Reliance Global Group, Inc. (formerly known as Ethos Media Network, Inc.) was incorporated in Florida on August 2, 2013. In September 2018, Reliance Global Holdings, LLC, a related party, purchased a controlling interest in the Company. Ethos Media Network, Inc. was renamed Reliance Global Group, Inc. on October 18, 2018.
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.
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 in order to achieve asset value appreciation while generating interim cash flows. In the insurance sector, our management team has over 100 years of experiences 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 will 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.
Goodwill of $578,840 arising from the USBA Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the USBA Acquisition is currently expected to be deductible for income tax purposes.
On December 1, 2018, Commercial Coverage Solutions LLC, a wholly-owned subsidiary of the Company (“CCS”) entered into a Purchase Agreement with Commercial Solutions of Insurance Agency, LLC (“CSIA”) whereby CCS purchased the business and certain assets of CSIA noted within the Purchase Agreement (the “CSIA Acquisition”) for a total purchase price of $1,200,000. The total purchase price was made up of (1) a cash payment of $1,080,000 (the “Cash Payment”) on the “Closing Date” or the first bank business day thereafter (i.e. December 1, 2018); (2) the balance of the purchase price, having a value of $120,000, paid in the form of 8,889 shares of common stock in the Company, issued at a per-share price equal to Fifteen and 75/100 Cents ($13.50) (the “Closing Shares”); and (3) the amount of any cash necessary to satisfy the required closing date working capital set off against the Cash Payment by CCS. “Required closing date working capital” consisted only of cash and pre-paid rent and/or security deposits or pre-payments or deposits for any assumed liabilities. The Closing Shares were transferred from the shares owned by Reliance Holdings and were transferred subsequent to December 31, 2018; and as a result, is a component of Loans payables, related parties on the accompanying Consolidated Balance Sheets.
Goodwill of $851,752 arising from the CSIA Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the CSIA Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the CSIA Acquisition incurred were $113,247.
On April 1, 2019, Southwestern Montana Insurance Center, LLC (“SWMT”), a wholly owned subsidiary of Reliance Holdings, acquired Southwestern Montana Financial Center, Inc. SWMT is an insurance services firm which specializes in providing group and individual health lines of insurance. On September 17, 2019, Reliance Holdings, transferred all of the outstanding membership interest in SWMT to the Company.
The allocation of the purchase price in connection with the SWMT Acquisition was calculated as follows:
Goodwill of $1,217,790 arising from the SWMT Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the SWMT Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the FIS Acquisition were $122,660, which were paid in full by Reliance Global Holdings, LLC, a related party.
Goodwill of $1,269,731 arising from the FIS Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the FIS Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the FIS Acquisition were $63,663, which were paid in full by Reliance Global Holdings, LLC, a related party.
The operating results of the acquired business has been included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2019. The revenues of the acquired business for the period from May 1, 2019 to December 31, 2019 was $1,166,778 and the net income was $9,773. The revenues and net income for the acquired business as a standalone entity per ASC 805 from January 1, 2019 to December 31, 2019 were $1,780,427 and $176,154. The revenues of the acquired business for the year ending December 31, 2020 was $2,134,177 and the net income was $246,681.
Goodwill of $4,949,329 arising from the ABC Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the ABC Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the ABC Acquisition incurred were $92,172 recorded as a component of General and administrative expenses on the accompanying Consolidated Statement of Operations for the year ended December 31, 2019.
Goodwill of $716,462 arising from the UIS Acquisition consisted of the value of the employee workforce and the residual value after all identifiable intangible assets were valued. Goodwill recognized pursuant to the UIS Acquisition is currently expected to be deductible for income tax purposes. Total acquisition costs for the UIS Acquisition incurred were $33,344 recorded as a component of General and administrative expenses. The revenues of the acquired business for the period from August 17, 2020 to December 31, 2020 was $65,018. The revenues for the acquired business as a standalone entity per ASC 805 from January 1, 2020 to December 31, 2020 were $377,921. The net loss for the acquired business was not determinable as the business was fully integrated with an existing subsidiary of the Company.
On February 19, 2020, the Company entered into a securities purchase agreement with NSURE, Inc. (“NSURE”) whereas the Company may invest up to an aggregate of $20,000,000 in NSURE which will be funded with three tranches. In exchange, the Company will receive a total of 5,837,462 shares of NSURE’s Class A Common Stock, which represents 35% of the outstanding shares. The first tranche of $1,000,000 was paid immediately upon execution of the agreement. As a result of the first tranche, the Company received 291,873 shares of NSURE’s Class A Common Stock. The second tranche of $3,000,000 and third tranche of $16,000,000 were originally scheduled for a date in 2020, but the Company has decided to not make any additional purchases of NSURE’s stock. The Company is not legally obligated to make any further purchases of stock. The Company will use the cost method of acquisition for the initial recognition of this investment. Once the Company determines that it can exercise significant influence over NSURE, it will begin to account for its investment under the equity method. On June 1, 2020, the Company invested an additional $200,000 and received 58,375 shares of NSURE Class A Common Stock. On August 5, 2020 and August 20, 2020, the Company invested an additional $100,000 and $50,000, respectively, for which the Company received 43,781 shares of NSURE Class A common stock. As of December 31, 2020, the investment balance is $1,350,000.
In September 2020, the Company issued 31,111 shares of stock according to a stock purchase agreement and received proceeds of $200,000. Reliance Holdings guaranteed the recipient that after 12 months of the purchase of these shares they will be worth at least $200,000 total or $100,000 respectively to each of the two recipients. If the shares at the end of 12 months are not equal to $100,000 Reliance Holdings will either transfer some of its own shares or give cash for the difference.
Comparison of the year ended December 31, 2020 to the year ended December 31, 2019
The Company had revenues of $7,279,530 for the year ended December 31, 2020, as compared to $4,450,785 for the year ended December 31, 2019. The increase of $2,828,745 was primarily due to the insurance agencies acquired in 2019 reporting revenue for the full twelve months of 2020 compared to partial year of revenue for the agencies acquired in 2019. Altruis, which was purchased in September 2019, contributed approximately $2,372,424 towards the revenue increase. The additional variance was primarily due to the fact that SWMT and FIS which were acquired during April and May of 2019 respectively and also had twelve months of revenues reported in 2020. SWMT and FIS reported revenues of $1,563,370 and $2,154,350 respectively for the year ending December 31, 2020.
The Company reported $3,654,284 of salaries and wages expense for the year ending December 31, 2020 compared to the year ending December 31, 2019. The increase of $1,337,751 or 58% is attributable to FIS, SWMT and Altruis which since acquired have not reported a full 12 months of expenses. For the year ended December 31, 2020 the three companies comprised $2,260,193 of the total expense for the current year under Audit. The Company is made up of insurance agents and front office employees.
The Company had total general and administrative expenses of $4,205,797 for the year ending December 31, 2020, as compared to $3,638,896 for the year ending December 31, 2019. The increase in expense was due to $566,901 of additional stock option expense and professional fees increased approximately $250,000 due to the Company preparing to become public which increased Audit, legal and consulting fees.
The Company reported $168,778 of marketing and advertising expense for the year ending December 31, 2020 compared to $165,574 for the year ending December 31, 2019. The increase of $3,204 is consistent with the prior year.
The Company reported $563,287 of other expense for the year ending December 31, 2020 compared to $391,570 for the year ending December 31, 2019. The decrease of $171,717 or 44% is attributable to interest expense, loan fees and debt issuance cost amortization, which totaled $563,327 offset by other income of $27,497. Additionally, the Company’s PPP loan, $508,700, was forgiven in November of 2020.
As of December 31, 2020, the Company had a cash balance of $529,581 and working capital deficit of $6,073,982 compared with a cash balance of $6,703 and a working capital deficit of $4,020,803 at December 31, 2019. The increase in working capital deficit was caused by the increased working capital deficit of the entities acquired in 2020 and 2019.
In 2020 the Company acquired one agency, UIS Agency LLC, and in 2019, the Company acquired three additional agencies to grow the company and improve profitability. Since these acquisitions are recent, management’s plans to achieve operational efficiencies and reduce expenses to enable the Company to continue to meet its obligations for at least the next twelve months. Additionally, Reliance Holdings has committed to fund the Company for at least the next 12 months in the event that the capital raise is not successful.
We do not have any off-balance sheet arrangements as such term is defined in Regulation S-K.
During the year ended December 31, 2020, cash flows used in investing activities were $1,946,194 compared to cash flow used in investing activities of $11,879,652 for the year ended December 31, 2019. The decrease in cash used in investing activities was due to one agency being acquired in 2020 compared to three agencies acquired in 2019. Net cash used in investing activities for the year ended December 31, 2020 was $1,946,194 due to the investment the Company made in NSURE, Inc. of $1,350,000 and the acquisition of UIS Agency LLC.
● Deferred tax assets, including projections of future taxable income and tax rates;
Contingencies: We are subject to the possibility of losses from various contingencies. Significant judgment is necessary to estimate the probability and amount of a loss, if any, from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be reasonably estimated. In accounting for the resolution of contingencies, significant judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution and amounts related to future periods.
Goodwill and intangible assets: We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.
We test other identified intangible assets with definite useful lives when events and circumstances indicate the carrying value may not be recoverable by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We test intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows. Estimating fair values involves significant assumptions, including future sales prices, sales volumes, costs, and discount rates.
All commission revenue is recorded net of any deductions for estimated commission adjustments due to lapses, policy cancellations, and revisions in coverage.
Stock-based compensation: Stock-based compensation is estimated at the grant date based on the fair value of the award and is recognized as expense using the straight-line amortization method over the requisite service period. For performance-based stock awards, the expense recognized is dependent on our assessment of the likelihood of the performance measure being achieved. We utilize forecasts of future performance to assess these probabilities and this assessment requires significant judgment.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires significant judgment, including estimating stock price volatility and expected option life. We develop these estimates based on historical data and market information which can change significantly over time. A small change in the estimates used can result in a relatively large change in the estimated valuation. We use the Black-Scholes option valuation model to value employee stock options and awards granted under our employee stock purchase plan. We estimate stock price volatility based on our historical volatility implied volatility derived from traded options on our stock.
See the financial statements filed as part of this Annual Report on Form 10-K as listed under Item 15 below.