Reliance Global Group, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. The company operates insurance agencies and benefits businesses, pursuing growth through acquisitions and organic expansion. This unaudited report covers the three months ended March 31, 2021, compared with the same period in 2020. The company reported seven insurance brokerage acquisitions to date and described its 5MinuteInsure.com platform as in beta launch.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $2.296 million | $2.004 million | Up $292,014, or about 14.6% |
| Operating expenses | $2.809 million | $2.812 million | Approximately flat |
| Operating loss | $(512,257) | $(807,518) | Loss narrowed |
| Net loss | $(641,328) | $(979,798) | Loss narrowed about 34.5% |
| Basic and diluted loss per share | $(0.09) | $(0.34) | Weighted-average shares rose to 7.54 million from 2.92 million |
| Operating cash flow | $(646,602) | $(223,696) | Higher cash use, primarily reflecting lower accounts payable |
| Cash and restricted cash, March 31 | $10.018 million | — | Cash alone was $9.432 million; restricted cash was $586,000 |
| Working capital, March 31 | $8.064 million | $(6.074) million at March 31, 2020 | Improved substantially, mainly following the February offering |
Operating margin improved to approximately negative 22.3% from negative 40.3%; net margin was approximately negative 27.9% versus negative 48.9%. These remain loss-making margins.
Balance sheet, liquidity and financing
- Total assets were $26.824 million and total liabilities were $12.717 million at March 31, 2021. Stockholders’ equity was $14.107 million, compared with $114,000 at December 31, 2020.
- Current assets were $10.097 million and current liabilities $2.033 million, for a current ratio of approximately 5.0. Management said the company’s financial position raised no liquidity concern.
- Long-term debt, including current maturities and net of deferred financing costs, was $8.641 million. Related-party loans totaled $733,573; lease liabilities were approximately $384,000. The company reported $14,598 of other loans payable.
- Financing activities provided $10.135 million in Q1, largely from a February underwritten offering of 2.07 million common shares and warrants. Gross proceeds were approximately $12.42 million; net proceeds were approximately $10.50 million. The company also repaid debt and related-party loans.
- Related-party debt fell from $4.667 million at year-end to $734,000, including a February conversion of $3.8 million of debt into 633,333 common shares. Reliance Holdings’ reported common-stock ownership increased to approximately 50.32% from 25.58% at year-end.
Material changes and management commentary
- Management attributed revenue growth primarily to acquired agencies contributing a full quarter of operations. Altruis revenue rose to $994,000 from $552,000 in the comparable quarter; agency-level contributions varied.
- Commission expense increased 24% to $529,000, while salaries and wages rose 6% to $919,000. General and administrative expense fell to $1.004 million from $1.121 million, which management attributed mainly to lower professional fees after the Nasdaq listing. Marketing expense declined 65% to $23,000.
- Other expense declined to $129,000 from $172,000, attributed to debt repayment and lower interest and financing costs.
- Management said it plans to pursue insurance acquisitions and grow existing operations over the next 12 months. It described the 5MinuteInsure.com platform as licensed to sell home and auto insurance in 46 states and the District of Columbia, with 11 carriers then available. No quantitative earnings or revenue guidance was provided.
- On May 12, 2021, after quarter-end, the company acquired J.P. Kush and Associates for $1.95 million, comprising $1.90 million cash and $50,000 in company stock.
Risks, contingencies and unusual items
- The company reported compliance with its Oak Street debt covenants at March 31, with a senior funded debt-to-EBITDA ratio of 3.9 against a limit of 4.0. It disclosed a prior covenant default and waiver in 2020 and noted that failure to comply could permit acceleration of debt. The covenant headroom reported for Q1 was limited.
- BlueCross BlueShield represented 22% and Priority Health 35% of Q1 2021 revenue. The company warned that losing a significant carrier could materially affect results.
- The company reported a net loss and negative operating cash flow. Seasonality in Medicare and individual health-plan enrollment, acquisition execution, competition, regulation, cybersecurity, and COVID-19-related disruption were among its stated risks. Management said it had not seen a material financial impact from COVID-19 to date, while noting the impact remained uncertain.
- Management said ordinary-course legal matters were not expected to have a material adverse effect and no legal contingency was accrued. No goodwill or intangible impairment was recorded in the quarter.
- The filing says disclosure controls were effective at March 31, 2021, but also reports a material weakness in the prior-year financial reporting and closing process and planned to address it by hiring an SEC reporting manager.
- Cash-flow disclosure inconsistency: the cash-flow statement reports net cash used in operating activities of $646,602 for Q1 2021. The MD&A cash-flow discussion instead states $2,570,382, while later repeating the $646,602 statement figure. The MD&A’s detailed explanation also contains amounts that do not clearly reconcile to the cash-flow statement; investors should verify the correct figure against the filed financial statements.
Most important facts to verify
- Reconcile the MD&A operating-cash-flow discrepancy and the related working-capital explanation to the financial statements.
- Confirm the company’s covenant calculations, applicable limits and compliance status, particularly given the reported 3.9-to-1.0 ratio against a 4.0-to-1.0 ceiling.
- Assess cash consumption and ongoing losses against acquisition plans, debt service and the company’s stated liquidity outlook.
- Review dilution and potential future share issuance following the offering, debt conversion, warrants and increased share count.
- Evaluate carrier concentration, related-party influence and the performance and funding needs of the J.P. Kush acquisition after quarter-end.