Reliance Global Group Inc

Reliance Global Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

*The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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 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 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 June 30, 2024, the Company’s reported cash and restricted cash aggregated balance was approximately $2,816,000, current assets were approximately $4,322,000, and current liabilities were approximately $3,722,000. As of June 30, 2024, the Company had working capital of approximately $600,000 and stockholders’ equity of approximately $2,889,000. For the six months ended June 30, 2024, the Company had a loss from operations of approximately $6,178,000, which includes a non-cash asset impairment loss of approximately $3,922,000, and net loss of approximately $6,836,000. 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 $1,728,825 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.

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 material Level 3 warrant liabilities at the balance sheet date, or at interim dates as applicable for warrant exercise transactions that may occur, using a binomial option pricing model. The following summarizes the significant unobservable inputs for valuations occurring during the periods ended:

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 summarizes the significant unobservable inputs used in the fair value measurements:

The Company values its Level 3 earn-out liability related to the Barra Acquisition using a Monte Carlo simulation in a risk-neutral framework (a special case of the Income Approach). The following summarizes the significant unobservable inputs:

The following table reconciles fair value of earn-out liabilities for the periods ended June 30, 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 and six months ended June 30, 2024 and 2023. The loss of any significant customer could have a material adverse effect on the Company.

Income Taxes

The Company recordedno income tax expense for the three and six months ended June 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 June 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. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table rolls forward the Company’s goodwill balance for the periods ended June 30, 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 unaudited condensed consolidated statements of operations for the six-month period ended June 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 June 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 December 31, 2023:

The following table reflects expected amortization expense as of June 30, 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 is as 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. These are normally paid in equal installments over a period of twelve months or less and carry interest rates ranging between 7.95% and 11.95% per annum. As of June 30, 2024, and December 31, 2023, balances outstanding on short-term financings were $108,525 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 the Company’s common stock, $0.086 par value per share. The Series B Warrants effective exercise price per share as of the date of the exercises was $3.91.

For the three and six months ended June 30, 2024, net fair value gains and losses recognized for the Series B Warrants and PAW’s, were gains of $60,667 and $156,000, respectively, whereas for the three and six months ended June 30, 2023, net fair value gains and losses recognized were a loss of $1,592,509 and a gain of $2,673,723, respectively, presented in the recognition and change in fair value of warrant liabilities account in the unaudited consolidated statements of operations.

As of June 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 June 30, 2023, there were 78,383 and 959 Series B Warrants and PAW’s outstanding, with respective fair values of $3,741,983 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. 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.

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.

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 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.

As of June 30, 2024, and December 31, 2023, there were 1,037,027 and 280,117 shares of common stock outstanding, respectively.

Abeyance Shares

During the first and second quarters of 2024 respectively, upon request from an institutional investor, the Company converted 42,545 and 59,471 abeyance shares into common stock, thereby issuing 42,545 and 59,471 common shares, resulting in zero abeyance shares outstanding as of June 30, 2024.

Series G Warrants

Pursuant to the terms of the Series G Warrants, during the second quarter of 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 discussed below. 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 inno remaining Series G Warrants outstanding as of June 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 six months ended June 30, 2024, the Company sold 313,713 shares of common stock under the ATM Agreement, at an average price of $5.3492, receiving proceeds, net of $141,631 in agent commissions and legal and other fees, of $2,068,344. From the net sale proceeds, $146,174 was received in July 2024 and is recorded in the other receivables account in the unaudited condensed consolidated balance sheets as of June 30, 2024.As of the date of filing of this Quarterly Report on Form 10-Q, the net remaining ATM Capacity was $1,728,825.

Equity-based Compensation

Total stock-based compensation expense recorded in the unaudited condensed consolidated statements of operations for the three months ended June 30, 2024, and 2023 was $245,766 and $35,367, respectively. Total stock-based compensation expense recorded in the unaudited condensed consolidated statements of operations for the six months ended June 30, 2024 and 2023 was $264,331 and $79,164, 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:

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 June 30, 2024, and 2023 was $102,073 and $123,326, respectively. Operating lease expense for the six months ended June 30, 2024, and 2023 was $207,029 and $239,296 respectively. As of June 30, 2024, the weighted average remaining lease term and weighted average discount rate for the operating leases were 5.08 years and 8.35%, respectively.

Future minimum lease payments under these operating leases consisted 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 June 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.

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, will be payable, $190,000 in cash, and the remaining balance via the issuance of 30,029 of the Company’s Common Stock, subsequently issued to the Seller during April, 2024. The $190,000 cash balance was paid during the quarter ended June 30, 2024.

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

Definitive Acquisition Agreements

On May 14, 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 $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 20% of Spetner common stock for a predetermined amount based on a multiple of EBITDA.

NOTE 9. RELATED PARTY TRANSACTIONS

The following table summarizes the loans payable, related parties current and non-current accounts, as of the periods ended June 30, 2024 and December 31, 2023, and the interest expense related parties account for the three and six-month periods ended June 30, 2024 and June 30, 2023, as presented on the condensed consolidated balance sheets and condensed consolidated statements of operations, respectively: