NOTE 7 – STOCKHOLDERS’ EQUITY

Common Stock

In January 2017, the Company issued 1,183,490 shares of common stock pursuant to a conversion of Conversion Labs PR equity contributions of $272,203 into equity of the Company by the noncontrolling interest.

In January 2017, the Company issued 217,391 shares of common stock in relation to issuance of a $210,000 note payable.

In the first quarter of 2017, the Company commenced an offering to sell up to 4,000,000 shares of common stock at a price of $0.23 per share and warrants to purchase up to 2,000,000 shares of common stock exercisable any time prior to the second anniversary of the issuance. The warrants are paired with the common stock on the basis of one warrant for every two shares of common stock purchased. During 2017, the Company received subscriptions for 2,927,156 shares and issued 1,463,578 warrants to purchase shares of common stock for an aggregate purchase price of $673,246.

In March 2017, the Company issued an aggregate of 755,179 shares of common stock for the conversion of the outstanding balance of three notes payable totaling $499,802 (see Note 4).

On April 24, 2017, the Company, issued 217,390 shares of common stock pursuant to a stock subscription agreement and the Company issued 108,696 warrants with an exercise price of $0.40 per share for the stated consideration and satisfaction of obligation to pay $50,000 on the 180-day anniversary of the execution of the Sole and Exclusive License, Royalty, and Advisory Agreement dated September 1, 2016 with Pilaris Laboratories, LLC.

During the second quarter of 2017 the Company received subscriptions for the purchase of 110,000 shares and issued 55,000 warrants in connection therewith for an aggregate purchase price of $25,300.

On June 1, 2017, the Company entered into an agreement with a consultant to provide services over the course of six months and issued 125,000 shares of common stock as compensation. The shares were valued at $45,000 and the Company is recognizing the expense over the term of the agreement. For the year ending December 31, 2017, $45,000 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

In July 2017, the Company and JLS Ventures, an entity owned by the Company’s current Chief Executive Officer, entered into a second amendment to a Service Agreement effective July 1, 2017. As compensation, the Company issued 900,000 shares of common stock valued at $432,000. The Company is recognizing the expense over the term of the agreement. For the nine months ending September 30, 2018 and 2017, $108,000 and $0, respectively, has been expensed and included in compensation and related expenses on the consolidated statement of operations.

In July 2017, Mark McLaughlin, the Company’s former President and Chief Executive Officer, exercised 1,500,000 warrants, at an exercise price of $0.12 per share, on a cashless basis and was issued 1,140,000 shares of common stock.

In July 2017, Mark McLaughlin exercised 1,339,473 options, at an exercise price of $0.10 per share, on a cashless basis and was issued 800,000 shares of common stock.

In July 2017, Mark McLaughlin exercised 339,473 options on a cashless basis and was issued 271,579 shares of common stock.

In August 2017, the Company issued 100,000 shares of common stock valued at $40,000 to Acorn Management Partners L.L.C. (“Acorn”) for financial advisory, strategic business planning and other investor relation services. The Company is recognizing the expense over the term of the agreement. For the year ending December 31, 2017, $40,000 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

In August 2017, the Company issued 50,000 shares of common stock valued at $20,000 to BV Global Fulfillment, LLC (“BV Global”) for fulfillment services.

In November 2017, the Company issued 100,000 shares of common stock valued at $44,000 to an employee as a bonus.

In November 2017, the Company issued 135,721 shares of common stock pursuant to a conversion of Conversion Labs PR equity contributions of $31,216 into equity of the Company by the noncontrolling interest.

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. The Company also committed to issue an additional 1,000,000 shares of common stock on January 1, 2019 valued in the aggregate amount of $230,000 if JLS Ventures met the service requirement specified in the agreement. These 2,000,000 shares serve as the compensation for Mr. Schreiber for his services as CEO of the Company. The Company is recognizing the expense for the issuances over the twenty-four month term of the agreement. For the nine months ending September 30, 2018, $172,500 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

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. For the nine months ending September 30, 2018, $56,000 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

Noncontrolling Interest

During 2017, the Company issued a total of 1,319,211 shares of common stock and 659,606 warrants to purchase shares of common stock pursuant to a conversion of Conversion Labs PR equity contributions of $303,418 into equity of the Company by the noncontrolling interest.

For the nine months ended September 30, 2018 and 2017, the net loss of Conversion Labs PR attributed to the Company amounted to $23,145 and $68,924, respectively.

For the three months ended September 30, 2018 and 2017, the net loss of Conversion Labs PR attributed to the Company amounted to $35,842 and $41,194, respectively.

On May 29, 2018, Conversion Labs PR acquired a 51% interest in LegalSimpli, which operates a marketing-driven software solutions business. For the month of June 2018, the net loss of LegalSimpli was $48,613, of which $5,200 was attributed to the Company. During June 2018, contributions by other members of LegalSimpli resulted an increase in noncontrolling interests of $154,000

During the quarter end September 30, 2018, the Company had convertible note holders convert 1,351,094 shares at a conversion price of $0.23 per share, resulting in a decrease to convertible notes of approximately $310,752 during the quarter.

Service-Based Stock Options

In January 2017, the Company issued 100,000 service-based options valued at $24,109 to Brunilda McLaughlin, the wife of our CEO during this period, as additional compensation pursuant to an employment agreement. These options have an exercise price of $0.40 per shares, are fully vested, and expire in 10 years from date of grant.

In February 2017, the Company issued 500,000 service-based options valued at $113,522 to a director with an exercise price of $0.20 per share. These options are fully vested and expire in 10 years from date of grant.

In July 2017, the Company issued 75,000 service-based options valued at $20,985 to Brunilda McLaughlin, the wife of our CEO during this period, as additional compensation in an employment agreement. These options have an exercise price of $0.35 per shares, are fully vested, and expire in 10 years from date of grant.

In July 2017, the Company issued a total of 300,000 service-based options valued at $83,939 to three directors at 100,000 shares each, with an exercise price of $0.35 per share. These options are fully vested and expire in 10 years from date of grant.

In July 2017, the Company issued 125,000 service-based options valued at $49,219 to a consultant with an exercise price of $0.40 per share. These options are fully vested and expire in 5 years from date of grant.

In July 2017, the Company issued Mark McLaughlin, the Company’s CEO at the time, a ten year option to purchase 750,000 shares of common stock at a price of $0.35 per share, vesting one-third or 250,000 shares upon signing and 250,000 shares on July 1, 2018 and 250,000 shares on July 1, 2019. Once these options are fully vested, they expire in 10 years from date of grant. The options vested at December 31, 2017 are valued at $69,949. In February 2018, Mr. McLaughlin resigned as CEO, therefore no further options will be vested.

On October 1, 2017, Michael Borenstein was appointed to our Board of Directors. In connection with his appointment, Mr. Borenstein received a ten-year, fully-vested option to purchase 100,000 shares of our common stock at a price of $0.35 per share. In addition, Mr. Borenstein received four, ten-year options, each to purchase 75,000 shares of our common stock at prices of $0.25, $0.25, $0.35, and $0.35 per share, which vest upon the Company reaching $4,000,000, $5,000,000, $6,000,000 and $7,000,000 in earnings before income taxes, respectively.

In October 2017, the Company entered into a consulting agreement with Mr. Robert Kalkstein, the Company’s Chief Financial Officer, and issued him a ten-year option to purchase 500,000 shares of common stock at a price of $0.40 per share, vesting 30% upon signing, 35% vesting on the two-year anniversary of the agreement and 35% vesting on the three year anniversary of the agreement. The fair value of the options upon issuance was $199,897 to be recognized as an expense over the three-year term of the agreement. For the nine months ended September 30, 2018 and 2017, $49,974 and $0, respectively, has been recognized as expense. For the three months ended September 30, 2018 and 2017, $16,658 and $0, respectively, has been recognized as expense.

Accordingly, stock-based compensation for the nine months ended September 30, 2018 and 2017 included $204,750 and $406,247, respectively, related to such service-based stock options.

Accordingly, stock-based compensation for the three months ended September 30, 2018 and 2017 included $0 and $292,725, respectively, related to such service-based stock options.

A Summary of the outstanding service-based options are as follows:

	Number of
	Options
Balance at December 31, 2016		10,700,273
Issued		1,600,000
Exercised		(1,339,473	)

Balance at December 31, 2017		10,960,800
Issued		600,000
Expired		(500,000	)
Exercised		(40,800	)
Balance at September 30, 2018		11,020,000

All outstanding options are exercisable and have a cashless exercise provision, and certain options provide for accelerated vesting provisions and modifications, as defined therein. The intrinsic value of options outstanding and exercisable at September 30, 2018 and December 31, 2017 amounted to $160,796 and $1,210,342, respectively.

The significant assumptions used to determine the fair values of options issued, using a Black-Scholes option-pricing model are as follows:

Significant assumptions:
Risk-free interest rate at grant date		0.65% - 2.84	%
Expected stock price volatility		96.56% -180.45	%
Expected dividend payout		-
Expected option life-years		3 years
Weighted average grant date fair value	$	0.02 - 0.32
Forfeiture rate		0.01	%

The following is a summary of outstanding service-based options at September 30, 2018:

Exercise Price		Number of Options		Weighted Average Remaining Contractual Life
$	0.20 - $0.25		8,720,000	4 years
$	0.35		725,000	9 years
$	0.40		1,575,000	4 years
	Total		11,020,000

Performance-Based Stock Options

Vested

In February 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

The Company granted performance-based options to purchase 900,000 shares of common stock at an exercise price of $0.80 per share. The options expire at various dates between 2021 and 2027 and are exercisable upon the Company achieving annual sales revenue of $10,000,000. During 2017, these unvested options were cancelled.

In July 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. These options expire in 10 years and are exercisable upon cash received by the Company 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.

In the third quarter of 2017, the Company granted performance-based options to purchase 1,575,000 shares of common stock with an exercise prices of $0.25 and an additional 1,575,000 shares of common stock with an exercise price of $0.35 per share. The options expire 10 years from date of grant and are 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 $910,146.

In the fourth quarter of 2017, the Company granted performance-based options to purchase 300,000 shares of common stock with an exercise prices of $0.25 and an additional 300,000 shares of common stock with an exercise price of $0.35 per share. The options expire in 10 years and are 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 $242,709.

Warrants

The following is a summary of outstanding and exercisable warrants:

	Number of			Weighted Average Exercise		Year of
	Shares			Price		Expiration

Balance at December 31, 2016		1,954,981		$	0.19	2017 - 2019
Issued		2,634,228			0.40	2018 - 2020
Exercised		(1,500,000	)		0.12	2017

Balance at December 31, 2017		3,089,119			0.40	2018 - 2020
Issued		2,491,305			0.29	2023 - 2028
Exercised		-
Balance at September 30, 2018		5,580,424		$	0.35	2018 - 2028

In January 2017, the Company issued 591,745 warrants to purchase shares of common stock with an exercise price of $0.40 per share, in relation to an issuance of common stock for the conversion of an equity contribution into Conversion Labs PR by the noncontrolling interest. These warrants are fully vested and expire in two years.

In March 2017, the Company issued 402,348 warrants to purchase shares of common stock with an exercise price of $0.40 per share, in relation to an issuance of common stock for the conversion of debt. These warrants are fully vested and expire in two years.

In the first quarter of 2017, the Company issued 1,408,578 warrants to purchase shares of common stock with an exercise price of $0.40 per share, in relation to a sale of common stock. These warrants are fully vested and expire in two years.

In April 2017, the Company issued 55,000 warrants to purchase shares of common stock with an exercise price of $0.40 per share, in relation to a sale of common stock. These warrants are fully vested and expire in two years.

In April 2017, the Company issued 108,696 warrants to purchase shares of common stock with an exercise price of $0.40 per share, in relation to an issuance of common stock for conversion of a payable. These warrants are fully vested and expire in three years.

In November 2017, the Company issued 67,861 warrants to purchase shares of common stock with an exercise price of $0.40 per share, in relation to an issuance of common stock for conversion of an equity contribution into Conversion Labs PR by the noncontrolling interest. These warrants are fully vested and expire in three years.

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.

Warrants outstanding and exercisable amounted to 5,580,424 and 3,089,119 at September 30, 2018 and December 31, 2017, respectively. The weighted average exercise price of warrants outstanding at September 30, 2018 and December 31, 2017 is $0.35 and $0.40, respectively. The warrants expire at various times between September 2018 and March 2028.

The fair value of options and warrants granted (or extended) during the nine months ended September 30, 2018 and 2017, was estimated on the date of grant (or extension) using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	2018	2017

Expected volatility	191% - 196%	125% - 214%
Risk free interest rate	2.44% - 2.58%	1.31% - 2.57%
Expected dividend yield	-	-
Expected option term (in years)	3-5	0.9 - 8.1
Weighted average grant date fair value	$0.21 – 0.22	$0.12 - 0.45

Under ASC 815-40-05, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock, in the event the Company does not have a sufficient number of authorized and unissued shares of common stock to satisfy obligations for stock options, warrants and other instruments potentially convertible into common stock, the fair value of these instruments should be reported as a liability. Pursuant to the outstanding option, warrant and convertible debt agreements, there is currently no effective registration statement covering the shares of common stock underlying these agreements, which are currently subject to a cashless exercise whereby the holders, at their option, may surrender their options and warrants to the company in exchange for shares of common stock. The number of shares of common stock into which an option or a warrant would be exchangeable in such a cashless exercise depends on both the exercise price of the options or warrant and the market price of the common stock, each at or near the time of exercise. Because the market price is variable, it is possible that we could have insufficient authorized shares to satisfy a cashless exercise. In this scenario, if we were unable to obtain shareholder approval to increase the number of authorized shares, we could be obligated to settle such a cashless exercise with cash rather than by issuing shares of common stock. Further, ASC 815-40-05 requires that we record the potential settlement obligation at each reporting date using the current estimated fair value of these contracts, with any changes in fair value being recorded through our statement of operations. We reported the potential settlement obligation as a liability until such time as these contracts are exercised or expire or we are otherwise able to modify the agreements to remove the provisions which require this treatment. On September 21, 2017, the Company filed an amendment to its Certificate of Incorporation with the Delaware Secretary of State increasing the number of authorized shares of the Company’s common stock from 50,000,000 to 100,000,000, which enabled the Company to reclassify the derivative liability.

Stock Based Compensation

The total stock-based compensation expense related to Service-Based Stock Options, Performance-Based Stock Options and Warrants issued for service amounted to $383,470 and $142,045 for the nine months ended September 30, 2018 and 2017, respectively. Performance-Based Stock Options and Warrants issued for service amounted to $127,388 and $28,523 for the three months ended September 30, 2018 and 2017, respectively. Such amounts are included in compensation and related expenses in the consolidated statement of operations.