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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
(Amendment
No. 1)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 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: 001-40020
RELIANCE
GLOBAL GROUP, INC.
(Exact
name of registrant as specified in its charter)
Florida
(State
or other jurisdiction of incorporation or organization)
46-3390293
I.R.S.
Employer Identification Number
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 |
|
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
August 15, 2022 the registrant had 1,097,138 shares of common stock, par value $0.086 per share, outstanding (after giving effect to the 1-for-15 reverse stock split that
became effective on February 23, 2023).
EXPLANATORY
NOTE
Reliance Global Group, Inc. (the “Company”) filed its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2022, with the Securities and Exchange Commission (“SEC”) on August 15,
2022 (the “Original Form 10-Q”). This Amendment No. 1 on Form 10-Q/A (“Amendment No. 1” or “Form 10-Q/A”)
is being filed to:
(i) | reflect the restatement of earnings per share (“EPS”) information
(the “Restatement”) in the condensed consolidated statements of operations for the three and six months ended June 30, 2022; |
(ii) | insert additional disclosure relating to the Restatement to Note 1; |
(iii) | replace Note 7 from the Original Form 10-Q in its entirety as a result of
the Restatement; |
(iv) | revise share and per share information throughout the Form 10-Q/A to give
effect to the 1-for-15 reverse stock split that became effective on February 23, 2023 (the “Reverse Split”); |
(v) | revise Part I, Item 4 to indicate that the Company’s disclosure controls
and procedures were not effective as of June 30, 2022; |
(vi) | replace the exhibit index contained in Item 6 in its entirety; |
(vii) | provide current dated certifications; |
(viii) | correct certain immaterial errors on the cover sheet to the Form 10-Q/A. |
The Restatement is due
to the Company performing an evaluation of its accounting in connection with the calculation of its basic and diluted EPS for the
three and six months ended June 30, 2022, and identification of errors in such calculations. On May 12, 2023, management concluded
its evaluation and determined that the identified errors require the filing of Amendment No. 1, as further discussed in Notes 1 and 7 to
the unaudited condensed consolidated financial statements included in this Form 10-Q/A.
The following items have been amended in this Amendment No. 1:
|
● |
Part I — Item 1. Financial Statements |
|
● |
Part I – Item 4. Controls and Procedures |
|
● |
Part II – Item 6. Exhibits |
Except
as described above, no other changes have been made to the Original Form 10-Q, and Amendment No. 1 does not modify, amend or update
in any way revenue, expenses, net income (loss), or any of the financial or other information contained in the Original Form 10-Q.
Amendment No. 1 does not reflect events that may have occurred subsequent to the filing date of the Original Form 10-Q other than
adjusting, in the Items amended herein, common stock share and price per share information for the 1-for-15 reverse stock split that
became effective February 23, 2023.
TABLE
OF CONTENTS
PART
I
Item
1. Financial Statements
Reliance
Global Group, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(Unaudited)
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
June 30, 2022 | | |
December 31, 2021 | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 2,979,769 | | |
$ | 4,136,180 | |
Restricted cash | |
| 1,417,635 | | |
| 484,542 | |
Accounts receivable | |
| 1,072,294 | | |
| 1,024,831 | |
Accounts receivable, related parties | |
| 54,414 | | |
| 7,131 | |
Prepaid expense and other current assets | |
| 576,691 | | |
| 2,328,817 | |
Total current assets | |
| 6,100,803 | | |
| 7,981,501 | |
| |
| | | |
| | |
Property and equipment, net | |
| 164,017 | | |
| 130,359 | |
Right-of-use assets | |
| 1,421,474 | | |
| 1,067,734 | |
Investment in NSURE, Inc. | |
| 1,350,000 | | |
| 1,350,000 | |
Intangibles, net | |
| 14,751,751 | | |
| 7,078,900 | |
Goodwill | |
| 33,486,107 | | |
| 10,050,277 | |
Other non-current assets | |
| 23,284 | | |
| 16,792 | |
Total assets | |
$ | 57,297,436 | | |
$ | 27,675,563 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity (deficit) | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and other accrued liabilities | |
$ | 1,051,333 | | |
$ | 2,759,160 | |
Chargeback reserve | |
| 1,559,541 | | |
| - | |
Other payables | |
| 1,333,484 | | |
| 81,500 | |
Short term Financing Agreements | |
| 376,647 | | |
| | |
Current portion of long-term debt | |
| 936,263 | | |
| 913,920 | |
Current portion of leases payable | |
| 528,902 | | |
| 276,009 | |
Earn-out liability, current portion | |
| 3,683,596 | | |
| 3,297,855 | |
Warrant commitment | |
| - | | |
| 37,652,808 | |
Total current liabilities | |
| 9,469,766 | | |
| 44,981,252 | |
| |
| | | |
| | |
Loans payable, related parties, less current portion | |
| 332,225 | | |
| 353,766 | |
Long term debt, less current portion | |
| 12,935,649 | | |
| 7,085,325 | |
Leases payable, less current portion | |
| 930,623 | | |
| 805,326 | |
Earn-out liability, less current portion | |
| 673,837 | | |
| 516,023 | |
Warrant liabilities | |
| 11,026,893 | | |
| - | |
Total liabilities | |
| 35,368,993 | | |
| 53,741,692 | |
Stockholders’ equity (deficit): | |
| | | |
| | |
Preferred stock, $0.086 par value; 750,000,000 shares authorized and 9,076 and 0 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | |
| 781 | | |
| - | |
Common stock, $0.086 par value; 133,333,333 shares authorized and 974,268 and 730,407 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | |
| 83,787 | | |
| 62,815 | |
Additional paid-in capital | |
| 35,466,329 | | |
| 27,329,201 | |
Stock subscription receivable | |
| - | | |
| (20,000,000 | ) |
Accumulated deficit | |
| (13,622,454 | ) | |
| (33,458,145 | ) |
Total stockholders’ equity (deficit) | |
| 21,928,443 | | |
| (26,066,129 | ) |
Total liabilities and stockholders’ equity (deficit) | |
$ | 57,297,436 | | |
$ | 27,675,563 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements
Reliance
Global Group, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenue | |
| | |
| | |
| | |
| |
Commission income | |
$ | 4,207,126 | | |
$ | 2,190,847 | | |
$ | 8,442,907 | | |
$ | 4,514,577 | |
Total revenue | |
| 4,207,126 | | |
| 2,190,847 | | |
| 8,442,907 | | |
| 4,514,577 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Commission expense | |
$ | 850,128 | | |
$ | 558,271 | | |
$ | 1,754,283 | | |
$ | 1,087,743 | |
Salaries and wages | |
| 2,176,792 | | |
| 1,110,629 | | |
| 4,258,967 | | |
| 2,029,174 | |
General and administrative expenses | |
| 1,759,217 | | |
| 1,202,350 | | |
| 4,212,287 | | |
| 2,206,751 | |
Marketing and advertising | |
| 609,383 | | |
| 55,021 | | |
| 1,196,405 | | |
| 78,100 | |
Depreciation and amortization | |
| 756,403 | | |
| 369,366 | | |
| 1,363,928 | | |
| 702,454 | |
Total operating expenses | |
| 6,151,923 | | |
| 3,295,637 | | |
| 12,785,870 | | |
| 6,104,222 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (1,944,797 | ) | |
| (1,104,790 | ) | |
| (4,342,963 | ) | |
| (1,589,645 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Other expense, net | |
| (192,763 | ) | |
| (172,096 | ) | |
| (300,560 | ) | |
| (301,167 | ) |
Recognition and change in fair value of warrant liabilities | |
| 12,633,251 | | |
| - | | |
| 24,479,215 | | |
| - | |
Total other income (expense) | |
| 12,440,488 | | |
| (172,096 | ) | |
| 24,178,655 | | |
| (301,167 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 10,495,691 | | |
$ | (1,276,886 | ) | |
$ | 19,835,692 | | |
$ | (1,890,812 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings (loss) per share | |
$ | 9.82 | | |
$ | (1.75 | ) | |
$ | 12.59 | | |
$ | (3.06 | ) |
Diluted earnings (loss) per share | |
$ | 8.61 | | |
$ | (1.75 | ) | |
$ | (12.84 | ) | |
$ | (3.06 | ) |
Weighted average number of shares outstanding - Basic | |
| 1,069,157 | | |
| 728,966 | | |
| 1,025,108 | | |
| 617,316 | |
Weighted average number of shares outstanding - Diluted | |
| 1,219,224 | | |
| 728,966 | | |
| 1,068,236 | | |
| 617,316 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements
Reliance
Global Group, Inc. and Subsidiaries
Condensed
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
| |
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 | |
| - | | |
$ | - | | |
| 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 | | |
$ | 755,806 | | |
$ | 64,999 | | |
| - | | |
$ | - | | |
$ | 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 | | |
| 974,268 | | |
$ | 83,787 | | |
| - | | |
$ | - | | |
$ | 35,466,329 | | |
$ | - | | |
$ | (13,622,454 | ) | |
$ | 21,928,443 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements
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 | | |
| 282,735 | | |
$ | 24,315 | | |
| 1,556 | | |
$ | 340,000 | | |
$ | 11,898,441 |
| - | |
$ | (12,359,680 | ) | |
$ | (63,012 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Share based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 246,966 |
| | |
| - | | |
| 246,966 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Shares issued for services | |
| - | | |
| - | | |
| 1,000 | | |
| 86 | | |
| - | | |
| - | | |
| 90,964 |
| | |
| - | | |
| 91,050 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Shares issued due to public offering, net of offering costs of $1,672,852 | |
| - | | |
| - | | |
| 120,000 | | |
| 10,320 | | |
| - | | |
| - | | |
| 9,098,828 |
| | |
| - | | |
| 9,109,148 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Over-allotment shares from offering, net of offering costs of $250,928 | |
| - | | |
| - | | |
| 18,000 | | |
| 1,548 | | |
| - | | |
| - | | |
| 1,364,825 |
| | |
| - | | |
| 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 | ) | |
| 262,995 | | |
| 22,618 | | |
| - | | |
| - | | |
| 11,194 |
| | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Shares issued due to conversion of debt | |
| - | | |
| - | | |
| 42,222 | | |
| 3,631 | | |
| - | | |
| - | | |
| 3,796,369 |
| | |
| - | | |
| 3,800,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Rounding shares related to initial public offering | |
| - | | |
| - | | |
| 126 | | |
| - | | |
| - | | |
| - | | |
| - |
| | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Shares issued pursuant to software purchase | |
| - | | |
| - | | |
| 1,556 | | |
| 134 | | |
| (1,556 | ) | |
| (340,000 | ) | |
| 339,866 |
| | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - |
| - | |
| (613,926 | ) | |
| (613,926 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Balance, March 31, 2021 | |
| 1,147 | | |
$ | 100 | | |
| 728,634 | | |
$ | 62,652 | | |
| - | | |
$ | - | | |
$ | 26,868,153 |
| - | |
$ | (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 | |
| - | | |
| - | | |
| 995 | | |
| 86 | | |
| - | | |
| - | | |
| 49,915 |
| | |
| - | | |
| 50,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - |
| - | |
| (1,276,886 | ) | |
| (1,276,886 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
| | | |
| | |
Balance, June 30, 2021 | |
| 1,167 | | |
$ | 100 | | |
| 729,629 | | |
$ | 62,738 | | |
| - | | |
$ | - | | |
$ | 27,101,199 |
| - | |
$ | (14,250,492 | ) | |
$ | 12,913,545 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements
Reliance
Global Group, Inc. and Subsidiaries and Predecessor
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| |
2022 | | |
2021 | |
| |
Six months ended June 30, | |
| |
2022 | | |
2021 | |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) | |
$ | 19,835,692 | | |
$ | (1,890,812 | ) |
Adjustment to reconcile net income (loss) to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 1,363,928 | | |
| 702,454 | |
Amortization of debt issuance costs and accretion of debt discount | |
| 18,291 | | |
| 20,206 | |
Non-cash lease expense | |
| 24,450 | | |
| 1,534 | |
Stock compensation expense | |
| 919,043 | | |
| 521,148 | |
Earn-out fair value and write-off adjustments | |
| 354,963 | | |
| - | |
Recognition and change in fair value of warrant liabilities | |
| (24,479,215 | ) | |
| - | |
Change in operating assets and liabilities: | |
| | | |
| | |
Accounts payables and other accrued liabilities | |
| (1,711,287 | ) | |
| (805,092 | ) |
Accounts receivable | |
| 45,122 | | |
| 75,212 | |
Accounts receivable, related parties | |
| (47,283 | ) | |
| (7,131 | ) |
Other payables | |
| 126,984 | | |
| - | |
Charge back reserve | |
| 75,068 | | |
| - | |
Other non-current assets | |
| (6,492 | ) | |
| (18,035 | ) |
Prepaid expense and other current assets | |
| 2,169,325 | | |
| (92,736 | ) |
Net cash used in operating activities | |
| (1,311,411 | ) | |
| (1,493,252 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| (20,989 | ) | |
| - | |
Business acquisitions, net of cash acquired | |
| (24,138,750 | ) | |
| (1,608,586 | ) |
Purchase of intangibles | |
| (466,190 | ) | |
| (152,990 | ) |
Net cash used in investing activities | |
| (24,625,929 | ) | |
| (1,761,576 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Principal repayments of debt | |
| (447,908 | ) | |
| (432,833 | ) |
Proceeds from loan for business acquisition | |
| 6,520,000 | | |
| - | |
Payment of debt issuance costs | |
| (214,257 | ) | |
| - | |
Payments on earn-out liabilities | |
| (411,408 | ) | |
| - | |
Proceeds from loans payable, related parties | |
| - | | |
| 2,931 | |
Payments of loans payable, related parties | |
| (21,541 | ) | |
| (508,307 | ) |
Proceeds from exercise of warrants into common stock | |
| 2,476,336 | | |
| - | |
Repayments on short-term financing | |
| (40,552 | ) | |
| | |
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 | |
| 25,714,021 | | |
| 9,558,012 | |
| |
| | | |
| | |
Net (decrease) increase in cash and restricted cash | |
| (223,319 | ) | |
| 6,303,184 | |
Cash and restricted cash at beginning of period | |
| 4,620,722 | | |
| 529,581 | |
Cash and restricted cash at end of period | |
$ | 4,397,403 | | |
$ | 6,832,765 | |
| |
| | | |
| | |
Supplemental disclosure of cash and non-cash investing and financing transactions: | |
| | | |
| | |
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 | |
$ | - | | |
$ | 339,264 | |
Cash paid for interest | |
$ | 218,528 | | |
$ | 350,175 | |
Conversion of debt into equity | |
$ | - | | |
$ | 3,800,000 | |
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 | | |
$ | 0 | |
Lease assets acquired in exchange for lease liabilities | |
$ | 223,922 | | |
$ | 861,443 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements
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.
Restatement
of Previously Issued Financial Statements
Subsequent to the
Company’s filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, with the Securities and Exchange
Commission on August 15, 2022, the Company performed an evaluation of its accounting in connection with the calculations of its
basic Earnings Per Share (“EPS”) and diluted EPS for the three and six month periods ended June 30, 2022, which
concluded on May 12, 2023, and identified errors in such calculations. The errors resulted from improper application of sequencing
rules, a miscalculation of the numerator used in the determination of diluted EPS, and a miscalculation of the denominator used in
the determination of weighted average shares outstanding for both basic EPS and diluted EPS, and the Company determined that the
errors required adjustments of the previously issued financial statements for the three and six months ended June 30, 2022.
Accordingly, the Company restates its consolidated financial statements for the identified periods in this Form 10-Q/A as outlined
further below and in Note 7 Earnings (Loss) Per Share.
The
following table sets forth the effects of the adjustments on affected items within the Company’s previously reported consolidated
statements of operations for the three months ended June 30, 2022, and includes an increase to basic earnings per share in the amount
of $1.42, an increase to diluted earnings per share in the amount of $10.11, a decrease to weighted average number of shares outstanding
– basic of 180,062 shares, and a decrease to weighted average number of shares outstanding - diluted of 180,062 shares.
SCHEDULE
OF PREVIOUSLY REPORTED CONSOLIDATED STATEMENTS OF OPERATIONS
| |
| | | |
| | | |
| | |
| |
Three Months Ended June 30, 2022 | |
| |
As Reported | | |
Adjustment | | |
As Corrected | |
| |
| | |
| | |
| |
Basic earnings (loss) per share | |
| 8.40 | | |
| 1.42 | | |
| 9.82 | |
| |
| | | |
| | | |
| | |
Diluted earnings (loss) per share | |
| (1.50 | ) | |
| 10.11 | | |
| 8.61 | |
| |
| | | |
| | | |
| | |
Weighted average number of shares outstanding – Basic | |
| 1,249,219 | | |
| (180,062 | ) | |
| 1,069,157 | |
| |
| | | |
| | | |
| | |
Weighted average number of shares outstanding - Diluted | |
| 1,399,286 | | |
| (180,062 | ) | |
| 1,219,224 | |
The
following table sets forth the effects of the adjustments on affected items within the Company’s previously reported consolidated
statements of operations for the six months ended June 30, 2022, and includes an increase to basic earnings per share in the amount of
$1.34, an increase to diluted loss per share in the amount of $3.99, a decrease to weighted average number of shares outstanding –
basic of 124,111 shares, and a decrease to weighted average number of shares outstanding - diluted of 274,080 shares.
| |
| | |
| | |
| |
| |
Six Months Ended June 30, 2022 | |
| |
As Reported | | |
Adjustment | | |
As Corrected | |
| |
| | |
| | |
| |
Basic earnings (loss) per share | |
| 11.25 | | |
| 1.34 | | |
| 12.59 | |
| |
| | | |
| | | |
| | |
Diluted earnings (loss) per share | |
| (8.85 | ) | |
| (3.99 | ) | |
| (12.84 | ) |
| |
| | | |
| | | |
| | |
Weighted average number of shares outstanding – Basic | |
| 1,149,219 | | |
| (124,111 | ) | |
| 1,025,108 | |
| |
| | | |
| | | |
| | |
Weighted average number of shares outstanding - Diluted | |
| 1,342,315 | | |
| (274,080 | ) | |
| 1,068,236 | |
Additionally,
please refer to Note 7. Earnings (Loss) Per Share, where the Company has corrected and replaced that Note in its entirety.
Liquidity
As
of June 30, 2022, the Company’s reported cash and restricted cash aggregated balance was approximately $4,397,000, current assets
were approximately $6,101,000, while current liabilities were approximately $9,470,000. As of June 30, 2022, the Company had a working
capital deficit of approximately $3,369,000 and stockholders’ equity of approximately $21,928,000. For the six months ended June
30, 2022, the Company reported loss from operations of approximately $4,343,000, a non-cash, non-operating gain on the recognition and
change in fair value of warrant liabilities of approximately $24,479,000, resulting in an overall net income of approximately $19,836,000.
For the six months ended June 30, 2022, the Company reported negative cash flows from operations of approximately $1,311,000. 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 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, 2022 | | |
June 30, 2021 | |
Cash | |
$ | 2,979,769 | | |
$ | 6,348,415 | |
Restricted cash | |
| 1,417,635 | | |
| 484,350 | |
Total cash and restricted cash | |
$ | 4,397,404 | | |
$ | 6,832,765 | |
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 not adjusting for any reverse stock splits:
SCHEDULE
OF FAIR VALUE OF WARRANT COMMITMENT
| |
June 30, 2022 | | |
December 31, 2021 | |
Stock price | |
$ | 2.11 | | |
$ | 6.44 | |
Volatility | |
| 105 | % | |
| 90 | % |
Time to expiry | |
| 4.51 | | |
| 5 | |
Dividend yield | |
| 0 | % | |
| 0 | % |
Risk free rate | |
| 3.00 | % | |
| 1.10 | % |
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 | |
| |
Three and Six Months ended June 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 | |
| - | | |
| (12,322,737 | ) | |
| (310,514 | ) | |
| (12,633,251 | ) |
Ending balance, June 30, 2022 | |
| - | | |
| 10,757,945 | | |
| 268,948 | | |
| 11,026,893 | |
| |
|
Series B Warrant Commitment | | |
|
Total | |
| |
December 31, 2021 | |
| |
Series B Warrant Commitment | | |
Total | |
Beginning balance | |
$ | - | | |
$ | - | |
Initial recognition | |
| 20,244,497 | | |
| 20,244,497 | |
Unrealized gain | |
| 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
|
|
June
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
| |
June 30, 2022 | |
WACC Risk Premium: | |
| 14.6 | % |
Volatility | |
| 50 | % |
Credit Spread: | |
| 11 | % |
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 $4,697,644 as of June 30, 2022. The following table reconciles fair value of earn-out liabilities
for the period ending June 30, 2022:
SCHEDULE
OF GAIN OR LOSSES RECOGNIZED FAIR VALUE
| |
June 30, 2022 | | |
December 31, 2021 | |
Beginning balance – January 1 | |
$ | 3,813,878 | | |
$ | 2,931,418 | |
| |
| | | |
| | |
Acquisitions and Settlements | |
| | | |
| | |
JP Kush Acquisition | |
| - | | |
| 1,694,166 | |
Barra Acquisition | |
| 600,000 | | |
| - | |
CCS Write-off | |
| - | | |
| (81,368 | ) |
Altruis partial settlement | |
| (84,473 | ) | |
| (452,236 | ) |
Montana final settlement | |
| (326,935 | ) | |
| - | |
| |
| | | |
| | |
Period adjustments: | |
| | | |
| | |
Fair value changes and accretion included in earnings* | |
| 354,963 | | |
| (278,102 | ) |
| |
| | | |
| | |
Ending balance | |
$ | 4,357,433 | | |
$ | 3,813,878 | |
Less: Current portion | |
| (3,683,596 | ) | |
| (3,297,855 | ) |
Ending balance, less current portion | |
| 673,837 | | |
| 516,023 | |
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, 2022 | |
Medical/Life | | |
Property and Casualty | | |
Total | |
Regular | |
| | | |
| | | |
| | |
EBS | |
$ | 184,851 | | |
$ | - | | |
$ | 184,851 | |
USBA | |
| 12,319 | | |
| - | | |
| 12,319 | |
CCS/UIS | |
| - | | |
| 57,195 | | |
| 57,195 | |
Montana | |
| 451,705 | | |
| - | | |
| 451,705 | |
Fortman | |
| 357,334 | | |
| 205,804 | | |
| 563,138 | |
Altruis | |
| 882,171 | | |
| - | | |
| 882,171 | |
Kush | |
| 425,449 | | |
| - | | |
| 425,449 | |
Medigap | |
| 1,359,976 | | |
| - | | |
| 1,359,976 | |
Barra | |
| 69,925 | | |
| 200,397 | | |
| 270,322 | |
| |
$ | 3,743,730 | | |
$ | 463,396 | | |
$ | 4,207,126 | |
Six Months ended June 30, 2022 | |
Medical/Life
| | |
Property
and Casualty | | |
Total | |
Regular | |
| | | |
| | | |
| | |
EBS | |
$ | 406,035 | | |
$ | - | | |
$ | 406,035 | |
USBA | |
| 25,906 | | |
| - | | |
| 25,906 | |
CCS/UIS | |
| - | | |
| 101,077 | | |
| 101,077 | |
Montana | |
| 958,426 | | |
| - | | |
| 958,426 | |
Fortman | |
| 689,933 | | |
| 403,064 | | |
| 1,092,997 | |
Altruis | |
| 2,187,043 | | |
| - | | |
| 2,187,043 | |
Kush | |
| 864,040 | | |
| - | | |
| 864,040 | |
Medigap | |
| 2,537,061 | | |
| - | | |
| 2,537,061 | |
Barra | |
| 69,925 | | |
| 200,397 | | |
| 270,322 | |
| |
$ | 7,738,369 | | |
$ | 704,538 | | |
$ | 8,442,907 | |
Three Months ended June 30, 2021 | |
Medical/Life | | |
Property and Casualty | | |
Total | |
Regular | |
| | | |
| | | |
| | |
EBS | |
| 207,201 | | |
| - | | |
| 207,201 | |
USBA | |
| 15,395 | | |
| - | | |
| 15,395 | |
CCS/UIS | |
| - | | |
| 65,348 | | |
| 65,348 | |
Montana | |
| 404,740 | | |
| - | | |
| 404,740 | |
Fortman | |
| 276,634 | | |
| 226,337 | | |
| 502,971 | |
Altruis | |
| 729,874 | | |
| - | | |
| 729,874 | |
Kush | |
| 265,318 | | |
| - | | |
| 265,318 | |
| |
$ | 1,899,162 | | |
$ | 291,685 | | |
$ | 2,190,847 | |
Six Months ended June 30, 2021 | |
Medical/Life | | |
Property and Casualty | | |
Total | |
Regular | |
| | | |
| | | |
| | |
EBS | |
$ | 416,195 | | |
$ | - | | |
$ | 416,195 | |
USBA | |
| 27,620 | | |
| - | | |
| 27,620 | |
CCS/UIS | |
| - | | |
| 154,166 | | |
| 154,166 | |
Montana | |
| 939,856 | | |
| - | | |
| 939,856 | |
Fortman | |
| 526,435 | | |
| 434,109 | | |
| 960,544 | |
Altruis | |
| 1,750,878 | | |
| - | | |
| 1,750,878 | |
Kush | |
| 265,318 | | |
| - | | |
| 265,318 | |
| |
| | | |
| | | |
| | |
| |
$ | 3,926,302 | | |
$ | 588,275 | | |
$ | 4,514,577 | |
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 June 30, | |
Insurance Carrier | |
2022 | | |
2021 | |
LTC Global | |
| 30 | % | |
| - | % |
Priority Health | |
| 20 | % | |
| 31 | % |
BlueCross BlueShield | |
| - | % | |
| 28 | % |
Insurance Carrier | |
2022 | | |
2021 | |
| |
For the six months ended June 30, | |
Insurance Carrier | |
2022 | | |
2021 | |
BlueCross BlueShield | |
| 10 | % | |
| 25 | % |
Priority Health | |
| 25 | % | |
| 33 | % |
LTC Global | |
| 28 | % | |
| - | % |
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 six months ended June 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 June 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 June 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 40,402 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 June
30, 2022 was $2,537,061 and a loss of $412,943, 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 six months ended June 30, 2022 and 2021:
SCHEDULE OF PRO FORMA INFORMATION
RELATED TO ACQUISITION
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | |
Revenue | |
$ | 8,809,482 | | |
$ | 7,071,329 | |
Net Income (Loss) | |
$ | 19,849,175 | | |
$ | (1,796,767 | ) |
Earnings (Loss) per common share, basic | |
$ | 11.25 | | |
$ | 2.85 | ) |
Earnings (Loss) per common share, diluted | |
$ | 8.85 | ) | |
$ | 2.85 | ) |
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 June 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 June 30,
2022 was $270,321 and a loss of $38,698, 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 six months ended June 30, 2022 and 2021:
SCHEDULE OF PRO FORMA INFORMATION
RELATED TO ACQUISITION
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | |
Revenue | |
$ | 8,990,529 | | |
$ | 5,364,335 | |
Net Income (Loss) | |
$ | 20,070,124 | | |
$ | (1,527,038 | ) |
Earnings (Loss) per common share, basic | |
$ | 11.40 | | |
$ | (2.40 | ) |
Earnings (Loss) per common share, diluted | |
$ | (8.70 | ) | |
$ | (2.40 | ) |
NOTE
3. GOODWILL AND OTHER INTANGIBLE ASSETS
The
following table rolls forward the Company’s goodwill balance for the periods ending June 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 | |
June 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 June 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 | |
| 4.9 | | |
$ | 2,142,858 | | |
$ | (804,020 | ) | |
$ | 1,338,838 | |
Internally developed software | |
| 4.5 | | |
| 1,326,158 | | |
| (131,655 | ) | |
| 1,194,503 | |
Customer relationships | |
| 9.53 | | |
| 11,922,290 | | |
| (1,517,174 | ) | |
| 10,405,116 | |
Purchased software | |
| - | | |
| 562,327 | | |
| (562,327 | ) | |
| - | |
Video Production Assets | |
| 0.6 | | |
| 50,000 | | |
| (23,242 | ) | |
| 26,758 | |
Non-competition agreements | |
| 2.4 | | |
| 3,504,810 | | |
| (1,827,590 | ) | |
| 1,677,220 | |
Contracts Backlog | |
| 0.5 | | |
| 210,000 | | |
| (100,684 | ) | |
| 109,316 | |
| |
| | | |
$ | 19,718,443 | | |
$ | (4,966,692 | ) | |
$ | 14,751,751 | |
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 June 30, 2022, for each of the following five years and thereafter:
SCHEDULE
OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS
Years ending December 31, | |
Amortization Expense | |
2022 (remainder of year) | |
$ | 1,374,512 | |
2023 | |
| 2,461,552 | |
2024 | |
| 2,083,450 | |
2025 | |
| 1,703,824 | |
2026 | |
| 1,463,747 | |
Thereafter | |
| 5,664,666 | |
Total | |
$ | 14,751,751 | |
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
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, net of deferred financing costs of $13,497 and $14,606 as of June 30, 2022 and December 31, 2021, respectively | |
$ | 455,391 | | |
$ | 485,317 | |
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, net of deferred financing costs of $16,351 and $17,626 as of June 30, 2022 and December 31, 2021, respectively | |
| 738,547 | | |
| 785,826 | |
Oak Street Funding LLC Term Loan for the acquisition of SWMT, net of deferred financing costs of $10,085 and $11,027 as of June 30, 2022 and December 31, 2021, respectively | |
| 835,376 | | |
| 884,720 | |
Oak Street Funding LLC Term Loan for the acquisition of FIS, net of deferred financing costs of $39,752 and $42,660 as of June 30, 2022 and December 31, 2021, respectively | |
| 2,103,885 | | |
| 2,226,628 | |
Oak Street Funding LLC Term Loan for the acquisition of ABC, net of deferred financing costs of $45,369 and $48,609 as of June 30, 2022 and December 31, 2021, respectively | |
| 3,427,614 | | |
| 3,616,754 | |
Oak Street Funding LLC Term Loan for the acquisition of Barra, net of deferred financing costs of $208,901 and $0 as of June 30, 2022 and December 31, 2021, respectively | |
| 6,311,099 | | |
| - | |
| |
| 13,871,912 | | |
| 7,999,245 | |
Less: current portion | |
| (936,263 | ) | |
| (913,920 | ) |
Long-term debt | |
$ | 12,935,649 | | |
$ | 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) | |
$ | 438,616 | |
2023 | |
| 1,228,897 | |
2024 | |
| 1,542,156 | |
2025 | |
| 1,656,383 | |
2026 | |
| 1,776,385 | |
Thereafter | |
| 7,563,428 | |
Total | |
| 14,205,865 | |
Less: debt issuance costs | |
| (333,953 | ) |
Total | |
$ | 13,871,912 | |
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 June 30, 2022 and December 31, 2021, respectively were $376,647 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 an aggregate of up to 651,997 shares of the Company’s common stock, par value $0.086 per share at
an exercise price of $61.35 per share, (ii) an aggregate of 178,059 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 147,939 shares of Common Stock at a conversion price of $61.35 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
$12,322,737 and $24,748,163 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 six months ended June 30, 2022, respectively, related
to the subsequent changes in its fair value through June 30, 2022. A corresponding derivative liability of $10,757,945 is included on
Company’s condensed consolidated balance sheet as of June 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 16,303 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 $61.35 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 $310,514 and losses of $268,948, 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 six months ended June 30, 2022, respectively, A corresponding derivative liability of $268,948 is included on Company’s
condensed consolidated balance sheet as of June 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. These shares remain issued and outstanding as of June 30, 2022.
The
Series B convertible preferred stock has no voting rights and initially each share of Series B convertible preferred stock may be converted
into 16 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.
Common
Stock
The
Company has been authorized to issue 133,333,333 shares
of common stock, $0.086 par
value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder
meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all
dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation
upon liquidation or dissolution.
In
January 2022, the Company issued 178,059 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 40,402 shares of common stock pursuant to the Medigap Acquisition.
In
January 2022, upon agreement with Series A warrant holders, 25,000 warrants were exercised at a price of $99.00 into 25,000 of the Company’s
common stock.
In
March 2022, the Company issued 400 shares of the Company’s common stock due to the vesting of 400 stock awards pursuant to
an employee agreement.
In
May and June 2022, 218,462 Series C prepaid warrants were exchanged for 218,462 shares of the Company’s common stock.
As
of June 30, 2022 and December 31, 2021, there were 974,268 and 730,407 shares of Common Stock outstanding, respectively.
Warrants
Series
A warrant holders exercised 25,000 Series A warrants in January 2022, resulting in 113,000 of Series A warrants remaining issued and
outstanding as of June 30, 2022.
In
January 2022, as a result of the issuance of common stock in the January 2022 stock offering and the Medigap Acquisition, the Company
received a deficiency notification from Nasdaq indicating violation of Listing Rule 5365(a). As part of its remediation plan, in March
2022, the Company entered into Exchange Agreements with the holders of common stock issued in January 2022. Pursuant to the Exchange
Agreements, the Company issued 218,462 Series C prepaid warrants in exchange for 218,462 shares of the Company’s common stock.
Additionally, as compensation for entering into the Exchange Agreements, the Company issued 81,500 Series D prepaid warrants to the
January 2022 stock offering investors for no additional consideration. The fair value of the Series D prepaid warrants was treated as
a deemed dividend and accordingly was 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.
In
May and June 2022, the 218,462 Series C prepaid warrants were converted for 218,462 shares of the Company’s common stock for
an exercise price of $0.001. Through June 30, 2022, the Company has received payments of $1,336 from one investor for these
issuances.
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. For the three and six months ended June 30, 2022, compensation
expense on these grants totaled $100,000 and $766,250, respectively. As of June 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 4,000 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 six months ended June 30, 2022, compensation expense on this grant was $70,721. As of June
30, 2022, no shares were issued under this contract.
NOTE
7. EARNINGS (LOSS) PER SHARE
Basic 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 | |
| |
June 30, 2022 | | |
June 30, 2021 | |
Net income (loss), numerator, basic and diluted computation | |
$ | 10,495,691 | | |
$ | (1,276,886 | ) |
| |
| | | |
| | |
Weighted average shares - denominator basic computation | |
| 1,069,157 | | |
| 728,966 | |
Effect of stock awards | |
| 2,128 | | |
| - | |
Effect of Series B warrant liability | |
| | | |
| | |
Effect of preferred stock | |
| 147,939 | | |
| - | |
Weighted average shares, as adjusted - denominator diluted computation | |
| 1,219,224 | | |
| 728,966 | |
Earnings (loss) per common share – basic | |
$ | 9.82 | | |
$ | (1.75 | ) |
Earnings (loss) per common share – diluted | |
| 8.61 | | |
| (1.75 | ) |
| |
Six Months | | |
Six Months | |
| |
Ended | | |
Ended | |
| |
June 30, 2022 | | |
June 30, 2021 | |
Net income (loss) | |
$ | 19,835,692 | | |
$ | (1,890,812 | ) |
Deemed dividend | |
| (6,930,335 | ) | |
| - | |
Net income (loss), numerator, basic computation | |
| 12,905,357 | | |
| (1,890,812 | ) |
Recognition and change in fair value of warrant liability | |
| (26,625,915 | ) | |
| - | |
Net income (loss), numerator, diluted computation | |
$ | (13,720,558 | ) | |
$ | (1,890,812 | ) |
| |
| | | |
| | |
Weighted average shares - denominator basic computation | |
| 1,025,108 | | |
| 617,316 | |
Effect of Series B warrant liability | |
| 43,128 | | |
| - | |
Weighted average shares, as adjusted - denominator diluted computation | |
| 1,068,236 | | |
| 617,316 | |
Earnings (loss) per common share - basic | |
$ | 12.59 | | |
$ | (3.06 | ) |
Earnings (loss) per common share - diluted | |
$ | (12.84 | ) | |
$ | (3.06 | ) |
Additionally,
the following are considered anti-dilutive securities excluded from weighted-average shares used to calculate diluted net loss per common
share:
SCHEDULE
OF ANTI-DILUTIVE SECURITIES IN WEIGHTED AVERAGE SHARES
| |
| | | |
| | |
| |
For the Three Months Ended | |
| |
June 30, 2022 | | |
June 30, 2021 | |
Shares subject to outstanding common stock options | |
| 10,928 | | |
| 10,928 | |
Shares subject to outstanding Series A warrants | |
| 113,000 | | |
| 138,000 | |
Shares subject to unvested stock awards | |
| - | | |
| 3,072 | |
Shares subject to warrant liability | |
| 668,299 | | |
| - | |
| |
| | | |
| | |
| |
For the six months ended | |
| |
June 30, 2022 | | |
June 30, 2021 | |
Shares subject to outstanding common stock options | |
| 10,928 | | |
| 10,928 | |
Shares subject to outstanding Series A warrants | |
| 113,000 | | |
| 138,000 | |
Shares subject to conversion of Series B preferred stock | |
| 147,939 | | |
| - | |
Shares subject to unvested stock awards | |
| 4,621 | | |
| 3,072 | |
Weighted-average anti-dilutive securities | |
| 4,621 | | |
| 3,072 | |
NOTE
8. LEASES
Operating
lease expense for the three months ended June 30, 2022 and 2021 was $156,750 and $43,931 respectively. Operating lease expense for the
six months ended June 30, 2022 and 2021 was $275,174 and $112,199 respectively. As of June 30, 2022, the weighted average remaining lease
term and weighted average discount rate for the operating leases were 4.01 years and 5.76% 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 | |
$ | 303,256 | |
2023 | |
| 546,275 | |
2024 | |
| 253,908 | |
2025 | |
| 144,124 | |
2026 | |
| 113,738 | |
Thereafter | |
| 268,202 | |
Total undiscounted operating lease payments | |
| 1,629,503 | |
Less: Imputed interest | |
| (169,978 | ) |
Present value of operating lease liabilities | |
$ | 1,459,525 | |
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 June 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 inclusive of accumulated accretion for the respective period
ended June 30, 2022 and December 31, 2021:
SCHEDULE
OF EARN-OUT LIABILITY
| |
CCS | | |
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 | |
| | | |
| | | |
| (326,935 | ) | |
| (84,473 | ) | |
| | | |
| | | |
| (411,408 | ) |
Changes due to fair value adjustments | |
| - | | |
| 32,620 | | |
| 37,741 | | |
| - | | |
| 334,602 | | |
| (50,000 | ) | |
| 354,963 | |
Ending balance June 30, 2022 | |
$ | - | | |
$ | 547,928 | | |
$ | 326,775 | | |
$ | 908,395 | | |
$ | 2,024,335 | | |
$ | 550,000 | | |
$ | 4,357,433 | |
| |
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 | |
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
The
term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management,
including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
The Company determined it had a material weakness in its disclosure controls and procedures as it pertains to earnings
per share (EPS) for the three and six months ended June 30, 2022. During the quarter ended March 31, 2023, the Company mitigated this
deficiency by consulting with qualified advisors that have in-depth EPS expertise. These advisors will assist the Company in the calculations
and disclosures of EPS for future reporting periods. Pursuant to the above, our Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022, concluding them to be ineffective as of such
date.
Changes
in Internal Control over Financial Reporting
There
have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Item
6. Exhibits
The
following exhibits are filed with this Form 10-K.
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Reliance
Global Group, Inc. |
|
|
|
Date:
May 18, 2023 |
By:
|
/s/
Ezra Beyman |
|
|
Ezra
Beyman |
|
|
Chief
Executive Officer
(principal
executive officer) |
Date: May 18, 2023 |
By: |
/s/
Joel Markovits |
|
|
Joel Markovits |
|
|
Chief Financial Officer |
|
|
(principal financial officer and principal accounting
officer) |