| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation and Principles of Consolidation The
accompanying consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include the
accounting of Reliance Global Group, Inc., and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated
in consolidation. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K. Liquidity As
of September 30, 2021, the Company’s reported cash and restricted cash aggregated balance was approximately $ 6,139,000 ,
current assets were approximately $ 7,333,000 ,
while current liabilities were approximately $ 2,059,000 .
As of September 30, 2021, the Company had working capital of approximately $ 5,274,000 and
stockholders’ equity of $ 12,765,000 .
For the nine-month period ended September 30, 2021, the Company reported a net loss of approximately $ 2,486,000
and negative cash flows from operations of $ 1,304,000 .
The Company also completed an offering in February that raised net proceeds of approximately $ 10,496,000 .
Management believes the company’s financial position to be reasonable and sufficient, providing ample liquidity for the foreseeable
future. Use
of Estimates The
preparation of financial statements in conformity with 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 it estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could
differ materially from those estimates. Cash Cash
consists of checking accounts. The Company considers all highly liquid investments with an original maturity of three months or less
to be cash equivalents. Restricted
Cash Restricted
cash includes cash pledged as collateral to secure obligations and/or all cash whose use is otherwise limited by contractual provisions. The
reconciliation of cash and restricted cash reported within the applicable balance sheet accounts that sum to the total of cash and restricted
cash presented in the statement of cash flows is as follows: SCHEDULE
OF CASH AND RESTRICTED CASH
September
30, 2021 September
30, 2020
Cash $ 5,655,103 $ 13,282
Restricted
cash 484,371 488,289
Total
cash and restricted cash $ 6,139,474 $ 501,571 Property
and Equipment Property
and equipment is stated at cost, less accumulated depreciation. Depreciation is recognized over an asset’s
estimated useful life using the straight-line method beginning on the date an asset is placed in service. The Company regularly evaluates
the estimated remaining useful lives of the Company’s property and equipment to determine whether events or changes in circumstances
warrant a revision to the remaining period of depreciation. Certain capitalized software has been reclassified in the condensed consolidated
balance sheet from property and equipment, net to intangibles, net and comparative periods have been adjusted accordingly.
Maintenance and repairs are charged to expense as incurred. Estimated useful lives of the Company’s Property
and Equipment are as follows: SCHEDULE
OF ESTIMATED USEFUL LIFE OF PROPERTY PLANT AND EQUIPMENT
Useful
Life (in years)
Computer
equipment 5
Office
equipment and furniture 7
Leasehold
improvements Shorter
of the useful life or the lease term Fair
Value of Financial Instruments Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The three levels of the fair value hierarchy are as follows: Level
1 — Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities; Level
2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly
or indirectly for substantially the full term of the asset or liability; and Level
3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market
participants would use in pricing the asset or liability, including assumptions about risk. The
Company’s balance sheet includes certain financial instruments, including cash, notes receivables, accounts payable, notes payables
and short and long-term debt. The carrying amounts of current assets and current liabilities approximate their fair value because of
the relatively short period of time between the origination of these instruments and their expected realization. The carrying amounts
of long-term debt approximate their fair value as the variable interest rates are based on a market index. Deferred
Financing Costs The
Company has recorded deferred financing costs as a result of fees incurred by the Company in conjunction with its debt financing activities.
These costs are amortized to interest expense using the straight-line method which approximates the interest rate method over the term
of the related debt. As of September 30, 2021, and December 31, 2020, unamortized deferred financing costs were $ 139,204 ,
and $ 186,312 ,
respectively and are netted against the related debt. Business
Combinations The
Company accounts for its business combinations using the acquisition method of accounting. Under the acquisition method, the assets acquired,
the liabilities assumed, and the consideration transferred are recorded at the date of acquisition at their respective fair values. Definite-lived
intangible assets are amortized over the expected life of the asset. Any excess of the purchase price over the estimated fair values
of the net assets acquired is recorded as goodwill. Goodwill
represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination.
Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination
provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date. Changes
in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows:
1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement
is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value and accretion
costs are recognized in earnings. Identifiable
Intangible Assets, net Finite-lived
intangible assets such as customer relationships assets, trademarks and tradenames are amortized over their estimated useful lives, generally
on a straight-line basis for periods ranging from 3 20 Goodwill
and other indefinite-lived intangibles The
Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible
and intangible assets acquired. Goodwill is assigned to a reporting unit on the acquisition date and tested for impairment at least annually,
or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not
declined below its carrying value. Similarly, indefinite-lived intangible assets (if any) other than goodwill, are tested annually or
more frequently if indicated, for impairment. If impaired, intangible assets are written down to fair value based on the expected discounted
cash flows. Revenue
Recognition The
Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606 Revenue from Contracts with Customers The
Company’s revenue is primarily comprised of agency commissions earned from health insurance carriers (the “Customer”
or “Carrier”) related to insurance plans produced through brokering, producing and servicing agreements between insurance
carriers and members. The Company defines a “Member” as an individual, family or entity currently covered or seeking insurance
coverage. The
Company focuses primarily on agency services for insurance products in the “Healthcare” and property and casualty, which
includes auto (collectively “P&C”) space, with nominal activity in the life insurance and bond sectors. Healthcare includes
plans for individuals and families, Medicare supplements, ancillary and small businesses. Consideration
for all agency services typically is based on commissions calculated by applying contractual commission rates to policy premiums. For
P&C, commission rates are applied to premiums due, whereas for healthcare, commission rates, including override commissions,
are applied to monthly premiums received by the Carrier. The
Company has two forms of billing practices, “Direct Bill” and “Agency Bill”. With Direct Bill, Carriers bill
and collect policy premium payments directly from Members without any involvement from the Company. Commissions are paid to the Company
by the Carrier in the following month. With Agency Bill, The Company bills Members premiums due and remits them to Carriers net of commission
earned. The
following outlines the core principles of ASC 606: Identification
of the contract, or contracts, with a customer Identification
of the performance obligations in the contract Determination
of the transaction price Allocation
of the transaction price to the performance obligations in the contract Recognition
of revenue when, or as, the Company satisfies a performance obligation Healthcare
revenue recognition: The
Company identifies a contract when it has a binding agreement with a Carrier, the Customer, to provide agency services to Members. There
typically is one performance obligation in contracts with Carriers, to perform agency services that culminate in monthly premium cash
collections by the Carrier. The performance obligation is satisfied through a combination of agency services including, marketing carrier’s
insurance plans, soliciting Member applications, binding, executing and servicing insurance policies on a continuous basis throughout
a policy’s life cycle which includes and culminates with the Customer’s collection of monthly premiums. No commission is
earned if cash is not received by Carrier. Thus, commission revenue is earned only after a month’s cash receipts from Members’
dues is received by the Customer. Each month’s Carrier cash collections is considered a separate unit sold and transferred to the
Customer i.e., the satisfaction of that month’s performance obligation. Transaction
price is typically stated in a contract and usually based on a commission rate applied to Member premiums paid and received by Carrier.
The Company generally continues to receive commission payments from Carriers until a Member’s plan is cancelled or the Company
terminates its agency agreement with the Carrier. Upon termination, the Company normally will no longer receive any commissions form
Carriers even on business still in place. In some instances, trailing commissions could occur which would be recognized similar to other
Healthcare revenue. With one performance obligation, allocation of transaction price is normally not necessary. Healthcare
typically utilizes the Direct Bill method. The
Company recognizes revenue at a point in time, when it satisfies its monthly performance obligation and control of the service transfers
to the Customer. Transfer occurs when Member insurance premium cash payments are received by the Customer. The Customer’s receipt
of cash is the culmination and complete satisfaction of the Company’s performance obligation, and the earnings process is complete. With
Direct Bill, since the amount of monthly Customer cash receipts is unknown to the Company until the following month when notice is provided
by Customer to Company, the Company accrues revenue at each period end. Any estimated revenue accrued and recognized at a period-end
is trued up for financial reporting per actual revenue earned as provided by the Customer during the following month. P&C
revenue recognition The
Company identifies a contract when it has a binding agreement with a Carrier, the Customer, to provide agency services to Members. There
typically is one performance obligation in contracts with Customers, to perform agency services to solicit, receive proposals and bind
insurance policies culminating with policy placement. Commission revenue is earned at the time of policy placement. Transaction
price is typically stated in a contract and usually based on commission rates applied to Member premiums due. With one performance obligation,
allocation of transaction price is normally not necessary. P&C
utilizes both the Agency Bill and Direct Bill methods, depending on the Carrier. The
Company recognizes revenue at a point in time when it satisfies its performance obligation and control of the service transfers to the
Customer. Transfer occurs when the policy placement process is complete. With
both Direct Bill and Agency Bill, the Company accrues commission revenue in the period policies are placed. With Agency Bill, payment
is typically received from Members in the month earned, however with Direct Bill, payment is typically received from Carriers in the
month subsequent to the commissions being earned. Other
revenue policies: Insurance commissions earned from Carriers for life insurance products are recorded gross of amounts due to agents,
with a corresponding commission expense for downstream agent commissions being recorded as commission expense within the condensed consolidated
statements of operations. When
applicable, commission revenue is recognized net of any deductions for estimated commission adjustments due to lapses, policy cancellations,
and revisions in coverage. The
Company could earn additional revenue from contingent commissions, profit-sharing, override and bonuses based on meeting certain revenue
or profit targets established periodically by the Carriers (collectively, “Contingent Commissions”). Contingent Commissions
are earned when the Company achieves targets established by Carriers. The Carriers notify the Company when it has achieved the target.
The Company recognizes revenue for any Contingent Commissions at the time it is reasonably assured that a significant revenue reversal
is not probable, which is generally when a Carrier notifies the Company that it is on track or has earned a Contingent Commission. The
following table disaggregates the Company’s revenue by line of business, showing commissions earned: SCHEDULE
OF DISAGGREGATION REVENUE
Three
Months ended September 30, 2021 Medical/Life Property
and Casualty Total
Regular
EBS 226,233 - 226,233
USBA 18,241 - 18,241
CCS/UIS - 120,762 120,762
Montana 343,546 - 343,546
Fortman 357,638 194,218 551,856
Altruis 807,775 - 807,775
Kush 513,223 - 513,223
2,266,656 314,980 2,581,636
Nine
Months ended September 30, 2021 Medical/Life Property
and Casualty Total
Regular
EBS 642,428 - 642,428
USBA 45,861 - 45,861
CCS/UIS - 274,928 274,928
Montana 1,283,402 - 1,283,402
Fortman 884,073 628,327 1,512,400
Altruis 2,558,653 - 2,558,653
Kush 778,541 - 778,541
6,192,958 903,255 7,096,213
Three
Months ended September 30, 2020 Medical/Life Property
and Casualty Total
Regular
EBS 188,670 - 188,670
USBA 11,757 - 11,757
CCS/UIS - 81,344 81,344
Montana 318,688 - 318,688
Fortman 258,488 212,454 470,942
Altruis 608,641 - 608,641
1,386,244 293,798 1,680,042
Nine
Months ended September 30, 2020 Medical/Life Property
and Casualty Total
Regular
EBS 567,054 - 567,054
USBA 206,698 - 206,698
CCS/UIS - 227,044 227,044
Montana 1,148,538 - 1,148,538
Fortman 880,848 578,229 1,459,077
Altruis 1,717,964 - 1,717,964
4,521,102 805,273 5,326,375 General
and Administrative General
and administrative expenses primarily consist of personnel costs for the Company’s administrative functions, professional service
fees, office rent, all employee travel expenses, and other general costs. Marketing
and Advertising The
Company’s direct channel expenses primarily consist of costs for e-mail marketing and newspaper advertisements. The Company’s
online advertising channel expense primarily consist of social media ads. Advertising costs for both direct and online channels are expensed
as incurred. Stock-Based
Compensation Stock-based
compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line
basis over the requisite service period, based on the terms of the awards. The fair value of the stock-based payments to nonemployees
that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual
term for services in which case such compensation would be amortized over the contractual term. As the Reliance Global Group, Inc. Equity
Incentive Plan 2019 was adopted in January of 2019, the Company lacks the historical basis to estimate forfeitures and will recognize
forfeitures as they occur. Leases The
Company recognizes leases in accordance with Accounting Standards Codification Topic 842, “Leases” (“ASC 842”
or “ASU 2016-12”). This standard provides enhanced transparency and comparability by requiring lessees to record right-of-use
assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases are recognized as a
single lease expense, generally on a straight-line basis. The
Company is the lessee in a contract when the Company obtains the right to use an asset. We currently lease real estate and office space
under non-cancelable operating lease agreements. When applicable, consideration in a contract is allocated between lease and non-lease
components. Lease payments are discounted using the implicit discount rate in the lease. If the implicit discount rate for the lease
cannot be readily determined, the Company uses an estimate of its incremental borrowing rate. The Company did not have any contracts
accounted for as finance leases as of September 30, 2021, or 2020. Operating leases are included in the line items right-of-use asset,
lease obligation, current, and lease obligation, long-term in the consolidated balance sheet. Right-of-use (“ROU”) asset
represents the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s
obligations to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum
lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded
on the consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statement
of operations. The Company determines a lease’s term by agreement with lessor and includes lease extension options and variable
lease payments when option and/or variable payments are reasonably certain of being exercised or paid. Income
Taxes The
Company recognizes deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book
and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than
not that some portion or all of the deferred tax asset will not be realized. In evaluating its ability to recover deferred tax assets
within the jurisdiction in which they arise, the Company considers all available positive and negative evidence, including the expected
reversals of taxable temporary differences, projected future taxable income, taxable income available via carryback to prior years, tax
planning strategies, and results of recent operations. The Company assesses the realizability of its deferred tax assets, including scheduling
the reversal of its deferred tax assets and liabilities, to determine the amount of valuation allowance needed. Scheduling the reversal
of deferred tax asset and liability balances requires judgment and estimation. The Company believes the deferred tax liabilities relied
upon as future taxable income in its assessment will reverse in the same period and jurisdiction and are of the same character as the
temporary differences giving rise to the deferred tax assets that will be realized. Seasonality A
greater number of the Company’s Medicare-related health insurance plans are sold in the fourth quarter during the Medicare annual
enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage. The majority of the Company’s
individual and family health insurance plans are sold in the annual open enrollment period as defined under the federal Patient Protection
and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. Individuals and families generally
are not able to purchase individual and family health insurance outside of these open enrollment periods, unless they qualify for a special
enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state. Prior
Period Adjustments During
the June 30, 2021 quarterly financial reporting close process, the Company identified certain immaterial adjustments impacting prior
reporting periods. Specifically, the Company identified adjustments to correct goodwill and retained earnings in relation to historical
purchase price allocation accounting, and adjustments to true up accounts receivable and retained earnings for certain historical accrued
revenues. The Company has also separately reclassified its purchase software from property, plant and equipment to intangible assets. The
Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. (SAB) 99, Materiality Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements Accounting Changes and Error Corrections Accordingly,
the Company’s comparative condensed consolidated financial statements and impacted notes have been revised from amounts previously
reported to reflect these adjustments. The following table illustrates the impact on previously reported amounts and adjusted balances
presented in the condensed consolidated financial statements for the period ended September 30, 2021. SUMMARIZES
THE CHANGES TO THE PREVIOUSLY ISSUED FINANCIAL INFORMATION
Account 12/31/2020
As
reported Adjustment 12/31/20
Accounts
Receivable 236,651 625,946 862,597
Goodwill 9,265,070 (503,345 ) 8,761,725
Accumulated
Deficit (12,482,281 ) 122,601 (12,359,680 )
Commission
income 7,279,530 17,616 7,297,146
Total
Assets 17,922,086 122,601 18,044,687
Total
Revenue 7,279,530 17,616 7,297,146
Net
Loss (3,699,005 ) 17,616 (3,681,389 )
EPS (0.88 ) 0.00 (0.88 )
Account 3/31/2021 Adjustment 3/31/2021
Accumulated
Deficit (13,123,609 ) 150,003 (12,973,606 )
Commission
income 2,296,328 27,402 2,323,730
Total
Revenue 2,296,328 27,402 2,323,730
Net
Loss (641,328 ) 27,402 (613,926 )
EPS (0.09 ) (0.01 ) (0.08 ) Recently
Issued Accounting Pronouncements In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), which requires the
measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting
date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial
statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments
to extend credit held by a reporting entity at each reporting date. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements
to Topic 326, Financing Instruments—Credit Losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019.
On November 15, 2019, the FASB delayed the effective date of FASB ASC Topic 326 for certain small public companies and other private
companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers
that are eligible to be smaller reporting companies under the SEC’s definition. The Company does not currently believe the adoption
of this standard will have a significant impact on its financial statements, given its history of minimal bad debt expense relating to
trade accounts receivable. In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which eliminates certain exceptions to the general principles in Topic 740 and simplifies other areas of the existing guidance. ASU 2019-12
is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this
pronouncement January 1, 2021 which did not have a material effect on the consolidated financial statements. |
