UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from _____ to _____
Commission
File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(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 | ||
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The
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The
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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.
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).
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 ☐ |
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Smaller
reporting company
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Emerging
growth company
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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 November 7, 2024, the registrant had shares of common stock, par value $ per share, outstanding.
TABLE OF CONTENTS
| PART I | |
| Item 1. Financial Statements | 3 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 20 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 28 |
| Item 4. Controls and Procedures. | 28 |
| PART II | |
| Item 1. Legal Proceedings. | 29 |
| Item 1A. Risk Factors. | 29 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 29 |
| Item 3. Defaults Upon Senior Securities. | 30 |
| Item 4. Mine Safety Disclosures. | 30 |
| Item 5. Other Information. | 30 |
| Item 6. Exhibits | 30 |
| 2 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) |
(Audited) |
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| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ |
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$ |
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| Restricted cash |
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| Accounts receivable |
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| Accounts receivable, related parties |
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| Other receivables |
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| Prepaid expense and other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Right-of-use assets, operating leases |
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| Intangibles, net |
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| Goodwill |
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| Other non-current assets |
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| Total assets | $ |
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$ |
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| Current liabilities: | ||||||||
| Accounts payable and other accrued liabilities | $ |
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$ |
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| Short term financing agreements |
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| Current portion of loans payables, related parties |
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| Other payables |
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| Current portion of long-term debt |
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| Current portion of leases payable, operating leases |
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| Earn-out liability, current portion |
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| Total current liabilities |
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| Loans payable, related parties, less current portion |
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| Long term debt, less current portion |
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| Leases payable, less current portion, operating leases |
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| Warrant liabilities |
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| Total liabilities |
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| Stockholders’ equity | ||||||||
| Preferred stock, $ par value; shares authorized and issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value; shares authorized and and issued and outstanding as of September 30, 2024 and December 31, 2023, respectively |
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| Additional paid-in capital |
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| Accumulated deficit |
(
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(
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity | $ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
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| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Commission income | $ |
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$ |
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$ |
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$ |
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| Total revenue |
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| Operating expenses | ||||||||||||||||
| Commission expense |
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| Salaries and wages |
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| General and administrative expenses |
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| Marketing and advertising expenses |
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| Change in estimated acquisition earn-out payables |
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| Depreciation and amortization |
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| Asset impairments |
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| Total operating expenses |
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| Loss from operations |
(
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(
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(
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| Other income (expense) | ||||||||||||||||
| Interest expense |
(
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| Interest (expense) related parties |
(
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| Other income (expense), net |
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| Recognition and change in fair value of warrant liabilities |
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| Total other (expense) income |
(
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(
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| Loss from continuing operations before tax |
(
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(
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) | $ |
(
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(
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| Loss from discontinued operations before tax |
(
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| Net loss |
$ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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| Basic loss per share | ||||||||||||||||
| Continuing operations | $ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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| Discontinued operations | $ |
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$ | $ |
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$ |
(
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) | ||||||||
| Basic loss per share | $ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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| Diluted loss per share | ||||||||||||||||
| Continuing operations | $ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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| Discontinued operations | $ | $ | $ | $ |
(
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| Diluted loss per share | $ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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| Weighted average number of shares outstanding - Basic |
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| Weighted average number of shares outstanding - Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
Reliance Global Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| Common Stock |
Additional Paid-in |
Accumulated | ||||||||||||||||||
| Shares | Amount | capital | Deficit | Total | ||||||||||||||||
|
Balance, December 31, 2023 (Audited) |
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$ |
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$ |
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$ |
(
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) | $ |
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| Common share payments for earn-outs |
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| Common shares issued for ATM share sales |
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| Common shares issued for abeyance share conversions |
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(
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| Common share-based compensation |
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| Net loss | - |
(
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(
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| Balance, March 31, 2024 |
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$ |
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$ |
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$ |
(
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) | $ |
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| Common share payments for earn-outs |
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(
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| Common shares issued for ATM share sales |
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| Common shares issued for abeyance share conversions |
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(
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| Common shares issued for Series B warrants |
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| Common shares issued for Series G warrants |
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(
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| Common share-based compensation |
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| Common shares issued for services |
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| Net loss | - |
(
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(
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| Balance, June 30, 2024 |
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$ |
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$ |
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$ |
(
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) | $ |
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| Common shares issued for ATM share sales |
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| Common share-based compensation |
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| Common shares issued for reverse stock split round up |
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(
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| Net loss | - |
(
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(
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| Balance, September 30, 2024 |
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$ |
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$ |
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$ |
(
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) | $ |
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| 5 |
| Common Stock |
Additional Paid-in |
Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
|
Balance, December 31, 2022 (Audited) |
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$ |
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$ |
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$ |
(
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) | $ |
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| Common share payments for earn-outs |
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| Common share payments for related party convertible debt |
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| Common shares issued for reverse stock split round up |
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(
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| Common shares issued in 2023 private placement |
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| Common share-based compensation | - |
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| Net loss | - |
(
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(
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| Balance, March 31, 2023 |
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$ |
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$ |
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$ |
(
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) | $ |
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| Common shares issued for services |
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| Common share payments for earn-outs |
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| Common shares issued for vested stock awards |
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(
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| Common share-based compensation | - |
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| Net loss | - |
(
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(
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) | |||||||||||||||
| Balance, June 30, 2023 |
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$ |
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$ |
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$ |
(
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) | $ |
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| Common share payments for earn-outs |
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| Common shares issued for vested stock awards |
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| Share-based compensation | - |
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| Common shares issued for services |
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| Series B warrant exercise |
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| Net loss | - |
(
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) |
(
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| Balance, September 30, 2023 |
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$ |
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$ |
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$ |
(
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) | $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
Reliance Global Group, Inc. and Subsidiaries and Predecessor
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
Nine
Months Ended
September 30, |
||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ |
(
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) | $ |
(
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) | ||
| Adjustment to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation and amortization |
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| Asset impairments |
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| Amortization of debt issuance costs and accretion of debt discount |
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| Non-cash lease expense (income) |
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(
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| Equity based compensation expense |
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| Equity based payments to service providers |
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| Recognition and change in fair value of warrant liability |
(
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(
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) | ||||
| Earn-out fair value and write-off adjustments |
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| Change in operating assets and liabilities: | ||||||||
| Accounts receivable |
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(
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| Accounts receivable, related parties |
(
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(
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| Other receivables |
(
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| Prepaid expense and other current assets |
(
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| Other non-current assets |
(
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| Accounts payable and other accrued liabilities |
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| Other payables |
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(
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| Net cash used in continuing operating activities |
(
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(
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| Net cash adjustments for discontinued operating activities |
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| Total net cash used in continuing and discontinued operating activities |
(
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(
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| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of investment in NSURE |
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| Purchase of property and equipment |
(
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(
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| Purchase of intangibles |
(
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(
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| Net cash (used in) provided by investing activities |
(
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| Total net cash (used in) provided by investing activities |
(
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| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Principal repayments of debt |
(
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(
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| Proceeds from short term financings |
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| Principal repayments of short term financings |
(
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(
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| Payments of loans payable, related parties |
(
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(
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| Payments of earn-out liabilities |
(
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| Payments of convertible debt, related parties |
(
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| Proceeds from common shares issued through an at the market offering |
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| Private Placement of shares and warrants |
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| Net cash provided by continuing financing activities | $ |
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$ |
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| Net cash used in discontinued financing activities |
(
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| Total net cash provided by continuing and discontinued financing activities |
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| Net (decrease) increase in cash and restricted cash |
(
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| Cash and restricted cash at beginning of year |
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| Cash and restricted cash at end of year | $ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
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 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, 2023 (the “Form 10-K”), as the same may be amended from time to time. Capitalized terms not defined in this Quarterly Report on Form 10-Q refer to capitalized terms as defined in the Form 10-K. Certain prior period accounts and balances in these unaudited condensed consolidated financial statements and notes thereto may have been reclassified to conform to the current period’s presentation.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Liquidity
As
of September 30, 2024, the Company’s reported cash and restricted cash aggregated balance was approximately $
Although there can be no assurance that debt or equity financing will be available on acceptable terms, or at all, 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 unaudited 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.
| 8 |
Cash and Restricted Cash
Cash and restricted cash (restricted for debt service coverage) reported on our condensed consolidated balance sheets are reconciled to the total shown on our condensed consolidated statements of cash flows as follows:
| September 30, 2024 | September 30, 2023 | |||||||
| Cash | $ |
|
$ |
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||||
| Restricted cash |
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|
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| Total cash and restricted cash | $ |
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$ |
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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 material Level 3 warrant liabilities at the balance sheet date, or at interim dates as applicable for warrant exercise transactions that may have occurred, using a binomial option pricing model which includes, amongst others, significant unobservable inputs such as, stock price, volatility, term, dividend yield and risk free rate.
The following reconciles fair value of the liability classified warrants:
| Series B Warrant Liabilities | Placement Agent Warrants | Total | ||||||||||
| Beginning balance, December 31, 2023 | $ |
|
$ |
|
$ |
|
||||||
| Unrealized gain |
(
|
) |
(
|
) | ||||||||
| Warrants exercised or exchanged | ||||||||||||
| Ending balance, March 31, 2024 | $ |
|
$ |
|
$ |
|
||||||
| Unrealized gain |
(
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) |
(
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) | ||||||||
| Warrants exercised or exchanged |
(
|
) |
(
|
) | ||||||||
| Ending balance, September 30, 2024 | $ | $ |
|
$ |
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|||||||
Earn-out liabilities: The Company utilizes two valuation methods to value its material Level 3 earn-out liabilities, (a) the income valuation approach, and (b) the Monte Carlo simulation method. Key valuation and unobservable inputs for the income valuation approach include contingent payment arrangement terms, projected revenues and cash flows, rates of return, discount rates and probability assessments. The Monte Carlo simulation method, includes key valuation and unobservable inputs such as, but not limited to, WACC, Volatility, Credit spread, discount rates and stock price.
| 9 |
The following table reconciles fair value of earn-out liabilities for the periods ended September 30, 2024, and December 31, 2023:
| September 30, 2024 | December 31, 2023 | |||||||
| Beginning balance – January 1 | $ |
|
$ |
|
||||
| Acquisitions and settlements |
(
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) | ||||||
| Period adjustments: | ||||||||
| Fair value changes included in earnings * |
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||||||
| Earn-out payable in common shares |
(
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) |
(
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) | ||||
| Earn-outs paid or transferred to loans payable, related parties |
(
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) |
(
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) | ||||
| Ending balance |
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|||||||
| Less: Current portion |
(
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) | ||||||
| Ending balance, less current portion | $ | $ | ||||||
| * |
|
Revenue Recognition
The following table disaggregates the Company’s revenue by line of business, showing commissions earned:
| Nine Months Ended September 30, 2024 | Medical | Life | Property and Casualty | Total | ||||||||||||
| Three months ended September 30, 2024 | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Three months ended September 30, 2023 |
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| Nine months ended September 30, 2024 |
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| Nine months ended September 30, 2023 |
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The following are customers representing 10% or more of total revenue:
| Three Months Ended September 30, | ||||||||
| Insurance Carrier | 2024 | 2023 | ||||||
| Priority Health |
|
% |
|
% | ||||
| BlueCross BlueShield |
|
% |
|
% | ||||
| 10 |
| Nine Months Ended September 30, | ||||||||
| Insurance Carrier | 2024 | 2023 | ||||||
| Priority Health |
|
% |
|
% | ||||
| BlueCross BlueShield |
|
% |
|
% | ||||
No other single customer accounted for more than 10% of the Company’s commission revenues during the three and nine months ended September 30, 2024 and 2023. The loss of any significant customer could have a material adverse effect on the Company.
Income Taxes
The
Company recorded
As of September 30, 2024 and December 31, 2023, 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.
Recently Issued Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements not already disclosed in the Form 10-K.
NOTE 2. INTANGIBLE ASSETS
During
the quarter ended March 31, 2024, certain intangible assets stemming from discontinued operations which were originally transferred to
the Company’s operating entity, were determined to have carrying values exceeding fair value, and thus were considered impaired.
These intangible assets consisted of customer relationships, and internally developed and purchased software, with respective net of
accumulated amortization asset values of $
The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of September 30, 2024:
|
Weighted Average Remaining Amortization Period (Years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
| Trade name and trademarks |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Internally developed software |
|
|
(
|
) |
|
||||||||||
| Customer relationships |
|
|
(
|
) |
|
||||||||||
| Purchased software |
|
|
(
|
) |
|
||||||||||
| Non-competition agreements |
|
|
(
|
) |
|
||||||||||
| $ |
|
$ |
(
|
) | $ |
|
|||||||||
| 11 |
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, 2023:
|
Weighted Average Remaining Amortization period (Years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
| Trade name and trademarks |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Internally developed software |
|
|
(
|
) |
|
||||||||||
| Customer relationships |
|
|
(
|
) |
|
||||||||||
| Purchased software |
|
|
(
|
) |
|
||||||||||
| Video production assets | - |
|
(
|
) | |||||||||||
| Non-competition agreements |
|
|
(
|
) |
|
||||||||||
| $ |
|
$ |
(
|
) | $ |
|
|||||||||
The following table reflects expected amortization expense as of September 30, 2024, for each of the following five years and thereafter:
| Years Ending December 31, | Amortization Expense | |||
| 2024 (remaining three months) | $ |
|
||
| 2025 |
|
|||
| 2026 |
|
|||
| 2027 |
|
|||
| 2028 |
|
|||
| Thereafter |
|
|||
| Total | $ |
|
||
| 12 |
NOTE 3. LONG-TERM DEBT AND SHORT-TERM FINANCINGS
Long-Term Debt
The composition of long-term debt, collateralized by certain commission revenues, is as follows:
| September 30, 2024 | December 31, 2023 | |||||||
|
Oak Street Funding LLC Term Loan for the acquisition of EBS and USBA, variable interest of prime rate plus
|
$ |
|
$ |
|
||||
|
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, variable interest of prime rate plus
|
|
|
||||||
|
Oak Street Funding LLC Term Loan for the acquisition of SWMN, variable interest of prime rate plus
|
|
|
||||||
|
Oak Street Funding LLC Term Loan for the acquisition of FIS, variable interest of prime rate plus
|
|
|
||||||
|
Oak Street Funding LLC Term Loan for the acquisition of ABC, variable interest of prime rate plus
|
|
|
||||||
|
Oak Street Funding LLC Term Loan for the acquisition of Barra, variable interest of prime rate plus
|
|
|
||||||
|
|
|
|||||||
| Less: current portion |
(
|
) |
(
|
) | ||||
| Long-term debt | $ |
|
$ |
|
||||
| Years Ending December 31, |
Maturities of Long-Term Debt |
|||
| 2024 (remaining three months) | $ |
|
||
| 2025 |
|
|||
| 2026 |
|
|||
| 2027 |
|
|||
| 2028 |
|
|||
| Thereafter |
|
|||
| Total |
|
|||
| Less: debt issuance costs |
(
|
) | ||
| Total | $ |
|
||
| 13 |
Short-Term Financings
The
Company has various short-term notes payable for financed items such as insurance premiums. These are normally paid in equal installments
over a period of twelve months or less and carry interest rates of
NOTE 4. WARRANT LIABILITIES
Series B Warrants and PAW’s
On
June 18, 2024, the holder of the remaining Series B Warrants exercised all their remaining
For
the three and nine months ended September 30, 2024, net fair value gains and losses recognized for the Series B Warrants and
PAW’s, were gains of $
As
of September 30, 2024, there were
NOTE 5. EQUITY
Common Stock
The Company is authorized to issue shares of common stock, $ par value (the “Common Stock”). Each share of issued and outstanding common stock entitles the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the Company upon liquidation or dissolution.
On
July 1, 2024, the Company effectuated a
During the first quarter of 2024, the Company issued shares through its ATM program, pursuant to abeyance share conversions and shares for equity-based compensation.
During the second quarter of 2024, the Company issued shares through its ATM program, pursuant to abeyance share conversions, shares for equity-based compensation, shares for repayment of an earn-out liability, shares on the exercise of Series B warrants, shares for the exercise of Series G warrants, and shares for service rendered.
During the third quarter of 2024, the Company issued shares through its ATM program and shares for equity-based compensation.
As of September 30, 2024, and December 31, 2023, there were and shares of common stock outstanding, respectively.
| 14 |
Abeyance Shares
During the nine months ended September 30, 2024, upon request from an institutional investor, the Company converted abeyance shares into common stock, thereby issuing common shares, resulting in no further outstanding abeyance shares as of September 30, 2024.
Series G Warrants
Pursuant
to the terms of the Series G Warrants, during the nine months ended September 30, 2024, the Series G Warrant exercise price reset from
$
At Market Program (the “ATM”)
On February 15, 2024, the Company entered into the ATM Agreement with the Agent, pursuant to which the Company may offer and sell, from time to time through the Agent, shares of its common stock having an aggregate maximum offering price as determined by the then in effect prospectus supplement to the base prospectus included in the registration statement (the “ATM Capacity”). Any shares offered and sold in the ATM offering will be issued pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-275190), which was declared effective by the SEC on November 7, 2023, and related prospectus supplements and accompanying base prospectus relating to the ATM offering. Under the Agreement, the Agent may sell shares by any method permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The offering of shares pursuant to the ATM Agreement will terminate upon the earlier of (i) the sale of all of the shares subject to the ATM Agreement, or (ii) the termination of the ATM Agreement by the Agent or the Company, as permitted therein. The Company agreed to pay to the Agent in cash, upon each sale of shares pursuant to the ATM Agreement, an amount equal to 3.5% of the gross proceeds from each such sale. The Company agreed to reimburse the Agent for certain specified expenses in connection with entering into the ATM Agreement.
During
the nine months ended September 30, 2024, the Company sold and issued respectively,
and
shares of common stock under the ATM Agreement,
at an average price of $
,
receiving proceeds, net of $
Subsequent to the third quarter of 2024,
the Company sold an additional
shares of Common Stock under the ATM Agreement, receiving proceeds, net of $
Equity-based Compensation
Total stock-based compensation expense recorded in the unaudited condensed consolidated statements of operations for the three months ended September 30, 2024, and 2023 was $ and $ , respectively. Total stock-based compensation expense recorded in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2024, and 2023 was $ and $ , respectively.
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.
| 15 |
| Three Months Ended | Three Months Ended | |||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Loss from continuing operations | $ |
(
|
) | $ |
(
|
) | ||
| Net loss continuing operations, numerator, basic computation |
(
|
) | $ |
(
|
) | |||
| Recognition and change in fair value of warrant liabilities | ||||||||
| Net loss from continuing operations, numerator, diluted computation | $ |
(
|
) | $ |
(
|
) | ||
| Weighted average common shares, basic |
|
|
||||||
| Effect of Series B Warrants | ||||||||
| Weighted average common shares, dilutive |
|
|
||||||
| Loss per common share – basic | $ |
(
|
) | $ |
(
|
) | ||
| Loss per common share – diluted | $ |
(
|
) | $ |
(
|
) | ||
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Loss from continuing operations | $ |
(
|
) | $ |
(
|
) | ||
| Net Loss continuing operations, numerator, basic computation |
(
|
) | $ |
(
|
) | |||
| Recognition and change in fair value of warrant liabilities | ||||||||
| Net loss from continuing operations, numerator, diluted computation | $ |
(
|
) | $ |
(
|
) | ||
| Weighted average common shares, basic |
|
|
||||||
| Effect of Series B Warrants | ||||||||
| Weighted average common shares, dilutive |
|
|
||||||
| Loss per common share – basic | $ |
(
|
) | $ |
(
|
) | ||
| Loss per common share – diluted | $ |
(
|
) | $ |
(
|
) | ||
| For the Three and Nine Months Ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Shares subject to outstanding common stock options | ||||||||
| Shares subject to outstanding Series A warrants | ||||||||
| Shares subject to outstanding Series B warrants | ||||||||
| Shares subject to outstanding Series E warrants | ||||||||
| Shares subject to outstanding PAW’s | ||||||||
| Shares subject to outstanding Series F warrants |
|
|||||||
| Shares subject to PA Warrants | ||||||||
| Shares subject to unvested stock awards | ||||||||
| 16 |
NOTE 7. LEASES
Operating
lease expense for the three months ended September 30, 2024, and 2023 was $
Future minimum lease payments under these operating leases consisted of the following:
| Fiscal year ending December 31, | Operating Lease Obligations | |||
| 2024 (remaining three months) | $ |
|
||
| 2025 |
|
|||
| 2026 |
|
|||
| 2027 |
|
|||
| 2028 |
|
|||
| Thereafter |
|
|||
| Total undiscounted operating lease payments |
|
|||
| Less: Imputed interest |
|
|||
| Present value of operating lease liabilities | $ |
|
||
NOTE 8. 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
| 17 |
Earn-out liabilities
The
Company, Southwestern Montana Insurance Center, LLC, a Montana limited liability company (the “Subsidiary”), Southwestern
Montana Financial Center, Inc., a Montana corporation (the “Seller”), and Julie A. Blockey (the “Holder”, and
collectively with the Company, Subsidiary, and Seller, the “Parties”) entered into a purchase agreement on or around April
1, 2019 (the “Purchase Agreement”), whereby the Company purchased the business and certain assets noted within the Purchase
Agreement. On September 29, 2023, the Parties entered into a first amendment to the Purchase Agreement (the “First Amendment”).
Pursuant to the First Amendment, the Parties agreed to a total remaining earn-out related balance of $
The following outlines changes to the Company’s earn-out liability balances for the respective periods ended September 30, 2024 and December 31, 2023:
| Fortman | Montana | Altruis | Kush | Barra | Total | |||||||||||||||||||
| Ending balance December 31, 2023 | $ | $ |
|
$ | $ | $ | $ |
|
||||||||||||||||
| Reclassification to loans payable, related parties * |
(
|
) |
(
|
) | ||||||||||||||||||||
| Estimates and fair value adjustments |
|
|
||||||||||||||||||||||
| Payable in common stock |
(
|
) |
(
|
) | ||||||||||||||||||||
| Ending balance September 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Fortman | Montana | Altruis | Kush | Barra | Total | |||||||||||||||||||
| Ending balance December 31, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
| Payments |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||
| Estimates and fair value adjustments |
|
|
|
(
|
) |
|
||||||||||||||||||
| Payable in common stock |
(
|
) |
(
|
) | ||||||||||||||||||||
| Reclassification to loans payable, related parties * |
(
|
) |
(
|
) | ||||||||||||||||||||
| Ending balance December 31, 2023 | $ | $ |
|
$ | $ | $ | $ |
|
||||||||||||||||
| * |
|
Definitive Acquisition Agreements
On May 14, 2024, and as amended on September 6, 2024, the Company entered into a Stock Exchange Agreement (the “Stock Exchange
Agreement”) to acquire Spetner Associates (“Spetner”). Pursuant to the Stock Exchange Agreement, the Company agreed
to: (i) acquire
% of the issued and outstanding shares of common stock, par value $
per share, of Spetner (the “Spetner Common
Stock”) for $
On October 29, 2024, the Company entered into Amendment
No. 1 (the “Amendment”) to the Stock Exchange Agreement. Pursuant to the Amendment, the Company issued to the sellers of Spetner,
shares of Common Stock, as a non-refundable deposit and a prepayment of a portion of the First Purchase Price (as defined in the
Stock Exchange Agreement), in the approximate amount of $
| 18 |
NOTE 9. RELATED PARTY TRANSACTIONS
The following table summarizes the loans payable, related parties current and non-current accounts, as of the periods ended September 30, 2024 and December 31, 2023, and the interest expense related parties account for the three and nine-month periods ended September 30, 2024 and September 30, 2023, as presented on the condensed consolidated balance sheets and condensed consolidated statements of operations, respectively:
| Related Parties Payable | Interest Expense, Related Parties | |||||||||||||||||||||||||||||||
| Current Portion | Long Term Portion |
for the Three
Months Ended |
for the Nine
Months Ended |
|||||||||||||||||||||||||||||
| Related Party | September 30, 2024 | December 31, 2023 | September 30, 2024 | December 31, 2023 | September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||||||||||||||||||||||||
| Payables to Employees | $ |
|
$ |
|
$ | $ | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Deferred Purchase Price Liability |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
| Purchase Agreement Liability |
|
|
|
|
|
|
||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Reliance Global Group, Inc. (the “Company”) operates as a diversified company engaging in business in the insurance market, as well as other related sectors. Our focus is to grow the Company by pursuing an aggressive acquisition strategy, initially and primarily focused upon wholesale and retail insurance agencies.
In the insurance sector, our management has extensive experience acquiring and managing insurance portfolios in several states, as well as developing specialized programs targeting niche markets. Our primary strategy is to identify specific risk to reward arbitrage opportunities and develop these on a national platform, thereby increasing revenues and returns, and then identify and acquire undervalued wholesale and retail insurance agencies with operations in growing or underserved segments, expand and optimize their operations, and achieve asset value appreciation while generating interim cash flows.
As part of our growth and acquisition strategy, we continue to survey the current insurance market for value-add acquisition opportunities. As of September 30, 2024, we had acquired nine insurance agencies.
Over the next 12 months, we plan to focus on the expansion and growth of our business through continued asset acquisitions in insurance markets and organic growth of our current insurance operations through geographic expansion and market share growth. To that end, on May 14, 2024, the Company entered into a Stock Exchange Agreement (the “Stock Exchange Agreement”) to acquire Spetner Associates (“Spetner”), a well-established benefits enrollment company that, through its BenManage benefits enrollment company, is a leading provider of voluntary benefits to over 75,000 employees throughout the United States. Pursuant to the Stock Exchange Agreement, the Company agreed to: (i) acquire 80% of Spetner’s issued and outstanding shares of common stock, par value $1.00 per share (the “Spetner Common Stock”) for $13,714,286 (which amount was to be paid as $5,500,000 in cash, the issuance of certain shares of the Company’s common stock, and the Company’s issuance of a promissory note); and (ii) have the sole option to acquire the remaining 20% of the Spetner Common Stock for a predetermined amount based on a multiple of EBITDA
Further, we launched our 5MinuteInsure.com (“5MI”) Insurtech platform during 2021, which expanded our national footprint. 5MI is a high-tech proprietary tool developed by us as a business to consumer portal which enables consumers to instantly compare quotes from multiple carriers and purchase their car and home insurance in a time efficient and effective manner. 5MI taps into the growing number of online shoppers and utilizes advanced artificial intelligence and data mining techniques, to provide competitive insurance quotes in around 5 minutes with minimal data input needed from the consumer. The platform currently operates in 46 states offering coverage with up to 30 highly rated insurance carriers.
With the acquisition of Barra, we launched RELI Exchange, our business-to-business (“B2B”) InsurTech platform and agency partner network that builds on the artificial intelligence and data mining backbone of 5MinuteInsure.com. Through RELI Exchange we on-board agency partners and provide them with an InsurTech platform white labeled, designed and branded specifically for their business. This combines the best of digital and human capabilities by providing our agency partners and their customers quotes from multiple carriers within minutes. Since its inception, RELI Exchange has increased its agent roster by more than 130%.
Business Operations
We’ve adopted a “OneFirm” strategy, pursuant to which Company owned and operated agencies come together to operate as one cohesive unit, which allows for efficient and effective cross-selling, cross-collaboration, and the effective deployment of the Company’s human capital. This strategy also aims to enhance the Company’s overall market presence across the U.S., with all business lines operating under the RELI Exchange brand. It’s expected to benefit agents and clients by improving relationships with carriers, leading to better commission and bonus contracts due to higher business volumes. The approach also strengthens the capability of RELI Exchange agency partners in securing diverse insurance policies and fosters increased cross-selling opportunities. This unified strategy positions the Company for rapid scaling and integration of accretive acquisitions, expanding its industry reach.
| 20 |
Business Trends and Uncertainties
The insurance intermediary business is highly competitive, and we actively compete with numerous firms for customers and insurance companies, many of which have relationships with insurance companies, or have a significant presence in niche insurance markets that may give them an advantage over us. Other competitive concerns may include the quality of our products and services, our pricing and the ability of some of our customers to self-insure and the entrance of technology companies into the insurance intermediary business. Several insurance companies are engaged in the direct sale of insurance, primarily to individuals, and do not pay commissions to agents and brokers.
Financial Instruments
During the nine months ended September 30, 2024, the Company’s financial instruments consisted of derivative warrants. These were accounted for at fair value as of inception/issuance date, and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, (non-cash) gain or loss. As of June 18, 2024, the majority of the derivative warrants were exercised and as of September 30, 2024 only a nominal immaterial amount remain outstanding.
Insurance Operations
Our insurance operations focus on the acquisition and management of insurance agencies throughout the U.S. Our primary focus is to pinpoint undervalued wholesale and retail insurance agencies with operations in growing or underserved segments (including healthcare and Medicare, as well as personal and commercial insurance lines). We then focus on expanding their operations on a national platform and improving operational efficiencies to achieve asset value appreciation while generating interim cash flows. In the insurance sector, our management team has over 100 years of experience acquiring and managing insurance portfolios in several states, as well as developing specialized programs targeting niche markets. We plan to accomplish these objectives by acquiring wholesale and retail insurance agencies it deems to represent a good buying opportunity (as opposed to insurance carriers) as insurance agencies bear no insurance risk. Once acquired, we plan to develop them on a national platform to increase revenues and profits through a synergetic structure. The Company is initially focused on segments that are underserved or growing, including healthcare and Medicare, as well as personal and commercial insurance lines.
Insurance Acquisitions and Strategic Activities
As of September 30, 2024, we have acquired multiple insurance brokerages (see table below). As our acquisition strategy continues, our reach within the insurance arena can provide us with the ability to offer lower rates, which could boost our competitive position within the industry. In furtherance of this strategy, on May 14, 2024, the Company entered into a Stock Exchange Agreement to acquire Spetner Associates (“Spetner”) for cash, stock and issuance of a promissory note. Spetner is a well-established benefits enrollment company that, through its BenManage benefits enrollment company, is a leading provider of voluntary benefits to over 75,000 employees throughout the United States. Completion of the transaction is subject to standard and stipulated closing.
| 21 |
| Acquired |
Reliance 100% Controlled Entity |
Date | Location | Line of Business | ||||
| U.S. Benefits Alliance, LLC (USBA) | US Benefits Alliance, LLC | October 24, 2018 | Michigan | Health Insurance | ||||
| Employee Benefit Solutions, LLC (EBS) | Employee Benefits Solutions, LLC | October 24, 2018 | Michigan | Health Insurance | ||||
| Commercial Solutions of Insurance Agency, LLC (CCS or Commercial Solutions) | Commercial Coverage Solutions LLC | December 1, 2018 | New Jersey | P&C – Trucking Industry | ||||
| Southwestern Montana Insurance Center, Inc. (Southwestern Montana or Montana) | Southwestern Montana Insurance Center, LLC | April 1, 2019 | Montana | Group Health Insurance | ||||
| Fortman Insurance Agency, LLC (Fortman or Fortman Insurance) | Fortman Insurance Solutions, LLC | May 1, 2019 | Ohio | P&C and Health Insurance | ||||
| Altruis Benefits Consultants, Inc. (Altruis) | Altruis Benefits Corporation | September 1, 2019 | Michigan | Health Insurance | ||||
| UIS Agency, LLC (UIS) | UIS Agency, LLC | August 17, 2020 | New York | P&C – Trucking Industry | ||||
| J.P. Kush and Associates, Inc. (Kush) | Kush Benefit Solutions, LLC | May 1, 2021 | Michigan | Health Insurance | ||||
| Barra & Associates, LLC | RELI Exchange, LLC | April 26, 2022 | Illinois | P&C and Health Insurance |
Recent Developments
Reverse Stock Split
On July 1, 2024, the Company effectuated a 1-for-17 reverse stock split of the Company’s issued and outstanding common stock (the “Reverse Split-2024”). The par value remained 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-2024 for all periods presented, unless otherwise indicated. The Reverse Split-2024 resulted in a rounding addition of approximately 110,350 shares valued at par, totaling $9,490 for which shares were issued in July 2024.
| 22 |
Non-GAAP Measure
The Company believes certain financial measures which meet the definition of non-GAAP financial measures, as defined in Regulation G of the SEC rules, provide important supplemental information. Adjusted EBITDA (“AEBITDA”), our key financial performance metric, is a non-GAAP financial measure that is not in accordance with, or an alternative to, measures prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). “AEBITDA” is defined as earnings before interest, taxes, depreciation, and amortization (EBITDA) with additional adjustments as further outlined below. The Company considers AEBITDA an important financial metric because it provides a meaningful financial measure of the quality of the Company’s operational, cash impacted and recurring earnings and operating performance across reporting periods. Other companies may calculate Adjusted EBITDA differently than we do, which might limit its usefulness as a comparative measure to other companies in the industry. AEBITDA is used by management in addition to and in conjunction (and not as a substitute) with the results presented in accordance with GAAP. Management uses AEBITDA to evaluate the Company’s operational performance, including earnings across reporting periods and the merits for implementing cost-cutting measures. We have presented AEBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations and assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Consistent with Regulation G, a description of such information is provided below herein and tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q under “Results of Operations”.
We exclude the following items when calculating AEBITDA, and the following items define our non-GAAP financial measure AEBITDA:
| ● | Interest and related party interest expense: Unrelated to core Company operations and excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. | |
| ● | Depreciation and amortization: Non-cash charge, excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. | |
| ● | Goodwill and/or asset impairments: Non-cash charge, excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. | |
| ● | Equity-based compensation: Non-cash compensation provided to employees and service providers, excluded to provide more meaningful supplemental information regarding the Company’s core cash impacted operational performance. | |
| ● | Change in estimated acquisition earn-out payables: An earn-out liability is a liability to the seller upon an acquisition which is contingent on future earnings. These liabilities are valued at each reporting period and the changes are reported as either a gain or loss in the change in estimated acquisition earn-out payables account in the consolidated statements of operations. The gain or loss is non-cash, can be highly volatile and overall is not deemed relevant to ongoing operations, thus, it’s excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. | |
| ● | Recognition and change in fair value of warrant liabilities: This account includes changes to derivative warrant liabilities which are valued at each reporting period and could result in either a gain or loss. The period changes do not impact cash, can be highly volatile, and are unrelated to ongoing operations, and thus are excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. | |
| ● | Other income (expense), net: Includes non-routine income or expenses and other individually de minimis items and is thus excluded as unrelated to core operations of the company. | |
| ● | Transactional costs: This includes expenses related to mergers, acquisitions, financings and refinancings, and amendments or modification to indebtedness. These costs are unrelated to primary Company operations and are excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. | |
| ● | Non-recuring costs: This account includes non-recurring non-operational items, related to costs incurred for a legal suit the Company has filed against one of the third parties involved in the discontinued operations and was excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. | |
| ● | Loss from discontinued operations before tax: This account includes the net results from discontinued operations, and since discontinued, are unrelated to the Company’s ongoing operations and thus excluded to provide more meaningful supplemental information regarding the Company’s core operational performance. |
Refer to the reconciliation of net (loss) income to AEBITDA, illustrated below in tabular format.
| 23 |
Results of Operations
RELIANCE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS ANALYTICS
Comparison of the three months ended September 30, 2024 to the three months ended September 30, 2023
| September 30, 2024 | September 30, 2023 | Value Fluctuation | Percent Fluctuation | Explanations | ||||||||||||||
| Commission Income | $ | 3,441,458 | $ | 3,275,583 | $ | 165,875 | 5 | % | Increased commission income primarily driven by sustained organic growth. | |||||||||
| Commission Expense (“CE”) | 902,246 | 796,001 | 106,245 | 13 | % | Increased CE correlated to growth in revenues. | ||||||||||||
| Salaries and wages (“S&W”) | 1,707,737 | 1,803,698 | (95,961 | ) | -5 | % | Decreased S&W’s per OneFirm efficiencies and overall leaner operations. | |||||||||||
| General and administrative expenses (“G&A”) | 821,510 | 1,068,778 | (247,268 | ) | -23 | % | Decreased G&A driven by OneFirm efficiencies and overall leaner operations. | |||||||||||
| Marketing and advertising expenses (“M&A”) | 100,183 | 117,752 | (17,569 | ) | -15 | % | M&A decrease consistent with Company’s current marketing strategy. | |||||||||||
| Change in estimated acquisition earn-out payables | - | 271,569 | (271,569 | ) | -100 | % | Decrease pursuant to the settlement of all earn-out payables. | |||||||||||
| Depreciation and amortization (“D&A”) | 421,759 | 652,839 | (231,080 | ) | -35 | % | Decrease due to impaired intangible assets no longer incurring D&A. | |||||||||||
| Total operating expenses | 3,953,435 | 4,710,637 | (757,202 | ) | -16 | % | ||||||||||||
| - | ||||||||||||||||||
| Loss from operations | (511,977 | ) | (1,435,054 | ) | 923,077 | -64 | % | |||||||||||
| - | ||||||||||||||||||
| Other income (expense) | - | |||||||||||||||||
| Interest expense | (356,320 | ) | (386,562 | ) | 30,242 | -8 | % | Decrease per periodic paydowns on loan balances | ||||||||||
| Interest related parties | (34,802 | ) | (32,475 | ) | (2,327 | ) | 7 | % | Increase per additions to related party payables. | |||||||||
| Other income (expense), net | 65,785 | (310 | ) | 66,095 | -21,321 | % | Increased other income relates primarily to certain non-recurring sales of accounts. | |||||||||||
| Recognition and change in fair value of warrant liabilities | - | 1,715,397 | (1,715,397 | ) | -100 | % | Fluctuation per fair value changes in derivative warrant liabilities and warrants exercised. | |||||||||||
| Total other (expense) income | (325,337 | ) | 1,296,050 | (1,621,387 | ) | -125 | % | |||||||||||
| Net income (loss) | $ | (837,314 | ) | $ | (139,004 | ) | (698,310 | ) | 502 | % | ||||||||
| Non-GAAP Measure | ||||||||||||||||||
| AEBITDA | $ | 42,508 | (200,602 | ) | 243,111 | 121 | % | |||||||||||
| 24 |
RELIANCE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS ANALYTICS
Comparison of the nine months ended September 30, 2024 to the nine months ended September 30, 2023
| September 30, 2024 | September 30, 2023 | Value Fluctuation | Percent Fluctuation | Explanations | ||||||||||||||
| Commission Income | $ | 10,757,238 | $ | 10,410,591 | $ | 346,647 | 3 | % | Increased commission income primarily driven by sustained organic growth. | |||||||||
| Commission Expense | 3,065,152 | 2,708,746 | 356,406 | 13 | % | Increased CE correlated to growth in revenues. | ||||||||||||
| Salaries and wages | 5,494,551 | 5,330,813 | 163,738 | 3 | % | Increased S&W primarily impacted by equity-based pay. | ||||||||||||
| General and administrative expenses | 3,188,033 | 3,031,596 | 156,437 | 5 | % | Increased G&A driven by higher acquisition & legal costs related to M&A activity and regulatory filings. | ||||||||||||
| Marketing and advertising expenses | 304,209 | 364,184 | (59,975 | ) | -16 | % | M&A decrease consistent with Company’s current marketing strategy | |||||||||||
| Change in estimated acquisition earn-out payables | 47,761 | 1,291,494 | (1,243,733 | ) | -96 | % | Decrease pursuant to the settlement of the majority of earn-out payables. | |||||||||||
| Depreciation and amortization | 1,425,700 | 1,962,066 | (536,366 | ) | -27 | % | Decrease due to impaired intangible assets no longer incurring D&A. | |||||||||||
| Asset impairment | 3,922,110 | - | 3,922,110 | 100 | % | Increase due to impairment of certain intangible assets. | ||||||||||||
| Total operating expenses | 17,447,516 | 14,688,899 | 2,758,617 | 19 | % | |||||||||||||
| - | ||||||||||||||||||
| Loss from operations | (6,690,278 | ) | (4,278,308 | ) | (2,411,970 | ) | 56 | % | ||||||||||
| - | ||||||||||||||||||
| Other income (expense) | - | |||||||||||||||||
| Interest expense | (1,091,966 | ) | (1,126,281 | ) | 34,315 | -3 | % | Decrease per periodic paydowns on loan balances | ||||||||||
| Interest related parties | (112,936 | ) | (125,104 | ) | 12,168 | -10 | % | Decrease per periodic paydowns on loan balances | ||||||||||
| Other income, net | 65,807 | 3,650 | 62,157 | 1,703 | % | Increased other income relates primarily to certain non-recurring sales of accounts. | ||||||||||||
| Recognition and change in fair value of warrant liabilities | 156,000 | 4,389,120 | (4,233,120 | ) | -96 | % | Fluctuation per fair value changes in derivative warrant liabilities. | |||||||||||
| Total other (expense) income | (983,095 | ) | 3,141,385 | (4,124,480 | ) | -131 | % | |||||||||||
| Loss from continuing operations before tax | (7,673,373 | ) | (1,136,923 | ) | (6,536,450 | ) | 575 | % | ||||||||||
| Loss from discontinued operations before tax | - | (1,845,904 | ) | 1,845,904 | -100 | % | Discontinued operations did not re-occur during 2024. | |||||||||||
| Net loss | $ | (7,673,373 | ) | $ | (2,982,827 | ) | (4,690,546 | ) | 157 | % | ||||||||
| Non-GAAP Measure | ||||||||||||||||||
| AEBITDA | $ | (209,114 | ) | (467,635 | ) | 258,521 | 55 | % | ||||||||||
| 25 |
Non-GAAP Reconciliation from Net Loss to AEBITDA
The following table provides a reconciliation from net loss to AEBITDA for the three and nine months ended September 30, 2024 and September 30, 2023.
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net loss | $ | (837,314 | ) | $ | (139,004 | ) | $ | (7,673,373 | ) | $ | (2,982,827 | ) | ||||
| Adjustments: | ||||||||||||||||
| Interest and related party interest expense | 391,122 | 419,037 | 1,204,902 | 1,251,385 | ||||||||||||
| Depreciation and amortization | 421,759 | 652,839 | 1,425,700 | 1,962,066 | ||||||||||||
| Asset impairment | - | - | 3,922,110 | - | ||||||||||||
| Share-based compensation to employees, directors and service providers | 62,790 | 201,181 | 551,598 | 396,938 | ||||||||||||
| Change in estimated acquisition earn-out payables | - | 271,569 | 47,761 | 1,291,494 | ||||||||||||
| Other (income) expense, net | (65,785 | ) | 310 | (65,807 | ) | (3,650 | ) | |||||||||
| Transactional costs | 21,813 | 97,700 | 394,909 | 101,500 | ||||||||||||
| Nonrecurring costs | 48,124 | 11,162 | 139,087 | 58,675 | ||||||||||||
| Recognition and change in fair value of warrant liabilities | - | (1,715,397 | ) | (156,000 | ) | (4,389,120 | ) | |||||||||
| (Income) loss from discontinued operations before tax | - | - | - | 1,845,904 | ||||||||||||
| Total adjustments | 879,822 | (61,598 | ) | 7,464,259 | 2,515,192 | |||||||||||
| AEBITDA | $ | 42,508 | $ | (200,602 | ) | $ | (209,114 | ) | $ | (467,635 | ) | |||||
Liquidity and capital resources
As of September 30, 2024, we had a cash balance of approximately $2,354,000 and working capital of approximately $431,000, compared with a cash balance of approximately $2,739,000 and working capital of approximately $1,189,000 at December 31, 2023. During the first quarter of 2024, the Company entered into an At Market Issuance Sales Agreement with EF Hutton LLC as sales agent (the “ATM Agreement”), pursuant to which the Company may offer and sell, from time to time through the sales agent, shares of its common stock having an aggregate offering price as determined by the then in effect prospectus supplement to the base prospectus included in the registration statement (the “ATM Capacity”).
During the nine months ended September 30, 2024, the Company sold and issued respectively 658,088 and 561,131 shares of common stock under the ATM Agreement, at an average price of $4.56, receiving aggregate proceeds, net of $176,509 in agent commissions and legal and other fees, of $2,824,227. As of the date of filing of this Quarterly Report on Form 10-Q, the net remaining ATM Capacity was $902,000.
Inflation
The Company generally may be impacted by rising costs for certain inflation-sensitive operating expenses such as labor, employee benefits, and facility leases. The Company believes inflation could have a material impact on pricing and operating expenses in future periods due to the state of the economy and current inflation rates.
| 26 |
Off-balance sheet arrangements
We did not have any off-balance sheet arrangements, as such term is defined in Regulation S-K, during the nine months ended September 30, 2024.
Cash Flows
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in continuing operating activities | $ | (1,647,881 | ) | $ | (3,833,545 | ) | ||
| Net cash used in continuing and discontinued operating activities | (1,647,881 | ) | (17,307 | ) | ||||
| Net cash (used in) provided by continuing and discontinued investing activities | (58,787 | ) | 718,583 | |||||
| Net cash provided by continuing financing activities | 1,321,449 | 593,912 | ||||||
| Net cash provided by continuing and discontinued financing activities | 1,321,449 | 576,212 | ||||||
| Net (decrease) increase in cash, and restricted cash | (385,219 | ) | 1,277,488 | |||||
Operating Activities
Net cash used in continuing operating activities for the nine months ended September 30, 2024, was approximately $1,648,000, compared to net cash flows used in continuing operating activities of approximately $3,833,545 for the nine months ended September 30, 2023. The cash used includes a net loss of approximately $7,673,000, decreased by approximate non-cash adjustments of $5,830,000 related to asset impairments of approximately $3,922,000, gain from recognition and change in fair value of warrant liabilities of approximately $156,000, depreciation and amortization of approximately $1,426,000, other adjustments totaling approximately $639,000, as well as a net increase in cash due to changes of net working capital items of approximately $195,000.
Investing Activities
During the nine months ended September 30, 2024, cash flows used in continuing and discontinued investing activities approximated $59,000 compared to cash flows provided by continuing and discontinued investing activities of approximately $719,000 for the nine months ended September 30, 2023. The cash used during the nine months ended September 30, 2024 is primarily related to the purchase of fixed tangible and intangible assets.
Financing Activities
During the nine months ended September 30, 2024, approximate cash provided by continuing and discontinued financing activities was $1.3 million, as compared to approximately $576,000 for the nine months ended September 30, 2023. Net cash provided in financing activities during the nine months ended September 30, 2024, relates to proceeds from common shares issued pursuant to the ATM Agreement totaling approximately $2,824,000, offset by net debt principal, net short-term financings, and related party payables repayments and/or drawdowns of approximately $1,503,000.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 2, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, and our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal year 2023.
| 27 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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.
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024, and determined them to be effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
During fiscal year 2024, the Company revised its internal controls over its goodwill evaluation process to ensure that any testing performed at interim dates are rolled forward to the reporting date of the relevant financial statements. Aside from the foregoing, there have been no 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 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 28 |
PART II
Item 1. Legal Proceedings.
We are subject to various legal proceedings and claims, either asserted or unasserted, arising in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows, and accordingly, no legal contingencies are accrued as of September 30, 2024. Litigation relating to the insurance brokerage industry is not uncommon. As such we, 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.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should consider carefully the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2023, as the same may be updated from time to time. As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as updated from time to time.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
| 29 |
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c)
During the quarter ended September 30, 2024, no director or officer
Item 6. Exhibits
The following exhibits are filed or furnished with this Quarterly Report on Form 10-Q.
| Exhibit No. | Description | |
| 10.1 | ||
| 10.2 | ||
| 10.3 | ||
| 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
*Filed herewith
**Furnished herewith
| 30 |
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: November 7, 2024 | By: | /s/ Ezra Beyman |
| Ezra Beyman | ||
| Chief Executive Officer | ||
| (principal executive officer) | ||
| Date: November 7, 2024 | By: | /s/ Joel Markovits |
| Joel Markovits | ||
| Chief Financial Officer | ||
| (principal financial officer and principal accounting officer) | ||
| 31 |