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Stockholders' Equity

6 Months Ended

Jun. 30, 2020

Stockholders' Equity Note [Abstract]

Stockholders' Equity

NOTE 5 – STOCKHOLDERS’ EQUITY

Common Stock

During the month of February 2020, the Company entered into a stock purchase agreement with a third-party investor for the purchase of 4,000,000 shares of common stock at $0.16 per share for $640,000 in cash consideration.

During the month of March 2020, the entered into a stock purchase agreement with a third-party investor for the purchase of 1,250,000 shares of common stock at $0.16 per share for $200,000 in cash consideration.

During the month of March 2020, Alpha and Brio exercised their warrants in a cashless exercise for an aggregate of 1,836,155 common stock warrants to obtain 739,291 shares of common stock.

As of June 30, 2020, the Company received $540,972 in cash from investors which is recorded as a liability to issue shares until such time as the shares are issued.

Noncontrolling Interest

For the three months ended June 30, 2020 and 2019, the net loss attributed to the non-controlling interest amounted to $68,131 and $144,887, respectively. During the three months ended June 30, 2020 and 2019, the Company paid distributions to non-controlling shareholders of $85,223 and $0, respectively. For the six months ended June 30, 2020 and 2019, the net loss attributed to the non-controlling interest amounted to $246,947 and $214,742, respectively. During the six months ended June 30, 2020 and 2019, the Company paid distributions to non-controlling shareholders of $121,223 and $34,298, respectively.

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. The difference between the value of the stock issued and net book value of the transfer to accumulated deficit was recognized in non-controlling interest for a charge of $412,377.

Service-Based Stock Options

On January 20, 2020, the Company approved the transition of Mr. Sean Fitzpatrick from the role of the Company’s Chief Acquisition Officer, to the role of President of LegalSimpli. In connection with Mr. Fitzpatrick’s transition, the Company agreed to amend that certain services agreement entered into on July 23, 2018, by and between the Company and Mr. Fitzpatrick, to (i) decrease the number of options to purchase the Company’s common stock previously granted to Mr. Fitzpatrick from 5,000,000 options to 2,500,000 options, 650,000 of which are fully vested as of the effective date and (ii) amend the vesting schedule for the remaining 1,850,000 performance options to include four performance metrics that, if met, each trigger the vesting of 462,500 options. As a result of amendment, the Company cancelled 1,850,000 service based options with an exercise price of $0.30.

During the six months ended June 30, 2020 the Company issued 2.4 million stock options to three employees, two advisory board members, and one vendor of the Company. These stock options have a contractual term of 10 years and vest in 1/3 increments over a two to three year period.

The following is a summary of outstanding service-based options activity for the three months ended June 30, 2020:

		Options Outstanding Number of Shares				Exercise Price per Share				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price per Share

Balance at December 31 2019			15,045,000			$	0.20 - 0.40				4.78 years			$	0.30
Granted			2,400,000				0.23-1.50				7.29 years				0.57
Cancelled			(1,875,000	)		$	0.30				7.50 years				0.30
Expired			–				–				–				–
Balance at June 30, 2020			16,070,000			$	0.16 - 1.50				4.56 years			$	0.34

Exercisable December 31, 2019			11,805,416			$	0.20 - 0.40				3.76 years			$	0.25
Exercisable at June 30, 2020			14,430,416			$	0.20 - 0.40				4.38 years			$	0.26

Performance-Based Stock Options

On January 20, 2020, the Company approved the transition of Mr. Sean Fitzpatrick from the role of the Company’s Chief Acquisition Officer, to the role of President of LegalSimpli. In connection with Mr. Fitzpatrick’s transition, the Company agreed to amend that certain services agreement entered into on July 23, 2018, by and between the Company and Mr. Fitzpatrick, to (i) decrease the number of options to purchase the Company’s common stock previously granted to Mr. Fitzpatrick from 5,000,000 options to 2,500,000 options, 650,000 of which are fully vested as of the effective date and (ii) amend the vesting schedule for the remaining 1,850,000 performance options to include four performance metrics that, if met, each trigger the vesting of 462,500 options. As a result of amendment, the Company cancelled 1,850,000 service based options with an exercise price of $0.30.

The following is a summary of outstanding performance-based options activity for the three months ended June 30, 2020:

		Options Outstanding Number of Shares				Exercise Price per Share				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price per Share

Balance at December 31, 2019			6,825,000			$	0.25 - 0.40				5.59 years			$	0.34
Granted			100,000				1.50				9.25				1.50
Cancelled			(650,000	)			0.30- 0.30				8.06 years				0.30
Expired			–				–				–				–
Balance at June 30, 2020			6,275,000			$	0.25 – 1.50				5.39 years			$	0.36

Exercisable December 31, 2019			3,175,000			$	0.25 - 0.40				2.63 years			$	0.40
Exercisable at June 30, 2020			3,175,000			$	0.25 - 0.40				2.63 years			$	0.40

Warrants

The following is a summary of outstanding and exercisable warrants activity during the three months ended June 30, 2020:

		Warrants Outstanding Number of Shares				Exercise Price per Share				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price per Share
Balance at December 31, 2019			11,326,621			$	0.20 - 0.50				6.02 years			$	0.25
Warrants Granted			5,642,715				0.13 - 0.14				5.49 years				0.12
Warrants Exercised			(9,930,759	)			0.13 - 0.14				1.45 years				0.14
Warrants Expired			-				-				-				-
Balance at June 30, 2020			7,038,181			$	0.13 - 0.50				5.59 years			$	0.31

Exercisable December 31, 2019			10,330,244			$	0.20 - 0.50				6.24 years			$	0.31
Exercisable June 30, 2020			5,745,608			$	0.13 - 0.50				5.62			$	0.34

Alpha Capital Anstalt (“Alpha”) Warrants

On February 25, 2020, the Company and Alpha entered into a Note Repayment and Warrant Amendment Agreement (the “2018 Alpha Amendment”) whereby the Company agreed to (i) repay the outstanding balance of the convertible promissory note issued in favor of Alpha on May 29, 2018 in the amount of $224,145, including principal and interest (the “2018 Alpha Note”) and (ii) amend the exercise price of the warrant (the “2018 Alpha Warrant”) issued to Alpha in connection with the 2018 Alpha Note on May 29, 2018. The 2018 Alpha Warrant originally provided for the purchase of up to 1,956,522 shares of the Company’s common stock at an exercise price of $0.28 per share, none of which have been issued as of the date of the 2018 Alpha Amendment. Pursuant to the terms of the 2018 Alpha Warrant and in connection with the 2018 Alpha Amendment, the Company revised the exercise price of the Alpha 2018 Warrant from $0.28 per share to $0.135 per share and increased the number of shares issuable under the Alpha 2018 Warrant from 1,956,522 to 4,057,972 shares.

On February 25, 2020, the Company and Alpha entered into a Note Repayment and Warrant Amendment Agreement (the “2019 Alpha Amendment”) whereby the Company agreed to (i) repay the outstanding balance of the convertible promissory note issued in favor of Alpha on August 15, 2019 in the amount of $520,000, including principal and interest (the “August 2019 Alpha Note”) and (ii) amend the exercise price of the August 2019 Warrant issued to Alpha in connection with the 2019 Alpha Note on August 15, 2019. The August 2019 Warrant issued to Alpha originally provided for the purchase of up to 1,826,087 shares of the Company’s common stock at an exercise price of $0.28 per share, none of which have been issued as of the date of the 2019 Alpha Amendment. Pursuant to the 2019 Alpha Amendment, Alpha has agreed to the reduction of the exercise price of $0.28 to $0.23. Therefore, effective upon the date of the 2019 Alpha Amendment, the exercise price of the 2019 Alpha Warrant was reduced to $0.23, subject to further adjustment. However, for purposes of calculating additional shares to be issued to Alpha pursuant to the terms of the 2019 Alpha Warrant, the deemed exercise price will be $0.135, as if the exercise price were actually reduced to $0.135 and thereafter increased to $0.23. As a result of the above described reduction of the exercise price and the application of certain provisions of the 2019 Alpha Warrant, the amount of shares that may be purchased upon exercise of the 2019 Alpha Warrant after giving effect to the foregoing is increased to 3,787,439 shares of the Company’s common stock.

As a result of the above transactions, the Company has recorded a deemed distribution to Alpha for the price adjustments of the August 2019 Warrant issued to Alpha of $915,479 which is recorded in the statement of changes in stockholder’s equity as an increase in additional paid in capital and a reduction of accumulated deficit. During the month of March 2020, Alpha exercised a portion of their warrants in a cashless exercise, whereby Alpha exercised 1,336,155 common stock warrants to obtain 451,159 share of common stock.

On May 7, 2020, the Company agreed to further amend August 2019 Warrant issued to Alpha on August 15, 2019, as amended on February 25, 2020 (the “Second Alpha Warrant Amendment”). Specifically, pursuant to anti-dilution provisions contained therein, the Company agreed to amend the August 2019 Warrant issued to Alpha in order to increase the amount of shares able to be purchased thereunder by an additional 1,657,005 shares of the Company’s common stock or an aggregate of up to 5,444,444 shares (the “Alpha Warrant Shares”). On the same day, Alpha exercised, on a cashless basis, all of the August 2019 Warrants issued to Alpha, as amended, resulting in the issuance of 1,957,331 shares of the Company’s common stock to Alpha. Upon Alpha’s cashless exercise, the August 2019 Warrants issued to Alpha are no longer in force or effect and no additional issuances will be due or owing.

Brio Master Fund (“Brio”) Warrants

On February 25, 2020, the Company, and Brio entered into a Warrant Amendment Agreement to amend the exercise price of the warrant issued to Brio on May 29, 2018. The Brio 2018 Warrant originally provided for the purchase of up to 434,783 shares of the Company’s common stock at an exercise price of $0.28 per share, none of which have been issued as of the date of the 2018 Brio Warrant Amendment. Pursuant to the 2018 Brio Warrant Amendment, the Company agreed to revise the exercise price of the 2018 Brio Warrant from $0.28 per share to $0.135 per share and increased the number of shares issuable under the 2018 Brio Warrant from 434,783 to 466,989 shares.

On February 25, 2020, the Company, and Brio entered into a Note Repayment and Warrant Amendment Agreement whereby the Company agreed to (i) repay the outstanding balance of the Convertible Promissory Note issued in favor of Brio on August 15 , 2019 in the amount of $162,500, including principal and interest and (ii) amend the exercise price of the warrant issued to Brio in connection with the 2019 Brio Note on August 15, 2019. The Brio 2019 Warrant originally provide for the purchase of up to 570,652 shares of the Company’s common stock at an exercise price of $0.28 per share, none of which have been issued as of the date of the 2019 Brio Amendment. Pursuant to the 2019 Brio Amendment, Brio has agreed to the reduction of the exercise price of $0.28 to $0.23. Therefore, effective upon the date of the 2019 Brio Amendment, the exercise price of the 2019 Brio Warrant is reduced to $0.23, subject to further adjustment. However, for purposes of calculating additional shares to be issued to Brio pursuant to the terms of the 2019 Brio Warrant, the deemed exercise price will be $0.135, as if the exercise price were actually reduced to $0.135 and thereafter increased to $0.23. As a result of the above described reduction of the exercise price and the application of certain provisions of the 2019 Brio Warrant, the amount of shares that may be purchased upon exercise of the 2019 Brio Warrant after giving effect to the foregoing is increased to 1,183,575 shares of the Company’s common stock.

As a result of the above transactions, the Company has recorded a deemed distribution to Alpha for the price adjustments of the Alpha warrants of $226,906 which is recorded in the statement of changes in stockholder’s equity as an increase in additional paid in capital and a reduction of accumulated deficit. During the month of March 2020, Brio exercised a portion of their warrants in a cashless exercise, whereby Alpha exercised 500,000 common stock warrants to obtain 287,736 shares of common stock.

On May 7, 2020, the Company agreed to further amend those certain warrants issued to Brio on August 15, 2019, as amended on February 25, 2020. Specifically, pursuant to anti-dilution provisions therein, the Company agreed to amend the 2019 Brio Warrant in order to increase the amount of shares able to be purchased thereunder by an additional 517,814 shares of the Company’s common stock or an aggregate of up to 1,701,389. On the same day, Brio exercised on a cashless basis the Brio Warrants in full resulting in the issuance of 611,666 shares of the Company’s common stock to Brio. Upon Brio’s cashless exercise, the 2019 Brio Warrants are no longer in force or effect and no additional issuances will be due or owing.

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 approximately $439,000 and $191,000 for the three months ended June 30, 2020 and 2019, respectively. The total stock-based compensation expense related to Service-Based Stock Options, Performance-Based Stock Options and Warrants issued for service amounted to $535,000 and $373,000 for the six months ended June 30, 2020 and 2019, respectively. Such amounts are included in general and administrative expenses in the consolidated statement of operations.