SCHEDULE OF RESTRICTED CASH IN STATEMENT OF CASH FLOW
| |
September
30, 2022 | | |
September
30, 2021 | |
Cash | |
$ | 1,615,054 | | |
$ | 5,655,103 | |
Restricted
cash | |
| 1,409,562 | | |
| 484,371 | |
Total
cash and restricted cash | |
$ | 3,024,616 | | |
$ | 6,139,474 | |
Fair
Value of Financial Instruments
Level
1 — Observable inputs reflecting quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level
2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly
or indirectly for substantially the full term of the asset or liability; and
Level
3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market
participants would use in pricing the asset or liability, including assumptions about risk.
Warrant
Liabilities: The Company re-measures fair value of its Level 3 warrant liabilities at the balance sheet date, using a binomial option
pricing model. The following summarizes the significant unobservable inputs:
SCHEDULE OF EARN OUT LIABILITY
| |
September
30, 2022 | | |
December
31,
2021 | |
Stock
price | |
$ | 0.78
| | |
$ | 6.44 | |
Volatility | |
| 105
| % | |
| 90 | % |
Time
to expiry | |
| 4.26
| | |
| 5 | |
Dividend
yield | |
| 0
| % | |
| 0 | % |
Risk
free rate | |
| 4.10
| % | |
| 1.10 | % |
The
following reconciles fair value of the liability classified warrants:
SCHEDULE OF RECONCILES WARRANT COMMITMENT
| |
| 1 | | |
| 2 | | |
| 3 | | |
| 4 | |
| |
Three
and Nine Months ended September 30, 2022 | |
| |
Series
B Warrant Commitment | | |
Series
B warrant liabilities | | |
Placement
agent warrants | | |
Total | |
Beginning
balance | |
$ | 37,652,808 | | |
$ | - | | |
$ | - | | |
$ | 37,652,808 | |
Initial
recognition | |
| - | | |
| 55,061,119 | | |
| 1,525,923 | | |
| 56,587,042 | |
Unrealized
(gain) loss | |
| 17,408,311 | | |
| (31,980,437 | ) | |
| (946,461 | ) | |
| (15,518,587 | ) |
Warrants
exercised or transferred | |
| (55,061,119 | ) | |
| | | |
| | | |
| (55,061,119 | ) |
Ending
balance, March 31, 2022 | |
$ | - | | |
$ | 23,080,682 | | |
$ | 579,462 | | |
$ | 23,660,144 | |
Unrealized
(gain) loss | |
| - | | |
| (12,322,737 | ) | |
| (310,514 | ) | |
| (12,633,251 | ) |
Ending
balance, June 30, 2022 | |
$ | - | | |
$ | 10,757,945 | | |
$ | 268,948 | | |
$ | 11,026,893 | |
Beginning
balance | |
$ | - | | |
$ | 10,757,945 | | |
$ | 268,948 | | |
$ | 11,026,893 | |
Unrealized
(gain) loss | |
| - | | |
| (7,726,161 | ) | |
| (193,154 | ) | |
| (7,919,315 | ) |
Ending
balance, September 30, 2022 | |
| - | | |
| 3,031,784 | | |
| 75,794 | | |
| 3,107,578 | |
Ending
balance | |
| - | | |
| 3,031,784 | | |
| 75,794 | | |
| 3,107,578 | |
| |
| 1 | | |
| 2 | |
| |
December
31, 2021 | |
| |
Series
B Warrant Commitment | | |
Total | |
Beginning
balance | |
$ | - | | |
$ | - | |
Initial
recognition | |
| 20,244,497 | | |
| 20,244,497 | |
Unrealized
(gain) loss | |
| 17,408,311 | | |
| 17,408,311 | |
Ending
balance | |
$ | 37,652,808 | | |
$ | 37,652,808 | |
Earn-out
liabilities: The Company generally values its Level 3 earn-out liabilities using the income valuation approach. Key valuation inputs
include contingent payment arrangement terms, projected revenues and cash flows, rate of return, and probability assessments. The following
table summarizes the significant unobservable inputs used in the fair value measurements:
SCHEDULE OF FAIR VALUE MEASUREMENTS
|
|
September
30, 2022 |
|
December
31, 2021 |
Valuation
technique |
|
Discounted
cash flow |
|
Discounted
cash flow |
Significant
unobservable input |
|
Projected
revenue and probability of achievement |
|
Projected
revenue and probability of achievement |
The
Company values its Level 3 earn-out liability related to the Barra Acquisition using a Monte Carlo simulation in a risk-neutral framework
(a special case of the Income Approach). The following summarizes the significant unobservable inputs:
SCHEDULE OF EARN OUT LIABILITY
| |
| September
30,
2022
| |
WACC
Risk Premium: | |
| 14.5
| % |
Volatility | |
| 50
| % |
Credit
Spread: | |
| 15.1
| % |
Payment
Delay (days) | |
| 90
| % |
Risk
free rate | |
| USD
Yield Curve | |
Discounting
Convention: | |
| Mid-period
| |
Number
of Iterations | |
| 100,000
| |
Undiscounted
remaining earn out payments are approximately $3,291,883 as of September 30, 2022. The following table reconciles fair value of earn-out liabilities
for the period ending September 30, 2022:
SCHEDULE OF GAIN OR LOSSES RECOGNIZED FAIR VALUE
| |
September
30, 2022 | | |
December
31, 2021 | |
Beginning
balance – January 1 | |
$ | 3,813,878 | | |
$ | 2,931,418 | |
| |
| | | |
| | |
Acquisitions
and Settlements | |
| (1,027,296 | ) | |
| 1,160,562 | |
| |
| | | |
| | |
Period
adjustments: | |
| | | |
| | |
Fair
value changes included in earnings* | |
| 132,445 | | |
| (278,102 | ) |
| |
| | | |
| | |
Ending
balance | |
$ | 2,919,027 | | |
$ | 3,813,878 | |
Less:
Current portion | |
| (2,283,380 | ) | |
| (3,297,855 | ) |
Ending
balance, less current portion | |
| 635,647 | | |
| 516,023 | |
* |
Recorded
as a reduction to general and administrative expenses |
Investment
in Nsure
On
February 19, 2020, the Company entered into a securities purchase agreement with NSURE, Inc. (“NSURE”), which was further
amended on October 8, 2020, and as amended provides that the Company may invest up to an aggregate of $5,700,000 in NSURE to be funded
in three tranches. In exchange, the Company will receive a total of 928,343 shares of NSURE’s Class A Common Stock.
During
the course of calendar year 2020 and by October 8, 2020, the Company funded the first tranche, $1,350,000 in exchange for 394,029 shares.
The second tranche allowed the Company to acquire an additional 209,075 shares at a price of $6.457 per share by no later than December
30, 2020. The third full tranche allowed the Company to purchase an additional 325,239 shares at a purchase price of $9.224 after December
20, 2020, but no later than March 31, 2021.
The
Company did not fund tranches two and three in the required timeframes, thus, the Company relinquished its rights under the contract
to any additional NSURE shares aside for the ones already acquired with tranche one.
The
Company measures the NSURE shares subsequent to acquisition in accordance with ASC 321-10-35-2, at cost less impairment since no
readily determinable fair value is available to the Company. The investment is reviewed for impairment at each reporting period by
qualitatively assessing any indicators demonstrating fair value of the investment is less than carrying value. The Company did not
observe any price changes resulting from orderly transactions for identical or similar assets for the periods ended September 30,
2022 or September 30, 2021. ASC 321-10-50-4 further requires an entity to disclose unrealized gains and losses for periods that
relate to equity securities held at a reporting date. To-date, the Company has not recognized any unrealized gains or losses on the
NSURE security.
In accordance with ACS 321-10-35-3, the Company performed a qualitative
assessment to determine if the investment may be impaired. After considering the indicators contained in ASC 321-10-35-3a –3e, the
Company determined that the investment was not impaired.
Revenue
Recognition
The
following table disaggregates the Company’s revenue by line of business, showing commissions earned:
SCHEDULE OF DISAGGREGATION REVENUE
Three
Months ended September 30, 2022 | |
Medical/Life | | |
Property
and Casualty | | |
Total | |
Regular | |
| | | |
| | | |
| | |
EBS | |
$ | 212,384 | | |
$ | - | | |
$ | 212,384 | |
USBA | |
| 13,732 | | |
| - | | |
| 13,732 | |
CCS/UIS | |
| - | | |
| 76,035 | | |
| 76,035 | |
Montana | |
| 426,591 | | |
| - | | |
| 426,591 | |
Fortman | |
| 259,255 | | |
| 186,860 | | |
| 446,115 | |
Altruis | |
| 896,012 | | |
| - | | |
| 896,012 | |
Kush | |
| 366,219 | | |
| - | | |
| 366,219 | |
Medigap | |
| 1,331,593 | | |
| - | | |
| 1,331,593 | |
Barra | |
| 83,615 | | |
| 301,065 | | |
| 384,680 | |
| |
$ | 3,589,401 | | |
$ | 563,960 | | |
$ | 4,153,361 | |
Nine
Months ended September 30, 2022 | |
Medical/Life | | |
Property
and Casualty | | |
Total | |
Regular | |
| | | |
| | | |
| | |
EBS | |
$ | 645,217 | | |
$ | - | | |
$ | 645,217 | |
USBA | |
| 39,638 | | |
| - | | |
| 39,638 | |
CCS/UIS | |
| - | | |
| 177,111 | | |
| 177,111 | |
Montana | |
| 1,385,017 | | |
| - | | |
| 1,385,017 | |
Fortman | |
| 949,189 | | |
| 589,924 | | |
| 1,539,113 | |
Altruis | |
| 3,056,257 | | |
| - | | |
| 3,056,257 | |
Kush | |
| 1,230,259 | | |
| - | | |
| 1,230,259 | |
Medigap | |
| 3,868,654 | | |
| - | | |
| 3,868,654 | |
Barra | |
| 153,539 | | |
| 501,463 | | |
| 655,002 | |
| |
$ | 11,327,770 | | |
$ | 1,268,498 | | |
$ | 12,596,268 | |
Three
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 | |
The
following, are customers representing 10% or more of total revenue:
SCHEDULE OF CONCENTRATIONS OF REVENUES
Insurance
Carrier | |
| 2022 | | |
| 2021 | |
| |
| For
the three months ended September 30, | |
Insurance
Carrier | |
| 2022 | | |
| 2021 | |
LTC
Global | |
| 27
% | | |
| -% | |
Priority
Health | |
| 21
% | | |
| 27% | |
BlueCross
BlueShield | |
| 10
% | | |
| 24% | |
Insurance
Carrier | |
| 2022 | | |
| 2021 | |
| |
| For
the Nine months ended September 30, | |
Insurance
Carrier | |
| 2022 | | |
| 2021 | |
LTC Global | |
| 27
| % | |
| - | % |
Priority
Health | |
| 24
| % | |
| 30 | % |
BlueCross BlueShield | |
| 10
| % | |
| 25 | % |
No
other single Customer accounted for more than 10% of the Company’s commission revenues. The loss of any significant customer, including
Priority Health, BlueCross BlueShield and LTC Global could have a material adverse effect on the Company.
Income
Taxes
The
Company recorded no income tax expense for the three and nine months ended September
30, 2022 and 2021 because the estimated annual effective tax rate was zero. In determining the
estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual
earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to
use tax credits and net operating loss carry forwards, and available tax planning alternatives.
As
of September 30, 2022 and December 31, 2021, the Company provided a full valuation allowance against its net deferred tax assets since
the Company believes it is more likely than not that its deferred tax assets will not be realized.
Prior
Period Adjustments
The
Company identified certain immaterial adjustments impacting prior reporting periods. Specifically, the Company identified adjustments
to correct certain asset, liability and equity accounts in relation to historical purchase price allocation accounting, historical accrued
revenues and true ups of the common stock issuable account.
The
Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. (SAB) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements 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, 2022.
SUMMARIZES THE CHANGES TO THE PREVIOUSLY ISSUED FINANCIAL INFORMATION
Account | |
12/31/2020 As
reported | | |
Adjustment | | |
12/31/2020 Adjusted | |
Earn-out
liability | |
| 2,631,418 | | |
| 300,000 | | |
| 2,931,418 | |
Goodwill | |
| 9,265,070 | | |
| (503,345 | ) | |
| 8,761,725 | |
Common
stock issuable | |
| 822,116 | | |
| (482,116 | ) | |
| 340,000 | |
Additional
paid-in-capital | |
| 11,377,123 | | |
| 182,116 | | |
| 11,559,239 | |
Accumulated
Deficit | |
| (12,482,281 | ) | |
| 122,601 | | |
| (12,359,680 | ) |
Account | |
3/31/2021 As
reported | | |
Adjustment | | |
3/31/2021 Adjusted | |
Common
stock issuable | |
| 482,116 | | |
| (482,116 | ) | |
| 0 | |
Additional
paid-in-capital | |
| 25,810,147 | | |
| 182,116 | | |
| 25,992,263 | |
Accumulated
Deficit | |
| (13,123,609 | ) | |
| 150,003 | | |
| (12,973,606 | ) |
Recently
Issued Accounting Pronouncements
We
do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
NOTE
2. STRATEGIC INVESTMENTS AND BUSINESS COMBINATIONS
Medigap
Healthcare Insurance Company, LLC Transaction
On
January 10, 2022, pursuant to an asset purchase agreement, dated December 21, 2021, the Company completed the acquisition of all of the
assets of Medigap Healthcare Insurance Company, LLC (“Medigap”) for a purchase price of $20,096,250, consisting of: (i) payment
to Medigap of $18,138,750 in cash and (ii) the issuance to Medigap of 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 further subject to lock up arrangements pursuant to which 50% of the shares may be sold after the one-year
anniversary of the date of closing of the transaction and the balance of the shares may be sold after the second-year anniversary of
the date of closing of the transaction.
The
acquisition of Medigap was accounted for as a business combination in accordance with the acquisition method pursuant to FASB Topic No.
805, Business Combination (ASC 805). Accordingly, the total purchase consideration was allocated to the assets acquired, and liabilities
assumed based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets
acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition
date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant
estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The
preliminary allocation of the purchase price in connection with the acquisition of Medigap was calculated as follows:
SCHEDULE OF ALLOCATION OF PURCHASE PRICE
Description | |
Fair
Value | | |
Weighted Average
Useful Life (Years) | |
Property,
plant and equipment | |
$ | 20,666 | | |
| 5 | |
Right-of-use
asset | |
| 317,787 | | |
| | |
Trade
names | |
| 340,000 | | |
| 15 | |
Customer
relationships | |
| 4,550,000 | | |
| 12 | |
Technology | |
| 67,000 | | |
| 3 | |
Backlog | |
| 210,000 | | |
| 1 | |
Chargeback
reserve | |
| (1,484,473 | ) | |
| | |
Lease
liability | |
| (317,787 | ) | |
| | |
Goodwill | |
| 19,199,008 | | |
| Indefinite | |
| |
$ | 22,902,201 | | |
| | |
Trade
name was measured at fair value using the relief-from-royalty method under the income approach. Significant inputs used to measure the
fair value include an estimate of projected revenue from the trade name, a pre-tax royalty rate of 0.5% and a discount rate of 11.0%.
Customer
relationships were measured at fair value using the multiple-period excess earnings method under the income approach. Significant inputs
used to measure the fair value include an estimate of projected revenue and costs associated with existing customers, and a discount
rate of 11.0%.
Technology
was measured at fair value using the cost replacement method of the cost approach. Significant inputs used to measure the fair value
include an estimate of cost to replace, an obsolescence rate of 40.3%.
The
value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of the acquisition date, using the
income approach to discount back to present value the cash flows attributable to the backlog, using a discount rate of 11.0%.
Goodwill
of $19,199,008 arising from the acquisition of Medigap consisted of the value of the employee workforce and the residual value after
all identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Medigap is currently expected to be
deductible for income tax purposes. Total acquisition costs for the acquisition of Medigap incurred were $94,065 recorded as a component
of General and administrative expenses.
The
approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from January 10, 2022 to September
30, 2022 was $3,868,654 and a loss of $693,861, respectively.
Pro
Forma Information
The
results of operations of Medigap will be included in the Company’s consolidated financial statements as of the date of acquisition
through the current period end. The following supplemental pro-forma financial information approximate combined financial information
assumes that the acquisition had occurred at the beginning of the nine months ended September 30, 2022 and 2021:
SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION
| |
September
30, | | |
September
30, | |
| |
2022 | | |
2021 | |
Revenue | |
$ | 12,962,843 | | |
$ | 10,931,340 | |
Net
Income (Loss) | |
$ | 25,971,268 | | |
$ | (2,344,977 | ) |
Earnings
(Loss) per common share, basic | |
$ | 1.10
| | |
$ | (0.24 | ) |
Earnings
(Loss) per common share, diluted | |
$ | (0.78 | ) | |
$ | (0.24 | ) |
Barra
& Associates, LLC Transaction
On
April 26, 2022, the Company entered into an asset purchase agreement (the “APA”) with Barra & Associates, LLC (“Barra”)
pursuant to which the Company purchased all of the assets of Barra & Associates, LLC on April 26, 2022 for a purchase price in the
amount of $7,725,000 in cash, with $6,000,000 paid to Barra at closing, $1,125,000 payable in six months from closing, and a final estimated
earnout of $600,000 payable over two years from closing, based upon meeting stated milestones. The source of the cash payment was $6,520,000
in funds borrowed from Oak Street Lending (“Loan”), the Company’s existing lender pursuant to a Fifth Amendment to
Credit Agreement and Promissory Note, of even date. The purchase price is subject to post-closing adjustment to reconcile certain pre-closing
credits and liabilities of the parties.
The
acquisition of Barra was accounted for as a business combination in accordance with the acquisition method pursuant to FASB Topic No.
805, Business Combination (ASC 805). Accordingly, the total purchase consideration was allocated to the assets acquired, and liabilities
assumed based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets
acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition
date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant
estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The
preliminary allocation of the purchase price in connection with the acquisition of Barra was calculated as follows:
SCHEDULE OF ALLOCATION OF PURCHASE PRICE
Description | |
Fair
Value | | |
Weighted Average
Useful Life
(Years) | |
Acquired
accounts receivable | |
$ | 92,585 | | |
| | |
Property,
plant and equipment | |
| 8,593 | | |
| 7 | |
Right-of-use
asset | |
| 122,984 | | |
| | |
Trade
names | |
| 22,000 | | |
| 4 | |
Customer
relationships | |
| 550,000 | | |
| 10 | |
Agency
relationships | |
| 2,585,000 | | |
| 10 | |
Developed
technology | |
| 230,000 | | |
| 5 | |
Lease
liability | |
| (122,984 | ) | |
| | |
Goodwill | |
| 4,236,822 | | |
| Indefinite | |
| |
$ | 7,725,000 | | |
| | |
Trade
name was measured at fair value using the relief-from-royalty method under the income approach. Significant inputs used to measure the
fair value include an estimate of projected revenue from the trade name, a pre-tax royalty rate of 0.5% and a discount rate of 19.5%.
Customer
and Agency relationships were measured at fair value using the multiple-period excess earnings method under the income approach. Significant
inputs used to measure the fair value include an estimate of projected revenue and costs associated with existing customers, and a discount
rate of 19.5%.
Developed
technology was measured at fair value using the cost replacement method of the cost approach. Significant inputs used to measure the
fair value include an estimate of cost to replace, an obsolescence rate of 28.6%.
Goodwill
of $4,236,822 arising from the acquisition of Barra consisted of the value of the employee workforce and the residual value after all
identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Barra is currently expected to be deductible
for income tax purposes. Total acquisition costs incurred through September 30, 2022 for the acquisition of Barra were $72,793 recorded
as a component of General and administrative expenses.
The
approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from April 26, 2022 to September
30, 2022 was $655,002 and a loss of $182,603, respectively.
Pro
Forma Information
The
results of operations of Barra will be included in the Company’s consolidated financial statements as of the date of acquisition
through the current period end. The following supplemental pro forma financial information approximate combined financial information
assumes that the acquisition had occurred at the beginning of the nine months ended September 30, 2022 and 2021:
SCHEDULE OF PRO FORMA INFORMATION RELATED TO ACQUISITION
| |
September
30, | | |
September
30, | |
| |
2022 | | |
2021 | |
Revenue | |
$ | 13,143,889 | | |
$ | 8,370,850 | |
Net
Income (Loss) | |
$ | 26,192,218 | | |
$ | (1,940,384 | ) |
Earnings
(Loss) per common share, basic | |
$ | 1.11 | | |
$ | (0.20 | ) |
Earnings
(Loss) per common share, diluted | |
$ | (0.76 | ) | |
$ | (0.20 | ) |
NOTE
3. GOODWILL AND OTHER INTANGIBLE ASSETS
The
following table rolls forward the Company’s goodwill balance for the periods ending September 30, 2022 and December 31, 2021. As
discussed in Note 1 - Prior Period Adjustments, a $(503,345) adjustment was identified for goodwill which impacted the
closing December 31, 2020 balance in the same amount. Accordingly, the December 31, 2020 balance is adjusted in the following table from
the originally reported balance of $9,265,070 to $8,761,725.
SCHEDULE OF IMPAIRMENT OF GOODWILL
| |
Goodwill | |
December
31, 2020 | |
$ | 8,761,725 | |
Goodwill
recognized in connection with Kush acquisition on May 1, 2021 | |
| 1,288,552 | |
December
31, 2021 | |
| 10,050,277 | |
Goodwill
recognized in connection with Medigap acquisition on January 10, 2022 | |
| 19,199,008 | |
Goodwill
recognized in connection with Barra acquisition on April 26, 2022 | |
| 4,236,822 | |
September
30, 2022 | |
$ | 33,486,107 | |
The
following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization
period as of September 30, 2022:
SCHEDULE OF INTANGIBLE ASSETS AND WEIGHTED-AVERAGE REMAINING AMORTIZATION PERIOD
| |
Weighted
Average Remaining Amortization period (Years) | | |
Gross
Carrying Amount | | |
Accumulated
Amortization | | |
Net
Carrying Amount | |
Trade
name and trademarks | |
| 4.6 | | |
$ | 2,141,858 | | |
$ | (897,390 | ) | |
$ | 1,244,468 | |
Internally
developed software | |
| 4.3 | | |
| 1,530,537 | | |
| (210,443 | ) | |
| 1,320,094 | |
Customer
relationships | |
| 9.3 | | |
| 11,922,290 | | |
| (1,793,319 | ) | |
| 10,128,971 | |
Purchased
software | |
| 0.4 | | |
| 665,137 | | |
| (568,039 | ) | |
| 97,098 | |
Video
Production Assets | |
| 0.3 | | |
| 50,000 | | |
| (36,621 | ) | |
| 13,379 | |
Non-competition
agreements | |
| 2.1 | | |
| 3,504,810 | | |
| (2,003,505 | ) | |
| 1,501,305 | |
Contracts
Backlog | |
| 0.3 | | |
| 210,000 | | |
| (155,342 | ) | |
| 54,658 | |
| |
| | | |
$ |
20,024,632 | | |
$ | (5,664,659 | ) | |
$ |
14,359,973 | |
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 | |
| 3.5 | | |
$ | 1,777,475 | | |
$ | (609,822 | ) | |
$ | 1,167,653 | |
Internally
developed software | |
| 4.7 | | |
| 595,351 | | |
| (28,443 | ) | |
| 566,908 | |
Customer
relationships | |
| 7.7 | | |
| 4,237,290 | | |
| (1,048,726 | ) | |
| 3,188,564 | |
Purchased
software | |
| 0.6 | | |
| 562,327 | | |
| (452,985 | ) | |
| 109,342 | |
Video
Production Assets | |
| 1.0 | | |
| 20,000 | | |
| - | | |
| 20,000 | |
Non-competition
agreements | |
| 2.9 | | |
| 3,504,809 | | |
| (1,478,376 | ) | |
| 2,026,433 | |
| |
| | | |
$ | 10,697,252 | | |
$ | (3,618,352 | ) | |
$ | 7,078,900 | |
The
following table reflects expected amortization expense as of September 30, 2022, for each of the following five years and thereafter:
SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS
| |
| 1 | |
Years
ending December 31, | |
| Amortization
Expense | |
2022
(remainder of year) | |
$ | 707,166
| |
2023 | |
| 2,536,548 | |
2024 | |
| 2,158,445 | |
2025 | |
| 1,764,541 | |
2026 | |
| 1,504,660 | |
Thereafter | |
| 5,688,613 | |
Total | |
$ | 14,359,973 | |
NOTE
4. LONG-TERM DEBT AND SHORT-TERM FINANCINGS
Long-Term
Debt
The
composition of the long-term debt follows:
SCHEDULE OF LONG TERM DEBT
| |
September
30, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
Oak
Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $12,942 and $14,606 as of September
30, 2022 and December 31, 2021, respectively | |
$ | 442,368 | | |
$ | 485,317 | |
Oak
Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of $15,713
and $17,626 as of September 30, 2022 and December 31, 2021, respectively | |
| 715,816 | | |
| 785,826 | |
Oak
Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $9,613 and $11,027 as of September 30,
2022 and December 31, 2021, respectively | |
| 811,699 | | |
| 884,720 | |
Oak
Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $38,298 and $42,660 as of September 30,
2022 and December 31, 2021, respectively | |
| 2,045,048 | | |
| 2,226,628 | |
Oak
Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $43,749 and $48,609 as of September 30,
2022 and December 31, 2021, respectively | |
| 3,337,241 | | |
| 3,616,754 | |
Oak
Street Funding LLC Term Loan for the acquisition of Barra, net of deferred financing costs of $204,958 and $0 as of September 30,
2022 and December 31, 2021, respectively | |
| 6,315,042 | | |
| - | |
| |
| 13,667,214 | | |
| 7,999,245 | |
Less:
current portion | |
| (1,026,541 | ) | |
| (913,920 | ) |
Long-term
debt | |
$ | 12,640,673 | | |
$ | 7,085,325 | |
Oak
Street Funding LLC – Term Loans and Credit Facilities
SCHEDULE OF CUMULATIVE MATURITIES OF LONG-TERM LOANS AND CREDIT FACILITIES
Fiscal
year ending December 31, | |
Maturities
of Long-Term
Debt | |
2022
(remainder of year) | |
$ | 211,904 | |
2023 | |
| 1,168,585 | |
2024 | |
| 1,482,266 | |
2025 | |
| 1,616,891 | |
2026 | |
| 1,760,367 | |
Thereafter | |
| 7,752,474 | |
Total | |
| 13,992,487 | |
Less:
debt issuance costs | |
| (325,273 | ) |
Total | |
$ | 13,667,214 | |
Short-Term
Financings
The
Company financed certain annual insurance premiums through the use of two short-term notes, payable in nine and ten equal monthly installments
of $42,894 and $4,456 at interest rates of 7.51% and 7.95%, per annum respectively. Policies financed include directors and officers
and errors and omissions insurance coverage with premium financing recognized in 2022 and 2021 of $417,199 and $0, respectively. Outstanding
balances as of September 30, 2022 and December 31, 2021, respectively were $309,993 and $0.
NOTE
5. 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 up to an aggregate of 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, each a freestanding financial instrument, (the “Private Placement”). The aggregate purchase price for the
Common Shares, the Preferred Shares and the Warrants was approximately $20,000,000.
By
entering into the Private Placement on December 22, 2021, the Company entered into a commitment to issue the Common Shares, Preferred
Shares and Series B Warrants on the Initial Closing Date for a fixed price and exercise price, as applicable. The commitment to issue
Series B Warrants (the “Warrant Commitment”) represents a derivative financial instrument, other than an outstanding share,
that, at inception, has both of the following characteristics: (i) embodies a conditional obligation indexed to the Company’s equity.
The Company classified the commitment to issue the warrants as a derivative liability because it represents a written option that does
not qualify for equity accounting The Company initially measured the derivative liability at its fair value and will subsequently remeasure
the derivative liability, at fair value with changes in fair value recognized in earnings. An option pricing model was utilized to calculate
the fair value of the Warrant Commitment. The Company initially recorded $17,652,808 of non-operating unrealized losses within the recognition
and change in fair value of warrant liabilities account for the year ended December 31, 2021. The Private Placement closed on January
4, 2022, at which time the Company remeasured the derivative liability for the warrants issued in the transaction. The Company recognized
$7,726,161 and $34,621,024 of non-operating unrealized gains within the recognition and change in fair value of warrant liabilities account on the
condensed consolidated statement of operations for the three and nine months ended September 30, 2022, respectively, related to the subsequent
changes in its fair value through September 30, 2022. A corresponding derivative liability of $3,031,784 is included on Company’s condensed
consolidated balance sheet as of September 30, 2022. The closing of the Private Placement settled the subscription receivable reported
on the Company’s balance sheet as of December 31, 2021.
Placement
Agent Warrants
In
connection with the Private Placement, the Company issued 244,539 warrants to the placement agent for the Private Placement. The warrants
were issued as compensation for the Placement Agent’s services. The Placement Agent Warrants are: (i) exercisable on any day after
the six (6) month anniversary of the issue date, (ii) expire five years after the closing of the Private Placement, and (iii) exercisable
at $4.09 per share. The Placement Agent Warrants contain terms that may require the Company to transfer assets to settle the warrants.
Therefore, the Placement Agent Warrants are classified as a derivative liability measured at fair value of $1,525,923 on the date of
issuance and will be remeasured each accounting period with the changes in fair value reported in earnings. The Placement Agent Warrants
are considered financing expense fees paid to the Placement Agent. Since the financing expenses relate to a derivative liability measured
at fair value, this financing expense of $1,525,923, along with non-operating unrealized gains of $193,154 and $1,450,129, were included
in the recognition and change in fair value of warrant liabilities account on the condensed consolidated statement of operations for
the three and nine months ended September 30, 2022, respectively, A corresponding derivative liability of $75,794 is included on Company’s
condensed consolidated balance sheet as of September 30, 2022.
NOTE
6. 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.
In
January 2022, the Company issued 9,076 shares
of its newly designated Series B convertible preferred stock through the Private Placement for the purpose of raising capital. The
Series B convertible preferred stock have no voting rights and initially each share may be converted into 245 shares
of the Company’s common stock. The holders of the Series B convertible preferred stock are not entitled to receive any
dividends other than any dividends paid on account of the common stock. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders shall be entitled to receive out of the assets, whether capital or surplus, of
the Company the same amount that a holder of common stock would receive if the Preferred Stock were fully converted (disregarding
for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari-passu with all holders of
common stock.
During
August 2022, all 9,076 Series B Convertible Preferred Stock were converted by third parties into 2,219,084 shares of common stock.
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 entitles the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect
to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect
to common stock, as well as in the net assets of the corporation upon liquidation or dissolution.
In
January 2022, the Company issued 2,670,892 shares of common stock through the Private Placement for the purpose of raising capital. See
Note 5 - Warrant Liabilities for proceeds received by the Company.
In
January 2022, the Company issued 606,037 shares of common stock pursuant to the Medigap Acquisition.
In
January 2022, upon agreement with Series A warrant holders, 375,000 warrants were exercised at a price of $6.60 into 375,000 of the Company’s
common stock.
In
March 2022, the Company issued 6,000 shares of the Company’s common stock due to the vesting of 6,000 stock awards pursuant to
an employee agreement.
In
May and June 2022, 3,276,929 Series C prepaid warrants were exchanged for 3,276,929 shares of the Company’s common stock.
In July 2022, 1,221,347 Series D prepaid warrants were exchanged for 1,221,347
shares of the Company’s common stock.
As
of September 30, 2022 and December 31, 2021, there were 18,054,469 and 10,956,109 shares of Common Stock outstanding, respectively.
Warrants
Series
A Warrants
In
conjunction with the Company’s initial public offering, the Company issued 2,070,000 Series A Warrants which were classified as
equity warrants because of provisions, pursuant to the warrant agreement, that permit the holder obtain a fixed number of shares for
a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge.
The warrants were recorded at a value per the offering of $0.01. The warrants may be exercised at any point from the effective date until
the 5-year anniversary of issuance and are not subject to standard antidilution provisions. The Series A Warrants are exercisable at
a per share exercise price equal to 110% of the public offering price of one share of common stock and accompanying Series A Warrant,
$6.00. Series A warrant holders exercised 375,000 Series A warrants in January 2022, resulting in 1,695,000 of Series A warrants remaining
issued and outstanding as of September 30, 2022.
Series C and D Warrants
In
January 2022, as a result of the Private Placement and the Medigap Acquisition, the Company received a deficiency notification from Nasdaq
indicating violation of Listing Rule 5365(a). As part of its remediation plan, in March 2022, the Company entered into Exchange Agreements
with the holders of common stock issued in January 2022. Pursuant to the Exchange Agreements, the Company issued 3,276,929 Series C prepaid
warrants in exchange for 3,276,929 shares of the Company’s common stock. Additionally, as compensation for entering into the Exchange
Agreements, the Company issued 1,222,498 Series D prepaid warrants to the Private Placement investors for no additional consideration.
The fair value of the Series D prepaid warrants was treated as a deemed dividend and accordingly treated as a reduction from income available
to common stockholders in the calculation of earnings per share. Refer to Note 7, Earnings (Loss) Per Share for additional information.
The
Series C and D Warrants are equity classified pursuant to the warrant agreement provisions that permit holders to obtain a fixed number
of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s
consent or knowledge. The warrants expire on the fifth anniversary of the respective issuance dates and are exercisable at a per share
exercise price equal to $0.001.
In
May and June 2022, the 3,276,929 Series C prepaid warrants were converted for 3,276,929 shares of the Company’s common stock for
a conversion price of $0.001. Through September 30, 2022, the Company has received payments of $1,336 for these issuances.
In
July 2022, the 1,222,498
Series D prepaid warrants were converted into 1,222,082
shares of the Company’s common stock for a conversion price of $0.001
through both cash and cashless exercises. Proceeds of $795
were received in conjunction with the cash exercise.
Equity-based
Compensation
Between
February and May 2022, three existing employees were awarded bonuses consisting of shares of the Company’s common stock to
be vested immediately. The shares granted in 2022 were valued at $766,250
and treated as compensation expense. As of September 30, 2022, these shares have not been issued.
In
April 2022 , pursuant to an agreement between the Company and an executive, the executive will be compensated with 60,000 shares of the
Company’s common stock. These shares vest quarterly over a three-year period. The shares granted were valued at $178,200 at the
date of the grant. For the three and nine months ended September 30, 2022, compensation expense on this grant was $14,850 and $25,571,
respectively. As of September 30, 2022, no shares were issued under this contract.
Pursuant
to an equity-based compensation program at one of the Company’s subsidiaries which provides agents the ability to earn and receive
restricted stock awards upon completion of agreed upon service requirements, the Company granted 303,143 restricted stock awards which
were immediately vested. Stocks earned are restricted for twelve months. The stocks were valued at $249,650
and recognized as stock-based compensation for
the three and nine months ended September 30, 2022.
NOTE
7. 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.
The
following calculates basic and diluted EPS:
SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS
| |
Three Months | | |
Three Months | |
| |
ended | | |
ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
Net income (loss) | |
$ | 6,122,093 | | |
$ | (595,233 | ) |
Deemed dividend | |
| - | | |
| - | |
Net income (loss), numerator, basic computation | |
| 6,122,093 | | |
| (595,233 | ) |
Recognition and change in fair value of Series B warrant liability | |
| (7,726,161 | ) | |
| - | |
Recognition and change in fair value of Placement Agent warrant liability | |
| (193,154 | ) | |
| | |
Net income (loss), numerator, diluted computation | |
$ | (1,797,222 | ) | |
$ | (595,233 | ) |
| |
| | | |
| | |
Weighted average common shares | |
| 16,491,942 | | |
| 10,944,439 | |
Effect of series C warrants | |
| - | | |
| - | |
Effect of Series D warrants | |
| 623,285 | | |
| - | |
Effect of weighted average vested stock awards | |
| 309,040 | | |
| | |
Weighted average shares - denominator basic computation | |
| 17,424,267 | | |
| 10,944,439 | |
Effect of dilutive securities | |
| - | | |
| - | |
Weighted average shares, as adjusted - denominator diluted computation | |
| 17,424,267 | | |
| 10,944,439 | |
Earnings (loss) per common share – basic | |
$ | 0.35 | | |
$ | (0.05 | ) |
Earnings (loss) per common share – diluted | |
| (0.10 | ) | |
| (0.05 | ) |
| |
Nine Months | | |
Nine Months | |
| |
ended | | |
ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
Net income (loss) | |
$ | 25,957,785 | | |
$ | (2,486,045 | ) |
Deemed dividend | |
| (6,930,335 | ) | |
| - | |
Net income (loss), numerator, basic computation | |
| 19,027,450 | | |
| (2,486,045 | ) |
Recognition and change in fair value of Series B warrant liability | |
| (32,474,324 | ) | |
| | |
Net income (loss), numerator, diluted computation | |
$ | (13,446,874 | ) | |
$ | (2,486,045 | ) |
| |
| | | |
| | |
Weighted average shares | |
| 14,308,069 | | |
| 9,809,092 | |
Effect of series C warrants | |
| 1,819,213 | | |
| | |
Effect of Series D warrants | |
| 1,019,803 | | |
| - | |
Effect of weighted average vested stock awards | |
| 173,061 | | |
| - | |
Weighted average shares - denominator basic computation | |
| 17,320,146 | | |
| 9,809,092 | |
Effect of dilutive securities | |
| - | | |
| - | |
Weighted average shares, as adjusted - denominator diluted computation | |
| 17,320,146 | | |
| 9,809,092 | |
Earnings (loss) per common share - basic | |
$ | 1.10 | | |
$ | (0.25 | ) |
Earnings (loss) per common share - diluted | |
$ | (0.78 | ) | |
$ | (0.25 | ) |
The gain in fair value of the Series B warrants for
the three and nine months September 30, 2022 is included in the numerator of the dilutive EPS calculation to eliminate the effects of
the warrants that have been recorded in net income as the impact is dilutive. The gain in fair value of the Placement Agent warrants for
the three months September 30, 2022 is included in the numerator of the dilutive EPS calculation to eliminate the effects of the warrants
that have been recorded in net income as the impact is dilutive. For the nine months ended September 30, 2022, as the fair value change
in the Placement Agent warrants is a loss, the addback of the loss would result in anti-dilution and therefore is not included in the
numerator of dilutive EPS.
The potential impact of the 9,779,950 and 244,539
Series B and Placement Agent warrants are excluded from the denominator of the dilutive EPS calculation for the three and nine months
ended September 30, 2022 as the average market price for both periods does not exceed the exercise price of the warrants, resulting in
anti-dilutive securities.
Additionally, the following are considered anti-dilutive securities excluded from weighted-average shares used to calculate diluted net loss per common
share:
SCHEDULE
OF DILUTIVE NET LOSS PER COMMON SHARES
| |
| 1 | | |
| 2 | |
| |
For the three months ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
Shares subject to outstanding common stock options | |
| 163,925 | | |
| 163,925 | |
Shares subject to outstanding Series A warrants | |
| 1,695,000 | | |
| 2,070,000 | |
Shares subject to preferred stock | |
| 2,219,084 | | |
| 11,670 | |
Shares subject to unvested stock awards | |
| 61,280 | | |
| 15,655 | |
| |
| 1 | | |
| 2 | |
| |
For the nine months ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
Shares subject to outstanding common stock options | |
| 163,925 | | |
| 163,925 | |
Shares subject to outstanding Series A warrants | |
| 1,695,000 | | |
| 2,070,000 | |
Shares subject to outstanding Placement Agent warrants | |
| 244,539 | | |
| - | |
Shares subject to preferred stock | |
| 2,219,084 | | |
| 11,670 | |
Shares subject to unvested stock awards | |
| 61,280 | | |
| 15,655 | |
Diluted net loss per common
share | |
| 61,280 | | |
| 15,655 | |
NOTE
8. LEASES
Operating
lease expense for the three months ended September 30, 2022 and 2021 was $159,624 and $97,265 respectively. Operating lease expense for the
nine months ended September 30, 2022 and 2021 was $434,798 and $220,798 respectively. As of September 30, 2022, the weighted average remaining
lease term and weighted average discount rate for the operating leases were 3.86 years and 5.72% respectively.
Future
minimum lease payment under these operating leases consisted of the following:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENT
Year ending December 31, | |
Operating Lease Obligations | |
2022 | |
$ | 157,633 | |
2023 | |
| 570,275 | |
2024 | |
| 269,908 | |
2025 | |
| 144,124 | |
2026 | |
| 113,738 | |
Thereafter | |
| 268,202 | |
Total undiscounted operating lease payments | |
| 1,523,880 | |
Less: Imputed interest | |
| 152,467 | |
Present value of operating lease liabilities | |
$ | 1,371,413 | |
NOTE
9. 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, 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
following outlines changes to the Company’s earn-out liability balances for the respective periods
ended September 30, 2022 and December 31, 2021:
SCHEDULE OF EARN-OUT LIABILITY
|
|
Fortman | | |
Montana | | |
Altruis | | |
Kush | | |
Barra | | |
Total | |
Ending balance December 31, 2021 |
|
$ | 515,308 | | |
$ | 615,969 | | |
$ | 992,868 | | |
$ | 1,689,733 | | |
$ | - | | |
$ | 3,813,878 | |
Changes due to acquisitions |
|
| - | | |
| - | | |
| - | | |
| - | | |
| 600,000 | | |
| 600,000 | |
Changes due to payments |
|
| (34,430 | ) | |
| (326,935 | ) | |
| (84,473 | ) | |
| (1,181,458 | ) | |
| - | | |
| (1,627,296 | ) |
Changes due to fair value adjustments |
|
| 186,122 | | |
| 37,741 | | |
| (212,609 | ) | |
| 201,191 | | |
| (80,000 | ) | |
| 132,445 | |
Ending balance September 30, 2022 |
|
$ | 667,000 | | |
$ | 326,775 | | |
$ | 695,786 | | |
$ | 709,466 | | |
$ | 520,000 | | |
$ | 2,919,027 | |
|
|
CCS |
|
|
Fortman |
|
|
Montana |
|
|
Altruis |
|
|
Kush |
|
|
Total |
|
Ending balance December 31, 2020 |
|
$ |
81,368 |
|
|
$ |
432,655 |
|
|
$ |
522,553 |
|
|
$ |
1,894,842 |
|
|
$ |
- |
|
|
$ |
2,931,418 |
|
Changes due to business combinations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,694,166 |
|
|
|
1,694,166 |
|
Changes due to payments |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(452,236 |
) |
|
|
- |
|
|
|
(452,236 |
) |
Changes due to fair value adjustments |
|
|
- |
|
|
|
82,653 |
|
|
|
93,416 |
|
|
|
(449,738 |
) |
|
|
(4,433 |
) |
|
|
(278,102 |
) |
Changes due to write-offs |
|
|
(81,368 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(81,368 |
) |
Ending balance December 31, 2021 |
|
$ |
- |
|
|
$ |
515,308 |
|
|
$ |
615,969 |
|
|
$ |
992,868 |
|
|
$ |
1,689,733 |
|
|
$ |
3,813,878 |
|
NOTE
10. RELATED PARTY TRANSACTIONS
On
September 13, 2022, the Company issued a promissory note to YES Americana Group, LLC, a related party entity for the principal sum of $1,500,000
(the “Note”). The Note matures on January 15, 2024, bearing interest of 0% per annum for the first six months, and 5% per
annum thereafter, payable monthly. In the event the Note is not paid by the maturity date, the loan will automatically be extended for
an additional year until January 15, 2025, and if necessary, extended again for one additional year through January 15, 2026.
Item
2. 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, knowledge, and industry relations; (2) a source of acquisition
targets currently under Reliance Holdings’ control; and (3) financial and logistics assistance. We are led and advised by a management
team that offers over 100 years of combined business expertise in real estate, insurance, and the financial service industry.
In
the insurance sector, our management has extensive experience acquiring and managing insurance portfolios in several states, as well
as developing specialized programs targeting niche markets. Our primary strategy is to identify specific risk to reward arbitrage opportunities
and develop these on a national platform, thereby increasing revenues and returns, and then identify and acquire undervalued wholesale
and retail insurance agencies with operations in growing or underserved segments, expand and optimize their operations, and achieve asset
value appreciation while generating interim cash flows.
As
part of our growth and acquisition strategy, we continue to survey the current insurance market for value-add acquisition opportunities.
As of September 30, 2022, we have acquired ten insurance agencies, including both affiliated and unaffiliated companies and long term,
we seek to conduct all transactions and acquisitions through our direct operations.
Over
the next 12 months, we plan to focus on the expansion and growth of our business through continued asset acquisitions in insurance markets
and organic growth of our current insurance operations through geographic expansion and market share growth.
Further,
we launched our 5MinuteInsure.com (“5MI”) Insurtech platform during 2021 which expanded our national footprint. 5MI is a
high-tech proprietary tool developed by us as a business to consumer portal which enables consumers to instantly compare quotes from
multiple carriers and purchase their car and home insurance in a time efficient and effective manner. 5MI taps into the growing
number of online shoppers and utilizes advanced artificial intelligence and data mining techniques, to provide competitive insurance
quotes in around 5 minutes with minimal data input needed from the consumer. The platform launched during the summer of 2021 and
currently operates in 46 states offering coverage with up to 30 highly rated insurance carriers.
With
the acquisition of Barra, we launched RELI Exchange, our business-to-business (B2B) InsurTech platform and agency partner network that
builds on the artificial intelligence and data mining backbone of 5MinuteInsure.com. Through RELI Exchange we on-board agency partners
and provide them an InsurTech platform white labeled, designed and branded specifically for their business. This combines the best of
digital and human capabilities by providing our agency partners and their customers quotes from multiple carriers within minutes. Since
its inception, RELI Exchange, has increased its agent roster by more than 30%.
Business
Trends and Uncertainties
The
insurance intermediary business is highly competitive, and we actively compete with numerous firms for customers, 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 as of September 30, 2022, consist of derivative warrants. These are accounted at fair value as
of inception/issuance date, and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded
as non-operating, (non-cash) gain or loss.
Insurance
Operations
Our
insurance operations focus on the acquisition and management of insurance agencies throughout the U.S. Our primary focus is to pinpoint
undervalued wholesale and retail insurance agencies with operations in growing or underserved segments (including healthcare and Medicare,
as well as personal and commercial insurance lines). We then focus on expanding their operations on a national platform and improving
operational efficiencies 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 plan to develop them on a national platform to increase revenues and profits through a synergetic structure. The Company
is initially focused on segments that are underserved or growing, including healthcare and Medicare, as well as personal and commercial
insurance lines.
Insurance
Acquisitions and Strategic Activities
As
of the balance sheet date, we have acquired ten 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 Agency, LLC (Medigap)
|
|
January 10, 2022 |
|
Florida |
|
Health Insurance |
|
Unaffiliated |
|
|
|
|
|
|
|
|
|
Barra & Associates, LLC |
|
April 26, 2022 |
|
Illinois |
|
Health Insurance |
|
Unaffiliated |
J.P.
Kush and Associates, Inc. Transaction
On
May 1, 2021, we entered into a Purchase Agreement with J.P. Kush and Associates, Inc. whereby we purchased 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 our 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
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 Agency, LLC Transaction
On
January 10, 2022, pursuant to an asset purchase agreement, dated December 21, 2021, we completed the acquisition of all of the assets
of Medigap Healthcare Insurance Company, LLC (“Medigap”) for a purchase price of $20,096,250 consisting of: (i) payment to
Medigap of $18,138,750 in cash and (ii) the issuance to Medigap of 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 the shares may be sold after the one-year anniversary
of the date of closing of the transaction and the balance of the shares may be sold after the second-year anniversary of the date of
closing of the transaction.
The
acquisition of Medigap was accounted for as a business combination in accordance with the acquisition method 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 10, 2022 to September 30, 2022 was $3,868,654 and a loss of $693,861, respectively.
Barra
& Associates, LLC Transaction
On
April 26, 2022, we entered into an asset purchase agreement (the “APA”) with Barra & Associates, LLC (“Barra”)
pursuant to which the Company purchased all of the assets of Barra & Associates, LLC on April 26, 2022 for a purchase price in the
amount of $7,725,000 in cash, with $6,000,000 paid to Barra at closing, $1,125,000 payable in nine months from closing, and a final earnout
of $600,000 payable over two years from closing based upon meeting stated milestones. The APA contains standard, commercial representations
and warranties and covenants. The source of the cash payment was $6,520,000 in funds borrowed from Oak Street Lending (“Loan”),
our existing lender pursuant to a Fifth Amendment to Credit Agreement and Promissory Note, of even date. The purchase price is subject
to post-closing adjustment to reconcile certain pre-closing credits and liabilities of the parties.
The
acquisition of Barra was accounted for as a business combination in accordance with the acquisition method pursuant to FASB Topic No.
805, Business Combination (ASC 805). Accordingly, the total purchase consideration was allocated to the assets acquired, and liabilities
assumed based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets
acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition
date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant
estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The
preliminary allocation of the purchase price in connection with the acquisition of Medigap was calculated as follows:
Description | |
Fair Value | | |
Weighted Average Useful Life (Years) | |
Acquired accounts receivable | |
$ | 92,585 | | |
| | |
Property, plant and equipment | |
| 8,593 | | |
| 7 | |
Right-of-use asset | |
| 122,984 | | |
| | |
Trade names | |
| 22,000 | | |
| 4 | |
Customer relationships | |
| 550,000 | | |
| 10 | |
Developed technology | |
| 230,000 | | |
| 5 | |
Agency relationships | |
| 2,585,000 | | |
| 10 | |
Lease liability | |
| (122,984 | ) | |
| | |
Goodwill | |
| 4,236,822 | | |
| Indefinite | |
| |
$ | 7,725,000 | | |
| | |
Goodwill
of $4,236,822 arising from the acquisition of Barra consisted of the value of the employee workforce and the residual value after all
identifiable intangible assets were valued. Goodwill recognized pursuant to the acquisition of Barra is currently expected to be deductible
for income tax purposes. Total acquisition costs incurred through September 30, 2022 for the acquisition of Barra were 72,793 recorded
as a component of General and administrative expenses.
The
approximate revenue and net profit or loss for the acquired business as a standalone entity per ASC 805 from April 26, 2022 to September
30, 2022 was $655,002 and a loss of $182,603, respectively.
Recent
Developments
Private
Placement
On
December 22, 2021, we entered into a securities purchase agreement with several institutional buyers for the purchase and sale of
(i) warrants to purchase up to an aggregate of 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”).
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 us of approximately $20,000,000, before deducting placement agent fees and other offering
expenses payable by us. The Warrants are exercisable upon issuance and will expire five years from the date of issuance. In connection
with the Private Placement, we 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.
During August
2022, all 9,076 Series B Convertible Preferred Stock were converted by third parties into 2,219,084 shares of common stock.
Nasdaq
Notification and Warrant Exchange
On
January 31, 2022, we 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 us an extension to implement
the required changes until May 10, 2022.
As
part of its remediation plan, on March 22, 2022 we 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, we issued 3,276,929 Series C
prepaid warrants in exchange for 3,276,929 shares of our common stock that were previously issued. Additionally, to compensate the Private
Placement investors for entering into the Exchange Agreements, we 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. The Series C warrants were exercised during the quarter ended June 30, 2022. The Series D warrants were exercised during the quarter
ended September 30, 2022.
Stock
Split
On
January 21, 2021 we effected a reverse split of the issued and outstanding shares of common stock in a ratio of 1:85.71 which simultaneously
occurred with the Company’s uplisting 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 three months ended September 30, 2022 to the three months ended September 30, 2021
The
following table sets forth our revenue and operating expenses for each of the years presented.
| |
September 30,
2022 | | |
September 30,
2021 | |
Revenue | |
| | | |
| | |
Commission income | |
$ | 4,153,361 | | |
$ | 2,581,636 | |
Total revenue | |
| 4,153,361 | | |
| 2,581,636 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Commission expense | |
| 862,857 | | |
| 660,708 | |
Salaries and wages | |
| 2,114,730 | | |
| 1,188,267 | |
General and administrative expenses | |
| 1,253,097 | | |
| 755,130 | |
Marketing and advertising | |
| 726,115 | | |
| 65,010 | |
Depreciation and amortization | |
| 713,444 | | |
| 387,729 | |
Total operating expenses | |
| 5,670,243 | | |
| 3,056,844 | |
| |
| | | |
| | |
Loss from operations | |
| (1,516,882 | ) | |
| (475,208 | ) |
| |
| | | |
| | |
Other expense, net | |
| 7,638,975 | | |
| (120,025 | ) |
| |
| | | |
| | |
Total Other income (expense) | |
| 7,638,975 | | |
| (120,025 | ) |
| |
| | | |
| | |
Net income (loss) | |
| 6,122,093 | | |
| (595,233 | ) |
Revenues
The
Company’s revenue is primarily comprised of commission paid by health insurance carriers or their representatives related to insurance
plans that have been purchased by a member who used our services. We define a member as an individual 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.
We
had revenues of $4.2 million for the three months ended September 30, 2022, as compared to $2.6 million for the three months ended September
30, 2021. The increase of $1.6 million or 61% is primarily driven by organic growth and the additional insurance
agencies acquired in 2022.
Commission
expense
We
had total commission expense of $863,000 for the three months ended September 30, 2022 compared to $661,000 for the three months ended
September 30, 2021. The increase of $202,000 or 31% is primarily driven by organic growth and the additional
insurance agencies acquired in 2022.
Salaries
and wages
We
reported $2.1 million of salaries and wages expense for the three months ended September 30, 2022 compared to $1.2 million for the three
months ended September 30, 2021. The increase of $926,000 or 78% is a result of the Company’s growth driven by expanded operations,
both organic and due to the additional insurance agencies acquired in 2022.
General
and administrative expenses
We
had total general and administrative expenses of $1.3 million for the three months ended September 30, 2022, as compared to $755,000 for
the three months ended September 30, 2021. The increase in expense of $498,000 or 66% is a result of the Company’s growth driven
by expanded operations, both organic and due to the additional insurance agencies acquired in 2022.
Marketing
and advertising
We
reported $726,000 of marketing and advertising expense for the three months ended September 30, 2022 compared to $65,000 for the three
months ended September 30, 2021. The increase of $661,000 or 1,017% is primarily a result of Medigap’s direct business to consumer
marketing model deployed through social media platforms, in addition to overall increased branding and outreach efforts to achieve greater
industry presence.
Depreciation
and amortization
We
reported $713,000 of depreciation and amortization expense for the three months ended September 30, 2022 compared to $388,000 for
the three months ended September 30, 2021. The increase of $326,000 or 84% is primarily a result of our acquired tangible and
intangible assets through business combinations.
Other
income and expense
We
reported $7.6 million of other income for the three months ended September 30, 2022 compared to $120,000 of other expense for the three
months ended September 30, 2021. The increase of $7.8 million or 6,464% is attributable primarily to the change in fair value of warrant liabilities
of $7.9 million driven by various factors including the Company’s stock price as
of the period close, offset by interest expense.
Comparison
of the Nine months ended September 30, 2022 to the Nine months ended September 30, 2021
The
following table sets forth our revenue and operating expenses for each of the periods presented.
| |
September 30,
2022 | | |
September 30,
2021 | |
Revenue | |
| | | |
| | |
Commission income | |
$ | 12,596,268 | | |
$ | 7,096,213 | |
Total revenue | |
| 12,596,268 | | |
| 7,096,213 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Commission expense | |
| 2,617,140 | | |
| 1,748,451 | |
Salaries and wages | |
| 6,373,697 | | |
| 3,217,441 | |
General and administrative expenses | |
| 5,465,384 | | |
| 2,961,881 | |
Marketing and advertising | |
| 1,922,520 | | |
| 143,110 | |
Depreciation and amortization | |
| 2,077,372 | | |
| 1,090,183 | |
Total operating expenses | |
| 18,456,113 | | |
| 9,161,066 | |
| |
| | | |
| | |
Loss from operations | |
| (5,859,845 | ) | |
| (2,064,853 | ) |
| |
| | | |
| | |
Total Other income (expense) | |
| 31,817,630 | | |
| (421,192 | ) |
| |
| | | |
| | |
Net income (loss) | |
$ | 25,957,785 | | |
$ | (2,486,045 | ) |
Revenues
We
had revenues of $12.6 million for the nine months ended September 30, 2022, as compared to $7.1 for the nine months ended September
30, 2021. The increase of $5.5 million or 78% is primarily driven by organic growth and the additional
insurance agencies acquired in 2022.
Commission
expense
We
had total commission expense of $2.6 million for the nine months ended September 30, 2022 compared to $1.7 million for the nine months
ended September 30, 2021. The increase of $0.9 million or 50% is primarily driven by organic growth and the
additional insurance agencies acquired in 2022.
Salaries
and wages
We
reported $6.4 million of salaries and wages expense for the nine months ended September 30, 2022 compared to $3.2 million for the nine
months ended September 30, 2021. The increase of $3.2 million or 98% is primarily driven by expanded operations, both organic and due
to the additional insurance agencies acquired in 2022.
General
and administrative expenses
We
had total general and administrative expenses of $5.5 million for the nine months ended September 30, 2022, as compared to $3.0 million
for the nine months ended September 30, 2021. The increase in expense of $2.5 million or 85% is primarily driven by expanded operations,
both organic and due to the additional insurance agencies acquired in 2022.
Marketing
and advertising
We
reported $1.9 million of marketing and advertising expense for the nine months ended September 30, 2022 compared to $143,000 for the
nine months ended September 30, 2021. The increase of $1.8 million or 1,243% is primarily a result of Medigap’s direct business
to consumer marketing model deployed through social media platforms, in addition to overall increased branding and outreach efforts to
achieve greater industry presence.
Depreciation
and amortization
We
reported $2.1 million of depreciation and amortization expense for the nine months ended September 30, 2022 compared to $1.1 million
for the nine months ended September 30, 2021. The increase of $1.0 million or 91% is a result of the assets we acquired through business
combinations.
Other
income and expense
We
reported $31.8 million of other income for the nine months ended September 30, 2022 compared to a loss of $421,000 for the nine
months ended September 30, 2021. The increase of $32.2 million or 7,654% is attributable primarily to the recognition and change in
fair value of warrant liabilities of $32.4 million driven by various factors including the Company’s stock price as of the
period close, offset by interest expense.
Liquidity
and capital resources
As
of September 30, 2022, we had a cash balance of $3.0 million and a working capital deficit of $3.5 million compared with a cash balance of
$4.6 million and working capital deficit of $37 million at December 31, 2021. The increase in working capital is primarily attributable
to the issuance of the derivative warrant liability commitments, effectively reclassifying them from current to non-current liabilities.
The
spread of the coronavirus (COVID-19) outbreak in the United States has resulted in economic uncertainties which may negatively impact
our business operations. While the disruption is expected to be temporary, there is uncertainty surrounding the duration and extent of
the impact. Currently we have 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.
Inflation
The Company generally may be impacted by rising costs
for certain inflation-sensitive operating expenses such as labor, employee benefits, and facility leases. The Company believes inflation
could have a material impact to pricing and operating expenses in future periods due to the state of the economy and current inflation
rates.
Off-balance
sheet arrangements
We
do not have any off-balance sheet arrangements as such term is defined in Regulation S-K.
Cash
Flows
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
Net cash used in operating activities | |
$ | (2,177,998 | ) | |
$ | (1,304,320 | ) |
Net cash used in investing activities | |
| (24,982,609 | ) | |
| (1,963,897 | ) |
Net cash provided by financing activities | |
| 25,564,501 | | |
| 8,878,110 | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | |
$ | (1,596,106 | ) | |
$ | 5,609,893 | |
Operating
Activities
Net
cash used in operating activities for the nine months ended September 30, 2022 was $2.2 million, which includes net income of $26.0
million offset by non-cash income of $28.9 million principally related to recognition and change in fair value of warrant
liabilities of $32.4 million, offset by an earn-out fair value adjustment of $132,445, share based compensation expense of $1.2
million, and depreciation and amortization of $2.1 million, as well as changes of net working capital items in the amount of
$760,000 principally due to a decrease in accounts receivable of $92,000, a decrease in prepaid expense and other current assets of
$2.3 million, an increase in other payables of $35,000, offset by decreases in accounts payable and accrued expenses of $1.5 million
and decrease of the chargeback reserve of $134,000.
Investing
Activities
During
the nine months ended September 30, 2022, cash flows used in investing activities were $25.0 million compared to cash flow used in investing
activities of $2.0 million for the nine months ended September 30, 2021. The cash used relates to cash paid for the acquisition
of Medigap and Barra of $24.1 million, the purchase of property and equipment of $68,000 and cash paid of $776,000 for intangible assets.
Financing
Activities
During
the nine months ended September 30, 2022, cash provided by financing activities was $25.6 million as compared to $8.9 million for
the nine months ended September 30, 2021. The net cash provided by financing activities is primarily related to proceeds from the
Private Placement offering in January 2022. The net proceeds from the issuance of these shares was $17.9 million. Additionally, we
received proceeds of $2.5 million from the exercise of Series A warrants, $6.5 million through loan proceeds received for a business
acquisition and $1.5 million through a related party loan. These were offset by debt principal repayments of $663,000, payment of
debt issuance costs of $214,000, payment of a related party loan of $174,000, payments on the earn out liability of $1.6 million and
short term financing of $107,000.
Significant
Accounting Policies and Estimates
We describe our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of
the Notes to Consolidated Financial Statements, and our critical accounting estimates in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended December 31,
2021. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of
fiscal year 2021.