Reliance Global Group, Inc. — Q1 2023 Form 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2023. Reliance operates insurance agencies and related technology platforms, pursuing agency acquisitions and organic growth. The company reported nine acquired insurance agencies as of quarter-end.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Revenue | $3.94 million | $3.06 million; up 29% year over year |
| Operating expenses | $4.83 million | $5.31 million |
| Operating loss | $893,000; operating margin approximately -23% | $2.25 million loss; approximately -74% margin |
| Continuing operations | $2.98 million income | $9.49 million income |
| Discontinued operations | $4.77 million loss | $148,000 loss |
| Net result | $1.79 million loss | $9.34 million income |
| Cash flows | $1.06 million net cash used in continuing and discontinued operating activities; $96,000 used in investing; $2.81 million provided by financing | $343,000 used in operating activities; $18.39 million used in investing; $20.09 million provided by financing |
| Cash and restricted cash | $3.55 million, including $2.12 million unrestricted cash | $1.91 million combined at December 31, 2022 |
| Debt and liquidity | $13.27 million long-term debt, including current portion; $742,000 working-capital deficit | $13.47 million long-term debt at December 31, 2022; $4.53 million working-capital deficit |
Commission income increased with organic growth and the 2022 Barra acquisition. General and administrative expenses fell 42% to $1.36 million, which management attributed to leaner operations and cost cutting. Commission expense rose 38% to $1.08 million; salaries and wages were $1.71 million. The reported $4.27 million warrant fair-value gain was noncash and materially supported continuing-operations income. Q1 basic loss per share was reported as $1.15; the filing reports diluted loss per share of $2.77, but its EPS disclosures warrant verification.
Material changes and notable items
- The board approved discontinuing Medigap effective April 17, 2023, after recurring losses and greater-than-expected revenue chargebacks. The filing reports a $4.77 million discontinued-operations loss, including an approximately $4.4 million net impairment loss on Medigap assets.
- A March private placement generated approximately $4.0 million gross and $3.4 million net proceeds, primarily for working capital and administrative purposes; financing fees were approximately $553,000. It included common shares and warrants, with substantial potential share dilution.
- The company implemented a 1-for-15 reverse stock split in February. In March, related party YES Americana converted $645,000 of debt into shares; the company also repaid it $400,000. The remaining balance owed was $800,000 at quarter-end.
- After quarter-end, the company sold its remaining NSURE shares for $900,000, equal to their stated cost basis.
- Priority Health accounted for 43% of Q1 revenue, up from 32% a year earlier. Two other carrier categories each accounted for 13%; management warns that losing a significant customer could materially affect results.
Outlook, risks, and controls
Management plans to pursue further insurance acquisitions, geographic expansion, and organic growth, and to grow its RELI Exchange agency network and 5MinuteInsure.com platform. No quantified revenue, earnings, or cash-flow guidance is provided. Management stated that financing availability is uncertain but believed its financial position and ability to raise capital were reasonable and sufficient; it did not identify substantial doubt about continuing as a going concern within one year of filing.
Risks highlighted include intense competition, customer concentration, inflation-sensitive labor and occupancy costs, acquisition execution, and reliance on external financing. The company reported no material changes to the risk factors in its 2022 Form 10-K and no off-balance-sheet arrangements. It had ordinary-course legal matters but accrued no legal contingency, as management did not expect a material adverse outcome. Disclosure controls remained ineffective for EPS reporting: a previously identified material weakness was being remediated with outside assistance, but management continued to report the weakness for the quarter.
Important facts for investors to verify
- Reconcile the EPS figures and share-count effects, including the reverse split, private-placement warrants, and outstanding Series B warrants; management identified an EPS-related material weakness.
- Assess whether recurring operating cash use can be funded by available unrestricted cash, future operating performance, or additional financing; distinguish restricted from unrestricted cash.
- Review the assumptions and possible dilution associated with warrant liabilities and the private-placement warrants, as well as the related-party loan terms.
- Verify the final costs and cash-flow effects of the Medigap discontinuation and whether the discontinued-operation loss includes all expected obligations.
- Monitor revenue concentration and whether acquisition-led and organic growth can improve operating profitability without renewed financing dependence.