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Commitments and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Royalty Agreements

 

Pilaris Laboratories, LLC

 

On September 1, 2016, Conversion Labs PR entered into a sole and exclusive license, royalty and advisory agreement with Pilaris Laboratories, LLC ("Pilaris") relating to Pilaris' PilarisMax shampoo formulation and conditioner. The term of the agreement will be the life of the US Patent held by Pilaris. As consideration for granting Conversion Labs PR this license, Pilaris will receive on quarterly basis, 10% of the net income collected by the licensed products based on the following formula: Net Income = total income – cost of goods sold – advertising and operating expenses directly related to the marketing of the licensed products. In addition, Conversion Labs PR shall pay Pilaris a performance fee of $50,000 on the 180-day anniversary of the agreement and an additional $50,000 performance fee on the 365-day anniversary of the agreement. For the year ended December 31, 2018, the Company recognized expenses related to the performance fee in the amount of $100,000. In April 2017, the Company issued 217,390 shares of common stock and 108,696 warrants, pursuant to a subscription agreement, for the stated consideration and satisfaction of obligation to pay $50,000 on the 180-day anniversary of the execution of this agreement. As of September 30, 2019 and December 31, 2018, the Company has accrued $10,000 and $0, respectively, which is included in accounts payable and accrued expenses in regard to this agreement.

 

M.ALPHABET, LLC

 

On March 26, 2018, the Company entered into a license agreement (the "Alphabet Agreement") with M.ALPHABET, LLC ("Alphabet"), pursuant to which Alphabet agreed to license its PURPUREX business which consists of methods and compositions for the treatment of purpura, bruising, post-procedural bruising and traumatic bruising (the "Product Line"). Pursuant to the license granted under the Alphabet Agreement, Conversion Labs PR obtained an exclusive license to incorporate (i) any intellectual property rights related to the Product Line and (ii) all designs, drawings, formulas, chemical compositions and specifications used or useable in the Product Line into one or more products manufactured, sold, and/or distributed by Alphabet for the treatment of purpura, bruising, post-procedural bruising and traumatic bruising and for all other fields of use or purposes (the "Licensed Product(s)"), and to make, have made, advertise, promote, market, sell, import, export, use, offer to sell and distribute the Licensed Product(s) throughout the world with the exception of China, Hong Kong, Japan, and Australia (the "License").

 

The Company shall pay Alphabet a royalty equal to 13% of Gross Receipts (as defined in the Alphabet Agreement) realized from the sales of Licensed Products. Further, so long as the Alphabet Agreement is not previously terminated, the Company, also agreed to pay Alphabet $50,000 on the 120-day anniversary of the Alphabet Agreement and an additional $50,000 on the 360-day anniversary of the Agreement.

 

Upon execution of the Alphabet Agreement, Alphabet was granted a 10-year option to purchase 100,000 shares of the Company's common stock at an exercise price of $0.50. Further, if Licensed Products have gross receipts of $7,500,000 in any calendar year, the Company will grant Alphabet an option to purchase an additional 100,000 shares of the Company's common stock at an exercise price of $0.50; (ii) if Licensed Products have gross receipts of $10,000,000 in any calendar year, the Company will grant Alphabet an additional option to purchase an additional 100,000 shares of the Company's common stock at an exercise price of $0.50 and (iii) If Licensed Products have gross receipts of $20,000,000 in any calendar year, the Company will grant Alphabet an option to purchase an additional 200,000 shares of the Company's common stock at an exercise price of $0.75.

 

Milestone-based Royalty Agreement

 

The Company is subject to a royalty agreement based upon sales of certain hair care products, namely the owners of the Shapiro MD product line. For the three and nine months ended September 30, 2019, the Company recognized approximately $26,000 and $76,000, respectively, in royalty expense related to this agreement. For the three and nine months ended September 30, 2018, the Company recognized approximately $28,500 and $67,000, respectively, in royalty expense related to this agreement. These amounts are included in the Company's accompanying statement of operations as general and administrative expenses.

 

Restricted Stock and Options

 

The Company has entered into two agreements on April 1, 2016 with two consultants of Conversion Labs PR for business development, marketing and sales related services (the "Consultant Agreements"). Upon signing, each consultant was issued 1,000,000 restricted shares of the Company's common stock. In addition, each consultant received an additional 150,000 restricted shares of the Company's common stock. The Company valued the shares of common stock at their grant date for a value of $0.30 per share for a total of $690,000 to be expensed over the estimated service period.

 

In addition, the Consultant Agreements provided that each consultant shall receive a bonus of an additional 750,000 restricted shares of the Company's common stock, plus an option to buy 1,000,000 shares of the Company's common stock at a price of $0.20 per share (including a cashless exercise feature) when Conversion Labs PR has transferred to the Company at each of the following three (3) thresholds: $1,250,000, $2,000,000 and $3,000,000 for a total of 2,250,000 of restricted shares of the Company's common stock and options to purchase up to 3,000,000 shares of the Company's common stock at a price of $0.20 per share. As of September 30, 2019, no bonus shares had been issued, and no options have been granted pursuant to the Consultant Agreements. On April 25, 2019, concurrent with the Company's purchase of the remaining 21.8% interest of Conversion Labs PR, these options were cancelled.

 

Legal Matters

 

In the normal course of business operations, the Company may become involved in various legal matters. At September 30, 2019, the Company's management does not believe that there are any potential legal matters that could have an adverse effect on the Company's financial position.