Reliance Global Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are to the three months ended March 31, 2023 unless otherwise noted. The company operates insurance agencies and related technology platforms, pursuing growth through acquisitions and organic expansion. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Commission revenue | $4.08 million | $3.94 million; up 4% |
| Operating expenses | $9.11 million | $4.94 million; up 84%, including $3.92 million impairment |
| Operating loss | $5.03 million | $1.00 million loss |
| Net loss | $5.35 million | $1.79 million loss |
| Adjusted EBITDA (non-GAAP) | $(73,654) | $169,343 |
| Cash used in operating activities | $204,382 | $1.06 million, including discontinued operations |
| Cash and restricted cash | $2.11 million | Down from $2.74 million at December 31, 2023 |
| Working capital | $(120,000) deficit | $1.19 million surplus at December 31, 2023 |
Commission expense was $1.28 million, equal to approximately 31% of revenue; the filing does not provide a specific gross-margin measure. No income tax expense was recorded. Q1 investing cash outflow was $29,444 and financing cash outflow was $392,100.
At March 31, 2024, total assets were $17.54 million, total liabilities $15.57 million, and stockholders’ equity $1.96 million. Long-term debt was $12.09 million gross, including $1.43 million current and $10.66 million noncurrent; related-party loans totaled about $1.41 million. Lease liabilities totaled $684,312.
Material changes and notable items
- Revenue increased 4%, which management attributed primarily to sustained organic growth. General and administrative expense rose 64% to $1.37 million, attributed to acquisition-related and regulatory-compliance costs.
- A $3.92 million noncash impairment of intangible assets—principally customer relationships—drove much of the higher operating loss. Net intangible assets fell from $11.04 million at year-end to $6.61 million.
- The prior-year period included a $4.27 million noncash gain from warrant fair-value changes; the Q1 2024 gain was $95,333. This comparison also contributed to the deterioration in reported earnings.
- Cash used in operating activities improved from the prior-year comparison, while financing cash flow changed from $2.81 million provided in Q1 2023 to $392,100 used in Q1 2024, reflecting debt and related-party repayments partly offset by ATM proceeds.
- Common shares outstanding increased from 4,761,974 at December 31, 2023 to 5,692,387 at March 31, 2024. Through May 20, 2024, the company had sold another 1,320,829 shares under its ATM program for net proceeds of $385,052; the reported share count at May 20 was 8,535,591.
Outlook, risks and contingencies
- Management plans to pursue insurance-agency acquisitions and organic growth. It reported no numerical revenue or earnings guidance. Management stated it did not believe substantial doubt existed about the company’s ability to continue as a going concern within one year, while noting financing availability and terms cannot be assured.
- The company may sell shares through an ATM agreement with up to $858,637 of aggregate offering capacity. After Q1 sales and subsequent sales through May 20, remaining net capacity was reported as $328,395. The sales agent receives a 3.5% commission.
- In Q2, Series B and Series G warrant exercise prices reset to $0.26 per share from $0.63 and $0.6562, respectively. The company identifies potential dilution and downward pressure on its share price from warrant exercises and resales; 4,210,528 Series G warrants were reported outstanding.
- On May 14, 2024, the company signed an agreement to acquire 80% of Spetner Associates for stated consideration of $13.71 million, payable through $8 million cash, company shares, and a promissory note. It has an option to acquire the remaining 20% based on a predetermined EBITDA multiple. Completion remains subject to closing conditions.
- Revenue concentration is material: Priority Health represented 45% of Q1 2024 revenue, and two other carriers each represented 13%. The filing warns that losing a significant customer could materially affect the company.
- Management cited competition, inflation-sensitive labor and facility costs, and acquisition execution as business considerations. Ordinary-course legal claims are disclosed, but no contingency was accrued; management did not expect a material adverse outcome. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the company can sustain liquidity and meet debt and related-party obligations despite its working-capital deficit and operating losses.
- The nature and valuation basis of the $3.92 million intangible-asset impairment, and whether further impairment charges may be required.
- The funding, closing conditions, dilution, and expected contribution to results of the proposed Spetner acquisition.
- Potential dilution from ATM sales, warrant exercises and price resets; confirm current share counts and remaining ATM capacity in later filings.
- The durability of revenue from major insurance carriers, particularly Priority Health, and progress toward improving operating performance and Adjusted EBITDA.