Overview
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.
We operate 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. The Company is controlled by the
same management team as Reliance Global Holdings, LLC ("Reliance Holdings"), a
New York based firm that is the owner and operator of numerous companies with
core interests in real estate and insurance. Our relationship with Reliance
Holdings provides us with significant benefits: (1) experience, knowledge, and
industry relations; (2) a source of acquisition targets currently under Reliance
Holdings' control; and (3) financial and logistics assistance. We are led and
advised by a management team that offers over 100 years of combined business
expertise in real estate, insurance, and the financial service industry.
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, 2022, we have acquired ten insurance agencies, including both
affiliated and unaffiliated companies and long term, we seek to conduct all
transactions and acquisitions through our direct operations.
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.
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 launched during
the summer of 2021 and 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 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 30%.
Business Trends and Uncertainties
The insurance intermediary business is highly competitive, and we actively
compete with numerous firms for customers, properties 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. A
number of insurance companies are engaged in the direct sale of insurance,
primarily to individuals, and do not pay commissions to agents and brokers.
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Financial Instruments
The Company's financial instruments as of September 30, 2022, consist of
derivative warrants. These are accounted at fair value as of inception/issuance
date, and at fair value as of each subsequent balance sheet date. Any change in
fair value is recorded as non-operating, (non-cash) gain or loss.
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 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 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 the balance sheet date, we have acquired ten insurance brokerages (see
table below), including both acquisitions of affiliated companies (i.e., owned
by Reliance Holdings before the acquisition) and unaffiliated companies. 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.
Line of
Acquired Date Location Business Status
U.S. Benefits Alliance, October 24, 2018 Michigan Health Affiliated
LLC (USBA) Insurance
Employee Benefit October 24, 2018 Michigan Health Affiliated
Solutions, LLC (EBS) Insurance
Commercial Solutions of December 1, 2018 New Jersey P&C - Unaffiliated
Insurance Agency, LLC Trucking
(CCS or Commercial Industry
Solutions)
Southwestern Montana April 1, 2019 Montana Group Health Unaffiliated
Insurance Center, Inc. Insurance
(Southwestern Montana or
Montana)
Fortman Insurance Agency, May 1, 2019 Ohio P&C and Unaffiliated
LLC (Fortman or Fortman Health
Insurance) Insurance
Altruis Benefits September 1, 2019 Michigan Health Unaffiliated
Consultants, Inc. Insurance
(Altruis)
UIS Agency, LLC (UIS) August 17, 2020 New York Health Unaffiliated
Insurance
J.P. Kush and Associates, May 1, 2021 Michigan Health Unaffiliated
Inc. (Kush) Insurance
Medigap Healthcare January 10, 2022 Florida Health Unaffiliated
Insurance Agency, LLC Insurance
(Medigap)
Barra & Associates, LLC April 26, 2022 Illinois Health Unaffiliated
Insurance
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J.P. Kush and Associates, Inc. Transaction
On May 1, 2021, we entered into a Purchase Agreement with J.P. Kush and
Associates, Inc. whereby we purchased the business and certain assets noted
within the Purchase Agreement (the "Kush Acquisition") for a total purchase
price of $3,644,166. The purchase price was paid with a cash payment of
$1,900,000, $50,000 in restricted shares of our common stock, in a transaction
exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as
amended, and an earn-out payment.
The Kush Acquisition was accounted for as a business combination in accordance
with the acquisition method under the guidance in ASC 805-10 and 805-20.
Accordingly, the total purchase consideration was allocated to intangible assets
acquired based on their respective estimated fair values. The acquisition method
of accounting requires, among other things, that assets acquired, and
liabilities assumed, if any, in a business purchase combination be recognized at
their fair values as of the acquisition date. The process for estimating the
fair values of identifiable intangible assets and certain tangible assets
requires the use of significant estimates and assumptions, including estimating
future cash flows, developing appropriate discount rates, estimating the costs,
and timing.
The allocation of the purchase price in connection with the Kush Acquisition was
calculated as follows:
Weighted Average
Useful Life
Description Fair Value (Years)
Accounts receivable $ 291,414
Trade name and trademarks 685,400 5
Customer relationships 551,000 10
Non-competition agreements 827,800 5
Goodwill 1,288,552 Indefinite
$ 3,644,166
Goodwill of $1,288,552 arising from the Kush 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 Kush
Acquisition is currently expected to be deductible for income tax purposes.
Total acquisition costs for the Kush Acquisition incurred were $58,092 recorded
as a component of General and administrative expenses. The approximate revenue
and net profit for the acquired business as a standalone entity per ASC 805 from
January 1, 2021 to April 30, 2021 was $380,349 and $166,667, respectively, and
from January 1, 2020 to December 31, 2020, $1,141,047 and $500,000,
respectively.
Medigap Healthcare Insurance Agency, LLC Transaction
On January 10, 2022, pursuant to an asset purchase agreement, dated December 21,
2021, we completed the acquisition of all of the assets of Medigap Healthcare
Insurance Company, LLC ("Medigap") for a purchase price of $20,096,250
consisting of: (i) payment to Medigap of $18,138,750 in cash and (ii) the
issuance to Medigap of 606,037 shares of the Company's restricted common stock
in a transaction exempt from registration under Section 4(a)(2) of the
Securities Act of 1933, as amended. The purchase price is subject to
post-closing adjustment to reconcile certain pre-closing credits and liabilities
of the parties. The shares issued to Medigap as part of the purchase price are
subject to lock up arrangements pursuant to which 50% of the shares may be sold
after the one-year anniversary of the date of closing of the transaction and the
balance of the shares may be sold after the second-year anniversary of the date
of closing of the transaction.
The acquisition of Medigap was accounted for as a business combination in
accordance with the acquisition method under the guidance in ASC 805-10 and
805-20. Accordingly, the total purchase consideration was allocated to
intangible assets acquired based on their respective estimated fair values. The
acquisition method of accounting requires, among other things, that assets
acquired, and liabilities assumed, if any, in a business purchase combination be
recognized at their fair values as of the acquisition date. The process for
estimating the fair values of identifiable intangible assets and certain
tangible assets requires the use of significant estimates and assumptions,
including estimating future cash flows, developing appropriate discount rates,
estimating the costs, and timing.
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The allocation of the purchase price in connection with the acquisition of
Medigap was calculated as follows:
Weighted Average
Useful Life
Description Fair Value (Years)
Property, plant and equipment $ 20,666 6
Right-of-use asset 317,787
Trade name and trademarks 340,000 15
Customer relationships 4,550,000 12
Technology 67,000 3
Backlog 210,000 1
Chargeback reserve (1,484,473 )
Lease liability (317,787 )
Goodwill 19,199,008 Indefinite
$ 22,902,201
Goodwill of $19,199,008 arising from the acquisition of Medigap consisted of the
value of the employee workforce and the residual value after all identifiable
intangible assets were valued. Goodwill recognized pursuant to the acquisition
of Medigap is currently expected to be deductible for income tax purposes. Total
acquisition costs for the acquisition of Medigap incurred were $94,065 recorded
as a component of General and administrative expenses. The approximate revenue
and net profit or loss for the acquired business as a standalone entity per ASC
805 from January 10, 2022 to September 30, 2022 was $3,868,654 and a loss of
$693,861, respectively.
Barra & Associates, LLC Transaction
On April 26, 2022, we entered into an asset purchase agreement (the "APA") with
Barra & Associates, LLC ("Barra") pursuant to which the Company purchased all of
the assets of Barra & Associates, LLC on April 26, 2022 for a purchase price in
the amount of $7,725,000 in cash, with $6,000,000 paid to Barra at closing,
$1,125,000 payable in nine months from closing, and a final earnout of $600,000
payable over two years from closing based upon meeting stated milestones. The
APA contains standard, commercial representations and warranties and covenants.
The source of the cash payment was $6,520,000 in funds borrowed from Oak Street
Lending ("Loan"), our existing lender pursuant to a Fifth Amendment to Credit
Agreement and Promissory Note, of even date. The purchase price is subject to
post-closing adjustment to reconcile certain pre-closing credits and liabilities
of the parties.
The acquisition of Barra was accounted for as a business combination in
accordance with the acquisition method pursuant to FASB Topic No. 805, Business
Combination (ASC 805). Accordingly, the total purchase consideration was
allocated to the assets acquired, and liabilities assumed based on their
respective estimated fair values. The acquisition method of accounting requires,
among other things, that assets acquired, and liabilities assumed, if any, in a
business purchase combination be recognized at their fair values as of the
acquisition date. The process for estimating the fair values of identifiable
intangible assets and certain tangible assets requires the use of significant
estimates and assumptions, including estimating future cash flows, developing
appropriate discount rates, estimating the costs, and timing.
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The preliminary allocation of the purchase price in connection with the
acquisition of Medigap was calculated as follows:
Weighted
Average Useful
Description Fair Value Life (Years)
Acquired accounts receivable $ 92,585
Property, plant and equipment 8,593 7
Right-of-use asset 122,984
Trade names 22,000 4
Customer relationships 550,000 10
Developed technology 230,000 5
Agency relationships 2,585,000 10
Lease liability (122,984 )
Goodwill 4,236,822 Indefinite
$ 7,725,000
Goodwill of $4,236,822 arising from the acquisition of Barra consisted of the
value of the employee workforce and the residual value after all identifiable
intangible assets were valued. Goodwill recognized pursuant to the acquisition
of Barra is currently expected to be deductible for income tax purposes. Total
acquisition costs incurred through September 30, 2022 for the acquisition of
Barra were 72,793 recorded as a component of General and administrative
expenses.
The approximate revenue and net profit or loss for the acquired business as a
standalone entity per ASC 805 from April 26, 2022 to September 30, 2022 was
$655,002 and a loss of $182,603, respectively.
Recent Developments
Private Placement
On December 22, 2021, we entered into a securities purchase agreement with
several institutional buyers for the purchase and sale of (i) warrants to
purchase up to an aggregate of 9,779,952 shares of the Company's common stock,
par value $0.086 per share at an exercise price of $4.09 per share, (ii) an
aggregate of 2,670,892 shares of Common Stock, and (iii) 9,076 shares of the
Company's newly-designated Series B convertible preferred stock, par value
$0.086 per share, with a stated value of $1,000 per share, initially convertible
into an aggregate of 2,219,084 shares of Common Stock at a conversion price of
$4.09 per share in a private placement (the "Private Placement").
On January 5, 2022, pursuant to the securities purchase agreement dated December
22, 2021, the Private Placement was closed. The Private Placement resulted in
aggregate gross proceeds to us of approximately $20,000,000, before deducting
placement agent fees and other offering expenses payable by us. The Warrants are
exercisable upon issuance and will expire five years from the date of issuance.
In connection with the Private Placement, we issued to the placement agent
warrants to purchase 244,539 shares of the Company's Common Stock at an exercise
price of $4.09 per share (the "Placement Agent Warrants"). The Placement Agent
Warrants have substantially the same terms as the Warrants issued in the Private
Placement.
During August 2022, all 9,076 Series B Convertible Preferred Stock were
converted by third parties into 2,219,084 shares of common stock.
Nasdaq Notification and Warrant Exchange
On January 31, 2022, we received a deficiency notification from Nasdaq regarding
the issuance of shares in the Medigap Acquisition and Private Placement in
violation of Listing Rule 5635(a). This rule requires an issuer to obtain
shareholder approval with respect to an acquisition paid for from the proceeds
of a sale of common stock of the issuer which equals or exceeds 20% of the
shares of the issuer, issued and outstanding prior to the acquisition. The
Company submitted a remediation plan under which the Nasdaq granted us an
extension to implement the required changes until May 10, 2022.
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As part of its remediation plan, on March 22, 2022 we entered into Exchange
Agreements with the holders of common stock issued in January 2022 resulting
from the Medigap Acquisition and Private Placement. Pursuant to the Exchange
Agreements, we issued 3,276,929 Series C prepaid warrants in exchange for
3,276,929 shares of our common stock that were previously issued. Additionally,
to compensate the Private Placement investors for entering into the Exchange
Agreements, we issued 1,222,498 Series D prepaid warrants to such investors for
no additional consideration on the same date. The fair value of the Series D
prepaid warrants upon issuance was $6,930,335; such amount was treated as a
deemed dividend and accordingly reduced income available to common stockholders
for the period. Shares of common stock underlying the Series C and D prepaid
warrants are treated as outstanding for purposes of calculating basic and
diluted earnings per share. The Series C warrants were exercised during the
quarter ended June 30, 2022. The Series D warrants were exercised during the
quarter ended September 30, 2022.
Stock Split
On January 21, 2021 we effected a reverse split of the issued and outstanding
shares of common stock in a ratio of 1:85.71 which simultaneously occurred with
the Company's uplisting to the Nasdaq Capital Market. The Company has adjusted
all of share and per share numbers to take into account this reverse stock
split.
Results of Operations
Comparison of the three months ended September 30, 2022 to the three months
ended September 30, 2021
The following table sets forth our revenue and operating expenses for each of
the years presented.
September 30, September 30,
2022 2021
Revenue
Commission income $ 4,153,361 $ 2,581,636
Total revenue 4,153,361 2,581,636
Operating expenses
Commission expense 862,857 660,708
Salaries and wages 2,114,730 1,188,267
General and administrative expenses 1,253,097 755,130
Marketing and advertising 726,115 65,010
Depreciation and amortization 713,444 387,729
Total operating expenses 5,670,243 3,056,844
Loss from operations (1,516,882 ) (475,208 )
Other expense, net 7,638,975 (120,025 )
Total Other income (expense) 7,638,975 (120,025 )
Net income (loss) 6,122,093 (595,233 )
Revenues
The Company's revenue is primarily comprised of commission paid by health
insurance carriers or their representatives related to insurance plans that have
been purchased by a member who used our services. We define a member as an
individual currently covered by an insurance plan, including individual and
family, Medicare-related, small business, and ancillary plans, for which the
Company is entitled to receive compensation from an insurance carrier.
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We had revenues of $4.2 million for the three months ended September 30, 2022,
as compared to $2.6 million for the three months ended September 30, 2021. The
increase of $1.6 million or 61% is primarily driven by organic growth and the
additional insurance agencies acquired in 2022.
Commission expense
We had total commission expense of $863,000 for the three months ended September
30, 2022 compared to $661,000 for the three months ended September 30, 2021. The
increase of $202,000 or 31% is primarily driven by organic growth and the
additional insurance agencies acquired in 2022.
Salaries and wages
We reported $2.1 million of salaries and wages expense for the three months
ended September 30, 2022 compared to $1.2 million for the three months ended
September 30, 2021. The increase of $926,000 or 78% is a result of the Company's
growth driven by expanded operations, both organic and due to the additional
insurance agencies acquired in 2022.
General and administrative expenses
We had total general and administrative expenses of $1.3 million for the three
months ended September 30, 2022, as compared to $755,000 for the three months
ended September 30, 2021. The increase in expense of $498,000 or 66% is a result
of the Company's growth driven by expanded operations, both organic and due to
the additional insurance agencies acquired in 2022.
Marketing and advertising
We reported $726,000 of marketing and advertising expense for the three months
ended September 30, 2022 compared to $65,000 for the three months ended
September 30, 2021. The increase of $661,000 or 1,017% is primarily a result of
Medigap's direct business to consumer marketing model deployed through social
media platforms, in addition to overall increased branding and outreach efforts
to achieve greater industry presence.
Depreciation and amortization
We reported $713,000 of depreciation and amortization expense for the three
months ended September 30, 2022 compared to $388,000 for the three months ended
September 30, 2021. The increase of $326,000 or 84% is primarily a result of our
acquired tangible and intangible assets through business combinations.
Other income and expense
We reported $7.6 million of other income for the three months ended September
30, 2022 compared to $120,000 of other expense for the three months ended
September 30, 2021. The increase of $7.8 million or 6,464% is attributable
primarily to the change in fair value of warrant liabilities of $7.9 million
driven by various factors including the Company's stock price as of the period
close, offset by interest expense.
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Comparison of the Nine months ended September 30, 2022 to the Nine months ended
September 30, 2021
The following table sets forth our revenue and operating expenses for each of
the periods presented.
September 30, September 30,
2022 2021
Revenue
Commission income $ 12,596,268 $ 7,096,213
Total revenue 12,596,268 7,096,213
Operating expenses
Commission expense 2,617,140 1,748,451
Salaries and wages 6,373,697 3,217,441
General and administrative expenses 5,465,384 2,961,881
Marketing and advertising 1,922,520 143,110
Depreciation and amortization 2,077,372 1,090,183
Total operating expenses 18,456,113 9,161,066
Loss from operations (5,859,845 ) (2,064,853 )
Total Other income (expense) 31,817,630 (421,192 )
Net income (loss) $ 25,957,785 $ (2,486,045 )
Revenues
We had revenues of $12.6 million for the nine months ended September 30, 2022,
as compared to $7.1 for the nine months ended September 30, 2021. The increase
of $5.5 million or 78% is primarily driven by organic growth and the additional
insurance agencies acquired in 2022.
Commission expense
We had total commission expense of $2.6 million for the nine months ended
September 30, 2022 compared to $1.7 million for the nine months ended September
30, 2021. The increase of $0.9 million or 50% is primarily driven by organic
growth and the additional insurance agencies acquired in 2022.
Salaries and wages
We reported $6.4 million of salaries and wages expense for the nine months ended
September 30, 2022 compared to $3.2 million for the nine months ended September
30, 2021. The increase of $3.2 million or 98% is primarily driven by expanded
operations, both organic and due to the additional insurance agencies acquired
in 2022.
General and administrative expenses
We had total general and administrative expenses of $5.5 million for the nine
months ended September 30, 2022, as compared to $3.0 million for the nine months
ended September 30, 2021. The increase in expense of $2.5 million or 85% is
primarily driven by expanded operations, both organic and due to the additional
insurance agencies acquired in 2022.
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Marketing and advertising
We reported $1.9 million of marketing and advertising expense for the nine
months ended September 30, 2022 compared to $143,000 for the nine months ended
September 30, 2021. The increase of $1.8 million or 1,243% is primarily a result
of Medigap's direct business to consumer marketing model deployed through social
media platforms, in addition to overall increased branding and outreach efforts
to achieve greater industry presence.
Depreciation and amortization
We reported $2.1 million of depreciation and amortization expense for the nine
months ended September 30, 2022 compared to $1.1 million for the nine months
ended September 30, 2021. The increase of $1.0 million or 91% is a result of the
assets we acquired through business combinations.
Other income and expense
We reported $31.8 million of other income for the nine months ended September
30, 2022 compared to a loss of $421,000 for the nine months ended September 30,
2021. The increase of $32.2 million or 7,654% is attributable primarily to the
recognition and change in fair value of warrant liabilities of $32.4 million
driven by various factors including the Company's stock price as of the period
close, offset by interest expense.
Liquidity and capital resources
As of September 30, 2022, we had a cash balance of $3.0 million and a working
capital deficit of $3.5 million compared with a cash balance of $4.6 million and
working capital deficit of $37 million at December 31, 2021. The increase in
working capital is primarily attributable to the issuance of the derivative
warrant liability commitments, effectively reclassifying them from current to
non-current liabilities.
The spread of the coronavirus (COVID-19) outbreak in the United States has
resulted in economic uncertainties which may negatively impact our business
operations. While the disruption is expected to be temporary, there is
uncertainty surrounding the duration and extent of the impact. Currently we have
not seen any material financial impact as a result of the coronavirus outbreak.
However, management is actively monitoring the global situation on its financial
condition, liquidity, operations, industry and workforce.
Adverse events such as health-related concerns about working in our offices, the
inability to travel and other matters affecting the general work environment
could harm our business and our business strategy. While we do not anticipate
any material impact to our business operations as a result of the coronavirus,
in the event of a major disruption caused by the outbreak of pandemic diseases
such as coronavirus, we may lose the services of our employees or experience
system interruptions, which could lead to diminishment of our business
operations. Any of the foregoing could harm our business and delay the
implementation of our business strategy and we cannot anticipate all the ways in
which the current global health crisis and financial market conditions could
adversely impact our business.
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 to
pricing and operating expenses in future periods due to the state of the economy
and current inflation rates.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements as such term is defined in
Regulation S-K.
Cash Flows
Nine Months Ended
September 30,
2022 2021
Net cash used in operating activities $ (2,177,998 ) $ (1,304,320 )
Net cash used in investing activities (24,982,609 ) (1,963,897 )
Net cash provided by financing activities 25,564,501 8,878,110
Net (decrease) increase in cash, cash
equivalents, and restricted cash $ (1,596,106 ) $ 5,609,893
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Operating Activities
Net cash used in operating activities for the nine months ended September 30,
2022 was $2.2 million, which includes net income of $26.0 million offset by
non-cash income of $28.9 million principally related to recognition and change
in fair value of warrant liabilities of $32.4 million, offset by an earn-out
fair value adjustment of $132,445, share based compensation expense of $1.2
million, and depreciation and amortization of $2.1 million, as well as changes
of net working capital items in the amount of $760,000 principally due to a
decrease in accounts receivable of $92,000, a decrease in prepaid expense and
other current assets of $2.3 million, an increase in other payables of $35,000,
offset by decreases in accounts payable and accrued expenses of $1.5 million and
decrease of the chargeback reserve of $134,000.
Investing Activities
During the nine months ended September 30, 2022, cash flows used in investing
activities were $25.0 million compared to cash flow used in investing activities
of $2.0 million for the nine months ended September 30, 2021. The cash used
relates to cash paid for the acquisition of Medigap and Barra of $24.1 million,
the purchase of property and equipment of $68,000 and cash paid of $776,000 for
intangible assets.
Financing Activities
During the nine months ended September 30, 2022, cash provided by financing
activities was $25.6 million as compared to $8.9 million for the nine months
ended September 30, 2021. The net cash provided by financing activities is
primarily related to proceeds from the Private Placement offering in January
2022. The net proceeds from the issuance of these shares was $17.9 million.
Additionally, we received proceeds of $2.5 million from the exercise of Series A
warrants, $6.5 million through loan proceeds received for a business acquisition
and $1.5 million through a related party loan. These were offset by debt
principal repayments of $663,000, payment of debt issuance costs of $214,000,
payment of a related party loan of $174,000, payments on the earn out liability
of $1.6 million and short term financing of $107,000.
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, 2021. There
have been no significant changes in our significant accounting policies or
critical accounting estimates since the end of fiscal year 2021.
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