XML 19 R8.htm IDEA: XBRL DOCUMENT

SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2022

SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

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”) incorporated in Florida on August 2, 2013.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of recurring accruals) necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto, set forth in the Company’s annual report on Form 10-K for the year ended December 31, 2021.

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 June 30, 2022, the Company’s reported cash and restricted cash aggregated balance was approximately $4,397,000, current assets were approximately $6,101,000, while current liabilities were approximately $9,470,000. As of June 30, 2022, the Company had a working capital deficit of approximately $3,369,000 and stockholders’ equity of approximately $21,928,000. For the six months ended June 30, 2022, the Company reported loss from operations of approximately $4,343,000, a non-cash, non-operating gain on the recognition and change in fair value of warrant liabilities of approximately $24,479,000, resulting in an overall net income of approximately $19,836,000. For the six months ended June 30, 2022, the Company reported negative cash flows from operations of approximately $1,311,000. The Company completed a capital offering in January 2022 that raised net proceeds of approximately $17,853,000. Management believes the Company’s financial position and its ability to raise capital to be reasonable and sufficient.

Use of Estimates

The preparation of financial statements in conformity with 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:

	June 30, 2022		June 30, 2021
Cash	$	2,979,769	$	6,348,415
Restricted cash		1,417,635		484,350
Total cash and restricted cash	$	4,397,404	$	6,832,765

Fair Value of Financial Instruments

Level 1 — Observable inputs reflecting quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and

Level 3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

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

	June 30, 2022			December 31, 2021
Stock price	$	2.11		$	6.44
Volatility		105	%		90	%
Time to expiry		4.51			5
Dividend yield		0	%		0	%
Risk free rate		3.00	%		1.10	%

The following reconciles fair value of the liability classified warrants:

		Series B Warrant Commitment			Series B warrant liabilities			Placement agent warrants		Total
	Three and Six Months ended June 30, 2022
	Series B Warrant Commitment			Series B warrant liabilities			Placement agent warrants			Total
Beginning balance	$	37,652,808		$	-		$	-		$	37,652,808
Initial recognition		-			55,061,119			1,525,923			56,587,042
Unrealized (gain) loss		17,408,311			(31,980,437	)		(946,461	)		(15,518,587	)
Warrants exercised or transferred		(55,061,119	)								(55,061,119	)
Ending balance, March 31, 2022	$	-		$	23,080,682		$	579,462		$	23,660,144
Unrealized gain		-			(12,322,737	)		(310,514	)		(12,633,251	)
Ending balance, June 30, 2022		-			10,757,945			268,948			11,026,893

		Series B Warrant Commitment		Total
	December 31, 2021
	Series B Warrant Commitment		Total
Beginning balance	$	-	$	-
Initial recognition		20,244,497		20,244,497
Unrealized gain		17,408,311		17,408,311
Ending balance	$	37,652,808	$	37,652,808

Earn-out liabilities: The Company generally values its Level 3 earn-out liabilities using the income valuation approach. Key valuation inputs include contingent payment arrangement terms, projected revenues and cash flows, rate of return, and probability assessments. The following table summarizes the significant unobservable inputs used in the fair value measurements:

SCHEDULE OF FAIR VALUE MEASUREMENTS

	June 30, 2022		December 31, 2021
Valuation technique		Discounted cash flow		Discounted cash flow
Significant unobservable input		Projected revenue and probability of achievement		Projected revenue and probability of achievement

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

SCHEDULE OF EARN OUT LIABILITY

	June 30, 2022
WACC Risk Premium:		14.6	%
Volatility		50	%
Credit Spread:		11	%
Payment Delay (days)		90	%
Risk free rate		USD Yield Curve
Discounting Convention:		Mid-period
Number of Iterations		100,000

Undiscounted remaining earn out payments are approximately $4,697,644 as of June 30, 2022. The following table reconciles fair value of earn-out liabilities for the period ending June 30, 2022:

	June 30, 2022			December 31, 2021
Beginning balance – January 1	$	3,813,878		$	2,931,418

Acquisitions and Settlements
JP Kush Acquisition		-			1,694,166
Barra Acquisition		600,000			-
CCS Write-off		-			(81,368	)
Altruis partial settlement		(84,473	)		(452,236	)
Montana final settlement		(326,935	)		-

Period adjustments:
Fair value changes and accretion included in earnings^*		354,963			(278,102	)

Ending balance	$	4,357,433		$	3,813,878
Less: Current portion		(3,683,596	)		(3,297,855	)
Ending balance, less current portion		673,837			516,023

*	Recorded as a reduction to general and administrative expenses

Revenue Recognition

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

SCHEDULE OF DISAGGREGATION REVENUE

Three Months ended June 30, 2022	Medical/Life		Property and Casualty		Total
Regular
EBS	$	184,851	$	-	$	184,851
USBA		12,319		-		12,319
CCS/UIS		-		57,195		57,195
Montana		451,705		-		451,705
Fortman		357,334		205,804		563,138
Altruis		882,171		-		882,171
Kush		425,449		-		425,449
Medigap		1,359,976		-		1,359,976
Barra		69,925		200,397		270,322
	$	3,743,730	$	463,396	$	4,207,126

Six Months ended June 30, 2022	Medical/Life		Property and Casualty		Total
Regular
EBS	$	406,035	$	-	$	406,035
USBA		25,906		-		25,906
CCS/UIS		-		101,077		101,077
Montana		958,426		-		958,426
Fortman		689,933		403,064		1,092,997
Altruis		2,187,043		-		2,187,043
Kush		864,040		-		864,040
Medigap		2,537,061		-		2,537,061
Barra		69,925		200,397		270,322
	$	7,738,369	$	704,538	$	8,442,907

Three Months ended June 30, 2021	Medical/Life		Property and Casualty		Total
Regular
EBS		207,201		-		207,201
USBA		15,395		-		15,395
CCS/UIS		-		65,348		65,348
Montana		404,740		-		404,740
Fortman		276,634		226,337		502,971
Altruis		729,874		-		729,874
Kush		265,318		-		265,318
	$	1,899,162	$	291,685	$	2,190,847

Six Months ended June 30, 2021	Medical/Life		Property and Casualty		Total
Regular
EBS	$	416,195	$	-	$	416,195
USBA		27,620		-		27,620
CCS/UIS		-		154,166		154,166
Montana		939,856		-		939,856
Fortman		526,435		434,109		960,544
Altruis		1,750,878		-		1,750,878
Kush		265,318		-		265,318

	$	3,926,302	$	588,275	$	4,514,577

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

SCHEDULE OF CONCENTRATIONS OF REVENUES

Insurance Carrier	2022			2021
	For the three months ended June 30,
Insurance Carrier	2022			2021
LTC Global		30	%		-	%
Priority Health		20	%		31	%
BlueCross BlueShield		-	%		28	%

Insurance Carrier	2022			2021
	For the six months ended June 30,
Insurance Carrier	2022			2021
BlueCross BlueShield		10	%		25	%
Priority Health		25	%		33	%
LTC Global		28	%		-	%

No other single Customer accounted for more than 10% of the Company’s commission revenues. The loss of any significant customer, including Priority Health, BlueCross BlueShield and LTC Global could have a material adverse effect on the Company.

Income Taxes

The Company recorded no income tax expense for the three and six months ended June 30, 2022 and 2021 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, 2022 and December 31, 2021, 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.

Prior Period Adjustments

The Company identified certain immaterial adjustments impacting prior reporting periods. Specifically, the Company identified adjustments to correct certain asset, liability and equity accounts in relation to historical purchase price allocation accounting, historical accrued revenues and true ups of the common stock issuable account.

The Company assessed the materiality of the adjustments to prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. (SAB) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and ASC 250, Accounting Changes and Error Corrections.

Accordingly, the Company’s comparative condensed consolidated financial statements and impacted notes have been revised from amounts previously reported to reflect these adjustments. The following table illustrates the impact on previously reported amounts and adjusted balances presented in the condensed consolidated financial statements for the period ended June 30, 2022.

Account	12/31/2020 As reported			Adjustment			12/31/2020 Adjusted
Earn-out liability		2,631,418			300,000			2,931,418
Goodwill		9,265,070			(503,345	)		8,761,725
Common stock issuable		822,116			(482,116	)		340,000
Additional paid-in-capital		11,377,123			182,116			11,559,239
Accumulated Deficit		(12,482,281	)		122,601			(12,359,680	)

Account	3/31/2021 As reported			Adjustment			3/31/2021 Adjusted
Common stock issuable		482,116			(482,116	)		0
Additional paid-in-capital		25,810,147			182,116			25,992,263
Accumulated Deficit		(13,123,609	)		150,003			(12,973,606	)

Recently Issued Accounting Pronouncements

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