Reliance Global Group, Inc. - Quarter Report: 2023 March (Form 10-Q)

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 March 31, 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)

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:

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.

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 May 18, 2023, the registrant had 1,631,048 shares of common stock, par value $0.086 per share, outstanding.

TABLE OF CONTENTS

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

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)

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)

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)

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)

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.

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 March 31, 2023, the Company’s reported cash and restricted cash aggregated balance was approximately $3,554,000, current assets were approximately $4,708,000, while current liabilities were approximately $5,451,000. As of March 31, 2023, the Company had a working capital deficit of approximately $742,000 and stockholders’ equity of approximately $12,236,000. For the three months ended March 31, 2023, the Company reported loss from operations of approximately $893,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $4,266,000, resulting in net income from continuing operations of approximately $2,984,000, a loss from discontinued operations of approximately $4,772,000, resulting in an overall net loss of approximately $1,789,000. For the three months ended March 31, 2023, the Company reported negative cash flows from continuing and discontinued operations of approximately $1,065,000. 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

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

The following reconciles fair value of the liability classified warrants:

SCHEDULE OF RECONCILES WARRANT COMMITMENT 

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

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

Undiscounted remaining earn out payments were approximately $2,123,442 as of March 31, 2023. The following table reconciles fair value of earn-out liabilities for the periods ended March 31, 2023 and December 31, 2022:

 SCHEDULE OF GAIN OR LOSSES RECOGNIZED FAIR VALUE

Revenue Recognition

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

SCHEDULE OF DISAGGREGATION REVENUE

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

SCHEDULE OF CONCENTRATIONS OF REVENUES 

No other single customer accounted for more than 10% of the Company’s commission revenues. The loss of any significant customer could have a material adverse effect on the Company.

Income Taxes

The Company recorded no income tax expense for the three months ended March 31, 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 March 31, 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 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. Aside for retaining certain assets of Medigap that have continued use to the Company, Medigap’s assets were considered impaired and the Company recognized a net of estimated liability adjustments loss of $4.4 million, presented in discontinued operations in the consolidated statement of operations for the period ended March 31, 2023. 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.

Recently Issued Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.

NOTE 2. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table rolls forward the Company’s goodwill balance for the periods ending March 31, 2023 and December 31, 2022.

 SCHEDULE OF IMPAIRMENT OF GOODWILL

The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of March 31, 2023:

 SCHEDULE OF INTANGIBLE ASSETS AND WEIGHTED-AVERAGE REMAINING AMORTIZATION PERIOD

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, 2022:

The following table reflects expected amortization expense as of March 31, 2023, for each of the following five years and thereafter:

 SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS

NOTE 3. LONG-TERM DEBT AND SHORT-TERM FINANCINGS

Long-Term Debt

The composition of the long-term debt follows:

 SCHEDULE OF LONG TERM DEBT

Oak Street Funding LLC – Term Loans and Credit Facilities

 SCHEDULE OF CUMULATIVE MATURITIES OF LONG -TERM LOANS AND CREDIT FACILITIES

Short-Term Financings

The Company has various short-term notes payable for financed items such as insurance premiums and CRM software purchases. Total financed for the quarters ended March 31, 2023, and 2022, respectively, was approximately $154,000 and $0. These are normally paid in equal installments over a period of twelve months or less and carry interest rates ranging between 0% and 8% per annum. As of March 31, 2023 and 2022, respectively, approximately $38,000 and $0 remained outstanding on short-term financings.

NOTE 4. WARRANT LIABILITIES

Series B Warrants

Pursuant to the terms of the SPA, during the quarter ended March 31, 2023, the Series B Warrants’ effective exercise price reset to $3.55. As of March 31, 2023, there remain 1,331,667 Series B Warrants outstanding.

For the periods ended March 31, 2023 and 2022, net fair value gains and losses recognized for the Series B Warrants were $4,226,950 and $12,425,426 respectively, presented in the recognition and change in fair value of warrant liabilities account in the consolidated statements of operations. The Series B Warrant liability outstanding as of March 31, 2023 and December 31, 2022 was $2,157,300 and $6,384,250 respectively, presented in the warrant liability account on the consolidated balance sheets.

Placement Agent Warrants

For the periods ended March 31, 2023 and 2022, net fair value gains and losses recognized for the Placement Agent Warrants (“PAW”) were, a gain of $39,281 and a loss of $579,463, respectively, presented in the recognition and change in fair value of warrant liabilities account in the consolidated statements of operations. The PAW liability outstanding as of March 31, 2022 and December 31, 2022 was $9,619 and $48,900, respectively, presented in the warrant liability account on the consolidated balance sheets.

NOTE 5. EQUITY

Common Stock

The Company is authorized to issue 133,333,333 shares of common stock, $0.086 par value. Each share of issued and outstanding common stock 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.

On February 23, 2023, pursuant to authority granted by the Board of Directors of the Company, the Company implemented a 1-for-15 reverse split of the Company’s authorized and issued and outstanding common stock (the “Reverse Split-2023”). The par value remains unchanged. All share and per share information as well as common stock and additional paid-in capital have been retroactively adjusted to reflect the Reverse Split-2023 for all periods presented, unless otherwise indicated. The split resulted in a rounding addition of approximately 15,300 shares valued at par, totaling $1,300.

In March of 2023 Yes Americana, a related party, converted $645,000 of outstanding debt into 66,743 shares of the Company’s common stock. The conversion considered the fair market value of the stock on the day of conversion of $9.67 for the total of 66,743 shares.

In March of 2023 the company issued 155,038 shares of the Company’s common stock in conjunction with the Private Placement-2023 as defined and discussed further below.

As of March 31, 2023 and December 31, 2022, there were 1,566,048 and 1,219,573 shares of Common Stock outstanding, respectively.

Warrants

Series A Warrants

In conjunction with the Company’s initial public offering, the Company issued 138,000 Series A Warrants which were classified as equity warrants because of provisions, pursuant to the warrant agreement, that permit the holder obtain a fixed number of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge. The warrants were recorded at a value per the offering of $0.15. The warrants may be exercised at any point from the effective date until the 5-year anniversary of issuance and are not subject to standard antidilution provisions. The Series A Warrants are exercisable at a per share exercise price equal to 110% of the public offering price of one share of common stock and accompanying Series A Warrant, or $99.00. 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 March 31, 2023.

Series E and F Warrants

On March 13, 2023, the Company entered into a securities purchase agreement (the “SPA-2023”) with one institutional buyer for the purchase and sale of, (i) an aggregate of 155,038 shares (the “Common Shares”) of the Company’s common stock, par value $0.086 per share (the “Common Stock”) along with accompanying common warrants (the “Common Units”), (ii) prefunded warrants (the “Prefunded Warrants” or “Series E Warrants”) that are exercisable into 897,594 shares of Common Stock (the “Prefunded Warrant Shares”) along with accompanying common warrants (the “Pre-Funded Units”), and (iii) common warrants (the “Common Warrants” or “Series F Warrants”) to initially acquire up to 2,105,264 shares of Common Stock (the “Common Warrant Shares”) (representing 200% of the Common Shares and Prefunded Warrant Shares) in a private placement offering (the “Private Placement-2023”). Additionally, the Company agreed to issue a warrant to the Placement Agent (defined below), to initially acquire 52,632 shares of common stock (the “PA Warrant”) and entered into a registration rights agreement with the buyer to register for resale the common shares underlying the Series E and F Warrants.

The aggregate purchase price for the Common Shares, Prefunded Warrants (Series E Warrants) and the Common Warrants (Series F Warrants) to be purchased by the Buyer shall be equal to (i) $3.80 for each Common Unit purchased by such Buyer, or (ii) $3.799 for each Prefunded Unit purchased by the Buyer, which Prefunded Warrants are exercisable into Prefunded Warrant Shares at the initial Exercise Price (as defined in the Prefunded Warrant) of $0.001 per Prefunded Warrant Share in accordance with the Prefunded Warrant.

The Common Warrant (Series F) has an exercise price of $3.55 per share, subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the date of the Private Placement-2023. The Common Warrant will be exercisable six months following the date of issuance and will expire five and a half years from the date of issuance.

The PA Warrant has an exercise price of $3.91 per share, subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the date of the SPA-2023. The PA Warrant will be exercisable six months following the date of issuance and will expire five years from the date of issuance.

The closing of the Private Placement-2023 occurred on March 16, 2023. EF Hutton, a division of Benchmark Investments, LLC (the “Placement Agent”) acted as the sole placement agent and was entitled to an 8% of gross proceeds cash fee and the reimbursement of certain Placement Agent fees and customary expenses.

Gross and net proceeds to the Company from the Private Placement-2023 were approximately $4 million and $3.4 million respectively, to be utilized primarily for general working capital and administrative purposes. Direct financing fees approximated $553,000.

The Company determined the Series E Warrants, Series F Warrants, and PA Warrants are equity in nature because of provisions, pursuant to the warrant agreements, that permit the holder to obtain a fixed number of shares for a fixed monetary amount. The values offset to $0 in additional paid-in capital in the Company’s condensed consolidated statements of stockholders’ equity (deficit).

Equity -based Compensation 

During the period ending March 31, 2023, an executive was awarded an annual stock award in conjunction with a promotion agreement, consisting of 2,667 shares of the Company’s common stock per annum, to vest monthly throughout the term of employment. For three months ended March 31, 2023, total stock compensation for this award is valued at approximately, $5,842, recorded as stock-based compensation.

Total stock-based compensation expense recorded in general and administrative expenses in the condensed consolidated statements of operations for the periods ended March 31, 2023 and 2022 was $43,797 and $739,960, respectively. 

NOTE 6. EARNINGS (LOSS) PER SHARE

Basic earnings per common share (“EPS”) applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding.

If there is a loss from operations, diluted EPS is computed in the same manner as basic EPS is computed. Similarly, if the Company has net income but its preferred dividend adjustment made in computing income available to common stockholders results in a net loss available to common stockholders, diluted EPS would be computed in the same manner as basic EPS.

The following calculates basic and diluted EPS:

 SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS