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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2024

 

or

 

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

 

For the transition period from _____ to _____

 

Commission File Number: 001-40020

 

RELIANCE GLOBAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Florida   46-3390293

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

732-380-4600

(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

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

 

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

 

Yes ☒ No ☐

 

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

 

Yes ☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
Emerging growth company  

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 

Yes ☐ No

 

At November 7, 2024, the registrant had 1,712,573 shares of common stock, par value $0.086 per share, outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I  
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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)

 
Assets          
Current assets:          
Cash  $925,270   $1,329,016 
Restricted cash   1,428,422    1,409,895 
Accounts receivable   1,108,173    1,298,863 
Accounts receivable, related parties   8,242    6,604 
Other receivables   5,949    899 
Prepaid expense and other current assets   358,881    333,756 
Total current assets   3,834,937    4,379,033 
Property and equipment, net   136,482    139,999 
Right-of-use assets, operating leases   976,206    739,830 
Intangibles, net   5,757,251    11,042,757 
Goodwill   6,693,099    6,693,099 
Other non-current assets   21,792    20,292 
Total assets  $17,419,767   $23,015,010 
           
Current liabilities:          
Accounts payable and other accrued liabilities  $1,025,137   $835,481 
Short term financing agreements   106,715    56,197 
Current portion of loans payables, related parties   472,960    454,953 
Other payables   15,014    7,414 
Current portion of long-term debt   1,532,640    1,390,766 
Current portion of leases payable, operating leases   251,103    285,171 
Earn-out liability, current portion   -    159,867 
Total current liabilities   3,403,569    3,189,849 
           
Loans payable, related parties, less current portion   543,403    897,530 
Long term debt, less current portion   9,887,894    11,026,971 
Leases payable, less current portion, operating leases   763,975    484,337 
Warrant liabilities   326    268,993 
Total liabilities   14,599,167    15,867,680 
Stockholders’ equity          
Preferred stock, $0.086 par value; 750,000,000 shares authorized and 0 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively   -    - 
Common stock, $0.086 par value; 117,647,059 shares authorized and 1,452,249 and 280,117 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively   124,893    24,089 
Additional paid-in capital   49,371,043    46,125,206 
Accumulated deficit   (46,675,336)   (39,001,965)
Total stockholders’ equity   2,820,600    7,147,330 
Total liabilities and stockholders’ equity  $17,419,767   $23,015,010 

 

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,
 
   2024   2023   2024   2023 
Revenue                     
Commission income   $3,441,458   $3,275,583   $10,757,238   $10,410,591 
Total revenue    3,441,458    3,275,583    10,757,238    10,410,591 
                     
Operating expenses                     
Commission expense    902,246    796,001    3,065,152    2,708,746 
Salaries and wages    1,707,737    1,803,698    5,494,551    5,330,813 
General and administrative expenses    821,510    1,068,778    3,188,033    3,031,596 
Marketing and advertising expenses   100,183    117,752    304,209    364,184 
Change in estimated acquisition earn-out payables    -    271,569    47,761    1,291,494 
Depreciation and amortization    421,759    652,839    1,425,700    1,962,066 
Asset impairments    

-

    

-

    3,922,110    

-

 
Total operating expenses    3,953,435    4,710,637    17,447,516    14,688,899 
                     
Loss from operations    (511,977)   (1,435,054)   (6,690,278)   (4,278,308)
                     
Other income (expense)                     
Interest expense    (356,320)   (386,562)   (1,091,966)   (1,126,281)
Interest (expense) related parties    (34,802)   (32,475)   (112,936)   (125,104)
Other income (expense), net    65,785    (310)   65,807    3,650 
Recognition and change in fair value of warrant liabilities    -    1,715,397    156,000    4,389,120 
Total other (expense) income   (325,337)   1,296,050    (983,095)   3,141,385 
                     
Loss from continuing operations before tax   (837,314)   (139,004)  $(7,673,373)   (1,136,923)
Loss from discontinued operations before tax   -    -    -    (1,845,904)
Net loss 

$

(837,314)  $(139,004)  $(7,673,373)  $(2,982,827)
                     
Basic loss per share                    
Continuing operations  $(0.67)  $(0.78)  $(10.56)  $(7.93)
Discontinued operations  $

-

   $-   $

-

   $(12.88)
Basic loss per share  $(0.67)  $(0.78)  $(10.56)  $(20.81)
                     
Diluted loss per share                    
Continuing operations  $(0.67)  $(0.78)  $(10.56)  $(7.93)
Discontinued operations  $-   $-   $-   $(12.88)
Diluted loss per share  $(0.67)  $(0.78)  $(10.56)  $(20.81)
                     
Weighted average number of shares outstanding - Basic   1,252,799    177,733    

726,347

    143,295 
Weighted average number of shares outstanding - Diluted   1,252,799    177,733    726,347    143,295 

 

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)

   280,117   $24,089   $46,125,206   $(39,001,965)  $7,147,330 
                          
Common share payments for earn-outs   -    

-

    17,628    -    17,628 
                        
Common shares issued for ATM share sales   11,036    949    123,699    

-

    124,648 
                         
Common shares issued for abeyance share conversions   42,545    3,659    (3,659)   -    - 
                         
Common share-based compensation   1,149    99    18,466    -    18,565 
                          
Net loss   -    -    -    (5,346,663)   (5,346,663)
                          
Balance, March 31, 2024   334,847   $28,796   $46,281,340   $(44,348,628)  $1,961,508 
                          
Common share payments for earn-outs   30,029    2,582    (2,582)   -    - 
                          
Common shares issued for ATM share sales   302,677    26,032    1,917,664    -    1,943,696 
                          
Common shares issued for abeyance share conversions   59,471    5,115    (5,115)   -    - 
                          
Common shares issued for Series B warrants   39,569    3,403    109,263    -    112,666 
                          
Common shares issued for Series G warrants   192,236    16,532    (16,532)   -    - 
                          
Common share-based compensation   60,373    5,192    240,574    -    245,766 
                          
Common shares issued for services   17,825    1,533    113,467    -    115,000 
                          
Net loss   -    -    -    (1,489,395)   (1,489,395)
                          
Balance, June 30, 2024   1,037,027   $89,184   $48,638,079   $(45,838,022)  $2,889,241 
                          
Common shares issued for ATM share sales   247,418    21,278    734,605    -    755,883 
                          
Common share-based compensation   57,454    4,941    7,849    -    12,790 
                          
Common shares issued for reverse stock split round up   110,350    9,490    (9,490)   -    - 
                          
Net loss   -    -    -    (837,314)   (837,314)
                          
Balance, September 30, 2024   1,452,249   $124,893   $49,371,043   $(46,675,336)  $2,820,600 

 

5
 

 

   Common Stock  

Additional

Paid-in

   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
                     

Balance, December 31, 2022 (Audited)

   71,740   $6,170   $35,896,852   $(26,991,983)  $8,911,039 
                          
Common share payments for earn-outs   6,433    553    981,925    -    982,478 
                          
Common share payments for related party convertible debt   3,926    338    644,662    -    645,000 
                          
Common shares issued for reverse stock split round up   902    77    (4,723)   -    (4,646)
                          
Common shares issued in 2023 private placement   9,120    784    3,445,700    -    3,446,484 
                          
Common share-based compensation   -    -    43,797    -    43,797 
                          
Net loss   -    -    -    (1,788,538)   (1,788,538)
                          
Balance, March 31, 2023   92,121   $7,922   $41,008,213   $(28,780,521)  $12,235,614 
                          
Common shares issued for services   6,621    570    377,425    -    377,995 
                          
Common share payments for earn-outs   20,721    1,782    1,431,918    -    1,433,700 
                          
Common shares issued for vested stock awards   1,307    112    (112)   -    - 
                          
Common share-based compensation   -    -    35,367    -    35,367 
                          
Net loss   -    -    -    (1,055,287)   (1,055,287)
                          
Balance, June 30, 2023   120,770   $10,387   $42,852,810   $(29,835,808)  $13,027,389 
                          
Common share payments for earn-outs   10,271    883    477,489    -    478,372 
                          
Common shares issued for vested stock awards   177    15    3,754    -    3,769 
                          
Share-based compensation   -    -    27,779    -    27,779 
                          
Common shares issued for services   24    2    998    -    1,000 
                          
Series B warrant exercise   4,310    371    463,279    -    463,650 
                          
Net loss   -    -    -    (139,004)   (139,004)
                          
Balance, September 30, 2023   135,552   $11,657   $43,826,110   $(29,974,812)  $13,862,955 

 

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  $(7,673,373)  $(2,982,827)
Adjustment to reconcile net income to net cash used in operating activities:          
Depreciation and amortization   1,425,700    1,962,066 
Asset impairments   3,922,110    - 
Amortization of debt issuance costs and accretion of debt discount   29,974    35,163 
Non-cash lease expense (income)   9,194    (4,192)
Equity based compensation expense   277,121    106,943 
Equity based payments to service providers   274,477    289,995 
Recognition and change in fair value of warrant liability   (156,000)   (4,389,120)
Earn-out fair value and write-off adjustments   47,761    1,291,494 
Change in operating assets and liabilities:          
Accounts receivable   190,690    (196,459)
Accounts receivable, related parties   (1,638)   (2,786)
Other receivables   (5,050)   10,651 
Prepaid expense and other current assets   (184,602)   34,136 
Other non-current assets   (1,500)   - 
Accounts payable and other accrued liabilities   189,655    48,403 
Other payables   7,600    (37,012)
Net cash used in continuing operating activities   (1,647,881)   (3,833,545)
           
Net cash adjustments for discontinued operating activities   -    3,816,238 
           
Total net cash used in continuing and discontinued operating activities   (1,647,881)   (17,307)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Proceeds from sale of investment in NSURE   -    900,000 
Purchase of property and equipment   (19,043)   (21,206)
Purchase of intangibles   (39,744)   (160,211)
Net cash (used in) provided by investing activities   (58,787)   718,583
           
Total net cash (used in) provided by investing activities   (58,787)   718,583
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Principal repayments of debt   (1,027,177)   (763,840)
Proceeds from short term financings   199,948    -
Principal repayments of short term financings   (149,430)   (21,923)
Payments of loans payable, related parties   (526,119)   (954,439)
Payments of earn-out liabilities   -    (419,225)
Payments of convertible debt, related parties   -    (693,145)
Proceeds from common shares issued through an at the market offering   2,824,227    - 
Private Placement of shares and warrants   -    3,446,484 
Net cash provided by continuing financing activities  $1,321,449   $593,912 
           
Net cash used in discontinued financing activities   -    (17,700)
           
Total 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 
Cash and restricted cash at beginning of year   2,738,911    1,909,769 
Cash and restricted cash at end of year  $2,353,692   $3,187,257 

 

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 $2,354,000, current assets were approximately $3,835,000, and current liabilities were approximately $3,404,000. As of September 30, 2024, the Company had working capital of approximately $431,000 and stockholders’ equity of approximately $2,821,000. For the nine months ended September 30, 2024, the Company had a loss from operations of approximately $6,690,000 and net loss of approximately $7,673,000, which include a non-cash asset impairment loss of approximately $3,922,000. During the first quarter of 2024, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with EF Hutton LLC (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 approximate aggregate remaining offering price of up to $902,000 as of the date of filing of this Quarterly Report on Form 10-Q.

 

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:

SCHEDULE OF RESTRICTED CASH IN STATEMENT OF CASH FLOW

 

   September 30, 2024   September 30, 2023 
Cash  $925,270   $1,777,348 
Restricted cash   1,428,422    1,409,909 
Total cash and restricted cash  $2,353,692   $3,187,257 

 

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:

SCHEDULE OF RECONCILES FAIR VALUE OF LIABILITY CLASSIFIED WARRANTS

 

   Series B Warrant Liabilities   Placement Agent Warrants   Total 
Beginning balance, December 31, 2023  $268,667   $326   $268,993 
Unrealized gain   (95,333)   -    (95,333)
Warrants exercised or exchanged   -    -    - 
Ending balance, March 31, 2024  $173,334   $326   $173,660 
Unrealized gain   (60,667)   -    (60,667)
Warrants exercised or exchanged   (112,667)   -    (112,667)
Ending balance, September 30, 2024  $-   $326   $326 

 

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  $159,867   $2,709,478 
           
Acquisitions and settlements   -    (3,260,403)
           
Period adjustments:          
Fair value changes included in earnings*   47,761    1,716,873 
Earn-out payable in common shares   (17,628)   (159,867)
Earn-outs paid or transferred to loans payable, related parties   

(190,000

)   (846,214)
Ending balance   -    159,867 
Less: Current portion   -    (159,867)
Ending balance, less current portion  $-   $- 

 

* Recorded in the change in estimated acquisition earn-out payables caption on the condensed consolidated statements of operations.

 

Revenue Recognition

 

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

SCHEDULE OF DISAGGREGATION REVENUE

 

                   Disaggregation of revenue 
Nine Months Ended September 30, 2024  Medical   Life   Property and Casualty   Total 
                 
Three months ended September 30, 2024  $2,422,523   $46,808   $972,127   $3,441,458 
Three months ended September 30, 2023   2,557,939    30,254    687,390    3,275,583 
Nine months ended September 30, 2024   8,095,631    141,811    2,519,145    10,757,238 
Nine months ended September 30, 2023   8,376,964    135,857    1,897,770    10,410,591 

 

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

SCHEDULE OF CONCENTRATIONS OF REVENUES

 

           
   Three Months Ended September 30, 
Insurance Carrier  2024   2023 
Priority Health   29%   44%
BlueCross BlueShield   17%   21%

 

10
 

 

           
   Nine Months Ended September 30, 
Insurance Carrier  2024   2023 
Priority Health   33%   37%
BlueCross BlueShield   13%   14%

 

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 no income tax expense for the three and nine months ended September 30, 2024 and 2023 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

 

As of September 30, 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 $3,802,438, $65,411, and $54,261. The write-offs resulted in a total asset impairment charge of $3,922,110, recorded in the asset impairment account on the unaudited condensed consolidated statements of operations for the nine-month period ended September 30, 2024.

 

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:

SCHEDULE OF INTANGIBLE ASSETS AND WEIGHTED-AVERAGE REMAINING AMORTIZATION PERIOD 

 

  

Weighted

Average Remaining Amortization

Period

(Years)

  

Gross

Carrying Amount

  

Accumulated

Amortization

  

Net Carrying

Amount

 
Trade name and trademarks  2.1   $1,808,087   $(1,548,838)  $259,249 
Internally developed software  2.5    1,715,896    (860,348)   855,548 
Customer relationships  6.0    7,372,290    (2,996,939)   4,375,351 
Purchased software  1.7    564,396    (563,246)   1,150 
Video production assets  -    50,000    (50,000)   - 
Non-competition agreements  1.6    3,504,810    (3,238,857)   265,953 
       $14,965,479   $(9,208,228)  $5,757,251 

 

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  1.5   $1,807,189   $(1,320,939)  $486,250 
Internally developed software  3.2    1,798,922    (650,029)   1,148,893 
Customer relationships  8.0    11,922,290    (3,193,629)   8,728,661 
Purchased software  0.3    667,206    (618,418)   48,788 
Video production assets  -    50,000    (50,000)   - 
Non-competition agreements  0.9    3,504,810    (2,874,645)   630,165 
       $19,750,417   $(8,707,660)  $11,042,757 

 

The following table reflects expected amortization expense as of September 30, 2024, for each of the following five years and thereafter:

SCHEDULE OF AMORTIZATION EXPENSE OF ACQUIRED INTANGIBLES ASSETS

 

Years Ending December 31,  Amortization Expense 
2024 (remaining three months)  $351,688 
2025   1,400,808 
2026   1,151,983 
2027   811,463 
2028   720,969 
Thereafter   1,320,340 
Total  $5,757,251 

 

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:

SCHEDULE OF LONG TERM DEBT

 

           
   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 2.5%, maturing August 2028, net of deferred financing costs of $8,505 and $10,069 as of September 30, 2024 and December 31, 2023, respectively  $322,789   $369,602 
Oak Street Funding LLC Senior Secured Amortizing Credit Facility for the acquisition of CCS, variable interest of prime rate plus 1.5%, maturing December 2028, net of deferred financing costs of $10,612 and $12,525 as of September 30, 2024, and December 31, 2023, respectively   532,965    604,830 
Oak Street Funding LLC Term Loan for the acquisition of SWMN, variable interest of prime rate plus 2.0%, maturing April 2029, net of deferred financing costs of $6,628 and $7,733 as of September 30, 2024 and December 31, 2023, respectively   620,498    695,758 
Oak Street Funding LLC Term Loan for the acquisition of FIS, variable interest of prime rate plus 2.0%, maturing May 2029, net of deferred financing costs of $26,663 and $31,026 as of September 30, 2024 and December 31, 2023, respectively   1,572,604    1,758,558 
Oak Street Funding LLC Term Loan for the acquisition of ABC, variable interest of prime rate plus 2.0%, maturing September 2029, net of deferred financing costs of $30,789 and $35,649 as of September 30, 2024 and December 31, 2023, respectively   2,615,859    2,899,409 
Oak Street Funding LLC Term Loan for the acquisition of Barra, variable interest of prime rate plus 2.5%, maturing May 2032, net of deferred financing costs of $160,693 and $176,762 as of September 30, 2024 and December 31, 2023, respectively   5,755,819    6,089,580 
Long term debt   11,420,534    12,417,737 
Less: current portion   (1,532,640)   (1,390,766)
Long-term debt  $9,887,894   $11,026,971 

 

Years Ending December 31, 

Maturities of

Long-Term Debt

 
2024 (remaining three months)  $369,292 
2025   1,572,339 
2026   1,742,193 
2027   1,930,413 
2028   2,101,757 
Thereafter   3,948,430 
Total   11,664,424 
Less: debt issuance costs   (243,890)
Total  $11,420,534 

 

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 7.5% and 11.95% per annum. As of September 30, 2024, and December 31, 2023, balances outstanding on short-term financings were $106,715 and $56,197, respectively.

 

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 50,980 warrants via cashless exercises, thereby acquiring 39,569 shares of Common stock. The Series B Warrants effective exercise price per share as of the date of the exercises was $3.91.

 

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 $0 and $156,000, respectively, whereas for the three and nine months ended September 30, 2023, net fair value gains and losses recognized were gains of $1,715,397 and $4,389,120 respectively, presented in the recognition and change in fair value of warrant liabilities account in the unaudited consolidated statements of operations.

 

As of September 30, 2024, there were 0 and 959 Series B Warrants and PAW’s outstanding respectively, with respective fair values of $0 and $326, presented in the warrant liability account on the condensed consolidated balance sheets. As of December 31, 2023, there were 866,667 and 16,303 Series B Warrants and PAW’s outstanding, with respective fair values of $268,667 and $326, presented in the warrant liability account on the unaudited condensed consolidated balance sheets.

 

NOTE 5. EQUITY

 

Common Stock

 

The Company is authorized to issue 117,647,059 shares of common stock, $0.086 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 1-for-17 reverse stock split of the Company’s issued and outstanding common stock (the “Reverse Split-2024”). The par value remained unchanged following the Reverse Split-2024. 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.

 

During the first quarter of 2024, the Company issued 11,036 shares through its ATM program, 42,545 pursuant to abeyance share conversions and 1,149 shares for equity-based compensation.

 

During the second quarter of 2024, the Company issued 302,677 shares through its ATM program, 59,471 pursuant to abeyance share conversions, 60,373 shares for equity-based compensation, 30,029 shares for repayment of an earn-out liability, 39,569 shares on the exercise of Series B warrants, 192,236 shares for the exercise of Series G warrants, and 17,825 shares for service rendered.

 

During the third quarter of 2024, the Company issued 247,418 shares through its ATM program and 57,454 shares for equity-based compensation.

 

As of September 30, 2024, and December 31, 2023, there were 1,452,249 and 280,117 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 102,016 abeyance shares into common stock, thereby issuing 102,016 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 $11.16 per share to $3.96 per share, as a result of sales of our common stock pursuant to the ATM Agreement. On June 18, 2024, the holder of the Series G Warrants exercised all of its 247,678 warrants, via cashless exercises, thereby acquiring 192,236 shares of the Company’s common stock, which resulted in no remaining Series G Warrants outstanding as of September 30, 2024.  

 

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, 658,088 and 561,131 shares of common stock under the ATM Agreement, at an average price of $4.57, receiving proceeds, net of $176,509 in agent commissions and legal and other fees, of $2,824,227.

 

Subsequent to the third quarter of 2024, the Company sold an additional 16,256 shares of Common Stock under the ATM Agreement, receiving proceeds, net of $1,493 agent commissions and fees of $34,877, resulting in net remaining ATM Capacity of $902,000 as of November 7, 2024.

 

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 $12,790 and $27,779, 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 $277,121 and $106,943, 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.

 

15
 

 

The following calculates basic and diluted EPS from continuing operations:

SCHEDULE OF CALCULATIONS OF BASIC AND DILUTED EPS

 

   Three Months Ended   Three Months Ended 
   September 30, 2024   September 30, 2023 
Loss from continuing operations  $ (837,314)  $(139,004)
Net loss continuing operations, numerator, basic computation   (837,314)  $(139,004)
Recognition and change in fair value of warrant liabilities   -    - 
Net loss from continuing operations, numerator, diluted computation  $ (837,314)  $(139,004)
           
Weighted average common shares, basic   1,252,799    177,733 
Effect of Series B Warrants   -    - 
Weighted average common shares, dilutive   1,252,799    177,733 
Loss per common share – basic  $ (0.67)  $(0.78)
Loss per common share – diluted  $(0.67)  $(0.78)

 

   Nine Months Ended   Nine Months Ended 
   September 30, 2024   September 30, 2023 
Loss from continuing operations  $ (7,673,373)  $(1,136,922)
Net Loss continuing operations, numerator, basic computation   (7,673,373)  $(1,136,922)
Recognition and change in fair value of warrant liabilities   -    - 
Net loss from continuing operations, numerator, diluted computation  $ (7,673,373)  $(1,136,922)
           
Weighted average common shares, basic   726,347    143,295 
Effect of Series B Warrants   -    - 
Weighted average common shares, dilutive   726,347    143,295 
Loss per common share – basic  $ (10.56)  $(7.93)
Loss per common share – diluted  $ (10.56)  $(7.93)

 

Additionally, the following are considered anti-dilutive securities excluded from weighted-average shares used to calculate diluted net loss per common share:

SCHEDULE OF DILUTIVE NET LOSS PER COMMON SHARE

 

   For the Three and Nine Months Ended 
   September 30, 2024   September 30, 2023 
Shares subject to outstanding common stock options   50    606 
Shares subject to outstanding Series A warrants   6,647    6,647 
Shares subject to outstanding Series B warrants   -    69,586 
Shares subject to outstanding Series E warrants   -    52,211 
Shares subject to outstanding PAW’s   959    - 
Shares subject to outstanding Series F warrants   -    

123,839

 
Shares subject to PA Warrants   3,096    3,096 
Shares subject to unvested stock awards   52    339 

 

16
 

 

NOTE 7. LEASES

 

Operating lease expense for the three months ended September 30, 2024, and 2023 was $105,415 and $123,508, respectively. Operating lease expense for the nine months ended September 30, 2024, and 2023 was $312,444 and $362,804, respectively. As of September 30, 2024, the weighted average remaining lease term and weighted average discount rate for the operating leases were 4.90 years and 8.47%, respectively.

 

Future minimum lease payments under these operating leases consisted of the following:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENT

 

Fiscal year ending December 31,  Operating Lease Obligations 
2024 (remaining three months)  $321,450 
2025   250,259 
2026   228,209 
2027   181,305 
2028   111,185 
Thereafter   159,715 
Total undiscounted operating lease payments   1,252,123 
Less: Imputed interest   237,045 
Present value of operating lease liabilities  $1,015,078 

 

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 no legal contingencies are accrued as of September 30, 2024, and December 31, 2023. Litigation relating to the insurance brokerage industry is not uncommon. As such the Company, from time to time has been subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future.

 

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 $500,000 owed under the Purchase Agreement. In satisfaction of such remaining balance, the Company agreed to issue 10,272 shares of the Company’s restricted common stock, par value $0.086 per share (the “Common Stock”), to the Holder. The First Amendment also stated that if the Nasdaq official closing price of the Common Stock is less than $41.31 on March 29, 2024 (the “Calculation Date”), then a determination of the Make-Up Amount (as defined herein) will be made. The “Make-Up Amount” means $425,000 minus the Blockey Shares Value (10,272 multiplied by the Nasdaq official closing price of the Common Stock on the Calculation Date). The First Amendment further stated that the Company shall pay the Make-Up Amount with a combination of cash and Company shares. Accordingly, on the Calculation Date, a total Make-Up Amount of $367,496 was determined, and as agreed upon by the Parties, was paid, $190,000 in cash, and the remaining balance via the issuance of 30,029 share of Common Stock.

 

The following outlines changes to the Company’s earn-out liability balances for the respective periods ended September 30, 2024 and December 31, 2023:

 SCHEDULE OF EARN-OUT LIABILITY

 

   Fortman   Montana   Altruis   Kush   Barra   Total 
Ending balance December 31, 2023  $          -   $159,867   $-   $-   $-   $159,867 
Reclassification to loans payable, related parties*   -    (190,000)   -    -    -    (190,000)
Estimates and fair value adjustments   -    47,761    -    -    -    47,761 
Payable in common stock   -    (17,628)   -    -    -    (17,628)
Ending balance September 30, 2024  $-   $-   $-   $-   $-   $- 

 

   Fortman   Montana   Altruis   Kush   Barra   Total 
Ending balance December 31, 2022  $667,000   $500,001   $834,943   $147,534   $560,000   $2,709,478 
Payments   (1,433,700)   (750,001)   (929,168)   (147,534)   -    (3,260,403)
Estimates and fair value adjustments   1,612,914    569,734    94,225    -    (560,000)   1,716,873 
Payable in common stock   -    (159,867)   -    -    -    (159,867)
Reclassification to loans payable, related parties*   (846,214)   -    -    -    -    (846,214)
Ending balance December 31, 2023  $-   $159,867   $-   $-   $-   $159,867 

 

* The Company modified certain contingent earn-out payables by entering into fixed payment arrangements. Thus, remaining open balances, as applicable, are reclassified to the loans payable, related parties account on the consolidated balance sheet as of September 30, 2024 and December 31, 2023, respectively.

 

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 80% of the issued and outstanding shares of common stock, par value $1.00 per share, of Spetner (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 certain promissory notes); and (ii) have the sole option to acquire the remaining 20% of Spetner common stock for a predetermined amount based on a multiple of EBITDA.

 

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, 140,064 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 $329,431.

 

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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:

SCHEDULE OF LOANS PAYABLE TO RELATED PARTIES 

 

   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  $3,112   $25,708   $-   $-   $1,152   $6,085   $3,458   $9,544 
Deferred Purchase Price Liability   267,169    233,504    40,413    247,055    14,855    26,390    52,022    115,560 
Purchase Agreement Liability   202,679    195,741    502,990    650,475    18,795    -    57,455    - 
Total  $472,960   $454,953   $543,403   $897,530   34,802   $32,475   $112,935   $125,104 

 

 

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 adopted or terminated: (i) any contract, instruction or written plan for the purchase or sale of securities of the registrant intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (a “Rule 10b5-1 trading arrangement”); and/or (ii) any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K

 

Item 6. Exhibits

 

The following exhibits are filed or furnished with this Quarterly Report on Form 10-Q.

 

Exhibit No.   Description
     
10.1  

Amended and Restated Stock Exchange Agreement by and among Reliance Global Group, Inc., Jonathan S. Spetner, Agudath Israel of America, and Spetner Associates, Inc., dated as of September 6, 2024. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 9, 2024).

     
10.2  

2024 Omnibus Incentive Plan (incorporated by reference to Appendix I to the registrant’s definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on October 31, 2024).

     
10.3  

Amendment No. 1 to Amended and Restated Stock Exchange Agreement by and among Reliance Global Group, Inc., Spetner Associates, Inc., Jonathan Spetner, and Agudath Israel of America, dated as of October 29, 2024 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 4, 2024).

     
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