RELIANCE GLOBAL GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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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