UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For
the transition period from _____ to _____
Commission file number of the issuing entity:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
I.R.S. Employer Identification Number
524210
(Primary Standard Industrial Code Classification Number)
(Address, including zip code, and telephone number, including area code of registrant’s principal executive offices)
Copies to:
Mr. Ezra Beyman
Chief Executive Officer
300 Blvd. of the Americas, Suite 105 Lakewood, NJ 08701
732-380-4600
(Address, including zip code, and telephone number,
including area code, of agent for service)
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company, in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).
Yes:
☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
| ||||
At May 16, 2022 the registrant had shares of common stock, par value $0.086 per share, outstanding.
TABLE OF CONTENTS
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, 2022 | December
31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable, related parties | ||||||||
| Other receivables | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Investment in NSURE, Inc. | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity (deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and other accrued liabilities | $ | $ | ||||||
| Chargeback reserve | ||||||||
| Other payables | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of leases payable | ||||||||
| Earn-out liability, current portion | ||||||||
| Warrant commitment | ||||||||
| Total current liabilities | ||||||||
| Loans payable, related parties, less current portion | ||||||||
| Long term debt, less current portion | ||||||||
| Leases payable, less current portion | ||||||||
| Earn-out liability, less current portion | ||||||||
| Warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, $ par value; shares authorized and and issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Common stock, $par value; shares authorized and and issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Stock subscription receivable | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 1 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| March 31, 2022 | March 31, 2021 | |||||||
| Revenue | ||||||||
| Commission income | $ | $ | ||||||
| Total revenue | ||||||||
| Operating expenses | ||||||||
| Commission expense | ||||||||
| Salaries and wages | ||||||||
| General and administrative expenses | ||||||||
| Marketing and advertising | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Other expense, net | ( | ) | ( | ) | ||||
| Recognition and change in fair value of warrant liabilities | ||||||||
| Total other income (expense) | ( | ) | ||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Basic earnings (loss) per share | $ | $ | ( | ) | ||||
| Diluted earnings (loss) per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding - Basic | ||||||||
| Weighted average number of shares outstanding - Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 2 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Reliance Global Group, Inc. | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Common stock issuable | Additional paid-in | Subscription | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | Receivable | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Share based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Shares issued due to private placement | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to acquisition of Medigap | - | - | ||||||||||||||||||||||||||||||||||||||
| Exercise of Series A warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of prefunded Series C Warrants in exchange for common shares | - | ( | ) | ( | ) | - | ||||||||||||||||||||||||||||||||||
| Shares issued for vested stock awards | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net Income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Reliance Global Group, Inc. | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Common stock issuable | Additional paid- | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | in capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Share based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | ||||||||||||||||||||||||||||||||||
| Shares issued due to public offering, net of offering costs of $ | - | - | ||||||||||||||||||||||||||||||||||
| Over-allotment shares from offering, net of offering costs of $ | - | - | ||||||||||||||||||||||||||||||||||
| Warrants sold during public offering at quoted price | - | - | - | |||||||||||||||||||||||||||||||||
| Shares issued due to conversion of preferred stock | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||
| Shares issued due to conversion of debt | - | - | ||||||||||||||||||||||||||||||||||
| Rounding shares related to initial public offering | - | ( | ) | |||||||||||||||||||||||||||||||||
| Shares issued pursuant to software purchase | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
Reliance Global Group, Inc. and Subsidiaries and Predecessor
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| March 31, 2022 | March 31, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustment to reconcile net income to net cash (used) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs and accretion of debt discount | ||||||||
| Non-cash lease expense | ( | ) | ||||||
| Stock compensation expense | ||||||||
| Earn-out fair value and write-off adjustments | ||||||||
| Recognition and change in fair value of warrant liabilities | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts payables and other accrued liabilities | ( | ) | ( | ) | ||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable, related parties | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Other payables | ( | ) | ||||||
| Charge back reserve | ||||||||
| Other non-current assets | ( | ) | ||||||
| Prepaid expense and other current assets | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Acquisition of business, net of cash acquired | ( | ) | ||||||
| Purchase of intangibles | ( | ) | ||||||
| Net cash used in investing activities | ( | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Cash flows from financing activities: | ||||||||
| Principal repayments of debt | ( | ) | ( | ) | ||||
| Proceeds from loans payable, related parties | ||||||||
| Payments of loans payable, related parties | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants into common stock | ||||||||
| Net proceeds from private placement issuance of shares and warrants | ||||||||
| Issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and restricted cash | ||||||||
| Cash and restricted cash at beginning of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash and non-cash investing and financing transactions: | ||||||||
| Issuance of Series D Warrants | $ | $ | ||||||
| Issuance of placement agent warrants | $ | |||||||
| Conversion of common stock into Series C Warrants | $ | $ | ||||||
| Conversion of preferred stock into common stock | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Conversion of debt into equity | $ | $ | ||||||
| Common stock issued pursuant to acquisition | $ | $ | ||||||
| Common stock issued in lieu of services | $ | $ | ||||||
| Issuance of common stock pursuant to the purchase of software | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements
| 6 |
Reliance Global Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
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)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of 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.
Liquidity
As
of March 31, 2022, the Company’s reported cash and restricted cash aggregated balance was approximately $
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 its 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.
| 7 |
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:
| March 31, 2022 | March 31, 2021 | |||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and restricted cash | $ | $ | ||||||
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recognized over an asset’s estimated useful life using the straight-line method beginning on the date an asset is placed in service. The Company regularly evaluates the estimated remaining useful lives of the Company’s property and equipment to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation. Maintenance and repairs are charged to expense as incurred. Estimated useful lives of the Company’s Property and Equipment are as follows:
| Useful Life (in years) | ||
| Computer equipment | ||
| Office equipment and furniture | ||
| Leasehold improvements | ||
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.
As of March 31, 2022 and December 31, 2021 respectively, the Company’s balance sheet includes certain financial instruments, including cash, notes receivables, accounts payable, and short and long-term debt. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. The carrying amounts of long-term debt approximate their fair value as the variable interest rates are based on a market index.
The Company’s Warrant Commitment and warrant liabilities (“Warrant Liabilities”) (see Note 13, Commitments and Contingencies) represent liability-classified derivative financial instruments recorded at fair value on a recurring basis. The fair value includes significant inputs unobservable in the market and thus are considered Level 3. The Company measures fair value of Warrant Liabilities at issuance date and subsequently at the balance sheet date, using a binomial option pricing model. The significant inputs used in estimating fair value include the fair value of the underlying stock, expected term, risk free interest rate, and expected volatility, as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Stock price | $ | $ | ||||||
| Volatility | % | % | ||||||
| Time to expiry | ||||||||
| Dividend yield | % | % | ||||||
| Risk free rate | % | % |
The following reconciles the fair values of the liability classified warrants:
| March 31, 2022 | ||||||||||||||||
| Series B Warrant Commitment | Series B warrant liabilities | Placement agent warrants | Total | |||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Initial recognition | ||||||||||||||||
| Unrealized (gain) loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Warrants exercised or transferred | ( | ) | ( | ) | ||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||
| Series B Warrant Commitment | Total | |||||||
| Beginning balance | $ | $ | ||||||
| Initial recognition | ||||||||
| Unrealized (gain) loss | ||||||||
| Warrants exercised or transferred | ||||||||
| Ending balance | $ | $ | ||||||
The Company’s contingent accrued earn-out business acquisition consideration liabilities are considered Level 3 fair value liability instruments requiring period fair value assessments. These contingent consideration liabilities were recorded at fair value on the acquisition date and are re-measured quarterly based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are unobservable in the market, they are categorized as Level 3.
As
of March 31, 2022 and December 31, 2021 respectively, the earn-out liability account balance as reported in the condensed consolidated
balance sheets is $
| 8 |
For the Company’s earn-out liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the period ended March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Beginning balance - January 1 | $ | $ | ||||||
| Acquisitions and Settlements: | ||||||||
| JP Kush Acquisition | ||||||||
| CCS Write-off | ( | ) | ||||||
| Altruis partial settlement | ( | ) | ||||||
| - | - | |||||||
| Period adjustments: | ||||||||
| Fair value changes and accretion included in earnings* | ( | ) | ||||||
| Ending balance | $ | $ |
| * |
Quantitative Information about Level 3 Fair Value Measurements
Significant unobservable inputs used in the earn-out fair value measurements of the Company’s contingent consideration liabilities designated as Level 3 are as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Fair value | $ | $ | ||||||
| Valuation technique | ||||||||
| Significant unobservable input | ||||||||
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 March 31, 2022 and December 31, 2021, unamortized deferred financing costs were $
Business Combinations
The Company accounts for its business combinations using the acquisition method of accounting. Under the acquisition method, assets acquired, liabilities assumed, and consideration transferred are recorded at the date of acquisition at their respective fair values. Definite-lived intangible assets are amortized over the expected life of the asset. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination provides for contingent consideration such as earn-outs, the Company records the contingent consideration at fair value at the acquisition date. The Company remeasures fair value as of each reporting date and changes resulting from events after the acquisition date, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not 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.
| 9 |
Identifiable Intangible Assets, net
Finite-lived
intangible assets such as customer relationships assets, trademarks and tradenames are amortized over their estimated useful lives, generally
on a straight-line basis for periods ranging from
Goodwill and other indefinite-lived intangibles
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is assigned to a reporting unit on the acquisition date and tested for impairment at least annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. Similarly, indefinite-lived intangible assets (if any) other than goodwill are tested annually or more frequently if indicated, for impairment. If impaired, intangible assets are written down to fair value based on the expected discounted cash flows.
Financial Instruments
The Company evaluates issued financial instruments for classification as either equity or liability based on an assessment of the financial instrument’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the financial instruments issued are freestanding pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and, if applicable whether the financial instruments meet all of the requirements for equity classification under ASC 815, including whether the financial instruments are indexed to the Company’s own Common Stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance and as of each subsequent reporting period end date while the financial instruments are outstanding. Financial instruments that are determined to be liabilities under ASC 480 or ASC 815 are held at their initial fair value and remeasured to fair value at each subsequent reporting date, with changes in fair value recorded as a non-operating, non-cash loss or gain, as applicable.
The Company’s financial instruments consist of derivatives related to the warrants issued with the securities purchase agreement as discussed in Note 9, Warrant Liabilities. The accounting treatment of derivative financial instruments requires that we record the derivatives at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date. Upon the determination that an instrument is no longer subject to derivative accounting, the fair value of the derivative instrument at the date of such determination will be reclassified to paid in capital.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606 Revenue from Contracts with Customers which at its core, recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.
The Company’s revenue is primarily comprised of agency commissions earned from insurance carriers (the “Customer” or “Carrier”) related to insurance plans produced through brokering, producing and servicing agreements between insurance carriers and members. The Company defines a “Member” as an individual, family or entity currently covered or seeking insurance coverage.
The Company focuses primarily on agency services for insurance products in the “Healthcare” and property and casualty, which includes auto (collectively “P&C”) space, with nominal activity in the life insurance and bond sectors. Healthcare includes plans for individuals and families, Medicare supplements, ancillary and small businesses. The Company also earns revenue in the “Insurance Marketing” space as discussed further below.
Consideration for all agency services typically is based on commissions calculated by applying contractual commission rates to policy premiums. For P&C, commission rates are applied to premiums due, whereas for healthcare, commission rates, including override commissions, are applied to monthly premiums received by the Carrier.
The Company has two forms of billing practices, “Direct Bill” and “Agency Bill”. With Direct Bill, Carriers bill and collect policy premium payments directly from Members without any involvement from the Company. Commissions are paid to the Company 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. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
| 10 |
Identification of the performance obligations in the contract. Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
Determination of the transaction price. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer.
Allocation of the transaction price to the performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.
Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company satisfies performance obligations either over time or at a point in time, as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised good or service to the customer.
Healthcare revenue recognition:
The Company 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 from Carriers even on business still in place. In some instances, trailing commissions could occur which would be recognized similar to other Healthcare revenue. With one performance obligation, allocation of transaction price is normally not necessary.
Healthcare typically utilizes the Direct Bill method.
The Company recognizes revenue at a point in time, when it satisfies its monthly performance obligation and control of the service transfers to the Customer. Transfer occurs when Member insurance premium cash payments are received by the Customer. The Customer’s receipt of cash is the culmination and complete satisfaction of the Company’s performance obligation, and the earnings process is complete.
With Direct Bill, since the amount of monthly Customer cash receipts is unknown to the Company until the following month when notice is provided by Customer to Company, the Company accrues revenue at each period end. Any estimated revenue accrued and recognized at a period-end is trued up for financial reporting per actual revenue earned as provided by the Customer during the following month.
| 11 |
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.
Insurance Marketing revenue recognition:
Medigap, a consolidated wholly owned subsidiary of the Company earns commission revenue by selling bound insurance policies with all renewal rights to insurance marketing organizations (the “IM Customer”). The IM Customers utilize innovative actuarial models to value and price policies purchased based on future projections. IM Customers pay a one-time commission per policy purchased to selling agencies based on a pre-agreed formula outlined in the parties’ contractual agreement. Commission payments are subject to chargeback in the event a policy is cancelled or lapses within 3 months of a policy’s effective date or until the first three payments are received from the insured party, depending on the IM Customer Contract.
The Company identifies a contract when it has a binding agreement to sell issued insurance policies to the IM Customer.
There is one performance obligation in IM Customer contracts, to sell the rights in Company procured issued insurance policies to the IM Customer. The performance obligation is satisfied when the rights to an issued policy have been transferred to the IM Customer.
Transaction price is stated in a contract and is a set range of commission amounts based on each policy sold. There are two variable components to consideration received:
| a) | Commissions are only earned once a policy is “Placed”, defined as, an active policy sold to the IM Customer where the IM Customer has received the initial insurance carrier payment with respect to such policy. The Company requires end-user insured parties to pay the initial premium to the insurance carrier upon issuance of a policy. Insurance carrier in turn pays IM Customer its initial payment soon thereafter. Thus, upon sale of an issued policy to IM Customer, the Company has provided a bound issued policy and ensured first premium payment has been completed by insured party. This results in virtual assurance that the IM Customer will receive its initial insurance carrier payment, and it is more than probable that a significant revenue reversal will not occur. The Company thus considers all policies sold to the IM Customer to be Placed for revenue recognition purposes. | |
| b) | Commission
revenue is subject to chargeback in full if a policy is cancelled or lapses within three months from the policy effective date or
if the insured party does not make the first three payments of the policy. The Company uses historical activity as well as current
factors to estimate the unconstrained variable consideration for recognition per the expected value method. A chargeback reserve
liability is credited for the difference between cash consideration received and variable consideration recognized. At each reporting
period, the Company remeasures the chargeback reserve liability and recognizes any change as an increase or decrease to the then
current period revenue. As of March 31, 2022 and December 31, 2021, the chargeback reserve liability was $ |
With one performance obligation, allocation of transaction price is normally not necessary.
The Company recognizes revenue at a point in time when it satisfies its performance obligation and control of an insurance policy transfers to the IM Customer. Transfer of control occurs when the Company submits the Policy to the IM Customer.
IM Customers generally pay the Company weekly, and accruals are recorded as necessary at period end.
Other revenue policies: Insurance commissions earned from Carriers for life insurance products are recorded gross of amounts due to agents, with a 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:
| Three Months ended March 31, 2022 | Medical/Life | Property and Casualty | Total | |||||||||
| Regular | ||||||||||||
| EBS | $ | $ | $ | |||||||||
| USBA | ||||||||||||
| CCS/UIS | ||||||||||||
| Montana | ||||||||||||
| Fortman | ||||||||||||
| Altruis | ||||||||||||
| Kush | ||||||||||||
| Medigap | ||||||||||||
| $ | $ | $ | ||||||||||
| Three Months ended March 31, 2021 | Medical/Life | Property and Casualty | Contingent commission | Total | ||||||||||||
| Regular | ||||||||||||||||
| EBS | ||||||||||||||||
| USBA | ||||||||||||||||
| CCS/UIS | ||||||||||||||||
| Montana | ||||||||||||||||
| Fortman | ||||||||||||||||
| Altruis | ||||||||||||||||
| 12 |
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 March 31, 2021, or 2020. Operating leases are included in the line items right-of-use assets, current portion of leases payable, and leases payable, less current portion in the condensed consolidated balance sheets. Right-of-use (“ROU”) asset represents the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligations to make lease payments arising from the lease, both of which are recognized based on the present value of the 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 condensed consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statement of operations. The Company determines a lease’s term by agreement with lessor and includes lease extension options and variable lease payments when option and/or variable payments are reasonably certain of being exercised or paid.
Income Taxes
The Company 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.
| 13 |
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 the prior reporting period. Specifically, the Company identified adjustments to correct asset, liability and equity accounts in relation to historical purchase price allocation accounting, adjustments to true up accounts receivable and retained earnings for certain historical accrued revenues and true up the common stock issuable account.
The Company has also separately reclassified its purchase software from property, plant and equipment to intangible assets which had no impact on the condensed consolidated statement of operations.
The Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. (SAB) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and ASC 250, Accounting Changes and Error Corrections.
Accordingly, the Company’s comparative condensed consolidated financial statements and impacted notes have been revised from amounts previously reported to reflect these adjustments. The following table illustrates the impact on previously reported amounts and adjusted balances presented in the condensed consolidated financial statements for the period ended March 31, 2022.
| Account | 3/31/2021 As reported | Adjustment | 3/31/2021 Adjusted | |||||||||
| Earn-out liability-Closing balance as of December 31, 2020 | ||||||||||||
| Goodwill-Closing balance as of December 31, 2020 | ( | ) | ||||||||||
| Common stock issuable-Closing balance as of December 31, 2020 | ( | ) | ||||||||||
| Additional paid-in-capital-Closing balance as of December 31, 2020 | ||||||||||||
| Accumulated Deficit-Closing balance as of December 31, 2020 | ( | ) | ( | ) | ||||||||
| Common stock issuable | ( | ) | - | |||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||||||
| Additional paid-in-capital | ||||||||||||
| Commission income | ||||||||||||
| Total Revenue | ||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||
| EPS | ( | ) | ( | ) | ( | ) | ||||||
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. Early adoption is permitted. The Company adopted this pronouncement January 1, 2021 which did not have a material effect on the condensed consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted ASU 2020-06 on January 1, 2022, which did not have a material impact on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022 with early adoption permitted. The Company elected to early adopt ASU 2021-08 as of January 1, 2022, which did not have a material impact on the condensed consolidated financial statements.
| 14 |
NOTE 3. STRATEGIC INVESTMENTS AND BUSINESS COMBINATIONS
As of March 31, 2022, we have acquired nine insurance brokerages (see table below), including both acquisitions of affiliated companies (i.e., owned by Reliance Holdings before the acquisition) and unaffiliated companies. As our acquisition strategy continues, our reach within the insurance arena can provide us with the ability to offer lower rates, which could boost our competitive position within the industry.
| Acquired | Date | Location | Line of Business | Status | ||||
| U.S. Benefits Alliance, LLC (USBA) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
| Employee Benefit Solutions, LLC (EBS) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
| Commercial Solutions of Insurance Agency, LLC (CCS or Commercial Solutions) | December 1, 2018 | New Jersey | P&C – Trucking Industry | Unaffiliated | ||||
| Southwestern Montana Insurance Center, Inc. (Southwestern Montana or Montana) | April 1, 2019 | Montana | Group Health Insurance | Unaffiliated | ||||
| Fortman Insurance Agency, LLC (Fortman or Fortman Insurance) | May 1, 2019 | Ohio | P&C and Health Insurance | Unaffiliated | ||||
| Altruis Benefits Consultants, Inc. (Altruis) | September 1, 2019 | Michigan | Health Insurance | Unaffiliated | ||||
| UIS Agency, LLC (UIS) | August 17, 2020 | New York | Health Insurance | Unaffiliated | ||||
| J.P. Kush and Associates, Inc. (Kush) | May 1, 2021 | Michigan | Health Insurance | Unaffiliated | ||||
| Medigap Healthcare Insurance Company, LLC (Medigap) | January 10, 2022 | Florida | Health Insurance | Unaffiliated |
| 15 |
J.P. Kush and Associates, Inc. Transaction
On
May 1, 2021, the Company entered into a Purchase Agreement with J.P. Kush and Associates, Inc. whereby the Company shall purchase the
business and certain assets noted within the Purchase Agreement (the “Kush Acquisition”) for a total purchase price of $
The Kush Acquisition was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the Kush Acquisition was calculated as follows:
| Description | Fair Value | Weighted Average Useful Life (Years) | ||||
| Accounts receivable | $ | |||||
| Trade name and trademarks | ||||||
| Customer relationships | ||||||
| Non-competition agreements | ||||||
| Goodwill | ||||||
| $ | ||||||
Goodwill
of $
Pro Forma Information
The results of operations of J.P. Kush and Associates, Inc. will be included in the Company’s consolidated financial statements as of the date of acquisition through the current period end. The following supplemental approximate pro forma combined financial information assumes that the acquisition had occurred at the beginning of the three months ended March 31, 2021:
| March 31, | ||||
| 2021 | ||||
| Revenue | $ | |||
| Net Income (Loss) | $ | ( | ) | |
| Earnings (Loss) per common share, basic | $ | ( | ) | |
| Earnings (Loss) per common share, diluted | $ | ( | ) | |
Medigap Healthcare Insurance Company, LLC Transaction
On
January 10, 2022, the Company completed the acquisition of all assets of Medigap Healthcare Insurance Company, LLC (“Medigap”)
pursuant to which the Company purchased all of the assets of Medigap for a purchase price in the amount of $
| 16 |
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:
| Description | Fair Value | Weighted Average Useful Life (Years) | ||||
| Property, plant and equipment | $ | |||||
| Right-of-use asset | ||||||
| Trade names | ||||||
| Customer relationships | ||||||
| Technology | ||||||
| Backlog | ||||||
| Chargeback reserve | ( | ) | ||||
| Lease liability | ( | ) | ||||
| Goodwill | ||||||
| $ | ||||||
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
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
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
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
Goodwill
of $
The
approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from January 10, 2022
to March 31, 2022 was $
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 approximate combined financial information assumes that the acquisition had occurred at the beginning of the three months ended March 31, 2022 and 2021:
| March 31, | March 31, | |||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Earnings (Loss) per common share, basic | $ | $ | ( | ) | ||||
| Earnings (Loss) per common share, diluted | $ | $ | ( | ) | ||||
NOTE 4. INVESTMENT IN NSURE, INC.
On
February 19, 2020, the Company entered into a securities purchase agreement with NSURE, Inc. (“NSURE”) whereas the Company
may invest up to an aggregate of $
On
February 10, 2020, the Company issued shares of common stock to a third-party individual for the purpose of raising capital to
fund the Company’s investment in NSURE, Inc. The Company received proceeds of $
| 17 |
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Computer equipment | $ | $ | ||||||
| Office equipment and furniture | ||||||||
| Leasehold Improvements | ||||||||
| Property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense associated with property and equipment, as adjusted to reclassify certain software assets to intangibles, is included within
depreciation and amortization in the Company’s condensed consolidated statements of operations and is, $
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2020 the Company reorganized its reporting structure into a single operating unit. All of the acquisitions made by the Company are in one industry insurance agencies. These agencies operate in a very similar economic and regulatory environment. The Company has one executive who is responsible for the operations of the insurance agencies. This executive reports directly to the Chief Financial Officer (“CFO”) on a quarterly basis. Additionally, the CFO who is responsible for the strategic direction of the Company reviews the operations of the collective insurance agency business as opposed to an office-by-office view. In accordance with guidance in ASC 350-20-35-45, all the Company’s goodwill will be reassigned to a single reporting unit.
For the year ended December 31, 2021 the Company assessed goodwill in accordance with ASC 350-20-35-3, analyzing the relevant qualitative factors. The Company noted that it was not more likely than not that the fair value of the reporting unit is less than its carrying amount, thus determining that the two-step goodwill impairment test was not required. Pursuant to the qualitative assessment, the Company concluded that goodwill was not impaired and this conclusion remains reasonable as of March 31, 2022.
The
following table rolls forward the Company’s
goodwill balance for the periods ending March 31, 2022 and December 31, 2021. As
discussed in Note 2 - Prior Period Adjustments, a $(
| Goodwill | ||||
| December 31, 2020 | $ | |||
| Goodwill recognized in connection with Kush acquisition on May 1, 2021 | $ | |||
| December 31, 2021 | $ | |||
| Goodwill recognized in connection with Medigap acquisition on January 10, 2022 | $ | |||
| March 31, 2022 | $ | |||
| 18 |
The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of March 31, 2022:
| Weighted Average Remaining Amortization period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||
| Trade name and trademarks | $ | $ | ( | ) | $ | |||||||||||
| Internally developed software | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Purchased software | ( | ) | ||||||||||||||
| Video Production Assets | ( | ) | ||||||||||||||
| Non-competition agreements | ( | ) | ||||||||||||||
| Contracts Backlog | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of December 31, 2021:
| Weighted Average Remaining Amortization period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||
| Trade name and trademarks | $ | $ | ( | ) | $ | |||||||||||
| Internally developed software | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Purchased software | ( | ) | ||||||||||||||
| Video Production Assets | ||||||||||||||||
| Non-competition agreements | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
Amortization
expense, as adjusted for certain software reclassifications is, $
The following table reflects expected amortization expense as of March 31, 2022, for each of the following five years and thereafter:
| Years ending December 31, | Amortization Expense | |||
| 2022 (remainder of year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
| 19 |
NOTE 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Significant components of accounts payable and accrued liabilities were as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Accounts payable, | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued credit card payables | ||||||||
| Other accrued liabilities | ||||||||
| $ | $ | |||||||
NOTE 8. LONG-TERM DEBT
The composition of the long-term debt follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $ | $ | $ | ||||||
| Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of $ | ||||||||
| Oak Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $ | ||||||||
| Oak Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $ | ||||||||
| Oak Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $ | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term debt | $ | $ | ||||||
Oak Street Funding LLC – Term Loans and Credit Facilities
During
the year ended December 31, 2018 the Company entered into two debt agreements with Oak Street Funding LLC. On August 1, 2018, EBS and
USBA entered into a Credit Agreement with Oak Street Funding LLC (“Oak Street”) whereby EBS and USBA borrowed $
During
the year ended December 31, 2019 the Company entered in Credit Agreements with Oak Street on April 1, 2019, May 1, 2019 and September
5, 2019 whereby the Company borrowed a total amount of $
| 20 |
| Fiscal year ending December 31, | Maturities of Long-Term Debt | |||
| 2022 (remainder of year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | ||||
| Less debt issuance costs | ( | ) | ||
| Total | $ | |||
NOTE 9. Warrant Liabilities
Series B Warrants
On
December 22, 2021 the Company entered into a securities purchase agreement with several institutional buyers for the purchase and sale
of (i) warrants to purchase an aggregate of up to
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 $
Placement Agent Warrants
In connection with the Private Placement,
the Company issued
NOTE 10. SIGNIFICANT CUSTOMERS
Customers and IM Customers representing 10% or more of total revenue are presented in the table below:
| For the three months ended March 31, | ||||||||
| Insurance Carrier | 2022 | 2021 | ||||||
| BlueCross BlueShield | % | % | ||||||
| Priority Health | % | % | ||||||
| LTC Global | % | % | ||||||
No
other single Customer or IM Customer accounted for more than
NOTE 11. EQUITY
Preferred Stock
The Company has been authorized to issue shares of $ par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.
| 21 |
Each share of Series A Convertible Preferred Stock shall have ten (10) votes per share and may be converted into ten (10) shares of $ par value common stock. The holders of the Series A Convertible Preferred Stock shall be entitled to receive, when, if and as declared by the Board, out of funds legally available therefore, cumulative dividends payable in cash. The annual interest rate at which cumulative preferred dividends will accrue on each share of Series A Convertible Preferred Stock is 0%. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, before any distribution of assets of the Corporation shall be made to or set apart for the holders of the Common Stock and subject and subordinate to the rights of secured creditors of the Company, the holders of Series A Preferred Stock shall receive an amount per share equal to the greater of (i) one dollar ($1.00), adjusted for any recapitalization, stock combinations, stock dividends (whether paid or unpaid), stock options and the like with respect to such shares, plus any accumulated but unpaid dividends (whether or not earned or declared) on the Series A Convertible Preferred Stock, and (ii) the amount such holder would have received if such holder has converted its shares of Series A Convertible Preferred Stock to common stock, subject to but immediately prior to such liquidation.
The Series B Convertible Preferred Stock shall have no voting rights and may be converted into shares of $ par value common stock. The holders of the Series B Convertible Preferred Stock are not entitled to receive dividends payable, except that holder of Series B Preferred would be entitled to receive dividends paid on account of the common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation 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..
In January 2022, the Company issued shares of its newly designated Series B convertible preferred stock through the Private Placement for the purpose of raising capital. See Note 9 - Warrant Liabilities for proceeds received by the Company.
As of March 31, 2022 and December 31, 2021, there were shares of Series A Convertible Preferred Stock issued and outstanding, and and shares of Series B convertible Preferred Stock, respectively, issued and outstanding.
Common Stock
The Company has been authorized to issue shares of common stock, $ par value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution.
In
February 2021, the Company issued shares of common stock through a stock offering for the purpose of raising capital. The Company
received gross proceeds of $
In
February 2021, Reliance Global Holdings, LLC, a related party, converted $
In May 2021, the Company issued shares of common stock pursuant to the acquisition of the Kush Acquisition.
In January 2022, the Company issued shares of common stock through the Private Placement for the purpose of raising capital. See Note 9 - Warrant Liabilities for proceeds received by the Company.
In January 2022, the Company issued shares of common stock pursuant to the Medigap Acquisition.
In
January 2022, upon agreement with Series A warrant holders, warrants were exercised at a price of $
In March 2022, the Company issued shares of the Company’s common stock due to the vesting of stock awards pursuant to an employee agreement.
As of March 31, 2022 and December 31, 2021, there were and shares of Common Stock outstanding, respectively.
Stock Options
During the year ended December 31, 2019, the Company adopted the Reliance Global Group, Inc. 2019 Equity Incentive Plan (the “Plan”) under which options exercisable for shares of common stock have been or may be granted to employees, directors, consultants, and service providers. A total of shares of common stock are reserved for issuance under the Plan. At March 31, 2022, there were shares of common stock reserved for future awards under the Plan. The Company issues new shares of common stock from the shares reserved under the Plan upon exercise of options.
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The Plan is administered by the Board of Directors (the “Board”). The Board is authorized to select from among eligible employees, directors, and service providers those individuals to whom options are to be granted and to determine the number of shares to be subject to, and the terms and conditions of the options. The Board is also authorized to prescribe, amend, and rescind terms relating to options granted under the Plan. Generally, the interpretation and construction of any provision of the Plan or any options granted hereunder is within the discretion of the Board.
The Plan provides that options may or may not be Incentive Stock Options (ISOs) within the meaning of Section 422 of the Internal Revenue Code. Only employees of the Company are eligible to receive ISOs, while employees, non-employee directors, consultants, and service providers are eligible to receive options which are not ISOs, i.e. “Non-Statutory Stock Options.” The options granted by the Board in connection with its adoption of the Plan were Non-Statutory Stock Options.
The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model or the value of the services provided, whichever is more readily determinable. The Black-Scholes option pricing model takes into account, as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the term of the option.
| Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||||||
| Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2020 | $ | $ | ||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Outstanding at March 31, 2021 | $ | $ | ||||||||||||||
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| Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| Non-vested at December 31, 2021 | $ | |||||||||||||
| Granted | - | - | - | |||||||||||
| Vested | ||||||||||||||
| Forfeited or expired | - | - | - | |||||||||||
| Non-vested at March 31, 2022 | $ | |||||||||||||
| Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Non-vested at December 31, 2020 | $ | |||||||||||
| Granted | - | - | - | |||||||||
| Vested | ||||||||||||
| Forfeited or expired | - | - | - | |||||||||
| Non-vested at March 31, 2021 | $ | |||||||||||
For the three months ended March 31, 2022, the Board did not approve any options to be issued pursuant to the Plan.
As of March 31, 2022, the Company determined that the options granted had a total fair value of $, which will be amortized in future periods through February 2024. During the three months ended March 31, 2022, the Company recognized $ of compensation expense relating to the stock options granted to employees, directors, and consultants. As of March 31, 2022, unrecognized compensation expense totaled $ which will be recognized on a straight-line basis over the vesting period or requisite service period through February 2024.
The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on March 31, 2022. The market value as of March 31, 2022 was $ based on the closing bid price for March 31, 2022.
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As of March 31, 2021 the Company determined that the options granted had a total fair value of $. During the three months ended March 31, 2021, the Company recognized $ of compensation expense relating to the stock options granted to employees, directors, and consultants. As of March 31, 2021, unrecognized compensation expense totaled $.
The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on March 31, 2021. The market values as of March 31, 2021 was $ based on the closing bid price for March 31, 2021.
The Company estimated the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models require the Company to make predictive assumptions regarding future stock price volatility, recipient exercise behavior, and dividend yield. The Company estimated the future stock price volatility using the historical volatility over the expected term of the option. The expected term of the options was computed by taking the mid-point between the vesting date and expiration date. The following assumptions were used in the Black-Scholes option-pricing model, not accounting for the Reverse Split:
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||
| Exercise price | $ | - $ | $ | - $ | ||||
| Expected term | to years | to years | ||||||
| Risk-free interest rate | - | % | - | % | ||||
| Estimated volatility | - | % | - | % | ||||
| Expected dividend | ||||||||
| Option price at valuation date | $ | - $ | $ | - $ | ||||
Warrants
As
a part of the Company’s offering, the Company issued
In
January 2022, as a result of the issuance of common stock in the January 2022 stock offering and the Medigap Acquisition, the Company
received a deficiency notification from Nasdaq indicating violation of Listing Rule 5365(a). As part of its remediation plan, in March
2022, the Company entered into Exchange Agreements with the holders of common stock issued in January 2022. Pursuant to the Exchange
Agreements, the Company issued
Equity-based Compensation
In 2021, three employees received a signing bonus of shares of the Company’s common stock to be issued after the completion of a service period ranging from one to three years of service. The shares granted in 2021 were valued at $. For the three months ended March 31, 2022, compensation expense on these grants totaled $.
In 2022, two existing employees were awarded a bonus consisting of shares of the Company’s common stock to be vested immediately. The shares granted in 2022 were valued at $. For the three months ended March 31, 2022, compensation expense on these grants totaled $. As of March 31, 2022 these shares have not been issued.
Total stock compensation expense for the three months ended March 31, 2022 and 2021 was $ and $, respectively
Basic earnings per common share (“EPS”) applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding.
If
there is a loss from operations, diluted EPS is computed in the same manner as basic EPS is computed. Similarly, if the Company has net
income but its preferred dividend adjustment made in computing income available to common stockholders results in a net loss available
to common stockholders, diluted EPS would be computed in the same manner as basic EPS. Accordingly, the outstanding Series A Convertible
Preferred Stock is considered anti-dilutive in which were issued and outstanding at March 31, 2021. Series A Convertible Preferred
Stock is convertible into common stock on a
The following represents the impact of options, stock awards, preferred stock and warrants on basic and diluted EPS for the three months ended March 31, 2022:
| ● | Outstanding stock options are considered anti-dilutive, due to the exercise price being greater than the average market price, in which , were issued and outstanding at March 31, 2022. | |
| ● | Vested Stock awards in the amount of have been included in the basic and diluted EPS calculation, and nonvested stock awards in the amount of have been included in the diluted EPS calculation. | |
| ● | Outstanding Series A warrants are considered anti-dilutive, due to the exercise price being greater than the average market price, in which , were issued and outstanding at March 31, 2022. | |
| ● | Series B Convertible Preferred stock are considered dilutive and included in the calculation of diluted EPS. | |
| ● | The potential settlement shares of the warrant liability associated with Series B Warrants are considered dilutive and included in the calculation of diluted EPS. The effects of the warrants that have been recorded in net income on the condensed consolidated statement of operations have been eliminated in the calculation of diluted EPS. | |
| ● | The potential settlement shares of the warrant liability associated with the Placement Agent Warrants are considered anti-dilutive and excluded from the EPS calculation. | |
| ● | The Series C prepaid warrants have been included as outstanding shares in the calculation of basic and diluted EPS, because they represent shares issuable for only nominal consideration. | |
| ● | The
Series D prepaid warrants have been included as outstanding shares in the calculation of basic and diluted EPS, as they
represent shares issuable for only nominal consideration. The Company reduced income available to common stockholders by $ |
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| Three Months | Three Months | |||||||
| ended | ended | |||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Deemed dividend | ( | ) | - | |||||
| Net income (loss), numerator, basic computation | ( | ) | ||||||
| Recognition and change in fair value of warrant liability | ( | ) | - | |||||
| Net income (loss), numerator, diluted computation | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares - denominator basic computation | ||||||||
| Effect of stock awards | - | |||||||
| Effect of Series B warrant liability | - | |||||||
| Effect of preferred stock | - | |||||||
| Weighted average shares, as adjusted - denominator diluted computation | ||||||||
| Earnings (loss) per common share - basic | $ | $ | ( | ) | ||||
| Earnings (loss) per common share - diluted | $ | ( | ) | $ | ( | ) | ||
NOTE 13. LEASES
Operating Leases
ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. The standard requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease, initially measured at the present value of the lease payments. The Company’s leases consist of operating leases on buildings and office space.
In
accordance with ASU 2016-02, right-of-use assets are amortized over the life of the underlying leases. Lease expense for the three months
ended March 31, 2022 and 2021 was $
Future minimum lease payment under these operating leases consisted of the following:
| Year ending December 31, | Operating Lease Obligations | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | ||||
| Less: Imputed interest | ||||
| Present value of operating lease liabilities | $ | |||
NOTE 14. COMMITMENTS AND CONTINGENCIES
Legal Contingencies
The Company is subject to various legal proceedings and claims, either asserted or unasserted, arising in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows, and accordingly, no legal contingencies are accrued as of March 31, 2022 and December 31, 2021. Litigation relating to the insurance brokerage industry is not uncommon. As such the Company, from time to time have been, subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future.
Earn-out liabilities
The Company has recognized a number of earn-out liabilities resulting from contingent consideration provisions included in business combination agreements. Earn-out consideration is normally earned by acquirees when they meet or exceed pre-agreed upon earnings targets.
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As discussed
in Note 2 - Prior Period Adjustments, a $
The following outlines changes to the Company’s earn-out liability balances inclusive of accumulated accretion for the respective period ended March 31, 2022 and December 31, 2021:
| CCS | Fortman | Montana | Altruis | Kush | Total | |||||||||||||||||||
| Ending balance December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Changes due to fair value adjustments | - | - | ||||||||||||||||||||||
| Ending balance March 31, 2022 | $ | - | $ | $ | $ | $ | $ | |||||||||||||||||
| CCS | Fortman | Montana | Altruis | Kush | Total | |||||||||||||||||||
| Ending balance December 31, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Changes due to business combinations | - | - | - | - | ||||||||||||||||||||
| Changes due to payments | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Changes due to fair value adjustments | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Changes due to write-offs | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||
| Ending balance December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
COVID-19 pandemic contingencies
The spread of the coronavirus (COVID-19) outbreak in the United States has resulted in economic uncertainties which may negatively impact the Company’s business operations. While the disruption is expected to be temporary, there is uncertainty surrounding the duration and extent of the impact. The impact of the coronavirus outbreak on the financial statements cannot be reasonably estimated at this time.
Adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment could harm our business and our business strategy. While we do not anticipate any material impact to our business operations as a result of the coronavirus, in the event of a major disruption caused by the outbreak of pandemic diseases such as coronavirus, we may lose the services of our employees or experience system interruptions, which could lead to diminishment of our business operations. Any of the foregoing could harm our business and delay the implementation of our business strategy and we cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business.
Management is actively monitoring the global situation on its financial condition, liquidity, operations, industry and workforce.
NOTE 15. INCOME TAXES
The Company did not have any material uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued related to unrecognized benefits as a component income tax expense (benefit). The Company did not recognize any interest or penalties, nor did it have any interest or penalties accrued as of March 31, 2022 and December 31, 2021.
The
Company’s income tax provision for interim periods is generally determined using an estimate of the Company’s annual effective
tax rate, adjusted for discrete items arising in the quarter. For the three months ended March 31, 2022, however, the Company calculates
its income tax expense by applying to any pre-tax loss/income an effective tax rate determined as if the year-to-date period is
the annual period. Using this method, for the three months ended March 31, 2022, its estimated annual effective tax rate from continuing
operation was
The calculation of the Company’s tax liabilities also involves assessment of uncertainties in the application of complex tax laws and regulations in the applicable jurisdictions, and a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of technical merits. The Company’s policy is to record interest and penalties accrued related to unrecognized benefits as a component of income tax expense (benefit). The Company did not have any material uncertain tax positions, and there were no amounts for penalties or interest recorded as of March 31, 2022. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its positions.
NOTE 16. RELATED PARTY TRANSACTIONS
The Company entered into a Loan Agreement with Reliance Global Holdings, LLC, a related party under common control. There is no term to the loan, and it bears no interest. Repayment will be made as the Company has business cash flows. The proceeds from the various loans were utilized to fund the acquisitions of USBA, EBS, CCS, SWMT, Fortman , Altruis, and UIS.
As
of March 31, 2022, and December 31, 2021 the related party loan payable was $
At
March 31, 2022 and December 31, 2021, Reliance Holdings owned approximately
NOTE 17. SUBSEQUENT EVENTS
On
April 26, 2022, the Company entered into an agreement (the “APA”) with Barra &Associates, LLC (“Seller”)
pursuant to which the Company purchased all of the assets of Barra & Associates, LLC for a purchase price in the amount of $
On
April 26, 2022, the Company closed on a debt agreement with Oak Street to borrow a principal amount of $
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Reliance Global Group, Inc. (formerly known as Ethos Media Network, Inc.) was incorporated in Florida on August 2, 2013. In September 2018, Reliance Global Holdings, LLC, a related party, purchased a controlling interest in the Company. Ethos Media Network, Inc. was renamed Reliance Global Group, Inc. on October 18, 2018.
We operate as a diversified company engaging in business in the insurance market, as well as other related sectors. Our focus is to grow the Company by pursuing an aggressive acquisition strategy, initially and primarily focused upon wholesale and retail insurance agencies. The Company is controlled by the same management team as Reliance Global Holdings, LLC (“Reliance Holdings”), a New York based firm that is the owner and operator of numerous companies with core interests in real estate and insurance. Our relationship with Reliance Holdings provides us with significant benefits: (1) experience, knowhow, and industry relations; (2) a source of acquisition targets currently under Reliance Holdings’ control; and (3) financial and logistics assistance. We are led and advised by a management team that offers over 100 years of combined business expertise in real estate, insurance, and the financial service industry.
In the insurance sector, our management has extensive experience acquiring and managing insurance portfolios in several states, as well as developing specialized programs targeting niche markets. Our primary strategy is to identify specific risk to reward arbitrage opportunities and develop these on a national platform, thereby increasing revenues and returns, and then identify and acquire undervalued wholesale and retail insurance agencies with operations in growing or underserved segments, expand and optimize their operations, and achieve asset value appreciation while generating interim cash flows.
As part of our growth and acquisition strategy, we are currently in negotiations with several non-affiliated parties and expect to complete a number of material insurance asset transactions throughout the course of 2022 and beyond. As of March 31, 2022, we have acquired nine insurance agencies, including both affiliated and unaffiliated companies.
Long term, we seek to conduct all transactions and acquisitions through our direct operations.
Over the next 12 months, we plan to focus on the expansion and growth of our business through continued asset acquisitions in insurance markets and organic growth of our current insurance operations through geographic expansion and market share growth.
Further, the Company launched its 5MinuteInsure.com (“5MI”) platform during 2021 which expanded our national footprint. 5MI is an all new and high-tech proprietary tool developed by the Company as a business to consumer portal which enables consumers to compare and purchase car and home insurance in a time efficient and effective manner. 5MI taps into the growing number of online shoppers and utilizes advanced artificial intelligence and data mining techniques, to provide competitive insurance quotes in around 5 minutes with minimal data input needed from the consumer. The platform launched during the summer of 2021 and currently operates in 44 states offering coverage with up to 16 highly rated insurance carriers.
Business Trends and Uncertainties
The insurance intermediary business is highly competitive, and we actively compete with numerous firms for customers, properties and insurance companies, many of which have relationships with insurance companies, or have a significant presence in niche insurance markets that may give them an advantage over us. Other competitive concerns may include the quality of our products and services, our pricing and the ability of some of our customers to self-insure and the entrance of technology companies into the insurance intermediary business. A number of insurance companies are engaged in the direct sale of insurance, primarily to individuals, and do not pay commissions to agents and brokers.
Financial Instruments
The Company’s financial instruments consist of a derivative warrant sales commitment treated as a forward sales contract as of March 31, 2022. Accounting treatment is to record the derivative financial instruments at their fair values as of the inception/issuance date of and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash gain or loss at each balance sheet date.
Insurance Operations
Our insurance operations focus on the acquisition and management of insurance agencies throughout the U.S. Our primary focus is to pinpoint undervalued wholesale and retail insurance agencies with operations in growing or underserved segments (including healthcare and Medicare, as well as personal and commercial insurance lines). We then focus on expanding their operations on a national platform and improving operational efficiencies in order to achieve asset value appreciation while generating interim cash flows. In the insurance sector, our management team has over 100 years of experiences acquiring and managing insurance portfolios in several states, as well as developing specialized programs targeting niche markets. We plan to accomplish these objectives by acquiring wholesale and retail insurance agencies it deems to represent a good buying opportunity (as opposed to insurance carriers) as insurance agencies bear no insurance risk. Once acquired, we will develop them on a national platform to increase revenues and profits through a synergetic structure. The Company is initially focused on segments that are underserved or growing, including healthcare and Medicare, as well as personal and commercial insurance lines.
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Insurance Acquisitions and Strategic Activities
As of the balance sheet date, we have acquired nine insurance brokerages (see table below), including both acquisitions of affiliated companies (i.e., owned by Reliance Holdings before the acquisition) and unaffiliated companies. As our acquisition strategy continues, our reach within the insurance arena can provide us with the ability to offer lower rates, which could boost our competitive position within the industry.
| Acquired | Date | Location | Line of Business | Status | ||||
| U.S. Benefits Alliance, LLC (USBA) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
| Employee Benefit Solutions, LLC (EBS) | October 24, 2018 | Michigan | Health Insurance | Affiliated | ||||
| Commercial Solutions of Insurance Agency, LLC (CCS or Commercial Solutions) | December 1, 2018 | New Jersey | P&C – Trucking Industry | Unaffiliated | ||||
| Southwestern Montana Insurance Center, Inc. (Southwestern Montana or Montana) | April 1, 2019 | Montana | Group Health Insurance | Unaffiliated | ||||
| Fortman Insurance Agency, LLC (Fortman or Fortman Insurance) | May 1, 2019 | Ohio | P&C and Health Insurance |
Unaffiliated | ||||
| Altruis Benefits Consultants, Inc. (Altruis) | September 1, 2019 | Michigan | Health Insurance | Unaffiliated | ||||
| UIS Agency, LLC (UIS) | August 17, 2020 | New York | Health Insurance | Unaffiliated | ||||
| J.P. Kush and Associates, Inc. (Kush) | May 1, 2021 | Michigan | Health Insurance | Unaffiliated | ||||
| Medigap Healthcare Insurance Company, LLC (Medigap) | January 10, 2022 | Florida | Health Insurance | Unaffiliated |
J.P. Kush and Associates, Inc. Transaction
On May 1, 2021, the Company entered into a Purchase Agreement with J.P. Kush and Associates, Inc. whereby the Company shall purchase the business and certain assets noted within the Purchase Agreement (the “Kush Acquisition”) for a total purchase price of $3,644,166. The purchase price was paid with a cash payment of $1,900,000, $50,000 in restricted shares of the Company’s common stock, in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and an earn-out payment.
| 29 |
The Kush Acquisition was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the Kush Acquisition was calculated as follows:
| Description | Fair Value | Weighted Average Useful Life (Years) | ||||
| Accounts receivable | $ | 291,414 | ||||
| Trade name and trademarks | 685,400 | 5 | ||||
| Customer relationships | 551,000 | 10 | ||||
| Non-competition agreements | 827,800 | 5 | ||||
| Goodwill | 1,288,552 | Indefinite | ||||
| $ | 3,644,166 | |||||
Goodwill of $1,288,552 arising from the Kush Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the Kush Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the Kush Acquisition incurred were $58,092 recorded as a component of General and administrative expenses. The approximate revenue and net profit for the acquired business as a standalone entity per ASC 805 from January 1, 2021 to April 30, 2021 was $380,349 and $166,667, respectively, and from January 1, 2020 to December 31, 2020, $1,141,047 and $500,000, respectively.
Medigap Healthcare Insurance Company, LLC Transaction
On January 10, 2022, the Company finalized an agreement (the “APA”) with Medigap Healthcare Insurance Company, LLC (“Medigap”) pursuant to which the Company purchased all of the assets of Medigap for a purchase price in the amount of $20,096,250 consisting of payment to Medigap of (i) $18,138,750 in cash and (ii) issuing to seller 606,037 shares of the Company’s restricted common stock in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The purchase price is subject to post-closing adjustment to reconcile certain pre-closing credits and liabilities of the parties. The shares issued to Medigap as part of the purchase price are subject to lock up arrangements pursuant to which 50% of those shares may be sold after the one-year anniversary of the date of Closing the APA and the balance of the shares after the second-year anniversary of the date of closing under the APA.
The acquisition of Medigap was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the acquisition of Medigap was calculated as follows:
| Description | Fair Value | Weighted Average Useful Life (Years) | ||||
| Property, plant and equipment | $ | 20,666 | 6 | |||
| Right-of-use asset | 317,787 | |||||
| Trade name and trademarks | 340,000 | 15 | ||||
| Customer relationships | 4,550,000 | 12 | ||||
| Technology | 67,000 | 3 | ||||
| Backlog | 210,000 | 1 | ||||
| Chargeback reserve | (1,484,473 | ) | ||||
| Lease liability | (317,787 | ) | ||||
| Goodwill | 19,199,008 | Indefinite | ||||
| $ | 22,902,201 | |||||
Goodwill of $19,199,008 arising from the acquisition of Medigap consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Medigap is currently expected to be deductible for income tax purposes. Total acquisition costs for the acquisition of Medigap incurred were $94,065 recorded as a component of General and administrative expenses. The approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from January 1, 2021 to December 31, 2021 was $5,114,000 and profit of $188,000, respectively, and from January 10, 2022 to March 31, 2022, $1,177,085 and a loss of $147,883, respectively.
Recent Developments
Private Placement
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 an aggregate of up to 9,779,952 shares of the Company’s common stock, par value $0.086 per share at an exercise price of $4.09 per share, (ii) an aggregate of 2,670,892 shares of Common Stock, and (iii) 9,076 shares of the Company’s newly-designated Series B convertible preferred stock, par value $0.086 per share, with a stated value of $1,000 per share, initially convertible into an aggregate of 2,219,084 shares of Common Stock at a conversion price of $4.09 per share in a private placement (the “Private Placement”). The aggregate purchase price for the Common Shares, the Preferred Shares and the Warrants is approximately $20,000,000. Refer to Note 16, Subsequent Events, for additional information.
On January 5, 2022, pursuant to the securities purchase agreement dated December 22, 2021, the Private Placement was closed. The Private Placement resulted in aggregate gross proceeds to the Company of approximately $20,000,000, before deducting placement agent fees and other offering expenses payable by the Company. The Warrants are exercisable upon issuance and will expire five years from the date of issuance. In connection with the Private Placement, the Company issued to the placement agent warrants to purchase 244,539 shares of the Company’s Common Stock at an exercise price of $4.09 per share (the “Placement Agent Warrants”). The Placement Agent Warrants have substantially the same terms as the Warrants issued in the Private Placement.
Nasdaq Notification and Warrant Exchange
On January 31, 2022, the Company received a deficiency notification from Nasdaq regarding the issuance of shares in the Medigap Acquisition and Private Placement in violation of Listing Rule 5635(a). This rule requires an issuer to obtain shareholder approval with respect to an acquisition paid for from the proceeds of a sale of common stock of the issuer which equals or exceeds 20% of the shares of the issuer, issued and outstanding prior to the acquisition. The Company submitted a remediation plan under which the Nasdaq granted the Company an extension to implement the required changes until May 10, 2022.
As part of its remediation plan, on March 22, 2022 the Company entered into Exchange Agreements with the holders of common stock issued in January 2022 resulting from the Medigap Acquisition and Private Placement. Pursuant to the Exchange Agreements, the Company issued 3,276,929 Series C prepaid warrants in exchange for 3,276,929 shares of the Company’s common stock that were previously issued. Additionally, to compensate the Private Placement investors for entering into the Exchange Agreements, the Company issued 1,222,498 Series D prepaid warrants to such investors for no additional consideration on the same date. The fair value of the Series D prepaid warrants upon issuance was $6,930,335; such amount was treated as a deemed dividend and accordingly reduced income available to common stockholders for the period. Shares of common stock underlying the Series C and D prepaid warrants are treated as outstanding for purposes of calculating basic and diluted earnings per share.
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Stock Split
On January 21, 2021 the Company has had effected a reverse split of the issued and outstanding shares of common stock in a ratio of 1: 85.71 which is simultaneously occurred with the Company’s up listing to the Nasdaq Capital Market. The Company has adjusted all of share and per share numbers to take into account this reverse stock split.
Results of Operations
Comparison of the quarter ended March 31, 2022 to the quarter ended March 31, 2021
The following table sets forth our revenue and operating expenses for each of the years presented.
| March 31, 2022 | March 31, 2021 | |||||||
| Revenue | ||||||||
| Commission income | $ | 4,235,781 | $ | 2,323,730 | ||||
| Total revenue | 4,235,781 | 2,373,730 | ||||||
| Operating expenses | ||||||||
| Commission expense | 904,156 | 529,472 | ||||||
| Salaries and wages | 2,082,175 | 918,545 | ||||||
| General and administrative expenses | 2,453,070 | 1,004,401 | ||||||
| Marketing and advertising | 587,022 | 23,079 | ||||||
| Depreciation and amortization | 607,525 | 333,088 | ||||||
| Total operating expenses | 6,633,948 | 2,808,585 | ||||||
| (Loss) income from operations | (2,398,167 | ) | (484,855 | ) | ||||
| Other income (expense), net | 11,738,167 | (129,071 | ) | |||||
| Total Other expense, net | 11,738,167 | (129,071 | ) | |||||
| Net income (loss) | $ | 9,340,000 | $ | (613,926 | ) | |||
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Revenues
The Company’s revenue is primarily comprised of commission paid by health insurance carriers related to insurance plans that have been purchased by a member who used the Company’s service. The Company defines a member as an individual currently covered by an insurance plan, including individual and family, Medicare-related, small business, and ancillary plans, for which the Company is entitled to receive compensation from an insurance carrier.
The Company had revenues of $4.2 million for the three months ended March 31, 2022, as compared to $2.3 million for the three months ended March 31, 2021. The increase of $1.9 million or 83% was primarily due to expanded operations, including the additional insurance agencies acquired during 2021 and 2022, with the former reporting a full year of revenue.
Commission expense
The Company had total commission expense of $904 thousand for the three months ended March 31, 2022 compared to $529 thousand for the three months ended March 31, 2021. The increase of $375 thousand or 71% is attributable to an increase in operations, including the additional insurance agencies acquired during 2021 and 2022 with the former reporting a full year of commission expense.
Salaries and wages
The Company reported $2.1 million of salaries and wages expense for the three months ended March 31, 2022 compared to $918 thousand for the three months ended March 31, 2021. The increase of $1.2 million or 131% is a result of the Company’s growth compared to the prior period, the Company has hired more employees due to an increase in operational and reporting activities.
General and administrative expenses
The Company had total general and administrative expenses of $2.5 million for the three months ended March 31, 2022, as compared to $1.0 million for the three months ended March 31, 2021. The increase in expense of $1.5 million or 150% is a result of increased operations and additional acquisitions in 2022 and 2021.
Marketing and advertising
The Company reported $587 thousand of marketing and advertising expense for the three months ended March 31, 2022 compared to $23 thousand for the three months ended March 31, 2021. The increase of $565 thousand or 2,452% is a result of the Company’s efforts to increase branding and outreach to achieve a greater presence in the insurance industry compared to the prior year.
Depreciation and amortization
The Company reported $608 thousand of depreciation and amortization expense for the three months ended March 31, 2022 compared to $333 thousand for the three months ended March 31, 2021. The increase of $275 thousand or 83% is a result of the Company’s acquired assets through business combinations.
Other income and expense
The Company reported $11.7 million of other income for the three months ended March 31, 2022 compared to $129 of other expense thousand for the three months ended March 31, 2021. The increase of $11.8 million or 8,915% is attributable primarily to the recognition and change in fair value of warrant liabilities of $11.8 million.
Liquidity and capital resources
As of March 31, 2022, the Company had a cash balance of $6.0 million and a working capital deficit of $565 thousand compared with a cash balance of $10.0 million and working capital of $8.1 million at March 31, 2021. The decrease in working capital is primarily attributable to the reduction of cash and the increase in the current portion of earn-out liabilities in 2022.
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The spread of the coronavirus (COVID-19) outbreak in the United States has resulted in economic uncertainties which may negatively impact the Company’s business operations. While the disruption is expected to be temporary, there is uncertainty surrounding the duration and extent of the impact. Currently the Company has not seen any material financial impact as a result of the coronavirus outbreak. However, management is actively monitoring the global situation on its financial condition, liquidity, operations, industry and workforce.
Adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment could harm our business and our business strategy. While we do not anticipate any material impact to our business operations as a result of the coronavirus, in the event of a major disruption caused by the outbreak of pandemic diseases such as coronavirus, we may lose the services of our employees or experience system interruptions, which could lead to diminishment of our business operations. Any of the foregoing could harm our business and delay the implementation of our business strategy and we cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business.
To this effect on April 4, 2020, the Company entered into a loan agreement with First Financial Bank for a loan of $673,700 pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. In 2020, the Company repaid a total of $165,000 of principal on the loan and on November 17, 2020 the Company received notification from the SBA that the remaining PPP loan balance of $508,700 was forgiven. As of December 31, 2021, the Company did not have any loans payable in relation to the PPP loan.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements as such term is defined in Regulation S-K.
Cash Flows
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (343,280 | ) | $ | (646,602 | ) | ||
| Net cash used in investing activities | (18,392,093 | ) | - | |||||
| Net cash provided by financing activities | 20,090,409 | 10,134,997 | ||||||
| Net increase in cash, cash equivalents, and restricted cash | $ | 1,355,036 | $ | 9,488,395 | ||||
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022 was $343 thousand, which includes net income of $9.4 million offset by non-cash expenses of $10.1 million principally related to recognition and change in fair value of warrant liabilities of $11.9 million, offset by share based compensation expense of $740 thousand, depreciation and amortization of $608 thousand, and an earn-out fair value adjustment of $407 thousand, as well as changes of net working capital items in the amount of $398 thousand principally due to a decreases in accounts payable and accrued expenses of $1.7 million and an increase in accounts receivable of $149 thousand, offset by a decrease prepaid expense and other current assets of $2.2 million and increase of the chargeback reserve of $101 thousand.
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Investing Activities.
During the three months ended March 31, 2022, cash flows used in investing activities were $18.4 million compared to cash flow used in investing activities of $0 for the three months ended March 31, 2021. The 2021 cash used relates to cash paid for the acquisition of Medigap of $18.1 million, the purchase of property and equipment of $4 thousand, and cash paid of $249 thousand for intangible assets.
Financing Activities.
During the three months ended March 31, 2022, cash provided by financing activities was $20.1 million as compared to $10.1 million for the three months ended March 31, 2021. The net cash provided by financing activities is primarily related to proceeds from offering of shares of common stock and preferred stock in January 2022. The net proceeds from the issuance of these shares provided $17.9 million. Additionally, the Company received proceeds of $2.5 million for the exercise of Series A warrants. These were offset by the principal repayments of debt of $227 thousand and the repayments of loans payable to related parties of $11 thousand.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgments.
Business acquisitions: Accounting for acquisitions requires us to estimate the fair value of consideration paid and the individual assets and liabilities acquired, which involves a number of judgments, assumptions, and estimates that could materially affect the amount and timing of costs recognized in subsequent periods. Accounting for acquisitions can also involve significant judgment to determine when control of the acquired entity is transferred. We typically obtain independent third-party valuation studies to assist in determining fair values, including assistance in determining future cash flows, discount rates, and comparable market values. Items involving significant assumptions, estimates, and judgments include the following:
● Debt, including discount rate and timing of payments;
● Deferred tax assets, including projections of future taxable income and tax rates;
● Fair value of consideration paid or transferred;
● Intangible assets, including valuation methodology, estimations of future revenue and costs, and discount rates;
Contingencies: We are subject to the possibility of losses from various contingencies. Significant judgment is necessary to estimate the probability and amount of a loss, if any, from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be reasonably estimated. In accounting for the resolution of contingencies, significant judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution and amounts related to future periods.
Goodwill and intangible assets: We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.
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Determining when to test for impairment, the reporting units, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, and expenses and are developed as part of our long-range planning process. The same estimates are used in business planning, forecasting, and capital budgeting. We test the reasonableness of the output of our long-range planning process by calculating an implied value per share and comparing that to current stock prices, analysts’ consensus pricing, and management’s expectations. These estimates and assumptions are used to calculate projected future cash flows for the reporting unit, which are discounted using a risk-adjusted rate to estimate a fair value. The discount rate requires determination of appropriate market comparables. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
We test other identified intangible assets with definite useful lives when events and circumstances indicate the carrying value may not be recoverable by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We test intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows. Estimating fair values involves significant assumptions, including future sales prices, sales volumes, costs, and discount rates.
Income taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of the applicable year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefited from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.
Revenue recognition:
All commission revenue is recorded net of any deductions for estimated commission adjustments due to lapses, policy cancellations, and revisions in coverage.
The Company earns additional revenue including contingent commissions, profit-sharing, override and bonuses based on meeting certain revenue or profit targets established periodically by the carriers (collectively the Contingent Commissions). The Contingent Commissions are earned when the Company achieves the targets established by the insurance carries. The insurance carriers notify the company when it has achieved the target. The Company only recognizes revenue to the extent that it is probable that a significant reversal of the revenue will not occur.
Stock-based compensation: Stock-based compensation is estimated at the grant date based on the fair value of the award and is recognized as expense using the straight-line amortization method over the requisite service period. For performance-based stock awards, the expense recognized is dependent on our assessment of the likelihood of the performance measure being achieved. We utilize forecasts of future performance to assess these probabilities and this assessment requires significant judgment.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires significant judgment, including estimating stock price volatility and expected option life. We develop these estimates based on historical data and market information which can change significantly over time. A small change in the estimates used can result in a relatively large change in the estimated valuation. We use the Black-Scholes option valuation model to value employee stock options and awards granted under our employee stock purchase plan. We estimate stock price volatility based on our historical volatility implied volatility derived from traded options on our stock.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. Based on the evaluation, management has concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2022.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings.
Not applicable.
Item 1A. Risk Factors.
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Date of Transaction |
Transaction type (e.g. new issuance, cancellation, shares returned to treasury) and all under Section 4(a)(2) of the Securities Act of 1933 | Number of Shares Issued (or cancelled) | Class of Securities | Value of shares issued ($/per share) at Issuance | Were the shares issued at a discount to market price at the time of issuance? (Yes/No) | Individual/ Entity Shares were issued to (entities must have individual with voting / investment control disclosed). | Reason for share issuance (e.g. for cash or debt conversion) OR Nature of Services Provided (if applicable) | Restricted or Unrestricted as of this filing? | Exemption or Registration Type? | |||||||||||||||
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Other Information.
Not applicable.
Item 6. Exhibits
The following exhibits are filed with this Form 10-K.
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section302 of the Sarbanes-Oxley Act 2002* | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section302 of the Sarbanes-Oxley Act 2002* | |
| 32.1 | Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer* | |
| 32.2 | Section 1350 Certification of the Chief Financial Officer and Chief Financial Officer* | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Form 10-Q statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lakewood, State of New Jersey on May 16, 2022.
| Reliance Global Group, Inc. | ||
| By: | /s/ Ezra Beyman | |
| Ezra Beyman | ||
| Chief Executive Officer and Chairman of the Board | ||
Pursuant to the requirements of the Securities Act, this Form 10-Q has been signed below by the following persons in the capacities and on the dates indicated.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Ezra Beyman | Chief Executive Officer and Executive Chairman and Director | May 16, 2022 | ||
| Ezra Beyman | (Principal Executive Officer) | |||
| /s/ Alex Blumenfrucht | Chief Financial Officer and Director | May 16, 2022 | ||
| Alex Blumenfrucht | (Principal Financial Officer) | |||
| /s/ Joel Markovits | Chief Accounting Officer | May 16, 2022 | ||
| Joel Markovits | (Principal Accounting Officer) | |||
| /s/ Sheldon Brickman | Director | May 16, 2022 | ||
| Sheldon Brickman | ||||
| /s/ Ben Fruchtzweig | Director | May 16, 2022 | ||
| Ben Fruchtzweig | ||||
| /s/ Scott Korman | Director | May 16, 2022 | ||
| Scott Korman |
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