Reliance Global Group, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 31, 2022. The company acquires and operates insurance agencies and launched its online insurance platform, 5MinuteInsure.com, in 2021. Financial comparisons are with FY2020.
Key financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue, primarily commissions | $9.71 million | $7.30 million | Up 33% |
| Operating expenses | $12.62 million | $10.92 million | Up 16% |
| Operating loss | $(2.91) million | $(3.63) million | Loss narrowed $0.71 million |
| Net loss | $(21.10) million | $(3.68) million | Loss widened substantially |
| Basic and diluted loss per share | $(2.09) | $(0.88) | |
| Cash from operating activities | $(2.25) million | $(0.47) million | More cash used |
| Cash from investing activities | $(2.30) million | $(1.95) million | |
| Cash from financing activities | $8.64 million | $2.45 million |
Revenue growth reflected expanded operations and acquisitions. Operating loss improved despite higher commission, payroll, marketing, and amortization costs; management attributed lower general and administrative expenses to improved efficiencies. Operating margin was approximately negative 30% of revenue in 2021, versus negative 50% in 2020. Net loss was driven chiefly by a $17.65 million non-cash loss associated with the warrant commitment, rather than deterioration in operating results alone.
At year-end, the balance sheet reported cash of $4.14 million and restricted cash of $0.48 million, or $4.62 million combined. Current assets were $7.98 million against current liabilities of $44.98 million, producing a $37.00 million working-capital deficit; the warrant commitment liability was $37.65 million. Total liabilities were $53.74 million and stockholders’ deficit was $26.07 million. Long-term debt was reported at $8.00 million net of financing costs, including $0.91 million current and $7.09 million long-term; related-party loans totaled $0.35 million. Oak Street debt principal was disclosed as approximately $8.13 million. The company reported compliance with its debt-to-EBITDA covenant, with a 2.5 ratio against a maximum of 4.0 at year-end.
Material changes and transactions
- Completed a February 2021 public offering of 2.07 million common shares and accompanying warrants, raising approximately $10.50 million net. The company also converted $3.80 million of related-party debt into common shares.
- Acquired J.P. Kush and Associates in May 2021 for stated consideration of $3.64 million, including cash, shares, and contingent earn-out consideration. The year-end earn-out liability was approximately $1.69 million for Kush; total earn-out liabilities were $3.81 million.
- Launched 5MinuteInsure.com in summer 2021. The filing says the platform was available in 44 states and offered access to up to 16 carriers.
- Entered a December 2021 private placement agreement for approximately $20 million, including common shares, preferred shares, and Series B warrants. It closed January 5, 2022. At year-end, the warrant commitment was recorded as a $37.65 million liability, with a $17.65 million non-cash expense and a $20 million stock subscription receivable shown as a deduction from equity.
- Acquired Medigap, a Medicare supplement brokerage, on January 10, 2022. The filing gives differing purchase-price descriptions: approximately $20.10 million in one section and approximately $22.90 million in the subsequent-events note. The transaction included cash and restricted common stock.
Outlook, risks, and other notable items
- Management plans to pursue agency acquisitions and organic growth, including geographic expansion and increased market share. It reported negotiations with prospective acquisition parties but provided no quantified revenue, earnings, or cash-flow guidance.
- Management stated that Reliance Global Holdings had committed to fund the company for at least 12 months if an unexpected need arose, and considered liquidity sufficient for the foreseeable future, citing the subsequent $20 million private placement. This outlook should be weighed against negative operating cash flow and the large year-end working-capital deficit.
- Key risks include acquisition financing and integration, dependence on insurance carriers and commission timing, geographic concentration, competition, regulatory and privacy requirements, cybersecurity, and the ability to retain personnel. Priority Health and BlueCross BlueShield represented 28% and 19% of 2021 revenue, respectively.
- COVID-19 impacts were described as uncertain; management said it had not seen a material financial impact to date. The filing also noted that the effects of Russia’s military action in Ukraine and related sanctions were not determinable.
- The company reported no material legal contingencies accrued at year-end. The auditor issued an unqualified opinion on the financial statements and identified business-combination valuation and warrant-commitment valuation as critical audit matters. Management said a 2020 material weakness in financial reporting and closing processes was remediated and controls were effective as of December 31, 2021; the auditor did not express an opinion on internal-control effectiveness.
- The filing identifies certain prior-period adjustments as immaterial, including adjustments to receivables, goodwill, earn-out liabilities, equity, and revenue. It also reports no goodwill impairment for 2021.
Most important facts for investors to verify
- Reconcile the year-end warrant commitment’s $37.65 million liability and $17.65 million expense with the private placement’s subsequent closing and terms.
- Confirm Medigap’s final purchase consideration, including the difference between the filing’s approximately $20.10 million and $22.90 million figures, and assess the cash and dilution impact.
- Review liquidity after the January 2022 financing and Medigap acquisition, including restricted cash, current obligations, earn-outs, and operating cash burn.
- Track acquisition performance and integration, particularly Kush’s contribution, earn-out assumptions, goodwill, and amortization burden.
- Assess geographic and carrier concentration, debt covenant headroom, and potential dilution from outstanding and committed warrants, preferred shares, and future acquisition financing.