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EQUITY
 3 Months Ended
Mar. 31, 2022
Equity [Abstract]  
EQUITY

NOTE 11. EQUITY

 

Preferred Stock

 

The Company has been authorized to issue 750,000,000 shares of $0.086 par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.

 

 

Each share of Series A Convertible Preferred Stock shall have ten (10) votes per share and may be converted into ten (10) shares of $0.086 par value common stock. The holders of the Series A Convertible Preferred Stock shall be entitled to receive, when, if and as declared by the Board, out of funds legally available therefore, cumulative dividends payable in cash. The annual interest rate at which cumulative preferred dividends will accrue on each share of Series A Convertible Preferred Stock is 0%. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, before any distribution of assets of the Corporation shall be made to or set apart for the holders of the Common Stock and subject and subordinate to the rights of secured creditors of the Company, the holders of Series A Preferred Stock shall receive an amount per share equal to the greater of (i) one dollar ($1.00), adjusted for any recapitalization, stock combinations, stock dividends (whether paid or unpaid), stock options and the like with respect to such shares, plus any accumulated but unpaid dividends (whether or not earned or declared) on the Series A Convertible Preferred Stock, and (ii) the amount such holder would have received if such holder has converted its shares of Series A Convertible Preferred Stock to common stock, subject to but immediately prior to such liquidation.

 

The Series B Convertible Preferred Stock shall have no voting rights and may be converted into 16 shares of $0.086 par value common stock. The holders of the Series B Convertible Preferred Stock are not entitled to receive dividends payable, except that holder of Series B Preferred would be entitled to receive dividends paid on account of the common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock..

 

In January 2022, the Company issued 9,076 shares of its newly designated Series B convertible preferred stock through the Private Placement for the purpose of raising capital. See Note 9 - Warrant Liabilities for proceeds received by the Company.

 

As of March 31, 2022 and December 31, 2021, there were 0 shares of Series A Convertible Preferred Stock issued and outstanding, and 9,076 and 0 shares of Series B convertible Preferred Stock, respectively, issued and outstanding.

 

Common Stock

 

The Company has been authorized to issue 133,333,333 shares of common stock, $0.086 par value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution.

 

In February 2021, the Company issued 138,000 shares of common stock through a stock offering for the purpose of raising capital. The Company received gross proceeds of $12,420,000 for the issuance of these common shares.

 

In February 2021, Reliance Global Holdings, LLC, a related party, converted $3,800,000 of outstanding debt into 42,222 shares of common stock. The conversion considered the fair market value of the stock on the day of conversion of $90.00 for total shares issued as a result of 42,222.

 

In May 2021, the Company issued 995 shares of common stock pursuant to the acquisition of the Kush Acquisition.

 

In January 2022, the Company issued 178,059 shares of common stock through the Private Placement for the purpose of raising capital. See Note 9 - Warrant Liabilities for proceeds received by the Company.

 

In January 2022, the Company issued 40,402 shares of common stock pursuant to the Medigap Acquisition.

 

In January 2022, upon agreement with Series A warrant holders, 25,000 warrants were exercised at a price of $99.00 into 25,000 of the Company’s common stock.

 

In March 2022, the Company issued 400 shares of the Company’s common stock due to the vesting of 400 stock awards pursuant to an employee agreement.

 

As of March 31, 2022 and December 31, 2021, there were 755,806 and 730,407 shares of Common Stock outstanding, respectively.

 

Stock Options

 

During the year ended December 31, 2019, the Company adopted the Reliance Global Group, Inc. 2019 Equity Incentive Plan (the “Plan”) under which options exercisable for shares of common stock have been or may be granted to employees, directors, consultants, and service providers. A total of 46,667 shares of common stock are reserved for issuance under the Plan. At March 31, 2022, there were 31,027 shares of common stock reserved for future awards under the Plan. The Company issues new shares of common stock from the shares reserved under the Plan upon exercise of options.

 

 

The Plan is administered by the Board of Directors (the “Board”). The Board is authorized to select from among eligible employees, directors, and service providers those individuals to whom options are to be granted and to determine the number of shares to be subject to, and the terms and conditions of the options. The Board is also authorized to prescribe, amend, and rescind terms relating to options granted under the Plan. Generally, the interpretation and construction of any provision of the Plan or any options granted hereunder is within the discretion of the Board.

 

The Plan provides that options may or may not be Incentive Stock Options (ISOs) within the meaning of Section 422 of the Internal Revenue Code. Only employees of the Company are eligible to receive ISOs, while employees, non-employee directors, consultants, and service providers are eligible to receive options which are not ISOs, i.e. “Non-Statutory Stock Options.” The options granted by the Board in connection with its adoption of the Plan were Non-Statutory Stock Options.

 

The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model or the value of the services provided, whichever is more readily determinable. The Black-Scholes option pricing model takes into account, as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the term of the option.

 

The following is a summary of the stock options granted, forfeited or expired, and exercised under the Plan for the three months ended March 31, 2022 and March 31, 2021 respectively:

 

   Options  

Weighted

Average

Exercise

Price Per

Share

  

Weighted Average Remaining Contractual

Life (Years)

  

Aggregate

Intrinsic

Value

 
Outstanding at December 31, 2021   

10,928

   $232.50    2.61   $- 
Granted   -    -    -    - 
Forfeited or expired   -    -    -    - 
Exercised   -    -    -    - 
Outstanding at March 31, 2022   

10,928

   $232.50    2.37    - 

 

   Options   Weighted
Average
Exercise
Price Per
Share		   Weighted
Average Remaining Contractual
Life (Years)		   Aggregate
Intrinsic
Value		 
Outstanding at December 31, 2020   

15,594

   $

231.45

    3.63   $- 
Granted   -    -    -    - 
Forfeited or expired   -    -    -    - 
Exercised   -    -    -    - 
Outstanding at March 31, 2021   

15,594

   $

228.30

    3.38   $- 

 

 

The following is a summary of the Company’s non-vested stock options as of March 31, 2022 and March 31, 2021 respectively:

 

Options  Weighted Average Exercise Price Per Share 

Weighted Average Remaining

Contractual Life (Years)

 
Non-vested at December 31, 2021   

3,587

   $

227.10

    0.90 
Granted   -    -    - 
Vested   -    -    - 
Forfeited or expired   -    -    - 
Non-vested at March 31, 2022   

3,587

   $

227.10

    0.82 
                   
   Options  

Weighted

Average

Exercise

Price Per

Share

  

Weighted

Average

Remaining

Contractual

Life (Years)

 
Non-vested at December 31, 2020   

10,636

   $

200.85

    2.53 
Granted   -    -    - 
Vested   -    -    - 
Forfeited or expired   -    -    - 
Non-vested at March 31, 2021   

10,636

   $

223.05

    2.34 

 

For the three months ended March 31, 2022, the Board did not approve any options to be issued pursuant to the Plan.

 

As of March 31, 2022, the Company determined that the options granted had a total fair value of $2,541,360, which will be amortized in future periods through February 2024. During the three months ended March 31, 2022, the Company recognized $63,382 of compensation expense relating to the stock options granted to employees, directors, and consultants. As of March 31, 2022, unrecognized compensation expense totaled $132,364 which will be recognized on a straight-line basis over the vesting period or requisite service period through February 2024.

 

The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on March 31, 2022. The market value as of March 31, 2022 was $64.65 based on the closing bid price for March 31, 2022.

 

 

As of March 31, 2021 the Company determined that the options granted had a total fair value of $3,386,156. During the three months ended March 31, 2021, the Company recognized $232,684 of compensation expense relating to the stock options granted to employees, directors, and consultants. As of March 31, 2021, unrecognized compensation expense totaled $801,698.

 

The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on March 31, 2021. The market values as of March 31, 2021 was $65.40 based on the closing bid price for March 31, 2021.

 

The Company estimated the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models require the Company to make predictive assumptions regarding future stock price volatility, recipient exercise behavior, and dividend yield. The Company estimated the future stock price volatility using the historical volatility over the expected term of the option. The expected term of the options was computed by taking the mid-point between the vesting date and expiration date. The following assumptions were used in the Black-Scholes option-pricing model, not accounting for any reverse splits:

 

  

Three Months

Ended

March 31, 2022

  

Three Months

Ended

March 31, 2021

 
Exercise price  $0.16 - $0.26   $0.16 - $0.26 
Expected term   3.25 to 3.75 years    3.25 to 3.75 years 
Risk-free interest rate   0.38% - 2.43%   0.38% - 2.43%
Estimated volatility   293.07% - 517.13%   293.07% - 517.13%
Expected dividend   -    - 
Option price at valuation date  $0.12 - $0.27    $0.12 - $0.31 

 

Warrants

 

As a part of the Company’s offering, the Company issued 138,000 Series A Warrants. These warrants are classified as equity warrants because of provisions, pursuant to the warrant agreement, that permit the holder obtain a fixed number of shares for a fixed monetary amount. The warrants are standalone equity securities that are transferable without the Company’s consent or knowledge. The warrants were recorded at a value per the offering of $0.15. The warrants may be exercised at any point from the effective date until the 5-year anniversary of issuance and are not subject to standard anti-dilution provisions. The Series A Warrants are exercisable at a per share exercise price equal to 110% of the public offering price of one share of common stock and accompanying Series A Warrant, $99.00. Per Common Stock above, 25,000 of these warrants were exercised in January 2022, resulting in 113,000 Series A warrants issued and outstanding at March 31, 2022.

 

In January 2022, as a result of the issuance of common stock in the January 2022 stock offering and the Medigap Acquisition, the Company received a deficiency notification from Nasdaq indicating violation of Listing Rule 5365(a). As part of its remediation plan, in March 2022, the Company entered into Exchange Agreements with the holders of common stock issued in January 2022. Pursuant to the Exchange Agreements, the Company issued 218,462 Series C prepaid warrants in exchange for 218,462 shares of the Company’s common stock. Additionally, as compensation for entering into the Exchange Agreements, the Company issued 81,500 Series D prepaid warrants to the January 2022 stock offering investors for no additional consideration. The fair value of the Series D prepaid warrants was treated as a deemed dividend and accordingly was treated as a reduction from income available to common stockholders in the calculation of earnings per share. Refer to Note 12, Earnings (Loss) Per Share for additional information.

 

Equity-based Compensation

 

In 2021, three employees received a signing bonus of shares of the Company’s common stock to be issued after the completion of a service period ranging from one to three years of service. The shares granted in 2021 were valued at $110,240. For the three months ended March 31, 2022, compensation expense on these grants totaled $10,328.

 

In 2022, two existing employees were awarded a bonus consisting of shares of the Company’s common stock to be vested immediately. The shares granted in 2022 were valued at $666,250. For the three months ended March 31, 2022, compensation expense on these grants totaled $666,250. As of March 31, 2022 these shares have not been issued.

 

Total stock compensation expense for the three months ended March 31, 2022 and 2021 was $739,960 and $246,966, respectively