RELI Reliance Global Group Inc

 

 

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 June 30, 2023

 

or

 

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

 

For the transition period from _____ to _____

 

Commission File Number: 001-40020

 

RELIANCE GLOBAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Florida		46-3390293
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

732-380-4600

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		RELI		The Nasdaq Capital Market
Series A Warrants		RELIW		The 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 Rule 12b-2 of the Act).

 

Yes ☐ No ☒

 

At August 10, 2023, the registrant had 2,126,348 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.	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	28
Item 4. Controls and Procedures.	29
PART II
Item 1. Legal Proceedings.	29
Item 1A. Risk Factors.	29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	29
Item 3. Defaults Upon Senior Securities.	30
Item 4. Mine Safety Disclosures.	30
Item 5. Other Information.	30
Item 6. Exhibits	30

 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

		June 30 2023				December 31, 2022
		June 30, 2023				December 31, 2022
Assets
Current assets:
Cash		$	1,274,743			$	505,410
Restricted cash			1,405,513				1,404,359
Accounts receivable			978,877				994,321
Accounts receivable, related parties			19,364				18,292
Other receivables			2,900,648				11,464
Prepaid expense and other current assets			553,122				245,535
Current Assets - Discontinued Operations			-				85,998
Total current assets			7,132,267				3,265,379
Property and equipment, net			149,084				162,767
Right-of-use assets			976,020				1,018,952
Investment in NSURE, Inc.			-				900,000
Intangibles, net			12,308,697				13,439,369
Goodwill			14,287,099				14,287,099
Other non-current assets			23,284				23,284
Other Assets - Discontinued Operations			-				5,330,879
Total assets		$	34,876,451			$	38,427,729
Current liabilities:
Accounts payable and other accrued liabilities		$	911,247			$	951,382
Short term financing agreements			195,024				154,017
Current portion of loans payables, related parties			872,249				1,422,249
Other payables			217,101				101,113
Current portion of long-term debt			1,329,121				1,118,721
Current portion of leases payable			370,855				339,937
Earn-out liability, current portion			969,000				2,153,478
Current Liabilities - Discontinued Operations			-				1,600,636
Total current liabilities			4,864,597				7,841,533
Loans payable, related parties, less current portion			307,394				122,266
Convertible debt, related parties, less current portion			570,000				1,500,000
Long term debt, less current portion			11,711,780				12,349,673
Leases payable, less current portion			635,863				714,068
Earn-out liability, less current portion			-				556,000
Warrant liabilities			3,759,428				6,433,150
Noncurrent Liabilities - Discontinued Operations			-				-
Total liabilities			21,849,062				29,516,690
Stockholders’ equity:
Preferred stock, $0.086 par value; 750,000,000 shares authorized and 0 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively			-				-
Common stock, $0.086 par value; 133,333,333 shares authorized and 2,053,084 and 1,219,573 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively			176,546				104,883
Additional paid-in capital			42,686,651				35,798,139
Accumulated deficit			(29,835,808	)			(26,991,983	)
Total stockholders’ equity			13,027,389				8,911,039
Total liabilities and stockholders’ equity		$	34,876,451			$	38,427,729

 

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

 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three months ended				Three months ended				Six months ended				Six months ended
		June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
Revenue
Commission income		$	3,195,905				2,847,149			$	7,135,008				5,905,846
Total revenue			3,195,905				2,847,149				7,135,008				5,905,846
Operating expenses
Commission expense			822,274				662,932				1,905,600				1,448,543
Salaries and wages			1,742,697				1,637,412				3,454,794				3,269,225
General and administrative expenses			1,703,811				1,630,169				3,062,066				3,963,964
Marketing and advertising			109,860				(4,844	)			246,432				84,686
Depreciation and amortization			655,449				694,440				1,309,227				1,263,440
Total operating expenses			5,034,091				4,620,109				9,978,119				10,029,858
Loss from operations			(1,838,186	)			(1,772,960	)			(2,843,111	)			(4,124,012	)
Other (expense) income
Interest expense			(370,905	)			(194,929	)			(722,462	)			(305,095	)
Interest expense, related parties			(51,153	)			(1,729	)			(92,629	)			(3,460	)
Other expense, net			(16,979	)			(3,605	)			(13,297	)			541
recognition and change in fair value of warrant liabilities			(1,592,509	)			12,633,251				2,673,723				24,479,215
Total other (expense) income			(2,031,546	)			12,432,988				1,845,335				24,171,201
(Loss) income from continuing operations before tax		$	(3,869,732	)			10,660,028			$	(997,776	)			20,047,189
Income (loss) from discontinued operations before tax			2,814,445				(164,337	)			(1,846,048	)			(211,497	)
Net (loss) income			(1,055,287	)			10,495,691				(2,843,824	)			19,835,692
Basic (loss) earnings per share
Continuing operations		$	(1.42	)		$	9.97			$	(0.47	)		$	12.80
Discontinued operations		$	1.03			$	(0.15	)		$	(0.86	)		$	(0.21	)
Basic (loss) earnings per share		$	(0.39	)		$	9.82			$	(1.33	)		$	12.59
Diluted (loss) earnings per share
Continuing operations		$	(1.42	)		$	8.74			$	(0.47	)		$	(12.65	)
Discontinued operations		$	1.03			$	(0.13	)		$	(0.86	)		$	(0.19	)
Diluted (loss) earnings per share		$	(0.39	)		$	8.61			$	(1.33	)		$	(12.84	)
Weighted average number of shares outstanding - Basic			2,716,512				1,069,157				2,138,444				1,025,108
Weighted average number of shares outstanding - Diluted			2,716,512				1,219,224				2,138,444				1,068,236

 

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

 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

		Reliance Global Group, Inc.
		Preferred stock								Common stock								Common stock issuable								Additional paid-in				Subscription				Accumulated
		Shares				Amount				Shares				Amount				Shares				Amount				capital				Receivable				Deficit				Total
Balance, December 31, 2022			-			$	-				1,219,573			$	104,883				-			$	-			$	35,798,139			$	-			$	(26,991,983	)			8,911,039
Common shares issued for earnout liabilities			-				-				109,358				9,404				-				-				973,074				-				-				982,478
Conversion of convertible debt, related parties			-				-				66,743				5,740				-				-				639,260				-				-				645,000
Round up of shares due to reverse split			-				-				15,336				1,300				-				-				(5,946	)			-				-				(4,646	)
Shares issued in 2023 private placement			-				-				155,038				13,333				-				-				3,433,151				-				-				3,446,484
Share based compensation			-				-				-				-				-				-				43,797				-				-				43,797
Net loss			-				-				-				-				-				-				-				-				(1,788,538	)			(1,788,538	)
Balance, March 31, 2023			-				-				1,566,048				134,660				-				-				40,881,475				-				(28,780,521	)			12,235,614
Common shares issued for services			-				-				112,557				9,681				-				-				368,314				-				-				377,995
Common shares issued for earnout liabilities			-				-				352,260				30,294				-				-				1,403,406				-				-				1,433,700
Shares issued for vested stock awards			-				-				22,219				1,911				-				-				(1,911	)			-				-				-
Share based compensation			-				-				-				-				-				-				35,367				-				-				35,367
Net loss			-				-				-				-				-				-				-				-				(1,055,287	)			(1,055,287	)
Balance, June 30, 2023			-				-				2,053,084				176,546				-				-				42,686,651				-				(29,835,808	)			13,027,389

 

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

 

 

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

		Reliance Global Group, Inc.
		Preferred stock								Common stock								Common stock issuable								Additional paid-in				Subscription				Accumulated
		Shares				Amount				Shares				Amount				Shares				Amount				capital				Receivable				Deficit				Total
Balance, December 31, 2021			-			$	-				730,407			$	62,815				-			$	-			$	27,329,201			$	(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				178,059				15,313				-				-				(16,043	)			20,000,000				-				20,000,051
Shares issued pursuant to acquisition of Medigap			-				-				40,402				3,475				-				-				4,759,976				-				-				4,763,451
Exercise of Series A warrants			-				-				25,000				2,150				-				-				2,472,850				-				-				2,475,000
Issuance of prefunded Series C Warrants in exchange for common shares			-				-				(218,462	)			(18,788	)			-				-				18,788				-				-				-
Shares issued for vested stock awards			-				-				400				34				-				-				(34	)			-				-				-
Net income			-				-				-				-				-				-				-				-				9,340,000				9,340,000
Balance, March 31, 2022			9,076			$	781				755,807			$	64,999				0			$	-			$	35,304,698			$	-			$	(24,118,145	)		$	11,252,333
Balance			9,076			$	781				755,807			$	64,999				0			$	-			$	35,304,698			$	-			$	(24,118,145	)		$	11,252,333
Share based compensation			-				-				-				-				-				-				179,083				-				-				179,083
Exercise of Series C warrants into common shares			-				-				218,462				18,788				-				-				(17,452	)			-				-				1,336
Net Income			-				-												-				-								-				10,495,691				10,495,691
Balance, June 30, 2022			9,076				781				974,269				83,787				-				-				35,466,329				-				(13,622,454	)			21,928,443
Balance			9,076				781				974,269				83,787				-				-				35,466,329				-				(13,622,454	)			21,928,443

 

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

 

 

Reliance Global Group, Inc. and Subsidiaries and Predecessor

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		2023				2022
		Six months ended June 30,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(2,843,824	)		$	19,835,692
Adjustment to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization			1,309,227				1,263,440
Amortization of debt issuance costs and accretion of debt discount			23,442				18,291
Non-cash lease expense			(4,355	)			17,637
Stock compensation expense			79,164				919,043
Common stock issued in lieu of services performed			377,995				-
Earn-out fair value and write-off adjustments			1,019,925				354,963
Change in fair value of warrant liability			(2,673,723	)			(24,479,215	)
Change in operating assets and liabilities:
Accounts payables and other accrued liabilities			(40,135	)			(1,853,366	)
Accounts receivable			15,444				142,825
Accounts receivable, related parties			(1,072	)			(47,283	)
Other receivables			10,816				7,030
Other payables			115,988				126,984
Other non-current assets			-				(6,493	)
Prepaid expense and other current assets			(303,322	)			2,173,810
Net cash used in operating activities			(2,914,430	)			(1,526,642	)
Net cash adjustments for discontinued operating activities			907,329				215,231
Net cash used in discontinued and continuing operating activities			(2,007,101	)			(1,311,411	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment in NSURE			900,000
Purchase of property and equipment			(13,010	)			(11,959	)
Business acquisitions, net of cash acquired			-				(6,000,000	)
Purchase of intangibles			(151,862	)			(5,096,885	)
Net cash provided by (used in) investing activities			735,128				(11,108,844	)
Net cash adjustments for discontinued investing activities			-				(13,517,085	)
Net cash provided by (used in) discontinued and continuing investing activities			735,128				(24,625,929	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of debt			(450,935	)			(447,908	)
Debt issuance costs			-				(214,257	)
Proceeds from loan for business acquisition			-				6,520,000
Issuance of common shares in exchange for Series C warrants			-				1,336
Payments of loans payable, related parties			(649,870	)			(21,541	)
Earn-out liability			(344,225	)			(411,408	)
Exercise of warrants into common stock			-				2,475,000
Principal repayments on short term financing			58,707				(40,552	)
Private placement of shares and warrants			3,446,484				17,853,351
Net cash provided by continuing financing activities			2,060,161				25,714,021
Net cash used in discontinued financing activities			(17,701	)			-
Total net cash provided by continuing and discontinued financing activities			2,042,460				25,714,021
Net increase (decrease) in cash and restricted cash			770,487				(223,319	)
Cash and restricted cash at beginning of year			1,909,769				4,620,722
Cash and restricted cash at end of year		$	2,680,256			$	4,397,403
SUPPLEMENTAL DISCLOSURE OF CASH AND NON-CASH TRANSACTIONS:
Common stock issuance to settle earn-out liabilities		$	2,416,178				-

 

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

 

 

Reliance Global Group, Inc. and Subsidiaries

Notes to the Unaudited 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”), was 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, 2022. Certain prior period amounts in the condensed consolidated financial statements and notes thereto have been reclassified to conform to the current period’s presentation.

 

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 June 30, 2023, the Company’s reported cash and restricted cash aggregated balance was approximately $2,680,000, current assets were approximately $7,132,000, while current liabilities were approximately $4,865,000. As of June 30, 2023, the Company had positive working capital of approximately $2,268,000 and stockholders’ equity of approximately $13,027,000. For the six months ended June 30, 2023, the Company reported loss from operations of approximately $2,843,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $2,674,000, resulting in net loss from continuing operations of approximately $998,000, a net loss from discontinued operations of approximately $1,846,000, resulting in an overall net loss of approximately $2,844,000. The Company completed a capital offering in March 2023, raising net proceeds of approximately $3,446,000.

 

Although there can be no assurance that debt or equity financing will be available on acceptable terms, the Company believes its financial position and its ability to raise capital to be reasonable and sufficient. Based on our assessment, we do not believe there are conditions or events that, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year of filing these financial statements with the Securities and Exchange Commission (“SEC”).

 

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:

SCHEDULE OF RESTRICTED CASH IN STATEMENT OF CASH FLOW 

		June 30, 2023				June 30, 2022
Cash		$	1,274,743			$	2,979,769
Restricted cash			1,405,513				1,417,634
Total cash and restricted cash		$	2,680,256			$	4,397,403

 

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:

SCHEDULE OF EARN OUT LIABILITY 

		June 30, 2023				December 31, 2022
Stock price		$	4.71			$	8.55
Volatility			105.0	%			105.0	%
Time to expiry			3.51				4.01
Dividend yield			0	%			0	%
Risk free rate			4.4	%			4.1	%

 

The following reconciles fair value of the liability classified warrants:

SCHEDULE OF RECONCILES WARRANT COMMITMENT 

		Series B Warrant Commitment				Series B Warrant Liabilities				Placement Agent Warrants				Total
Beginning balance, December 31, 2022		$	-			$	6,384,250			$	48,900			$	6,433,150
Unrealized (gain) loss			-				(4,226,950	)			(39,281	)			(4,266,231	)
Ending balance, March 31, 2023			-				2,157,300				9,619				2,166,919
Beginning balance,			-				2,157,300				9,619				2,166,919
Unrealized (gain) loss			-				1,584,684				7,825				1,592,509
Ending balance, June 30, 2023		$	-			$	3,741,984			$	17,444			$	3,759,428
Ending balance		$	-			$	3,741,984			$	17,444			$	3,759,428

 

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 

		June 30, 2023		December 31, 2022
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 

		June 30, 2023
WACC Risk Premium:			14.0	%
Volatility			50.0	%
Credit Spread:			9.6	%
Payment Delay (days)			90
Risk free rate			USD Yield Curve
Discounting Convention:			Mid-period
Number of Iterations			100,000

 

9

 

Undiscounted remaining earn out payments were approximately $1,147,000 as of June 30, 2023. The following table reconciles fair value of earn-out liabilities for the periods ended June 30, 2023, and December 31, 2022:

SCHEDULE OF GAIN OR LOSSES RECOGNIZED FAIR VALUE 

		June 30, 2023				December 31, 2022
Beginning balance – January 1		$	2,709,478			$	3,813,878
Acquisitions and settlements			(2,760,403	)			(1,104,925	)
Period adjustments:
Fair value changes included in earnings*			1,019,925				525
Ending balance			969,000				2,709,478
Less: Current portion			(969,000	)			(2,153,478	)
Ending balance, less current portion		$	-			$	556,000

 

*	Recorded as a reduction to general and administrative expenses

 

Revenue Recognition

 

The following table disaggregates the Company’s revenue by line of business, showing commissions earned:

SCHEDULE OF DISAGGREGATION REVENUE 

Three Months ended June 30, 2023		Medical				Life				Property and Casualty				Total
Regular
EBS		$	206,668			$	4,471			$	-			$	211,139
USBA			11,426				658				-				12,084
CCS/UIS			-				-				73,402				73,402
Montana			444,783				3,350				-				448,133
Fortman			288,902				1,680				227,176				517,758
Altruis			1,200,537				-				-				1,200,537
Kush			322,188				-				-				322,188
Barra			52,209				61,821				296,634				410,664
Total		$	2,526,713			$	71,980			$	597,212			$	3,195,905

 

Six Months ended June 30, 2023		Medical				Life				Property and Casualty				Total
Regular
EBS		$	439,949			$	8,571			$	-			$	448,520
USBA			22,689				1,423				-				24,112
CCS/UIS			-				-				120,172				120,172
Montana			930,792				8,335				-				939,127
Fortman			596,557				2,073				433,544				1,032,174
Altruis			3,068,673				-				-				3,068,673
Kush			642,479				-				-				642,479
Barra			121,319				85,202				653,230				859,751
Total		$	5,822,458			$	105,604			$	1,206,946			$	7,135,008

 

10

 

Three Months ended June 30, 2022		Medical				Life				Property and Casualty				Total
Regular
EBS		$	178,936			$	5,915			$	-			$	184,851
USBA			12,319				-				-				12,319
CCS/UIS			-				-				57,195				57,195
Montana			450,742				963				-				451,705
Fortman			357,334				-				205,804				563,138
Altruis			881,337				834				-				882,171
Kush			425,449				-				-				425,449
Reli Exchange			47,661				22,263				200,397				270,321
Total		$	2,353,778			$	29,975			$	463,396			$	2,847,149

 

Six Months ended June 30, 2022		Medical				Life				Property and Casualty				Total
Regular
EBS		$	399,547			$	6,488			$	-			$	406,035
USBA			25,906				-				-				25,906
CCS/UIS			-				-				101,077				101,077
Montana			956,329				2,097				-				958,426
Fortman			687,060				2,873				403,064				1,092,997
Altruis			2,184,367				2,676				-				2,187,043
Kush			864,040				-				-				864,040
Reli Exchange			47,662				22,263				200,397				270,322
Total		$	5,164,911			$	36,397			$	704,538			$	5,905,846

 

The following are customers representing 10% or more of total revenue:

SCHEDULE OF CONCENTRATIONS OF REVENUES 

		For the three months ended June 30,
Insurance Carrier		2023				2022
Priority Health			28	%			30	%
BlueCross BlueShield			12	%			13	%
Insurance Carrier			12	%			13	%

 

		For the six months ended June 30,
Insurance Carrier		2023				2022
Priority Health			37	%			36	%
BlueCross BlueShield			13	%			14	%
Insurance Carrier			37	%			36	%

 

No other single customer accounted for more than 10% of the Company’s commission revenues during the three and six months ended June 30, 2023 and 2022. The loss of any significant customer could have a material adverse effect on the Company. Customers from 2022 were adjusted to reflect percentages of revenue from continued operations.

 

11

 

Income Taxes

 

The Company recorded no income tax expense for the three and six months ended June 30, 2023 and 2022 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 June 30, 2023 and December 31, 2022, 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.

 

Discontinued Operations

 

The Company’s board of directors approved the discontinuation and abandonment of Medigap Healthcare Insurance Company, LLC (“Medigap”), a subsidiary of the Company, effective April 17, 2023, due to Medigap’s sustained recurring losses stemming from amongst other factors, greater than anticipated revenue chargebacks. The Company was unable to divest its interest in Medigap for value, and accordingly, operations were wound down in an orderly manner. In doing so, the Company transferred to its operating entity, Medigap’s customer relationships and internally developed and purchased software intangible assets, with net of amortization combined value of approximately $4,300,000, as well as, its short-term financing arrangement of $29,500, and each are respectively classified in the intangible assets and short term financing agreements accounts in the condensed consolidated balance sheets for the periods ended June 30, 2023 and December 31, 2022. These assets have continued value to the Company and have not been impaired as the fair value exceeds carrying cost. Medigap’s remaining assets were considered to have no remaining asset value and were fully impaired. Certain liabilities and estimated liabilities as outlined in the tables herein, were discharged and/or written-off in conjunction with the Settlement Agreement (as defined below) because of them having a net zero dollar estimated liability value. Accordingly, the Company recognized a net of estimated liability adjustments gain of approximately $10,000, and loss of approximately $4,400,000, presented in income (loss) from discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2023 respectively. As part of the abandonment, the Company cancelled third party contracts, settled outstanding vendor and other third-party obligations, ceased to enter into new customer contracts via Medigap, and no further customer performance obligations existed. The Company does not expect further continuing involvement with Medigap, and in accordance with ASC 205-20-45-9, no corporate overhead has been allocated to discontinued operations.

 

Settlement Agreement

 

On June 30, 2023, the Company entered into a confidential settlement agreement and mutual release (the “Settlement Agreement”) with certain Medigap affiliated entities and persons, and the former owners of Medigap, whereby the Company would receive a settlement payment of $2,900,000 and was released from all past and future Medigap obligations and liabilities. The settlement payment was received in full by the Company in July 2023 and is recorded as income from discontinued operations in the condensed consolidated statements of operations for the three and six months ended June 30, 2023.

 

The following tables present the major components of assets and liabilities included in discontinued operations on the condensed consolidated balance sheets.

 

SCHEDULE OF DISCONTINUED OPERATIONS ON CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS

		June 30, 2023				December 31, 2022
Accounts receivable			-			$	73,223
Accounts receivable, related parties			-				3,595
Other receivables			-				5,388
Prepaid expense and other current assets			-				3,792
Current Assets - Discontinued Operations						$	85,998
Condensed consolidated balance sheets - Current Assets - Discontinued Operations						$	85,998
Property and equipment, net			-			$	24,116
Right-of-use assets			-				163,129
Intangibles, net			-				318,000
Goodwill			-				4,825,634
Other Assets - Discontinued Operations			-			$	5,330,879
Condensed consolidated balance sheets - Other Assets - Discontinued Operations			-			$	5,330,877
Accounts payable and other accrued liabilities			-			$	506,585
Chargeback reserve			-				915,934
Current portion of leases payable			-				178,117
Current Liabilities - Discontinued Operations			-			$	1,600,636
Condensed consolidated balance sheets - Current Liabilities - Discontinued Operations			-			$	1,600,636

 

12

 

The following table rolls forward Medigap’s assets and liabilities from their carrying values pre-abandonment to their values post abandonment, and presents the impact of reclassifications, impairments, and write-offs:

 

Medigap Related Assets		Carrying Value Prior To Abandonment				Asset and Liability Transfers Retained by the Company				Asset Impairments and Liability Write-Offs				Carrying Value As of June 30, 2023
Accounts receivable		$	56,398			$	-			$	(56,398	)		$	-
Accounts receivable, related party			3,595				-				(3,595	)			-
Other receivables			5,388				-				(5,388	)			-
Current assets – Medigap		$	65,381			$	-			$	(65,381	)		$	-
Property and equipment, net		$	22,378			$	-			$	(22,378	)		$	-
Right-of-use assets			119,594				-				(119,594	)			-
Intangibles, net			4,570,536				(4,258,214	)1			(312,322	)			-
Goodwill			4,825,634				-				(4,825,634	)			-
Other assets - Medigap		$	9,538,142			$	(4,258,214	)		$	(5,279,928	)		$	-
Total assets - Medigap		$	9,603,523			$	(4,258,214	)		$	(5,345,309	)		$	-
Accounts payable and other accrued liabilities		$	4,157			$	-			$	(4,157	)		$	-
Short term financing agreements			29,500				(29,500	)			-				-
Chargeback Reserve			831,725				-				(831,725	)2			-
Current portion of leases payable			134,517				-				(134,517	)3			-
Other liabilities			9,842				-				(9,842	)3			-
Current Liabilities - Medigap		$	1,009,741			$	(29,500	)		$	(980,241	)		$	-
Total Liabilities - Medigap		$	1,009,741			$	(29,500	)		$	(980,241	)		$	-
Net assets and liabilities - Medigap		$	8,593,782			$	(4,228,714	)		$	(4,365,068	)		$	-

 

	1	Includes customer relationships and internally developed and purchased software intangible assets that have continued value to the Company and have not been impaired as the fair value exceeds carrying cost.
	2	Estimated liability write-off per net zero dollar estimated liability value.
	3	Liability discharge pursuant to the Settlement Agreement.

 

13

 

The following tables disaggregate the major classes of pretax gain and loss as presented in discontinued operations in the condensed consolidated statements of operations.

 

		Three Months Ended June 30, 2023				Three Months Ended June 30, 2022				Six Months Ended June 30, 2023				Six Months Ended June 30, 2022				Three Months Ended June 30, 2023
Income
Commission income		$	11,025			$	1,359,976			$	744,030			$	2,537,061
Expenses
Commission expense			5,491				187,196				110,639				305,740
Salaries and wages			53,508				539,380				454,823				989,743
General and administrative expenses			10,612				129,048				129,348				248,323
Marketing and advertising			36,544				614,226				426,819				1,111,719
Depreciation and amortization			-				61,964				7,283				100,488
Other expenses (income)			267				(7,500	)			(3,902	)			(7,456	)
Total discontinued operations expenses before impairments and write-offs			106,422				1,524,314				1,125,010				2,748,557
Total discontinued operations income / (loss) before impairments and write-offs		$	(95,397	)		$	(164,338	)		$	(380,980	)		$	(211,496	)
Gains and (losses) from recoveries and impairments / write-offs of discontinued operations assets and liabilities
Settlement Recovery		$	2,900,000				-			$	2,900,000
Asset impairment losses
Accounts receivable			-				-				(56,398	)			-
Accounts receivable, related parties			-				-				(3,595	)			-
Other receivables			-				-				(5,388	)			-
Property and equipment, net			-				-				(22,378	)			-
Right-of-use assets			-				-				(119,594	)			-
Intangibles, net			-				-				(312,322	)			-
Goodwill			-				-				(4,825,634	)			-
Total Asset Impairments			-				-				(5,345,309	)			-
Liability write-off gains
Accounts payable and other accrued liabilities			-				-				4,157				-
Other payables			9,842				-				9,842				-
Chargeback reserve			-				-				831,725				-
Current portion of leases payable			-				-				134,517				-
Total liability write-off gains			9,842				-				980,241