Reliance Global Group Inc

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Stockholders’ Equity

Reliance Global Group, Inc. and Subsidiaries and Predecessor

Condensed Consolidated Statements of Cash Flows

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 Form 10-Q refer to capitalized terms as defined in the Form 10-K. Certain prior period accounts and balances in these condensed consolidated financial statements and notes thereto have been reclassified to conform to the current period’s presentation.

The accompanying unaudited condensed consolidated financial statements include the accounts of Reliance Global Group, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Liquidity

As of March 31, 2024, the Company’s reported cash and restricted cash aggregated balance was approximately $2,113,000, current assets were approximately $3,411,000, while current liabilities were approximately $3,531,000. As of March 31, 2024, the Company had a working capital deficit of approximately $120,000 and stockholders’ equity of approximately $1,962,000. For the three months ended March 31, 2024, the Company presents loss from operations of approximately $5,032,000, which includes a non-cash asset impairment loss of approximately $3,900,000, and net loss of approximately $5,347,000. During the first quarter of 2024 the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) to which the Company may offer and sell, from time to time through the Agent, shares of its Common Stock (the “Shares”), having an aggregate offering price of up to $858,637.

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Cash and Restricted Cash

Cash and restricted cash reported on our condensed consolidated balance sheets are reconciled to the total shown on our condensed consolidated statements of cash flows as follows:

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 the fair value of its Level 3 warrant liabilities at the balance sheet date, using a binomial option pricing model. The following summarizes the significant unobservable inputs:

The following reconciles fair value of the liability classified warrants:

Earn-out liabilities: The Company utilizes two valuation methods to value its 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 following table reconciles fair value of earn-out liabilities for the periods ended March 31, 2024, and December 31, 2023:

Revenue Recognition

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

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

No other single customer accounted for more than 10% of the Company’s commission revenues during the three months ended March 31, 2024 and 2023. The loss of any significant customer could have a material adverse effect on the Company. Customers from 2022 were adjusted to reflect percentages of revenue from continued operations.

Income Taxes

The Company recordedno income tax expense for the three months ended March 31, 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 March 31, 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.

NOTE 2. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table rolls forward the Company’s goodwill balance for the periods ended March 31, 2024, and December 31, 2023, adjusted for discontinued operations.

Asset Impairments:

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 condensed consolidated statements of operations for the three-month period ended March 31, 2024.

The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of March 31, 2024:

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:

The following table reflects expected amortization expense as of March 31, 2024, for each of the following five years and thereafter:

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

Long-Term Debt

The composition of the long-term debt follows:

Oak Street Funding LLC – Term Loans and Credit Facilities

Short-Term Financings

The Company has various short-term notes payable for financed items such as insurance premiums and CRM software purchases. These are normally paid in equal installments over a period of twelve months or less and carry interest rates up to 0.0% and 12.75% per annum. As of March 31, 2024 and December 31, 2023, balances outstanding on short-term financings were $12,000 and $56,000, respectively.

NOTE 4. WARRANT LIABILITIES

Series B Warrants

The Series B Warrant liability effective exercise price as of March 31, 2024 was $0.63, and the outstanding balance, inclusive of 16,303 PAW warrants as of March 31, 2024 and December 31, 2023 was $173,660 and $268,993 respectively, presented in the warrant liability account on the condensed consolidated balance sheets. Pursuant to the terms of the Series B Warrants, during the second quarter of 2024, the Series B Warrant exercise price was reduced from $0.63 per share to $0.26 as a result of dilutive issuances of our Common Stock.

For the periods ended March 31, 2024, and 2023, net fair value gains recognized for the Series B Warrants inclusive of the PAW warrants were $95,333 and $4,266,231 respectively, presented in the recognition and change in fair value of warrant liabilities account in the condensed consolidated statements of operations.

NOTE 5. EQUITY

Common Stock

The Company is authorized to issue 2,000,000,000 shares of common stock, $0.086 par value. 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 corporation upon liquidation or dissolution.

During the first quarter of 2024, the Company issued 187,614 shares through its ATM program,723,264 pursuant to Abeyance Share conversions and 19,535 shares for equity-based compensation.

As of March 31, 2024 and December 31, 2023, there were 5,692,387 and 4,761,974 shares of common stock outstanding, respectively.

Abeyance Shares

During the quarter ended March 31, 2024 upon request from the institutional investor, the Company converted 723,264 Abeyance Shares into Common Stock, thereby issuing 723,264 shares which resulted in a remaining balance of 1,011,000 of outstanding Abeyance Shares as of March 31, 2024.

During the second quarter of 2024, upon request from the institutional investor, the Company converted the remaining 1,011,000 Abeyance Shares into Common Stock resulting in zero Abeyance Shares outstanding.

Series G Warrants

Pursuant to the terms of the Series G Warrants, during the second quarter of 2024, the Series G Warrant exercise price was reduced from $0.6562 per share to $0.26 as a result of sales of our Common Stock pursuant to the ATM Agreement discussed below.

At Market Program (the “ATM”)

On February 15, 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 (the “Shares”), having an aggregate offering price of up to $858,637 (the “ATM Capacity”). Any Shares offered and sold in the 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 Securities and Exchange Commission on November 7, 2023, and the related prospectus supplement and accompanying base prospectus relating to the offering of the Shares. 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 Agreement will terminate upon the earlier of (i) the sale of all of the Shares subject to the Agreement, or (ii) the termination of the Agreement by the Agent or the Company, as permitted therein. The Company shall 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 sale of Shares. The Company will also reimburse the Agent for certain specified expenses in connection with entering into the Agreement.

During the first quarter of 2024 the Company sold 187,614 shares of Common Stock under the ATM Agreement, at a price of $0.6891, receiving proceeds, net of $4,636 in Agent commissions and fees, of $124,649. As of March 31, 2024, the net remaining ATM Capacity was $729,352.

Subsequent to the first quarter of 2024, the Company sold an additional 1,320,829 shares of Common Stock under the ATM Agreement, receiving proceeds, net of $15,905 Agent commissions and fees, of $385,052, resulting in net remaining ATM Capacity of, $328,395.

Equity-based Compensation

Total stock-based compensation expense recorded in general and administrative expenses in the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 is $18,566 and $43,797, respectively.

NOTE 6. EARNINGS (LOSS) PER SHARE

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

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

The following calculates basic and diluted EPS:

The reversal of the gain on the change fair value of the Series B warrant liability for the three months March 31, 2023 is included in the numerator of the dilutive EPS calculation to eliminate the effects the warrants as the impact is dilutive.

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

NOTE 7. LEASES

Operating lease expense for the three months ended March 31, 2024 and 2023 was $104,956 and $161,614, respectively. As of March 31, 2024, the weighted average remaining lease term and weighted average discount rate for the operating leases were 3.92 years and 5.98% respectively.

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

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

Earn-out liabilities

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

NOTE 9. RELATED PARTY TRANSACTIONS

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 balance of $500,000 owed under the Purchase Agreement. In satisfaction of such remaining balance, the Company agreed to issue 174,610 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 $2.43 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 (174,610 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, will be payable, $190,000 in cash, and the remaining balance via the issuance of 510,485 of the Company’s Common Stock, subsequently issued to the Seller during April, 2024. The $190,000 cash balance was recorded in the current portion of loans payable related parties account in thecondensed consolidated balance sheet as of March 31, 2024.

The following table summarizes the loans payable, related parties current and non-current accounts, and the interest expense related parties account as of and for the three-month period ended March 31, 2024 and December 31, 2023, as presented on the condensed consolidated balance sheets and condensed consolidated statements of operations, respectively:

NOTE 10. SUBSEQUENT EVENTS

On May 14, 2024, the Company entered into a Stock Exchange Agreement to acquire Spetner Associates (“Spetner”), dated as of May 14, 2024 (the “Stock Exchange Agreement”). Pursuant to the Stock Exchange Agreement, the Company shall: (i) acquire eighty percent (80%) of the issued and outstanding shares of common stock, par value $1.00 per share, of Spetner (the “Spetner Common Stock”) for the amount of $13,714,286 (which shall be paid $8,000,000 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 twenty percent (20%) of the Spetner Common Stock for a predetermined amount based on a multiple of EBITDA.