10-Q/A
Reliance Global Group, Inc. (EZRA)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
(AmendmentNo. 1)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _____ to _____
Commission
File Number: 001-40020
RELIANCE GLOBAL GROUP, INC.
(Exact name of registrant as specified in its charter)
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, NJ08701
(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<br> Stock | RELI | The<br> Nasdaq Capital Market |
| Series<br> A Warrants | RELIW | Nasdaq<br> 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” in Rule 12b-2 of the Exchange Act.
| Large<br> accelerated filer ☐ | Accelerated<br> filer ☐ |
|---|---|
| Non-accelerated<br> filer ☒ | Smaller<br> reporting company ☒ |
| Emerging<br> 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-2 of the Act).
Yes ☐ No ☒
At
November 14, 2022 the registrant had 1,203,631 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).
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:
| (i) | reflect the restatement of earnings per share (“EPS”) information<br>(the “Restatement”) in the condensed consolidated statements of operations for the three and nine months ended September 30,<br>2022; |
|---|---|
| (ii) | insert additional disclosure relating to the Restatement to Note 1; |
| (iii) | replace Note 7 from the Original Form 10-Q in its entirety as a result of<br>the Restatement; |
| (iv) | revise share and per share information throughout the Form 10-Q/A to give<br>effect to the 1-for-15 reverse stock split that became effective on February 23, 2023 (the “Reverse Split”); |
| (v) | revise Part I, Item 4 to indicate that the Company’s disclosure controls<br>and procedures were not effective as of September 30, 2022; |
| (vi) | replace the exhibit index contained in Item 6 in its entirety; |
| (vii) | provide current dated certifications; |
| (viii) | correct certain immaterial errors on the cover sheet to the Form 10-Q/A. |
The Restatement is due to the Company performing an evaluation of its accounting in connection with the calculation of its basic and diluted EPS for the three and 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:
| ● | Part I — Item 1. Financial Statements |
|---|---|
| ● | Part I – Item 4. Controls and Procedures |
| ● | Part II – Item 6. Exhibits |
Except as described above, no other changes have been made to the Original Form 10-Q, and Amendment No. 1 does not modify, amend or update in any way revenue, expenses, net income (loss), or any of the financial or other information contained in the Original Form 10-Q. Amendment No. 1 does not reflect events that may have occurred subsequent to the filing date of the Original Form 10-Q other than adjusting, in the Items amended herein, common stock share and price per share information for the 1-for-15 reverse stock split that became effective February 23, 2023.
TABLE
OF CONTENTS
| PART I | |
|---|---|
| Item 1. Financial Statements | 3 |
| Item 4. Controls and Procedures | 24 |
| PART II | |
| Item 6. Exhibits | 24 |
| Signatures | 25 |
| 2 |
| --- |
PART
I
Item 1. Financial
Statements
Reliance
Global Group, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(Unaudited)
| **** | December 31,<br><br> <br>2021 | **** | |||
|---|---|---|---|---|---|
| Assets | |||||
| Current<br> assets: | |||||
| Cash | 1,615,054 | $ | 4,136,180 | ||
| Restricted<br> cash | 1,409,562 | 484,542 | |||
| Accounts<br> receivable | 1,025,120 | 1,024,831 | |||
| Accounts<br> receivable, related parties | 1,159 | 7,131 | |||
| Note<br> receivables | - | - | |||
| Other<br> receivables | 37,674 | - | |||
| Prepaid<br> expense and other current assets | 399,506 | 2,328,817 | |||
| Total<br> current assets | 4,488,075 | 7,981,501 | |||
| Property<br> and equipment, net | 199,030 | 130,359 | |||
| Right-of-use<br> assets | 1,327,361 | 1,067,734 | |||
| Investment<br> in NSURE, Inc. | 1,350,000 | 1,350,000 | |||
| Intangibles,<br> net | 14,359,973 | 7,078,900 | |||
| Goodwill | 33,486,107 | 10,050,277 | |||
| Other<br> non-current assets | 23,284 | 16,792 | |||
| Total<br> assets | 55,233,830 | $ | 27,675,563 | ||
| Liabilities<br> and stockholders’ equity (deficit) | |||||
| Current<br> liabilities: | |||||
| Accounts<br> payable and other accrued liabilities | 1,221,583 | $ | 2,759,160 | ||
| Other<br> payables | 1,241,341 | 81,500 | |||
| Chargeback<br> reserve | 1,350,533 | - | |||
| Short<br> term Financing Agreements | 309,993 | - | |||
| Current<br> portion of long-term debt | 1,026,541 | 913,920 | |||
| Current<br> portion of leases payable | 538,018 | 276,009 | |||
| Earn-out<br> liability, current portion | 2,283,380 | 3,297,855 | |||
| Warrant<br> commitment | - | 37,652,808 | |||
| Total<br> current liabilities | 7,971,389 | 44,981,252 | |||
| Loans<br> payable, related parties, less current portion | 1,679,560 | 353,766 | |||
| Long<br> term debt, less current portion | 12,640,673 | 7,085,325 | |||
| Leases<br> payable, less current portion | 833,395 | 805,326 | |||
| Earn-out<br> liability, less current portion | 635,647 | 516,023 | |||
| Warrant<br> liabilities | 3,107,578 | - | |||
| Total<br> liabilities | 26,868,242 | 53,741,692 | |||
| Stockholders’<br> equity (deficit): | |||||
| Preferred<br>stock, 0.086 par<br>value; 750,000,000 shares<br>authorized and 0 issued<br>and outstanding as of September 30, 2022 and December 31, 2021 | - | - | |||
| Common<br> stock, 0.086 par value; 133,333,333 shares authorized and 1,203,630 and 730,407 issued and outstanding as of September 30,<br> 2022 and December 31, 2021, respectively | 103,512 | 62,815 | |||
| Additional<br> paid-in capital | 35,762,437 | 27,329,201 | |||
| Stock<br> subscription receivable | - | (20,000,000 | ) | ||
| Accumulated<br> deficit | (7,500,361 | ) | (33,458,145 | ) | |
| Total<br> stockholders’ equity (deficit) | 28,365,588 | (26,066,129 | ) | ||
| Total<br> liabilities and stockholders’ equity (deficit) | 55,233,830 | $ | 27,675,563 |
All values are in US Dollars.
The
accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
| --- |
Reliance
Global Group, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
| 2022 | 2021 | 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three<br> months ended<br><br> <br>September<br> 30, | Nine<br> months ended<br><br> <br>September<br> 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenue | ||||||||||||
| Commission<br> income | $ | 4,153,361 | $ | 2,581,636 | $ | 12,596,268 | $ | 7,096,213 | ||||
| Total<br> revenue | 4,153,361 | 2,581,636 | 12,596,268 | 7,096,213 | ||||||||
| Operating<br> expenses | ||||||||||||
| Commission<br> expense | 862,857 | 660,708 | 2,617,140 | 1,748,451 | ||||||||
| Salaries<br> and wages | 2,114,730 | 1,188,267 | 6,373,697 | 3,217,441 | ||||||||
| General<br> and administrative expenses | 1,253,097 | 755,130 | 5,465,384 | 2,961,881 | ||||||||
| Marketing<br> and advertising | 726,115 | 65,010 | 1,922,520 | 143,110 | ||||||||
| Depreciation<br> and amortization | 713,444 | 387,729 | 2,077,372 | 1,090,183 | ||||||||
| Total<br> operating expenses | 5,670,243 | 3,056,844 | 18,456,113 | 9,161,066 | ||||||||
| Loss<br> from operations | (1,516,882 | ) | (475,208 | ) | (5,859,845 | ) | (2,064,853 | ) | ||||
| Other<br> income (expense) | ||||||||||||
| Other<br> expense, net | (280,340 | ) | (120,025 | ) | (580,900 | ) | (421,192 | ) | ||||
| Recognition<br> and change in fair value of warrant liabilities | 7,919,315 | - | 32,398,530 | - | ||||||||
| Total<br> other income (expense) | 7,638,975 | (120,025 | ) | 31,817,630 | (421,192 | ) | ||||||
| Net<br> income (loss) | $ | 6,122,093 | $ | (595,233 | ) | $ | 25,957,785 | $ | (2,486,045 | ) | ||
| Basic<br> earnings (loss) per share | $ | 5.29 | $ | (0.82 | ) | $ | 17.79 | $ | (3.80 | ) | ||
| Diluted<br> earnings (loss) per share | $ | 4.65 | $ | (0.82 | ) | $ | 15.60 | $ | (3.80 | ) | ||
| Weighted<br> average number of shares outstanding - Basic | 1,156,939 | 729,629 | 1,069,534 | 653,939 | ||||||||
| Weighted<br> 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 condensed consolidated financial statements
| 4 |
| --- |
Reliance
Global Group, Inc. and Subsidiaries
Condensed
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reliance<br> Global Group, Inc. | ||||||||||||||||||||||||||||
| Preferred<br> stock | Common<br> stock | Common<br> stock issuable | Additional<br> paid-in | Subscription | Accumulated | |||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | |||||||||||||||||||
| Balance,<br> December 31, 2021 | - | $ | - | 730,407 | $ | 62,815 | - | $ | - | $ | 27,329,201 | $ | (20,000,000 | ) | $ | (33,458,145 | ) | $ | (26,066,129 | ) | ||||||||
| Share<br> based compensation | - | - | - | - | - | - | 739,960 | - | - | 739,960 | ||||||||||||||||||
| Shares<br> issued due to private placement | 9,076 | 781 | 178,059 | 15,313 | - | - | (16,043 | ) | 20,000,000 | - | 20,000,051 | |||||||||||||||||
| Shares<br> issued pursuant to acquisition of Medigap | - | - | 40,402 | 3,475 | - | - | 4,759,976 | - | - | 4,763,451 | ||||||||||||||||||
| Exercise<br> of Series A warrants | - | - | 25,000 | 2,150 | - | - | 2,472,850 | - | - | 2,475,000 | ||||||||||||||||||
| Issuance<br> of prefunded Series C Warrants in exchange for common shares | - | - | (218,462 | ) | (18,788 | ) | - | - | 18,788 | - | - | - | ||||||||||||||||
| Shares<br> issued for vested stock awards | - | - | 400 | 34 | - | - | (34 | ) | - | - | - | |||||||||||||||||
| Net<br> Income | - | - | - | - | - | - | - | - | 9,340,000 | 9,340,000 | ||||||||||||||||||
| Balance,<br> 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<br> based compensation | - | - | - | - | - | - | 179,083 | - | - | 179,083 | ||||||||||||||||||
| Issuance<br> of common stock for conversion of Series C warrants | - | - | 218,462 | 18,788 | - | - | (17,452 | ) | - | - | 1,336 | |||||||||||||||||
| Net<br> Income | - | - | - | - | - | - | - | - | 10,495,691 | 10,495,691 | ||||||||||||||||||
| Balance,<br> 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<br> 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<br> of preferred stock | (9,076 | ) | (781 | ) | 147,939 | 12,723 | - | - | (11,942 | ) | - | - | - | |||||||||||||||
| Net<br> Income | - | - | - | - | - | - | - | - | 6,122,093 | 6,122,093 | ||||||||||||||||||
| Balance,<br> 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 statements
| 5 |
| --- |
Reliance
Global Group, Inc. and Subsidiaries
Condensed
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Amount | Shares | Amount | Shares | Amount | capital | Deficit | Total | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Common stock | Common stock issuable | Additional paid-in | Accumulated | |||||||||||||||||||||
| 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 | **** |
All values are in US Dollars.
The
accompanying notes are an integral part of these condensed consolidated financial statements
| 6 |
| --- |
Reliance
Global Group, Inc. and Subsidiaries and Predecessor
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| Nine<br> months ended<br><br> <br>September<br> 30, | ||||||
| 2022 | 2021 | |||||
| Cash flows<br> from operating activities: | ||||||
| Net income (loss) | $ | 25,957,785 | $ | (2,486,045 | ) | |
| Adjustment to reconcile net<br> income (loss) to net cash used in operating activities: | ||||||
| Depreciation and amortization | 2,077,372 | 1,090,183 | ||||
| Amortization of debt issuance<br> 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<br> adjustments | 132,445 | - | ||||
| Recognition and change in<br> fair value of warrant liabilities | (32,398,530 | ) | - | |||
| Change in operating assets<br> and liabilities: | ||||||
| Accounts payables and other<br> accrued liabilities | (1,541,037 | ) | (314,045 | ) | ||
| Accounts receivable | 92,297 | (87,058 | ) | |||
| Accounts receivable, related<br> 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<br> expense and other current assets | 2,346,510 | (196,471 | ) | |||
| Net<br> cash used in operating activities | (2,177,998 | ) | (1,304,320 | ) | ||
| Cash flows<br> from investing activities: | ||||||
| Purchase of property and equipment | (67,906 | ) | (24,257 | ) | ||
| Business acquisitions, net<br> of cash acquired | (24,138,750 | ) | (1,608,586 | ) | ||
| Purchase of intangibles | (775,953 | ) | (331,054 | ) | ||
| Net<br> cash used in investing activities | (24,982,609 | ) | (1,963,897 | ) | ||
| Cash flows<br> from financing activities: | ||||||
| Principal repayments of debt | (663,016 | ) | (663,907 | ) | ||
| Proceeds from loan for business<br> 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,<br> related parties | 1,500,000 | 2,931 | ||||
| Payments of loans payable,<br> related parties | (174,206 | ) | (504,899 | ) | ||
| Proceeds from exercise of<br> warrants into common stock | 2,477,131 | - | ||||
| Repayments on short-term financing | (107,206 | ) | ||||
| Net proceeds from private<br> placement issuance of shares and warrants | 17,853,351 | - | ||||
| Issuance<br> of common stock | - | 10,496,221 | ||||
| Net<br> cash provided by financing activities | 25,564,501 | 8,878,110 | ||||
| Net (decrease) increase in<br> cash and restricted cash | (1,596,106 | ) | 5,609,893 | |||
| Cash<br> and restricted cash at beginning of period | 4,620,722 | 529,581 | ||||
| Cash<br> and restricted cash at end of period | $ | 3,024,616 | $ | 6,139,474 | ||
| Supplemental<br> disclosure of cash and non-cash investing and financing transactions: | ||||||
| Cash<br> paid for interest | $ | 562,800 | $ | 350,175 | ||
| Issuance<br> of series D warrants | $ | 6,930,335 | $ | - | ||
| Issuance<br> of placement agent warrants | $ | 1,525,923 | $ | - | ||
| Prepaid<br> insurance acquired through short-term financing | $ | 417,199 | $ | - | ||
| Conversion<br> of preferred stock into common stock | $ | 190,069 | $ | 339,264 | ||
| Conversion<br> of debt into equity | $ | - | $ | 3,800,000 | ||
| Cashless conversion of series D warrants into common stock | $ | 36,761 | $ | - | ||
| Common<br> stock issued pursuant to acquisition | $ | 4,763,451 | $ | 50,000 | ||
| Common<br> stock issued in lieu of services | $ | - | $ | 91,050 | ||
| Issuance<br> of common stock pursuant to the purchase of software | $ | - | $ | 340,000 | ||
| Acquisition<br> of business deferred purchase price | $ | 1,125,000 | $ | - | ||
| Lease<br> assets acquired in exchange for lease liabilities | $ | 628,004 | $ | 861,443 |
The
accompanying notes are an integral part of these condensed consolidated financial statements
| 7 |
| --- |
Reliance
Global Group, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reliance Global Group, Inc. (formerly known as Ethos Media Network, Inc.) (“RELI”, “Reliance”, or the “Company”) was incorporated in Florida on August 2, 2013. 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)
Basisof Presentation and Principles of Consolidation
The accompanying unaudited condensed 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 unaudited condensed 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 condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s annual report on Form 10-K.
Restatementof 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 its consolidated financial statements for the identified periods in this Form 10-Q/A as outlined further below and in Note 7 Earnings (Loss) Per Share.
The
following table sets forth the effects of the adjustments on affected items within the Company’s previously reported consolidated statements of operations for the three months ended September 30, 2022, and includes an increase to basic earnings per share in the amount of $0.04 includes an increase to diluted earnings (loss) per share in the amount of $6.19, a decrease to weighted average number of shares outstanding – basic of 4,679 shares, and an increase to weighted average number of shares outstanding - diluted of 143,260 shares.
SCHEDULE OF CHANGES IN EARNING PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING
| 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 $1.29, an increase to diluted earnings (loss) per share in the amount of $27.30, a decrease to weighted average number of shares outstanding – basic of 85,142 shares, and an increase to weighted average number of shares outstanding - diluted of 64,146 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.
Liquidity
As
of September 30, 2022, the Company’s reported cash and restricted cash aggregated balance was approximately $3,024,000, current assets were approximately $4,488,000, while current liabilities were approximately $7,971,000. As of September 30, 2022, the Company had a working capital deficit of approximately $3,483,000 and stockholders’ equity of approximately $28,366,000. For the nine months ended September 30, 2022, the Company reported loss from operations of approximately $5,860,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $32,399,000, resulting in an overall net income of approximately $25,958,000. For the nine months ended September 30, 2022, the Company reported negative cash flows from operations of approximately $2,178,000. The Company completed a capital offering in January 2022 that raised net proceeds of approximately $17,853,000. Management believes the Company’s financial position and its ability to raise capital to be reasonable and sufficient.
| 8 |
| --- |
Useof 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.
Cashand 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<br> 30, 2022 | September<br> 30, 2021 | |||
|---|---|---|---|---|
| Cash | $ | 1,615,054 | $ | 5,655,103 |
| Restricted<br> cash | 1,409,562 | 484,371 | ||
| Total<br> cash and restricted cash | $ | 3,024,616 | $ | 6,139,474 |
FairValue 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.
WarrantLiabilities: 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<br> 30, 2022 | December 31,<br><br> <br>2021 | |||||
|---|---|---|---|---|---|---|
| Stock<br> price | $ | 0.78 | $ | 6.44 | ||
| Volatility | 105 | % | 90 | % | ||
| Time<br> to expiry | 4.26 | 5 | ||||
| Dividend<br> yield | 0 | % | 0 | % | ||
| Risk<br> free rate | 4.10 | % | 1.10 | % |
The following reconciles fair value of the liability classified warrants:
SCHEDULE OF RECONCILES WARRANT COMMITMENT
| 1 | 2 | 3 | 4 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three<br> and Nine Months ended September 30, 2022 | ||||||||||||
| Series<br> B Warrant Commitment | Series<br> B warrant liabilities | Placement<br> agent warrants | Total | |||||||||
| Beginning<br> balance | $ | 37,652,808 | $ | - | $ | - | $ | 37,652,808 | ||||
| Initial<br> recognition | - | 55,061,119 | 1,525,923 | 56,587,042 | ||||||||
| Unrealized<br> (gain) loss | 17,408,311 | (31,980,437 | ) | (946,461 | ) | (15,518,587 | ) | |||||
| Warrants<br> exercised or transferred | (55,061,119 | ) | (55,061,119 | ) | ||||||||
| Ending<br> balance, March 31, 2022 | $ | - | $ | 23,080,682 | $ | 579,462 | $ | 23,660,144 | ||||
| Unrealized<br> (gain) loss | - | (12,322,737 | ) | (310,514 | ) | (12,633,251 | ) | |||||
| Ending<br> balance, June 30, 2022 | $ | - | $ | 10,757,945 | $ | 268,948 | $ | 11,026,893 | ||||
| Beginning<br> balance | $ | - | $ | 10,757,945 | $ | 268,948 | $ | 11,026,893 | ||||
| Unrealized<br> (gain) loss | - | (7,726,161 | ) | (193,154 | ) | (7,919,315 | ) | |||||
| Ending<br> balance, September 30, 2022 | - | 3,031,784 | 75,794 | 3,107,578 | ||||||||
| Ending<br> balance | - | 3,031,784 | 75,794 | 3,107,578 | ||||||||
| 1 | 2 | |||||||||||
| --- | --- | --- | --- | --- | ||||||||
| December<br> 31, 2021 | ||||||||||||
| Series<br> B Warrant Commitment | Total | |||||||||||
| Beginning<br> balance | $ | - | $ | - | ||||||||
| Initial<br> recognition | 20,244,497 | 20,244,497 | ||||||||||
| Unrealized<br> (gain) loss | 17,408,311 | 17,408,311 | ||||||||||
| Ending<br> balance | $ | 37,652,808 | $ | 37,652,808 |
Earn-outliabilities: 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
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| Valuation<br> technique | Discounted<br> cash flow | Discounted<br> cash flow |
| Significant<br> unobservable input | Projected<br> revenue and probability of achievement | Projected<br> revenue and probability of achievement |
| 9 |
| --- |
The Company values its Level 3 earn-out liability related to the Barra Acquisition using a Monte Carlo simulation in a risk-neutral framework (a special case of the Income Approach). The following summarizes the significant unobservable inputs:
SCHEDULE OF EARN OUT LIABILITY
| September<br> 30,<br> 2022 | |
|---|---|
| WACC<br> Risk Premium: | 14.5 |
| Volatility | 50 |
| Credit<br> Spread: | 15.1 |
| Payment<br> Delay (days) | 90 |
| Risk<br> free rate | Yield Curve |
| Discounting<br> Convention: | Mid-period |
| Number<br> of Iterations | 100,000 |
All values are in US Dollars.
Undiscounted
remaining earn out payments are approximately $3,291,883 as of September 30, 2022. The following table reconciles fair value of earn-out liabilities for the period ending September 30, 2022:
SCHEDULE OF GAIN OR LOSSES RECOGNIZED FAIR VALUE
| September<br> 30, 2022 | December<br> 31, 2021 | |||||
|---|---|---|---|---|---|---|
| Beginning<br> balance – January 1 | $ | 3,813,878 | $ | 2,931,418 | ||
| Acquisitions<br> and Settlements | (1,027,296 | ) | 1,160,562 | |||
| Period<br> adjustments: | ||||||
| Fair<br> value changes included in earnings^*^ | 132,445 | (278,102 | ) | |||
| Ending<br> balance | $ | 2,919,027 | $ | 3,813,878 | ||
| Less:<br> Current portion | (2,283,380 | ) | (3,297,855 | ) | ||
| Ending<br> balance, less current portion | 635,647 | 516,023 | ||||
| * | Recorded<br> as a reduction to general and administrative expenses | |||||
| --- | --- |
Investmentin 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 928,343 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, $1,350,000 in exchange for 394,029 shares. The second tranche allowed the Company to acquire an additional 209,075 shares at a price of $6.457 per share by no later than December 30, 2020. The third full tranche allowed the Company to purchase an additional 325,239 shares at a purchase price of $9.224 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.
| 10 |
| --- |
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.
RevenueRecognition
The following table disaggregates the Company’s revenue by line of business, showing commissions earned:
SCHEDULE OF DISAGGREGATION REVENUE
| Three<br> Months ended September 30, 2022 | Medical/Life | Property<br> and Casualty | Total | |||
|---|---|---|---|---|---|---|
| Regular | ||||||
| EBS | $ | 212,384 | $ | - | $ | 212,384 |
| USBA | 13,732 | - | 13,732 | |||
| CCS/UIS | - | 76,035 | 76,035 | |||
| Montana | 426,591 | - | 426,591 | |||
| Fortman | 259,255 | 186,860 | 446,115 | |||
| Altruis | 896,012 | - | 896,012 | |||
| Kush | 366,219 | - | 366,219 | |||
| Medigap | 1,331,593 | - | 1,331,593 | |||
| Barra | 83,615 | 301,065 | 384,680 | |||
| $ | 3,589,401 | $ | 563,960 | $ | 4,153,361 |
| 11 |
| --- | | Nine<br> Months ended September 30, 2022 | Medical/Life | | Property<br> and Casualty | | Total | | | --- | --- | --- | --- | --- | --- | --- | | Regular | | | | | | | | EBS | $ | 645,217 | $ | - | $ | 645,217 | | USBA | | 39,638 | | - | | 39,638 | | CCS/UIS | | - | | 177,111 | | 177,111 | | Montana | | 1,385,017 | | - | | 1,385,017 | | Fortman | | 949,189 | | 589,924 | | 1,539,113 | | Altruis | | 3,056,257 | | - | | 3,056,257 | | Kush | | 1,230,259 | | - | | 1,230,259 | | Medigap | | 3,868,654 | | - | | 3,868,654 | | Barra | | 153,539 | | 501,463 | | 655,002 | | | $ | 11,327,770 | $ | 1,268,498 | $ | 12,596,268 | | Three<br> Months ended September 30, 2021 | Medical/Life | | Property<br> 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<br> Months ended September 30, 2021 | Medical/Life | | Property<br> and Casualty | | Total | | | --- | --- | --- | --- | --- | --- | --- | | Regular | | | | | | | | EBS | $ | 642,428 | $ | - | $ | 642,428 | | USBA | | 45,861 | | - | | 45,861 | | CCS/UIS | | - | | 274,928 | | 274,928 | | Montana | | 1,283,402 | | - | | 1,283,402 | | Fortman | | 884,073 | | 628,327 | | 1,512,400 | | Altruis | | 2,558,653 | | - | | 2,558,653 | | Kush | | 778,541 | | - | | 778,541 | | | $ | 6,192,958 | $ | 903,255 | $ | 7,096,213 |
The following, are customers representing 10% or more of total revenue:
SCHEDULE OF CONCENTRATIONS OF REVENUES
| Insurance<br> Carrier | 2022 | 2021 |
|---|---|---|
| For the three months ended September 30, | ||
| Insurance<br> Carrier | 2022 | 2021 |
| LTC<br> Global | 27<br> % | -% |
| Priority<br> Health | 21<br> % | 27% |
| BlueCross<br> BlueShield | 10<br> % | 24% |
| 12 |
| --- | | Insurance<br> Carrier | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | For the Nine months ended September 30, | | | | | Insurance<br> Carrier | 2022 | | 2021 | | | LTC Global | 27 | % | - | % | | Priority<br> Health | 24 | % | 30 | % | | BlueCross BlueShield | 10 | % | 25 | % |
No
other single Customer accounted for more than 10% of the Company’s commission revenues. The loss of any significant customer, including Priority Health, BlueCross BlueShield and LTC Global could have a material adverse effect on the Company.
IncomeTaxes
The Company recorded no income tax expense for the three and nine months ended September 30, 2022 and 2021 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.
As of September 30, 2022 and December 31, 2021, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
PriorPeriod Adjustments
The Company identified certain immaterial adjustments impacting prior reporting periods. Specifically, the Company identified adjustments to correct certain asset, liability and equity accounts in relation to historical purchase price allocation accounting, historical accrued revenues and true ups of the common stock issuable account.
The Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. (SAB) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements, and ASC 250, Accounting Changes and Error Corrections.
Accordingly, the Company’s comparative condensed consolidated financial statements and impacted notes have been revised from amounts previously reported to reflect these adjustments. The following table illustrates the impact on previously reported amounts and adjusted balances presented in the condensed consolidated financial statements for the period ended September 30, 2022.
SUMMARIZES THE CHANGES TO THE PREVIOUSLY ISSUED FINANCIAL INFORMATION
| Account | 12/31/2020<br> <br>As reported | Adjustment | 12/31/2020<br> <br>Adjusted | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Earn-out<br> liability | 2,631,418 | 300,000 | 2,931,418 | ||||||
| Goodwill | 9,265,070 | (503,345 | ) | 8,761,725 | |||||
| Common<br> stock issuable | 822,116 | (482,116 | ) | 340,000 | |||||
| Additional<br> paid-in-capital | 11,377,123 | 182,116 | 11,559,239 | ||||||
| Accumulated<br> Deficit | (12,482,281 | ) | 122,601 | (12,359,680 | ) | ||||
| Account | 3/31/2021<br> <br>As reported | Adjustment | 3/31/2021<br> <br>Adjusted | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Common<br> stock issuable | 482,116 | (482,116 | ) | 0 | |||||
| Additional<br> paid-in-capital | 25,810,147 | 182,116 | 25,992,263 | ||||||
| Accumulated<br> Deficit | (13,123,609 | ) | 150,003 | (12,973,606 | ) |
| 13 |
| --- |
RecentlyIssued Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
NOTE
- STRATEGIC INVESTMENTS AND BUSINESS COMBINATIONS
MedigapHealthcare Insurance Company, LLC Transaction
On
January 10, 2022, pursuant to an asset purchase agreement, dated December 21, 2021, the Company completed the acquisition of all of the assets of Medigap Healthcare Insurance Company, LLC (“Medigap”) for a purchase price of $20,096,250, consisting of: (i) payment to Medigap of $18,138,750 in cash and (ii) the issuance to Medigap of 40,402 shares of the Company’s restricted common stock in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The purchase price is subject to post-closing adjustment to reconcile certain pre-closing credits and liabilities of the parties. The shares issued to Medigap as part of the purchase price are further subject to lock up arrangements pursuant to which 50% of the shares may be sold after the one-year anniversary of the date of closing of the transaction and the balance of the shares may be sold after the second-year anniversary of the date of closing of the transaction.
The acquisition of Medigap was accounted for as a business combination in accordance with the acquisition method pursuant to FASB Topic No. 805, Business Combination (ASC 805). Accordingly, the total purchase consideration was allocated to the assets acquired, and liabilities assumed based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The preliminary allocation of the purchase price in connection with the acquisition of Medigap was calculated as follows:
SCHEDULE OF ALLOCATION OF PURCHASE PRICE
| Description | Fair<br> Value | Weighted Average <br><br>Useful Life (Years) | |||
|---|---|---|---|---|---|
| Property,<br> plant and equipment | $ | 20,666 | 5 | ||
| Right-of-use<br> asset | 317,787 | ||||
| Trade<br> names | 340,000 | 15 | |||
| Customer<br> relationships | 4,550,000 | 12 | |||
| Technology | 67,000 | 3 | |||
| Backlog | 210,000 | 1 | |||
| Chargeback<br> reserve | (1,484,473 | ) | |||
| Lease<br> 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 $693,861, 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<br> 30, | September<br> 30, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Revenue | $ | 12,962,843 | $ | 10,931,340 | ||
| Net<br> Income (Loss) | $ | 25,971,268 | $ | (2,344,977 | ) | |
| Earnings<br> (Loss) per common share, basic | $ | 16.50 | $ | (3.60 | ) | |
| Earnings<br> (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.
| 15 |
| --- |
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<br> Value | Weighted Average<br><br> Useful Life<br><br> (Years) | |||
|---|---|---|---|---|---|
| Acquired<br> accounts receivable | $ | 92,585 | |||
| Property,<br> plant and equipment | 8,593 | 7 | |||
| Right-of-use<br> asset | 122,984 | ||||
| Trade<br> names | 22,000 | 4 | |||
| Customer<br> relationships | 550,000 | 10 | |||
| Agency<br> relationships | 2,585,000 | 10 | |||
| Developed<br> technology | 230,000 | 5 | |||
| Lease<br> 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 $182,603, 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<br> 30, | September<br> 30, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Revenue | $ | 13,143,889 | $ | 8,370,850 | ||
| Net<br> Income (Loss) | $ | 26,192,218 | $ | (1,940,384 | ) | |
| Earnings<br> (Loss) per common share, basic | $ | 16.65 | $ | (3.00 | ) | |
| Earnings<br> (Loss) per common share, diluted | $ | (11.40 | ) | $ | (3.00 | ) |
| 16 |
| --- |
NOTE
- GOODWILL AND OTHER INTANGIBLE ASSETS
The following table rolls forward the Company’s goodwill balance for the periods ending September 30, 2022 and December 31, 2021. As discussed in Note 1 - Prior Period Adjustments, a $(503,345) adjustment was identified for goodwill which impacted the closing December 31, 2020 balance in the same amount. Accordingly, the December 31, 2020 balance is adjusted in the following table from the originally reported balance of $9,265,070 to $8,761,725.
SCHEDULE OF IMPAIRMENT OF GOODWILL
| Goodwill | ||
|---|---|---|
| December<br> 31, 2020 | $ | 8,761,725 |
| Goodwill<br> recognized in connection with Kush acquisition on May 1, 2021 | 1,288,552 | |
| December<br> 31, 2021 | 10,050,277 | |
| Goodwill<br> recognized in connection with Medigap acquisition on January 10, 2022 | 19,199,008 | |
| Goodwill<br> recognized in connection with Barra acquisition on April 26, 2022 | 4,236,822 | |
| September<br> 30, 2022 | $ | 33,486,107 |
The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of September 30, 2022:
SCHEDULE OF INTANGIBLE ASSETS AND WEIGHTED-AVERAGE REMAINING AMORTIZATION PERIOD
| Weighted<br> Average Remaining Amortization period (Years) | Gross<br> Carrying Amount | Accumulated<br> Amortization | Net<br> Carrying Amount | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Trade<br> name and trademarks | 4.6 | $ | 2,141,858 | $ | (897,390 | ) | $ | 1,244,468 | |
| Internally<br> developed software | 4.3 | 1,530,537 | (210,443 | ) | 1,320,094 | ||||
| Customer<br> relationships | 9.3 | 11,922,290 | (1,793,319 | ) | 10,128,971 | ||||
| Purchased<br> software | 0.4 | 665,137 | (568,039 | ) | 97,098 | ||||
| Video<br> Production Assets | 0.3 | 50,000 | (36,621 | ) | 13,379 | ||||
| Non-competition<br> agreements | 2.1 | 3,504,810 | (2,003,505 | ) | 1,501,305 | ||||
| Contracts<br> Backlog | 0.3 | 210,000 | (155,342 | ) | 54,658 | ||||
| $ | 20,024,632 | $ | (5,664,659 | ) | $ | 14,359,973 |
The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of December 31, 2021:
| Weighted<br> Average Remaining Amortization period (Years) | Gross<br> <br>Carrying<br> <br>Amount | Accumulated<br> Amortization | Net<br> <br>Carrying Amount | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Trade<br> name and trademarks | 3.5 | $ | 1,777,475 | $ | (609,822 | ) | $ | 1,167,653 | |
| Internally<br> developed software | 4.7 | 595,351 | (28,443 | ) | 566,908 | ||||
| Customer<br> relationships | 7.7 | 4,237,290 | (1,048,726 | ) | 3,188,564 | ||||
| Purchased<br> software | 0.6 | 562,327 | (452,985 | ) | 109,342 | ||||
| Video<br> Production Assets | 1.0 | 20,000 | - | 20,000 | |||||
| Non-competition<br> agreements | 2.9 | 3,504,809 | (1,478,376 | ) | 2,026,433 | ||||
| $ | 10,697,252 | $ | (3,618,352 | ) | $ | 7,078,900 |
| 17 |
| --- |
The following table reflects expected amortization expense as of September 30, 2022, for each of the following five years and thereafter:
SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS
| 1 | ||
|---|---|---|
| Years<br> ending December 31, | Amortization<br><br> <br>Expense | |
| 2022<br> (remainder of year) | $ | 707,166 |
| 2023 | 2,536,548 | |
| 2024 | 2,158,445 | |
| 2025 | 1,764,541 | |
| 2026 | 1,504,660 | |
| Thereafter | 5,688,613 | |
| Total | $ | 14,359,973 |
NOTE
- LONG-TERM DEBT AND SHORT-TERM FINANCINGS
Long-Term Debt
The composition of the long-term debt follows:
SCHEDULE OF LONG TERM DEBT
| December 31,<br> <br>2021 | |||||
|---|---|---|---|---|---|
| Oak<br> 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<br> 30, 2022 and December 31, 2021, respectively | 442,368 | $ | 485,317 | ||
| Oak<br> Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of 15,713<br> and 17,626 as of September 30, 2022 and December 31, 2021, respectively | 715,816 | 785,826 | |||
| Oak<br> 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,<br> 2022 and December 31, 2021, respectively | 811,699 | 884,720 | |||
| Oak<br> 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,<br> 2022 and December 31, 2021, respectively | 2,045,048 | 2,226,628 | |||
| Oak<br> 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,<br> 2022 and December 31, 2021, respectively | 3,337,241 | 3,616,754 | |||
| Oak<br> Street Funding LLC Term Loan for the acquisition of Barra, net of deferred financing costs of 204,958 and 0 as of September 30,<br> 2022 and December 31, 2021, respectively | 6,315,042 | - | |||
| 13,667,214 | 7,999,245 | ||||
| Less:<br> current portion | (1,026,541 | ) | (913,920 | ) | |
| Long-term<br> debt | 12,640,673 | $ | 7,085,325 |
All values are in US Dollars.
OakStreet Funding LLC – Term Loans and Credit Facilities
SCHEDULE OF CUMULATIVE MATURITIES OF LONG-TERM LOANS AND CREDIT FACILITIES
| Fiscal<br> year ending December 31, | Maturities of<br> <br>Long-Term Debt | ||
|---|---|---|---|
| 2022<br> (remainder of year) | $ | 211,904 | |
| 2023 | 1,168,585 | ||
| 2024 | 1,482,266 | ||
| 2025 | 1,616,891 | ||
| 2026 | 1,760,367 | ||
| Thereafter | 7,752,474 | ||
| Total | 13,992,487 | ||
| Less:<br> debt issuance costs | (325,273 | ) | |
| Total | $ | 13,667,214 |
| 18 |
| --- |
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
- WARRANT LIABILITIES
SeriesB Warrants
On
December 22, 2021, the Company entered into a securities purchase agreement with several institutional buyers for the purchase and sale of (i) warrants to purchase up to an aggregate of 651,997 shares of the Company’s common stock, par value $0.086 per share at an exercise price of $61.35 per share, (ii) an aggregate of 178,059 shares of Common Stock, and (iii) 9,076 shares of the Company’s newly-designated Series B convertible preferred stock, par value $0.086 per share, with a stated value of $1,000 per share, initially convertible into an aggregate of 147,939 shares of Common Stock at a conversion price of $61.35 per share, each a freestanding financial instrument, (the “Private Placement”). The aggregate purchase price for the Common Shares, the Preferred Shares and the Warrants was approximately $20,000,000.
By
entering into the Private Placement on December 22, 2021, the Company entered into a commitment to issue the Common Shares, Preferred Shares and Series B Warrants on the Initial Closing Date for a fixed price and exercise price, as applicable. The commitment to issue Series B Warrants (the “Warrant Commitment”) represents a derivative financial instrument, other than an outstanding share, that, at inception, has both of the following characteristics: (i) embodies a conditional obligation indexed to the Company’s equity. The Company classified the commitment to issue the warrants as a derivative liability because it represents a written option that does not qualify for equity accounting The Company initially measured the derivative liability at its fair value and will subsequently remeasure the derivative liability, at fair value with changes in fair value recognized in earnings. An option pricing model was utilized to calculate the fair value of the Warrant Commitment. The Company initially recorded $17,652,808 of non-operating unrealized losses within the recognition and change in fair value of warrant liabilities account for the year ended December 31, 2021. The Private Placement closed on January 4, 2022, at which time the Company remeasured the derivative liability for the warrants issued in the transaction. The Company recognized $7,726,161 and $34,621,024 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.
PlacementAgent 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 included in the recognition and change in fair value of warrant liabilities account on the condensed consolidated statement of operations for the three and nine months ended September 30, 2022, respectively, A corresponding derivative liability of $75,794 is included on Company’s condensed consolidated balance sheet as of September 30, 2022.
| 19 |
| --- |
NOTE
- EQUITY
PreferredStock
The
Company has been authorized to issue 750,000,000 shares of $0.086 par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.
In
January 2022, the Company issued 9,076 shares of its newly designated Series B convertible preferred stock through the Private Placement for the purpose of raising capital. The Series B convertible preferred stock have no voting rights and initially each share may be converted into 16 shares of the Company’s common stock. The holders of the Series B convertible preferred stock are not entitled to receive any dividends other than any dividends paid on account of the common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari-passu with all holders of common stock.
During
August 2022, all 9,076 Series B Convertible Preferred Stock were converted by third parties into 147,939 shares of common stock.
CommonStock
The
Company has been authorized to issue 133,333,333 shares of common stock, $0.086 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, the Company issued 178,059 shares of common stock through the Private Placement for the purpose of raising capital. See Note 5 - Warrant Liabilities for proceeds received by the Company.
In
January 2022, the Company issued 40,402 shares of common stock pursuant to the Medigap Acquisition.
In
January 2022, upon agreement with Series A warrant holders, 25,000 warrants were exercised at a price of $99.00 into 25,000 of the Company’s common stock.
In
March 2022, the Company issued 400 shares of the Company’s common stock due to the vesting of 400 stock awards pursuant to an employee agreement.
In
May and June 2022, 218,462 Series C prepaid warrants were exchanged for 218,462 shares of the Company’s common stock.
In July 2022, 81,423 Series D prepaid warrants were exchanged for 81,423
shares of the Company’s common stock.
As
of September 30, 2022 and December 31, 2021, there were 1,203,630 and 730,407 shares of Common Stock outstanding, respectively.
| 20 |
| --- |
Warrants
SeriesA Warrants
In
conjunction with the Company’s initial public offering, the Company issued 138,000
Series
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 $0.01
.
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 to 110% of the public offering price of one share of common stock and accompanying Series A Warrant, $99.00. Series A warrant holders exercised 25,000 Series A warrants in January 2022, resulting in 113,000 of Series A warrants remaining issued and outstanding as of September 30, 2022.
Series C and D 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, in March 2022, the Company entered into Exchange Agreements with the holders of common stock issued in January 2022. Pursuant to the Exchange Agreements, the Company issued 218,462 Series C prepaid warrants in exchange for 218,462 shares of the Company’s common stock. Additionally, as compensation for entering into the Exchange Agreements, the Company issued 81,500 Series D prepaid warrants to the Private Placement investors for no additional consideration. The fair value of the Series D prepaid warrants was treated as a deemed dividend 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.
The
Series C and D Warrants are equity classified pursuant to the warrant agreement provisions that permit holders to obtain a fixed number of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge. The warrants expire on the fifth anniversary of the respective issuance dates and are exercisable at a per share exercise price equal to $0.001.
In
May and June 2022, the 218,462 Series C prepaid warrants were converted for 218,462 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 81,500 Series D prepaid warrants were converted into 81,472 shares of the Company’s common stock for a conversion price of $0.001 through both cash and cashless exercises. Proceeds of $795 were received in conjunction with the cash exercise.
Equity-basedCompensation
Between February and May 2022, three existing employees were awarded bonuses consisting of shares of the Company’s common stock to be vested immediately. The shares granted in 2022 were valued at $766,250 and treated as compensation expense. As of September 30, 2022, these shares have not been issued.
In
April 2022 , pursuant to an agreement between the Company and an executive, the executive will be compensated with 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 nine months ended September 30, 2022, compensation expense on this grant was $14,850 and $25,571, 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 20,210 restricted stock awards which were immediately vested. Stocks earned are restricted for twelve months. The stocks were valued at $249,650 and recognized as stock-based compensation for the three and nine months ended September 30, 2022.
NOTE
- EARNINGS (LOSS) PER SHARE
Basic 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.
| 21 |
| --- |
The following calculates basic and diluted EPS:
SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS
| Three Months | Three Months | |||||
|---|---|---|---|---|---|---|
| Ended | Ended | |||||
| September 30, <br><br>2022 | September 30, <br><br>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 | 4.69 | (0.82 | ) | |||
| Nine Months | Nine Months | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Ended | Ended | |||||
| September 30, <br><br>2022 | September 30, <br><br>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 | ) |
Additionally, the following are considered anti-dilutive securities excluded from weighted-average shares used to calculate diluted net loss per common share:
SCHEDULE
OF DILUTIVE NET LOSS PER COMMON SHARES
| 1 | 2 | |||
|---|---|---|---|---|
| For the Three and Nine Months<br> Ended | ||||
| September 30, <br><br>2022 | September 30, <br><br>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 |
| 22 |
| --- |
NOTE
- LEASES
Operating
lease expense for the three months ended September 30, 2022 and 2021 was $159,624 and $97,265 respectively. Operating lease expense for the nine months ended September 30, 2022 and 2021 was $434,798 and $220,798 respectively. As of September 30, 2022, the weighted average remaining lease term and weighted average discount rate for the operating leases were 3.86 years and 5.72% 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<br> <br>Obligations | |
|---|---|---|
| 2022 | $ | 157,633 |
| 2023 | 570,275 | |
| 2024 | 269,908 | |
| 2025 | 144,124 | |
| 2026 | 113,738 | |
| Thereafter | 268,202 | |
| Total undiscounted operating lease payments | 1,523,880 | |
| Less: Imputed interest | 152,467 | |
| Present value of operating lease liabilities | $ | 1,371,413 |
NOTE
- COMMITMENTS AND CONTINGENCIES
LegalContingencies
The Company is subject to various legal proceedings and claims, either asserted or unasserted, arising in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows, and accordingly, no legal contingencies are accrued as of September 30, 2022 and December 31, 2021. Litigation relating to the insurance brokerage industry is not uncommon. As such the Company, from time to time have been, subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future.
Earn-outliabilities
The following outlines changes to the Company’s earn-out liability balances for the respective periods ended September 30, 2022 and December 31, 2021:
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 | ||||||
| CCS | **** | Fortman | Montana | Altruis | **** | Kush | **** | Total | **** | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||
| Ending balance December 31, 2020 | $ | 81,368 | $ | 432,655 | $ | 522,553 | $ | 1,894,842 | $ | - | $ | 2,931,418 | ||||||
| Changes due to business combinations | - | - | - | - | 1,694,166 | 1,694,166 | ||||||||||||
| Changes due to payments | - | - | - | (452,236 | ) | - | (452,236 | ) | ||||||||||
| Changes due to fair value adjustments | - | 82,653 | 93,416 | (449,738 | ) | (4,433 | ) | (278,102 | ) | |||||||||
| Changes due to write-offs | (81,368 | ) | - | - | - | - | (81,368 | ) | ||||||||||
| Ending balance December 31, 2021 | $ | - | $ | 515,308 | $ | 615,969 | $ | 992,868 | $ | 1,689,733 | $ | 3,813,878 |
NOTE
- RELATED PARTY TRANSACTIONS
On September 13, 2022, the Company issued a promissory note to YES Americana Group, LLC, a related party entity for the principal sum of $1,500,000 (the “Note”). The Note matures on January 15, 2024, bearing interest of 0% per annum for the first six months, and 5% per annum thereafter, payable monthly. In the event the Note is not paid by the maturity date, the loan will automatically be extended for an additional year until January 15, 2025, and if necessary, extended again for one additional year through January 15, 2026.
| 23 |
| --- |
Item4. Controls and Procedures
Evaluationof 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.
The Company determined it had a material weakness in its disclosure controls and procedures as it pertains to earnings per share (EPS) for the three and nine months ended September 30, 2022. During the quarter ended March 31, 2023, the Company mitigated this deficiency by consulting with qualified advisors that have in-depth EPS expertise. These advisors will assist the Company in the calculations and disclosures of EPS for future reporting periods. Pursuant to the above, our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022, concluding them to be ineffective as of such date.
Changesin Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item6. Exhibits
The following exhibits are filed with this Form 10-K.
| Exhibit No. | Description |
|---|---|
| 4.1 | YES Americana LLC Promissory Note (incorporated by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2022). |
| 31.1* | Certification<br> of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 2002 |
| 31.2* | Certification<br> of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 2002 |
| 32.1** | Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer |
| 101.INS* | Inline<br> XBRL Instance Document |
| 101.CAL* | Inline<br> XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.SCH* | Inline<br> XBRL Taxonomy Extension Schema Document |
| 101.DEF* | Inline<br> XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | Inline<br> XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE* | Inline<br> XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | Cover<br> Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
*Filed herewith
**Furnished herewith
| 24 |
| --- |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Reliance Global Group, Inc. | ||
|---|---|---|
| Date: May 18, 2023 | By: | /s/ Ezra Beyman |
| Ezra Beyman | ||
| Chief<br> Executive Officer<br><br> <br>(principal<br> executive officer) | ||
| Date: May 18, 2023 | By: | /s/ Joel Markovits |
| --- | --- | --- |
| Joel Markovits | ||
| Chief Financial Officer | ||
| (principal financial officer and principal accounting<br> officer) |
| 25 |
| --- |
Exhibit31.1
I, Ezra Beyman, certify that:
1. I have reviewed Amendment No. 1 to the Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 2022 of Reliance Global Group, Inc. ;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure<br> controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material<br> information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,<br> particularly for the period in which this report is being prepared; |
|---|---|
| (b) | Designed such internal<br> control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,<br> to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for<br> external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness<br> of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness<br> of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report<br> any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent<br> fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is<br> reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies<br> and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely<br> affect the registrant’s ability to record, process, summarize and report financial information; and | |
|---|---|---|
| (b) | Any fraud, whether or not<br> material, that involves management or other employees who have a significant role in the registrant’s internal control over<br> financial reporting. | |
| Dated: May<br> 18, 2023 | By: | /s/ Ezra Beyman |
| --- | --- | --- |
| Ezra Beyman | ||
| Chief Executive Officer<br> (Principal Executive Officer) |
Exhibit31.2
CERTIFICATIONS
I, Joel Markovits, certify that:
1. I have reviewed Amendment No. 1 to the Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 2022 of Reliance Global Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others<br> within those entities, particularly for the period in which this report is being prepared; |
|---|---|
| (b) | Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and |
| (d) | Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| (a) | All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and | |
|---|---|---|
| (b) | Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting. | |
| Date:<br> May 18, 2023 | By: | /s/ Joel Markovits |
| --- | --- | --- |
| Joel<br> Markovits | ||
| Chief<br> Financial Officer (Principal Financial Officer) |
Exhibit32.1
Certification
Pursuantto Section 906 of the Sarbanes-Oxley Act Of 2002
(Subsections(A) And (B) Of Section 1350, Chapter 63 of Title 18, United States Code)
Each of the undersigned officers of Reliance Global Group, Inc. (the “Company”), does hereby certify, that:
Amendment No. 1 to the Quarterly Report on Form 10-Q for the period ended September 30, 2022 (the “Form 10-Q/A”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q/A fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date:<br> May 18, 2023 | By: | /s/ Ezra Beyman |
|---|---|---|
| Ezra<br> Beyman | ||
| Chief<br> Executive Officer (Principal Executive Officer) | ||
| Date:<br> May 18, 2023 | By: | /s/ Joel Markovits |
| Joel<br> Markovits | ||
| Chief<br> Financial Officer (Principal Financial Officer) |