Reliance Global Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing was signed March 30, 2023. Reliance operates insurance agencies and is pursuing acquisitions alongside organic growth and its RELI Exchange and 5MinuteInsure.com InsurTech platforms.
Financial performance
| Metric | FY2022 | FY2021 | Change or context |
|---|---|---|---|
| Revenue, primarily commissions | $16.76 million | $9.71 million | Up 73%, attributed to organic growth and acquisitions |
| Operating expenses | $38.45 million | $12.62 million | Includes $14.37 million goodwill impairment |
| Operating loss | $21.70 million | $2.91 million | Operating margin was approximately -129% of revenue |
| Other income (expense), net | $28.17 million income | $18.19 million expense | Primarily reflects a noncash warrant fair-value gain of about $29.06 million in 2022 versus a loss of about $17.65 million in 2021 |
| Net income (loss) | $6.47 million | ($21.10 million) | 2022 result substantially affected by the noncash warrant gain |
| Income (loss) per common share | ($0.42) | ($31.34) | 2022 includes a $6.93 million deemed dividend, leaving a loss attributable to common shareholders despite reported net income |
| Cash used in operating activities | $3.19 million | $2.25 million | Operating cash outflow increased |
| Cash used in investing activities | $24.64 million | $2.30 million | Mainly acquisition spending |
| Cash provided by financing activities | $25.12 million | $8.64 million | Included private-placement proceeds, warrant exercises, and acquisition-related borrowing |
Margins: The filing does not present gross profit or a gross margin. Commission income less commission expense was approximately $13.37 million, or 79.8% of revenue, before other operating costs. The operating margin was approximately -129%; the reported net-income margin was approximately 38.6%, but was heavily influenced by the noncash warrant valuation gain.
Balance sheet, debt and liquidity
- At year-end, total cash and restricted cash was $1.91 million, including $1.40 million restricted and approximately $0.51 million unrestricted cash.
- Current assets were $3.27 million and current liabilities $7.79 million, resulting in a $4.53 million working-capital deficit. The filing says the deficit improved from $37.00 million in 2021, primarily because the $37.65 million warrant commitment was reclassified from current to noncurrent liabilities.
- Long-term debt was $13.47 million net of deferred financing costs; disclosed principal maturities totaled $13.78 million. The company also reported related-party loans and $0.15 million of short-term financing.
- Oak Street debt is subject to financial and other covenants. The company slightly exceeded the debt-to-EBITDA limit at December 31, 2022, although it passed the debt-service-coverage test. Oak Street committed to a waiver and an increased limit for the first three quarters of 2023 so the company could remain in compliance.
- Net cash decreased $2.71 million during 2022. The company reported negative operating cash flow and funded acquisitions mainly through financing. A March 2023 securities offering generated approximately $3.45 million net for primarily working capital.
- Management stated it did not believe substantial doubt existed about the company’s ability to continue as a going concern within one year of filing, citing its financial position and ability to raise capital.
Material changes and unusual items
- Revenue increased 73%, while salaries and wages rose 84%, general and administrative expense rose 87%, and marketing and advertising expense increased from $0.33 million to $2.58 million. Management attributed cost increases to expanded operations, acquisitions, and Medigap’s direct-to-consumer marketing.
- The company acquired Medigap in January 2022 for stated consideration of approximately $20.10 million and Barra & Associates in April for $7.73 million, including deferred and earn-out consideration. The acquisitions added substantial goodwill and intangible assets. Medigap and Barra reported standalone losses of approximately $1.13 million and $0.39 million, respectively, for their included post-acquisition periods.
- A goodwill test prompted a $14.37 million impairment charge, reducing year-end goodwill to $19.11 million. The auditor identified the impairment evaluation as a critical audit matter because of the significant judgment involved in valuation methods and assumptions.
- Warrant accounting materially affected earnings and the balance sheet: the company recorded a $29.06 million noncash fair-value gain in 2022 and ended the year with $6.43 million of warrant liabilities.
- Common shares outstanding increased from 730,407 to 1,219,573 during 2022, before the subsequent 1-for-15 reverse split. Share and per-share information in the filing is described as retroactively adjusted for that split, unless otherwise indicated.
Outlook, risks and governance
- Management plans to pursue additional insurance acquisitions, geographic expansion, and organic growth. Its stated RELI Exchange recruiting objectives were 50 new contracted agents per month, 600 by mid-2023, and 1,000 by year-end; these are targets, not financial guidance.
- Key risks include acquisition financing and integration, covenant compliance, continued access to capital, significant dilution, and reliance on related parties. The CEO beneficially owned approximately 25% of common stock as of March 2023; Reliance Holdings is an affiliate and significant shareholder.
- The company reported geographic revenue concentration and carrier concentration: LTC Global represented 28% of 2022 revenue and Priority Health 16%. Management also identifies competitive, regulatory, cybersecurity, privacy, inflation, interest-rate, and employee-retention risks.
- The company reported ordinary-course legal claims but said no material adverse outcome was expected; no legal contingencies were accrued at year-end. The filing reports effective disclosure controls and effective internal control over financial reporting based on management’s assessment; the auditor did not express an opinion on internal-control effectiveness.
- Subsequent events include a related-party note amendment and conversion, the March 2023 private placement, and the 1-for-15 reverse split. Nasdaq notified the company in 2022 of a minimum-bid-price deficiency; the company reported regaining compliance on March 9, 2023.
Important facts for investors to verify
- Reconcile reported net income with the loss attributable to common shareholders, including the warrant fair-value gain and $6.93 million deemed dividend.
- Confirm the Oak Street covenant waiver and revised limits, debt maturities, interest exposure, and the company’s post-offering liquidity, including restrictions on cash.
- Assess the economics and integration progress of Medigap and Barra, the assumptions supporting goodwill and intangible-asset values, and future earn-out payments.
- Review dilution from outstanding warrants, later financing terms, related-party note conversions, and the reverse split when assessing per-share ownership.
- Check platform operating progress against agent targets. The filing gives inconsistent 5MinuteInsure coverage and carrier counts in different sections, so a clear current figure is not provided.