July 24, 2024

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Reliance Global Group, Inc. 10-Q May. 13, 2021 5:15 PM

35 min read


Item
1A. Risk Factors.


 


The
following important factors, among others, could cause our actual operating results to differ materially from those indicated or suggested
by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time to time. Investors should carefully
consider the risks described below before making an investment decision. The risks described below are not the only ones we face. Additional
risks not presently known to us or that we currently believe are not material may also significantly impair our business operations.
Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and
investors may lose all or part of their investment.


 


Risks
Related to Our Business


 


We
may experience significant fluctuations in our quarterly and annual results.


 


Fluctuations
in our quarterly and annual financial results have resulted and will continue to result from numerous factors, including:


 

















 


The
Company having a limited operating history

 


The
Company has limited resources and there is significant competition for business combination opportunities. Therefore, the Company
may not be able to acquire other assets or businesses

 


The
Company may be unable to obtain additional financing, if required, to complete an acquisition, or to Company the operations and growth
of existing and target business, which could compel the Company to restructure a potential business transaction or abandon a particular
business combination

 


Our
inability to retain or hire qualified employees, as well as the loss of any of our executive officers, could negatively impact our
ability to retain existing business and generate new business

 


Our
growth strategy depends, in part, on the acquisition of other insurance intermediaries, which may not be available on acceptable
terms in the future or which, if consummated, may not be advantageous to us

 


A
cybersecurity attack, or any other interruption in information technology and/or data security and/or outsourcing relationships,
could adversely affect our business, financial condition and reputation

 


Rapid
technological change may require additional resources and time to adequately respond to dynamics, which may adversely affect our
business and operating results

 


Changes
in data privacy and protection laws and regulations, or any failure to comply with such laws and regulations, could adversely affect
our business and financial results

 


Because
our insurance business is highly concentrated in Michigan, New Jersey, Montana and Ohio, adverse economic conditions, natural disasters,
or regulatory changes in these regions could adversely affect our financial condition

 


If
we fail to comply with the covenants contained in certain of our agreements, our liquidity, results of operations and financial condition
may be adversely affected

 


Certain
of our agreements contain various covenants that limit the discretion of our management in operating our business and could prevent
us from engaging in certain potentially beneficial activities

 


There
are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance
with United States Generally Accepted Accounting Principles (U.S. GAAP). Any changes in estimates, judgments and assumptions could
have a material adverse effect on our financial position and results of operations and therefore our business

 


Improper
disclosure of confidential information could negatively impact our business

 


Our
business, results of operations, financial condition and liquidity may be materially adversely affected by certain actual and potential
claims, regulatory actions and proceedings


 


These
factors, some of which are not within our control, may cause the price of our common stock to fluctuate substantially. If our quarterly
operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and
significantly. We believe quarterly comparisons of our financial results are not always meaningful and should not be relied upon as an
indication of our future performance.


 







 


The
Company has a limited operating history.


 


Since
the change of control which took place in September of 2018, the Company’s operations have been limited to acquiring the insurance
agencies as described in the “Insurance Operations” and “Overview”. Investors will have little basis upon which
to evaluate the Company’s ability to achieve the Company’s business objectives which are to acquire, own and operate insurance
agencies.


 


The
Company has limited resources and there is significant competition for business combination opportunities. Therefore, the Company may
not be able to acquire other assets or businesses.


 


The
Company expects to encounter intense competition from other entities having a business objective similar to the Company’s, which
are also competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting
business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources
than the Company does, and the Company’s financial resources are limited when contrasted with those of many of these competitors.
While the Company believes that there are numerous potential target businesses that it could acquire, the Company’s ability to
compete in acquiring certain sizable target businesses might be limited if the Company’s limited financial resources are less than
that of its competitors. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target
businesses.


 


The
Company may be unable to obtain additional financing, if required, to complete an acquisition, or to Company the operations and growth
of existing and target business, which could compel the Company to restructure a potential business transaction or abandon a particular
business combination.


 


To
date, much of our capital for acquiring insurance agencies and operating the ones we have acquired has come from funds provided by Reliance
Global Holdings our affiliate, and from loans from unaffiliated lenders. We may be required to seek additional financing. We cannot assure
you that such financing would be available on acceptable terms, if at all. If additional financing proves to be unavailable, we would
be compelled to restructure or existing business, or abandon a proposed acquisition or acquisitions. In addition, if we consummate additional
acquisitions, we may require additional financing to Company the operations or growth of that business. The failure to secure additional
financing could have a material adverse effect on the continued development or growth of our business.


 


Our
inability to retain or hire qualified employees, as well as the loss of any of our executive officers, could negatively impact our ability
to retain existing business and generate new business.


 


Our
success depends on our ability to attract and retain skilled and experienced personnel. There is significant competition from within
the insurance industry and from businesses outside the industries for exceptional employees, especially in key positions. If we are not
able to successfully attract, retain and motivate our employees, our business, financial results and reputation could be materially and
adversely affected.


 


Losing
employees who manage or support substantial customer relationships or possess substantial experience or expertise could adversely affect
our ability to secure and complete customer engagements, which would adversely affect our results of operations. Also, if any of our
key personnel were to join an existing competitor or form a competing company, some of our customers could choose to use the services
of that competitor instead of our services. While our key personnel are generally prohibited by contract from soliciting our employees
and customers for a two-year period following separation from employment with us, they are not prohibited from competing with us.


 


In
addition, we could be adversely affected if we fail to adequately plan for the succession of our senior leaders and key executives. We
cannot guarantee that the services of these executives will continue to be available to us. The loss of our senior leaders or other key
personnel, or our inability to continue to identify, recruit and retain such personnel, or to do so at reasonable compensation levels,
could materially and adversely affect our business, results of operations, cash flows and financial condition.


 







 


Our
growth strategy depends, in part, on the acquisition of other insurance intermediaries, which may not be available on acceptable terms
in the future or which, if consummated, may not be advantageous to us.


 


Our
growth strategy partially includes the acquisition of other insurance intermediaries. Our ability to successfully identify suitable acquisition
candidates, complete acquisitions, integrate acquired businesses into our operations, and expand into new markets requires us to implement
and continuously improve our operations and our financial and management information systems. Integrated, acquired businesses may not
achieve levels of revenues or profitability comparable to our existing operations, or otherwise perform as expected. In addition, we
compete for acquisition and expansion opportunities with firms and banks that may have substantially greater resources than we do. Acquisitions
also involve a number of special risks, such as diversion of management’s attention; difficulties in the integration of acquired
operations and retention of personnel; increase in expenses and working capital requirements, which could reduce our return on invested
capital; entry into unfamiliar markets or lines of business; unanticipated problems or legal liabilities; estimation of the acquisition
earn-out payables; and tax and accounting issues, some or all of which could have a material adverse effect on our results of operations,
financial condition and cash flows. Post-acquisition deterioration of operating performance could also result in lower or negative earnings
contribution and/or goodwill impairment charges.


 


A
cybersecurity attack, or any other interruption in information technology and/or data security and/or outsourcing relationships, could
adversely affect our business, financial condition and reputation.


 


We
rely on information technology and third-party vendors to provide effective and efficient service to our customers, process claims, and
timely and accurately report information to carriers and which often involves secure processing of confidential sensitive, proprietary
and other types of information. Cybersecurity breaches of any of the systems we rely on may result from circumvention of security systems,
denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee
or insider error, malfeasance, social engineering, physical breaches or other actions, any of which could expose us to data loss, monetary
and reputational damages and significant increases in compliance costs. An interruption of our access to, or an inability to access,
our information technology, telecommunications or other systems could significantly impair our ability to perform such functions on a
timely basis. If sustained or repeated, such a business interruption, system failure or service denial could result in a deterioration
of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other
necessary business functions. We have from time-to-time experienced cybersecurity breaches, such as computer viruses, unauthorized parties
gaining access to our information technology systems and similar incidents, which to date have not had a material impact on our business.


 


Additionally,
we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and
exposes us to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose
us to unexpected liabilities or make our own systems more vulnerable to attack. In the future, any material breaches of cybersecurity,
or media reports of the same, even if untrue, could cause us to experience reputational harm, loss of clients and revenue, loss of proprietary
data, regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard clients’
information or financial losses. Such losses may not be insured against or not fully covered through insurance we maintain.


 


Rapid
technological change may require additional resources and time to adequately respond to dynamics, which may adversely affect our business
and operating results.


 


Frequent
technological changes, new products and services and evolving industry standards are influencing the insurance businesses. The Internet,
for example, is increasingly used to securely transmit benefits, property and personal information, and related information to customers
and to facilitate business-to-business information exchange and transactions.


 


We
are continuously taking steps to upgrade and expand our information systems capabilities. Maintaining, protecting and enhancing these
capabilities to keep pace with evolving industry and regulatory standards, and changing customer preferences, requires an ongoing commitment
of significant resources. If the information we rely upon to run our businesses was found to be inaccurate or unreliable or if we fail
to effectively maintain our information systems and data integrity, we could experience operational disruptions, regulatory or other
legal problems, increases in operating expenses, loss of existing customers, difficulty in attracting new customers, or suffer other
adverse consequences.


 







 


Changes
in data privacy and protection laws and regulations, or any failure to comply with such laws and regulations, could adversely affect
our business and financial results.


 


We
are subject to a variety of continuously evolving and developing laws and regulations globally regarding privacy, data protection, and
data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data.
Significant uncertainty exists as privacy and data protection laws may be interpreted and applied differently from country to country
and may create inconsistent or conflicting requirements. These laws apply to transfers of information among our affiliates, as well as
to transactions we enter into with third party vendors. These and similar initiatives around the world could increase the cost of developing,
implementing or securing our servers and require us to allocate more resources to improved technologies, adding to our information technology
and compliance costs. In addition, enforcement actions and investigations by regulatory authorities related to data security incidents
and privacy violations continue to increase. The enactment of more restrictive laws, rules, regulations or future enforcement actions
or investigations could impact us through increased costs or restrictions on our business, and noncompliance could result in regulatory
penalties and significant legal liability.


 


Because
our insurance business is highly concentrated in Michigan, New Jersey, Montana and Ohio, adverse economic conditions, natural disasters,
or regulatory changes in these regions could adversely affect our financial condition.


 


A
significant portion of our insurance business is concentrated in Michigan, New Jersey, Montana and Ohio. For the three months ended March
31, 2021, and 2020 we derived $2,296,328 and $2,004,314 respectively or 100{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, of our quarterly revenue, respectively, from our operations
located in these regions (Q1 2021 – Michigan – 50{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, New Jersey – 4{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, Montana – 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} and Ohio – 26{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} and Q1 2020
– Michigan – 44{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, New Jersey – 5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, Montana – 24{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} and Ohio – 27{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}). The insurance business is primarily a state-regulated
industry, and therefore, state legislatures may enact laws that adversely affect the insurance industry. Because our business is concentrated
in these four states, we face greater exposure to unfavorable changes in regulatory conditions in those states than insurance intermediaries
whose operations are more diversified through a greater number of states. In addition, the occurrence of adverse economic conditions,
natural or other disasters, or other circumstances specific to or otherwise significantly impacting these states could adversely affect
our financial condition, results of operations and cash flows. We are susceptible to losses and interruptions caused by hurricanes or
other weather conditions, and other possible events such as terrorist acts and other natural or man-made disasters. Our insurance coverage
with respect to natural disasters is limited and is subject to deductibles and coverage limits. Such coverage may not be adequate or
may not continue to be available at commercially reasonable rates and terms.


 


If
we fail to comply with the covenants contained in certain of our agreements, our liquidity, results of operations and financial condition
may be adversely affected.


 


The
Oak Street credit agreements, in the aggregate principal amount of $8,641,008 and $9,000,746, as of March 31, 2021 and December 31, 2020
that govern our debt contain various covenants and other limitations with which we must comply including a debt to EBITDA ratio covenant
and a covenant that at all times that the loans are outstanding: (i) Ezra Beyman, our chief executive officer, Debra Beyman, Mr. Beyman’s
wife, or Yaakov Beyman, son of Mr. and Ms. Beyman, or someone else approved by Oak Street, as applicable, will be the manager of the
current subsidiaries of the Company, (ii) Mr. Ezra Beyman will be President and Chairperson of the Board of the Company, and (iii) Reliance
Holdings will continue to hold at least 51{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of the Company’s equity. The credit agreements also contain provisions which cause
a “cross default” if we default our obligations under other material contracts to which we are parties. The credit agreements
contains customary and usual events of default, including, subject to certain specified cure periods and notice requirements, the Company’s
or one of its subsidiaries’ failure to comply with the covenants therein. Upon an event of default, the lender has customary and
usual remedies to cure these defaults including, but not limited to, the ability to accelerate the indebtedness.


 


The
Company entered into an amended Master Credit Agreement on March 26, 2021 that removed the provisions for which Debra and Ezra Beyman
were required to be the majority owners of the Company.


 







 


The
Senior Funded Debt to EBIDTA ratio stated in the covenant “shall be no greater than 4.0 to 1.0”. As of June 30, 2020, the
ratio was 4.97 with the Company thereby, defaulting on the covenant. As of June 30, 2020, the Company obtained a covenant waiver in order
to continue to be in compliance with the financial covenants and other limitations contained in each of these agreements. However, failure
to comply with material provisions of our covenants in these agreements or other credit or similar agreements to which we may become
a party could result in a default, rendering them unavailable to us and causing a material adverse effect on our liquidity, results of
operations and financial condition. In the event of certain defaults, the lenders thereunder would not be required to lend any additional
amounts to us and could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and
payable. If the indebtedness under these agreements or our other indebtedness, were to be accelerated, there can be no assurance that
our assets would be sufficient to repay such indebtedness in full.


 


Due
to the covenant waiver on June 30, 2020, Oak Street and the Company signed an amended agreement on August 11, 2020, to update its covenant
so that, the Company should remain in compliance. The amendment states that for the September 30, 2020 and December 31, 2020 covenant
test, the ratio of Senior Funded Debt to EBIDTA shall be no greater than 5.0 to 1.0. As of March 31, 2021 and December 31, 2020 the Company
reported a ratio of 3.9 and 4.2, respectively, for Senior Funded Debt to EBIDTA, and remain in compliance. Beginning at March 31, 2021
and thereafter the Senior Funded Debt to EBIDTA ratio shall be reduced to no greater than 4.0 to 1.0.


 


As
of the date of this filing, we are in compliance and do not believe we are at further risk of noncompliance.


 


Certain
of our agreements contain various covenants that limit the discretion of our management in operating our business and could prevent us
from engaging in certain potentially beneficial activities.


 


The
restrictive covenants in our debt agreements may impact how we operate our business and prevent us from engaging in certain potentially
beneficial activities. In particular, among other covenants, our debt agreements require us to maintain a minimum ratio of Consolidated
EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted for certain transaction-related items (“Consolidated
EBITDA”), to consolidated interest expense and a maximum ratio of consolidated net indebtedness to Consolidated EBITDA. Our compliance
with these covenants could limit management’s discretion in operating our business and could prevent us from engaging in certain
potentially beneficial activities.


 


There
are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance
with U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our financial position and
results of operations and therefore our business.


 


The
preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported
amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses, and income. Estimates, judgments
and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts
of assets, liabilities, revenues, expenses and income, and could have a material adverse effect on our financial position, results of
operations and cash flows.


 


Improper
disclosure of confidential information could negatively impact our business.


 


We
are responsible for maintaining the security and privacy of our customers’ confidential and proprietary information and the personal
data of their employees. We have put in place policies, procedures and technological safeguards designed to protect the security and
privacy of this information; however, we cannot guarantee that this information will not be improperly disclosed or accessed. Disclosure
of this information could harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting
in increased costs or loss of revenues.


 







 


Our
business, results of operations, financial condition and liquidity may be materially adversely affected by certain actual and potential
claims, regulatory actions and proceedings.


 


We
are subject to various actual and potential claims, regulatory actions and other proceedings including those relating to alleged errors
and omissions in connection with the placement or servicing of insurance and/or the provision of services in the ordinary course of business,
of which we cannot, and likely will not be able to, predict the outcome with certainty. Because we often assist customers with matters
involving substantial amounts of money, including the placement of insurance and the handling of related claims that customers may assert,
errors and omissions claims against us may arise alleging potential liability for all or part of the amounts in question. Also, the failure
of an insurer with whom we place business could result in errors and omissions claims against us by our customers, which could adversely
affect our results of operations and financial condition. Claimants may seek large damage awards, and these claims may involve potentially
significant legal costs, including punitive damages. Such claims, lawsuits and other proceedings could, for example, include claims for
damages based upon allegations that our employees or sub-agents failed to procure coverage, report claims on behalf of customers, provide
insurance companies with complete and accurate information relating to the risks being insured or appropriately apply funds that we hold
for our customers on a fiduciary basis. In addition, given the long-tail nature of professional liability claims, errors and omissions
matters can relate to matters dating back many years. Where appropriate, we have established provisions against these potential matters
that we believe to be adequate in the light of current information and legal advice, and we adjust such provisions from time to time
according to developments.


 


While
most of the errors and omissions claims made against us (subject to our self-insured deductibles) have been covered by our professional
indemnity insurance, our business, results of operations, financial condition and liquidity may be adversely affected if, in the future,
our insurance coverage proves to be inadequate or unavailable, or if there is an increase in liabilities for which we self-insure. Our
ability to obtain professional indemnity insurance in the amounts and with the deductibles we desire in the future may be adversely impacted
by general developments in the market for such insurance or our own claims experience. In addition, regardless of monetary costs, these
matters could have a material adverse effect on our reputation and cause harm to our carrier, customer or employee relationships, or
divert personnel and management resources.


 


Risks
Related to the Insurance Industry


 


We
may experience increased competition from insurance companies, technology companies and the financial services industry, as well as the
shift away from traditional insurance markets.


 


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. In addition, and to the extent that banks, securities firms, private equity companies, and insurance companies affiliate,
the financial services industry may experience further consolidation, and we therefore may experience increased competition from insurance
companies and the financial services industry, as a growing number of larger financial institutions increasingly, and aggressively, offer
a wider variety of financial services, including insurance intermediary services.


 


Worsening
of Current U.S. economic conditions as a result of the COVID-19 pandemic may adversely affect our business.


 


If
economic conditions were to worsen, a number of negative effects on our business could result, including declines in values of insurable
exposure units, declines in insurance premium rates, the financial insolvency of insurance companies, the reduced ability of customers
to pay, declines in the stock of residential housing or declines in property values. Also, if general economic conditions are poor, some
of our customers may cease operations completely or be acquired by other companies, which could have an adverse effect on our results
of operations and financial condition. If these customers are affected by poor economic conditions, but yet remain in existence, they
may face liquidity problems or other financial difficulties that could result in delays or defaults in payments owed to us, which could
have a significant adverse impact on our consolidated financial condition and results of operations. Any of these effects could decrease
our net revenues and profitability.


 







 


Our
business, and therefore our results of operations and financial condition, may be adversely affected by conditions that result in reduced
insurer capacity.


 


Our
results of operations depend on the continued capacity of insurance carriers to underwrite risk and provide coverage, which depends in
turn on those insurance companies’ ability to procure reinsurance. Capacity could also be reduced by insurance companies failing
or withdrawing from writing certain coverages that we offer to our customers. We have no control over these matters. To the extent that
reinsurance becomes less widely available or significantly more expensive, we may not be able to procure the amount or types of coverage
that our customers desire and the coverage we are able to procure for our customers may be more expensive or limited.


 


Quarterly
and annual variations in our commissions that result from the timing of policy renewals and the net effect of new and lost business production
may have unexpected effects on our results of operations.


 


Our
commission income (including profit-sharing contingent commissions and override commissions) can vary quarterly or annually due to the
timing of policy renewals and the net effect of new and lost business production. We do not control the factors that cause these variations.
Specifically, customers’ demand for insurance products can influence the timing of renewals, new business and lost business (which
includes policies that are not renewed), and cancellations. In addition, we rely on insurance companies for the payment of certain commissions.
Because these payments are processed internally by these insurance companies, we may not receive a payment that is otherwise expected
from a particular insurance company in a particular quarter or year until after the end of that period, which can adversely affect our
ability to forecast these revenues and therefore budget for significant future expenditures. Quarterly and annual fluctuations in revenues
based upon increases and decreases associated with the timing of new business, policy renewals and payments from insurance companies
may adversely affect our financial condition, results of operations and cash flows.


 


Profit-sharing
contingent commissions are special revenue-sharing commissions paid by insurance companies based upon the profitability, volume and/or
growth of the business placed with such companies generally during the prior year. Over the last three years these commissions generally
have been in the range of 3.0{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} to 3.5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of our previous year’s total core commissions and fees. Due to, among other things, potentially
poor macroeconomic conditions, the inherent uncertainty of loss in our industry and changes in underwriting criteria due in part to the
high loss ratios experienced by insurance companies, we cannot predict the payment of these profit-sharing contingent commissions. Further,
we have no control over the ability of insurance companies to estimate loss reserves, which affects our ability to make profit-sharing
calculations. Override commissions are paid by insurance companies based upon the volume of business that we place with them and are
generally paid over the course of the year. Because profit-sharing contingent commissions and override commissions materially affect
our revenues, any decrease in their payment to us could adversely affect our results of operations, profitability, and our financial
condition.


 


Our
business practices and compensation arrangements are subject to uncertainty due to potential changes in regulations.


 


The
business practices and compensation arrangements of the insurance intermediary industry, including our practices and arrangements, are
subject to uncertainty due to investigations by various governmental authorities. Certain of our offices are parties to profit-sharing
contingent commission agreements with certain insurance companies, including agreements providing for potential payment of revenue-sharing
commissions by insurance companies based primarily on the overall profitability of the aggregate business written with those insurance
companies and/or additional factors such as retention ratios and the overall volume of business that an office or offices place with
those insurance companies. Additionally, to a lesser extent, some of our offices are parties to override commission agreements with certain
insurance companies, which provide for commission rates in excess of standard commission rates to be applied to specific lines of business,
such as group health business, and which are based primarily on the overall volume of business that such office or offices placed with
those insurance companies. The legislatures of various states may adopt new laws addressing contingent commission arrangements, including
laws prohibiting such arrangements, and addressing disclosure of such arrangements to insureds. Various state departments of insurance
may also adopt new regulations addressing these matters which could adversely affect our results of operations.


 


We
may have unforeseen risks as a result of the COVID-19 pandemic


 


The
spread of the coronavirus (COVID-19) outbreak in the United States has resulted in economic uncertainties which may negatively impact
the Company’s business operations. While the disruption is expected to be temporary, there is uncertainty surrounding the duration
and extent of the impact. The impact of the coronavirus outbreak on the financial statements cannot be reasonably estimated at this time.


 







 


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.


 


Management
is actively monitoring the global situation on its financial condition, liquidity, operations, industry and workforce.


 


Risk
of lack of knowledge in distant geographic markets


 


Although
the Company intends to focus its investments in locations with which we are generally familiar, the Company runs a risk of experiencing
underwriting challenges or issues associated with a lack of familiarity in some markets. Each market has nuances and idiosyncrasies that
affect values, marketability, desirability, and demand for individual assets that may not be easily understood from afar. While we believe
we can effectively mitigate these risks in a myriad of ways, there is no guarantee that investments in any geographic market will perform
as expected.


 


Potential
liability or other expenditures associated with potential environmental contamination may be costly.


 


Various
federal, state and local laws subject multifamily residential community owners or operators to liability for management, and the costs
of removal or remediation, of certain potentially hazardous materials that may be present in the land or buildings of a multifamily residential
community. Potentially hazardous materials may include polychlorinated biphenyls, petroleum-based fuels, lead-based paint or asbestos,
among other materials. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible
for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect
occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental
agencies may bring claims for costs associated with investigation and remediation actions, damages to natural resources and for potential
fines or penalties in connection with such damage or with respect to the improper management of hazardous materials. Moreover, private
plaintiffs may potentially make claims for investigation and remediation costs they incur or personal injury, disease, disability or
other infirmities related to the alleged presence of hazardous materials at a multifamily residential community. In addition to potential
environmental liabilities or costs associated with our current multifamily residential communities, we may also be responsible for such
liabilities or costs associated with communities we acquire or manage in the future, or multifamily residential communities we no longer
own or operate.


 


Laws
benefiting disabled persons may result in our incurrence of unanticipated expenses.


 


Under
the Americans with Disabilities Act of 1990 (the “ADA”), all places intended to be used by the public are required to meet
certain federal requirements related to access and use by disabled persons. The Fair Housing Amendments Act of 1988 (the “FHAA”)
requires multifamily residential communities first occupied after March 13, 1991, to comply with design and construction requirements
for disabled access. For those multifamily residential communities receiving federal funds, the Rehabilitation Act of 1973 also has requirements
regarding disabled access. These and other federal, state and local laws may require structural modifications to our apartment communities
or changes in policy practice or affect renovations of the communities. Noncompliance with these laws could result in the imposition
of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could
result in substantial capital expenditures. Although we believe that our multifamily residential communities are substantially in compliance
with present requirements, we may incur unanticipated expenses to comply with the ADA, the FHAA and the Rehabilitation Act of 1973 in
connection with the ongoing operation or redevelopment of our multifamily residential communities.


 






 



We
compete in a highly regulated industry, which may result in increased expenses or restrictions on our operations.


 


We
conduct business in several states of the United States of America and are subject to comprehensive regulation and supervision by government
agencies in each of those states. The primary purpose of such regulation and supervision is to provide safeguards for policyholders rather
than to protect the interests of our shareholders, and it is difficult to anticipate how changes in such regulation would be implemented
and enforced. As a result, such regulation and supervision could reduce our profitability or growth by increasing compliance costs, technology
compliance, restricting the products or services we may sell, the markets we may enter, the methods by which we may sell our products
and services, or the prices we may charge for our services and the form of compensation we may accept from our customers, carriers and
third parties. The laws of the various state jurisdictions establish supervisory agencies with broad administrative powers with respect
to, among other things, licensing of entities to transact business, licensing of agents, admittance of assets, regulating premium rates,
approving policy forms, regulating unfair trade and claims practices, determining technology and data protection requirements, establishing
reserve requirements and solvency standards, requiring participation in guarantee funds and shared market mechanisms, and restricting
payment of dividends. Also, in response to perceived excessive cost or inadequacy of available insurance, states have from time to time
created state insurance funds and assigned risk pools, which compete directly, on a subsidized basis, with private insurance providers.
We act as agents and brokers for such state insurance funds and assigned risk pools in Michigan as well as certain other states. These
state funds and pools could choose to reduce the sales or brokerage commissions we receive. Any such reductions, in a state in which
we have substantial operations could affect the profitability of our operations in such state or cause us to change our marketing focus.
Further, state insurance regulators and the National Association of Insurance Commissioners continually re-examine existing laws and
regulations, and such re-examination may result in the enactment of insurance-related laws and regulations, or the issuance of interpretations
thereof, that adversely affect our business. Certain federal financial services modernization legislation could lead to additional federal
regulation of the insurance industry in the coming years, which could result in increased expenses or restrictions on our operations.
Other legislative developments that could adversely affect us include: changes in our business compensation model as a result of regulatory
developments (for example, the Affordable Care Act); and federal and state governments establishing programs to provide health insurance
or, in certain cases, property insurance in catastrophe-prone areas or other alternative market types of coverage, that compete with,
or completely replace, insurance products offered by insurance carriers. Also, as climate change issues become more prevalent, the U.S.
and foreign governments are beginning to respond to these issues. This increasing governmental focus on climate change may result in
new environmental regulations that may negatively affect us and our customers. This could cause us to incur additional direct costs in
complying with any new environmental regulations, as well as increased indirect costs resulting from our customers incurring additional
compliance costs that get passed on to us. These costs may adversely impact our results of operations and financial condition.


 


Although
we believe that we are in compliance in all material respects with applicable local, state and federal laws, rules and regulations, there
can be no assurance that more restrictive laws, rules, regulations or interpretations thereof, will not be adopted in the future that
could make compliance more difficult or expensive.


 


Risks
Related to Investing in our Securities


 


We
may experience volatility in our stock price that could affect your investment.


 


The
market price of our common stock may be subject to significant fluctuations in response to various factors, including: quarterly fluctuations
in our operating results; changes in securities analysts’ estimates of our future earnings; changes in securities analysts’
predictions regarding the short-term and long-term future of our industry; changes to the tax code; and our loss of significant customers
or significant business developments relating to us or our competitors. Our common stock’s market price also may be affected by
our inability to meet stock analysts’ earnings and other expectations. Any failure to meet such expectations, even if minor, could
cause the market price of our common stock to decline. In addition, stock markets have generally experienced a high level of price and
volume volatility, and the market prices of equity securities of many listed companies have experienced wide price fluctuations not necessarily
related to the operating performance of such companies. These broad market fluctuations may adversely affect our common stock’s
market price. In the past, securities class action lawsuits frequently have been instituted against companies following periods of volatility
in the market price of such companies’ securities. If any such litigation is initiated against us, it could result in substantial
costs and a diversion of management’s attention and resources, which could have a material adverse effect on our business, results
of operations, financial condition and cash flows.


 







 


The
Company’s CEO has a controlling common stock equity interest.


 


At
May 13, 2021, our CEO, Ezra Beyman, is the beneficial owner of approximately 50.324{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of the common stock, consisting of 5,500,165
common shares. As of March 31, 2021, the outstanding amount of the loan from Reliance Holdings to us, is in the amount of approximately
$733,573. As such he has the ability to control any actions which require shareholder approval. If there is an annual or special meeting
of stockholders for any reason, our CEO has total discretion regarding proposals submitted to a vote by shareholders as a consequence
of his significant equity interest. Accordingly, the Company’s CEO will continue to exert substantial control until such time,
if ever, that he no longer has majority voting control.


 


Under
our credit agreements with Oak Street, the Company has agreed that at all times that the loans are outstanding: (i) Ezra Beyman, our
chief executive officer, Debra Beyman, Mr. Beyman’s wife, or Yaakov Beyman, son of Mr. and Ms. Beyman, or someone else approved
by Oak Street, as applicable, will be the manager of the current subsidiaries of the Company, (ii) Mr. Ezra Beyman will be President
and Chairperson of the Board of the Company, and (iii) Reliance Holdings, of which Mr. and Ms. Beyman are the sole owners, will continue
to hold at least 51{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of the Company’s equity. The loans by Oak Street, immediately mature and become due and payable if the Company
fails to comply with these provisions, subject to certain notice and/or cure periods.


 


The
operating agreements of Commercial Coverage Solutions, LLC and Fortman Insurance Services, LLC, appoint Ms. Beyman as manager and provide
her with broad powers to bind the applicable subsidiary without further authorization, including, among other things, to (1) effect an
encumbrance or sale of property, (2) make investments, (3) determine amount and timing of distributions under the operating agreement,
(4) settle, defend and prosecute legal actions or law suits, (5) sell, exchange or otherwise dispose of any or all of the relevant subsidiary’s
assets, including the properties in the ordinary course or not in the ordinary course, (6) borrow funds, (7) enter into any contracts,
leases and agreements with third parties or affiliates and (8) appoint officers. These operating agreements also provide indemnification
protection to Ms. Beyman and Ms. Beyman is not prohibited from using corporate opportunities, whether unrelated to, or directly in competition
with, the business of the Company or its subsidiaries.


 


The
Company intends to negotiate with Oak Street to revise or remove these provisions. However, there can be no assurance that we will successfully
negotiate such revisions or removal on terms beneficial to the Company and its stockholders. These provisions may make changing management
of the Company and its subsidiaries more difficult or costly. Until the governing documents of the subsidiaries are revised, the Company
may experience loss of opportunities and/or be unable to recoup losses due to management decisions.


 


Broad
discretion of management


 


Any
person who invests in the Company’s common stock will do so without an opportunity to evaluate the specific merits or risks of
any prospective acquisition. As a result, investors will be entirely dependent on the broad discretion and judgment of management in
connection with the selection of acquisitions. There can be no assurance that determinations made by the Company’s management will
permit us to achieve the Company’s business objectives.


 


Future
sales or other dilution of our equity could adversely affect the market price of our common stock.


 


We
grow our business organically as well as through acquisitions. One method of acquiring companies or otherwise Companying our corporate
activities is through the issuance of additional equity securities. The issuance of any additional shares of common or of preferred stock
or convertible securities could be substantially dilutive to holders of our common stock. Moreover, to the extent that we issue restricted
stock units, performance stock units, options or warrants to purchase shares of our common stock in the future and those options or warrants
are exercised or as the restricted stock units or performance stock units vest, our stockholders may experience further dilution. Holders
of our common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any
class or series and, therefore, such sales or offerings could result in increased dilution to our stockholders.


 







 


The
market price of our common stock could decline as a result of sales of shares of our common stock or the perception that such sales could
occur.


 


The
price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock owned
by you at times or at prices you find attractive.


 


The
trading price of our common stock may fluctuate widely as a result of a number of factors, including the risk factors described above
many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes
that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected and may continue
to adversely affect the market price of our common stock. Among the factors that could affect our stock price are:


 
























 


General
economic and political conditions such as recessions, economic downturns and acts of war or terrorism;

 

 

 

 


Quarterly
variations in our operating results;

 

 

 

 


Seasonality
of our business cycle;

 

 

 

 


Changes
in the market’s expectations about our operating results;

 

 

 

 


Our
operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

 

 

 


Changes
in financial estimates and recommendations by securities analysts concerning us or the insurance brokerage or financial services
industries in general;

 

 

 

 


Operating
and stock price performance of other companies that investors deem comparable to us;

 

 

 

 


News
reports relating to trends in our markets, including any expectations regarding an upcoming “hard” or “soft”
market;

 

 

 

 


Cyberattacks
and other cybersecurity incidents;

 

 

 

 


Changes
in laws and regulations affecting our business;

 

 

 

 


Material
announcements by us or our competitors;


 






 



















 


The
impact or perceived impact of developments relating to our investments, including the possible perception by securities analysts
or investors that such investments divert management attention from our core operations;

 

 

 

 


Market
volatility;

 

 

 

 


A
negative market reaction to announced acquisitions;

 

 

 

 


Competitive
pressures in each of our segments;

 

 

 

 


General
conditions in the insurance brokerage and insurance industries;

 

 

 

 


Legal
proceedings or regulatory investigations;

 

 

 

 


Regulatory
requirements, including international sanctions and the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 or other anti-corruption
laws; or

 

 

 

 


Sales
of substantial amounts of common shares by our directors, executive officers or significant stockholders or the perception that such
sales could occur.


 


Stockholder
class action lawsuits may be instituted against us following a period of volatility in our stock price. Any such litigation could result
in substantial cost and a diversion of management’s attention and resources.


 


We
can provide no assurance that our common stock or the warrants will always meet the Nasdaq Capital Market continued listing standards.


 


Our
common stock is currently quoted on the Nasdaq. We can provide no assurance that that an active trading market on the Nasdaq Capital
Market for our common stock and the warrants will develop and continue. If our common stock remains quoted on or reverts to an over-the-counter
system rather than being listed on a national securities exchange, you may find it more difficult to dispose of shares of our common
stock or obtain accurate quotations as to the market value of our common stock.


 


Possible
issuance of additional securities.


 


Our
Articles of Incorporation authorize the issuance of 2,000,000,000 shares of common stock, par value $0.086 per share. As of March 31,
2021 we had 10,929,514 shares issued and outstanding. We may be expected to issue additional shares in connection with our pursuit of
new business opportunities and new business operations. To the extent that additional shares of common stock are issued, our shareholders
would experience dilution of their respective ownership interests. If we issue shares of common stock in connection with our intent to
pursue new business opportunities, a change in control of the Company may be expected to occur. The issuance of additional shares of
common stock may adversely affect the market price of our common stock, in the event that an active trading market commences.


 







 


Dividends
unlikely.


 


The
Company does not expect to pay dividends for the foreseeable future. The payment of dividends will be contingent upon the Company’s
future revenues and earnings, if any, capital requirements and overall financial conditions. The payment of any future dividends will
be within the discretion of the Company’s board of directors as then constituted. It is the Company’s expectation that future
Management following a business combination will determine to retain any earnings for use in its business operations and accordingly,
the Company does not anticipate declaring any dividends in the foreseeable future.


 


Speculative
Nature of Warrants.


 


The
warrants offered in our February 2021 offering do not confer any rights of common stock ownership on their holders, such as voting rights
or the right to receive dividends, but rather merely represent the right to acquire shares of our common stock at a fixed price for a
limited period of time. Specifically, commencing on the date of issuance, holders of the Series A Warrants may exercise their right to
acquire the common stock and pay an exercise price of $6.60 per share (110{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of the public offering price of our common stock and warrants
in this offering), prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further
value. Moreover, following this offering, the market value of the warrants is uncertain and there can be no assurance that the market
value of the warrants will equal or exceed their public offering price. There can be no assurance that the market price of the common
stock will ever equal or exceed the exercise price of the warrants, and consequently, whether it will ever be profitable for holders
of the warrants to exercise the warrants.


 


State
blue sky registration; potential limitations on resale of the Company’s common stock


 


The
holders of the Company’s shares of common stock registered under the Exchange Act and those persons who desire to purchase them
in any trading market that may develop in the future, should be aware that there may be state blue-sky law restrictions upon the ability
of investors to resell the Company’s securities. Accordingly, investors should consider the secondary market for the Company’s
securities to be a limited one.


 


Industry
and Market Data


 


Unless
otherwise indicated, information contained in this Form 10-Q concerning our industry and the markets in which we operate, including our
general expectations and market opportunity and market size, is based on information from various sources, including independent industry
publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our
knowledge of, and our experience to date in the relevant industries and markets. This information involves a number of assumptions and
limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications
that is included in this Form 10-Q is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk
due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results
to differ materially from those expressed in the estimates made by the independent parties and by us.

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