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 SeptemberJune 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 | 46-3390293 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Florida
(State or other jurisdiction of incorporation or organization)
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 filer ☒ | Smaller 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 November 14, 2022August 10, 2023, the registrant had 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 September 30, 2022, with the Securities and Exchange Commission (“SEC”) on November 14, 2022 (the “Original Form 10-Q”). This Amendment No. 1 on Form 10-Q/A (“Amendment No. 1” or “Form 10-Q/A”) This Amendment No. 1 on Form 10-Q/A (“Amendment No. 1” or “Form 10-Q/A”) is being filed to:
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 nine months ended September 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:
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
2 |
PART I
Item 1. Financial Statements
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30 2023 | December 31, 2022 | |||||||||||||||
September 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 1,615,054 | $ | 4,136,180 | $ | 1,274,743 | $ | 505,410 | ||||||||
Restricted cash | 1,409,562 | 484,542 | 1,405,513 | 1,404,359 | ||||||||||||
Accounts receivable | 1,025,120 | 1,024,831 | 978,877 | 994,321 | ||||||||||||
Accounts receivable, related parties | 1,159 | 7,131 | 19,364 | 18,292 | ||||||||||||
Note receivables | - | - | ||||||||||||||
Other receivables | 37,674 | - | 2,900,648 | 11,464 | ||||||||||||
Prepaid expense and other current assets | 399,506 | 2,328,817 | 553,122 | 245,535 | ||||||||||||
Current Assets - Discontinued Operations | - | 85,998 | ||||||||||||||
Total current assets | 4,488,075 | 7,981,501 | 7,132,267 | 3,265,379 | ||||||||||||
Property and equipment, net | 199,030 | 130,359 | 149,084 | 162,767 | ||||||||||||
Right-of-use assets | 1,327,361 | 1,067,734 | 976,020 | 1,018,952 | ||||||||||||
Investment in NSURE, Inc. | 1,350,000 | 1,350,000 | - | 900,000 | ||||||||||||
Intangibles, net | 14,359,973 | 7,078,900 | 12,308,697 | 13,439,369 | ||||||||||||
Goodwill | 33,486,107 | 10,050,277 | 14,287,099 | 14,287,099 | ||||||||||||
Other non-current assets | 23,284 | 16,792 | 23,284 | 23,284 | ||||||||||||
Other Assets - Discontinued Operations | - | 5,330,879 | ||||||||||||||
Total assets | $ | 55,233,830 | $ | 27,675,563 | $ | 34,876,451 | $ | 38,427,729 | ||||||||
Liabilities and stockholders’ equity (deficit) | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and other accrued liabilities | $ | 1,221,583 | $ | 2,759,160 | $ | 911,247 | $ | 951,382 | ||||||||
Short term financing agreements | 195,024 | 154,017 | ||||||||||||||
Current portion of loans payables, related parties | 872,249 | 1,422,249 | ||||||||||||||
Other payables | 1,241,341 | 81,500 | 217,101 | 101,113 | ||||||||||||
Chargeback reserve | 1,350,533 | - | ||||||||||||||
Short term Financing Agreements | 309,993 | - | ||||||||||||||
Current portion of long-term debt | 1,026,541 | 913,920 | 1,329,121 | 1,118,721 | ||||||||||||
Current portion of leases payable | 538,018 | 276,009 | 370,855 | 339,937 | ||||||||||||
Earn-out liability, current portion | 2,283,380 | 3,297,855 | 969,000 | 2,153,478 | ||||||||||||
Warrant commitment | - | 37,652,808 | ||||||||||||||
Current Liabilities - Discontinued Operations | - | 1,600,636 | ||||||||||||||
Total current liabilities | 7,971,389 | 44,981,252 | 4,864,597 | 7,841,533 | ||||||||||||
Loans payable, related parties, less current portion | 1,679,560 | 353,766 | 307,394 | 122,266 | ||||||||||||
Convertible debt, related parties, less current portion | 570,000 | 1,500,000 | ||||||||||||||
Long term debt, less current portion | 12,640,673 | 7,085,325 | 11,711,780 | 12,349,673 | ||||||||||||
Leases payable, less current portion | 833,395 | 805,326 | 635,863 | 714,068 | ||||||||||||
Earn-out liability, less current portion | 635,647 | 516,023 | - | 556,000 | ||||||||||||
Warrant liabilities | 3,107,578 | - | 3,759,428 | 6,433,150 | ||||||||||||
Noncurrent Liabilities - Discontinued Operations | - | - | ||||||||||||||
Total liabilities | 26,868,242 | 53,741,692 | 21,849,062 | 29,516,690 | ||||||||||||
Stockholders’ equity (deficit): | ||||||||||||||||
Preferred stock, $ par value; shares authorized and issued and outstanding as of September 30, 2022 and December 31, 2021 | - | - | ||||||||||||||
Common stock, $ par value; shares authorized and and issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 103,512 | 62,815 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $ | par value; shares authorized and issued and outstanding as of June 30, 2023 and December 31, 2022, respectively- | - | ||||||||||||||
Common stock, $ | par value; shares authorized and and issued and outstanding as of June 30, 2023 and December 31, 2022, respectively176,546 | 104,883 | ||||||||||||||
Additional paid-in capital | 35,762,437 | 27,329,201 | 42,686,651 | 35,798,139 | ||||||||||||
Stock subscription receivable | - | (20,000,000 | ) | |||||||||||||
Accumulated deficit | (7,500,361 | ) | (33,458,145 | ) | (29,835,808 | ) | (26,991,983 | ) | ||||||||
Total stockholders’ equity (deficit) | 28,365,588 | (26,066,129 | ) | |||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 55,233,830 | $ | 27,675,563 | ||||||||||||
Total stockholders’ equity | 13,027,389 | 8,911,039 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 34,876,451 | $ | 38,427,729 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
3 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
Revenue | ||||||||||||||||
Commission income | $ | 3,195,905 | 2,847,149 | $ | 7,135,008 | 5,905,846 | ||||||||||
Total revenue | 3,195,905 | 2,847,149 | 7,135,008 | 5,905,846 | ||||||||||||
Operating expenses | ||||||||||||||||
Commission expense | 822,274 | 662,932 | 1,905,600 | 1,448,543 | ||||||||||||
Salaries and wages | 1,742,697 | 1,637,412 | 3,454,794 | 3,269,225 | ||||||||||||
General and administrative expenses | 1,703,811 | 1,630,169 | 3,062,066 | 3,963,964 | ||||||||||||
Marketing and advertising | 109,860 | (4,844 | ) | 246,432 | 84,686 | |||||||||||
Depreciation and amortization | 655,449 | 694,440 | 1,309,227 | 1,263,440 | ||||||||||||
Total operating expenses | 5,034,091 | 4,620,109 | 9,978,119 | 10,029,858 | ||||||||||||
Loss from operations | (1,838,186 | ) | (1,772,960 | ) | (2,843,111 | ) | (4,124,012 | ) | ||||||||
Other (expense) income | ||||||||||||||||
Interest expense | (370,905 | ) | (194,929 | ) | (722,462 | ) | (305,095 | ) | ||||||||
Interest expense, related parties | (51,153 | ) | (1,729 | ) | (92,629 | ) | (3,460 | ) | ||||||||
Other expense, net | (16,979 | ) | (3,605 | ) | (13,297 | ) | 541 | |||||||||
recognition and change in fair value of warrant liabilities | (1,592,509 | ) | 12,633,251 | 2,673,723 | 24,479,215 | |||||||||||
Total other (expense) income | (2,031,546 | ) | 12,432,988 | 1,845,335 | 24,171,201 | |||||||||||
(Loss) income from continuing operations before tax | $ | (3,869,732 | ) | 10,660,028 | $ | (997,776 | ) | 20,047,189 | ||||||||
Income (loss) from discontinued operations before tax | 2,814,445 | (164,337 | ) | (1,846,048 | ) | (211,497 | ) | |||||||||
Net (loss) income | (1,055,287 | ) | 10,495,691 | (2,843,824 | ) | 19,835,692 | ||||||||||
Basic (loss) earnings per share | ||||||||||||||||
Continuing operations | $ | (1.42 | ) | $ | 9.97 | $ | (0.47 | ) | $ | 12.80 | ||||||
Discontinued operations | $ | 1.03 | $ | (0.15 | ) | $ | (0.86 | ) | $ | (0.21 | ) | |||||
Basic (loss) earnings per share | $ | (0.39 | ) | $ | 9.82 | $ | (1.33 | ) | $ | 12.59 | ||||||
Diluted (loss) earnings per share | ||||||||||||||||
Continuing operations | $ | (1.42 | ) | $ | 8.74 | $ | (0.47 | ) | $ | (12.65 | ) | |||||
Discontinued operations | $ | 1.03 | $ | (0.13 | ) | $ | (0.86 | ) | $ | (0.19 | ) | |||||
Diluted (loss) earnings per share | $ | (0.39 | ) | $ | 8.61 | $ | (1.33 | ) | $ | (12.84 | ) | |||||
Weighted average number of shares outstanding - Basic | 2,716,512 | 1,069,157 | 2,138,444 | 1,025,108 | ||||||||||||
Weighted average number of shares outstanding - Diluted | 2,716,512 | 1,219,224 | 2,138,444 | 1,068,236 |
2022 | 2021 | 2022 | 2021 | |||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | ||||||||||||||||
Commission income | $ | 4,153,361 | $ | 2,581,636 | $ | 12,596,268 | $ | 7,096,213 | ||||||||
Total revenue | 4,153,361 | 2,581,636 | 12,596,268 | 7,096,213 | ||||||||||||
Operating expenses | ||||||||||||||||
Commission expense | 862,857 | 660,708 | 2,617,140 | 1,748,451 | ||||||||||||
Salaries and wages | 2,114,730 | 1,188,267 | 6,373,697 | 3,217,441 | ||||||||||||
General and administrative expenses | 1,253,097 | 755,130 | 5,465,384 | 2,961,881 | ||||||||||||
Marketing and advertising | 726,115 | 65,010 | 1,922,520 | 143,110 | ||||||||||||
Depreciation and amortization | 713,444 | 387,729 | 2,077,372 | 1,090,183 | ||||||||||||
Total operating expenses | 5,670,243 | 3,056,844 | 18,456,113 | 9,161,066 | ||||||||||||
Loss from operations | (1,516,882 | ) | (475,208 | ) | (5,859,845 | ) | (2,064,853 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Other expense, net | (280,340 | ) | (120,025 | ) | (580,900 | ) | (421,192 | ) | ||||||||
Recognition and change in fair value of warrant liabilities | 7,919,315 | - | 32,398,530 | - | ||||||||||||
Total other income (expense) | 7,638,975 | (120,025 | ) | 31,817,630 | (421,192 | ) | ||||||||||
Net income (loss) | $ | 6,122,093 | $ | (595,233 | ) | $ | 25,957,785 | $ | (2,486,045 | ) | ||||||
Basic earnings (loss) per share | $ | 5.29 | $ | (0.82 | ) | $ | 17.79 | $ | (3.80 | ) | ||||||
Diluted earnings (loss) per share | $ | 4.65 | $ | (0.82 | ) | $ | 15.60 | $ | (3.80 | ) | ||||||
Weighted average number of shares outstanding - Basic | 1,156,939 | 729,629 | 1,069,534 | 653,939 | ||||||||||||
Weighted average number of shares outstanding - Diluted | 1,304,878 | 729,629 | 1,219,822 | 653,939 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | |||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||
Balance | 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 | |||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||
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 condensed consolidated financial statementsstatements.
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 | 23,341 | $ | 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 | - | (3 | ) | - | - | - | - | ||||||||||||||||||||||||||
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 | |||||||||||||||||||
Balance | 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 | - | - | 49,914 | - | 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 | |||||||||||||||||||
Balance | 1,167 | $ | 100 | 729,629 | $ | 62,738 | - | $ | - | $ | 27,101,199 | - | $ | (14,250,492 | ) | $ | 12,913,545 | |||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 146,225 | - | 146,225 | |||||||||||||||||||||||||||
Rounding shares related to initial public offering | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Shares issued pursuant to acquisition of Kush | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (595,233 | ) | (595,233 | ) | ||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | (595,233 | ) | (595,233 | ) | ||||||||||||||||||||||||
Balance, September 30, 2021 | 1,167 | $ | 100 | 729,629 | $ | 62,738 | - | $ | - | $ | 27,247,424 | - | $ | (14,845,725 | ) | $ | 12,464,537 | |||||||||||||||||||
Balance | 1,167 | $ | 100 | 729,629 | $ | 62,738 | - | $ | - | $ | 27,247,424 | - | $ | (14,845,725 | ) | $ | 12,464,537 |
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, 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 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
5 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
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 | 755,807 | $ | 64,999 | 0 | $ | - | $ | 35,304,698 | $ | - | $ | (24,118,145 | ) | $ | 11,252,333 | ||||||||||||||||||||||
Balance | 9,076 | $ | 781 | 755,807 | $ | 64,999 | 0 | $ | - | $ | 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 | 974,269 | 83,787 | - | - | 35,466,329 | - | (13,622,454 | ) | 21,928,443 | |||||||||||||||||||||||||||||
Balance | 9,076 | 781 | 974,269 | 83,787 | - | - | 35,466,329 | - | (13,622,454 | ) | 21,928,443 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Reliance Global Group, Inc. and Subsidiaries and Predecessor
Condensed Consolidated Statements of Cash Flows
(Unaudited)
2022 | 2021 | |||||||
Nine months ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 25,957,785 | $ | (2,486,045 | ) | |||
Adjustment to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | 2,077,372 | 1,090,183 | ||||||
Amortization of debt issuance costs and accretion of debt discount | 28,702 | 37,822 | ||||||
Non-cash lease expense | 30,451 | 2,331 | ||||||
Stock compensation expense | 1,233,300 | 667,373 | ||||||
Earn-out fair value and write-off adjustments | 132,445 | - | ||||||
Recognition and change in fair value of warrant liabilities | (32,398,530 | ) | - | |||||
Change in operating assets and liabilities: | ||||||||
Accounts payables and other accrued liabilities | (1,541,037 | ) | (314,045 | ) | ||||
Accounts receivable | 92,297 | (87,058 | ) | |||||
Accounts receivable, related parties | 5,972 | (7,131 | ) | |||||
Other receivables | (37,674 | ) | 3,825 | |||||
Other payables | 34,841 | (112 | ) | |||||
Charge back reserve | (133,940 | ) | - | |||||
Other non-current assets | (6,492 | ) | (14,992 | ) | ||||
Prepaid expense and other current assets | 2,346,510 | (196,471 | ) | |||||
Net cash used in operating activities | (2,177,998 | ) | (1,304,320 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (67,906 | ) | (24,257 | ) | ||||
Business acquisitions, net of cash acquired | (24,138,750 | ) | (1,608,586 | ) | ||||
Purchase of intangibles | (775,953 | ) | (331,054 | ) | ||||
Net cash used in investing activities | (24,982,609 | ) | (1,963,897 | ) | ||||
Cash flows from financing activities: | ||||||||
Principal repayments of debt | (663,016 | ) | (663,907 | ) | ||||
Proceeds from loan for business acquisition | 6,520,000 | - | ||||||
Payment of debt issuance costs | (214,257 | ) | - | |||||
Payments on earn-out liabilities | (1,627,296 | ) | (452,236 | ) | ||||
Proceeds from loans payable, related parties | 1,500,000 | 2,931 | ||||||
Payments of loans payable, related parties | (174,206 | ) | (504,899 | ) | ||||
Proceeds from exercise of warrants into common stock | 2,477,131 | - | ||||||
Repayments on short-term financing | (107,206 | ) | ||||||
Net proceeds from private placement issuance of shares and warrants | 17,853,351 | - | ||||||
Issuance of common stock | - | 10,496,221 | ||||||
Net cash provided by financing activities | 25,564,501 | 8,878,110 | ||||||
Net (decrease) increase in cash and restricted cash | (1,596,106 | ) | 5,609,893 | |||||
Cash and restricted cash at beginning of period | 4,620,722 | 529,581 | ||||||
Cash and restricted cash at end of period | $ | 3,024,616 | $ | 6,139,474 | ||||
Supplemental disclosure of cash and non-cash investing and financing transactions: | ||||||||
Cash paid for interest | $ | 562,800 | $ | 350,175 | ||||
Issuance of series D warrants | $ | 6,930,335 | $ | - | ||||
Issuance of placement agent warrants | $ | 1,525,923 | $ | - | ||||
Prepaid insurance acquired through short-term financing | $ | 417,199 | $ | - | ||||
Conversion of preferred stock into common stock | $ | 190,069 | $ | 339,264 | ||||
Conversion of debt into equity | $ | - | $ | 3,800,000 | ||||
Cashless conversion of series D warrants into common stock | $ | 36,761 | $ | - | ||||
Common stock issued pursuant to acquisition | $ | 4,763,451 | $ | 50,000 | ||||
Common stock issued in lieu of services | $ | - | $ | 91,050 | ||||
Issuance of common stock pursuant to the purchase of software | $ | - | $ | 340,000 | ||||
Acquisition of business deferred purchase price | $ | 1,125,000 | $ | - | ||||
Lease assets acquired in exchange for lease liabilities | $ | 628,004 | $ | 861,443 |
2023 | 2022 | |||||||
Six months ended June 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) income | $ | (2,843,824 | ) | $ | 19,835,692 | |||
Adjustment to reconcile net (loss) income to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,309,227 | 1,263,440 | ||||||
Amortization of debt issuance costs and accretion of debt discount | 23,442 | 18,291 | ||||||
Non-cash lease expense | (4,355 | ) | 17,637 | |||||
Stock compensation expense | 79,164 | 919,043 | ||||||
Common stock issued in lieu of services performed | 377,995 | - | ||||||
Earn-out fair value and write-off adjustments | 1,019,925 | 354,963 | ||||||
Change in fair value of warrant liability | (2,673,723 | ) | (24,479,215 | ) | ||||
Change in operating assets and liabilities: | ||||||||
Accounts payables and other accrued liabilities | (40,135 | ) | (1,853,366 | ) | ||||
Accounts receivable | 15,444 | 142,825 | ||||||
Accounts receivable, related parties | (1,072 | ) | (47,283 | ) | ||||
Other receivables | 10,816 | 7,030 | ||||||
Other payables | 115,988 | 126,984 | ||||||
Other non-current assets | - | (6,493 | ) | |||||
Prepaid expense and other current assets | (303,322 | ) | 2,173,810 | |||||
Net cash used in operating activities | (2,914,430 | ) | (1,526,642 | ) | ||||
Net cash adjustments for discontinued operating activities | 907,329 | 215,231 | ||||||
Net cash used in discontinued and continuing operating activities | (2,007,101 | ) | (1,311,411 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from sale of investment in NSURE | 900,000 | |||||||
Purchase of property and equipment | (13,010 | ) | (11,959 | ) | ||||
Business acquisitions, net of cash acquired | - | (6,000,000 | ) | |||||
Purchase of intangibles | (151,862 | ) | (5,096,885 | ) | ||||
Net cash provided by (used in) investing activities | 735,128 | (11,108,844 | ) | |||||
Net cash adjustments for discontinued investing activities | - | (13,517,085 | ) | |||||
Net cash provided by (used in) discontinued and continuing investing activities | 735,128 | (24,625,929 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Principal repayments of debt | (450,935 | ) | (447,908 | ) | ||||
Debt issuance costs | - | (214,257 | ) | |||||
Proceeds from loan for business acquisition | - | 6,520,000 | ||||||
Issuance of common shares in exchange for Series C warrants | - | 1,336 | ||||||
Payments of loans payable, related parties | (649,870 | ) | (21,541 | ) | ||||
Earn-out liability | (344,225 | ) | (411,408 | ) | ||||
Exercise of warrants into common stock | - | 2,475,000 | ||||||
Principal repayments on short term financing | 58,707 | (40,552 | ) | |||||
Private placement of shares and warrants | 3,446,484 | 17,853,351 | ||||||
Net cash provided by continuing financing activities | 2,060,161 | 25,714,021 | ||||||
Net cash used in discontinued financing activities | (17,701 | ) | - | |||||
Total net cash provided by continuing and discontinued financing activities | 2,042,460 | 25,714,021 | ||||||
Net increase (decrease) in cash and restricted cash | 770,487 | (223,319 | ) | |||||
Cash and restricted cash at beginning of year | 1,909,769 | 4,620,722 | ||||||
Cash and restricted cash at end of year | $ | 2,680,256 | $ | 4,397,403 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH AND NON-CASH TRANSACTIONS: | ||||||||
Common stock issuance to settle earn-out liabilities | $ | 2,416,178 | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
7 |
Reliance Global Group, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE 1. ORGANIZATION AND SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Reliance Global Group, Inc. (formerly, formerly known as Ethos Media Network, Inc.) (“RELI”, “Reliance”, or the “Company”), was incorporated in Florida on August 2, 2013. In September 2018, Reliance Global Holdings, LLC (“Reliance Holdings”, or “Parent Company”), a related party acquired control of the Company. Ethos Media Network, Inc. was then renamed on October 18, 2018.
On May 1, 2021, the Company acquired J.P. Kush and Associates, Inc. (“Kush”), an independent healthcare insurance agency (See Note 3).
On January 10, 2022, the Company acquired Medigap Healthcare Insurance Company, LLC (“Medigap”), an independent healthcare agency (see Note 3)
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements included hereinCondensed Consolidated Financial Statements have been prepared by the Company in accordance with generally accepted accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed consolidated for interim financial statementsinformation and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the accountinginformation and footnotes required by U.S. GAAP for complete financial statements. In the opinion of Reliance Global Group, Inc., and its wholly owned subsidiaries. All intercompany transactions and balancesmanagement, all adjustments (consisting of recurring accruals) necessary for a fair presentation have been eliminated in consolidation. The accompanyingincluded. 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 Report on Form 10-K for the year ended December 31, 2021 included2022. Certain prior period amounts in the Company’s annual report on Form 10-K.
Restatement of Previously Issued Financial Statements
Subsequent to the Company’s filing of its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, with the Securities and Exchange Commission on November 14, 2022, the Company performed an evaluation of its accounting in connection with the calculation of its basic Earnings Per Share (“EPS”) and diluted EPS for the three and nine months ended September 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 nine months ended September 30, 2022. Accordingly, the Company restates itscondensed consolidated financial statements forand notes thereto have been reclassified to conform to the identified periods in this Form 10-Q/A as outlined further below and in Note 7 Earnings (Loss) Per Share.
current period’s presentation.
The following table sets forthaccompanying unaudited condensed consolidated financial statements include the effectsaccounts of the adjustments on affected items within the Company’s previously reported consolidated statements of operations for the three months ended September 30, 2022,Reliance Global Group, Inc. and includes an increase to basic earnings per shareits wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the amount of $ includes an increase to diluted earnings (loss) per share in the amount of $, a decrease to weighted average number of shares outstanding – basic of shares, and an increase to weighted average number of shares outstanding - diluted of shares.
As Reported | Adjustment | As Corrected | ||||||||||
Three Months Ended September 30, 2022 | ||||||||||||
As Reported | Adjustment | As Corrected | ||||||||||
Basic earnings (loss) per share | 5.25 | (0.04 | ) | 5.29 | ||||||||
Diluted earnings (loss) per share | (1.50 | ) | 6.19 | 4.65 | ||||||||
Weighted average number of shares outstanding – Basic | 1,161,618 | (4,679 | ) | 1,156,939 | ||||||||
Weighted average number of shares outstanding - Diluted | 1,161,618 | 143,260 | 1,304,878 |
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 nine months ended September 30, 2022, and includes an increase to basic earnings per share in the amount of $, an increase to diluted earnings (loss) per share in the amount of $, a decrease to weighted average number of shares outstanding – basic of shares, and an increase to weighted average number of shares outstanding - diluted of shares.
As Reported | Adjustment | As Corrected | ||||||||||
Nine Months Ended September 30, 2022 | ||||||||||||
As Reported | Adjustment | As Corrected | ||||||||||
Basic earnings (loss) per share | 16.50 | 1.29 | 17.79 | |||||||||
Diluted earnings (loss) per share | (11.70 | ) | 27.30 | 15.60 | ||||||||
Weighted average number of shares outstanding – Basic | 1,154,676 | (85,142 | ) | 1,069,534 | ||||||||
Weighted average number of shares outstanding - Diluted | 1,154,676 | 64,146 | 1,219,822 |
Additionally, please refer to Note 7. Earnings (Loss) Per Share, where the Company has corrected and replaced that Note in its entirety.consolidation.
Liquidity
As of SeptemberJune 30, 2022,2023, the Company’s reported cash and restricted cash aggregated balance was approximately $3,024,0002,680,000, current assets were approximately $4,488,0007,132,000, while current liabilities were approximately $7,971,0004,865,000. As of SeptemberJune 30, 2022,2023, the Company had apositive working capital deficit of approximately $3,483,0002,268,000 and stockholders’ equity of approximately $28,366,00013,027,000. For the ninesix months ended SeptemberJune 30, 2022,2023, the Company reported loss from operations of approximately $5,860,0002,843,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $32,399,0002,674,000, resulting in net loss from continuing operations of approximately $998,000, a net loss from discontinued operations of approximately $1,846,000, resulting in an overall net incomeloss of approximately $25,958,000. For the nine months ended September 30, 2022, the Company reported negative cash flows from operations of approximately $2,178,0002,844,000. 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.
Cash and Restricted Cash
Cash and restricted cash reported on our Condensed Consolidated Balance Sheets are reconciled to the total shown on our Condensed Consolidated Statements of Cash Flows as follows:
SCHEDULE OF RESTRICTED CASH IN STATEMENT OF CASH FLOW
September 30, 2022 | September 30, 2021 | June 30, 2023 | June 30, 2022 | |||||||||||||
Cash | $ | 1,615,054 | $ | 5,655,103 | $ | 1,274,743 | $ | 2,979,769 | ||||||||
Restricted cash | 1,409,562 | 484,371 | 1,405,513 | 1,417,634 | ||||||||||||
Total cash and restricted cash | $ | 3,024,616 | $ | 6,139,474 | $ | 2,680,256 | $ | 4,397,403 |
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 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:
SCHEDULE OF EARN OUT LIABILITY
September 30, 2022 | December 31, 2021 | |||||||
Stock price | $ | 0.78 | $ | 6.44 | ||||
Volatility | 105 | % | 90 | % | ||||
Time to expiry | 4.26 | 5 | ||||||
Dividend yield | 0 | % | 0 | % | ||||
Risk free rate | 4.10 | % | 1.10 | % |
June 30, 2023 | December 31, 2022 | |||||||
Stock price | $ | 4.71 | $ | 8.55 | ||||
Volatility | 105.0 | % | 105.0 | % | ||||
Time to expiry | 3.51 | 4.01 | ||||||
Dividend yield | 0 | % | 0 | % | ||||
Risk free rate | 4.4 | % | 4.1 | % |
The following reconciles fair value of the liability classified warrants:
SCHEDULE OF RECONCILES WARRANT COMMITMENT
1 | 2 | 3 | 4 | |||||||||||||
Three and Nine Months ended September 30, 2022 | ||||||||||||||||
Series B Warrant Commitment | Series B warrant liabilities | Placement agent warrants | Total | |||||||||||||
Beginning balance | $ | 37,652,808 | $ | - | $ | - | $ | 37,652,808 | ||||||||
Initial recognition | - | 55,061,119 | 1,525,923 | 56,587,042 | ||||||||||||
Unrealized (gain) loss | 17,408,311 | (31,980,437 | ) | (946,461 | ) | (15,518,587 | ) | |||||||||
Warrants exercised or transferred | (55,061,119 | ) | (55,061,119 | ) | ||||||||||||
Ending balance, March 31, 2022 | $ | - | $ | 23,080,682 | $ | 579,462 | $ | 23,660,144 | ||||||||
Unrealized (gain) loss | - | (12,322,737 | ) | (310,514 | ) | (12,633,251 | ) | |||||||||
Ending balance, June 30, 2022 | $ | - | $ | 10,757,945 | $ | 268,948 | $ | 11,026,893 | ||||||||
Beginning balance | $ | - | $ | 10,757,945 | $ | 268,948 | $ | 11,026,893 | ||||||||
Unrealized (gain) loss | - | (7,726,161 | ) | (193,154 | ) | (7,919,315 | ) | |||||||||
Ending balance, September 30, 2022 | - | 3,031,784 | 75,794 | 3,107,578 | ||||||||||||
Ending balance | - | 3,031,784 | 75,794 | 3,107,578 |
1 | 2 | Series B Warrant Commitment | Series B Warrant Liabilities | Placement Agent Warrants | Total | |||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||
Series B Warrant Commitment | Total | |||||||||||||||||||||||
Beginning balance | $ | - | $ | - | ||||||||||||||||||||
Initial recognition | 20,244,497 | 20,244,497 | ||||||||||||||||||||||
Beginning balance, December 31, 2022 | $ | - | $ | 6,384,250 | $ | 48,900 | $ | 6,433,150 | ||||||||||||||||
Unrealized (gain) loss | 17,408,311 | 17,408,311 | - | (4,226,950 | ) | (39,281 | ) | (4,266,231 | ) | |||||||||||||||
Ending balance, March 31, 2023 | - | 2,157,300 | 9,619 | 2,166,919 | ||||||||||||||||||||
Beginning balance, | - | 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 | ||||||||||||||||
Ending balance | $ | 37,652,808 | $ | 37,652,808 | $ | - | $ | 3,741,984 | $ | 17,444 | $ | 3,759,428 |
Earn-out liabilities: The Company generally values its Level 3 earn-out liabilities using the income valuation approach. Key valuation inputs include contingent payment arrangement terms, projected revenues and cash flows, rate of return, and probability assessments. The following table summarizes the significant unobservable inputs used in the fair value measurements:
SCHEDULE OF FAIR VALUE MEASUREMENTS
December 31, | ||||
Valuation technique | Discounted cash flow | Discounted cash flow | ||
Significant unobservable input | Projected revenue and probability of achievement | Projected revenue and probability of achievement |
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
| |||||||
WACC Risk Premium: | 14.0 | % | |||||
Volatility | % | ||||||
Credit Spread: | 9.6 | % | |||||
Payment Delay (days) | 90 | ||||||
Risk free rate | USD Yield Curve | ||||||
Discounting Convention: | Mid-period | ||||||
Number of Iterations | 100,000 |
9 |
Undiscounted remaining earn out payments arewere approximately $3,291,8831,147,000 as of SeptemberJune 30, 2022.2023. The following table reconciles fair value of earn-out liabilities for the period ending Septemberperiods ended June 30, 2023, and December 31, 2022:
SCHEDULE OF GAIN OR LOSSES RECOGNIZED FAIR VALUE
September 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
Beginning balance – January 1 | $ | 3,813,878 | $ | 2,931,418 | $ | 2,709,478 | $ | 3,813,878 | ||||||||
Acquisitions and Settlements | (1,027,296 | ) | 1,160,562 | |||||||||||||
Acquisitions and settlements | (2,760,403 | ) | (1,104,925 | ) | ||||||||||||
Period adjustments: | ||||||||||||||||
Fair value changes included in earnings* | 132,445 | (278,102 | ) | 1,019,925 | 525 | |||||||||||
Ending balance | $ | 2,919,027 | $ | 3,813,878 | 969,000 | 2,709,478 | ||||||||||
Less: Current portion | (2,283,380 | ) | (3,297,855 | ) | (969,000 | ) | (2,153,478 | ) | ||||||||
Ending balance, less current portion | 635,647 | 516,023 | $ | - | $ | 556,000 |
* | Recorded as a reduction to general and administrative expenses |
Investment in Nsure
On February 19, 2020, the Company entered into a securities purchase agreement with NSURE, Inc. (“NSURE”), which was further amended on October 8, 2020, and as amended provides that the Company may invest up to an aggregate of $5,700,000 in NSURE to be funded in three tranches. In exchange, the Company will receive a total of shares of NSURE’s Class A Common Stock.
During the course of calendar year 2020 and by October 8, 2020, the Company funded the first tranche, $ in exchange for shares. The second tranche allowed the Company to acquire an additional shares at a price of $ per share by no later than December 30, 2020. The third full tranche allowed the Company to purchase an additional shares at a purchase price of $ after December 20, 2020, but no later than March 31, 2021.
The Company did not fund tranches two and three in the required timeframes, thus, the Company relinquished its rights under the contract to any additional NSURE shares aside for the ones already acquired with tranche one.
The Company measures the NSURE shares subsequent to acquisition in accordance with ASC 321-10-35-2, at cost less impairment since no readily determinable fair value is available to the Company. The investment is reviewed for impairment at each reporting period by qualitatively assessing any indicators demonstrating fair value of the investment is less than carrying value. The Company did not observe any price changes resulting from orderly transactions for identical or similar assets for the periods ended September 30, 2022 or September 30, 2021. ASC 321-10-50-4 further requires an entity to disclose unrealized gains and losses for periods that relate to equity securities held at a reporting date. To-date, the Company has not recognized any unrealized gains or losses on the NSURE security.
In accordance with ACS 321-10-35-3, the Company performed a qualitative assessment to determine if the investment may be impaired. After considering the indicators contained in ASC 321-10-35-3a –3e, the Company determined that the investment was not impaired.
Revenue Recognition
The following table disaggregates the Company’s revenue by line of business, showing commissions earned:
SCHEDULE OF DISAGGREGATION REVENUE
Three Months ended September 30, 2022 | Medical/Life | Property and Casualty | Total | |||||||||||||||||||||||||
Three Months ended June 30, 2023 | Medical | Life | Property and Casualty | Total | ||||||||||||||||||||||||
Regular | ||||||||||||||||||||||||||||
EBS | $ | 212,384 | $ | - | $ | 212,384 | $ | 206,668 | $ | 4,471 | $ | - | $ | 211,139 | ||||||||||||||
USBA | 13,732 | - | 13,732 | 11,426 | 658 | - | 12,084 | |||||||||||||||||||||
CCS/UIS | - | 76,035 | 76,035 | - | - | 73,402 | 73,402 | |||||||||||||||||||||
Montana | 426,591 | - | 426,591 | 444,783 | 3,350 | - | 448,133 | |||||||||||||||||||||
Fortman | 259,255 | 186,860 | 446,115 | 288,902 | 1,680 | 227,176 | 517,758 | |||||||||||||||||||||
Altruis | 896,012 | - | 896,012 | 1,200,537 | - | - | 1,200,537 | |||||||||||||||||||||
Kush | 366,219 | - | 366,219 | 322,188 | - | - | 322,188 | |||||||||||||||||||||
Medigap | 1,331,593 | - | 1,331,593 | |||||||||||||||||||||||||
Barra | 83,615 | 301,065 | 384,680 | 52,209 | 61,821 | 296,634 | 410,664 | |||||||||||||||||||||
$ | 3,589,401 | $ | 563,960 | $ | 4,153,361 | |||||||||||||||||||||||
Total | $ | 2,526,713 | $ | 71,980 | $ | 597,212 | $ | 3,195,905 |
Six Months ended June 30, 2023 | Medical | Life | Property and Casualty | Total | ||||||||||||
Regular | ||||||||||||||||
EBS | $ | 439,949 | $ | 8,571 | $ | - | $ | 448,520 | ||||||||
USBA | 22,689 | 1,423 | - | 24,112 | ||||||||||||
CCS/UIS | - | - | 120,172 | 120,172 | ||||||||||||
Montana | 930,792 | 8,335 | - | 939,127 | ||||||||||||
Fortman | 596,557 | 2,073 | 433,544 | 1,032,174 | ||||||||||||
Altruis | 3,068,673 | - | - | 3,068,673 | ||||||||||||
Kush | 642,479 | - | - | 642,479 | ||||||||||||
Barra | 121,319 | 85,202 | 653,230 | 859,751 | ||||||||||||
Total | $ | 5,822,458 | $ | 105,604 | $ | 1,206,946 | $ | 7,135,008 |
Nine Months ended September 30, 2022 | Medical/Life | Property and Casualty | Total | |||||||||||||||||||||||||
Three Months ended June 30, 2022 | Medical | Life | Property and Casualty | Total | ||||||||||||||||||||||||
Regular | ||||||||||||||||||||||||||||
EBS | $ | 645,217 | $ | - | $ | 645,217 | $ | 178,936 | $ | 5,915 | $ | - | $ | 184,851 | ||||||||||||||
USBA | 39,638 | - | 39,638 | 12,319 | - | - | 12,319 | |||||||||||||||||||||
CCS/UIS | - | 177,111 | 177,111 | - | - | 57,195 | 57,195 | |||||||||||||||||||||
Montana | 1,385,017 | - | 1,385,017 | 450,742 | 963 | - | 451,705 | |||||||||||||||||||||
Fortman | 949,189 | 589,924 | 1,539,113 | 357,334 | - | 205,804 | 563,138 | |||||||||||||||||||||
Altruis | 3,056,257 | - | 3,056,257 | 881,337 | 834 | - | 882,171 | |||||||||||||||||||||
Kush | 1,230,259 | - | 1,230,259 | 425,449 | - | - | 425,449 | |||||||||||||||||||||
Medigap | 3,868,654 | - | 3,868,654 | |||||||||||||||||||||||||
Barra | 153,539 | 501,463 | 655,002 | |||||||||||||||||||||||||
$ | 11,327,770 | $ | 1,268,498 | $ | 12,596,268 | |||||||||||||||||||||||
Reli Exchange | 47,661 | 22,263 | 200,397 | 270,321 | ||||||||||||||||||||||||
Total | $ | 2,353,778 | $ | 29,975 | $ | 463,396 | $ | 2,847,149 |
Three Months ended September 30, 2021 | Medical/Life | Property and Casualty | Total | |||||||||
Regular | ||||||||||||
EBS | 226,233 | - | 226,233 | |||||||||
USBA | 18,241 | - | 18,241 | |||||||||
CCS/UIS | - | 120,762 | 120,762 | |||||||||
Montana | 343,546 | - | 343,546 | |||||||||
Fortman | 357,638 | 194,218 | 551,856 | |||||||||
Altruis | 807,775 | - | 807,775 | |||||||||
Kush | 513,223 | - | 513,223 | |||||||||
$ | 2,266,656 | $ | 314,980 | $ | 2,581,636 |
Nine Months ended September 30, 2021 | Medical/Life | Property and Casualty | Total | |||||||||||||||||||||||||
Six Months ended June 30, 2022 | Medical | Life | Property and Casualty | Total | ||||||||||||||||||||||||
Regular | ||||||||||||||||||||||||||||
EBS | $ | 642,428 | $ | - | $ | 642,428 | $ | 399,547 | $ | 6,488 | $ | - | $ | 406,035 | ||||||||||||||
USBA | 45,861 | - | 45,861 | 25,906 | - | - | 25,906 | |||||||||||||||||||||
CCS/UIS | - | 274,928 | 274,928 | - | - | 101,077 | 101,077 | |||||||||||||||||||||
Montana | 1,283,402 | - | 1,283,402 | 956,329 | 2,097 | - | 958,426 | |||||||||||||||||||||
Fortman | 884,073 | 628,327 | 1,512,400 | 687,060 | 2,873 | 403,064 | 1,092,997 | |||||||||||||||||||||
Altruis | 2,558,653 | - | 2,558,653 | 2,184,367 | 2,676 | - | 2,187,043 | |||||||||||||||||||||
Kush | 778,541 | - | 778,541 | 864,040 | - | - | 864,040 | |||||||||||||||||||||
$ | 6,192,958 | $ | 903,255 | $ | 7,096,213 | |||||||||||||||||||||||
Reli Exchange | 47,662 | 22,263 | 200,397 | 270,322 | ||||||||||||||||||||||||
Total | $ | 5,164,911 | $ | 36,397 | $ | 704,538 | $ | 5,905,846 |
The following are customers representing 10% or more of total revenue:
SCHEDULE OF CONCENTRATIONS OF REVENUES
Insurance Carrier | 2022 | 2021 | ||||||||||||||
For the three months ended September 30, | For the three months ended June 30, | |||||||||||||||
Insurance Carrier | 2022 | 2021 | 2023 | 2022 | ||||||||||||
LTC Global | 27 % | -% | ||||||||||||||
Priority Health | 21 % | 27% | 28 | % | 30 | % | ||||||||||
BlueCross BlueShield | 10 % | 24% | 12 | % | 13 | % | ||||||||||
Insurance Carrier | 12 | % | 13 | % |
Insurance Carrier | 2022 | 2021 | ||||||||||||||
For the Nine months ended September 30, | For the six months ended June 30, | |||||||||||||||
Insurance Carrier | 2022 | 2021 | 2023 | 2022 | ||||||||||||
LTC Global | 27 | % | - | % | ||||||||||||
Priority Health | 24 | % | 30 | % | 37 | % | 36 | % | ||||||||
BlueCross BlueShield | 10 | % | 25 | % | 13 | % | 14 | % | ||||||||
Insurance Carrier | 37 | % | 36 | % |
No other single Customercustomer accounted for more than 10% of the Company’s commission revenues.revenues during the three and six months ended June 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.
11 |
Income Taxes
The Company recorded no income tax expense for the three and ninesix months ended September June 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.
As of September June 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 in the intangible assets and short term financing agreements accounts in relationthe condensed consolidated balance sheets for the periods ended June 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 of approximately $10,000, and loss of approximately $4,400,000, presented in income (loss) from discontinued operations in the consolidated statements of operations for the three and six months ended June 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 into 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.
The Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. (SAB) 99, MaterialitySettlement Agreement, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and ASC 250, Accounting Changes and Error Corrections.
Accordingly,On June 30, 2023, the Company’s comparative condensed consolidated financial statementsCompany entered into a confidential settlement agreement and impacted notes have been revisedmutual 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 amounts previously reported to reflect these adjustments.all past and future Medigap obligations and liabilities. The following table illustratessettlement payment was received in full by the impact on previously reported amountsCompany in July 2023 and adjusted balances presentedis recorded as income from discontinued operations in the condensed consolidated financial statements of operations for the periodthree and six months ended SeptemberJune 30, 2022.2023.
The following tables present the major components of assets and liabilities included in discontinued operations on the condensed consolidated balance sheets.
SCHEDULE OF DISCONTINUED OPERATIONS ON CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS
June 30, 2023 | December 31, 2022 | |||||||
Accounts receivable | - | $ | 73,223 | |||||
Accounts receivable, related parties | - | 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 rolls forward Medigap’s assets and liabilities from their carrying values pre-abandonment to their values post abandonment, and presents the impact of reclassifications, impairments, and write-offs:
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 | ) |
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 June 30, 2023 | ||||||||||||
Accounts receivable | $ | 56,398 | $ | - | $ | (56,398 | ) | $ | - | |||||||
Accounts receivable, related party | 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 | ) | $ | - |
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 | ) |
1 | Includes 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. | |
2 | Estimated liability write-off per net zero dollar estimated liability value. | |
3 | Liability 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 statements of operations.
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | ||||||||||||||||
Income | ||||||||||||||||||||
Commission income | $ | 11,025 | $ | 1,359,976 | $ | 744,030 | $ | 2,537,061 | ||||||||||||
Expenses | ||||||||||||||||||||
Commission expense | 5,491 | 187,196 | 110,639 | 305,740 | ||||||||||||||||
Salaries and wages | 53,508 | 539,380 | 454,823 | 989,743 | ||||||||||||||||
General and administrative expenses | 10,612 | 129,048 | 129,348 | 248,323 | ||||||||||||||||
Marketing and advertising | 36,544 | 614,226 | 426,819 | 1,111,719 | ||||||||||||||||
Depreciation and amortization | - | 61,964 | 7,283 | 100,488 | ||||||||||||||||
Other expenses (income) | 267 | (7,500 | ) | (3,902 | ) | (7,456 | ) | |||||||||||||
Total discontinued operations expenses before impairments and write-offs | 106,422 | 1,524,314 | 1,125,010 | 2,748,557 | ||||||||||||||||
Total discontinued operations income / (loss) before impairments and write-offs | $ | (95,397 | ) | $ | (164,338 | ) | $ | (380,980 | ) | $ | (211,496 | ) | ||||||||
Gains and (losses) from recoveries and impairments / write-offs of discontinued operations assets and liabilities | ||||||||||||||||||||
Settlement Recovery | $ | 2,900,000 | - | $ | 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 | - | - | (119,594 | ) | - | |||||||||||||||
Intangibles, net | - | - | (312,322 | ) | - | |||||||||||||||
Goodwill | - | - | (4,825,634 | ) | - | |||||||||||||||
Total Asset Impairments | - | - | (5,345,309 | ) | - | |||||||||||||||
Liability write-off gains | ||||||||||||||||||||
Accounts payable and other accrued liabilities | - | - | 4,157 | - | ||||||||||||||||
Other payables | 9,842 | - | 9,842 | - | ||||||||||||||||
Chargeback reserve | - | - | 831,725 | - | ||||||||||||||||
Current portion of leases payable | - | - | 134,517 | - | ||||||||||||||||
Total liability write-off gains | 9,842 | - | 980,241 | - | ||||||||||||||||
Discontinued operations net asset and liability impairments / write-offs gains and (losses) | 9,842 | - | (4,365,068 | ) | - | |||||||||||||||
Net gains and (losses) from recoveries and impairments / write-offs from discontinued operations assets and liabilities | 2,909,842 | - | (1,465,068 | ) | - | |||||||||||||||
Gain (loss) from discontinued operations before tax | 2,814,445 | (164,338 | ) | (1,846,048 | ) | (211,496 | ) | |||||||||||||
Consolidated statement of operations - Income (loss) from discontinued operations before tax | $ | 2,814,445 | $ | (164,338 | ) | $ | (1,846,048 | ) | $ | (211,496 | ) |
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 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%.
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 September 30, 2022 was $3,868,654 and a loss of $, respectively.
Pro Forma Information
The results of operations of Medigap will be included in the Company’s consolidated financial statements as of the date of acquisition through the current period end. The following supplemental pro-forma financial information approximate combined financial information assumes that the acquisition had occurred at the beginning of the nine months ended September 30, 2022 and 2021:
SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Revenue | $ | 12,962,843 | $ | 10,931,340 | ||||
Net Income (Loss) | $ | 25,971,268 | $ | (2,344,977 | ) | |||
Earnings (Loss) per common share, basic | $ | 16.50 | $ | (3.60 | ) | |||
Earnings (Loss) per common share, diluted | $ | (11.70 | ) | $ | (3.60 | ) |
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.
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 September 30, 2022 for the acquisition of Barra were $72,793 recorded as a component of General and administrative expenses.
The approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from April 26, 2022 to September 30, 2022 was $655,002 and a loss of $, respectively.
Pro Forma Information
The results of operations of Barra will be 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 nine months ended September 30, 2022 and 2021:
SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Revenue | $ | 13,143,889 | $ | 8,370,850 | ||||
Net Income (Loss) | $ | 26,192,218 | $ | (1,940,384 | ) | |||
Earnings (Loss) per common share, basic | $ | 16.65 | $ | (3.00 | ) | |||
Earnings (Loss) per common share, diluted | $ | (11.40 | ) | $ | (3.00 | ) |
NOTE 3.2. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table rolls forward the Company’s goodwill balance for the periods ending Septemberended June 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 | |||
September 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 | |||
June 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 June 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 six months ended June 30, 2023 | (4,825,634 | ) | ||
June 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 SeptemberJune 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 | 4.6 | $ | 2,141,858 | $ | (897,390 | ) | $ | 1,244,468 | ||||||||
Internally developed software | 4.3 | 1,530,537 | (210,443 | ) | 1,320,094 | |||||||||||
Customer relationships | 9.3 | 11,922,290 | (1,793,319 | ) | 10,128,971 | |||||||||||
Purchased software | 0.4 | 665,137 | (568,039 | ) | 97,098 | |||||||||||
Video Production Assets | 0.3 | 50,000 | (36,621 | ) | 13,379 | |||||||||||
Non-competition agreements | 2.1 | 3,504,810 | (2,003,505 | ) | 1,501,305 | |||||||||||
Contracts Backlog | 0.3 | 210,000 | (155,342 | ) | 54,658 | |||||||||||
$ | 20,024,632 | $ | (5,664,659 | ) | $ | 14,359,973 |
Weighted Average Remaining Amortization period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||
Trade name and trademarks | 2.0 | $ | 1,807,187 | $ | (1,144,749 | ) | $ | 662,438 | ||||||||
Internally developed software | 3.7 | 1,783,837 | (464,372 | ) | 1,319,465 | |||||||||||
Customer relationships | 8.5 | 11,922,290 | (2,635,325 | ) | 9,286,965 | |||||||||||
Purchased software | 0.3 | 667,206 | (600,937 | ) | 66,269 | |||||||||||
Video production assets | - | 50,000 | (50,000 | ) | - | |||||||||||
Non-competition agreements | 1.4 | 3,504,810 | (2,531,250 | ) | 973,560 | |||||||||||
$ | 19,735,330 | $ | (7,426,633 | ) | $ | 12,308,697 |
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 |
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 SeptemberJune 30, 2022,2023, for each of the following five years and thereafter:
SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS
1 | ||||||||
Years ending December 31, | Amortization Expense | Amortization Expense | ||||||
2022 (remainder of year) | $ | 707,166 | ||||||
2023 | 2,536,548 | |||||||
2023 (remainder of year) | $ | 1,279,911 | ||||||
2024 | 2,158,445 | 2,190,466 | ||||||
2025 | 1,764,541 | 1,796,510 | ||||||
2026 | 1,504,660 | 1,527,816 | ||||||
2027 | 1,194,592 | |||||||
Thereafter | 5,688,613 | 4,319,402 | ||||||
Total | $ | 14,359,973 | $ | 12,308,697 |
15 |
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
September 30, 2022 | December 31, 2021 | |||||||
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $12,942 and $14,606 as of September 30, 2022 and December 31, 2021, respectively | $ | 442,368 | $ | 485,317 | ||||
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of $15,713 and $17,626 as of September 30, 2022 and December 31, 2021, respectively | 715,816 | 785,826 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $9,613 and $11,027 as of September 30, 2022 and December 31, 2021, respectively | 811,699 | 884,720 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $38,298 and $42,660 as of September 30, 2022 and December 31, 2021, respectively | 2,045,048 | 2,226,628 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $43,749 and $48,609 as of September 30, 2022 and December 31, 2021, respectively | 3,337,241 | 3,616,754 | ||||||
Oak Street Funding LLC Term Loan for the acquisition of Barra, net of deferred financing costs of $204,958 and $0 as of September 30, 2022 and December 31, 2021, respectively | 6,315,042 | - | ||||||
13,667,214 | 7,999,245 | |||||||
Less: current portion | (1,026,541 | ) | (913,920 | ) | ||||
Long-term debt | $ | 12,640,673 | $ | 7,085,325 |
June 30, 2023 | December 31, 2022 | |||||||
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 $11,279 and $12,388 as of June 30, 2023 and December 31, 2022, respectively | $ | 398,734 | $ | 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 $11,279 and $12,388 as of June 30, 2023 and December 31, 2022, respectively | $ | 398,734 | $ | 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 $13,800 and $15,076 as of June 30, 2023 and December 31, 2022, respectively | 649,875 | 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 $8,469 and $9,206 as of June 30, 2023 and December 31, 2022, respectively | 742,833 | 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 $33,935 and $36,843 as of June 30, 2023 and December 31, 2022, respectively | 1,874,813 | 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 $38,889 and $42,129 as of June 30, 2023 and December 31, 2022, respectively | 3,076,800 | 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 $187,475 and $198,188 as of June 30, 2023 and December 31, 2022, respectively | 6,297,846 | 6,321,812 | ||||||
13,040,901 | 13,468,394 | |||||||
Less: current portion | (1,329,121 | ) | (1,118,721 | ) | ||||
Long-term debt | $ | 11,711,780 | $ | 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) | $ | 211,904 | ||||||
2023 | 1,168,585 | |||||||
2023 (remainder of year) | $ | 647,062 | ||||||
2024 | 1,482,266 | 1,401,013 | ||||||
2025 | 1,616,891 | 1,560,173 | ||||||
2026 | 1,760,367 | 1,733,052 | ||||||
2027 | 1,925,105 | |||||||
Thereafter | 7,752,474 | 6,068,494 | ||||||
Total | 13,992,487 | 13,334,899 | ||||||
Less: debt issuance costs | (325,273 | ) | (293,998 | ) | ||||
Total | $ | 13,667,214 | $ | 13,040,901 |
Short-Term Financings
The Company has various short-term notes payable for financed items such as insurance premiums and CRM software purchases. These are normally paid in equal installments over a period of twelve months or less and carry interest rates ranging between 0% and 8% per annum. As of June 30, 2023 and 2022, respectively, approximately $195,000 and $377,000 remained outstanding on short-term financings.
Short-Term Financings
The Company financed certain annual insurance premiums through the use of two short-term notes, payable in nine and ten equal monthly installments of $42,894 and $4,456 at interest rates of 7.51% and 7.95%, per annum respectively. Policies financed include directors and officers and errors and omissions insurance coverage with premium financing recognized in 2022 and 2021 of $417,199 and $0, respectively. Outstanding balances as of September 30, 2022 and December 31, 2021, respectively were $309,993 and $0.
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 up to an aggregate of 651,997 sharesterms of the Company’s common stock, par value $ per share at anSPA, during the quarter ended June 30, 2023, the Series B Warrants’ effective exercise price reset to $2.63. As of $June 30, 2023, there remain 61.351,331,667 per share, (ii) an aggregate of shares of Common Stock, and (iii) shares of the Company’s newly-designated Series B convertible preferred stock, par value $ per share, with a stated value of $ per share, initially convertible into an aggregate of shares of Common Stock at a conversion price of $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 $.outstanding.
By entering intoFor the Private Placement on December 22, 2021,three and six months ended June 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 a loss of $1,584,684 and a gain of $2,642,267, respectively. For the Initial Closing Datethree and six months ended June 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 and will subsequently remeasure the derivative liability, at fair value with changes in fair value recognized in earnings. An option pricing model was utilized to calculate the fair value of the Warrant Commitment. The Company initially recorded $17,652,808 of non-operating unrealized losses within the recognition and change in fair value of warrant liabilities account for the year ended December 31, 2021. The Private Placement closed on January 4, 2022, at which time the Company remeasured the derivative liability for the warrants issued in the transaction. The Company recognized $7,726,16112,322,737 and $34,621,02424,748,163 of non-operating unrealized gains within the recognition and change in fair value of warrant liabilities account on the condensed consolidated statement of operations for the three and nine months ended September 30, 2022,, respectively, related to the subsequent changes in its fair value through September 30, 2022. A corresponding derivative liability of $3,031,784 is included on Company’s condensed consolidated balance sheet as of September 30, 2022. The closing of the Private Placement settled the subscription receivable reported on the Company’s balance sheet as of December 31, 2021.
Placement Agent Warrants
In connection with the Private Placement, the Company issued 16,303 warrants to the placement agent 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 gains of $193,154 and $1,450,129, were includedpresented in the recognition and change in fair value of warrant liabilities account in the consolidated statements of operations. The Series B Warrant liability outstanding as of June 30, 2023 and December 31, 2022 was $3,741,984 and $6,384,250 respectively, presented in the warrant liability account on the condensed consolidated statement of operations forbalance sheets.
Placement Agent Warrants
For the three and ninesix months ended SeptemberJune 30, 2023, net fair value gains and losses recognized for the Placement Agent Warrants (“PAW”) were, a loss of $7,825 and a gain of $31,456, respectively. For the three and six months ended June 30, 2022, respectively, A corresponding derivative liabilitynet fair value gains recognized for the PAW were $310,514 and losses of $75,794268,948, respectively, presented in the recognition and change in fair value of warrant liabilities account in the consolidated statements of operations. The PAW liability outstanding as of June 30, 2023 and December 31, 2022 was $17,444 is includedand $48,900, respectively, presented in the warrant liability account on Company’s condensedthe consolidated balance sheet as of September 30, 2022.
sheets.
NOTE 6.5. EQUITY
Preferred Stock
The Company has been authorized to issue shares of $ par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.
In January 2022, the Company issued shares of its newly designated Series B convertible preferred stock through the Private Placement for the purpose of raising capital. The Series B convertible preferred stock have no voting rights and initially each share may be converted into 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.
During August 2022, all Series B Convertible Preferred Stock were converted by third parties into
Common Stock
The Company has beenis authorized to issue shares of common stock, $ par value. Each share of issued and outstanding common stock entitles 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 shares of common stock pursuant to the Medigap Acquisition.
In January 2022, upon agreement with Series A warrant holders, warrants were exercised at a price of $99.00 into of the Company’s common stock.
In March 2022, the Company issued shares of the Company’s common stock due to the vesting of 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 outstanding debt into shares of the Company’s common stock.
In July 2022, 81,423 Series D prepaid warrants were exchanged for 81,42366,743 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 shares.
In March 2023, the Company issued 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 shares of the Company’s common stock in lieu of services provided.
In May 2023, the Company issued shares of the Company’s common stock to settle an earn-out liability.
In May 2023, the Company issued shares of the Company’s common stock pursuant to vested restricted stock awards earned by agents through an equity-based compensation program at one of the Company’s subsidiaries.
As of SeptemberJune 30, 20222023 and December 31, 2021,2022, there were and shares of Common Stock outstanding, respectively.
Warrants
Series A Warrants
In conjunction with the Company’s initial public offering, the Company issued 138,000Series A Warrants which were classified as equity warrants because of provisions, pursuant to the warrant agreement, that permit the holder obtain a fixed number of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge. The warrants were recorded at a value per the offering of $0.010.15. The warrants may be exercised at any point from the effective date until the 5-year anniversary of issuance and are not subject to standard antidilution provisions. The Series A Warrants are exercisable at a per share exercise price equal toAfter taking into account warrant exercises, there were 110% 113,000of the public offering price of one share of common stock and accompanying Series A Warrant, $99.00. Series A warrant holders exercised Series A warrants in January 2022, resulting in of Series A warrants remaining issued and outstanding as of SeptemberJune 30, 2023 and December 31, 2022.
Series CE and DF Warrants
In January 2022, as a result of the Private Placement and the Medigap Acquisition, the Company received a deficiency notification from Nasdaq indicating violation of Listing Rule 5365(a). As part of its remediation plan, inOn March 2022,13, 2023, the Company entered into Exchange Agreementsa securities purchase agreement (the “SPA-2023”) with one institutional buyer for the holderspurchase and sale of, common stock issued in January 2022. Pursuant to the Exchange Agreements, the Company issued(i) an aggregate of Series C prepaid warrants in exchange for 218,462155,038 shares (the “Common Shares”) of the Company’s common stock.stock, par value $ 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 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, as compensation for entering into the Exchange Agreements, the Company issued 81,500 Series D prepaid warrantsagreed to issue a warrant to the Private Placement investorsAgent (defined below), to initially acquire shares of common stock (the “PA Warrant”) and entered into a registration rights agreement with the buyer to register for no additional consideration. The fair value ofresale the common shares underlying the Series D prepaid warrants was treated as a deemed dividendE and accordingly 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.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.
The closing of the Private Placement-2023 occurred on March 16, 2023. EF Hutton, a division of Benchmark Investments, LLC (the “Placement Agent”) acted as the sole placement agent and was entitled to an 8% of gross proceeds cash fee and the reimbursement of certain Placement Agent fees and customary expenses.
Gross and net proceeds to the Company from the Private Placement-2023 were 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 CE Warrants, Series F Warrants, and DPA Warrants are equity classifiedin nature because of provisions, pursuant to the warrant agreement provisionsagreements, that permit holdersthe holder to obtain a fixed number of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable withoutvalues offset to $0 in additional paid-in capital in the Company’s consent or knowledge. The warrants expire on the fifth anniversarycondensed consolidated statements of the respective issuance dates and are exercisable at a per share exercise price equal to $0.001stockholders’ equity (deficit).
In May and June 2022, the Series C prepaid warrants were converted for shares of the Company’s common stock for a conversion price of $0.001. Through September 30, 2022, the Company has received payments of $1,336 for these issuances.
In July 2022, the Series D prepaid warrants were converted into shares of the Company’s common stock for a conversion price of $0.001 through both cash and cashless exercises. Proceeds of $795 were received in conjunction with the cash exercise.
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Equity-based Compensation
Between February and May 2022, three existing employees wereDuring the six month period ended June 30, 2023, an executive was awarded bonusesan annual stock award in conjunction with a promotion agreement, consisting of shares of the Company’s common stock per annum, to be vested immediately. The shares granted in 2022 werevest monthly throughout the term of employment. For the three and six months ended June 30, 2023, total stock compensation for this award was valued at approximately $ and treated$ , respectively, recorded as compensation expense. As of September 30, 2022, these shares have not been issued.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 ninesix months ended SeptemberJune 30, 2022, compensation expense on this grant2023 was $ and $ , respectively. As of September 30, 2022, no shares were issued under this contract.
Pursuant to an equity-based compensation program at one of the Company’s subsidiaries which provides agents the ability to earn and receive restricted stock awards upon completion of agreed upon service requirements, the Company granted restricted stock awards which were immediately vested. Stocks earned are restricted for twelve months. The stocks were valued at $and recognized as stock-based compensation for the three and nine months ended September 30, 2022.
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.
SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS
Three Months | Three Months | |||||||
Ended | Ended | |||||||
June 30, 2023 | June 30, 2022 | |||||||
(Loss) income from continuing operations, numerator, basic and diluted computation | $ | (3,869,732 | ) | $ | 10,660,028 | |||
Weighted average common shares, basic | 2,716,512 | 1,069,157 | ||||||
Effect of series B warrants | - | - | ||||||
Effect of stock awards | - | 2,128 | ||||||
Effect of preferred stock | - | 147,939 | ||||||
Weighted average common shares, dilutive | 2,716,512 | 1,219,224 | ||||||
(Loss) earnings per common share – basic | $ | (1.42 | ) | $ | 9.97 | |||
(Loss) earnings per common share – diluted | $ | (1.42 | ) | 8.74 |
Six Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, 2023 | June 30, 2022 | |||||||
(Loss) income from continuing operations | $ | (997,776 | ) | $ | 20,047,189 | |||
Deemed dividend | - | (6,930,335 | ) | |||||
Net income continuing operations, numerator, basic computation | (997,776 | ) | 13,116,854 | |||||
Recognition and change in fair value of warrant liabilities | - | (26,625,915 | ) | |||||
Net loss continuing operations, numerator, diluted computation | $ | (997,776 | ) | $ | (13,509,061 | ) | ||
Weighted average common shares, basic | 2,138,444 | 1,025,108 | ||||||
Effect of series B warrants | - | 43,128 | ||||||
Weighted average common shares, dilutive | 2,138,444 | 1,068,236 | ||||||
Loss per common share – basic | (0.47 | ) | 12.80 | |||||
Loss per common share – diluted | $ | (0.47 | ) | $ | (12.65 | ) |
The following calculates basic and diluted EPS:reversal of the gain on the change fair value of the Series B warrant liability for the six months June 30, 2022 is included in the numerator of the dilutive EPS calculation to eliminate the effects the warrants as the impact is dilutive.
SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS
Three Months | Three Months | |||||||
Ended | Ended | |||||||
September 30, 2022 | September 30, 2021 | |||||||
Net income (loss), numerators, basic and diluted computation | $ | 6,122,093 | $ | (595,233 | ) | |||
Weighted average shares - denominator basic computation | 1,156,939 | 729,629 | ||||||
Effect of series B convertible preferred shares | 147,939 | - | ||||||
Weighted average shares, as adjusted - denominator diluted computation | 1,304,878 | 729,629 | ||||||
Earnings (loss) per common share – basic | $ | 5.29 | $ | (0.82 | ) | |||
Earnings (loss) per common share – diluted | (0.82 | ) |
Nine Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, 2022 | September 30, 2021 | |||||||
Net income (loss) | $ | 25,957,785 | $ | (2,486,045 | ) | |||
Deemed dividend | (6,930,335 | ) | - | |||||
Net income (loss), numerator, basic and diluted computation | $ | 19,027,450 | $ | (2,486,045 | ) | |||
Weighted average shares - denominator basic computation | 1,069,534 | 653,939 | ||||||
Effect of series B convertible preferred stock | 147,939 | - | ||||||
Non-vested stock awards | 2,349 | - | ||||||
Weighted average shares - denominator diluted computation | 1,219,822 | 653,939 | ||||||
Earnings (loss) per common share - basic | $ | 17.79 | $ | (3.80 | ) | |||
Earnings (loss) per common share - diluted | $ | 15.60 | $ | (3.80 | ) |
SCHEDULE OF DILUTIVE NET LOSS PER COMMON SHARES
1 | 2 | |||||||
For the Three and Nine Months Ended | ||||||||
September 30, 2022 | September 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 | 4,085 | 1,044 |
June 30, 2023 | June 30, 2022 | |||||||
For the Three Months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
Shares subject to outstanding common stock options | 10,928 | 10,928 | ||||||
Shares subject to outstanding Series A warrants | 113,000 | 113,000 | ||||||
Shares subject to outstanding Series F warrants | 2,105,264 | - | ||||||
Shares subject to placement agent warrants | 52,632 | - | ||||||
Shares subject to unvested stock awards | 3,471 | - | ||||||
Shares subject to conversion of Series B preferred stock | - | - | ||||||
Shares subject to warrant liability | - | 668,299 |
June 30, 2023 | June 30, 2022 | |||||||
For the Six Months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
Shares subject to outstanding common stock options | 10,928 | 10,928 | ||||||
Shares subject to outstanding Series A warrants | 113,000 | 113,000 | ||||||
Shares subject to outstanding Series F warrants | 2,105,264 | - | ||||||
Shares subject to placement agent warrants | 52,632 | - | ||||||
Shares subject to unvested stock awards | 3,471 | 4,621 | ||||||
Shares subject to conversion of Series B preferred stock | - | 147,939 | ||||||
Shares subject to warrant liability | - | - |
NOTE 8.7. LEASES
Operating lease expense for the three months ended SeptemberJune 30, 20222023 and 20212022 was $159,624123,326 and $97,265111,900, respectively. Operating lease expense for the ninesix months ended SeptemberJune 30, 20222023 and 20212022 was $434,798239,296 and $220,798219,223 respectively. As of SeptemberJune 30, 2022,2023, the weighted average remaining lease term and weighted average discount rate for the operating leases were 3.863.89 years and 5.72%6.20% 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 | $ | 157,633 | ||||||
Period ending June 30, 2023 | Operating Lease Obligations | |||||||
2023 | 570,275 | $ | 216,833 | |||||
2024 | 269,908 | 357,688 | ||||||
2025 | 144,124 | 166,384 | ||||||
2026 | 113,738 | 113,738 | ||||||
2027 | 117,150 | |||||||
Thereafter | 268,202 | 151,052 | ||||||
Total undiscounted operating lease payments | 1,523,880 | 1,122,845 | ||||||
Less: Imputed interest | 152,467 | 116,127 | ||||||
Present value of operating lease liabilities | $ | 1,371,413 | $ | 1,006,718 |
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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 SeptemberJune 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 for the respective periods ended SeptemberJune 30, 20222023 and December 31, 2021:2022:
SCHEDULE OF EARN-OUT LIABILITY
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 | (34,430 | ) | (326,935 | ) | (84,473 | ) | (1,181,458 | ) | - | (1,627,296 | ) | |||||||||||||
Changes due to fair value adjustments | 186,122 | 37,741 | (212,609 | ) | 201,191 | (80,000 | ) | 132,445 | ||||||||||||||||
Ending balance September 30, 2022 | $ | 667,000 | $ | 326,775 | $ | 695,786 | $ | 709,466 | $ | 520,000 | $ | 2,919,027 |
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 | ) | $ | (250,000 | ) | $ | (929,168 | ) | $ | (147,535 | ) | - | (2,760,403 | ) | |||||||||
Changes due to fair value adjustments | 766,700 | 150,000 | 94,225 | - | 9,000 | 1,019,925 | ||||||||||||||||||
Ending balance June 30, 2023 | $ | - | $ | 400,000 | $ | - | $ | - | $ | 569,000 | $ | 969,000 |
CCS | Fortman | Montana | Altruis | Kush | Total | Fortman | Montana | Altruis | Kush | Barra | Total | |||||||||||||||||||||||||||||||||||||
Ending balance December 31, 2020 | $ | 81,368 | $ | 432,655 | $ | 522,553 | $ | 1,894,842 | $ | - | $ | 2,931,418 | ||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | 1,694,166 | 1,694,166 | - | - | - | - | 600,000 | 600,000 | ||||||||||||||||||||||||||||||||||||
Changes due to payments | - | - | - | (452,236 | ) | - | (452,236 | ) | (34,430 | ) | (326,935 | ) | (84,473 | ) | (1,259,087 | ) | - | (1,704,925 | ) | |||||||||||||||||||||||||||||
Changes due to fair value adjustments | - | 82,653 | 93,416 | (449,738 | ) | (4,433 | ) | (278,102 | ) | 186,122 | 210,966 | (73,452 | ) | (283,111 | ) | (40,000 | ) | 525 | ||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
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 |
NOTE 10.9. 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”). The Note matures on January 15, 2024, bearingaccruing monthly interest of 05%% per annum forbeginning nine months after Note issuance. On February 7, 2023 , the first six months,Company and 5% per annum thereafter, payable monthly. In the eventAmericana entered into an amendment to the Note is not paid bypursuant to which (i) the principal amount of the Note was increased to $1,845,000, (ii) the maturity date of the loan will automaticallyNote 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 extended forconverted at any time, at the option of Americana, into shares of the Company’s common stock, par value $ per share at an agreed upon conversion price.
On February 13, 2023, Americana effectuated a conversion of $645,000 of the Note into shares of the Company’s common stock, $ par value per share, in accordance with the terms of the Amendment. In addition, during the month of March 2023 the Company repaid to Americana $400,000. During the months of April and June of 2023 the company repaid to Americana an additional year until January 15, 2025,$230,000. As of June 30, 2023 and if necessary, extended againDecember 31, 2022 respectively, the balance owed to Americana was $570,000 and $1,500,000, reclassified and recorded in the convertible debt, related parties, less current portion account in the condensed consolidated balance sheets.
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 one additional year through January 15, 2026.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 June 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 $47,249 in the current portion of loans payables, related parties account in the condensed consolidated balance sheets as of June 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 June 30, 2023, and December 31, 2022, respectively. Amortization expense to bring the payable to present value for the three and six months ended June 30, 2023 respectively, was $1,730 and $3,459, 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 twenty-four months. 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 $825,000 and $1,375,000 respectively, in the current portion of loans payables, related parties account in the condensed consolidated balance sheets as of June 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 $281,916 and $0 as of June 30, 2023, and December 31, 2022 respectively. Interest expense for the three and six months ended June 30, 2023 respectively, was $49,423 and $89,170, 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 900,000. The Company’s remaining NSURE share balance as of June 30, 2023, was . of NSURE shares to unaffiliated third parties, receiving the shares’ cost basis and cash proceeds of $
NOTE 11. SUBSEQUENT EVENTS
Pursuant to the terms of the SPA, on July 7, 2023, the Series B Warrants’ effective exercise price reset to $2.50, and on July 14, 2023, Series B Warrants were exercised into shares of common stock in a cashless exercise. Accordingly, the adjusted balance of Series B Warrants outstanding as of the exercise date is 1,166,667.
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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. The Company is controlled by the same management team as Reliance Global Holdings, LLC (“Reliance Holdings”), a New York based firm that is the owner and operator of numerous companies with core interests in real estate and insurance. Our relationship with Reliance Holdings provides us with significant benefits: (1) experience, knowledge, and industry relations; (2) a source of acquisition targets currently under Reliance Holdings’ control; and (3) financial and logistics assistance. We are led and advised by a management team that offers over 100 years of combined business expertise in real estate, insurance, and the financial service industry.
In the insurance sector, our management has extensive experience acquiring and managing insurance portfolios in several states, as well as developing specialized programs targeting niche markets. Our primary strategy is to identify specific risk to reward arbitrage opportunities and develop these on a national platform, thereby increasing revenues and returns, and then identify and acquire undervalued wholesale and retail insurance agencies with operations in growing or underserved segments, expand and optimize their operations, and achieve asset value appreciation while generating interim cash flows.
As part of our growth and acquisition strategy, we continue to survey the current insurance market for value-add acquisition opportunities. As of June 30, 2023, we have acquired nine insurance agencies, including both affiliated and unaffiliated companies and long term, we seek to conduct all transactions and acquisitions through our direct operations.
Over the next 12 months, we plan to focus on the expansion and growth of our business through continued asset acquisitions in insurance markets and organic growth of our current insurance operations through geographic expansion and market share growth.
Further, we launched our 5MinuteInsure.com (“5MI”) Insurtech platform during 2021 which expanded our national footprint. 5MI is a high-tech proprietary tool developed by us as a business to consumer portal which enables consumers to instantly compare quotes from multiple carriers and purchase their car and home insurance in a time efficient and effective manner. 5MI taps into the growing number of online shoppers and utilizes advanced artificial intelligence and data mining techniques, to provide competitive insurance quotes in around 5 minutes with minimal data input 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.
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Financial Instruments
The Company’s financial instruments as of June 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.
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.
Acquired | Date | Location | Line of Business | Status | ||||
U.S. Benefits Alliance, LLC (USBA) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
Employee Benefit Solutions, LLC (EBS) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
Commercial Solutions of Insurance Agency, LLC (CCS or Commercial Solutions) | December 1, 2018 | New Jersey | P&C – Trucking Industry | Unaffiliated | ||||
Southwestern Montana Insurance Center, Inc. (Southwestern Montana or Montana) | April 1, 2019 | Montana | Group Health Insurance | Unaffiliated | ||||
Fortman Insurance Agency, LLC (Fortman or Fortman Insurance) | May 1, 2019 | Ohio | P&C and Health Insurance | Unaffiliated | ||||
Altruis Benefits Consultants, Inc. (Altruis) | September 1, 2019 | Michigan | Health Insurance | Unaffiliated | ||||
UIS Agency, LLC (UIS) | August 17, 2020 | New York | Health Insurance | Unaffiliated | ||||
J.P. Kush and Associates, Inc. (Kush) | May 1, 2021 | Michigan | Health Insurance | Unaffiliated | ||||
Barra & Associates, LLC | April 26, 2022 | Illinois | Health Insurance | Unaffiliated |
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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.
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”).
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.
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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.
Results of Operations
Comparison of the three months ended June 30, 2023 to the three months ended June 30, 2022
The following table sets forth our revenue and operating expenses for each of the years presented.
June 30, 2023 | June 30, 2022 | |||||||
Revenue | ||||||||
Commission income | $ | 3,195,905 | 2,847,149 | |||||
Total revenue | 3,195,905 | 2,847,149 | ||||||
Operating expenses | ||||||||
Commission expense | 822,274 | 662,932 | ||||||
Salaries and wages | 1,742,697 | 1,637,412 | ||||||
General and administrative expenses | 1,703,811 | 1,630,169 | ||||||
Marketing and advertising | 109,860 | (4,844 | ) | |||||
Depreciation and amortization | 655,449 | 694,440 | ||||||
Total operating expenses | 5,034,091 | 4,620,109 | ||||||
Loss from operations | (1,838,186 | ) | (1,772,960 | ) | ||||
Other income (expense) | ||||||||
Other expense, net | (439,037 | ) | (200,263 | ) | ||||
Recognition and change in fair value of warrant liabilities | (1,592,509 | ) | 12,633,251 | |||||
Total other income (expense) | (2,031,546 | ) | 12,432,988 | |||||
Income from continuing operations | $ | (3,869,732 | ) | 10,660,028 | ||||
Loss from discontinued operations | 2,814,445 | (164,337 | ) | |||||
Net (loss) income | (1,055,287 | ) | 10,495,691 |
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 $3.2 million for the three months ended June 30, 2023, as compared to approximately $2.8 million for the three months ended June 30, 2022. The increase of approximately $349 thousand or 12% is primarily driven by organic growth and the addition of RELI Exchange.
Commission expense
The Company had total commission expense of approximately $822 thousand for the three months ended June 30, 2023, compared to approximately $663 thousand for the three months ended June 30, 2022. The increase of approximately $159 thousand or 24% is primarily driven by organic growth and the addition of RELI Exchange.
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Salaries and wages
The Company reported approximately $1.7 million of salaries and wages expense for the three months ended June 30, 2023, compared to approximately $1.6 million for the three months ended June 30, 2022. The increase of approximately $105 thousand or 6% is a result of the Company’s growth driven by expanded operations.
General and administrative expenses
The Company had total general and administrative expenses of approximately $1.7 million for the three months ended June 30, 2023, as compared to approximately $1.6 million for the three months ended June 30, 2022. The increase in expense of approximately $74 thousand or 5% is a result of the Company’s growth driven by expanded operations.
Marketing and advertising
The Company reported approximately $110 thousand of marketing and advertising expense for the three months ended June 30, 2023 compared to approximately a credit of approximately $5 thousand for the three months ended June 30, 2022. The 2022 credit is comprised of marketing expense of $29,663 and marketing allowances received, totaling $(34,506) which net to $4,844. The net increase of approximately $115 thousand is a result of increased branding and outreach efforts to achieve greater industry presence as well as marketing allowances received in 2022 to offset marketing expense but not received in 2023.
Depreciation and amortization
The Company reported approximately $655 thousand of depreciation and amortization expense for the three months ended June 30, 2023 compared to approximately $694 thousand for the three months ended June 30, 2022. The decrease of approximately $39 thousand or 6% is primarily a result of fully depreciated assets no longer incurring amortization charges.
Other income and expense
The Company reported approximately $2 million of other expense for the three months ended June 30, 2023 compared to approximately $12 million of other income for the three months ended June 30, 2022. The decrease of approximately $14 million is attributable primarily to the change in fair value of warrant liabilities, offset by interest expense.
Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021
The following table sets forth our revenue and operating expenses for each of the periods presented.
June 30, 2023 | June 30, 2022 | |||||||
Revenue | ||||||||
Commission income | $ | 7,135,008 | 5,905,846 | |||||
Total revenue | 7,135,008 | 5,905,846 | ||||||
Operating expenses | ||||||||
Commission expense | 1,905,600 | 1,448,543 | ||||||
Salaries and wages | 3,454,794 | 3,269,225 | ||||||
General and administrative expenses | 3,062,066 | 3,963,964 | ||||||
Marketing and advertising | 246,432 | 84,686 | ||||||
Depreciation and amortization | 1,309,227 | 1,263,440 | ||||||
Total operating expenses | 9,978,119 | 10,029,858 | ||||||
Loss from operations | (2,843,111 | ) | (4,124,012 | ) | ||||
Other income (expense) | ||||||||
Other expense, net | (828,388 | ) | (308,014 | ) | ||||
Recognition and change in fair value of warrant liabilities | 2,673,723 | 24,479,215 | ||||||
Total other income (expense) | 1,845,335 | 24,171,201 | ||||||
Income from continuing operations | $ | (997,776 | ) | 20,047,189 | ||||
Loss from discontinued operations | (1,846,048 | ) | (211,497 | ) | ||||
Net (loss) income | (2,843,824 | ) | 19,835,692 |
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Revenues
The Company had revenues of approximately $7.1 million for the six months ended June 30, 2023, as compared to approximately $5.9 million for the six months ended June 30, 2022. The increase of approximately $1.2 million or 21% is primarily driven by organic growth and the addition of RELI Exchange.
Commission expense
The Company had total commission expense of approximately $1.9 million for the six months ended June 30, 2023, compared to approximately $1.4 million for the six months ended June 30, 2022. The increase of approximately $457 thousand or 32% is primarily driven by organic growth and the addition of RELI Exchange.
Salaries and wages
The Company reported approximately $3.5 million of salaries and wages expense for the six months ended June 30, 2023, compared to approximately $3.3 million for the six months ended June 30, 2022. The increase of approximately $186 thousand or 6% is a result of the Company’s growth driven by expanded operations.
General and administrative expenses
The Company had total general and administrative expenses of approximately $3.1 million for the six months ended June 30, 2023, as compared to approximately $4.0 million for the six months ended June 30, 2022. The decrease in expense of approximately $902 thousand or 23% 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 $246 thousand of marketing and advertising expense for the six months ended June 30, 2023, compared to approximately $85 thousand for the six months ended June 30, 2022. The increase of approximately $162 thousand or 191% is a result of the Company increasing its branding and outreach efforts to achieve greater industry presence as well as marketing allowances received in 2022 to offset marketing expense but not in 2023.
Depreciation and amortization
The Company reported approximately $1.30 million of depreciation and amortization expense for the six months ended June 30, 2023, compared to approximately $1.26 million for the six months ended June 30, 2022. The increase of approximately $46 thousand or 4% is primarily a result of our acquired tangible and intangible assets through business combinations.
Other income and expense
The Company reported approximately $1.8 million of other income for the six months ended June 30, 2023, compared to approximately $24.2 million of other income for the six months ended June 30, 2022. The decrease of approximately $22.3 million or 92% is attributable primarily to the change in the fair value of warrant liabilities, offset by interest expense.
Liquidity and capital resources
As of June 30, 2023, we had a cash balance of approximately $2.7 million and working capital of approximately $2.3 million, 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, and the repayment of liabilities.
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.
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Cash Flows
Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Net cash used in operating activities | $ | (2,007,101 | ) | $ | (1,311,411 | ) | ||
Net cash provided and used in investing activities | 735,128 | (24,625,929 | ) | |||||
Net cash provided by financing activities | 2,042,460 | 25,714,021 | ||||||
Net increase in cash, cash equivalents, and restricted cash | $ | 770,487 | $ | (223,319 | ) |
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2023 was approximately $2.0 million, compared to net cash flows used in operating activities of approximately $1.3 million for the six months ended June 30, 2022. The cash used includes net loss of approximately $2.8 million, increased by approximate non-cash adjustments of $2.0 million principally related to a loss of recognition and change in fair value of warrant liabilities of $2.7 million, offset by earn-out fair value adjustments and depreciation and amortization of $1.0 million and $1.2 million, respectively, as well as a net decrease in cash due to changes of net working capital items in the amount of $274 thousand and offset by net cash adjustments for discontinued operating activities of $1.0 million.
Investing Activities
During the six months ended June 30, 2023, cash flows provided in investing activities approximated $735 thousand compared to cash flows used in investing activities of approximately $24.6 million for the six months ended June 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 six months ended June 30, 2023, approximate cash provided by financing activities was $2.0 million as compared to approximately $25.7 million for the six months ended June 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 proceeds and repayments of $451 thousand, related party loan repayments of $650 thousand, and earn out payments of $344 thousand.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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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 the three and nine months ended September 30, 2022.(“EPS”). During the quarterquarters ended March 31 and June 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 six months ended June 30, 2023.
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2022, concluding them to be ineffective2023, and concluded that they were not effective as of such date.June 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 six months ended June 30, 2023. Aside for the foregoing, there have not been anyno other changes in our internal controlcontrols 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 June 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None that have not been previously disclosed in our filings with the SEC.
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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.
*Filed herewith
**Furnished herewith
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: | August 10, 2023 | By: | /s/ Ezra Beyman |
Ezra Beyman | |||
Chief Executive Officer | |||
(principal executive officer) |
Date: | August 10, 2023 | By: | /s/ Joel Markovits |
Joel Markovits | |||
Chief Financial Officer | |||
(principal financial officer and principal accounting officer) |