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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission file number of the issuing entity: 001-40020

 

RELIANCE GLOBAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Florida   46-3390293

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

524210

(Primary Standard Industrial Code Classification Number)

 

300 Blvd. of the Americas, Suite 105 Lakewood, NJ 08701

732-380-4600

(Address, including zip code, and telephone number, including area code of registrant’s principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   RELI   The Nasdaq Capital Market
Series A Warrants   RELIW   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes: ☒ No: ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes: ☒ No: ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company, in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
Emerging Growth Company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).

 

Yes: ☐ No:

 

At November 14, 2022 the registrant had 18,054,469 shares of common stock, par value $0.086 per share, outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I  
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 33
Item 4. Controls and Procedures. 33
PART II  
Item 1. Legal Proceedings. 33
Item 1A. Risk Factors. 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 34
Item 3. Defaults Upon Senior Securities. 34
Item 4. Mine Safety Disclosures. 34
Item 5. Other Information. 34
Item 6. Exhibits 34

 

2
 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

   

September 30,

2022

   

December 31,

2021

 
Assets                
Current assets:                
Cash   $ 1,615,054     $ 4,136,180  
Restricted cash     1,409,562       484,542  
Accounts receivable     1,025,120       1,024,831  
Accounts receivable, related parties     1,159       7,131  
Note receivables     -       -  
Other receivables     37,674       -  
Prepaid expense and other current assets     399,506       2,328,817  
Total current assets     4,488,075       7,981,501  
                 
Property and equipment, net     199,030       130,359  
Right-of-use assets     1,327,361       1,067,734  
Investment in NSURE, Inc.     1,350,000       1,350,000  
Intangibles, net     14,359,973       7,078,900  
Goodwill     33,486,107       10,050,277  
Other non-current assets     23,284       16,792  
Total assets   $ 55,233,830     $ 27,675,563  
                 
Liabilities and stockholders’ equity (deficit)                
Current liabilities:                
Accounts payable and other accrued liabilities   $ 1,221,583     $ 2,759,160  
Other payables     1,241,341       81,500  
Chargeback reserve     1,350,533       -  
Short term Financing Agreements     309,993       -  
Current portion of long-term debt     1,026,541       913,920  
Current portion of leases payable     538,018       276,009  
Earn-out liability, current portion     2,283,380       3,297,855  
Warrant commitment     -       37,652,808  
Total current liabilities     7,971,389       44,981,252  
                 
Loans payable, related parties, less current portion     1,679,560       353,766  
Long term debt, less current portion     12,640,673       7,085,325  
Leases payable, less current portion     833,395       805,326  
Earn-out liability, less current portion     635,647       516,023  
Warrant liabilities     3,107,578       -  
Total liabilities     26,868,242       53,741,692  
Stockholders’ equity (deficit):                
Preferred stock, $0.086 par value; 750,000,000 shares authorized and 0 issued and outstanding as of September 30, 2022 and December 31, 2021     -       -  
Common stock, $0.086 par value; 2,000,000,000 shares authorized and 18,054,469 and 10,956,109 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively     1,551,358       940,829  
Additional paid-in capital     34,314,591       26,451,187  
Stock subscription receivable     -       (20,000,000 )
Accumulated deficit     (7,500,361 )     (33,458,145 )
Total stockholders’ equity (deficit)     28,365,588       (26,066,129 )
Total liabilities and stockholders’ equity (deficit)   $ 55,233,830     $ 27,675,563  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

3
 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

    2022     2021     2022     2021  
   

Three months ended

September 30,

   

Nine months ended

September 30,

 
    2022     2021     2022     2021  
Revenue                                
Commission income   $ 4,153,361     $ 2,581,636     $ 12,596,268     $ 7,096,213  
Total revenue     4,153,361       2,581,636       12,596,268       7,096,213  
                                 
Operating expenses                                
Commission expense     862,857       660,708       2,617,140       1,748,451  
Salaries and wages     2,114,730       1,188,267       6,373,697       3,217,441  
General and administrative expenses     1,253,097       755,130       5,465,384       2,961,881  
Marketing and advertising     726,115       65,010       1,922,520       143,110  
Depreciation and amortization     713,444       387,729       2,077,372       1,090,183  
Total operating expenses     5,670,243       3,056,844       18,456,113       9,161,066  
                                 
Loss from operations     (1,516,882 )     (475,208 )     (5,859,845 )     (2,064,853 )
                                 
Other income (expense)                                
Other expense, net     (280,340 )     (120,025 )     (580,900 )     (421,192 )
Recognition and change in fair value of warrant liabilities     7,919,315       -       32,398,530       -  
Total other income (expense)     7,638,975       (120,025 )     31,817,630       (421,192 )
                                 
Net income (loss)   $ 6,122,093     $ (595,233 )   $ 25,957,785     $ (2,486,045 )
                                 
Basic earnings (loss) per share   $ 0.35     $ (0.05 )   $ 1.10     $ (0.25 )
Diluted earnings (loss) per share   $ (0.10 )   $ (0.05 )   $ (0.78 )   $ (0.25 )
Weighted average number of shares outstanding - Basic     17,424,267       10,944,439       17,320,146       9,809,092  
Weighted average number of shares outstanding - Diluted     17,424,267       10,944,439       17,320,146       9,809,092  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

4
 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

    Shares     Amount     Shares     Amount     Shares     Amount     capital     Receivable     Deficit     Total  
    Reliance Global Group, Inc.  
    Preferred stock     Common stock     Common stock issuable     Additional paid-in     Subscription     Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     capital     Receivable     Deficit     Total  
                                                             
Balance, December 31, 2021     -     $ -       10,956,109     $ 940,829       -     $ -     $ 26,451,187     $ (20,000,000 )   $ (33,458,145 )   $ (26,066,129 )
                                                                                 
Share based compensation     -       -       -       -       -       -       739,960       -       -       739,960  
                                                                                 
Shares issued due to private placement     9,076       781       2,670,892       229,694       -       -       (230,424 )     20,000,000       -       20,000,051  
                                                                                 
Shares issued pursuant to acquisition of Medigap     -       -       606,037       52,119       -       -       4,711,332       -       -       4,763,451  
                                                                                 
Exercise of Series A warrants     -       -       375,000       32,250       -       -       2,442,750       -       -       2,475,000  
                                                                                 
Issuance of prefunded Series C Warrants in exchange for common shares     -       -       (3,276,929 )     (281,815 )     -       -       281,815       -       -       -  
                                                                                 
Shares issued for vested stock awards     -       -       6,000       516       -       -       (516 )     -       -       -  
                                                                                 
Net Income     -       -       -       -       -       -       -       -       9,340,000       9,340,000  
                                                                                 
Balance, March 31, 2022     9,076     $ 781       11,337,109     $ 973,593       -     $ -     $ 34,396,104     $ -     $ (24,118,145 )   $ 11,252,333  
                                                                                 
Share based compensation     -       -       -       -       -       -       179,083       -       -       179,083  
                                                                                 
Issuance of common stock for conversion of Series C warrants     -       -       3,276,929       281,815       -       -       (280,479 )     -       -       1,336  
                                                                                 
Net Income     -       -       -       -       -       -       -       -       10,495,691       10,495,691  
                                                                                 
Balance, June 30, 2022     9,076     $ 781       14,614,038     $ 1,255,408       -     $ -     $ 34,294,708     $ -     $ (13,622,454 )   $ 21,928,443  
                                                                                 
Share based compensation     -       -       -       -       -       -       314,257       -       -       314,257  
                                                                                 
Issuance of common stock for conversion of Series D warrants     -       -       1,221,347       105,100       -       -       (104,305 )     -       -       795  
                                                                                 
Shares issued due to conversion of preferred stock     (9,076 )     (781 )     2,219,084       190,850       -       -       (190,069 )     -       -       -  
                                                                                 
Net Income     -       -       -       -       -       -       -       -       6,122,093       6,122,093  
                                                                                 
Balance, September 30, 2022     -     $ -     18,054,469     $ 1,551,358          -     $      -     $ 34,314,591     $ -     $ (7,500,361 )   $ 28,365,588

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

5
 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

    Shares     Amount     Shares     Amount     Shares     Amount     capital     Deficit     Total  
    Reliance Global Group, Inc.  
    Preferred stock     Common stock     Common stock issuable     Additional paid-in     Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     capital     Deficit     Total  
Balance, December 31, 2020     395,640     $ 33,912       4,241,028     $ 363,517       23,341     $ 340,000     $ 11,559,239   - $ (12,359,680 )   $ (63,012

)

                                                                         
Share based compensation     -       -       -       -       -       -       246,966       -       246,966  
                                                                         
Shares issued for services     -       -       15,000       1,290       -       -       89,760       -       91,050  
                                                                         
Shares issued due to public offering, net of offering costs of $1,672,852     -       -       1,800,000       154,800       -       -       8,954,348       -       9,109,148  
                                                                         
Over-allotment shares from offering, net of offering costs of $250,928     -       -       270,000       23,220       -       -       1,343,153       -       1,366,373  
                                                                         
Warrants sold during public offering at quoted price     -       -       -               -       -       20,700       -       20,700  
                                                                         
Shares issued due to conversion of preferred stock     (394,493 )     (33,812 )     3,944,930       339,264       -       -       (305,452 )     -       -  
                                                                         
Shares issued due to conversion of debt     -       -       633,333       54,467       -       -       3,745,533       -       3,800,000  
                                                                         
Rounding shares related to initial public offering     -       -       1,885       -       (3 )     -       -       -       -  
                                                                         
Shares issued pursuant to software purchase     -       -       23,338       1,984       (23,338 )     (340,000 )     338,016       -       -  
                                                                         
Net loss     -       -       -       -       -       -       -   -   (613,926 )     (613,926 )
                                                                         
Balance, March 31, 2021     1,147     $ 100       10,929,514     $ 938,542       -     $ -     $ 25,992,263   - $ (12,973,606 )   $ 13,957,299  
                                                                         
Share based compensation     -       -       -       -       -       -       183,132       -       183,132  
                                                                         
Rounding shares related to initial public offering     20       -       -       -       -       -       -       -       -  
                                                                         
Shares issued pursuant to acquisition of Kush     -       -       14,925       1,284       -       -       48,716       -       50,000  
                                                                         
Net loss     -       -       -       -       -       -       -   -   (1,276,886 )     (1,276,886 )
                                                                         
Balance, June 30, 2021     1,167     $ 100       10,944,439     $ 939,826       -     $ -     $

26,224,111

  - $ (14,250,492 )   $

12,913,545

 
                                                                         
Share based compensation     -       -       -       -       -       -       146,225       -       146,225  
                                                                         
Rounding shares related to initial public offering     -       -       -       -       -       -       -       -       -  
                                                                         
Shares issued pursuant to acquisition of Kush     -       -       -       -       -       -       -       -       -  
                                                                         
Net loss     -       -       -       -       -       -       -   -   (595,233 )     (595,233 )
                                                                         
Balance, September 30, 2021     1,167     $ 100       10,944,439     $ 939,826       -     $ -     $ 26,370,336   - $ (14,845,725 )   $ 12,464,537  

 

The accompanying notes are an integral p9rt of these condensed consolidated financial statements

 

6
 

 

Reliance Global Group, Inc. and Subsidiaries and Predecessor

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    2022     2021  
   

Nine months ended

September 30,

 
    2022     2021  
Cash flows from operating activities:                
Net income (loss)   $ 25,957,785     $ (2,486,045 )
Adjustment to reconcile net income (loss) to net cash used in operating activities:                
Depreciation and amortization     2,077,372       1,090,183  
Amortization of debt issuance costs and accretion of debt discount     28,702       37,822  
Non-cash lease expense     30,451       2,331  
Stock compensation expense     1,233,300       667,373  
Earn-out fair value and write-off adjustments     132,445     -  
Recognition and change in fair value of warrant liabilities     (32,398,530 )     -  
Change in operating assets and liabilities:                
Accounts payables and other accrued liabilities     (1,541,037 )     (314,045 )
Accounts receivable     92,297       (87,058 )
Accounts receivable, related parties     5,972       (7,131 )
Other receivables     (37,674 )     3,825  
Other payables     34,841       (112
Charge back reserve     (133,940 )     -  
Other non-current assets     (6,492 )     (14,992 )
Prepaid expense and other current assets     2,346,510       (196,471 )
Net cash used in operating activities     (2,177,998 )     (1,304,320 )
                 
Cash flows from investing activities:                
Purchase of property and equipment     (67,906 )     (24,257 )
Business acquisitions, net of cash acquired     (24,138,750 )     (1,608,586 )
Purchase of intangibles     (775,953 )     (331,054 )
Net cash used in investing activities     (24,982,609 )     (1,963,897 )
                 
Cash flows from financing activities:                
Principal repayments of debt     (663,016 )     (663,907 )
Proceeds from loan for business acquisition     6,520,000       -  
Payment of debt issuance costs     (214,257 )     -  
Payments on earn-out liabilities     (1,627,296 )     (452,236 )
Proceeds from loans payable, related parties     1,500,000       2,931  
Payments of loans payable, related parties     (174,206 )     (504,899 )
Proceeds from exercise of warrants into common stock     2,477,131       -  
Repayments on short-term financing     (107,206 )        
Net proceeds from private placement issuance of shares and warrants     17,853,351       -  
Issuance of common stock     -       10,496,221  
Net cash provided by financing activities     25,564,501       8,878,110  
                 
Net (decrease) increase in cash and restricted cash     (1,596,106 )     5,609,893  
Cash and restricted cash at beginning of period     4,620,722       529,581  
Cash and restricted cash at end of period   $ 3,024,616     $ 6,139,474  
                 
Supplemental disclosure of cash and non-cash investing and financing transactions:                
Cash paid for interest   $ 562,800     $ 350,175  
Issuance of series D warrants   $ 6,930,335     $ -  
Issuance of placement agent warrants   $ 1,525,923     $ -  
Prepaid insurance acquired through short-term financing   $ 417,199     $ -  
Conversion of preferred stock into common stock   $ 190,069     $ 339,264  
Conversion of debt into equity   $ -     $ 3,800,000  
Cashless conversion of series D warrants into common stock   $

36,761

    $ -  
Common stock issued pursuant to acquisition   $ 4,763,451     $ 50,000  
Common stock issued in lieu of services   $ -     $ 91,050  
Issuance of common stock pursuant to the purchase of software   $ -     $ 340,000  
Acquisition of business deferred purchase price   $ 1,125,000     $ -  
Lease assets acquired in exchange for lease liabilities   $ 628,004     $

861,443

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

7
 

 

Reliance Global Group, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Reliance Global Group, Inc., formerly known as Ethos Media Network, Inc. (“RELI”, “Reliance”, or the “Company”) incorporated in Florida on August 2, 2013.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of recurring accruals) necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto, set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Reliance Global Group, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

Liquidity

 

As of September 30, 2022, the Company’s reported cash and restricted cash aggregated balance was approximately $3,024,000, current assets were approximately $4,488,000, while current liabilities were approximately $7,971,000. As of September 30, 2022, the Company had a working capital deficit of approximately $3,483,000 and stockholders’ equity of approximately $28,366,000. For the nine months ended September 30, 2022, the Company reported loss from operations of approximately $5,860,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $32,399,000, resulting in an overall net income of approximately $25,958,000. For the nine months ended September 30, 2022, the Company reported negative cash flows from operations of approximately $2,178,000. The Company completed a capital offering in January 2022 that raised net proceeds of approximately $17,853,000. Management believes the Company’s financial position and its ability to raise capital to be reasonable and sufficient.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

 

Cash and Restricted Cash

 

Cash and restricted cash reported on our Condensed Consolidated Balance Sheets are reconciled to the total shown on our Condensed Consolidated Statements of Cash Flows as follows:

 

    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  

 

8
 

 

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:

 

    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:

      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  
Unrealized (gain) loss     -       (7,726,161 )     (193,154 )     (7,919,315 )
Ending balance, September 30, 2022     -       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:

 

    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

 

9
 

 

The Company values its Level 3 earn-out liability related to the Barra Acquisition using a Monte Carlo simulation in a risk-neutral framework (a special case of the Income Approach). The following summarizes the significant unobservable inputs:

 

     

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:

 

    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.

 

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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:

 

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  

 

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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:

 

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%  

 

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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.

 

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