 

The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of JuneSeptember 30, 2022:2023:

SCHEDULE OF INTANGIBLE ASSETS AND WEIGHTED-AVERAGE REMAINING AMORTIZATION PERIOD

  Weighted Average Remaining Amortization period (Years)  

Gross

Carrying

Amount

  Accumulated Amortization  

Net

Carrying Amount

 
Trade name and trademarks  4.9  $2,142,858  $(804,020) $1,338,838 
Internally developed software  4.5   1,326,158   (131,655)  1,194,503 
Customer relationships  9.53   11,922,290   (1,517,174)  10,405,116 
Purchased software  -   562,327   (562,327)  - 
Video Production Assets  0.6   50,000   (23,242)  26,758 
Non-competition agreements  2.4   3,504,810   (1,827,590)  1,677,220 
Contracts Backlog  0.5   210,000   (100,684)  109,316 
      $19,718,443  $(4,966,692) $14,751,751 

  Weighted Average Remaining Amortization Period (Years)  Gross Carrying Amount  Accumulated Amortization  Net Carrying Amount 
Trade name and trademarks  3.6  $1,807,187  $(1,232,982) $574,205 
Internally developed software  3.4   1,792,186   (557,038)  1,235,148 
Customer relationships  8.26   11,922,290   (2,914,320)  9,007,970 
Purchased software  1.85   667,206   (609,677)  57,529 
Video production assets  0.00   50,000   (50,000)  - 
Non-competition agreements  1.14   3,504,810   (2,704,136)  800,674 
      $19,743,679  $(8,068,153) $11,675,526 

15

 

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, 2021:2022:

 

  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 

14
  

Weighted Average

Remaining Amortization

period (Years)

  Gross Carrying Amount  Accumulated Amortization  Net Carrying Amount 
Trade name and trademarks  4.4  $1,806,188  $(969,241) $836,947 
Internally developed software  4.1   1,635,178   (287,990)  1,347,188 
Customer relationships  9.0   11,922,290   (2,076,086)  9,846,204 
Purchased software  0.4   665,137   (581,497)  83,640 
Video production assets  -   50,000   (50,000)  - 
Non-competition agreements  1.9   3,504,810   (2,179,420)  1,325,390 
Total     $19,583,603  $(6,144,234) $13,439,369 

 

The following table reflects expected amortization expense as of JuneSeptember 30, 2022,2023, for each of the following five years and thereafter:

SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS

Years ending December 31, Amortization Expense   Amortization Expense 
2022 (remainder of year) $1,374,512 
2023  2,461,552 
2023 (remainder of year) $639,264 
2024  2,083,450   2,193,428 
2025  1,703,824   1,799,472 
2026  1,463,747   1,530,604 
2027  1,196,429 
Thereafter  5,664,666   4,316,329 
Total $14,751,751  $11,675,526 

16

NOTE 4.3. LONG-TERM DEBT AND SHORT-TERM FINANCINGS

 

Long-Term Debt

 

The composition of the long-term debt follows:

SCHEDULE OF LONG TERM DEBT

  

June 30,

2022

  

December 31,

2021

 
       
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $13,497 and $14,606 as of June 30, 2022 and December 31, 2021, respectively $455,391  $485,317 
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of $16,351 and $17,626 as of June 30, 2022 and December 31, 2021, respectively  738,547   785,826 
Oak Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $10,085 and $11,027 as of June 30, 2022 and December 31, 2021, respectively  835,376   884,720 
Oak Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $39,752 and $42,660 as of June 30, 2022 and December 31, 2021, respectively  2,103,885   2,226,628 
Oak Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $45,369 and $48,609 as of June 30, 2022 and December 31, 2021, respectively  3,427,614   3,616,754 
Oak Street Funding LLC Term Loan for the acquisition of Barra, net of deferred financing costs of $208,901 and $0 as of June 30, 2022 and December 31, 2021, respectively  6,311,099   - 
   13,871,912   7,999,245 
Less: current portion  (936,263)  (913,920)
Long-term debt $12,935,649  $7,085,325 
  September 30, 2023  December 31, 2022 
       
       
Oak Street Funding LLC Term Loan $384,402  $426,883 
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, variable interest of Prime Rate plus 2.5%, maturing August 2028, net of deferred financing costs of $10,724 and $12,388 as of September 30, 2023 and December 31, 2022, respectively $384,402  $426,883 
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, variable interest of Prime Rate plus 1.5%, maturing December 2028, net of deferred financing costs of $13,163 and $15,076 as of September 30, 2023 and December 31, 2022, respectively  627,676   693,682 
Oak Street Funding LLC Term Loan for the acquisition of SWMT, variable interest of Prime Rate plus 2.0%, maturing April 2029, net of deferred financing costs of $8,101 and $9,206 as of September 30, 2023 and December 31, 2022, respectively  719,654   788,596 
Oak Street Funding LLC Term Loan for the acquisition of FIS, variable interest of Prime Rate plus 2.0%, maturing May 2029, net of deferred financing costs of $32,481 and $36,843 as of September 30, 2023 and December 31, 2022, respectively  1,817,583   1,987,846 
Oak Street Funding LLC Term Loan for the acquisition of ABC, variable interest of Prime Rate plus 2.0%, maturing September 2029, net of deferred financing costs of $37,269 and $42,129 as of September 30, 2023 and December 31, 2022, respectively  2,989,482   3,249,575 
Oak Street Funding LLC Term Loan for the acquisition of Barra, variable interest of Prime Rate plus 2.5%, maturing May 2032, net of deferred financing costs of $182,118 and $198,188 as of September 30, 2023 and December 31, 2022, respectively  6,195,731   6,321,812 
Long term debt gross  12,734,528   13,468,394 
Less: current portion  (1,353,961)  (1,118,721)
Long-term debt $11,380,567  $12,349,673 

 

Oak Street Funding LLC – Term Loans and Credit Facilities

SCHEDULE OF CUMULATIVE MATURITIES OF LONG-TERMLONG -TERM LOANS AND CREDIT FACILITIES

Fiscal year ending December 31, 

Maturities of

Long-Term Debt

  Maturities of Long-Term Debt 
2022 (remainder of year) $438,616 
2023  1,228,897 
2023 (remainder of year) $326,783 
2024  1,542,156   1,390,766 
2025  1,656,383   1,552,772 
2026  1,776,385   1,729,160 
2027  1,925,603 
Thereafter  7,563,428   6,093,302 
Total  14,205,865   13,018,386 
Less: debt issuance costs  (333,953)  (283,858)
Total $13,871,912  $12,734,528 

 

15
17 

 

Short-Term Financings

The Company financed certain annual insurance premiums through the use of twohas various short-term notes payable for financed items such as insurance premiums and CRM software purchases. These are normally paid in nineequal installments over a period of twelve months or less and ten equal monthly installmentscarry interest rates up to 8% per annum. As of September 30, 2023, and December 31, 2022, balances outstanding on short-term financings were $42,894114,394 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 $0154,017, respectively. Outstanding balances as of June 30, 2022 and December 31, 2021, respectively were $376,647 and $0.

 

NOTE 5.4. WARRANT LIABILITIES

Series B Warrants

 

On December 22, 2021,Pursuant to the Company entered into a securities purchase agreement with several institutional buyers for the purchase and sale of (i) warrants to purchase an aggregate of up to 651,997 sharesterms of the Company’s common stock, par value $0.086 per share at anSales and Purchase Agreement (SPA), during the quarter ended September 30, 2023, the Series B Warrants’ effective exercise price reset to $2.43. As of $September 30, 2023, there remain 61.351,166,667 per share, (ii) an aggregate of 178,059 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 147,939 shares of Common Stock at a conversion price of $61.35 per share, each a freestanding financial instrument, (the “Private Placement”). The aggregate purchase price for the Common Shares, the Preferred Shares and the Warrants was approximately $20,000,000.outstanding.

 

By entering intoFor the Private Placement on December 22, 2021,three and nine months ended September 30, 2023, net fair value gains and losses recognized for the Company entered into a commitment to issue the Common Shares, Preferred Shares and Series B Warrants onwere gains of $1,703,333 and $4,345,599, respectively. For the Initial Closing Datethree and nine months ended September 30, 2022, net fair value gains and losses recognized for a fixed price and exercise price, as applicable. The commitment to issuethe Series B Warrants (the “Warrant Commitment”) represents a derivative financial instrument, other than an outstanding share, that, at inception, has bothwere gains 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$7,726,161 and will subsequently remeasure the derivative liability, at fair value with changes$34,621,024, respectively, presented 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 forin the year endedcondensed consolidated statements of operations. The Series B Warrant liability outstanding as of September 30, 2023 and December 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 recognizedwas $12,322,7371,575,000 and $24,748,1636,384,250 of non-operating unrealized gains withinrespectively, presented in the recognition and change in fair value of warrant liabilitiesliability account on the condensed consolidated statement of operations for the three and six months ended June 30, 2022, respectively, related to the subsequent changes in its fair value through June 30, 2022. A corresponding derivative liability of $10,757,945 is included on Company’s condensed consolidated balance sheet as of June 30, 2022. The closing of the Private Placement settled the subscription receivable reported on the Company’s balance sheet as of December 31, 2021.sheets.

 

Placement Agent Warrants

 

In connection withFor the Private Placement, the Company issued 16,303 warrants to the placement agentthree and nine months ended September 30, 2023, net fair value gains and losses recognized for the Private Placement. The warrants were issued as compensation for the Placement 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 $61.35 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(“PAW”) were gains of $310,51412,064 and losses of $268,94843,520, respectively. For the three and nine months ended September 30, 2022, net fair value gains recognized for the PAW were included$193,154 and $1,450,129, respectively, presented in the recognition and change in fair value of warrant liabilities account in the condensed consolidated statements of operations. The PAW liability outstanding as of September 30, 2023 and December 31, 2022 was $5,380 and $48,900, respectively, presented in the warrant liability account on the condensed consolidated statementbalance sheets. As of operations for the three and six months ended JuneSeptember 30, 2022, respectively, A corresponding derivative liability of $268,948 is included on Company’s condensed consolidated balance sheet as of June 30, 2022.

16

NOTE 6. EQUITY2023, there remain 16,303 PAW’s outstanding.

 

Preferred StockNOTE 5. EQUITY

The Company has been authorized to issue 750,000,000 shares of $0.086 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.

In January 2022, the Company issued 9,076 shares of its newly designated Series B convertible preferred stock through the Private Placement for the purpose of raising capital. These shares remain issued and outstanding as of June 30, 2022.

The Series B convertible preferred stock has no voting rights and initially each share of Series B convertible preferred stock may be converted into 16 shares of the Company’s common stock. The holders of the Series B convertible preferred stock are not entitled to receive any dividends other than any 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 holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari passu with all holders of common stock.

 

Common Stock

 

The Company has beenis authorized to issue 133,333,333 shares of common stock, $0.086par value. Each share of issued and outstanding common stock shall entitleentitles 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.

 

In January 2022,2023, the Company issued 178,059 shares of common stock through the Private Placement for the purpose of raising capital. See Note 5 - Warrant Liabilities for proceeds received by the Company.

In January 2022, the Company issued 40,402 shares of common stock pursuant to the Medigap Acquisition.

In January 2022, upon agreement with Series A warrant holders, 25,000 warrants were exercised at a price of $99.00 into 25,000 of the Company’s common stock.

In March 2022, the Company issued 400109,358 shares of the Company’s common stock due to the vesting of settle two earn-out liabilities.

400 stock awards

On February 23, 2023, pursuant to an employee agreement.authority granted by the Board of Directors of the Company, the Company implemented a 1-for-15 reverse split of the Company’s authorized and issued and outstanding common stock (the “Reverse Split-2023”). The par value remains unchanged. All share and per share information as well as common stock and additional paid-in capital have been retroactively adjusted to reflect the Reverse Split-2023 for all periods presented, unless otherwise indicated. The split resulted in a rounding addition of approximately 15,300 shares valued at par, totaling $1,300.

 

In May and June 2022, March 2023, Yes Americana, a related party, converted $218,462645,000 Series C prepaid warrants were exchanged forof its outstanding convertible debt into 218,46266,743 shares of the Company’s common stock. The conversion considered the fair market value of the stock on the day of conversion of $9.67 for the total of 66,743 shares.

In March 2023, the Company issued 155,038 shares of the Company’s common stock in conjunction with the Private Placement-2023 as defined and discussed further below.

During the second quarter of 2023, the Company issued from its common stock, 112,557 shares in lieu of services provided, 352,260 shares to settle an earn-out liability and 22,219 shares pursuant to vested restricted stock awards earned by agents through an equity-based compensation program at one of the Company’s subsidiaries.

18

During the third quarter of 2023, the Company issued from its common stock, 174,610 shares to settle an earn-out liability, 400 shares in lieu of services provided, and 3,017 shares to employees for vested stock awards.

 

As of JuneSeptember 30, 20222023 and December 31, 2021,2022, there were 974,2682,304,375 and 730,4071,219,573 shares of Common Stockcommon stock outstanding, respectively.

 

Warrants

 

Series A warrant holders exercised Warrants

25,000

In conjunction with the Company’s initial public offering, the Company issued 2,070,000 Series A Warrants, classified as equity warrants in January 2022, resulting in per its provisions, which permit holders to obtain a fixed number of shares for a fixed monetary value. The warrants are standalone equity securities transferable without the Company’s consent or knowledge. The warrants were recorded at a value per the offering of $113,0000.01, and may be exercised at any point from the effective date at an exercise price $6.60 of until the 5th-year anniversary from issuance (effectively, February 8, 2026) and are not subject to antidilution provisions. Considering 375,000 warrant exercises through September 30, 2023, there remain 1,695,000Series A warrants remainingWarrants issued and outstanding as of JuneSeptember 30, 2023 and December 31, 2022. Pursuant to the Reverse Split-2023, the outstanding Series A Warrants are exercisable into 113,000 common shares for an effective exercise price of $99.00.

Series E and F Warrants

On March 13, 2023, the Company entered into a securities purchase agreement (the “SPA-2023”) with one institutional buyer for the purchase and sale of, (i) an aggregate of 155,038 shares (the “Common Shares”) of the Company’s common stock, par value $0.086 per share (the “Common Stock”) along with accompanying common warrants (the “Common Units”), (ii) prefunded warrants (the “Prefunded Warrants” or “Series E Warrants”) that are exercisable into 897,594 shares of Common Stock (the “Prefunded Warrant Shares”) along with accompanying common warrants (the “Pre-Funded Units”), and (iii) common warrants (the “Common Warrants” or “Series F Warrants”) to initially acquire up to 2,105,264 shares of Common Stock (the “Common Warrant Shares”) (representing 200% of the Common Shares and Prefunded Warrant Shares) in a private placement offering (the “Private Placement-2023”). Additionally, the Company agreed to issue a warrant to the Placement Agent (defined below), to initially acquire 52,632 shares of common stock (the “PA Warrant”) and entered into a registration rights agreement with the buyer to register for resale the common shares underlying the Series E and F Warrants.

The aggregate purchase price for the Common Shares, Prefunded Warrants (Series E Warrants) and the Common Warrants (Series F Warrants) to be purchased by the Buyer shall be equal to (i) $3.80 for each Common Unit purchased by such Buyer, or (ii) $3.799 for each Prefunded Unit purchased by the Buyer, which Prefunded Warrants are exercisable into Prefunded Warrant Shares at the initial Exercise Price (as defined in the Prefunded Warrant) of $0.001 per Prefunded Warrant Share in accordance with the Prefunded Warrant.

The Common Warrant (Series F) has an exercise price of $3.55 per share, subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the date of the Private Placement-2023. The Common Warrant will be exercisable six months following the date of issuance and will expire five and a half years from the date of issuance.

The PA Warrant has an exercise price of $3.91 per share, subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the date of the SPA-2023. The PA Warrant will be exercisable six months following the date of issuance and will expire five years from the date of issuance.

 

1719

 

In January 2022, as a resultThe closing of the issuancePrivate Placement-2023 occurred on March 16, 2023. EF Hutton, a division of common stock inBenchmark Investments, LLC (the “Placement Agent”) acted as the January 2022 stock offeringsole placement agent and was entitled to an 8% of gross proceeds cash fee and the Medigap Acquisition, the Company received a deficiency notification from Nasdaq indicating violationreimbursement 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 218,462 Series C prepaid warrants in exchange for 218,462 shares of the Company’s common stock. Additionally, as compensation for entering into the Exchange Agreements, the Company issued 81,500 Series D prepaid warrants to the January 2022 stock offering investors for no additional consideration. The fair value of the Series D prepaid warrants was treated as a deemed dividendcertain Placement Agent fees and accordingly was treated as a reduction from income available to common stockholders in the calculation of earnings per share. Refer to Note 7, Earnings (Loss) Per Share for additional information.customary expenses.

 

In MayGross and June 2022,net proceeds to the Company from the Private Placement-2023 218,462were approximately $4 million and $3.4 million respectively, to be utilized primarily for general working capital and administrative purposes. Direct financing fees approximated $553,000.

The Company determined the Series C prepaid warrants were convertedE Warrants, Series F Warrants, and PA Warrants are equity in nature because of provisions, pursuant to the warrant agreements, that permit the holder to obtain a fixed number of shares for a fixed monetary amount. The values offset to $218,4620 shares ofin additional paid-in capital in the Company’s common stock for an exercise pricecondensed consolidated statements of $0.001stockholders’ equity (deficit)..   Through June

As of September 30, 2022, the Company has received payments of $2023, no exercises have occurred and there remain 1,336897,594, 2,105,264 from one investor for these issuances.and 52,632 Series E Warrants, Series F Warrants and PA Warrants outstanding respectively.

 

Equity-based Compensation

 

Between February and May 2022, three existing employees wereDuring the nine-month period ended September 30, 2023, an executive was awarded bonusesan annual stock award in conjunction with a promotion agreement, consisting of2,667 shares of the Company’s common stock per annum, to be vested immediately. The shares granted in 2022 were valued at $766,250.vest monthly throughout the term of employment. For the three and sixnine months ended JuneSeptember 30, 2022,2023, total stock compensation expense on these grants totaledfor this award was valued at approximately $100,0005,601, and $766,25017,044, respectively. As of June 30, 2022, these shares have not been issued.respectively, recorded as stock-based compensation.

 

In April 2022 , pursuant to an agreement betweenTotal stock-based compensation expense recorded in general and administrative expenses in the Company and an Executive,condensed consolidated statements of operations for the Executive will be compensated with 4,000 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. For the three and sixnine months ended June September 30, 2022, compensation expense on this grant was2023 is $27,779 and $70,721106,943. As of June 30, 2022, no shares were issued under this contract., respectively.

 

NOTE 7.6. EARNINGS (LOSS) PER SHARE

 

Basic EPSearnings per common share (“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.

 

TheThe following calculates basic and diluted EPS:

SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS

  Three Months  Three Months 
  Ended  Ended 
  June 30, 2022  June 30, 2021 
Net income (loss), numerator, basic and diluted computation $10,495,691  $(1,276,886)
         
Weighted average shares - denominator basic computation  1,069,157   728,966 
Effect of stock awards  2,128   - 
Effect of Series B warrant liability      
Effect of preferred stock  147,939   - 
Weighted average shares, as adjusted - denominator diluted computation  1,219,224   728,966 
Earnings (loss) per common share – basic $9.82  $(1.75)
Earnings (loss) per common share – diluted  8.61   (1.75)
  

Three Months

Ended

September 30, 2023

  

Three Months

Ended

September 30, 2022

 
       
(Loss) income from continuing operations, numerator, basic and diluted computation $(139,004)  $6,296,483 
Deemed dividend  -   - 
Net income continuing operations, numerator, basic computation        
Recognition and change in fair value of warrant liabilities        
Net loss continuing operations, numerator, diluted computation        
         
Weighted average common shares, basic  3,021,455   1,156,939 
Effect of series B warrants  -   147,939 
Non-vested stock awards        
Weighted average common shares, dilutive  3,021,455   1,304,878 
(Loss) earnings per common share – basic $(0.05)  $5.44 
(Loss) earnings per common share – diluted $(0.05)   4.83 

 

  Six Months  Six Months 
  Ended  Ended 
  June 30, 2022  June 30, 2021 
Net income (loss) $19,835,692  $(1,890,812)
Deemed dividend  (6,930,335)  - 
Net income (loss), numerator, basic computation  12,905,357   (1,890,812)
Recognition and change in fair value of warrant liability  (26,625,915)  - 
Net income (loss), numerator, diluted computation $(13,720,558) $(1,890,812)
         
Weighted average shares - denominator basic computation  1,025,108   617,316 
Effect of Series B warrant liability  43,128   - 
Weighted average shares, as adjusted - denominator diluted computation  1,068,236   617,316 
Earnings (loss) per common share - basic $12.59  $(3.06)
Earnings (loss) per common share - diluted $(12.84) $(3.06)
20

 

  

Nine Months

Ended

September 30, 2023

  

Nine Months

Ended

September 30, 2022

 
(Loss) income from continuing operations $(1,136,922) $26,357,370 
Deemed dividend  -   (6,930,335)
Net (loss) income from continuing operations, numerator, diluted computation $(1,136,922) $19,427,035 
         
Weighted average common shares, basic  2,436,015   1,069,534 
Effect of series B warrants  -   147,939 
Non-vested stock awards  -   2,349 
Weighted average common shares, dilutive  2,436,015   1,219,822 
Loss per common share – basic  (0.47)  18.16 
Loss per common share – diluted $(0.47) $15.93 

Additionally, the following are considered anti-dilutive securities excluded from weighted-average shares used to calculate diluted net loss per common share:

SCHEDULE OF ANTI-DILUTIVE SECURITIES IN WEIGHTED AVERAGEDILUTIVE NET LOSS PER COMMON SHARES

         
  For the Three Months Ended 
  June 30,
2022
  June 30,
2021
 
Shares subject to outstanding common stock options  10,928   10,928 
Shares subject to outstanding Series A warrants  113,000   138,000 
Shares subject to unvested stock awards  -   3,072 
Shares subject to warrant liability  668,299   - 

 

         
  For the six months ended 
  June 30,
2022
  June 30,
2021
 
Shares subject to outstanding common stock options  10,928   10,928 
Shares subject to outstanding Series A warrants  113,000   138,000 
Shares subject to conversion of Series B preferred stock  147,939   - 
Shares subject to unvested stock awards  4,621   3,072 
Weighted-average anti-dilutive securities  4,621   3,072 
       
  For the Three and Nine Months Ended 
  September 30, 2023  September 30, 2022 
Shares subject to outstanding common stock options  10,298   10,928 
Shares subject to Series A warrants  113,000   113,000 
Shares subject to Series B warrants  1,182,969   668,297 
Shares subject to Series E warrants  887,594   - 
Shares subject to series F warrants  2,105,264   - 

Shares subject to placement agent warrants

  52,632   - 
Shares subject to vested and unvested stock awards  5,756   4,085 

 

18

NOTE 8.7. LEASES

 

Operating lease expense for the three months ended JuneSeptember 30, 20222023 and 20212022 was $156,750123,508 and $43,931118,653, respectively. Operating lease expense for the sixnine months ended JuneSeptember 30, 20222023 and 20212022 was $275,174 362,804and $112,199337,876 respectively. As of JuneSeptember 30, 2022,2023, the weighted average remaining lease term and weighted average discount rate for the operating leases were 4.013.82 years and 5.766.14% 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

 
2022 $303,256 
Period ending September 30, 2023 Operating Lease Obligations 
2023  546,275  $391,173 
2024  253,908   210,106 
2025  144,124   112,904 
2026  113,738   116,291 
2027  119,780 
Thereafter  268,202   60,774 
Total undiscounted operating lease payments  1,629,503   1,011,028 
Less: Imputed interest  (169,978)  101,495 
Present value of operating lease liabilities $1,459,525  $909,533 

21

 

NOTE 9.8. 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 JuneSeptember 30, 20222023 and December 31, 2021.2022. 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 following outlines changes to the Company’s earn-out liability balances inclusive of accumulated accretion for the respective periodperiods ended JuneSeptember 30, 20222023 and December 31, 2021:2022:

SCHEDULE OF EARN-OUT LIABILITY

  CCS  Fortman  Montana  Altruis  Kush  Barra  Total 
Ending balance December 31, 2021 $-  $515,308  $615,969  $992,868  $1,689,733  $-  $3,813,878 
Changes due to acquisitions  -   -   -   -   -   600,000   600,000 
Changes due to payments          (326,935)  (84,473)          (411,408)
Changes due to fair value adjustments  -   32,620   37,741   -   334,602   (50,000)  354,963 
Ending balance June 30, 2022 $-  $547,928  $326,775  $908,395  $2,024,335  $550,000  $4,357,433 
  Fortman  Montana  Altruis  Kush  Barra  Total 
Ending balance December 31, 2022 $667,000  $500,000  $834,943  $147,535  $560,000  $2,709,478 
Changes due to business combinations                  
Changes due to payments  (1,433,700)  (750,000)  (929,168)  (147,535)  -   (3,260,403)
Changes due to fair value adjustments  1,152,525   356,744   94,225   -   (312,000)  1,291,494 
Changes due to amount payable in common shares  

-

   (53,372)  

-

   

-

   

-

   (53,372)
Ending balance September 30, 2023 $385,825  $53,372  $-  $-  $248,000  $687,197 

 

  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 

  Fortman  Montana  Altruis  Kush  Barra  Total 
Ending balance December 31, 2021 $515,308  $615,969  $992,868  $1,689,733  $-  $3,813,878 
Beginning balance $515,308  $615,969  $992,868  $1,689,733  $-  $3,813,878 
                         
Changes due to business combinations  -   -   -   -   600,000   600,000 
Changes due to payments  (34,430)  (326,935)  (84,473)  (1,259,087)  -   (1,704,925)
Changes due to fair value adjustments  186,122   210,966   (73,452)  (283,111)  (40,000)  525 
Ending balance December 31, 2022 $667,000  $500,000  $834,943  $147,535  $560,000  $2,709,478 
Ending balance $667,000  $500,000  $834,943  $147,535  $560,000  $2,709,478 

 

1922

NOTE 9. RELATED PARTY TRANSACTIONS

On September 13, 2022, the Company issued a promissory note to YES Americana Group, LLC (“Americana”) a related party entity beneficially owned by the Company’s Chief Executive Officer, for the principal sum of $1,500,000 (the “Note”), accruing monthly interest of 5% per annum beginning nine months after Note issuance. On February 7, 2023 , the Company and Americana entered into an amendment to the Note pursuant to which (i) the principal amount of the Note was increased to $1,845,000, (ii) the maturity date of the Note was amended to January 15, 2026, (iii) the interest rate under the Note shall not increase after the maturity date, and (iv) the Note can be converted at any time, at the option of Americana, into shares of the Company’s common stock, par value $0.086 per share at an agreed upon conversion price.

On February 13, 2023, Americana effectuated a conversion of $645,000 of the Note into 66,743 shares of the Company’s common stock, $0.086 par value per share, in accordance with the terms of the Amendment. In addition, throughout the year of 2023 the Company repaid principal to Americana of $693,145. As of September 30, 2023, and December 31, 2022 respectively, the balance owed to Americana was $161,855 and $1,500,000, reclassified and recorded in the convertible debt, related parties, less current portion account in the condensed consolidated balance sheets. Interest expense for both the three and nine months ended September 30, 2023, was $4,355, recorded to interest expense, related parties in the condensed consolidated statements of operations.

The Company has amounts payable to Reliance Global Holdings, LLC, a related party beneficially owned by the Company’s Chief Executive Officer stemming from funds loaned to the Company for various subsidiary acquisitions. These loans do not bear interest and there is no term. Repayment will be made at the Company’s discretion. The open balance is considered non-current and classified to the related parties, less current portion account in the condensed consolidated balance sheets with open balances of $25,479 and $100,724 as of September 30, 2023 and December 31, 2022, respectively.

The Company incurred a payable of $200,000 to an employee for a software purchased in July of 2019. The payable was issued with a $27,673 discount, utilizing a 7.5% discount rate. There are monthly payment terms of $4,167 through June 2024, the date of final settlement. The balance is carried at present value on the condensed consolidated balance sheets. The Company classifies amounts planned to be settled within twelve months from the balance sheet date to current liabilities. Accordingly, the Company presents current balances of $36,479 and $47,249 in the current portion of loans payables, related parties account in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. Non-current amounts are classified to the loans payable, related parties, less current portion account in the condensed consolidated balance sheets and amounted to $0 and $21,541 as of September 30, 2023, and December 31, 2022, respectively. Amortization expense to bring the payable to present value for the three and nine months ended September 30, 2023 respectively, was $1,730 and $5,189, and is classified to the interest expense, related parties account in the condensed consolidated statements of operations.

Pursuant to the first amendment to the April 26, 2022 asset purchase agreement between the Company and Barra & Associates, LLC, a related party entity beneficially owned by a senior vice president of the Company, the Company agreed to pay a deferred purchase price (the “DPP”) of $1,375,000 by January 31, 2023, and all amounts unpaid thereafter will accrue interest at a rate of 1.5% per month until paid. The Company intends to fully repay all unpaid amounts inclusive of interest over the next two years. The Company classifies amounts planned to be settled within twelve months from the balance sheet date to current liabilities. Accordingly, the Company reclassifies and presents current balances of $300,000 and $1,375,000 respectively, in the current portion of loans payables, related parties account in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. Non-current amounts are classified to the loans payable, related parties, less current portion account in the condensed consolidated balance sheets and amounted to $233,306 and $0 as of September 30, 2023, and December 31, 2022 respectively. Interest expense for the three and nine months ended September 30, 2023 respectively, was $26,390 and $115,560, recorded to interest expense, related parties in the condensed consolidated statements of operations.

NOTE 10. INVESTMENT IN NSURE

During April 2023, the Company sold its remaining 262,684 of NSURE shares to unaffiliated third parties, receiving the shares’ cost basis and cash proceeds of $900,000. The Company’s remaining NSURE share balance as of September 30, 2023, was $0.

NOTE 11. SUBSEQUENT EVENTS

On October 3, 2023, 168,594 pre-funded Series E Warrants were exercised into 168,594 common shares at an exercise price of $0.001, resulting in $729 of cash proceeds to the Company. Subsequently, the issued and outstanding balance of Series E Warrants is 729,000.

 23

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Reliance Global Group, Inc. (the “Company”) operates 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.

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, 2023, we have acquired nine insurance agencies.

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 needed from the consumer. The platform launched during the summer of 2021 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 with 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 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. Several 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, 2023, 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.

24

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 to achieve asset value appreciation while generating interim cash flows. In the insurance sector, our management team has over 100 years of experience 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 Activities

As of the balance sheet date, we have acquired multiple 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.

AcquiredDateLocationLine of BusinessStatus
U.S. Benefits Alliance, LLC (USBA)October 24, 2018MichiganHealth InsuranceAffiliated
Employee Benefit Solutions, LLC (EBS)October 24, 2018MichiganHealth InsuranceAffiliated
Commercial Solutions of Insurance Agency, LLC (CCS or Commercial Solutions)December 1, 2018New JerseyP&C – Trucking IndustryUnaffiliated
Southwestern Montana Insurance Center, Inc. (Southwestern Montana or Montana)April 1, 2019MontanaGroup Health InsuranceUnaffiliated
Fortman Insurance Agency, LLC (Fortman or Fortman Insurance)May 1, 2019OhioP&C and Health InsuranceUnaffiliated
Altruis Benefits Consultants, Inc. (Altruis)September 1, 2019MichiganHealth InsuranceUnaffiliated
UIS Agency, LLC (UIS)August 17, 2020New York

P&C – Trucking Industry

Unaffiliated
J.P. Kush and Associates, Inc. (Kush)May 1, 2021MichiganHealth InsuranceUnaffiliated
Barra & Associates, LLCApril 26, 2022IllinoisHealth InsuranceUnaffiliated

Recent Developments

Reverse Stock Split

On February 23, 2023, pursuant to authority granted by the Board of Directors of the Company, the Company implemented a 1-for-15 reverse split of the Company’s authorized and issued and outstanding common stock (the “Reverse Split-2023”). The par value remains unchanged. All share and per share information as well as common stock and additional paid-in capital have been retroactively adjusted to reflect the Reverse Split-2023 for all periods presented, unless otherwise indicated. The split resulted in a rounding addition of approximately 15,300 shares valued at par, totaling $1,300.

25

Second Amendment to Fortman Purchase Agreement

As previously disclosed, the Company, Fortman Insurance Services, LLC, Fortman Insurance Agency, LLC, Jonathan Fortman, and Zachary Fortman (collectively, the “Parties”) entered into a purchase agreement on or around May 1, 2019 (the “Purchase Agreement”), whereby the Company purchased the business and certain assets noted within the Purchase Agreement. On May 18, 2023, the Parties entered into that certain second amendment to the Purchase Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Parties agreed to a total remaining balance of $716,850 owed to both Jonathan Fortman and Zachary Fortman under the Purchase Agreement for a combined total amount owed of $1,433,700. In satisfaction of such remaining balances, the Company agreed to issue 176,130 shares of the Company’s restricted common stock, par value $0.086 per share (the “Common Stock”), to both Jonathan Fortman and Zachary Fortman (collectively, the “Shares”), for a total issuance of 352,260 shares of Common Stock. Following the issuance of the Shares, the Company’s issued and outstanding Common Stock count will be 1,983,308. If the Nasdaq official closing price of the Common Stock is less than $4.07 on November 18, 2023, then the Company shall pay both Jonathan Fortman and Zachary Fortman an amount equal to the Make-Up Payment (as defined herein) within 15 business days thereafter. Pursuant to the Second Amendment, the “Make-Up Payment” means an amount in cash equal to $616,850 minus First Holder Shares Value (as defined herein) to Jonathan Fortman, and $616,850 minus Second Holder Shares Value (as defined herein) to Zachary Fortman. Further, under the Second Amendment, the “First Holder Shares Value” and “Second Holder Shares Value” means 176,130 and 176,130 respectively (subject to appropriate adjustments for any stock dividend, stock split, stock combination, rights offerings, reclassification or similar transaction that proportionately decreases or increases the Common Stock) multiplied by the Nasdaq official closing price of the Common Stock on November 18, 2023.

Settlement Agreement

On June 30, 2023, the Company entered into a Confidential Settlement Agreement and Mutual Release (the “Settlement Agreement”) by and between the Company, Medigap Healthcare Insurance Agency, LLC, a wholly owned subsidiary of the Company (the “Agency” and together with the Company, the “Reliance Parties”), Pagidem, LLC f/k/a Medigap Healthcare Insurance Company, LLC (“Pagidem”), Joseph J. Bilotti, III (together with Pagidem, the “Bilotti Parties”), Kyle Perrin, Zachary Lewis, T65 Health Insurance Solutions, Inc. f/k/a T65 Health Solutions, Inc. (“T65”), and Seniors First Life, LLC (collectively with Mr. Lewis and T65, the “Lewis Parties”).

The Company, Pagidem, and Mr. Bilotti previously entered into that certain Asset Purchase Agreement dated December 21, 2021 (the “APA”), pursuant to which the Company acquired, and the Bilotti Parties sold, certain assets and liabilities of Pagidem to the Company. As part of the transactions contemplated by the APA, the Company entered into that certain Employment Agreement, dated as of January 10, 2022, by and between the Company and Mr. Perrin (the “Employment Agreement”). The Company later assigned the assets and liabilities it acquired pursuant to the APA, and the Employment Agreement, to Agency. Mr. Perrin previously served as the Chief Operating Officer and Chief Executive Officer of Agency pursuant to the Employment Agreement. The Company and Mr. Lewis entered into that certain Non-Disclosure Agreement, effective as of January 24, 2022 (the “NDA”).

The Company, pursuant to the APA, previously filed a claim with the American Arbitration Association (“AAA”), Case No. 01-23-0002-3404 (the “Bilotti Arbitration”), wherein the Company purports to assert claims against the Bilotti Parties for fraudulent inducement, intentional and negligent misrepresentation, breach of contract, breach of restrictive covenants, conversion, civil theft, tortious interference, and conspiracy (the “Bilotti Claim”). The Company also filed, pursuant to the Employment Agreement, a claim with the AAA, Case No. 01-23-0002-2048(the “Perrin Arbitration”), wherein the Company purports to assert claims against Mr. Perrin for conversion, civil conspiracy, fraud, breach of fiduciary duty, and breach of duty of loyalty and good faith. (the “Perrin Claim”). In the Perrin Arbitration, Mr. Perrin filed counterclaims against the Company for breaches of employment agreement, unjust enrichment, and breach of the covenant of good faith and fair dealing (the “Perrin Counterclaim”).

The Reliance Parties have filed a complaint in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. 50-2023-CA-010777-XXXXMB, Div. AA (the “Lewis Litigation,” and collectively with the Bilotti Arbitration and the Perrin Arbitration, the “Medigap Disputes”), wherein the Reliance Parties purport to assert claims against the Lewis Parties for tortious interference with business relationship, civil conspiracy, breach of contract, conversion, and unjust enrichment (the “Lewis Claim”).

26

The parties to the Settlement Agreement have each disputed and continue to dispute the claims asserted and allegations made against them.

United Insurance Group Agency, Inc. and/or LTC Global, Inc. or those entities’ assignees, affiliates, subsidiaries, partners or parent companies (collectively, the “Factor”), allege the Reliance Parties owe the Factor a debt, which the Reliance Parties dispute.

Pursuant to the terms of the Settlement Agreement, the Medigap Parties agreed to pay to the Company an amount equal to $2,900,000 (the “Settlement Payment”) within five business days of the effective date of the Settlement Agreement. The Company received the Settlement Payment on July 6, 2023.

Upon receipt of the Settlement Payment, the Reliance Parties agreed to release and discharge each and all of the Bilotti Parties, Mr. Perrin, and the Lewis Parties, and each of their present and former agents, servants, or employees, members, owners, shareholders, officers, managers, partners, directors, trustees, representatives, attorneys, contractors, predecessor and successor entities and assigns, parents, subsidiaries and affiliates (collectively, the “Medigap Released Parties”) of and from any and all past, existing, and/or future suits, liabilities, claims, demands, fees, costs, expenses, payments, judgments, damages, actions and rights or causes of action of any kind or nature, from the beginning of the world to the effective date of the Settlement Agreement, including but not limited to (A) any matters that were or could have been alleged in the: (i) the Bilotti Arbitration; (ii) the Perrin Arbitration; (iii) the Lewis Litigation; and (B) (i) any and all claims to additional money, distributions, or compensation of any kind from the Medigap Released Parties; provided, however, that nothing in the Settlement Agreement will serve to release any claims the Reliance Parties may have against the Factor.

In addition, upon receipt of the Settlement Payment, the Medigap Parties agreed to release and discharge each and all of the Reliance Parties, and each of their present and former agents, servants, or employees, members, owners, shareholders, officers, managers, partners, directors, trustees, representatives, attorneys, contractors, predecessor and successor entities and assigns, parents, subsidiaries and affiliates (collectively, the “Reliance Released Parties”) of and from any and all past, existing, and/or future suits, liabilities, claims, demands, fees, costs, expenses, payments, judgments, damages, actions and rights or causes of action of any kind or nature, from the beginning of the world to the effective date of the Settlement Agreement, including but not limited to (A) any matters that were or could have been alleged in the: (i) the Bilotti Arbitration; (ii) the Perrin Arbitration; (iii) the Lewis Litigation; and (B) (i) any and all claims to additional money, distributions, or compensation of any kind from the Medigap Released Parties.

Also, pursuant to the terms of the Settlement Agreement, Mr. Perrin agreed to release the Reliance Parties from all claims arising under any federal, state or local law or statute, including without limitation, the Fair Labor Standards Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Family Medical Leave Act, Title VII of the Civil Rights Act of 1964, Employee Retirement Income Security Act, the Equal Pay Act, the Worker Adjustment and Retraining Notification Act, the law of contract and tort, any claim for attorneys’ fees, claims for unpaid wages or other employment compensation, and claims of personal injury, including mental and physical pain and suffering or intentional infliction of emotional distress. Additionally, Mr. Perrin expressly waived any right to recover any type of personal relief from the Reliance Parties, including monetary damages or reinstatement, in any administrative action or proceeding, whether state or federal, and whether brought by Mr. Perrin or on his behalf by an administrative agency, related in any way to the matters herein.

Pursuant to the terms of the Settlement Agreement, all of the parties thereto agreed that, upon receipt of the Settlement Payment by the Reliance Parties, they would discharge any obligations under the APA, the Employment Agreement, the NDA and all ancillary documents and agreements referenced or contemplated therein. In addition, within five business days of receipt of the Settlement Payment: (i) the Company will cause the Bilotti Arbitration to be dismissed, with prejudice; (ii) the Reliance Parties and Mr. Perrin will cause the Perrin Arbitration to be dismissed, with prejudice; and (iii) the Reliance Parties will cause the Lewis Litigation to be dismissed, with prejudice.

27

Results of Operations

Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022

The following table sets forth our revenue and operating expenses for each of the years presented.

  September 30, 2023  September 30, 2022 
Revenue        
Commission income $3,275,583  $2,821,768 
Total revenue  3,275,583   2,821,768 
         
Operating expenses        
Commission expense  796,001   695,020 
Salaries and wages  1,775,919   1,629,947 
General and administrative expenses  1,368,126   1,117,027 
Marketing and advertising  117,752   63,371 
Depreciation and amortization  652,839   651,395 
Total operating expenses  4,710,637   4,156,760 
         
Loss from operations  (1,435,054)  (1,334,992)
         
Other income (expense)        
Interest expense  (386,562)  (281,201)
Interest related parties  (32,475)  (1,730)
Other income (expense), net  (310)  (4,909)
Recognition and change in fair value of warrant liabilities  1,715,397   7,919,315 
Total other income (expense)  1,296,050   7,631,475 
Loss (income) from continuing operations before tax  (139,004)  6,296,483 
Loss (income) from discontinued operations before tax  -   (174,390)
Net income (loss) $(139,004) $6,122,093 

Revenues

The Company’s revenue is primarily comprised of commissions paid by 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 or entity currently covered by an insurance plan, including individual and family, Medicare-related, small business, and ancillary plans, as well as property and casualty coverage, including auto, home and life, for which the Company is entitled to receive compensation from an insurance carrier.

The Company had revenues of approximately $3.3 million for the three months ended September 30, 2023, as compared to approximately $2.8 million for the three months ended September 30, 2022. The increase of approximately $454,000 or 16% is primarily driven by organic growth.

Commission expense

The Company had total commission expense of approximately $796,000 for the three months ended September 30, 2023, compared to approximately $695,000 for the three months ended September 30, 2022. The increase of approximately $101,000 or 15% is primarily driven by organic growth and in-line with the revenue increase.

Salaries and wages

The Company reported approximately $1.8 million of salaries and wages expense for the three months ended September 30, 2023, compared to approximately $1.6 million for the three months ended September 30, 2022. The increase of approximately $146,000 or 9% is a result of the Company’s growth driven by expanded operations.

28

General and administrative expenses

The Company had total general and administrative expenses of approximately $1.4 million for the three months ended September 30, 2023, as compared to approximately $1.1 million for the three months ended September 30, 2022. The increase of approximately $251,000, or 22% is primarily driven by the approximate $270,000 loss in fair value change of the estimated earn-out liability compared to the same period in the prior year which had an approximate gain of $223,000.

Marketing and advertising

The Company reported approximately $118,000 of marketing and advertising expense for the three months ended September 30, 2023 compared to approximately $63,000 for the three months ended September 30, 2022. The increase of approximately $54,000, or 86% is a result of increased branding and outreach efforts to drive the higher organic revenue growth.

Depreciation and amortization

The Company reported approximately $653,000 of depreciation and amortization expense for the three months ended September 30, 2023 compared to approximately $651,000 for the three months ended September 30, 2022. The increase of approximately $1,000 or 0.2% is primarily a result of additional assets placed in service.

Other income and expense

The Company reported approximately $1.3 million of other income for the three months ended September 30, 2023 compared to approximately $7.9 million of other income for the three months ended September 30, 2022. The decrease of approximately $6.2 million, or 78%, is attributable primarily to the change in fair value of warrant liabilities, offset by interest expense.

Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022

The following table sets forth our revenue and operating expenses for each of the periods presented.

  September 30, 2023  September 30, 2022 
Revenue        
Commission income $10,410,591  $8,727,614 
Total revenue  10,410,591   8,727,614 
         
Operating expenses        
Commission expense  2,701,601   2,143,562 
Salaries and wages  5,230,871   4,899,171 
General and administrative expenses  4,430,177   5,080,991 
Marketing and advertising  364,184   148,057 
Depreciation and amortization  1,962,066   1,901,140 
Total operating expenses  14,688,899   14,172,921 
         
Loss from operations  (4,278,308)  (5,445,307)
         
Other income (expense)        
Interest expense  (1,126,281)  (586,251)
Interest related parties  (125,104)  (5,189)
Other income (expense), net  3,650   (4,414)
Recognition and change in fair value of warrant liabilities  4,389,120   32,398,530 
Total other income (expense)  3,141,385   31,802,676 
         
Income (loss) from continuing operations before tax  (1,136,922)  26,357,370 
Income (loss) from discontinued operations before tax  (1,845,904)  (399,585)
Net (loss) income $(2,982,827) $25,957,784 

29

Revenues

The Company had revenues of approximately $10.4 million for the nine months ended September 30, 2023, as compared to approximately $8.7 million for the nine months ended September 30, 2022. The increase of approximately $1.7 million or 19% is primarily driven by organic growth and the addition of RELI Exchange during the second quarter of 2022.

Commission expense

The Company had total commission expense of approximately $2.7 million for the nine months ended September 30, 2023, compared to approximately $2.1 million for the nine months ended September 30, 2022. The increase of approximately $558,000 or 26% is primarily driven by organic growth and the addition of RELI Exchange during the second quarter of 2022.

Salaries and wages

The Company reported approximately $5.2 million of salaries and wages expense for the nine months ended September 30, 2023, compared to approximately $4.9 million for the nine months ended September 30, 2022. The increase of approximately $331,000 or 7% is a result of the Company’s growth driven by expanded operations and the addition of RELI Exchange during the second quarter of 2022.

General and administrative expenses

The Company had total general and administrative expenses of approximately $4.4 million for the nine months ended September 30, 2023, as compared to approximately $5.1 million for the nine months ended September 30, 2022. The decrease in expense of approximately $651,000, or 13%, is a result of the Company’s focus on leaner operations and the implementation of cost-cutting measures.

Marketing and advertising

The Company reported approximately $364,000 of marketing and advertising expense for the nine months ended September 30, 2023, compared to approximately $148 million for the nine months ended September 30, 2022. The increase of approximately $216,000 or 146% is a result of the Company increasing its branding and outreach efforts to drive the higher organic revenue growth.

Depreciation and amortization

The Company reported approximately $2.0 million of depreciation and amortization expense for the nine months ended September 30, 2023, compared to approximately $1.9 million for the nine months ended September 30, 2022. The increase of approximately $60,000, or 3%, is primarily a result of our acquired tangible and intangible assets through business combinations.

Other income and expense

The Company reported approximately $3.1 million of other income for the nine months ended September 30, 2023, compared to approximately $32.4 million of other income for the nine months ended September 30, 2022. The decrease of approximately $28 million, or 86%, is attributable primarily to the change in the fair value of warrant liabilities, offset by interest expense.

Liquidity and capital resources

As of September 30, 2023, we had a cash balance of approximately $3.2 million and working capital of approximately $795,000, compared with a cash balance of approximately $1.9 million and working capital deficit of approximately $4.6 million at December 31, 2022. The improved working capital is primarily attributable to cash proceeds from the issuance of stock with a private placement, other receivables related to discontinued operations recoveries/settlements, and the repayment of liabilities.

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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,

 
  2023  2022 
Net cash used in operating activities $(17,307) $(2,177,998)
Net cash provided and used in investing activities  718,583   (24,982,609)
Net cash provided by financing activities  576,212   25,564,501 
Net increase in cash, cash equivalents, and restricted cash $1,277,488  $(1,596,106)

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2023 was approximately $17,000, compared to net cash flows used in operating activities of approximately $2.2 million for the nine months ended September 30, 2022. The cash used includes net loss of approximately $2.98 million, decreased by approximate non-cash adjustments of $855,000 principally related to income of recognition and change in fair value of warrant liabilities of $4.4 million, offset by earn-out fair value adjustments and depreciation and amortization of $1.3 million and $1.96 million, respectively, as well as a net increase in cash due to changes of net working capital items in the amount of $285,000 and offset by net cash adjustments for discontinued operating activities of $3.8 million.

Investing Activities

During the nine months ended September 30, 2023, cash flows provided in investing activities approximated $719,000 compared to cash flows used in investing activities of approximately $25 million for the nine months ended September 30, 2022. The cash provided is primarily related to the sale of the Company’s shares in NSURE stock. Total proceeds received in 2023 were $900,000.

Financing Activities

During the nine months ended September 30, 2023, approximate cash provided by financing activities was $576,000 as compared to approximately $25.6 million for the nine months ended September 30, 2022. Net cash provided by financing activities primarily relates to proceeds from private placement offerings of approximately $3.4 million, offset by net debt principal repayments of $786,000, related party loan and related party convertible debt repayments of $1.6 million, and earn out payments of $419,000.

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, 2022. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal year 2022.

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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.

 

TheDuring fiscal year 2022, the Company determined it had a material weakness in its disclosure controls and procedures as it pertainsrelating to earnings per share (EPS) for(“EPS”). During the three and six monthsquarters ended March 31, June 30 2022. During the quarter ended March 31,and September 30, 2023, the Company mitigated thisthe deficiency by consulting with qualified advisors that have in-depth EPS expertise. These advisors will assistassisted the Company in the calculations and disclosures of EPS for future reporting periods. Pursuant to the above, ourthree and nine months ended September 30, 2023.

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of JuneSeptember 30, 2022, concluding them to be ineffective2023, and concluded that they were not effective as of such date.September 30, 2023 due to the material weakness discussed above.

 

Changes in Internal Control over Financial Reporting

 

ThereDuring fiscal year 2022, the Company retained subject matter expert advisors to prepare the accounting and disclosures over Earnings per Share. These advisors assisted the Company in the calculations and disclosures of EPS for the three and nine months ended September 30, 2023. Aside for the foregoing, there have not been anyno other 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, 2023. 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.

Investing in our common stock involves a high degree of risk. You should consider carefully the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2022. 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, 2022, as amended from time to time.

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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.

 

Exhibit No. Description
   
10.1 AssetAmendment #1 to the Purchase Agreement, with Barradated as of September 29, 2023, by and Associates (Incorporatedbetween Reliance Global Group, Inc., Southwestern Montana Insurance Center, LLC, Southwestern Montana Financial Center, Inc., and Julie A. Blockey (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 2, 2022October 4, 2023).
   
10.231.1* 

Loan Agreement with Oak Street Lending (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 2, 2022

10.3Employment Agreement with Grant Barra (Incorporated by reference to the Registrant’s Current Report on Form 8-K, File No. 001-40020, filed with the Securities and Exchange Commission on May 2, 2022(File Number 001-40020))
31.1Certification of Chief Executive Officer pursuant to Section302Section 302 of the Sarbanes-Oxley Act 2002*of 2002
31.2 
31.2*Certification of Chief Financial Officer pursuant to Section302Section 302 of the Sarbanes-Oxley Act 2002*of 2002
32.1 
32.1**Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer*Officer
101.INS* Inline XBRL Instance Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101).

*Filed herewith.herewith

**Furnished herewith.herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 Reliance Global Group, Inc.
   
Date: May 18,November 13, 2023By:/s/ Ezra Beyman
  Ezra Beyman
  

Chief Executive Officer

(principal executive officer)

Date: May 18,November 13, 2023By:/s/ Joel Markovits
  Joel Markovits
  Chief Financial Officer
  (principal financial officer and principal accounting officer)

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