Reliance (RELI) - 2023 Q1 - Quarterly Report

PART I Item 1. Financial Statements Reliance Global Group, Inc. reported Q1 2023 total assets of $33.9 million, a net loss of $1.8 million, and revenue of $3.9 million, impacted by discontinued operations Condensed Consolidated Balance Sheets As of March 31, 2023, total assets decreased to $33.9 million, liabilities reduced to $21.6 million, and stockholders' equity increased to $12.2 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $2,116,333 | $505,410 | | Total current assets | $4,707,763 | $3,265,379 | | Intangibles, net | $12,889,277 | $9,085,092 | | Goodwill | $14,287,099 | $14,287,099 | | Total assets | $33,884,466 | $38,427,729 | | Liabilities & Equity | | | | Total current liabilities | $5,450,500 | $7,794,284 | | Warrant liabilities | $2,166,919 | $6,433,150 | | Total liabilities | $21,648,852 | $29,516,690 | | Total stockholders' equity | $12,235,614 | $8,911,039 | Condensed Consolidated Statements of Operations Q1 2023 revenue grew 28.8% to $3.9 million, operating loss narrowed to $0.9 million, but a $4.8 million loss from discontinued operations led to a $1.8 million net loss Condensed Consolidated Statement of Operations (Unaudited) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenue | $3,939,103 | $3,058,697 | | Total operating expenses | $4,832,122 | $5,309,026 | | Loss from operations | ($893,019) | ($2,250,329) | | Income from continuing operations | $2,983,861 | $9,487,884 | | Loss from discontinued operations | ($4,772,399) | ($147,884) | | Net (loss) income | ($1,788,538) | $9,340,000 | | Basic (loss) earnings per share | ($1.15) | $2.46 | | Diluted loss per share | ($2.77) | ($9.69) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $12.2 million, primarily driven by over $5.0 million from common stock issuance, earnout settlement, and debt conversion, offset by a net loss - Key equity changes in Q1 2023 included the issuance of common shares for a private placement ($3.4 million), settlement of earnout liability ($0.98 million), and conversion of a loan ($0.65 million)[16] Condensed Consolidated Statements of Cash Flows Q1 2023 saw $1.1 million cash used in operations, $96,297 in investing, and $2.8 million provided by financing, resulting in a $1.6 million net cash increase Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,064,878) | ($343,280) | | Net cash used in investing activities | ($96,297) | ($18,392,093) | | Net cash provided by financing activities | $2,805,700 | $20,090,409 | | Net increase in cash and restricted cash | $1,644,525 | $1,355,036 | Notes to the Unaudited Condensed Consolidated Financial Statements Notes detail a $742,000 working capital deficit, a $4.4 million loss from discontinued Medigap operations, a 1-for-15 reverse stock split, and a $3.4 million private placement - As of March 31, 2023, the Company had a working capital deficit of approximately $742,000 but believes its financial position and ability to raise capital are sufficient to continue as a going concern[29][30] - The company discontinued its Medigap subsidiary, recognizing a loss of $4.4 million, which is presented in discontinued operations[39] - On February 23, 2023, the company implemented a 1-for-15 reverse stock split All share and per-share data have been retroactively adjusted[52] - In March 2023, the company completed a private placement, raising gross proceeds of approximately $4 million and net proceeds of $3.4 million[62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's acquisition strategy and Insurtech platforms, noting Q1 2023 revenue growth to $3.9 million, a reduced operating loss of $0.9 million, and improved working capital Overview The company's strategy focuses on acquiring insurance agencies and expanding them nationally, supported by its B2C 5MinuteInsure.com and B2B RELI Exchange Insurtech platforms - The company's primary strategy is to acquire undervalued wholesale and retail insurance agencies and expand their operations[78][79] - As of March 31, 2023, the company has acquired nine insurance agencies[80] - Launched B2C platform 5MinuteInsure.com and B2B platform RELI Exchange to enhance its national footprint and provide digital tools to agency partners[82][83] Recent Developments Q1 2023 saw a 1-for-15 reverse stock split in February and a March private placement that raised approximately $3.4 million in net proceeds - On March 13, 2023, the company entered into a securities purchase agreement for a private placement, raising net proceeds of approximately $3.4 million[90][95] - A 1-for-15 reverse stock split of the company's common stock was implemented on February 23, 2023[96] Results of Operations Q1 2023 revenues increased 29% to $3.9 million, operating loss reduced to $893,019 due to cost-cutting, but total other income decreased significantly Comparison of Operations (Three Months Ended March 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $3,939,103 | $3,058,697 | | Loss from Operations | ($893,019) | ($2,250,329) | | General & Administrative Expenses | $1,358,254 | $2,333,795 | | Net (Loss) Income | ($1,788,538) | $9,340,000 | - Revenue increased by approximately $880,000 or 29%, driven by organic growth and an insurance agency acquired in Q2 2022[101] - General and administrative expenses decreased by approximately $975,000 or 42% due to a focus on leaner operations and cost-cutting measures[104] Liquidity and Capital Resources As of March 31, 2023, cash balance was $3.6 million and working capital deficit improved to $743,000, primarily due to a private placement and liability repayment Liquidity Position | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash Balance | ~$3.6 million | ~$1.9 million | | Working Capital Deficit | ~$743,000 | ~$4.5 million | Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,064,878) | ($482,906) | | Net cash used in investing activities | ($96,297) | ($18,252,467) | | Net cash provided by financing activities | $2,805,700 | $20,090,409 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states this item is not applicable, indicating no material exposure to market risks requiring disclosure for a smaller reporting company - The company has indicated that this section is not applicable[118] Item 4. Controls and Procedures A material weakness in EPS disclosure controls identified in 2022 persisted as of March 31, 2023, despite Q1 mitigation efforts, rendering controls ineffective - A material weakness in disclosure controls related to earnings per share (EPS) was identified in 2022[120] - In Q1 2023, the company engaged qualified advisors to assist with EPS calculations and disclosures to mitigate the weakness[120] - Despite mitigation efforts, management concluded that controls over EPS remained ineffective as of March 31, 2023[121] PART II Item 1. Legal Proceedings The company is subject to ordinary course legal proceedings, but management does not expect a material adverse effect, with no contingencies accrued as of March 31, 2023 - The company is subject to various legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect[123] - No legal contingencies were accrued as of March 31, 2023[123] Item 1A. Risk Factors No material changes to risk factors were reported from the Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No new unregistered sales of equity securities were reported that had not been previously disclosed - No new unregistered sales of equity securities were reported in this filing[126] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - The company reports this item as not applicable[127] Item 4. Mine Safety Disclosures This item is not applicable as the company is not engaged in mining operations - The company reports this item as not applicable[128] Item 5. Other Information No other information is reported for this period - The company reports this item as not applicable[129] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including financing agreements, executive promotions, and required CEO/CFO certifications - Exhibits filed include documents related to a securities purchase agreement from March 2023, an amendment to a promissory note, and officer certifications[131]