Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.19.2
Stockholders' Equity
6 Months Ended
Jun. 30, 2019
Stockholders' Equity Note [Abstract]  
STOCKHOLDERS' EQUITY

NOTE 7 – STOCKHOLDERS' EQUITY

 

Common Stock

 

In February 2018, pursuant to the sale of the Company's legacy yeast beta glucan assets to the Company's former CEO, Mr. McLaughlin, 2,000,000 shares of common stock of Mr. McLaughlin's shares were cancelled. 

 

In March 2018, the Company issued 500,000 shares of common stock valued at $120,000 to a consultant. In May 2018, the Company amended the agreement with the consultant whereby the Company rescinded the 500,000 shares of common stock and reissued 250,000 shares of common stock. The 250,000 shares of common stock issued on May 14, 2018, were valued at $62,500. The Company is recognizing the expense at the time of issuance.

 

In May 2018, the Company issued 1,000,000 shares of common stock valued at $230,000 to JLS Ventures, LLC, a company controlled by our CEO, Justin Schreiber, for services. These 1,000,000 shares serve as the compensation for Mr. Schreiber for his services as CEO of the Company.

 

In May 2018, the Company issued 200,000 shares of common stock valued at $56,000 to a consultant for services over a three month term. The Company is recognizing the expense at the time of issuance.

 

On January 1, 2019, in connection with the Company's agreement with JLS Ventures, LLC, the Company issued 1,000,000 shares of restricted stock to JLS Ventures, LLC, an entity owned by our Chief Executive Officer.

 

On February 27, 2019, the Company entered into a short-term note agreement for $100,000 that was repaid prior to the quarter end. As part of the note agreement, the Company issued 100,000 shares of common stock to the note holder valued at $16,000.

 

During the year ended December 31, 2018, the Company had convertible note holders convert 1,498,442 shares at a conversion price of $0.23 per share, resulting in a decrease to the aggregate amount of outstanding convertible debt of approximately $344,641 during the year.

 

Noncontrolling Interest

 

For the three and six months ended June 30, 2019, the net (loss) income from non-controlling interests attributed the Company amounted to approximately ($97,000) and $(481,000), respectively. For the three and six months ended June 30, 2018, the net (loss) income from non-controlling interests attributed the Company amounted to approximately ($36,000) and ($23,000), respectively.

 

On May 29, 2018, Conversion Labs PR acquired a 51% interest in LegalSimpli, which operates a marketing-driven software solutions business.

 

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, whereby the Company acquired 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, or for a total of $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, the Company entered into the operating agreement of CVLB RX, by and among the Company, Conversion Labs PR, Harborside Advisors, LLC, Happy Walters, an individual ("Walters"), and David Hanig, an individual ("Hanig", and together with Conversion Labs PR, 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.

 

Stock Options

 

The following is a summary of outstanding service-based options at June 30, 2019:

 

    Options Outstanding Number of Shares     Exercise Price per Share     Weighted Average Remaining Contractual Life     Weighted Average Exercise Price per Share  
Balance at December 31, 2018     13,820,000       $ 0.20 - 0.40       4.84 years     $ 0.26  
Granted     500,000     $0.23       9.70 years       0.23  
Cancelled     (25,000 )   $0.40       8.26 years       0.40  
Expired                        
Balance at June 30, 2019     14,295,000       $ 0.20 - 0.40       5.00 years     $ 0.26  
                                 
Exercisable December 31, 2018     10,805,416       $ 0.20 - 0.40       3.89 years     $ 0.24  
Exercisable June 30, 2019     11,467,916       $ 0.20 - 0.40       4.13 years     $ 0.25

 

All outstanding options are exercisable and have a cashless exercise provision, and certain options provide for accelerated vesting provisions and modifications, as defined, if the Company is sold or acquired. The intrinsic value of options outstanding and exercisable at June 30, 2019 and December 31, 2018 amounted to $0 and $0, respectively.

 

On February 9, 2019, Robert Kalkstein, the former Chief Financial Officer of the Company, tendered his resignation to the Company's Board of Directors, effective March 31, 2019. In connection with Mr. Kalkstein's resignation, the Company agreed to amend certain options granted to Mr. Kalkstein by decreasing the exercise price of 500,000 options for the Company's common stock previously granted to Mr. Kalkstein from $0.40 per share to $0.28 per share; accelerate the vesting of 150,000 Options with such options to vest on March 31, 2019; and cancel 200,000 unvested options, the vesting of which was not accelerated. The Company determined that the additional compensation expense for this transaction was approximately $3,000, which was recognized in March of 2019.

 

On March 15, 2019 the Company granted Mr. Piñeiro, the Chief Financial Officer of the Company, options to purchase 500,000 shares of the Company's common stock at an exercise price of $0.23. The Company valued the estimated compensation expense for these options as approximately $73,000, using a Black-Scholes option-pricing model as follows:

 

Significant assumptions:      
Risk-free interest rate at grant date     2.38 %
Expected stock price volatility     184.78 %
Expected dividend payout     -  
Expected option life-years     6.5 years  
Weighted average grant date fair value   $ 0.15  
Forfeiture rate     0 %

 

Performance-Based Stock Options

 

The following is a summary of outstanding performance-based options at June 30, 2019:

 

    Options Outstanding Number of Shares     Exercise Price per Share     Weighted Average Remaining Contractual Life     Weighted Average Exercise Price per Share  
Balance at December 31, 2018     15,425,000     $ 0.25 - 0.40       5.67 years       $ 0.27  
Granted                    
Cancelled     (8,600,000 )   0.25 - 0.40       7.57 years         0.31  
Expired                    
Balance at June 30, 2019     6,825,000     $ 0.25 - 0.40       3.27 years       $ 0.23  
                             
Exercisable December 31, 2018     3,175,000     $ 0.25 - 0.40       3.74 years       $ 0.40  
Exercisable June 30, 2019     3,175,000     $ 0.25 - 0.40       3.68 years       $ 0.40  

 

Vested

 

During 2017, the Company granted performance-based options to purchase 250,000 shares of common stock at an exercise price of $0.40 per share. These options expire in 2027 and are exercisable upon the Company achieving annual sales revenue of $5,000,000. These options are valued at $55,439. During 2017, the Company met the performance criteria.

 

Unvested

 

During 2017, the Company granted performance-based options to purchase 6,000,000 shares of common stock with an exercise prices of $0.35 per share to JLS Ventures, LLC, a related party. The options expire in 10 years and become exercisable upon cash received by Conversion Labs, Inc. from Conversion Labs PR between $4,000,000 and $7,000,000. The aggregate fair value of these performance-based options is $1,688,212. On April 25, 2019, concurrent with the Company's purchase of the remaining 21.8% interest of Conversion Labs PR, these options were cancelled.

 

In the third quarter of 2017, the Company granted performance-based options to purchase 3,750,000 shares of common stock with an exercise prices of $0.25 and $0.35 per share. The options expire in 10 years and become exercisable upon the company achieving pre-tax earnings benchmarks between $4,000,000 and $7,000,000. The aggregate fair value of these performance-based options is $1,152,849. As of February 2018, 2,000,000 of these options had been cancelled.

 

Warrants

 

The following is a summary of outstanding and exercisable warrants:

 

    Warrants Outstanding Number of Shares     Exercise Price per Share     Weighted Average Remaining Contractual Life     Weighted Average Exercise Price per Share  
Balance at December 31, 2018     5,225,533     $ 0.20 - 0.50     3.25 years     $ 0.35  
Granted     1,086,957     $0.28     9.87 years       0.28  
Exercised                    
Expired                    
Balance at June 30, 2019     6,312,490     $ 0.20 - 0.50     4.39 years     $ 0.34  
                             
Exercisable December 31, 2018     5,225,533     $ 0.20 - 0.50     3.27 years     $ 0.35  
Exercisable June 30, 2019     5,248,178     $ 0.20 - 0.50     3.25 years     $ 0.35  

 

In March 2018, the Company issued 100,000 warrants to purchase shares of common stock with an exercise price of $0.50 per share, in relation to royalty license agreement. These warrants are fully vested and expire in ten years.

 

In May 2018, the Company issued 2,391,305 warrants to purchase shares of common stock with an exercise price of $0.28 per share, in relation to an issuance of convertible notes payable. These warrants are fully vested and expire in five years.

 

In May 2019, the Company issued 1,086,957 warrants to purchase shares of common stock with an exercise price of $0.28 to Bertrand Velge, a board member. The warrants will vest monthly over a four year period and expire in five years.

 

Stock Based Compensation

 

The total stock-based compensation expense related to Service-Based Stock Options, Performance-Based Stock Options and Warrants issued for service approximated $191,000 and $373,000 for the three and six months ended June 30, 2019, respectively. The total stock-based compensation expense related to Service-Based Stock Options, Performance-Based Stock Options and Warrants issued for service approximated $256,000 and $340,000 for the three and six months ended June 30, 2018, respectively. Such amounts are included in compensation and related expenses in the consolidated statement of operations.