RELIANCE
GLOBAL GROUP, INC. AND SUBSIDIATIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
See
accompanying notes to 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
August 17, 2020, the Company acquired UIS Agency, Inc. (“UIS”). UIS is an insurance agency and employee benefits provider
(See Note 3).
On
May 1, 2021, the Company acquired J.P. Kush and Associates, Inc. (“Kush”), an independent healthcare insurance agency. (See
Note 3).
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include the
accounting of Reliance Global Group, Inc., and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated
in consolidation. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K.
Liquidity
As
of September 30, 2021, the Company’s reported cash and restricted cash aggregated balance was approximately $6,139,000,
current assets were approximately $7,333,000,
while current liabilities were approximately $2,059,000.
As of September 30, 2021, the Company had working capital of approximately $5,274,000 and
stockholders’ equity of $12,765,000.
For the nine-month period ended September 30, 2021, the Company reported a net loss of approximately $2,486,000
and negative cash flows from operations of $1,304,000.
The Company also completed an offering in February that raised net proceeds of approximately $10,496,000.
Management believes the company’s financial position to be reasonable and sufficient, providing ample liquidity for the foreseeable
future.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures in the financial statements and accompanying notes. Management
bases it estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could
differ materially from those estimates.
Cash
Cash
consists of checking accounts. The Company considers all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Restricted
Cash
Restricted
cash includes cash pledged as collateral to secure obligations and/or all cash whose use is otherwise limited by contractual provisions.
The
reconciliation of cash and restricted cash reported within the applicable balance sheet accounts that sum to the total of cash and restricted
cash presented in the statement of cash flows is as follows:
SCHEDULE
OF CASH AND RESTRICTED CASH
|
|
|
September
30, 2021
|
|
|
September
30, 2020
|
|
|
Cash
|
|
$
|
5,655,103
|
|
|
$
|
13,282
|
|
|
Restricted
cash
|
|
|
484,371
|
|
|
|
488,289
|
|
|
Total
cash and restricted cash
|
|
$
|
6,139,474
|
|
|
$
|
501,571
|
|
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation. Depreciation is recognized over an asset’s
estimated useful life using the straight-line method beginning on the date an asset is placed in service. The Company regularly evaluates
the estimated remaining useful lives of the Company’s property and equipment to determine whether events or changes in circumstances
warrant a revision to the remaining period of depreciation. Certain capitalized software has been reclassified in the condensed consolidated
balance sheet from property and equipment, net to intangibles, net and comparative periods have been adjusted accordingly.
Maintenance and repairs are charged to expense as incurred. Estimated useful lives of the Company’s Property
and Equipment are as follows:
SCHEDULE
OF ESTIMATED USEFUL LIFE OF PROPERTY PLANT AND EQUIPMENT
|
|
Useful
Life (in years)
|
|
Computer
equipment
|
5
|
|
Office
equipment and furniture
|
7
|
|
Leasehold
improvements
|
Shorter
of the useful life or the lease term
|
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level
1 — Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level
2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly
or indirectly for substantially the full term of the asset or liability; and
Level
3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market
participants would use in pricing the asset or liability, including assumptions about risk.
The
Company’s balance sheet includes certain financial instruments, including cash, notes receivables, accounts payable, notes payables
and short and long-term debt. The carrying amounts of current assets and current liabilities approximate their fair value because of
the relatively short period of time between the origination of these instruments and their expected realization. The carrying amounts
of long-term debt approximate their fair value as the variable interest rates are based on a market index.
Deferred
Financing Costs
The
Company has recorded deferred financing costs as a result of fees incurred by the Company in conjunction with its debt financing activities.
These costs are amortized to interest expense using the straight-line method which approximates the interest rate method over the term
of the related debt. As of September 30, 2021, and December 31, 2020, unamortized deferred financing costs were $139,204,
and $186,312,
respectively and are netted against the related debt.
Business
Combinations
The
Company accounts for its business combinations using the acquisition method of accounting. Under the acquisition method, the assets acquired,
the liabilities assumed, and the consideration transferred are recorded at the date of acquisition at their respective fair values. Definite-lived
intangible assets are amortized over the expected life of the asset. Any excess of the purchase price over the estimated fair values
of the net assets acquired is recorded as goodwill.
Goodwill
represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination.
Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination
provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date. Changes
in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows:
1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement
is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value and accretion
costs are recognized in earnings.
Identifiable
Intangible Assets, net
Finite-lived
intangible assets such as customer relationships assets, trademarks and tradenames are amortized over their estimated useful lives, generally
on a straight-line basis for periods ranging from 3 to 20 years. Finite-lived intangible assets are reviewed for impairment or obsolescence
whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of intangible
assets is measured by a comparison of the carrying amount of the asset to the future undiscounted net cash flows expected to be generated
by that asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds the estimated fair value. No impairment was recognized during the periods presented.
Goodwill
and other indefinite-lived intangibles
The
Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible
and intangible assets acquired. Goodwill is assigned to a reporting unit on the acquisition date and tested for impairment at least annually,
or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not
declined below its carrying value. Similarly, indefinite-lived intangible assets (if any) other than goodwill, are tested annually or
more frequently if indicated, for impairment. If impaired, intangible assets are written down to fair value based on the expected discounted
cash flows.
Revenue
Recognition
The
Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606 Revenue from Contracts with Customers
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 health insurance carriers (the “Customer”
or “Carrier”) related to insurance plans produced through brokering, producing and servicing agreements between insurance
carriers and members. The Company defines a “Member” as an individual, family or entity currently covered or seeking insurance
coverage.
The
Company focuses primarily on agency services for insurance products in the “Healthcare” and property and casualty, which
includes auto (collectively “P&C”) space, with nominal activity in the life insurance and bond sectors. Healthcare includes
plans for individuals and families, Medicare supplements, ancillary and small businesses.
Consideration
for all agency services typically is based on commissions calculated by applying contractual commission rates to policy premiums. For
P&C, commission rates are applied to premiums due, whereas for healthcare, commission rates, including override commissions,
are applied to monthly premiums received by the Carrier.
The
Company has two forms of billing practices, “Direct Bill” and “Agency Bill”. With Direct Bill, Carriers bill
and collect policy premium payments directly from Members without any involvement from the Company. Commissions are paid to the Company
by the Carrier in the following month. With Agency Bill, The Company bills Members premiums due and remits them to Carriers net of commission
earned.
The
following outlines the core principles of ASC 606:
Identification
of the contract, or contracts, with a customer. 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.
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 form
Carriers even on business still in place. In some instances, trailing commissions could occur which would be recognized similar to other
Healthcare revenue. With one performance obligation, allocation of transaction price is normally not necessary.
Healthcare
typically utilizes the Direct Bill method.
The
Company recognizes revenue at a point in time, when it satisfies its monthly performance obligation and control of the service transfers
to the Customer. Transfer occurs when Member insurance premium cash payments are received by the Customer. The Customer’s receipt
of cash is the culmination and complete satisfaction of the Company’s performance obligation, and the earnings process is complete.
With
Direct Bill, since the amount of monthly Customer cash receipts is unknown to the Company until the following month when notice is provided
by Customer to Company, the Company accrues revenue at each period end. Any estimated revenue accrued and recognized at a period-end
is trued up for financial reporting per actual revenue earned as provided by the Customer during the following month.
P&C
revenue recognition:
The
Company identifies a contract when it has a binding agreement with a Carrier, the Customer, to provide agency services to Members.
There
typically is one performance obligation in contracts with Customers, to perform agency services to solicit, receive proposals and bind
insurance policies culminating with policy placement. Commission revenue is earned at the time of policy placement.
Transaction
price is typically stated in a contract and usually based on commission rates applied to Member premiums due. With one performance obligation,
allocation of transaction price is normally not necessary.
P&C
utilizes both the Agency Bill and Direct Bill methods, depending on the Carrier.
The
Company recognizes revenue at a point in time when it satisfies its performance obligation and control of the service transfers to the
Customer. Transfer occurs when the policy placement process is complete.
With
both Direct Bill and Agency Bill, the Company accrues commission revenue in the period policies are placed. With Agency Bill, payment
is typically received from Members in the month earned, however with Direct Bill, payment is typically received from Carriers in the
month subsequent to the commissions being earned.
Other
revenue policies: Insurance commissions earned from Carriers for life insurance products are recorded gross of amounts due to agents,
with a corresponding commission expense for downstream agent commissions being recorded as commission expense within the condensed consolidated
statements of operations.
When
applicable, commission revenue is recognized net of any deductions for estimated commission adjustments due to lapses, policy cancellations,
and revisions in coverage.
The
Company could earn additional revenue from contingent commissions, profit-sharing, override and bonuses based on meeting certain revenue
or profit targets established periodically by the Carriers (collectively, “Contingent Commissions”). Contingent Commissions
are earned when the Company achieves targets established by Carriers. The Carriers notify the Company when it has achieved the target.
The Company recognizes revenue for any Contingent Commissions at the time it is reasonably assured that a significant revenue reversal
is not probable, which is generally when a Carrier notifies the Company that it is on track or has earned a Contingent Commission.
The
following table disaggregates the Company’s revenue by line of business, showing commissions earned:
SCHEDULE
OF DISAGGREGATION REVENUE
|
Three
Months ended September 30, 2021
|
|
|
Medical/Life
|
|
|
|
Property
and Casualty
|
|
|
|
Total
|
|
|
Regular
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBS
|
|
|
226,233
|
|
|
|
-
|
|
|
|
226,233
|
|
|
USBA
|
|
|
18,241
|
|
|
|
-
|
|
|
|
18,241
|
|
|
CCS/UIS
|
|
|
-
|
|
|
|
120,762
|
|
|
|
120,762
|
|
|
Montana
|
|
|
343,546
|
|
|
|
-
|
|
|
|
343,546
|
|
|
Fortman
|
|
|
357,638
|
|
|
|
194,218
|
|
|
|
551,856
|
|
|
Altruis
|
|
|
807,775
|
|
|
|
-
|
|
|
|
807,775
|
|
|
Kush
|
|
|
513,223
|
|
|
|
-
|
|
|
|
513,223
|
|
|
|
|
|
2,266,656
|
|
|
|
314,980
|
|
|
|
2,581,636
|
|
|
Nine
Months ended September 30, 2021
|
|
|
Medical/Life
|
|
|
|
Property
and Casualty
|
|
|
|
Total
|
|
|
Regular
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBS
|
|
|
642,428
|
|
|
|
-
|
|
|
|
642,428
|
|
|
USBA
|
|
|
45,861
|
|
|
|
-
|
|
|
|
45,861
|
|
|
CCS/UIS
|
|
|
-
|
|
|
|
274,928
|
|
|
|
274,928
|
|
|
Montana
|
|
|
1,283,402
|
|
|
|
-
|
|
|
|
1,283,402
|
|
|
Fortman
|
|
|
884,073
|
|
|
|
628,327
|
|
|
|
1,512,400
|
|
|
Altruis
|
|
|
2,558,653
|
|
|
|
-
|
|
|
|
2,558,653
|
|
|
Kush
|
|
|
778,541
|
|
|
|
-
|
|
|
|
778,541
|
|
|
|
|
|
6,192,958
|
|
|
|
903,255
|
|
|
|
7,096,213
|
|
|
Three
Months ended September 30, 2020
|
|
Medical/Life
|
|
|
Property
and Casualty
|
|
|
Total
|
|
|
Regular
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBS
|
|
|
188,670
|
|
|
|
-
|
|
|
|
188,670
|
|
|
USBA
|
|
|
11,757
|
|
|
|
-
|
|
|
|
11,757
|
|
|
CCS/UIS
|
|
|
-
|
|
|
|
81,344
|
|
|
|
81,344
|
|
|
Montana
|
|
|
318,688
|
|
|
|
-
|
|
|
|
318,688
|
|
|
Fortman
|
|
|
258,488
|
|
|
|
212,454
|
|
|
|
470,942
|
|
|
Altruis
|
|
|
608,641
|
|
|
|
-
|
|
|
|
608,641
|
|
|
|
|
|
1,386,244
|
|
|
|
293,798
|
|
|
|
1,680,042
|
|
|
Nine
Months ended September 30, 2020
|
|
Medical/Life
|
|
|
Property
and Casualty
|
|
|
Total
|
|
|
Regular
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBS
|
|
|
567,054
|
|
|
|
-
|
|
|
|
567,054
|
|
|
USBA
|
|
|
206,698
|
|
|
|
-
|
|
|
|
206,698
|
|
|
CCS/UIS
|
|
|
-
|
|
|
|
227,044
|
|
|
|
227,044
|
|
|
Montana
|
|
|
1,148,538
|
|
|
|
-
|
|
|
|
1,148,538
|
|
|
Fortman
|
|
|
880,848
|
|
|
|
578,229
|
|
|
|
1,459,077
|
|
|
Altruis
|
|
|
1,717,964
|
|
|
|
-
|
|
|
|
1,717,964
|
|
|
|
|
|
4,521,102
|
|
|
|
805,273
|
|
|
|
5,326,375
|
|
General
and Administrative
General
and administrative expenses primarily consist of personnel costs for the Company’s administrative functions, professional service
fees, office rent, all employee travel expenses, and other general costs.
Marketing
and Advertising
The
Company’s direct channel expenses primarily consist of costs for e-mail marketing and newspaper advertisements. The Company’s
online advertising channel expense primarily consist of social media ads. Advertising costs for both direct and online channels are expensed
as incurred.
Stock-Based
Compensation
Stock-based
compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line
basis over the requisite service period, based on the terms of the awards. The fair value of the stock-based payments to nonemployees
that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual
term for services in which case such compensation would be amortized over the contractual term. As the Reliance Global Group, Inc. Equity
Incentive Plan 2019 was adopted in January of 2019, the Company lacks the historical basis to estimate forfeitures and will recognize
forfeitures as they occur.
Leases
The
Company recognizes leases in accordance with Accounting Standards Codification Topic 842, “Leases” (“ASC 842”
or “ASU 2016-12”). This standard provides enhanced transparency and comparability by requiring lessees to record right-of-use
assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases are recognized as a
single lease expense, generally on a straight-line basis.
The
Company is the lessee in a contract when the Company obtains the right to use an asset. We currently lease real estate and office space
under non-cancelable operating lease agreements. When applicable, consideration in a contract is allocated between lease and non-lease
components. Lease payments are discounted using the implicit discount rate in the lease. If the implicit discount rate for the lease
cannot be readily determined, the Company uses an estimate of its incremental borrowing rate. The Company did not have any contracts
accounted for as finance leases as of September 30, 2021, or 2020. Operating leases are included in the line items right-of-use asset,
lease obligation, current, and lease obligation, long-term in the consolidated balance sheet. Right-of-use (“ROU”) asset
represents the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s
obligations to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum
lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded
on the consolidated balance sheet and are expensed on a straight-line basis over the lease term in the condensed consolidated statement
of operations. The Company determines a lease’s term by agreement with lessor and includes lease extension options and variable
lease payments when option and/or variable payments are reasonably certain of being exercised or paid.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book
and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than
not that some portion or all of the deferred tax asset will not be realized. In evaluating its ability to recover deferred tax assets
within the jurisdiction in which they arise, the Company considers all available positive and negative evidence, including the expected
reversals of taxable temporary differences, projected future taxable income, taxable income available via carryback to prior years, tax
planning strategies, and results of recent operations. The Company assesses the realizability of its deferred tax assets, including scheduling
the reversal of its deferred tax assets and liabilities, to determine the amount of valuation allowance needed. Scheduling the reversal
of deferred tax asset and liability balances requires judgment and estimation. The Company believes the deferred tax liabilities relied
upon as future taxable income in its assessment will reverse in the same period and jurisdiction and are of the same character as the
temporary differences giving rise to the deferred tax assets that will be realized.
Seasonality
A
greater number of the Company’s Medicare-related health insurance plans are sold in the fourth quarter during the Medicare annual
enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage. The majority of the Company’s
individual and family health insurance plans are sold in the annual open enrollment period as defined under the federal Patient Protection
and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. Individuals and families generally
are not able to purchase individual and family health insurance outside of these open enrollment periods, unless they qualify for a special
enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state.
Prior
Period Adjustments
During
the June 30, 2021 quarterly financial reporting close process, the Company identified certain immaterial adjustments impacting prior
reporting periods. Specifically, the Company identified adjustments to correct goodwill and retained earnings in relation to historical
purchase price allocation accounting, and adjustments to true up accounts receivable and retained earnings for certain historical accrued
revenues. The Company has also separately reclassified its purchase software from property, plant and equipment to intangible assets.
The
Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. (SAB) 99, Materiality, 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 September 30, 2021.
SUMMARIZES
THE CHANGES TO THE PREVIOUSLY ISSUED FINANCIAL INFORMATION
|
Account
|
|
12/31/2020
As
reported
|
|
|
Adjustment
|
|
|
12/31/20
Adjusted
|
|
|
Accounts
Receivable
|
|
|
236,651
|
|
|
|
625,946
|
|
|
|
862,597
|
|
|
Goodwill
|
|
|
9,265,070
|
|
|
|
(503,345
|
)
|
|
|
8,761,725
|
|
|
Accumulated
Deficit
|
|
|
(12,482,281
|
)
|
|
|
122,601
|
|
|
|
(12,359,680
|
)
|
|
Commission
income
|
|
|
7,279,530
|
|
|
|
17,616
|
|
|
|
7,297,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
17,922,086
|
|
|
|
122,601
|
|
|
|
18,044,687
|
|
|
Total
Revenue
|
|
|
7,279,530
|
|
|
|
17,616
|
|
|
|
7,297,146
|
|
|
Net
Loss
|
|
|
(3,699,005
|
)
|
|
|
17,616
|
|
|
|
(3,681,389
|
)
|
|
EPS
|
|
|
(0.88
|
)
|
|
|
0.00
|
|
|
|
(0.88
|
)
|
|
Account
|
|
|
3/31/2021
As reported
|
|
|
|
Adjustment
|
|
|
|
3/31/2021
Adjusted
|
|
|
Accumulated
Deficit
|
|
|
(13,123,609
|
)
|
|
|
150,003
|
|
|
|
(12,973,606
|
)
|
|
Commission
income
|
|
|
2,296,328
|
|
|
|
27,402
|
|
|
|
2,323,730
|
|
|
Total
Revenue
|
|
|
2,296,328
|
|
|
|
27,402
|
|
|
|
2,323,730
|
|
|
Net
Loss
|
|
|
(641,328
|
)
|
|
|
27,402
|
|
|
|
(613,926
|
)
|
|
EPS
|
|
|
(0.09
|
)
|
|
|
(0.01
|
)
|
|
|
(0.08
|
)
|
Recently
Issued Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), which requires the
measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting
date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial
statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments
to extend credit held by a reporting entity at each reporting date. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements
to Topic 326, Financing Instruments—Credit Losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019.
On November 15, 2019, the FASB delayed the effective date of FASB ASC Topic 326 for certain small public companies and other private
companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers
that are eligible to be smaller reporting companies under the SEC’s definition. The Company does not currently believe the adoption
of this standard will have a significant impact on its financial statements, given its history of minimal bad debt expense relating to
trade accounts receivable.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which eliminates certain exceptions to the general principles in Topic 740 and simplifies other areas of the existing guidance. ASU 2019-12
is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this
pronouncement January 1, 2021 which did not have a material effect on the consolidated financial statements.
NOTE
3. STRATEGIC INVESTMENTS AND BUSINESS COMBINATION
To
date, we have acquired eight 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)
Commercial
Solutions of Insurance Agency, LLC
|
|
October
24, 2018
December
1, 2018
|
|
Michigan
New
Jersey
|
|
Health
Insurance
P&C
– Trucking Industry
|
|
Affiliated
Unaffiliated
|
|
Southwestern
Montana Insurance Center, Inc.
|
|
April
1, 2019
|
|
Montana
|
|
Group
Health Insurance
|
|
Unaffiliated
|
|
Fortman
Insurance Agency, LLC
|
|
May
1, 2019
|
|
Ohio
|
|
P&C
|
|
Unaffiliated
|
|
Altruis
Benefits Consultants, Inc.
|
|
September
1, 2019
|
|
Michigan
|
|
Health
Insurance
|
|
Unaffiliated
|
|
UIS
Agency LLC
|
|
August
17, 2020
|
|
New
York
|
|
Health
Insurance
|
|
Unaffiliated
|
|
|
|
|
|
|
|
|
|
|
|
J.P.
Kush and Associates, Inc.
|
|
May
1, 2021
|
|
Michigan
|
|
Health
Insurance
|
|
Unaffiliated
|
The
following table lists our activity in 2021 by number of agents, approximate policies issued and revenue written:
SUMMARY
OF BUSINESS ACQUIRED AND REVENUE RECOGNIZED
|
Agency
Name
|
|
Number
of Agents
|
|
|
Number
of Policies issued
|
|
|
Aggregate
Revenue Recognized September 30, 2021
|
|
|
USBA
and EBS
|
|
|
4
|
|
|
|
2,848
|
|
|
$
|
688,289
|
|
|
UIS
Agency, LLC / Commercial Solutions
|
|
|
2
|
|
|
|
103
|
|
|
$
|
274,928
|
|
|
Southwestern
Montana
|
|
|
14
|
|
|
|
6,521
|
|
|
$
|
1,283,402
|
|
|
Fortman
Insurance
|
|
|
14
|
|
|
|
2,175
|
|
|
$
|
1,512,400
|
|
|
Altruis
|
|
|
13
|
|
|
|
9,122
|
|
|
$
|
2,558,653
|
|
|
Kush
|
|
|
4
|
|
|
|
850
|
|
|
$
|
778,541
|
|
The
following table lists our activity in 2020 by number of agents, approximate policies issued and revenue written:
|
Agency
Name
|
|
Number
of Agents
|
|
|
Number
of Policies issued
|
|
|
Aggregate
Revenue
Recognized
September 30, 2020
|
|
|
USBA
and EBS
|
|
|
7
|
|
|
|
2,563
|
|
|
$
|
773,752
|
|
|
Commercial
Solutions
|
|
|
2
|
|
|
|
159
|
|
|
$
|
227,044
|
|
|
Southwestern
Montana
|
|
|
14
|
|
|
|
5,850
|
|
|
$
|
1,148,538
|
|
|
Fortman
Insurance
|
|
|
14
|
|
|
|
2,064
|
|
|
$
|
1,459,077
|
|
|
Altruis
|
|
|
13
|
|
|
|
5,851
|
|
|
$
|
1,717,964
|
|
UIS
Transaction
On
August 17, 2020, the Company entered into a Stock Purchase Agreement with UIS Agency LLC whereby the Company shall purchase the business
and certain assets noted within the Purchase Agreement (the “UIS Acquisition”) for a total purchase price of $883,334. The
purchase price was paid with a cash payment of $601,696, $200,000 in shares of the Company’s common stock and an earn-out payment.
Three cash installment payments totaling $500,000 were due on September 30, 2020, October 31, 2020 and December 31, 2020. Earn-out payment
is dependent on the Net Product Line Revenues being equal to or greater than $450,000 for the measurement period. The balance of the
earn-out liability as of September 30, 2021, and December 31, 2020 was $81,638 and is and is presented on the balance sheet.
The
UIS 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 UIS Acquisition was calculated as follows:
SCHEDULE
OF ALLOCATION OF PURCHASE PRICE
|
Description
|
|
Fair
Value
|
|
|
Weighted
Average Useful Life (Years)
|
|
|
Cash
|
|
$
|
5,772
|
|
|
|
|
|
|
Trade
name and trademarks
|
|
|
35,600
|
|
|
|
5
|
|
|
Customer
relationships
|
|
|
100,000
|
|
|
|
10
|
|
|
Non-competition
agreements
|
|
|
25,500
|
|
|
|
5
|
|
|
Goodwill
|
|
|
716,462
|
|
|
|
Indefinite
|
|
|
|
|
$
|
883,334
|
|
|
|
|
|
Goodwill
of $716,462 arising from the UIS 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 UIS Acquisition is currently expected to be deductible for income
tax purposes. Total acquisition costs for the UIS Acquisition incurred were $33,344 recorded as a component of General and administrative
expenses. The revenues for the acquired business as a standalone entity per ASC 805 from January 1, 2020 to August 17, 2020 were approximately
$337,000. The net loss for the acquired business was not determinable as the business was fully integrated with an existing subsidiary
of the Company.
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 $2,591,481.
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. The fair
value balance of the earn-out liability as of September 30, 2021 was $641,481 and is presented net of accretion on the balance sheet.
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:
SCHEDULE
OF ALLOCATION OF PURCHASE PRICE
|
Description
|
|
Fair
Value
|
|
|
Weighted
Average Useful Life (Years)
|
|
|
Trade
name and trademarks
|
|
$
|
474,300
|
|
|
|
5
|
|
|
Customer
relationships
|
|
|
693,000
|
|
|
|
10
|
|
|
Non-competition
agreements
|
|
|
144,000
|
|
|
|
5
|
|
|
Cash
|
|
|
291,414
|
|
|
|
|
|
|
Goodwill
|
|
|
988,767
|
|
|
|
Indefinite
|
|
|
|
|
$
|
2,591,481
|
|
|
|
|
|
Goodwill
of $988,767 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 for the acquired business as a standalone entity per ASC 805 from January 1, 2021 to April 30, 2021
was $500,000 and from January 1, 2020 to September 30, 2020 was $856,000. The net profit/loss for the acquired business was not determinable
as the business was fully integrated with an existing subsidiary of the Company.
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 $20,000,000 in NSURE which will be funded with three tranches. In exchange, the Company will receive
a total of 5,837,462 shares of NSURE’s Class A Common Stock, which represents 35% of the outstanding shares. The first tranche
of $1,000,000 was paid immediately upon execution of the agreement. As a result of the first tranche, the Company received 291,873 shares
of NSURE’s Class A Common Stock. The second tranche of $3,000,000 and third tranche of $16,000,000 have not occurred as of September
30, 2021. The Company will use the cost method of acquisition for the initial recognition of this investment. Once the Company determines
that it can exercise significant influence over NSURE, it will begin to account for its investment under the equity method. On February
10, 2020, the Company issued 46,667 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 $1,000,000 for the issuance of these common shares. As of
September 30, 2021, and December 31, 2020, the investment balance is $1,350,000.
NOTE
5. PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
Computer
equipment
|
|
$
|
58,441
|
|
|
$
|
33,774
|
|
|
Office
equipment and furniture
|
|
|
36,158
|
|
|
|
36,573
|
|
|
Leasehold
Improvements
|
|
|
56,631
|
|
|
|
56,631
|
|
|
Property
and equipment, gross
|
|
|
151,230
|
|
|
|
126,978
|
|
|
Less:
Accumulated depreciation and amortization
|
|
|
(60,805
|
)
|
|
|
(47,815
|
)
|
|
Property
and equipment, net
|
|
$
|
90,425
|
|
|
$
|
79,163
|
|
Depreciation
expense associated with property and equipment as adjusted to reclassify certain software assets to intangibles, is included in depreciation
within the Company’s condensed consolidated statements of operations for the three months ended September 30, 2021, and 2020, and
was $6,215 and
$23,280,
respectively.
Depreciation
expense associated with property and equipment as adjusted to reclassify certain software assets to intangibles, is included in depreciation
within the Company’s Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021, and 2020 was
$12,990 and $33,209, respectively.
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.
As
of September 30, 2021, and December 31, 2020, the Company’s goodwill balance was $9,750,492 and $8,761,725, respectively.
SCHEDULE OF IMPAIRMENT OF GOODWILL
|
|
|
Goodwill
|
|
|
December
31, 2019
|
|
$
|
8,045,263
|
|
|
Goodwill
recognized in connection with acquisition on August 17, 2020
|
|
|
716,462
|
|
|
December
31, 2020
|
|
|
8,761,725
|
|
|
Goodwill
recognized in connection with Kush acquisition on May 1, 2021
|
|
$
|
988,767
|
|
|
September
30, 2021
|
|
$
|
9,750,492
|
|
The
following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization
period as of September 30, 2021:
SCHEDULE OF INTANGIBLE ASSETS AND WEIGHTED-AVERAGE REMAINING AMORTIZATION PERIOD
|
|
|
Weighted Average Remaining Amortization period (Years)
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
|
Trade name and trademarks
|
|
|
3.7
|
|
|
$
|
1,566,375
|
|
|
$
|
(505,351
|
)
|
|
$
|
1,061,024
|
|
|
Internally developed software
|
|
|
4.9
|
|
|
|
326,739
|
|
|
|
(4,834
|
)
|
|
|
321,905
|
|
|
Customer relationships
|
|
|
8.0
|
|
|
|
4,379,290
|
|
|
|
(945,683
|
)
|
|
|
3,433,607
|
|
|
Purchased software
|
|
|
0.8
|
|
|
|
562,327
|
|
|
|
(406,125
|
)
|
|
|
156,202
|
|
|
Non-competition agreements
|
|
|
2.8
|
|
|
|
2,821,010
|
|
|
|
(1,246,153
|
)
|
|
|
1,574,857
|
|
|
|
|
|
|
|
|
$
|
9,655,741
|
|
|
$
|
(3,108,146
|
)
|
|
$
|
6,547,595
|
|
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, 2020:
|
|
|
Weighted
Average Remaining Amortization period (Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Trade
name and trademarks
|
|
|
2.6
|
|
|
$
|
1,087,760
|
|
|
$
|
(307,163
|
)
|
|
$
|
780,597
|
|
|
Customer
relationships
|
|
|
7.6
|
|
|
|
3,686,290
|
|
|
|
(623,649
|
)
|
|
|
3,062,641
|
|
|
Purchased
software
|
|
|
1.6
|
|
|
|
562,327
|
|
|
|
(265,543
|
)
|
|
|
296,784
|
|
|
Non-competition
agreements
|
|
|
2.6
|
|
|
|
2,677,010
|
|
|
|
(834,598
|
)
|
|
|
1,842,412
|
|
|
|
|
|
|
|
|
$
|
8,013,387
|
|
|
$
|
(2,030,953
|
)
|
|
$
|
5,982,434
|
|
Amortization
expense as adjusted for certain software reclassifications was $381,514
and $321,608
for the three months ended September 30,
2021, and 2020, respectively.
Amortization
expense as adjusted for certain software reclassifications was $1,077,193
and $969,861
for the nine months ended September 30, 2021,
and 2020, respectively.
The
following reflects the expected amortization expense of acquired intangible assets as of September 30, 2021, for each of the following
five years and thereafter:
SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS
|
Years
ending December 31,
|
|
Amortization
Expense
|
|
|
2021
|
|
$
|
392,285
|
|
|
2022
|
|
|
1,489,347
|
|
|
2023
|
|
|
1,366,199
|
|
|
2024
|
|
|
961,713
|
|
|
2025
|
|
|
627,954
|
|
|
Thereafter
|
|
|
1,710,097
|
|
|
Total
|
|
$
|
6,547,595
|
|
NOTE
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Significant
components of accounts payable and accrued liabilities were as follows:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
714,787
|
|
|
$
|
980,943
|
|
|
Accrued
expenses
|
|
|
89,466
|
|
|
|
35,022
|
|
|
Accrued
credit card payables
|
|
|
18,892
|
|
|
|
119,896
|
|
|
Other
accrued liabilities
|
|
|
6,392
|
|
|
|
7,721
|
|
|
Accounts
payable and other accrued liabilities
|
|
$
|
829,537
|
|
|
$
|
1,143,582
|
|
NOTE
8. LONG-TERM DEBT
The
composition of the long-term debt follows:
SCHEDULE
OF LONG TERM DEBT
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $14,222 and $19,044 as of September 30, 2021 and December 31, 2020, respectively
|
|
$
|
500,025
|
|
|
$
|
542,760
|
|
|
Oak Street Funding LLC Senior Secured Amortizing Credit Facility, net of deferred financing costs of $18,477 and $22,737 as of September 30, 2021 and December 31, 2020, respectively
|
|
|
809,210
|
|
|
|
877,550
|
|
|
Oak Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $12,155 and $16,685 as of September 30, 2021 and December 31, 2020, respectively
|
|
|
909,156
|
|
|
|
979,966
|
|
|
Oak Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $44,115 and $54,293 as of September 30, 2021 and December 31, 2020, respectively
|
|
|
2,287,256
|
|
|
|
2,465,410
|
|
|
Oak Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $50,230 and $65,968 as of September 30, 2021 and December 31, 2020, respectively
|
|
|
3,710,234
|
|
|
|
3,983,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,215,881
|
|
|
|
8,849,280
|
|
|
Less: current portion
|
|
|
(890,901
|
)
|
|
|
(963,450
|
)
|
|
Long-term debt
|
|
$
|
7,324,980
|
|
|
$
|
7,885,830
|
|
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 $750,000 from
Oak Street under a Term Loan. The Term Loan is secured by certain assets of the Company. Interest accrues at 5.00% on the basis of a
360-day year, maturing 120 months from the Amortization Date (September 25, 2018). The Company incurred debt issuance costs associated
with the Term Loan in the amount of $22,188. On December 7, 2018, CCS entered into a Facility with Oak Street whereby CCS borrowed $1,025,000
from Oak Street under a senior secured amortizing credit facility. The borrowing rate under the Facility is a variable rate equal to
Prime +1.50% and matures 10 years from the closing date. The Company incurred debt issuance costs associated with the Facility in the
amount of $25,506, which were deferred and are amortized over the length of the Facility.
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 $7,912,000 from Oak Street under the Term Loans. The Term Loans are secured by
certain assets of the Company. The borrowing rates under the Facility is a variable rate equal to Prime + 2.00% and matures 10 years
from the closing date. The Company recorded debt issuance costs associated with the aforementioned loans in total of $181,125.
Aggregated
cumulative maturities of long-term obligations (including the Term Loan and the Facility), excluding deferred financing costs, as of
September 30, 2021 are:
SCHEDULE OF CUMULATIVE MATURITIES OF LONG-TERM OBLIGATIONS
|
|
|
|
|
|
Fiscal
year ending December 31,
|
|
Maturities
of Long-Term Debt
|
|
|
2021
|
|
$
|
221,312
|
|
|
2022
|
|
|
913,920
|
|
|
2023
|
|
|
963,584
|
|
|
2024
|
|
|
1,015,030
|
|
|
2025
|
|
|
1,071,119
|
|
|
Thereafter
|
|
|
4,170,120
|
|
|
Total
|
|
$
|
8,355,085
|
|
|
Less
debt issuance costs
|
|
|
(139,204
|
)
|
|
Total
|
|
$
|
8,215,881
|
|
Loans
Payable
Paycheck
Protection Program
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 Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020 (the “CARES
Act”). Under the terms of the PPP, up to the entire amount of principal and accrued interest
may be forgiven to the extent loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing
guidance issued by the U.S. Small Business Administration under the PPP. The Company intends to use the entire loan amount for designated
qualifying expenses and to apply for forgiveness in accordance with the terms of the PPP. This loan is evidenced by a promissory
note dated April 4, 2020 and matures two years from the disbursement date. This loan bears interest at a rate of 1.00% per annum, with
the first six months of interest deferred. Principal and interest are payable monthly commencing one year after the disbursement date
and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. This loan contains customary events of
default relating to, among other things, payment defaults or breaches of the terms of the loan. Upon the occurrence of an event of default,
the lender may require immediate repayment of all amounts outstanding under the note. The principal and interest of the loan are repayable
in 18 monthly equal installments of $37,913 each. Interest accrued in the first six months is included in the monthly installments. Installments
must be paid on the 24th day of each month. On November 17, 2020 the Company received notification from the SBA that the PPP
loan has been forgiven in its entirety.
NOTE
9. SIGNIFICANT CUSTOMERS
Carriers
representing 10% or more of total revenue are presented in the table below:
SCHEDULE OF CONCENTRATIONS OF REVENUES
|
|
|
For
the three months ended
September 30,
|
|
|
For
the nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
BlueCross
BlueShield
|
|
|
24
|
%
|
|
|
27
|
%
|
|
|
25
|
%
|
|
|
31
|
%
|
|
Priority
Health
|
|
|
27
|
%
|
|
|
26
|
%
|
|
|
30
|
%
|
|
|
26
|
%
|
No
other single insurance carrier accounted for more than 10% of the Company’s commission revenues. The loss of any significant customer,
including Priority Health and BlueCross BlueShield, could have a material adverse effect on the Company.
NOTE
10. EQUITY
Preferred
Stock
The
Company has been authorized to issue 750,000,000 shares of $0.086 par value Preferred Stock. The Board of Directors is expressly vested
with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences
of the shares of each series so established, within certain guidelines established in the Articles of Incorporation. Each share of Series
A Convertible Preferred Stock shall have ten (10) votes per share and may be converted into ten (10) shares of $0.086 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.
On
February 11, 2021, Reliance Global Holdings, LLC, a related party, converted 394,493 shares of Series A Convertible Preferred Stock into
3,944,930 shares of common stock.
As
of September 30, 2021 and December 31, 2020, there were 1,167 and 395,640 shares of Series A Convertible Preferred Stock outstanding,
respectively.
Common
Stock
The
Company has been authorized to issue 2,000,000,000 shares of common stock, $0.086 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 2,070,000 shares of common stock through a stock offering for the purpose of raising capital. The Company
received gross proceeds of $12,420,000 for the issuance of these common shares.
In
February 2021, Reliance Global Holdings, LLC, a related party, converted $3,800,000 of outstanding debt into 633,333 shares of common
stock. The conversion considered the fair market value of the stock on the day of conversion of $6.00 for total shares issued as a result
of 633,333.
In
May 2021, the Company issued 14,925 shares of common stock pursuant to the acquisition of the Kush Acquisition.
As
of September 30, 2021 and December 31, 2020, there were 10,944,439 and 4,241,028 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 700,000 shares of common stock are reserved for issuance under the Plan. At September 30, 2021 and December 31,
2020, there were 163,913 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.
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.
The
following is a summary of the stock options granted, forfeited or expired, and exercised under the Plan for the nine months ended September
30, 2021:
SUMMARY OF STOCK OPTIONS
|
|
|
Options
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding
at December 31, 2020
|
|
|
233,917
|
|
|
$
|
15.43
|
|
|
|
3.63
|
|
|
$
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
or expired
|
|
|
(70,004
|
)
|
|
|
14.57
|
|
|
|
2.93
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
at September 30, 2021
|
|
|
163,913
|
|
|
$
|
15.50
|
|
|
|
2.86
|
|
|
$
|
-
|
|
The
following is a summary of the stock options granted, forfeited or expired, and exercised under the Plan for the nine months ended September
30, 2020:
|
|
|
Options
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding
at December 31, 2019
|
|
|
229,833
|
|
|
$
|
15.25
|
|
|
|
3.87
|
|
|
$
|
2,995,640
|
|
|
Granted
|
|
|
27,417
|
|
|
|
30.49
|
|
|
|
4.53
|
|
|
|
-
|
|
|
Forfeited
or expired
|
|
|
(23,333
|
)
|
|
|
33.43
|
|
|
|
4.48
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
at September 30, 2020
|
|
|
233,917
|
|
|
$
|
17.14
|
|
|
|
3.88
|
|
|
$
|
-
|
|
The
following is a summary of the Company’s non-vested stock options as of December 31, 2020, and changes during the nine months ended
September 30, 2021:
SUMMARY OF NON-VESTED STOCK OPTIONS
|
|
|
Options
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Non-vested
at December 31, 2020
|
|
|
159,542
|
|
|
$
|
13.39
|
|
|
|
2.53
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(47,690
|
)
|
|
|
12.43
|
|
|
|
0.86
|
|
|
Forfeited
or expired
|
|
|
(56,006
|
)
|
|
|
14.57
|
|
|
|
2.93
|
|
|
Non-vested
at September 30, 2021
|
|
|
55,846
|
|
|
$
|
15.42
|
|
|
|
1.03
|
|
The
following is a summary of the Company’s non-vested stock options as of December 31, 2019, and changes during the nine months ended
September 30, 2020:
|
|
|
Options
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Non-vested
at December 31, 2019
|
|
|
212,333
|
|
|
$
|
15.25
|
|
|
|
4.30
|
|
|
Granted
|
|
|
27,417
|
|
|
|
30.49
|
|
|
|
4.53
|
|
|
Vested
|
|
|
(54,835
|
)
|
|
|
14.96
|
|
|
|
2.74
|
|
|
Forfeited
or expired
|
|
|
(23,333
|
)
|
|
|
33.43
|
|
|
|
4.48
|
|
|
Non-vested
at September 30, 2020
|
|
|
161,582
|
|
|
$
|
14.96
|
|
|
|
2.74
|
|
During
the nine months ended September 30, 2021, the Board did not approve any options to be issued pursuant to the Plan.
During
the nine months ended September 30, 2020, the Board approved options to be issued pursuant to the Plan to a certain current employee,
during the period, totaling 23,333 shares. These options have been granted with an exercise price greater than the market value of the
common stock on the date of grant and have a contractual term of 5 years. The options vest ratably over a 4-year period through February
2024 and remain subject to forfeiture if vesting conditions are not met. Compensation cost is recognized on a straight-line basis over
the vesting period or requisite service period. Subsequent to September 30, 2020, the employee was terminated, and the options were forfeited.
The
Company determined that the options granted had a total fair value for the period ending on September 30, 2020, of $3,386,204 which will
be amortized in future periods through February 2024. During the nine months ended September 30, 2020, the Company recognized $1,063,777
of compensation expense relating to the stock options granted to employees, directors, and consultants. As of September 30, 2020, unrecognized
compensation expense totaled $1,275,050 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 September 30, 2020.
The market value as of September 30, 2020, was $12.00 based on the closing bid price for September 30, 2020.
As
of September 30, 2021 the Company determined that the options granted had a total fair value of $2,541,360.
During the nine months ended September 30, 2021, the Company recognized $508,806
of compensation expense relating to the stock
options granted to employees, directors, and consultants. As of September 30, 2021, unrecognized compensation expense totaled $263,100.
These
options have been granted with an exercise price greater than the market value of the common stock on the date of grant and have a contractual
term of 5 years. The options vest ratably over a 4-year period through September 2024 and remain subject to forfeiture if vesting conditions
are not met. Compensation cost is recognized on a straight-line basis over the vesting period or requisite service period. During the
nine months ended September 30, 2021, 70,004
options were forfeited.
The
intrinsic value is calculated as the difference between the market value and the exercise price of the shares on September 30, 2021.
The market value as of September 30, 2021 was $2.61 based on the closing bid price for September 30, 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
model requires 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:
SCHEDULE OF ASSUMPTION OF BLACK-SCHOLES OPTION PRICING MODEL
|
|
|
Nine
Months Ended
September 30, 2021
|
|
|
Nine
Months Ended
September 30, 2020
|
|
|
Exercise price
|
|
$
|
0.16
- $0.26
|
|
|
$
|
0.17
– 0.39
|
|
|
Expected
term
|
|
|
3.25
to 3.75 years
|
|
|
|
3.25
– 3.75 years
|
|
|
Risk-free
interest rate
|
|
|
0.38%
- 2.43
|
%
|
|
|
0.38
|
%
|
|
Estimated
volatility
|
|
|
293.07%
- 517.13
|
%
|
|
|
300.069
|
%
|
|
Expected
dividend
|
|
|
-
|
|
|
|
-
|
|
|
Option
price at valuation date
|
|
$
|
0.12
- $0.27
|
|
|
$
|
0.12
- 0.31
|
|
Warrants
As
a part of the Company’s offering, the Company issued 2,070,000 Series A Warrants. These warrants are classified as equity warrants
because of provisions, pursuant to the warrant agreement, that permit the holder obtain a fixed number of shares for a fixed monetary
amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge. The warrants
were recorded at a value per the offering of $0.01. The warrants may be exercised at any point from the effective date until the 5-year
anniversary of issuance and are not subject to standard anti-dilution provisions. The Series A Warrants are exercisable at a per share
exercise price equal to 110% of the public offering price of one share of common stock and accompanying Series A Warrant, $6.00.
NOTE
11. EARNINGS (LOSS) PER SHARE
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 1,167 and 395,640 were issued and outstanding at September 30, 2021 and 2020, respectively.
Series A Convertible Preferred Stock is convertible into common stock on a 10 for 1 basis. The outstanding stock options are considered
anti-dilutive in which 163,913 and 233,928 were issued and outstanding on September 30, 2021 and 2020, respectively.
The
calculations of basic and diluted EPS for the three months ended September 30, 2021 and 2020 are as follows:
SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
Basic and diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(595,233
|
)
|
|
$
|
(1,231,567
|
)
|
|
Basic weighted average shares outstanding
|
|
|
10,944,439
|
|
|
|
4,162,306
|
|
|
Basic and diluted loss per common share:
|
|
$
|
(0.05
|
)
|
|
$
|
(0.30
|
)
|
The
calculations of basic and diluted EPS for the nine months ended September 30, 2021 and 2020 are as follows:
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
Basic and diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,486,045
|
)
|
|
$
|
(3,349,778
|
)
|
|
Basic weighted average shares outstanding
|
|
|
9,809,092
|
|
|
|
4,164,489
|
|
|
Basic and diluted loss per common share:
|
|
$
|
(0.25
|
)
|
|
$
|
(0.80
|
)
|
NOTE
12. 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.
Lease
expense for the nine months ended September 30, 2021 and 2020 was $220,798
and 175,896
respectively.
In
accordance with ASU 2016-02, right-of-use assets are amortized over the life of the underlying lease. As of September 30, 2021 and 2020,
the Company reflected right of use assets of $1,140,609
and $433,529,
respectively.
As
of September 30, 2021 the weighted average remaining lease term for the operating leases is 7.50 years. The weighted average discount
rate for the operating leases is 5.25%.
Future
minimum lease payment under these operating leases consisted of the following:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENT
|
Year ending December 31,
|
|
Operating Lease Obligations
|
|
|
2021
|
|
$
|
84,378
|
|
|
2022
|
|
|
330,737
|
|
|
2023
|
|
|
256,267
|
|
|
2024
|
|
|
172,690
|
|
|
2025
|
|
|
112,923
|
|
|
Thereafter
|
|
|
381,932
|
|
|
Total undiscounted operating lease payments
|
|
|
1,338,927
|
|
|
Less: Imputed interest
|
|
|
(189,715
|
)
|
|
Present value of operating lease liabilities
|
|
$
|
1,149,212
|
|
|
Total undiscounted operating lease payments
|
|
|
1,338,927
|
|
NOTE
13. 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 September 30, 2021 and December 31, 2020. 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.
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
14. 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 September 30, 2021 and December 31, 2020.
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 September 30, 2021, 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 September 30, 2021, its estimated annual effective tax rate from continuing operation
was 0% and the resulting income tax expense was $0. We believe that, at this time, this method for determining the effective tax rate
is more reliable than projecting an annual effective tax rate due to the uncertainty of estimating annual pre-tax loss/income under the
impact of the COVID-19 pandemic. The Company’s estimated annual effective tax rate differs from the U.S. statutory tax rate primarily
due to a valuation allowance recorded against the deferred tax assets. Deferred tax assets and deferred tax liabilities are recognized
based on temporary differences between the financial reporting and tax basis of assets and liabilities using applicable tax rates. A
valuation allowance is recorded against deferred tax assets if it is not more likely than not that some or all of the deferred tax assets
will not be realized. Due to the uncertainty surrounding the realization of the deferred tax assets in future, the Company has recorded
a full valuation allowance against its net deferred tax assets.
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 September 30, 2021. Management is currently unaware of any issues under review that could result
in significant payments, accruals or material deviations from its positions.
On
March 11, 2021, The American Rescue Plan Act of 2021 (“ARPA Act”) was signed into law. We evaluated the applicable provisions
of the ARPA Act and determined that there is no material impact expected to our financial results. We will continue to monitor future
guidance issued regarding the ARPA Act to determine any future impacts to our financial results.
NOTE
15. RELATED PARTY TRANSACTIONS
The
Company has 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 USBA Acquisition, the EBS Acquisition, CCS Acquisition, SWMT Acquisition, FIS Acquisition, ABC Acquisition,
and UIS Agency LLC.
As
of September 30, 2021 and December 31, 2020 the related party loan payable was $364,552 and $4,666,520 respectively.
At
September 30, 2021 and December 31, 2020, Reliance Holdings owned approximately 46.42% and 25.58%, respectively, of the common stock
of the Company.
NOTE
16. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events and transactions from September 30, 2021 through the date this Form 10-Q was filed with the SEC
for potential recognition or disclosure as required by GAAP and determined that there were none.