Quarterly report pursuant to Section 13 or 15(d)

Nature of the Organization and Business

v3.19.2
Nature of the Organization and Business
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF THE ORGANIZATION AND BUSINESS

NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS

 

Nature of Business

 

Conversions Labs, Inc. ("Conversion Labs," "we," "us," "our," the "Company") is an internet-based direct response marketing company that in-licenses, acquires, creates and markets innovative and proprietary products to consumers around the world via our technology infrastructure and relationships with agencies, third party marketers, and online advertising platforms such as Facebook, Google and Amazon. We currently have four commercial stage products including (i) Shapiro MD, a patented shampoo, conditioner, and leave-in foamer for thicker, fuller hair, (ii) iNR Wellness MD, a nutritional supplement for immune and gut support, (iii) Scarology, a proprietary 3-step scar care system designed to improve the overall color, texture and appearance of scars that consists of a natural fruit acid exfoliator, a proprietary scar healing cream and silicon scar sheets, and (iv) PDF Simpli, a PDF conversion software, which is marketed through our subsidiary, LegalSimpli Software, LLC, a marketing-driven software solutions business.

 

We launched our online direct marketing business in the fourth quarter of 2015 with the establishment of a partnership with Inate Skincare, LLC ("Inate"). Our initial intention was to launch a skin care line containing our proprietary ingredients and to market such products directly to consumers. We entered into a limited liability company operating agreement with our joint venture partners with respect to Inate under the legal name Immudyne PR LLC (now known as "Conversion Labs PR"). On April 1, 2016, the original operating agreement of Conversion Labs PR was amended and restated and we increased our ownership and voting interest in Conversion Labs PR to 78.2%. On April 25, 2019, the operating agreement of Conversion Labs PR was amended and restated in its entirety to increase the Company's ownership and voting interest in Conversion Labs PR to 100%.

 

During 2016, we utilized third party entities to provide and increase credit card processing capacity and optimize corresponding rates and fees through one or more merchant bank accounts held by such entities. Some of the entities contracted to provide these services had been determined to be variable interest entities ("VIEs") and were consolidated in the Company's financial statements. The one (1%) percent fee received by these VIEs was eliminated in consolidation of the net revenues processed and collected by such contractors from sales initiated by the Company. The remaining entities provided such services as independent contractors, the majority of which were considered related parties and no fee was paid. Upon receipt of funds by such contractors from their respective merchant banks, the Company required the prompt transfer of funds to Company controlled accounts. The Company reimbursed and/or advanced funds to such contractors for any deficit or charge related to returns, chargeback and other fees charged by such merchant bank. By our year ended December 31, 2018, we ceased processing credit card charges through all VIE merchant accounts. At December 31, 2018, we recorded the merchant reserves from these VIE merchant accounts on our balance sheet as accounts receivable.

 

As used in these financial statements and unless otherwise indicated, the terms "Company," "we," "us," and "our" refer to Conversion Labs, Inc. (formerly known as Immudyne, Inc.) and our majority-owned subsidiaries LegalSimpli Software, LLC, a Puerto Rico limited liability company ("LegalSimpli"), Conversion Labs PR, LLC (formerly Immudyne PR LLC), a Puerto Rico limited liability company ("Conversion Labs PR"), Conversion Labs Media, LLC ("CVLB Media"), a Puerto Rico limited liability company, Conversion Labs RX, LLC ("CVLB RX"), a Puerto Rico limited liability company, and Conversion Labs Asia Limited, a Hong Kong company ("Conversion Labs Asia"). Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

Acquisition of Membership Interest Purchase Agreement

 

On May 29, 2018, Immudyne PR acquired 51% of the membership interests (the "Membership Interests") of LegalSimpli Software, LLC, a Puerto Rico limited liability company ("LegalSimpli"), which operates a marketing-driven software solutions business. In consideration for Immudyne PR's purchase of the Membership Interests, Immudyne PR paid $150,000 (the "Initial Payment") to the sellers upon execution of the purchase agreement. Additionally, Conversion Labs PR agreed to pay up to an additional $200,000 for such Membership Interests and an additional $400,000 of contingent consideration should the Company or Conversion Labs PR ever pay a dividend.

 

Recent Developments

 

On April 25, 2019, the Company entered into an membership purchase agreement with entities owned by the Company's Chief Executive officer and Chief Technology Officer, Conversion Labs PR, and purchased the remaining 21.8% interest of Conversion Labs PR from the Company's Chief Executive officer and Chief Technology Officer. As such, the Company now wholly-owns 100% of Conversion labs PR. In order to consummate this transaction, the Company agreed to issue 5 million shares of common stock based on the issuance price of $0.18 per share, equal to $900,000 to the Company's Chief Executive Officer and Chief Technology Officer. The shares were not issued until August 6, 2019, and, as such, the Company has recorded a liability on the Company's balance sheet as of June 30, 2019.

 

On May 31, 2019, through our wholly-owned subsidiary, Conversion Labs PR, the Company entered into the operating agreement by and among Conversion Labs RX, LLC, a Puerto Rico limited liability company ("CVLB RX"), by and among the Company, Conversion Labs PR, LLC, Harborside Advisors, LLC, Happy Walters, an individual ("Walters"), and David Hanig, an individual ("Hanig", and together with CLPR, Harborside and Walters, each a "Member" and together the "Members"). Pursuant to the operating agreement, the Company, through Conversion Labs PR, owns 51% of the membership interests of CVLB RX. The operating agreement governs the operations of CVLB RX and provides for CVLB RX's management by a Board of Managers of at least three members. Among the provisions of the operating agreement are limitations and restrictions on the disposition of membership interests by a member, including right of first refusal of the members and an option for both the Company and the members to purchase membership interests that are being offered by a member.

 

Going Concern

 

The Company has funded operations in the past through the sales of its products, issuance of common stock and through loans and advances from officers and directors. The Company's continued operations are dependent upon obtaining an increase in its sales volume and the continued financial support from officers and directors or its ability to raise additional capital from the sale of common stock or through debt securities. The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes the realization of assets and the satisfaction of liabilities in the normal course of business. At June 30, 2019, the Company had an accumulated deficit approximating $14,941,000. Management has significant doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Based on the Company's cash balance at June 30, 2019, and projected cash needs for 2019, management estimates that it will need to increase sales revenue and/or raise additional capital to cover operating and capital requirements for the 2019 fiscal year. Although management has been successful to date in raising capital to fund operations , there can be no assurance that sales revenue will substantially increase or that any required future financing can be successfully completed on a timely basis, or on terms acceptable to the Company.