What changed in this filing

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Item 1. Financial Statements

2020-11-16 compared with 2020-08-14 · 1272 added, 970 removed, 520 unchanged (81% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

June 30, 2020

December 31, 2019

receivable, net

current assets

Accounts receivable, net

Product deposit

Inventory, net

Other current assets

Total Current Assets

Current Assets

of use asset, net

Software, net

non-current assets

Capitalized Software, net

Intangible assets, net

Total non-current assets

LIABILITIES AND STOCKHOLDERS’

EQUITY (DEFICIT)

AND STOCKHOLDERS’

payable and accrued expenses

Current Liabilities

Accounts payable and accrued expenses

Notes payable, net

Contract liabilities

Total Current Liabilities

Long-term Liabilities

Lease Liability

Contingent consideration on purchase of LegalSimpli

Liability to issue common stock

Deferred tax liability

Total Liabilities

consideration on purchase of LegalSimpli

to issue common stock

B Preferred Stock - put liability

tax liability

Commitments and contingencies

Stockholders’

Equity (Deficit)

Common stock, $0.01 par value;

100,000,000 shares authorized, 71,063,440 and 53,404,045

shares issued, 70,548,248 and 52,888,845 outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated (deficit)

Stock, $0.0001 per value;

4,996,500 and 5,000,000 shares authorized

B Preferred Stock, $0.0001 per value;

5,000 and 0 shares authorized, 3,500 and 0 shares issued and outstanding as of September

30, 2020 and December 31, 2019, respectively

stock, $0.01 par value;

100,000,000 shares authorized, 15,634,962 and 10,680,730 shares issued, 15,531,922 and 10,577,690

outstanding as of September 30, 2020 and December 31, 2019, respectively

paid-in capital

(47,901,176 )

(16,594,917 )

Treasury stock, 515,200 and 515,200 shares, at cost

Total Conversion Labs, Inc.

stock, 103,040 and 103,040 shares, at cost

Conversion Labs, Inc.

Stockholders’

Non-controlling interest

Total Stockholders’

Total Liabilities and Stockholders’

accompanying notes are an integral part of these condensed consolidated financial statements.

Non-controlling

Stockholders’

Liabilities and Stockholders’

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30

Six Months Ended June 30,

Product revenues, net

Software revenues, net

Service revenues, net

Total revenues, net

Cost of product revenue

Cost of software revenue

Cost of revenues

Selling & marketing expenses

General and administrative expenses

Operating expenses

Customer service expenses

Development Costs

Total expenses

Operating Loss

Interest (expense), net

Loss from continuing operations before provision for income taxes

Income taxes (Benefit)

Net Income (Loss)

Net (loss) income attributable to noncontrolling interests

Net Income (loss) attributable to Conversion Labs, Inc.

Basic loss per share attributable to Conversion Labs, Inc.

from continuing operation

Diluted loss per share attributable to Conversion Labs, Inc.

from continuing operation

Weighted Average number of common shares outstanding

accompanying notes are an integral part of these condensed consolidated financial statements.

Months Ended September 30,

revenues, net

Revenues, net

of product revenue

of software revenue

& marketing expenses

and administrative expenses

service expenses

(20,532,507 )

(25,491,384 )

from operations before provision for income taxes

(20,823,603 )

(26,804,394 )

for income taxes

(20,823,603 )

(26,804,394 )

(loss) attributable to noncontrolling interests

loss attributable to Conversion Labs, Inc.

$ (20,622,370 )

$ (26,396,214 )

$ (2,425,656 )

distribution to holders of common and Series B Preferred stock

loss attributable to Conversion Labs, Inc.

common stockholders

$ (24,122,370 )

$ (31,306,259 )

$ (2,425,656 )

loss per share attributable to Conversion Labs, Inc.

common stockholders

loss per share attributable to Conversion Labs, Inc.

common stockholders

Weighted Average

number of common shares outstanding:

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

Conversion Labs,

Noncontrolling

Balance at December 31, 2019

at December 31, 2019

$ (16,594,917 )

$ (1,129,241 )

Stock compensation

Cashless exercise of warrants

Distribution to non-controlling interest

Deemed distribution from down-round provision in common stock shares

yet to be issued

Deemed distribution from warrant price adjustments

Balance at March 31, 2020

exercise of warrants

to non-controlling interest

dividend from down-round provision in common stock shares yet to be issued

dividend from warrant price adjustments

at March 31, 2020

(20,238,549 )

Stock issued for services

Stock compensation

Cashless exercise of warrants

Purchase of common stock

Shares issued for share liability

Distribution to non-controlling interest

Deemed distribution from down-round provision in common stock shares

yet to be issued

Balance June 30, 2020

issued for services

exercise of warrants

of common stock

issued for share liability (proceeds received for prior period)

to non-controlling interest

dividend from down-round provision in common stock shares yet to be issued

June 30, 2020

(23,705,170 )

accompanying notes are an integral part of these condensed consolidated financial statements.

Conversion Labs,

of stock options

exercise of stock options

issued for share liability (proceeds received for prior period)

dividend from warrant price adjustments

dividend from warrants issued and BCF with Series B Preferred Stock

(20,622,370 )

(20,823,603 )

September 30, 2020

$ (47,901,176 )

$ (7,294,180 )

$ (7,964,639 )

Noncontrolling

Balance at December 31, 2018

at December 31, 2018

$ (12,140,670 )

Stock issued for services

Stock compensation

Distributions to non-controlling interest

Balance at March 31, 2019

issued for services

Distributions

to non-controlling interest

at March 31, 2019

(12,804,417 )

Agreement to issue shares for non-controlling interest in Conversion

Stock compensation

Balance June 30, 2019

to issue shares for non-controlling interest in CVLB PR

June 30, 2019

(14,941,929 )

to issue shares for non-controlling interest in CVLB PR

issued in conjunction with stock

issued in conjunction with debt

of common stock

Distributions

to non-controlling interest

September 30, 2019

$ (15,883,372 )

accompanying notes are an integral part of these condensed consolidated financial statements.

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) income

$ (5,980,791 )

Months Ended September 30,

FLOWS FROM OPERATING ACTIVITIES

$ (26,804,394 )

Adjustments to reconcile net (loss) income to net

cash provided by (used) in operating activities

Amortization of debt discount

Amortization of capitalized software

Amortization of intangibles

Acceleration of debt discount

Operating Lease Payments

Liability to issue shares for services

Stock issued for services

Stock compensation expense

Changes in Assets and Liabilities

Accounts receivable

Product deposit

Other current assets

Deferred revenue

Deferred tax liability

Accounts payable and accrued expenses

Net cash (used in) provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Payment to seller for contingent consideration

Contingent consideration on business combination paid

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Shares issued for cash

Cash receipts from investors for unissued shares

Debt issuance costs

Distributions to non-controlling interest

Proceeds from notes payable

Repayment of notes payable

Net cash provided by (used in) financing activities

Net increase in cash

Cash at beginning of the period

Cash at end of the period

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for interest

Agreement to issue shares for non-controlling interest in Conversion

Cashless exercise of warrants

Deemed distribution from down-round provision

Stock yet to be issued for capitalized costs

Deemed distribution from down-round provision on unissued shares

Shares issued for share liability

$ (2,801,196 )

Debt issuance costs for liability to issue shares

accompanying notes are an integral part of these condensed consolidated financial statements.

to reconcile net loss to net cash (used in) provided by operating activities:

of debt discount

of capitalized software

of intangibles

of debt discount

return and allowances

Lease Payments

to issue shares for services

issued for services

compensation expense

in Assets and Liabilities

current assets

tax liability

payable and accrued expenses

cash (used in) provided by operating activities

FLOWS FROM INVESTING ACTIVITIES

paid for capitalized software costs

to seller for contingent consideration

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

proceeds from Series B Preferred Stock

from convertible notes payable

proceeds from sale of common stock

proceeds from exercise of warrants

proceeds from exercise of options

proceed from sale of warrants

of debt issuance costs

Distributions

to non-controlling interest

from note payable

of notes payable

shares and warrants

issuance costs

cash provided by financing activities

(decrease) increase in cash

at beginning of the period

at end of the period

Disclosure of Cash Flow Information

paid during the period for interest

of company stock for investment in subsidiary

exercise of warrants

dividend from warrant price adjustments

distribution from warrants issued with Series B Preferred Stock

yet to be issued for capitalized costs

distribution from down-round provision on unissued shares

to issue common stock

issuance costs for liability to issue shares

of convertible note payable and interest for Series B Preferred Stock

issued for capitalized costs

issued in relation to debt

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF THE ORGANIZATION AND BUSINESS

Labs, Inc., was formed in the State of Delaware on May 24, 1994, under our prior name, Immudyne, Inc.

We changed our name to Conversion

(the “Company”), was formed in the State of Delaware on May 24, 1994, under our prior name, Immudyne, Inc.

We changed our name to Conversion Labs, Inc.

on June 22, 2018.

Further, in connection with changing its name, the Company changed its trading symbol to CVLB.

April 1, 2016, our majority-owned subsidiary, Immudyne PR LLC (“Immudyne PR”), which was initially formed for the

purpose of a joint venture with the original owners of one of our skincare products, amended and restated its operating agreement

whereby we increased our ownership and voting interest in Immudyne PR to 78.2%.

Concurrent with the name change of the parent

company to Conversion Labs, Inc.

completed in 2018, Immudyne PR was renamed to Conversion Labs PR LLC (now known as “Conversion

Labs PR”).

On April 25, 2019, the operating agreement of Conversion Labs PR was amended and restated in its entirety after

acquiring the remaining minority interest in the Conversion Labs PR, which is now a wholly-owned subsidiary of the Company.

June 2018, Conversion Labs closed the strategic acquisition of 51% of LegalSimpli Software, LLC, a software as a service (SaaS)

application for converting, editing, signing and sharing PDF documents.

In addition to LegalSimpli Software’s growth business

model, this acquisition added deep search engine optimization and search engine marketing expertise to the Company.

early 2019, the Company also launched a service-based business under the name Conversion Labs Media LLC, which was to be used

to run e-commerce marketing campaigns for other online businesses.

However, this business was discontinued in 2019 in order to

focus on its core business as well the expansion of our telehealth opportunities.

In June 2019, a strategic

joint venture with GoGoMeds.com (GoGoMeds) was formed in order to help facilitate the launch of our telemedicine

GoGoMeds is a nationwide pharmacy licensed to dispense prescription medications directly to consumers

in all 50 states and the District of Columbia.

Company is a direct to consumer response healthcare company that provides a convenient, cost-effective and smarter way

for consumers to access high quality Over The Counter (OTC) products and prescription medications.

healthcare system

is undergoing a paradigm shift largely due to new technologies and the emergence of direct-to-consumer healthcare.

Further, in connection with changing its name, the Company changed

its trading symbol to CVLB.

On April 1, 2016, our majority-owned subsidiary, Immudyne PR LLC (“Immudyne PR”), which

was initially organized for the purpose of forming a joint venture with the original owners of one of our skincare products, amended

and restated its operating agreement whereby we increased our ownership and voting interest in Immudyne PR to 78.2%.

with the name change of the parent company to Conversion Labs, Inc.

completed in 2018, Immudyne PR was renamed to Conversion Labs

PR LLC (now known as “Conversion Labs PR”, and/or “CLPR”).

On April 25, 2019, the operating agreement

of Conversion Labs PR was amended and restated in its entirety after acquiring the remaining minority interest in the Conversion

Labs PR, which is now a wholly-owned subsidiary of the Company.

Company is a direct-to-consumer response healthcare company that provides a convenient, cost-effective and smarter way for consumers

to access high quality Over The Counter (OTC) products and prescription medications.

the nine months ended September 30, 2020 the Company generated $20.3 million in revenue from sales of its branded products and

$ 4.1 million in revenue from sales generated on its software platform.

The Company has incurred operating losses since inception

and has an accumulated deficit of $47.9 million as of September 30, 2020.

healthcare system is undergoing a paradigm shift largely due to new technologies and the emergence of direct-to-consumer

The COVID-19 Pandemic has accelerated this paradigm shift across all facets of internet commerce activities.

the traditional model of visiting a doctor’s office, receiving a physical prescription, visiting a neighborhood pharmacy,

and returning to see a doctor for follow up care or prescription refills is inefficient, costly to patients, and discourages many

patients from seeking much needed medical care.

Direct-to-consumer telemedicine companies, like our Company, offer patients immediate

and virtual treatment from licensed physicians, and the home delivery of prescription medications, devices and diagnostics bundled

with over-the counter wellness products.

patients from seeking much needed medical care, as well as hindering prescription adherence.

Direct-to-consumer telemedicine companies,

like our Company, offer patients immediate and virtual treatment from licensed physicians, and the home delivery of prescription

medications, devices and diagnostics bundled with over-the counter wellness products.

worsening global COVID-19 pandemic occurring during the fall season of 2020, has resulted in significant, and heightened governmental

measures being implemented to control the spread of COVID-19, and while we cannot predict their scope and severity, these developments

and measures could materially and adversely affect our business beyond the initial positive impacts we recognized.

of the worsening pandemic, our results of operations and our financial condition could be negatively impacted.

are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and are taking steps to minimize its

impact on our business.

However, the extent to which COVID-19 impacts our business, results of operations or financial condition

will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of

the outbreak, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain

the pandemic or treat its impact, among others, including the timing and the likelihood of a successful vaccine.

if we or any of our significant supply vendors, with whom we engage were to experience shutdowns or other business disruptions,

our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected,

which could have a material adverse impact on our business, results of operations and financial condition.

have built a platform that allows us to efficiently launch telehealth and wellness product lines wherever we determine there is

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and engineers focused on building enduring brands

and Subsidiary History

June 2018, Conversion Labs closed the strategic acquisition of 51% of LegalSimpli Software, LLC (“LegalSimpli”), a

software as a service (SaaS) application for converting, editing, signing and sharing PDF documents.

In addition to LegalSimpli’s

growth business model, this acquisition added deep search engine optimization and search engine marketing expertise to the Company.

early 2019, the Company had launched a service-based business under the name Conversion Labs Media LLC, which was to be used to

run e-commerce marketing campaigns for other online businesses.

However, this business initiative was terminated in early 2019

in order to focus on its core business as well as the expansion of our telehealth opportunities.

June 2019, a strategic joint venture with GoGoMeds.com (GoGoMeds) was formed in order to help facilitate the launch of our telemedicine

GoGoMeds is a nationwide pharmacy licensed to dispense prescription medications directly to consumers in all 50 states

and the District of Columbia However, on August 7, 2020, the Company terminated its Strategic Partnership Agreement with GoGoMeds.

The joint venture with GoGoMeds had not initiated activities, and its termination did not have an impact on the Company’s

Labs Rx, LLC (“CVLB Rx”), a Puerto Rico limited liability company, had no activity during the nine months ended September

30, 2020 and was dissolved during the period.

otherwise indicated, the “Company”

refers Conversion Labs, Inc.

(formerly known as Immudyne, Inc.), our wholly subsidiary

Conversion Labs PR, LLC (formerly Immudyne PR LLC, now “Conversion Labs PR”), a Puerto Rico limited liability company

(“Conversion Labs PR”) and our majority-owned subsidiary LegalSimpli Software, LLC, a Puerto Rico limited liability

company (“LegalSimpli”).

(formerly known as Immudyne, Inc.), our wholly owned

subsidiary Conversion Labs PR, LLC (“Conversion Labs PR”, formerly known as Immudyne PR LLC), a Puerto Rico limited

liability company and our majority-owned subsidiary LegalSimpli Software, LLC, a Puerto Rico limited liability company (“LegalSimpli”).

Unless otherwise specified, all dollar amounts are expressed in United States dollars.

October 9, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of

Delaware (the “Amendment”) in order to effectuate a 1-for-5 reverse stock split of the Company’s issued and

outstanding shares of common stock (the “Reverse Split”

or “Split”).

The Reverse Split was approved by

the Financial Industry Regulatory Authority (FINRA) and became effective in the market on October 14, 2020 (the “Effective

Date”).

All references to common shares and common share data in these unaudited financial statements and elsewhere in this

Form 10-Q as of September 30, 2020, and for the three and nine-months then ended, reflect the Reverse Stock Split.

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

The Company’s continued operations are dependent upon obtaining an increase in its sale volumes

and the continued financial support from officers and directors, obtaining funding from third-party sources or the issuance of

additional shares of common stock.

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.

As of June 30, 2020, the Company

has an accumulated deficit approximating $23.7 million and has experienced significant losses from continuing operations.

on the Company’s cash balance as of June 30, 2020, and projected cash needs, management estimates that it will need an additional

$4.0 million through the next 12 months, either from increasing sales revenue and/or raising additional capital via the

sale of common stock or other equity securities, or obtaining debt financing.

Although management has been successful to date

in raising necessary funding, 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.

Based on these circumstances,

management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

See Subsequent Event Note 9 for a further discussion of a private placement offering, which

closed on November 3, 2020, yielding approximately $13.2 million in net proceeds to the Company after deduction of placement fees

and other offering expenses.

The Company intends to use the net proceeds to expedite growth initiatives, as well as for general

corporate purposes.

Concern Evaluation

accompanying unaudited 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.

As of September

30, 2020, the Company has an accumulated deficit approximating $47.9 million and has experienced significant losses from

its operations.

on the Company’s cash balance as of September 30, 2020, and projected cash needs, management estimates that it will need

an additional $7.2 million through the next 12 months.

The Company has also closed a private placement offering,

discussed in “Liquidity”

above, and further in Note 9, “Subsequent Events”.

Although management has been

successful to date in raising necessary funding, 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.

these circumstances, management has determined that these conditions raise substantial 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.

2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation

accompanying unaudited condensed consolidated financial statements were prepared by the Company in accordance with accounting

principles generally accepted in the United States of America (“US GAAP”) for interim financial information and are

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with

US GAAP have been condensed or omitted.

The condensed consolidated balance sheet as of December 31, 2019 was derived from our

audited financial statements but does not include all disclosures required by US GAAP.

Accordingly, these condensed consolidated

financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related

notes included in its Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange

Commission on March 30, 2020.

The results of the three and nine months ended September 30, 2020 (unaudited) are not necessarily

indicative of the results to be expected for the pending full year ending December 31, 2020, nor the pending three month results

ending December 31, 2020.

of Consolidation

Company evaluates the need to consolidate affiliates based on standards set forth in ASC 810 Consolidation (“ASC 810”).

consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Conversion Labs PR and

its majority owned subsidiary, LegalSimpli.

The non-controlling interest in LegalSimpli represents the 49% equity interest held

by other members of the subsidiary.

All significant consolidated transactions and balances have been eliminated in consolidation.

Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United

States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

the more significant estimates required to be made by management include the determination of reserves (if necessary) for accounts

receivable, returns and allowances, useful life of intangible and right of use assets, the valuation of inventory and inputs into

the provision for lease liabilities and stockholders’

consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, CLPR and its majority owned

subsidiary, LegalSimpli.

The non-controlling interest in LegalSimpli represents the 49% equity interest held by other members

of the subsidiary.

significant intercompany transactions and balances have been eliminated in consolidation.

Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally

accepted in the United States of America which requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period.

Some of the more significant estimates required to be made by management include the determination of reserves

(if necessary) for accounts receivable, returns and allowances, useful life of intangible and right of use assets, the valuation

of inventory and inputs into the provision for lease liabilities and stockholders’

equity-based transactions.

Actual results could differ from those

Actual results

could differ from those estimates.

continuing impact on business activity brought about by the Coronavirus pandemic (“COVID-19”) continues to evolve,

globally in macro terms, and in micro terms, as such affects the Company.

As a result, many of our estimates and assumptions for

the three and nine months ended September 30, 2020 were subject to an increased level of judgment and may carry a higher degree

of variability and volatility.

In future periods, subsequent to September 30, 2020, when additional information becomes available,

which may differ from our current assumptions, may subject our estimates to material change in future periods.

Reclassifications

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changed their categories for reporting operations, as result the Company has made reclassifications to the prior year presentation

in order to conform it to the current presentation.

in order to conform it to the current periods’

presentation.

Company records revenue under the adoption of ASC 606 by analyzing exchanges with its customers using a five-step analysis:

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the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation,

and the delivery of this performance obligation is transferred at a point in time.

The Company generally records sales of finished

products once the customer places and pays for the order and the product is simultaneously shipped by a third-party fulfillment

service provider, but in limited cases if title does not pass until the product reaches the customer’s delivery site, then

recognition of revenue should be deferred until that time, however the Company does not have a process to properly record the

recognition of revenue if orders are not immediately shipped.

Delivery is considered to have occurred when title and risk of loss

have transferred to the customer, which is usually upon shipment of the product.

The Company does sell a subscription based service

which is based on the recurring shipment of products and billed as if the Company were receiving recurring revenues and orders

each month, therefore, the Company records these upon each shipment to the customer.

Company records an estimate for provisions of discounts, returns, allowances, customer rebates and other adjustments for each

shipment, and are netted with gross sales.

The Company’s discounts and customer rebates are known at the time of sale and

the Company appropriately debits net product revenues for these transactions based on the known discount and customer rebates.

The Company estimates for customer returns and allowances based on estimates of historical transactions and accounts for such

provisions during the same period in which the related revenues are earned.

The Company has determined that the population of

contracts with customers tends to be homogenous, so that review of the contracts and estimate of various revenue related adjustments

can be applied to the entire portfolio population.

Customer discounts, returns and rebates on product revenues during the three

months ended June 30, 2020 and 2019 approximated $857,000 and $161,000, respectively.

Customer discounts, returns and

rebates on product revenues during the six months ended June 30, 2020 and 2019 approximated $1,334,000 and $713,000, respectively.

Company, through its majority-owned subsidiary LegalSimpli, offers a suite of software to customers as a monthly subscription

based service.

This suite of software allows the user or subscriber to convert almost any type of document to other editable document

type formats for easy editing.

For these subscription-based contracts with customers, the Company offers a 14-day trial period

which is billed at $1.95 for an initial period, a monthly subscription, or a yearly subscription to the Company’s software.

The Company has estimated that there is one product and performance obligation that is delivered over time, as the Company allows

the subscriber to access the service for the time period purchased.

The Company allows the customer to cancel at any point during

the billing cycle, in which case the customers subscription will not be renewed for the following month or year depending on the

original subscription.

The Company records the sales over the customers subscription period for monthly and yearly subscribers

or at the end of the initial 14 day service period for customers who purchased the initial subscription.

The Company offers a

discount for the purchase of the monthly and yearly subscriptions, which must be paid at the initiation of the contract term,

so that the Contract price is fixed at the contract initiation.

Yearly and monthly subscriptions for the subscription are recorded

net of the Company’s known discount rates.

As of June 30, 2020 and December 31, 2019, the Company has accrued contract liabilities

of approximately $304,000 and $110,000, respectively, which represent obligations on in-process monthly or yearly contracts with

customers and yet to be recognized initial 14-day trial periods.

the six months ended June 30, 2020 and 2019, the Company had the following disaggregated revenue :

Six Months Ended June 30,

Product revenues by Brand for Conversion Labs PR:

Total product revenue for Conversion Labs PR

Software revenue for LegalSimpli

Total net revenue

receivable are carried at original sales amount less an estimate made for returns, chargebacks, and discounts.

Accounts receivables

mainly consist of receivables from third-party merchant processors which are settled with a couple of days.

which is the delivery of the product;

this performance obligation is transferred at a discrete point in time.

The Company generally

records sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped

by a third-party fulfillment service provider;

in limited cases, title does not pass until the product reaches the customer’s

delivery site, in these limited cases, recognition of revenue should be deferred until that time, however the Company does not

have a process to properly record the recognition of revenue if orders are not immediately shipped, and deems the impact to be

In all cases, delivery is considered to have occurred when title and risk of loss have transferred to the customer,

which is usually commensurate upon shipment of the product.

In the case of its product-based contracts, the Company provides a

subscription sensitive service based on the recurring shipment of products and records the related revenue under the subscription

agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment obligation

to the customer.

its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances,

customer rebates and other adjustments for its product shipments, and are reflected as contra revenues in arriving at reported

net revenues.

The Company’s discounts and customer rebates are known at the time of sale, correspondingly, the Company reduces

gross product sales for such discounts and customer rebates.

The Company estimates customer returns and allowances based on information

derived from historical transaction detail, and accounts for such provisions, as contra revenue, during the same period in which

the related revenues are earned.

The Company has determined that the population of its product-based contracts with customers

are homogenous, supporting the ability to record estimates for returns and allowances to be applied to the entire product-based

portfolio population.

Customer discounts, returns and rebates on product revenues during the three months ended September 30,

2020 and 2019 approximated $823,000 and $219,000, respectively, and approximated $2,157,000 and $1,004,000, respectively, during

the nine months ended September 30, 2020 and 2019.

Company, through its majority-owned subsidiary LegalSimpli, offers a subscription based service providing a suite of software

applications to its subscribers, principally on a monthly subscription basis.

The software suite allows the subscriber/user to

convert almost any type of document to another electronic form of editable document, providing ease of editing.

For these subscription-based

contracts with customers, the Company offers an initial 14-day trial period which is billed at $1.95, followed by a monthly subscription,

or a yearly subscription to the Company’s software suite dependent on the subscriber’s enrollment selection.

has estimated that there is one product and one performance obligation that is delivered over time, as the Company allows the

subscriber to access the suite of services for the time period of the subscription purchased.

The Company allows the customer

to cancel at any point during the billing cycle, in which case the customers subscription will not be renewed for the following

month or year depending on the original subscription.

The Company records the revenue over the customers subscription period for

monthly and yearly subscribers or at the end of the initial 14 day service period for customers who purchased the initial subscription,

as the circumstances dictate.

The Company offers a discount for the monthly or yearly subscriptions being purchased, which is

deducted at the time of payment at the initiation of the contract term, therefore the Contract price is fixed and determinable

at the contract initiation.

Monthly and annual subscriptions for the service are recorded net of the Company’s known discount

As of September 30, 2020 and December 31, 2019, the Company has accrued contract liabilities, as deferred revenue, of approximately

$413,000 and $110,000, respectively, which represent obligations on in-process monthly or yearly contracts with customers and

a portion attributable to the yet to be recognized initial 14-day trial period collections.

the three and nine months ended September 30, 2020 and 2019, the Company had the following disaggregated revenue:

Months September 30,

revenues- CLPR:

product revenue for CLPR

receivable principally consist of amounts due from third-party merchant processors, who process our subscription revenues;

merchant accounts balance receivable represents the charges processed by the merchants that have not yet been deposited with the

The unsettled merchant receivable amount normally represents processed sale transactions from the final one to three

days of the month, with collections being made by the Company within the first week of the following month.

Management determines

the need, if any, for an allowance for doubtful accounts by regularly evaluating individual customer receivables and considering

a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts

when collection is uncertain.

Customers’

accounts are written off when all attempts to collect have been exhausted.

of accounts receivable previously written off are recorded as income when received.

As of June 30, 2020 and 2019, the Company

had determined that an allowance for doubtful accounts reserve was not necessary.

As of June 30, 2020 and December 31, 2019, the

reserve for sales returns and allowances was approximately $351,000 and $82,000, respectively.

of June 30, 2020 and December 31, 2019, inventory consisted primarily of finished cosmetic products.

Inventory is maintained at

the Company’s third-party warehouse location, which is owned by a related party, in Pennsylvania and at Amazon fulfillment

the need, if any, for an allowance for future credits to be granted to customers, by regularly evaluating aggregate customer refund

activity, coupled with the consideration and current economic conditions in its evaluation of an allowance for future refunds

and chargebacks.

As of September 30, 2020 and 2019, the Company had an allowance for bad debt, attributable to single agent relationship

amounting to $58,470 and $0, respectively.

As of September 30, 2020 and December 31, 2019, the reserve for sales returns and allowances

was approximately $294,000 and $83,000, respectively.

As of September 30, 2019 and December 31, 2018, the reserve for sales returns

and allowances was approximately $83,000 and $43,000, respectively.

For all periods presented, as noted above, the sales returns

and allowances were recorded as contra assets in arriving at presented accounts receivable, net.

The Company has reevaluated the

nature of the accounts and determined them to be liabilities.

of September 30, 2020 and December 31, 2019, inventory primarily consisted of finished goods related to the Company’s brands

included in the product revenue section of the table above.

Inventory is maintained at the Company’s third-party warehouse

location, which is owned by a related party, in Pennsylvania and at Amazon fulfillment centers.

is valued at the lower of cost or net realizable value with cost determined on a first-in, first-out (“FIFO”) basis.

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net realizable, if lower.

As of June 30, 2020 and December 31, 2019, the Company recorded an inventory reserve in the amount of

$34,657 and $12,500, respectively.

The increase in our inventory reserve mainly is attributable to the lack of marketability for

our INR Wellness product line.

As of June 30, 2020 and December 31, 2019, the Company’s inventory consisted of the following:

Raw materials and packaging components

Finished products

Total net inventory

As of September 30, 2020 and December 31, 2019, the Company recorded an inventory reserve in the amount

of $57,481 and $12,500, respectively.

The increase in our inventory reserve mainly is attributable to the lack of marketability

for our INR Wellness product line.

of September 30, 2020 and December 31, 2019, the Company’s inventory consisted of the following:

Goods - Products

materials and packaging components

Inventory - net

of our vendors require deposits when a purchase order is placed for goods or fulfillment services.

These deposits typically ranging

These deposits typically range

from 10% to 33% of the total purchased amount.

Our vendors issue a credit memo when sending their final invoice, reducing the

amount the Company owes for the deposit amount previously paid to the vendors.

The Company capitalizes these product deposits

until the inventory is received at the Company’s fulfillment centers.

As of June 30, 2020 and December 31, 2019, the Company

has approximately $281,000 and $150,000, respectively, of product deposits with multiple vendors for the purchase of raw materials

or finished for products we sell online.

As of June 30, 2020 and December 31, 2019, the vast majority of these product deposits

are with one vendor that manufacturers the Company’s finished goods inventory for its Shapiro hair care product line.

Our vendors include a credit memo within their final invoice, recognizing the deposit

amount previously paid.

As of September 30, 2020, and December 31, 2019, the Company has approximately $1,093,000 and $150,000,

respectively, of product deposits with multiple vendors for the purchase of raw materials or finished goods.

The Company’s

history of product deposits with its inventory vendors, creates an implicit purchase commitment equaling the total expected product

acceptance cost in excess of the product deposit.

As of September 30, 2020 and December 31, 2019, the Company approximates it’s

implicit purchase commitments to be $2.2 million and $300,000, respectively.

As of September 30, 2020, and December 31, 2019,

the vast majority of these product deposits are with one vendor that manufacturers the Company’s finished goods inventory

for its Shapiro hair care product line.

Software Costs

Company capitalizes certain payroll and third-party costs related to internally developed software and amortize these costs using

the straight-line method over the estimated useful life of the software, generally two years.

The Company does not sell internally

developed software other than through the use of subscription service.

Certain development costs not meeting the criteria for

capitalization, in accordance with Accounting Standards Codification (“ASC”) ASC 350-40 Internal-Use Software ,

are expensed as incurred.

As of June 30, 2020 and 2019, the Company capitalized $317,160 and $0 related to internally developed

software costs which is included in development.

As of June 30, 2020, these costs include $40,000 in capitalized stock based compensation

that was given to a third-party service provider.

During the three months ending June 30, 2020 and 2019, the Company amortized

$11,585 and $0 of capitalized software costs, respectively.

assets are comprised of customer relationship asset and purchased licenses with estimated useful lives of three years and indefinite

lived, respectively.

Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes

these costs using the straight-line method over the estimated useful life of the software, generally three years.

does not sell internally developed software other than through the use of subscription service.

Certain development costs not

meeting the criteria for capitalization, in accordance with Accounting Standards Codification (“ASC”) ASC 350-40

Internal-Use Software , are expensed as incurred.

As of September 30, 2020 and 2019, the Company capitalized $334,585 and $0

related to internally developed software costs which is included in development costs on our statement of operations.

As of September

30, 2020, these costs include $40,000 in capitalized stock based compensation for a third-party service provider.

During the nine

months ending September 30, 2020 and 2019, the Company amortized $36,001 and $0 of capitalized software costs, respectively.

assets are comprised of a customer relationship asset and purchased license with an estimated useful life of three years and indefinite

life, respectively.

Intangible assets are amortized over their estimated lives using the straight-line method.

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to Issue Common Stock

Liability to issue common

stock represents liabilities of the Company for failing to issue shares of common stock timely to various consultants and or third-party

investors in conjunction with various consulting, service, warrant or stock purchase agreements.

As of June 30, 2020, the Company

has a liability to issue 2,627,635 shares of common stock for $541,972 in fair value.

During the six months ended June

30, 3020, the Company received $1,639,000 in cash from investors which was recorded as a liability to issue shares until such

time as the shares were issued.

The yet to be issued shares of common stock are valued based on the fair market value of

the common stock price on the date of agreement or the purchase price specified in the stock purchase agreement.

Company files corporate federal and state tax returns.

Conversion Labs PR and LegalSimpli file tax returns in Puerto Rico, both

are limited liability companies and file separate tax returns with any tax liabilities or benefits passing through to its members.

to issue common stock represents liabilities of the Company for failing to issue shares of common stock timely to various consultants

and or third-party investors in conjunction with various consulting, service, warrant or stock purchase agreements.

As of September

30, 2020, the Company has a liability to issue 326,983 shares of common stock for $218,848 in fair value.

During the nine months

ended September 30, 3020, the Company received $2,338,349 in cash from investors which was recorded as a liability to issue

shares until such time as the shares were issued.

The number of shares of common stock pending issuance are fixed, with the corresponding

liability subject to change pursuant to the share price at the time of issuance.

The initial liability is established using the

fair market value of the common stock price on the date of the agreement’s trigger resulting in the need to issue, or the

purchase price specified in the stock purchase agreement, dependent on the circumstance.

Company files corporate federal, state and local tax returns.

Conversion Labs PR and LegalSimpli file tax returns in Puerto Rico,

both are limited liability companies and file separate tax returns with any tax liabilities or benefits passing through to its

Company records current and deferred taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Accounting

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The Company periodically assesses the value of

its deferred tax asset, a majority of which has been generated by a history of net operating losses and determines the necessity

for a valuation allowance.

ASC 740 also provides a recognition threshold and measurement attribute for the financial statement

recognition of a tax position taken or expected to be taken in a tax return.

Using this guidance, a company may recognize the

tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood

its deferred tax asset, a majority of which has been generated by a history of net operating losses and management determines

the necessity for a valuation allowance.

ASC 740 also provides a recognition threshold and measurement attribute for the financial

statement recognition of a tax position taken or expected to be taken in a tax return.

Using this guidance, a company may recognize

the tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood

of more than 50%) that the tax position will be sustained on examination by the taxing authorities, based on the technical merits

of the position.

The Company’s tax returns for all years since December 31, 2016, remain open to taxing authorities.

The Company’s tax returns for all years since December 31, 2016, remain open to audit by all related taxing

Company follows the provisions of ASC 718, “Share-Based Payment”.

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expected to be outstanding.

The expected volatility is based upon historical volatility of the Company’s common stock shares

using weekly price observations over an observation period that approximates the expected life of the options.

The risk-free rate

approximates the U.S.

Treasury yield curve rate in effect at the time of grant for periods similar to the expected option life.

The expected volatility is based upon historical volatility of the Company’s common shares using

weekly price observations over an observation period that approximates the expected life of the options.

The risk-free interest

rate approximates the U.S.

Treasury yield curve rate in effect at the time of grant for periods similar to the expected option

Due to limited history of forfeitures, the estimated forfeiture rate included in the option valuation was zero.

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are excluded from dilutive earnings per share when the effects would be antidilutive.

stock equivalents comprising shares underlying 17,498,953 options and warrants for the three and six months ended June

stock equivalents comprising shares underlying 5,931,158 options and warrants for the three and nine months ended September 30,

2020 have not been included in the loss per share calculations as the effects are anti-dilutive.

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carrying value of the Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued

expenses and the face amount of notes payable approximate fair value for all periods.

expenses and the face amount of notes payable approximate fair value for all periods presented.

Concentrations

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if any of our current manufacturers cease to perform adequately.

As of June 30, 2020 and December 31, 2019, we utilized two (2)

suppliers for fulfillment services, two (2) suppliers for manufacturing finished goods, one (1) supplier for packaging and bottles

and one (1) supplier for labeling.

For the three and six months ended June 30, 2020 and the year ended December 31, 2019, we purchased

100% of our finished goods from two (2) manufacturers.

As of September 30, 2020 and December 31, 2019, we utilized two

(2) suppliers for fulfillment services, two (2) suppliers for manufacturing finished goods, one (1) supplier for packaging and

bottles and one (1) supplier for labeling.

For the three and nine months ended September 30, 2020 and the year ended December

31, 2019, we purchased 100% of our finished goods from two (2) manufacturers.

Adopted Accounting Pronouncements

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15, 2018, including interim reporting periods within that fiscal year.

Early adoption is permitted, but no earlier than an entity’s

adoption date of Topic 606.

We do not expect the implementation of this new pronouncement to have a material impact on our consolidated

financial statements.

This standard was adopted on January 1, 2019 and did not

have a material impact on the Company’s financial position, results of operations or cash flows.

July 2017, the FASB issued ASU No.

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Equity-linked instruments, such

as warrants and convertible instruments may contain down round features that result in the strike price being reduced on the basis

of the pricing of future equity offerings.

Under ASU 2017-11, a down round feature will no longer require a freestanding equity-linked

instrument (or embedded conversion option) to be classified as a liability that is remeasured at fair value through the income

statement (i.e.

marked-to-market).

However, other features of the equity-linked instrument (or embedded conversion option) must

still be evaluated to determine whether liability or equity classification is appropriate.

Equity classified instruments are not

as warrants and convertible instruments, may contain down round features that result in the strike price being reduced on the

basis of the pricing of future equity offerings.

Under ASU 2017-11, a down round feature will no longer require a freestanding

equity-linked instrument (or embedded conversion option) to be classified as a liability that is remeasured at fair value through

the income statement (i.e.

marked-to-market).

For earnings per share (“EPS”) reporting, the ASU requires companies to recognize the effect of

the down round feature only when it is triggered by treating it as a dividend and as a reduction of income available to common

However, other features of the equity-linked instrument (or embedded conversion

option) must still be evaluated to determine whether liability or equity classification is appropriate.

Equity classified instruments

are not marked-to-market.

For earnings per share (“EPS”) reporting, the ASU requires companies to recognize the effect

of the down round feature only when it is triggered by treating it as a dividend and as a reduction of income available to common

shareholders in basic EPS.

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impact on the Company’s financial position, results of operations or cash flows.

Accounting Pronouncements

of New or Revised Accounting Standards—Not Yet Adopted

August 2020, the FASB issued ASU 2020-06, “

Debt with Conversion and Other Options (Subtopic 470-20) and

Derivatives and Hedging –

Contracts in Entity’s Own Equity (Subtopic 815-40);

Accounting for Convertible Instruments

and Contracts in an Entity’s Own Equity (“ASU 2020-06”)”, which addresses issues identified as a result

of the complexities associated with applying U.S.

GAAP for certain financial instruments with characteristics of liabilities and

This update addresses, among other things, the number of accounting models for convertible debt instruments and convertible

preferred stock, targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”)

guidance and amendments to the guidance for the derivatives scope exception for contracts in an entity’s own equity, as

well as the related EPS guidance.

This update applies to all entities that issue convertible instruments and/or contracts in an

entity’s own equity.

This guidance is effective for financial statements issued for fiscal years beginning after December

15, 2021, and interim periods within those fiscal years.

Early adoption is permitted, but no earlier than for fiscal years beginning

after December 15, 2020, including interim periods within those fiscal years.

FASB specified that an entity should adopt the guidance

as of the beginning of its annual fiscal year, or January 1, 2021, should the Company elect to early adopt.

The Company is currently

evaluating the impact the adoption of ASU 2020-06 could have on the Company’s financial statements and disclosures.

Recent Accounting Pronouncements

other accounting standards updates that have been issued or proposed by the FASB that do not require adoption until a future date

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INTANGIBLE ASSETS

of June 30, 2020, the Company has the following amounts related to intangible assets:

Gross Carrying Amount

Accumulated Amortization

Amortizable intangible assets

Customer relationship asset

Indefinite lived intangible assets

Purchased licenses

of December 31, 2019 the Company has the following amounts related to intangible assets:

Gross Carrying Amount

of September 30, 2020, the Company has the following amounts related to intangible assets:

Assets as at:

Intangible Assets

Relationship Asset

Accumulated amortization

Amortizable intangible assets:

Customer relationship asset

Indefinite lived intangible assets:

Purchased licenses

aggregate amortization expense of the Company’s intangible assets for the three months ended June 30, 2020 and 2019 was

approximately $83,903 and $83,903, respectively.

The aggregate amortization expense of the Company’s intangible assets for

the six months ended June 30, 2020 and 2019 was approximately $167,806 and $167,806, respectively.

Estimated amortization expense

for 2020 and 2021 is approximately $336,000 and $140,000, respectively.

Net Amortizable Intangible Assets

aggregate amortization expense of the Company’s intangible assets for the three months ended September 30, 2020 and 2019

was approximately $83,903, respectively.

The aggregate amortization expense of the Company’s intangible assets for the nine

months ended September 30, 2020 and 2019 was approximately $251,709, respectively.

Amortization expense for the remainder of 2020

and 2021 is $275,570 and $148,173, respectively.

NOTES PAYABLE

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Anstalt (“Alpha”) and Brio Capital Master Fund Ltd.

(“Brio”).

Pursuant to the terms of the Purchase Agreement,

the Company issued and sold to them senior secured convertible notes in the aggregate original principal amount of $550,000 (collectively,

the “Alpha and Brio Notes”), and warrants to purchase up to 2,391,305 shares of the Company’s common stock (collectively

the “Alpha and Brio Warrants”).

The Alpha and Brio Notes matured on May 2019.

Interest on the outstanding principal

amount of the Alpha and Brio Notes compounded annually at the annual rate of twelve percent (12%), subject to adjustments.

Alpha and Brio Notes are convertible into the Company’s common stock, at the option of the holder, at any time following

issuance, unless the conversion or share issuance under the conversion would cause the holder to beneficially own in excess of

4.99% of the Company’s common stock.

The conversion price for the principal and interest, if any, in connection with voluntary

conversion by the Holder shall be $0.23 per share of Common Stock, subject to adjustment as defined in the Alpha and Brio Notes.

Alpha and Brio have converted $344,642 of these notes including $9,922 of interest as of December 31, 2019 and 2018.

June 30, 2020, these notes have been paid off.

August 15, 2019, the Company entered into securities purchase agreements (the “August Purchase Agreements”) with three

accredited investors, including Alpha and Brio.

Pursuant to the terms of the August Purchase Agreements, the Company issued and

sold to the investors convertible promissory notes for the aggregate original principal amount of $1,291,500 (collectively the

“August 2019 Notes”), and warrants to purchase up to 4,679,348 shares of the Company’s common stock

(the “August 2019 Warrants”).

The August 2019 Notes mature on August 15, 2020 and accrue interest at a rate of twelve

percent (12%) per annum, subject to adjustments as defined therein.

The August 2019 Notes may be converted into shares of the

Company’s common stock, at the discretion of the holder, at any time following issuance, unless the conversion or share

(“Brio”), (collectively, the “2018 SPAs”)

Pursuant to the terms of the Purchase Agreement, the Company issued and sold the 2018 SPAs senior secured convertible notes

in the aggregate original principal amount of $550,000 (collectively, the “Alpha and Brio Notes”), and warrants to

purchase up to 478,261 shares of the Company’s common stock (collectively the “Alpha and Brio Warrants”).

Alpha and Brio Notes matured on May 2019.

Interest on the outstanding principal amount of the Alpha and Brio Notes had compounded

annually at the annual rate of twelve percent (12%), subject to adjustments through to their maturity date.

The Alpha and Brio

Notes were convertible into the Company’s common stock, at the option of the holder, at any time following issuance, unless

the conversion or share issuance under the conversion would cause the holder to beneficially own in excess of 4.99% of the Company’s

common stock.

The conversion price for the principal and interest, if any, in connection with voluntary conversion by the Holder

shall be $1.15 per share of Common Stock, subject to adjustment as defined in the Alpha and Brio Notes.

Alpha and Brio have converted

$344,642 of these notes including $9,922 of interest as of December 31, 2019, leaving a balance of $187,308 .

As of September

30, 2020, these notes have been paid off.

August 15, 2019, the Company entered into securities purchase agreements (the “August 2019 Purchase Agreements”) with

two accredited investors, including Alpha and Brio.

Pursuant to the terms of the August 2019 Purchase Agreements, the Company

issued and sold to the investors convertible promissory notes for the aggregate original principal amount of $1,291,000 (collectively

the “August 2019 Notes”), and warrants to purchase up to 935,870 shares of the Company’s common stock (the “August

2019 Warrants”).

The August 2019 Notes matured on August 15, 2020 and accrued interest at a rate of twelve percent (12%)

per annum, subject to adjustments, prior to maturity, as defined therein.

The August 2019 Notes may be converted into shares of

the Company’s common stock, at the discretion of the holder, at any time following issuance, unless the conversion or share

issuance under the conversion would cause the holder to beneficially own shares in excess of 4.99% of the Company’s common

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The fair value of August 2019 Warrants was determined

to be $569,147 based on using the Black-Scholes pricing model.

to be $569,147 based on the use of Black-Scholes pricing model.

The August 2019 Warrants were evaluated by management and deemed

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The August 2019 Notes contained an original issue

discount of 20% or $215,250 which is the difference between the note face amount of $1,291,500 and the cash proceeds received

from the investors.

discount of 20% or $215,250 which is the difference between the note’s face amount of $1,21,000 and the cash proceeds

received from the investors.

As part of this financing, the Company paid debt issuance costs $284,070 which are placed as a contra-debt

account and amortized over the life of the loan.

account and were amortized over the life of the loan.

February 25, 2020, the Company entered into a Note Repayment and Warrant Amendment Agreement with Alpha and Brio, whereby the

Company agreed to repay the outstanding balance of Alpha and Brio’s August 2019 Notes in the amount of $1,291,000, including

principal and interest.

As a result of this transaction, the Company accelerated debt discounts for warrants, issuance costs and

original issue discount of $500,145, which was recognized through interest expense on the accompanying consolidated statement

of operations.

As of June 30, 2020 and December 31, 2019, the gross balance payable for these notes was $0 and $1,291,000, respectively.

As of June 30, 2020 and December 31, 2019, the Company has cumulatively amortized $568,322 and $404,393 of the debt discounts

Company agreed to repay the outstanding balance of Alpha and Brio’s August 2019 Notes in the amount of $1,291,000.

result of this transaction, the Company accelerated debt discounts for warrants, issuance costs and original issue discount of

$500,145, which was recognized through interest expense on the accompanying unaudited consolidated statement of operations.

of September 30, 2020 and December 31, 2019, the gross balance payable for these notes was $0 and $1,291,000, respectively.

of September 30, 2020 and December 31, 2019, the Company has cumulatively amortized $568,322 and $404,393 of the debt discounts

costs including debt issuance costs, original issue discount, and discount for warrants issued in connection with the debt transaction,

all of which is included in interest expense on the accompanying consolidated statement of operations.

As of June 30, 2020 and

December 31, 2019, the net balance payable for these notes was $0 and $627,426, respectively.

all of which is included in interest expense on the accompanying unaudited consolidated statement of operations.

As of September

30, 2020 and December 31, 2019, the net balance payable for these notes was $0 and $627,426, respectively.

February 18, 2020, the Company entered into two purchase agreements (the “C6 Purchase Agreements”) for the purchase

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issued and sold to C6 two loan agreements in the aggregate original principal amount of $1,020,000.

These loans contain

an original purchase discount of 18%, or $270,000, in total, or $135,000 per agreement.

C6 paid $375,000 per loan agreement for

a total of $750,000.

These loans contain an original

purchase discount of 18%, or $270,000, in total, or $135,000 per each of the two agreements.

C6 paid $375,000 per loan agreement

for a total of $750,000.

The Company paid debt issuance costs to C6 of $7,500 per agreement, or $15,000 in total, which was placed

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the Company to make a daily average payment of $8,094 during the term of such agreements.

As of June 30, 2020, the Company has

made $161,904 in principal payments under these loan agreements.

As of June 30, 2020, the gross balance payable for these loan

agreements was $858,000, and the balance of the loan net of discounts was $600,424.

For the three months ended March 31, 2020,

the Company has amortized $27,329 of debt discount through interest expense on the accompanying statement of operations.

May 21, 2020 through May 27, 2020 the Company, issued convertible promissory notes (the “May 2020 Notes”) to six (6)

As of September 30, 2020, the Company

has made $1,020,000 in principal payments under these loan agreements.

As of September 30, 2020, the gross balance payable for

these loan agreements was $0, and the balance of the loan net of discounts was $0.

For the nine months ended September 30, 2020,

the Company has amortized $285,000 of debt discount through interest expense on the accompanying unaudited statement of operations.

May 21, 2020 through May 27, 2020 the Company, issued convertible promissory notes (the “May 2020 Notes”) to five

(5) accredited investors (each a “May 2020 Investor”, and collectively, the “May 2020 Investors”).

The aggregate principal amount of the May 2020 Notes is $1,000,000 for which the Company received gross proceeds of $1,000,000.

The May 2020 Notes are due and payable six months from the date of issuance.

aggregate principal amount of the May 2020 Notes is $1,000,000 for which the Company received gross proceeds of $1,000,000.

May 2020 Notes were due and payable six months from the date of issuance.

The May 2020 Notes entitle each holder to 12% interest

upon Maturity.

The May 2020 Notes may be converted into shares of the Company’s common stock at any time following the date

of issuance at a conversion price of $0.50 per share, subject to adjustment.

upon Maturity, or $120,000.

The May 2020 Notes may be converted into shares of the Company’s common stock at any time following

the date of issuance at a conversion price of $2.50 per share, subject to adjustment.

During the week ended November 6, 2020,

all accredited investors exercised their conversion rights under the May 2020 Notes.

The Company is preparing to issue the underlying

shares effective November 12, 2020.

an inducement to enter into the transaction, the Company issued an aggregate of 133,000 shares of the Company’s restricted

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to 130% and shall become immediately due and payable upon notice to the Company.

interest expense on notes payable, inclusive of amortization of debt discounts, amounted to $1,021,914 and $300,000 for the six

months ended June 30, 2020 and 2019, respectively.

Total interest expense on notes payable, inclusive of amortization of debt

discounts, amounted to $228,875 and $129,826 for the three months ended June 30, 2020 and 2019, respectively.

In June 2020, the Company

and its subsidiaries received loans in the aggregate amount of approximately $242,000 (the “PPP Loan”) under the new

Paycheck Protection Program legislation administered by the U.S.

June 2020, the Company and its subsidiaries received loans in the aggregate amount of approximately $242,000 (the “PPP Loan”)

under the new Paycheck Protection Program legislation administered by the U.S.

Small Business Administration.

These loans bear interest at one

percent per annum (1.0%) and mature five years from the date of the first disbursement.

The proceeds of the PPP Loan must be used

for payroll costs, lease payments on agreements before February 15, 2020 and utility payments under agreements before February

At least 60% of the proceeds must be used for payroll costs and certain other expenses and no more than 40% may be used

on non-payroll expenses.

Proceeds from the PPP Loan used by the Company for the approved expense categories may be fully forgiven

by the Small Business Administration if the Company satisfies applicable employee headcount and compensation requirements.

Company currently believes that a majority of the PPP Loan proceeds will qualify for debt forgiveness;

however, there can be no

assurance that the Company will qualify for forgiveness from the Small Business Administration until it occurs.

These loans bear

interest at one percent per annum (1.0%) and mature five years from the date of the first disbursement.

The proceeds of the PPP

Loan must be used for payroll costs, lease payments on agreements entered into before February 15, 2020 and utility payments under

lease agreements entered into before February 1, 2020.

At least 60% of the proceeds must be used for payroll costs and certain

other expenses and no more than 40% may be used on non-payroll expenses.

Proceeds from the PPP Loan used by the Company for the

approved expense categories may be fully forgiven by the Small Business Administration if the Company satisfies applicable employee

headcount and compensation requirements.

The Company currently believes that a majority of the PPP Loan proceeds will qualify

for debt forgiveness;

however, there can be no assurance that the Company will qualify for forgiveness from the Small Business

Administration until it occurs.

As at September 30, 2020, the $242,000 PPP loan proceeds are reflected on the Company’s

balance sheet as current liabilities, within loans payable.

July 27, 2020, the Company issued a secured convertible promissory note in the principal amount of up to $1,500,000 to an accredited

The Company received $600,000 in aggregate gross proceeds.

Any additional advances under this note would require the

approval of the lender in its sole discretion.

This note accrues interest at a rate of one and one-quarter percent (1.25%) per

month and carried a maturity date of January 24, 2021.

The note balance of $607,500, including accrued interest of $7,500, was

repaid in full on August 28, 2020 with the issuance of Series B Convertible Preferred Stock (see Note 5).

interest expense on notes payable, inclusive of amortization of debt discounts, amounted to $1,313,010 and $430,956 for the nine

months ended September 30, 2020 and 2019, respectively.

Total interest expense on notes payable, inclusive of amortization of

debt discounts, amounted to $291,096 and $130,936 for the three months ended September 30, 2020 and 2019, respectively.

STOCKHOLDERS’

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.

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.

the month of March 2020, Alpha and Brio exercised their warrants in a cashless exercise for an aggregate of 1,836,155 common stock

Company has authorized the issuance of up to 100,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred

stock, $0.0001 par value, of which 5,000 shares are designated as Series B Convertible Preferred Stock and 4,995,000 shares of

preferred stock remain undesignated.

B Convertible Preferred Stock

August 27, 2020, the Secretary of State of the State of Delaware delivered confirmation of the effective filing of the Company’s

Certificate of Designations of the Series B Convertible Preferred Stock, which established 5,000 shares of the Company’s

Series B Preferred Stock, having such designations, rights and preferences as set forth therein (the “Series B Designations”).

shares of Series B Preferred Stock have a stated value of $1,000 per share (the “Series B Stated Value”) and are convertible

into Common Stock at the election of the holder of the Series B Preferred Stock, at a price of $3.25 per share ($0.65 pre-split),

subject to adjustment (the “Conversion Price”).

Each holder of Series B Preferred Stock shall be entitled to receive,

with respect to each share of Series B Preferred Stock then outstanding and held by such holder, dividends at the rate of thirteen

percent (13%) per annum (the “

Preferred Dividends ”).

Preferred Dividends shall accrue and be cumulative from and after the date of issuance of any share of Series B Preferred Stock

on a daily basis computed on the basis of a 365-day year and compounded quarterly.

The Preferred Dividends are payable only when,

as, and if declared by the Board of Directors of the Company (the “Board”) and the Company has no obligation to pay

such Preferred Dividends;

provided , however , if the Board determines to pay any Preferred Dividends, the Company

shall pay such dividends in kind in a number of additional shares of Series B Preferred Stock (the “PIK Shares”) equal

to the quotient of (i) the aggregate amount of the Preferred Dividends being paid by the Company in respect of the shares of Series

B Preferred Stock held by such holder, divided by (ii) the Series B Issue Price (as defined in the Series B Designations);

provided , further , that, at the election of the purchasers holding a majority of the shares of Series B Preferred

Stock then outstanding, in their sole discretion, such Preferred Dividends shall be paid in cash or a combination of cash and

Notwithstanding the foregoing, the Preferred Dividends may be paid in cash at the election of the Company if, and

only if, (A) the purchasers holding a majority of the shares of Series B Preferred Stock then outstanding consent in writing to

the payment of any specific dividend in cash, or (B) at any time following the twenty-four (24) month anniversary of the Closing,

(i) the prevailing VWAP of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $3.00 per share

(subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations,

reverse stock splits or other similar events), and (ii) the average trading volume of the Common Stock over the trailing ninety

(90)-day period is equal to or greater than 40,000 shares (200,000 pre-split) of Common Stock per day, or (C) at any time following

the thirty-six (36) month anniversary of the Closing.

holders of Series B Preferred Stock rank senior to the Common Stock with respect to payment of dividends and rights upon liquidation

and will vote together with the holders of the Common Stock on an as-converted basis, subject to beneficial ownership limitations,

on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent).

addition, as further described in the Series B Designations, if at least 30% of the number of shares of Series B Preferred Stock

sold at the Closing are outstanding, the Company will not take certain corporate actions without the affirmative vote at a meeting

(or the written consent with or without a meeting) of the purchasers holding a majority of the shares of Series B Preferred Stock

then outstanding.

at any time following the twelve (12)-month anniversary of the Closing (A) the prevailing VWAP (as defined in the Series B Designations)

of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $15.00 per share ($3.00 pre-split)(subject

to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse

stock splits or other similar events), and (B) the average trading volume of the Common Stock over the trailing ninety (90)-day

period is equal to or greater than 40,000 shares (200,000 pre-split) of Common Stock per day, the Company shall have the right,

but not the obligation, in its sole discretion, to elect to convert all, but not less than all, of the then-outstanding shares

of Series B Preferred Stock into Common Stock by delivering written notice of such election (the “Forced Conversion Notice”)

to the holders of the Series B Preferred Stock within ten (10) Business Days following the satisfaction of the criteria of clauses

(A) and (B) above (a “Forced Conversion”).

On the Forced Conversion Date (as defined in the Series B Designations),

each share of Series B Preferred Stock shall be converted into the number of fully paid and non-assessable shares of Common Stock

equal to the quotient of:

(x) the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such

share of Series B Preferred Stock as of immediately prior to the conversion thereof, including the Preferred Dividends, divided

by (y) the Conversion Price of such share of Series B Preferred Stock in effect at the time of conversion.

The Forced Conversion

Notice shall state (i) the number of shares of Series B Preferred Stock held by such Holder that are proposed to be converted,

and (ii) the date on which such Forced Conversion shall occur, which date shall be the thirtieth (30 th ) day following

the date such Forced Conversion Notice is deemed given (a “Forced Conversion Date”).

the event of a Forced Conversion, a holder may elect, in its sole discretion and in lieu of the Forced Conversion, to have each

then-outstanding share of Series B Preferred Stock held by such holder be redeemed by the Company (a “

Forced Conversion

Redemption ”) by delivering written notice to the Company (a “

Forced Conversion Redemption Notice ”

and the date such Holder delivers such notice to the Corporation, a “

Forced Conversion Redemption Notice Date ”)

prior to the Forced Conversion Date, which notice shall state (A) the number of shares of Series B Preferred Stock that are to

be redeemed, (B) the date on which such Forced Conversion Redemption shall occur, which date shall be the tenth (10th) Business

Day following the applicable Forced Conversion Redemption Notice Date (the “

Forced Conversion Redemption Date ”)

and (C) the wire instructions for the payment of the applicable amount owed to such holder.

Each share of Series B Preferred Stock

that is the subject of a Forced Conversion Redemption shall be redeemed by the Company in cash at a price per share equal to the

sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock,

including the Preferred Dividends (the “

Per Share Forced Conversion Redemption Price ”).

any time (A) after December 31, 2020, if a sufficient number of shares of Common Stock are not available to effect the conversion

of the Series B Preferred Stock outstanding into Common Stock and the exercise of the Warrants, or (B) after the three (3) year

anniversary of the closing, each holder shall have the right, in its sole and absolute discretion (in addition to and not to the

exclusion of any remedy such holder may have at law or in equity), to require that the Company redeem (an “Optional Redemption”),

to the fullest extent permitted by law and out of funds lawfully available therefor, all or any portion of such holder’s

Series B Preferred Stock then outstanding by delivering written notice thereof;

provided , however , that right of

the holders to cause an Optional Redemption under clause (B) above shall expire at such time as (i) the Company’s Common

Stock is listed for trading on a National Securities Exchange (as defined in the Series B Designations) and (ii) the VWAP of the

Common Stock over any ninety (90)-day period is equal to or greater than $10.00 per share ($2.00 pre-split), subject to adjustment.

Purchase Agreement

August 28, 2020, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an investor

(the “Investor”), to purchase from the Company an aggregate of 3,500 units (the “Units”), at a purchase

price of $1,000 per Unit, each consisting of (i) one share of Series B Convertible Preferred Stock, and (ii) a warrant to purchase

400 shares of common stock of the Company.

The aggregate purchase price for the Units is $3,500,000, of which (i) $2,892,500 is

being paid in cash at the closing of the transaction and (ii) $607,500, is being paid by the conversion of the outstanding principal

and interest due on the Secured Convertible Promissory Note (the “Note”) issued by the Company to the Investor on

July 27, 2020.

The Purchase Agreement provides that the Investor may not sell, transfer or otherwise dispose of the Series B Preferred

Stock or warrants (or the shares of Common Stock issuable thereunder) for a period of one year following the closing.

a result of the Purchase Agreement, the Company recorded a deemed dividend to the holders of the Series B Preferred Stock

of $3,500,000 for the value of the warrants and beneficial conversion feature in excess of the purchase price.

Additionally, the

company recorded a put liability of $3,500,000 for the value of the Series B Preferred Stock redemption feature.

This liability

was increased by $41,137 for the 13% dividend accrued for the Series B Preferred stockholders for a balance of $3,541,137 as of

September 30, 2020.

August 31, 2020, the Company entered into a consulting agreement (the “CL1 Consulting Agreement”) with a consultant

(“CL1”

or “Consultant”), to which Consultant will assist the Company with, among other things, general

operations of the business, marketing and branding, and recruiting talent in connection with the Company’s men’s sexual

health, hair loss and PDF businesses (the “Services”).

As compensation for the Services, Consultant shall receive from

the Company two warrants (“Consulting Warrant 1”

and “Consulting Warrant 2”

collectively, the “Consulting

Warrants”), that entitle Consultant to purchase up to an aggregate of 750,000 of Common Stock of the Company according to

the terms and conditions outlined therein, including any restrictions on exercisability.

During the five-year term of Consulting

Warrant 1, Consultant may purchase up to an aggregate of 500,000 shares of Common Stock, at an exercise price equal to the closing

price of the Common Stock immediately prior to the Closing of $5.20 per share, and Consulting Warrant 1 becomes exercisable as

to such shares of Common Stock in 18 equal monthly installments beginning on the date that is six months following the issue date

or immediately prior to the consummation of a change of control of the Company.

During the five-year term of Consulting Warrant

2, Consultant may purchase up to an aggregate of 250,000 shares of Common Stock, at an exercise price of $5.75 per share, and Consulting

Warrant 2 becomes exercisable as to such shares of Common Stock on the date that is 24 months following the issue date or immediately

prior to the consummation of a change of control of the Company.

Purchase Agreement

Concurrently,

the Company entered into a warrant purchase agreement (the “Warrant Purchase Agreement”) with CL1 to purchase from

the Company (i) a warrant to purchase 500,000 shares of Common Stock, at an exercise price equal to the closing price of the Common

Stock immediately prior of $5.20 per share ($1.04 per share on a pre-split basis) (the “Class A Warrant”), for

a purchase price of $15,000, and (ii) a warrant to purchase 250,000 shares of Common Stock, at an exercise price of $5.75 per

share (the “Class B Warrant”

and, together with the Class A Warrant, the “Purchased Warrants”),

for a purchase price of $10,000.

Each of the Purchased Warrants have a five-year term.

Each of the Purchase Warrants is immediately

exercisable as to fifty percent (50%) of the shares issuable thereunder and the remaining fifty percent (50%) shall become exercisable

on the date that is six months following the issue date of each Purchased Warrant, subject to a repurchase right in favor of the

fair value of the warrants above (Consulting Warrants and Purchase Warrants) was approximately $9,467,767, which was determined

by the Black-Scholes Pricing Model with the following assumptions:

dividend yield of 0%, term of 5 years, volatility of 161.4%,

and risk-free rate of 0.28%.

Total amortization for the three- and nine-months ending September 30, 2020 was $394,283 and is reflected

in stock-based compensation, with unamortized costs of $9,068,504 remaining at September 30, 2020.

March 2020, Alpha and Brio exercised their warrants in a cashless exercise for an aggregate of 367,231 shares of common stock

warrants to obtain 147,858 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

May 2020, the Company issued a total of 843,242 shares of common stock for the cashless exercise of warrants.

May 2020, the Company issued 294,120 shares of common stock to an investor for $250,000 in cash consideration.

the nine months ended September 30, 2020 (specifically three months ended June 30, 2020), the Company issued 50,000 shares for

services valued at approximately $35,200.

the nine months ended September 30, 2020 (specifically the three months ended June 30, 2020), the Company issued 2,196,740 shares

of common stock for share liability of $1,726,000.

September 2020, the company received aggregate proceeds of $25,000 for the sale of warrants from the Warrant Purchase Agreement.

the three months ended September 30, 2020, the Company issued a total of 379,957 shares of common stock from the exercise of warrants

and cash proceeds of $622,763.

the three months ended September 30, 2020, the Company issued a total of 335,600 shares of common stock from the exercise of stock

options with cash proceeds of $300,400.

the three months ended September 30, 2020, the Company issued a total of 331,270 shares of common stock from the cashless exercise

of stock options.

the three months ended September 30, 2020, the Company issued a total of 375,447 shares of common stock for share liability totaling

of September 30, 2020, the Company has $218,848 in cash from investors which is recorded as a liability to issue shares until

such time as the shares are issued.

Noncontrolling

the three months ended June 30, 2020 and 2019, the net loss attributed to the non-controlling interest amounted to $68,131

the three months ended September 30, 2020 and 2019, the net loss attributed to the non-controlling interest amounted to $201,233

and $160,838, 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.

six months ended June 30, 2020 and 2019, the Company paid distributions to non-controlling shareholders of $121,223 and

$34,298, respectively.

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

For the nine months ended September 30, 2020 and 2019, the net loss attributed to the non-controlling

interest amounted to $408,180 and $375,540, respectively.

During the nine months ended September 30, 2020 and 2019, the Company

paid distributions to non-controlling shareholders of $121,223 and $61,625, respectively.

April 25, 2019, the Company entered into an LLC Membership Unit purchase agreement with entities owned by the Company’s

Chief Executive Officer and Chief Technology Officer, and Conversion Labs PR, and simultaneously purchased the remaining 21.8%

interest of Conversion Labs PR from the Company’s Chief Executive officer and Chief Technology Officer.

Subsequent to the

agreement’s closing, the Company now wholly-owns 100% of Conversion Labs PR.

In order to consummate this transaction, the

Company agreed to issue 1,000,000 shares of common stock based on the issuance price of $0.90 per share, equal to $900,000 to

the Company’s Chief Executive Officer and Chief Technology Officer.

As such, the Company now wholly-owns 100% of Conversion

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.

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

The shares were issued on August 6, 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 in 2019 for a charge of $412,377.

Stock Options

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.

a result of amendment, the Company cancelled 1,850,000 service based options with an exercise price of $0.30.

the six months ended June 30, 2020 the Company issued 2.4 million stock options to three employees, two advisory board members,

January 20, 2020, the Company approved the transition of its Chief Acquisition Officer, to the role of President of LegalSimpli

(“President”).

In connection with this change in role , the Company amended that certain services agreement entered

into on July 23, 2018, by and between the Company and its President, to (i) decrease the number of options to purchase the Company’s

common stock previously granted from 1,000,000 options to 500,000 options , 130,000 of which are fully vested as of the effective

date and (ii) amend the vesting schedule for the remaining 370,000 performance options to include four performance metrics that,

if met, each trigger the vesting of 92,500 options.

As a result of amendment, the Company cancelled 500,000 service based options

with an exercise price of $1.50.

the nine months ended September 30, 2020, the Company issued 480,000 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.

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

$ 0.20 - 0.40

Balance at June 30, 2020

$ 0.16 - 1.50

Exercisable December 31, 2019

$ 0.20 - 0.40

Exercisable at June 30, 2020

$ 0.20 - 0.40

Performance-Based

Stock Options

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.

a result of amendment, the Company cancelled 1,850,000 service based options with an exercise price of $0.30.

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

$ 0.25 - 0.40

Balance at June 30, 2020

$ 0.25 –

Exercisable December 31, 2019

$ 0.25 - 0.40

Exercisable at June 30, 2020

$ 0.25 - 0.40

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

$ 0.20 - 0.50

Warrants Granted

Warrants Exercised

Warrants Expired

Balance at June 30, 2020

$ 0.13 - 0.50

Exercisable December 31, 2019

$ 0.20 - 0.50

Exercisable June 30, 2020

$ 0.13 - 0.50

These stock options have a contractual term of 10 years and vest in in increments which fully vest

the options over a two to three year period, dependent on the specific agreements’

following is a summary of outstanding service-based options activity for the nine months ended September 30, 2020:

Outstanding Number of Shares

Price per Share

Average Remaining Contractual Life

Average Exercise Price per Share

December 31, 2019

Cancelled/Forfeited/Expired

at September 30, 2020

December 31, 2019

at September 30, 2020

following is a summary of outstanding performance-based options activity for the nine months ended September 30, 2020:

Outstanding Number of Shares

Price per Share

Average Remaining Contractual Life

Average Exercise Price per Share

at December 31, 2019

Cancelled/Expired

at September 30, 2020

December 31, 2019

at September 30, 2020

following is a summary of outstanding and exercisable warrants activity during the nine months ended September 30, 2020:

Outstanding Number of Shares

Price per Share

Average Remaining Contractual Life

Average Exercise Price per Share

at December 31, 2019

Exercised/Expired

at September 30, 2020

December 31, 2019

September 30, 2020

2020 Warrant Inducement

August 2020, the Company offered an inducement to all 26 warrant holders of our $2.00

strike price warrants, which total 526,846 common stock warrants outstanding, by offering a reduced exercise price of $1.75

(a $0.25 discount) for these warrants if they are immediately exercised.

the three and nine months ended September 30, 2020, there were 379,957 of these warrants exercised, and none forfeited or adjusted.

The Company accounted for the warrant inducement as a deemed dividend based on the difference in the Black-Scholes value of the

warrants immediately before and immediately after the inducement.

The significant assumptions used in the Company included common

stock volatility of 148.49%, risk free rate of 0.14%, a weighted average term of 1.6 years and the current stock price of the

Company as of the date of inducement.

Based on the Black-Scholes valuation method the Company recorded a deemed dividend to additional

paid in capital and retained earnings on the inducement of approximately $73,636 and received proceeds from the warrants exercised

of approximately $623,000 during the three

and nine months ended September 30, 2020.

of September 30, 2020, and to the date of this Form 10Q, a vast majority of the respective warrant holders have exercised the

inducement related discount.

Capital Anstalt (“Alpha”) Warrants

1 unchanged sentence

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.

favor of Alpha, effective 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 391,304 shares

of the Company’s common stock at an exercise price of $1.40 per share, none of which have been exercised 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 $1.40 per share to $0.68 per share and increased the number

of shares issuable under the Alpha 2018 Warrant from 391,304 to 811,594 shares.

February 25, 2020, the Company and Alpha entered into a Note Repayment and Warrant Amendment Agreement (the “2019 Alpha

3 unchanged sentences

The August 2019 Warrant issued to Alpha originally provided for the purchase of up to 365,217 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

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

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.

a result of the above transactions, the Company has recorded a deemed distribution to Alpha for the price adjustments of the August

common stock at an exercise price of $1.40 per share, none of which have been exercised as of the date of the 2019 Alpha

Pursuant to the 2019 Alpha Amendment, Alpha has agreed to the reduction of the exercise price from $1.40 to $1.15,

subject to further adjustment.

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 757,488 shares of the Company’s common stock.

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 331,401 shares of the Company’s common stock

or an aggregate of up to 1,088,889 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 391,466 shares of the Company’s

common stock to Alpha, with no effect on the Company’s statement of operations.

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.

a result of the above transactions, the Company has recorded a deemed dividend 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

1 unchanged sentence

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

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.

of their warrants in a cashless exercise, whereby Alpha exercised 267,223 common stock warrants to obtain 90,231 shares of common

Master Fund (“Brio”) Warrants

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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

The Brio 2018 Warrant originally provided for the purchase of up to 86,957 shares of the

Company’s common stock at an exercise price of $1.40 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 $1.40 per share to $0.68 per share and increased the number of shares issuable under the 2018 Brio Warrant from

86,957 to 93,398 shares.

February 25, 2020, the Company, and Brio entered into a Note Repayment and Warrant Amendment Agreement whereby the Company agreed

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The Brio 2019 Warrant originally provide for the purchase of up to 114,130 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.

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.

May 7, 2020, the Company agreed to further amend those certain warrants issued to Brio on August 15, 2019, as amended on February

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.

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.

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.

Company’s common stock at an exercise price of $1.40 per share, none of which have been exercised 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 $1.40

to $1.15, subject to further adjustment.

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 236,715 shares of the Company’s common stock.

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 103,562

shares of the Company’s common stock or an aggregate of up to 340,278.

On the same day, Brio exercised on a cashless basis

the Brio Warrants in full resulting in the issuance of 103,562 shares of the Company’s common stock to Brio with no effect

on the Company’s statement of operations.

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.

a result of the above transactions, the Company has recorded a deemed dividend to Brio for the price adjustments of the Brio 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 100,000 common stock warrants to obtain 57,547 shares of common stock.

Consulting Agreement

September 29, 2020 (the “Effective Date”), the parties entered into an amendment to the Consulting Agreement (the

“Amended Consulting Agreement”) with Blue Horizon Consulting, LLC (“Blue Horizon”) primarily to change

the compensation for services provided by the Consultant.

Under the Amended Consulting Agreement, Blue Horizon may receive an

aggregate of up to 2,000,000 shares of the Company’s common stock, subject to adjustment, upon the Company reaching certain

revenue milestones.

Happy Walters, a member of the Company’s Board, is the sole owner of Blue Horizon.

The Amended Consulting

Agreement was approved by the Company’s disinterested directors.

a result of the Amended Consulting Agreement, the Company recorded stock compensation expense of $15,900,000 during the three

and nine months ended September 30, 2020, representing the fair value of the 2,000,000 shares of common stock earned under the

Amended Consulting Agreement.

No shares remain unearned under the Amended Consulting Agreement as of September 30, 2020.

of 800,000 common shares of the total 2,000,000 shares earned were issued under the Amended Consulting Agreement on October 16,

total stock-based compensation expense related to common stock issued for services, Service-Based Stock Options, Performance-Based

Stock Options and Warrants issued for service amounted to approximately $16,364,000 and $167,000 for the three months ended September

30, 2020 and 2019, respectively, and approximately $16,899,000 and $540,000 for the nine months ended September 30, 2020 and 2019,

respectively.

Such amounts are included in general and administrative expenses in the unaudited consolidated statement of operations.

Company primarily leases office space and other equipment using month to month terms.

Conversion Labs PR utilizes office space

in Puerto Rico which is subleased from Mr.

Schreiber (the Company’s President and CEO) on a month to month basis and incurs

expense of approximately $4,000 a month for this office space.

in Puerto Rico, which is subleased from the Company’s President and CEO, on a month to month basis, incurring rental expense

of approximately $4,000 to $5,000 a month for this office space.

February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases

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842 and have determined the following impact on our financial statements:

Right of Use Asset

Lease liability

February 2018, the Company entered into a 3-year agreement to lease office space in Huntington Beach, California beginning on

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twelve months and $2,235 for the third twelve months;

A security deposit of $2,235 was paid for this lease.

The Company has classified

this as an operating lease and have recorded the straight-line lease expense in the accompanying statement of operations.

the lease expires on February 28, 2021.

A security deposit of $2,235 was

paid for this lease.

The Company has classified this as an operating lease and have recorded the straight-line lease expense in

the accompanying unaudited statement of operations.

7 - COMMITMENTS AND CONTINGENCIES

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of this agreement.

As of June 30, 2020 and December 31, 2019, the $0 and $0, respectively was included in accounts payable and

accrued expenses in regard to this agreement.

As of September 30, 2020 and December 31, 2019, $0 and $0, respectively was included in accounts payable and

accrued expenses in regard to this agreement, as no sales occurred.

2018, the Company entered into a license agreement (the “Alphabet Agreement”) with M.ALPHABET, LLC (“Alphabet”),

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option to purchase 20,000 shares of the Company’s common stock at an exercise price of $2.50 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 200,000 shares

of the Company’s common stock at an exercise price of $0.75.

have gross receipts of $20,000,000 in any calendar year, the Company will grant Alphabet an option to purchase 40,000 shares of

the Company’s common stock at an exercise price of $3.75.

of the Company’s vendors require product deposits when a purchase order is placed for goods or fulfillment services related

to inventory requirements.

The Company’s history of product deposits with its inventory vendors, creates an implicit purchase

commitment equaling the total expected product acceptance cost in excess of the product deposit.

As of September 30, 2020 and

December 31, 2019, the Company approximates it’s implicit purchase commitments to be $2.2 million and $300,000, respectively.

and Consulting Agreements

Company has entered into various agreements with officers, directors, employees and consultants that expire in one to five years.

Company has entered into various agreements with officers, directors, employees and consultants that expire in terms of one to

the normal course of business operations, the Company may become involved in various legal matters.

As of June 30, 2020, 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.

As of September 30, 2020,

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.

RELATED PARTY TRANSACTONS

Executive Officer

Labs PR utilizes office space in Puerto Rico which is subleased from Mr.

Schreiber (President and CEO) incurs expense of approximately

Labs PR utilizes office space in Puerto Rico which is subleased from the President and CEO, and incurs expense of approximately

$4,000 to $5,000 a month for this office space for which the Company and the CEO do not have a written lease agreement.

to JLS Ventures, an entity wholly owned by our Chief Executive Officer, Mr.

Schreiber, for rent on Conversion Labs PR’s

Puerto Rico office space amounted to $15,000 and $12,000 for the three months ended June 30, 2020 and 2019, respectively.

Labs PR utilizes BV Global Fulfillment, owned by a related person of the Company’s current Chief Executive Officer to warehouse

a majority of the Company’s finished goods inventory and for fulfillment services.

The Company pays a monthly fee of $13,000

to $16,000 for fulfillment services and reimburses BV Global Fulfillment for their direct costs associated with shipping the Company’s

As of June 30, 2020 and December 31, 2019, the Company owed BV Global Fulfillment $161,823 and $53,026, respectively,

which are included in accounts payable and accrued liabilities on the accompany consolidated balance sheets.

to JLS Ventures, an entity wholly owned by our CEO, for rent on Conversion Labs PR’s Puerto Rico office space amounted to

$45,000 and $37,000 for the nine months ended September 30, 2020 and 2019, respectively.

Labs PR utilizes BV Global Fulfillment, owned by a related person of the Company’s CEO to warehouse a majority of the Company’s

finished goods inventory and for fulfillment services.

The Company pays a monthly fee of $13,000 to $16,000 for fulfillment services

and reimburses BV Global Fulfillment for their direct costs associated with shipping the Company’s products.

As of September

30, 2020 and December 31, 2019, the Company owed BV Global Fulfillment $217,449 and $53,026, respectively, which are included

in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

SUBSEQUENT EVENTS

Company has evaluated subsequent events through the date these financial statements were issued and has identified the following:

On July 27, 2020, the

Company issued a secured convertible promissory Note in the principal amount of up to $1,500,000, to an accredited investor.

Company received $600,000 in aggregate gross proceeds.

Any additional advances under this note would require the approval of the

lender in its sole discretion.

This note accrues interest at a rate of one and one-quarter percent (1.25%) per month and matures

on January 24, 2021.

Upon the closing of a Qualified Financing prior to repayment of this note, upon the written election by the

investor, the outstanding principal and all accrued but unpaid interest thereon shall convert into fully paid and nonassessable

shares of the preferred stock, par value $0.001 per share, of the Company issued and sold by the Company at the closing of a Qualified

Upon such written election by the lender, this note shall convert into the number of shares of preferred stock (including

fractional shares) equal to the quotient of (i) the outstanding principal and accrued but unpaid interest on this note, divided

by (ii) the price per share paid by the cash purchasers of the preferred stock sold in such Qualified Financing.

Financing ”

means a transaction or series of transactions with the principal purpose of raising capital pursuant to which

the Company issues and sells shares of preferred stock for aggregate gross proceeds of at least $2,500,000 (excluding all proceeds

from the incurrence of indebtedness, including this note, that is converted into such preferred stock, or otherwise cancelled

in consideration for the issuance of such preferred stock).

As collateral security for the Company’s obligations under this

note, the Company pledged, assigned and transferred to the investor a first priority security interest in and collateral assignment

of the Company’s right, title and interest in and to all of the Company’s tangible and intangible property.

contains customary events of default (each an “Event of Default”).

If an Event of Default occurs, all outstanding

obligations owing under this note will become immediately due and payable at the investor’s election.

During August 2020,

the Company offered an inducement to all warrant holders of our $0.40 warrants for a total 2,634,228 common stock warrants outstanding

by offering a $0.05 discount on the exercise price of these warrants if they immediately exercised.

The adjusted exercise price

of these warrants would become $0.35.

To date, a vast majority of our warrant holders have exercised this discount, but the Company

is still in the process of completing the inducement.

October 9, 2020, the Company effectuated a 1-for-5 reverse stock split of the Company’s issued and outstanding shares of

common stock that became effective in the market on October 14, 2020 (see Note 1).

October 21, 2020, the Board of Directors (the “Board”) of the Company, appointed a new director to the Board (the

“Appointment”).

In connection with

the appointment to the Board, the director shall receive a one-time grant of 20,000 shares of the Company’s common stock.

In addition, the new director will be eligible to participate in any duly authorized stock option plan adopted by the Company.

On November 3, 2020, the

Company consummated an initial closing of a private placement offering (the “Offering”), whereby pursuant to the securities

purchase agreement (the “Purchase Agreement”) entered into by the Company and certain accredited investors on October

30, 2020 (each an “Investor”

and collectively, the “Investors”) the Company sold to such Investors an

aggregate of approximately 3,192,084 shares (the “Shares”) of the Company’s common stock, par value $0.01

per share (the “Common Stock”), for an aggregate purchase price of $14,461,512.75 (the “Purchase Price”).

The Purchase Price was funded on November 3, 2020 (the “Closing Date”) and resulted in net proceeds to the Company

of approximately $13.2 million.

to the Purchase Agreement , the Company agreed, for a period of 90 days from the closing date, not to issue or enter into any

agreement to issue any shares of common stock or common stock equivalents with the exception of certain exempt issuances as provided

LLC (the “Placement Agent”) acted as exclusive placement agent for the Offering and received cash compensation equal

to 6% of the Purchase Price and warrants to purchase 91,336 shares of the Company’s common stock, at an initial exercise

price of $4.75 per share, subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse

stock split or other similar transaction (the “PA Warrants”).

The PA Warrants may be exercised on a “cashless”

basis and will expire on November 3, 2025.

November 10, 2020, the Board of Directors (the “Board”) of the Company, appointed a new director to the Board (the

“Appointment”).

In connection with

the appointment to the Board, the director shall receive a one-time grant of 20,000 of the Company’s common stock.

the new director will be eligible to participate in any duly authorized stock option plan adopted by the Company.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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These risks include, by way of example and without limitation:

ability to successfully commercialize our products on a large enough scale to generate profitable operations;

ability to successfully commercialize our products on a large enough scale to generate

profitable operations;

ability to maintain and develop relationships with customers and suppliers;

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economic and business conditions;

interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as COVID-19);

interruptions resulting from geo-political actions, including war, and terrorism or disease

outbreaks (such as COVID-19);

ability to continue as a going concern;

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ability to successfully acquire, develop or commercialize new products and equipment;

● intellectual

property claims brought by third parties;

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results of our future activities will not differ materially from our assumptions.

As used in this Quarterly

Report on Form 10-Q and unless otherwise indicated, the terms “Company,”

used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,”

“we,”

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refer to Conversion Labs, Inc.

(formerly known as Immudyne, Inc.), our wholly owned subsidiary Conversion Labs PR, LLC

(formerly Immudyne PR LLC, now “Conversion Labs PR”), a Puerto Rico limited liability company (“Conversion Labs

PR”) and our majority-owned subsidiaries LegalSimpli Software, LLC, a Puerto Rico limited liability company (“LegalSimpli”).

Unless otherwise specified, all dollar amounts are expressed in United States dollars.

(formerly known as Immudyne, Inc.), our wholly subsidiary

Conversion Labs PR, LLC (formerly Immudyne PR LLC, now “Conversion Labs PR”), a Puerto Rico limited liability company

(“Conversion Labs PR”, or “CLPR”) and our majority-owned subsidiaries LegalSimpli Software, LLC, a Puerto

Rico limited liability company (“LegalSimpli”).

Unless otherwise specified, all dollar amounts are expressed in United

States dollars.

Labs, Inc., was formed in the State of Delaware on May 24, 1994, under our prior name, Immudyne, Inc.

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June 2018, Conversion Labs closed the strategic acquisition of 51% of LegalSimpli Software, LLC (“LegalSimpli”), a

software as a service (SaaS) for converting, editing, signing and sharing PDF documents.

software as a service (SaaS) application for converting, editing, signing and sharing PDF documents.

In addition to LegalSimpli’s

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business as well the expansion of our telehealth opportunities.

June 2019, a joint venture with GoGoMeds.com was formed allowing us to market branded and generic prescription drugs that are

then sold and shipped (via GoGoMeds) online directly to consumers in all 50 states and the District of Columbia.

Company is a direct response healthcare company that provides a convenient, cost-effective and smarter way for consumers to access

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prescriptions, fulfillment, and follow-up consultations.

Telehealth Brands

telehealth brands have been built with one singular focus in mind:

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to convert, edit and sign PDF documents.

As of March 1, 2020, PDFSimpli was ranked in the top 5,750 websites globally, in which

it was also ranked in the top 1,200 for specific countries with more than 4.5 million registrants globally.

Since its launch,

PDFSimpli has converted or edited over 5 terabytes of documents for customers from the legal, financial, real-estate and academic

PDFSimpli has over 39,000 active subscriptions as of March 1, 2020.

Since its launch, PDFSimpli has converted or edited over 5 terabytes of documents for

customers from the legal, financial, real-estate and academic sectors.

of COVID-19 Pandemic

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ability to service our customers.

are also carefully monitoring shifting consumer behavior from brick and mortar retail and physical healthcare offices to

our online platform.

We have observed continued strength in our e-commerce sales since the end of the quarter ended June 30, 2020,

due in part to changing consumer behavior during the COVID-19 pandemic and widespread awareness and acceptance of telemedicine.

Telemedicine businesses, such as ours, have benefitted from increased coverage and visibility due

to quarantine measures and policies adopted widely across the country.

We believe the increased awareness of telehealth is reflected

in the rapid growth we are seeing across our telehealth brands.

are also carefully monitoring shifting consumer behavior from brick and mortar retail and physical healthcare offices to our online

We have observed continued strength in our e-commerce sales since the end of the quarter ended September 30, 2020, due

in part to changing consumer behavior during the COVID-19 pandemic and widespread awareness and acceptance of telemedicine.

businesses, such as ours, have benefitted from increased coverage and visibility due to quarantine measures and policies adopted

widely across the country.

We believe the increased awareness of telehealth is reflected in the rapid growth we are seeing across

our telehealth brands.

of Operations

of the Three Months Ended June 30, 2020 to the Three Months Ended June 30, 2019

financial results for the three months ended June 30, 2020 are summarized as follows in comparison to the three months ended June

June 30, 2020

June 30, 2019

Product revenues, net

Software revenues, net

Service revenues, net

Total revenues, net

Cost of product revenue

Cost of software revenue

Total cost of revenue

Selling & marketing expenses

General and administrative expenses

Operating expenses

Customer service expenses

Development costs

Total expenses

Loss from operations

of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019

financial results for the three months ended September 30, 2020 are summarized as follows in comparison to the three months ended

September 30, 2019:

revenues, net

of product revenue

of software revenue

cost of revenue

& marketing expenses

and administrative expenses

service expenses

from operations

$ (20,532,507 )

Other income (expenses)

Income from continuing operations

before provision for income taxes

income (expenses)

from operations before provision for income taxes

$ (20,823,603 )

Net income (loss) attributable to

noncontrolling interests

Net income (loss) attributable to Conversion Labs, Inc.

$ (1,104,642 )

for the three months ended June 30, 2020 were approximately $9.1 million, an increase of 236.9% compared to approximately $2.3

million for the three months ended June 30, 2019.

The increase in revenues was attributable to both the increase in product revenue

of 241.0% and an increase in software revenue of 212.4%.

Product revenue accounts for 87% of total revenue and has increased in

the three months ended June 30, 2020 due to an increase in online sales demands.

Management attributes a portion of this increased

demand to the nationwide lockdown resulting from COVID-19 precautions and the resulting increase in consumers’

Software revenue accounts for 13% of total revenue and has steadily increased quarter over quarter due to a combination

of higher demand, market awareness, and continued marketing campaigns.

of product revenues consists primarily of product material costs and fulfillment costs directly attributable to the production

of our products.

Cost of software revenue consist primarily of credit card processing fees and information technology fees related

to our online platform.

Total cost of revenue increased by approximately 234.3.% to approximately $2.2 million for the three months

ended June 30, 2020 compared to approximately $655,000 for the three months ended June 30, 2019.

The increase in cost of revenues

was due to increased revenues and related increase in merchant and other processing fees incurred due to the higher sales volumes

in both our product and software sales.

profit increased by approximately 237.7% to approximately $6.9 million for the three months ended June 30, 2020 compared to approximately

$2.0 million for the three months ended June 30, 2019.

This is a result of the increased sales.

Gross profit as a percentage of

revenues remained consistent at 76% for the three months ended June 30, 2020 and for the three months ended June 30, 2019.

Three Months Ended June 30,

Selling & marketing expenses

General and administrative expenses

loss attributable to noncontrolling interests

loss attributable to Conversion Labs, Inc.

$ (20,622,370 )

for the three months ended September 30, 2020 were approximately $11 million, an increase of 252% compared to approximately $3.1

million for the three months ended September 30, 2019.

The increase in revenues was attributable to both the increase in product

revenue of 283% and an increase in software revenue of 136%.

Product revenue accounts for 86% of total revenue and has increased

in the three months ended September 30, 2020 due to an increase in online sales demand, with the majority of this increase attributable

to the nationwide lockdown resulting from COVID-19 driving increased consumer online purchases.

Software revenue accounts for

14% of total revenue and has steadily increased quarter over quarter due to a combination of higher demand, increased market awareness,

continued marketing campaign expansion, as well as the effects of the nationwide lockdown resulting from COVID-19.

cost of revenues consist of the cost of (1) product revenues, which primarily include product material costs and fulfillment costs

directly attributable to the production of our products held for sale and (2) the cost of software revenue consisting primarily

of credit card processing fees and information technology fees related to providing the services made available on our online

Total cost of revenue increased by approximately 302% to approximately $2.7 million for the three months ended September

30, 2020 compared to approximately $0.7 million for the three months ended September 30, 2019.

The combined cost of revenue increase

was due to increased product costs related to our improved product sale volumes, and the related increases in merchant and other

processing fees incurred due to our combined higher sales volumes when compared to the prior year’s three month period September

profit increased by approximately 238% to approximately $8.3 million for the three months ended September 30, 2020 compared to

approximately $2.4 million for the three months ended September 30, 2019, as a result of increased combined sales, partially offset

by a percentage increases in our costs to produce those revenues, principally attributable to increased product costs.

costs increased to 30% of associated product revenues experienced during the three months ended September 30, 2020, from 25% of

associated product revenues during the three month period ended September 30, 2019.

Total gross profit as a percentage of total

revenues was 75% for the three months ended September 30, 2020 compared to 78% for the three months ended September 30, 2019.

The absolute decrease in total gross margin of 3% (relative decrease of 4%) was primarily due to increased product costs set forth

immediately above resulting from the impact of COVID-19 related disruptions to our product supply chain causing increased costs

to procure our production inputs.

Months Ended September 30,

& marketing expenses

and administrative expenses

service expenses

operating expenses

Customer service expenses

Development costs

Total operating expenses

expenses for the three months ended June 30, 2020 were approximately $10.1 million, as compared to approximately $2.9 million

for the three months ended June 30, 2019.

This represents an increase of 251.8%, or $7.2 million.

The increase is primarily attributable

expenses for the three months ended September 30, 2020 were approximately $28.8 million, as compared to approximately $3.4 million

for the three months ended September 30, 2019.

This represents an increase of approximately 742%, or $25.4 million.

is primarily attributable to the following:

and marketing expenses:

This mainly consists of online marketing and advertising expenses.

During the three months ended June

During the three months ended September

30, 2020, the Company had an increase of approximately $8.5 million in selling and marketing costs resulting from additional

sales and marketing initiatives to drive further growth throughout all of 2020.

sales and marketing initiatives to drive the current quarter’s sales growth, and is expected to maintain sustained revenue

growth throughout the remaining balance of the year ending December 31, 2020, and beyond, based on the Company’s recurring

revenue subscription based sales model.

and administrative expenses:

This mainly consists of payroll expenses for executive management, stock-based compensation,

amortization expense and legal and professional fees.

During the three months ended June 30, 2020, the Company has had an

increase of approximately $950,000 in general and administrative expenses, primarily related to stock-based compensations

and infrastructure to support the increase in sales volume.

During the three month period ended September 30, 2020, stock based compensation was $16,331,558,

(1) with the majority related to a restricted share issuance liability attributable to the attainment of a performance

threshold in the period, (2) coupled with the issuance expense associated with the probability of future performance threshold

This category also consists of payroll expenses for executive management, amortization expense and legal and professional

During the three months ended September 30, 2020, the Company had an increase of approximately $16.7 million in general

and administrative expenses, primarily related to the increase in stock-based compensation costs referenced above, and other

increases in infrastructure expenses incurred to support the sales volume increases.

operating expenses:

This mainly consists of rent, insurance, royalty expense, bank charges and IT services for our online

During the three months ended June 30, 2020, the Company had an increase of approximately $100,000, primarily related

to increases in sales volume driving up bank charges, IT services, and offices supplies offset by decreases in rent and royalty

This mainly consists of general office supplies, rent, insurance, bank charges and IT service costs for

our online products.

During the three months ended September 30, 2020, the Company had an increase of approximately $120,000,

primarily related to the general cost environment necessary to support the Company’s sales growth, coupled with a bad

debt charge of $58,000 recognized on the settlement of a sales commission receivable write-off which became uncollectible

during the three months ended September 30, 2020.

service expenses:

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located in Puerto Rico.

During the three months ended June 30, 2020, the Company had a decrease of approximately $51,000,

primarily related to decreases in headcount in the Company’s customer service department.

During the three months ended September 30, 2020, the Company had an increase of approximately $90,000,

primarily related to increases in headcount in the Company’s customer service department.

This mainly relates to third-party technology services for developing and maintaining our online platforms.

the three months ended June 30, 2020, the Company had an increase of approximately $41,000, primarily resulting from technology

platform improvements for LegalSimpli and amortization expenses at Conversion Labs PR.

Three Months Ended June

Interest expense

expense for the three months ended June 30, 2020 increased by $99,000 compared to the three months ended June 30,2019.

in other expense is primarily attributable to an increase in the amortization of debt discount.

of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019

financial results for the six months ended June 30, 2020 are summarized as follows in comparison to the six months ended June

June 30, 2020

June 30, 2019

Product revenues, net

Software revenues, net

Service revenues, net

Total revenues, net

Cost of product revenue

Cost of software revenue

Total cost of revenue

Selling & marketing expenses

General and administrative expenses

Operating expenses

Customer service expenses

Development costs

Total expenses

Loss from operations

the three months ended September 30, 2020, the Company had an increase of approximately $57,000, primarily resulting from

technology platform improvements for LegalSimpli and amortization expenses at CLPR.

Months Ended September 30,

expense for the three months ended September 30, 2020 increased by approximately $160,000 compared to the three months ended September

The increase in other expense, interest expense, is primarily attributable to increased debt.

of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019

financial results for the nine months ended September 30, 2020 are summarized as follows in comparison to the nine months ended

September 30, 2019:

revenues, net

of product revenue

of software revenue

cost of revenue

& marketing expenses

and administrative expenses

service expenses

from operations

$ (25,491,384 )

$ (2,370,240 )

Other income (expenses)

Income from continuing operations

before provision for income taxes

from operations before provision for income taxes

$ (26,804,394 )

$ (2,801,196 )

Net income (loss) attributable to

noncontrolling interests

Net income (loss) attributable to Conversion Labs, Inc.

loss attributable to noncontrolling interests

loss attributable to Conversion Labs, Inc.

$ (26,396,214 )

$ (2,425,656 )

for the six months ended June 30, 2020 were approximately $13.4 million, an increase of 148.2% compared to approximately $5.4

million for the six months ended June 30, 2019.

The increase in revenues was attributable to both the increase in product revenue

of 128.9% and an increase in software revenue of 284.6%.

Product revenue accounts for 81% of total revenue and has increased in

the six months ended June 30, 2020 due to an increase in online sales demands.

Management attributes a portion of this increased

demand to the nationwide lockdown resulting from COVID-19 precautions and the resulting increase in consumers’

Software revenue accounts for 19% of total revenue and has steadily increased quarter over quarter due to a combination

of higher demand, market awareness, and continued marketing campaigns.

of product revenues consists primarily of product material costs and fulfillment costs directly attributable to product production.

Cost of software revenue consist primarily of credit card processing fees and information technology fees related to our online

Total cost of revenue increased by approximately 196.3% to approximately $3.9 million for the six months ended June

30, 2020 compared to approximately $1.3 million for the six months ended June 30,2019.

The increase in cost of revenues was due

to increased revenues and a related increase in merchant and other processing fees incurred due to the higher sales volumes in

both our product and software sales.

profit increased by approximately 132.4% to approximately $9.4 million for the six months ended June 30,2020 compared to approximately

$4.1 million for the six months ended June 30, 2019.

This is due to increased sales.

Gross profit as a percentage of revenues

was 71% for the six months ended June 30, 2020 versus 75% for the six months ended June 30, 2019.

The decrease of 4% is attributed

to the higher cost of sales incurred during the second quarter of 2020 resulting from the use of different suppliers.

New suppliers

were used to supplement production for increased product demand.

Six Months Ended June 30,

Selling & marketing expenses

General and administrative expenses

for the nine months ended September 30, 2020 were approximately $24.4 million, an increase of 186% compared to approximately $8.5

million for the nine months ended September 30, 2019.

The increase in revenues was attributable to both the increase in product

revenue of 177% and an increase in software revenue of 241%.

Product revenue accounts for 83% of total revenue and has increased

in the nine months ended September 30, 2020 due to an increase in online sales demand, with the majority of this increase attributable

to the nationwide lockdown resulting from COVID-19 driving increased consumer online purchases.

Software revenue accounts for

17% of total revenue and has steadily increased year over year due to a combination of higher demand, increased market awareness,

continued marketing campaign expansion, as well as the effects of the nationwide lockdown resulting from COVID-19.

cost of revenues consist of the cost of (1) product revenues, which primarily include product material costs and fulfillment costs

directly attributable to the production of our products held for sale and (2) the cost of software revenue consisting primarily

of credit card processing fees and information technology fees related to providing the services made available on our online

Total cost of revenue increased by approximately 232% to approximately $6.7 million for the nine months ended September

30, 2020 compared to approximately $2 million for the nine months ended September 30, 2019.

The combined cost of increase was

due to increased product costs related to our improved product sale volumes, and the related increases in merchant and other processing

fees incurred due to our combined higher sales volumes when compared to the prior year’s nine month period September 30,

profit increased by approximately 172% to approximately $17.7 million for the nine months ended September 30,2020 compared to

approximately $6.5 million for the nine months ended September 30, 2019, as a result of increased combined sales, partially offset

by a percentage increases in our costs to produce those revenues, principally attributable to increased product costs.

costs increased to 31% of associated product revenues experienced during the nine months ended September 30, 2020, from 25% of

associated product revenues during the nine month period ended September 30, 2019.

Gross profit as a percentage of revenues was

73% for the nine months ended September 30, 2020 compared to 76% for the nine months ended September 30, 2019.

The absolute decrease

of 3.8% (relative decrease of 4.9%) in gross profit was principally attributable to higher product costs incurred during the nine

months ended September 30, 2020, resulting from the use of new suppliers, at slightly higher costs, resulting from the impact

of COVID-19 related disruptions to our product supply chain, causing increased costs to procure our production inputs.

suppliers were also required to supplement our increased production needs to meet our increased product demand.

Months Ended September 30,

and marketing expenses

and administrative expenses

service expenses

operating expenses

Customer service expenses

Development costs

Total operating expenses

expenses for the six months ended June 30, 2020 were approximately $14.4 million, as compared to approximately $5.5 million for

the six months ended June 30, 2019.

expenses for the nine months ended September 30, 2020 were approximately $43.2 million, as compared to approximately $8.9 million

for the nine months ended September 30, 2019.

This represents an increase of 387%, or $34.3 million.

The increase is primarily attributable

The increase is primarily

attributable to:

and marketing expenses:

This mainly consists of online marketing and advertising expenses.

During the six months ended June

30,2020, the Company had an increase of approximately $7 million in selling and marketing costs.

This resulted from additional

sales and marketing initiatives to drive further growth throughout all of 2020.

During the nine months ended September

30,2020, the Company had an increase of approximately $16.1 million, or 288% in selling and marketing costs resulting from

additional sales and marketing initiatives to drive the current nine months ended September 30, 2020 sales growth reported

above, and is expected to maintain sustained revenue growth throughout the remaining balance of the year ending December 31,

2020, and beyond in Fiscal 2021, based on the Company’s recurring revenue subscription based sales model.

and administrative expenses:

This mainly consists of payroll expenses for executive management, stock-based compensation,

amortization expense and legal and professional fees.

During the six months ended June 30, 2020, the Company has had an increase

of approximately $1.8 millions in general and administrative expenses mainly related to stock-based compensations and infrastructure

to support the increase in sales volume.

During the nine month period ended September 30, 2020, stock based compensation was $16.9 million,

(1) with the majority related to a restricted share issuance liability attributable to the attainment of a performance threshold

in the period (specifically in the three months ended September 30, 2020), (2) coupled with the issuance expense associated

with the probability of future performance threshold attainment.

This category also consists of payroll expenses for executive

management, amortization expense and legal and professional fees.

During the nine months ended September 30, 2020, the Company

has had an increase of approximately $18.1 million in general and administrative expenses, primarily related to the increase

in stock-based compensation costs referenced above, and other increases in infrastructure expenses incurred to support the

sales volume increases.

operating expenses:

This consists of rent, insurance, royalty expense, bank charges and IT services for our online products.

During the six months ended June 30, 2020, the Company had an increase of approximately $146,000, primarily related to increases

in sales volume driving up banking fees, IT services, and offices supplies, offset by decreases in rent and royalty expense.

During the nine months ended September 30, 2020, the Company had a decrease of approximately $36,000, primarily related to

increases in the general cost environment necessary to support the Company’s sales growth, coupled with a bad debt charge

of $58,000 recognized on the settlement of a sales commission receivable write-off which became uncollectible during the nine

months ended September 30, 2020, offset by decreases in royalty payouts and a decrease in an IT service subscription that

was terminated in early 2020.

service expenses:

This mainly consists of payroll and benefit expenses related to the Company’s customer service department

This consists of payroll and benefit expenses related to the Company’s customer service department

located in Puerto Rico.

During the six months ended June 30, 2020, the Company had a decrease of approximately $11,000, primarily

related to decreases in headcount in the Company’s customer service department effected in the second quarter.

During the nine months ended September 30, 2020, the Company had an increase of approximately $80,000,

primarily related to increases in headcount in the Company’s customer service department.

This mainly relates to third-party technology services for developing and maintaining our online platforms.

the six months ended June 30, 2020, the Company had an increase of approximately $41,000, primarily resulting from technology

platform improvements for LegalSimpli and amortization expenses at Conversion Labs PR.

Six Months Ended June

Interest expense

expense for the six months ended June 30, 2020 increased by $721,894 compared to the six months ended June 30,2019.

in other expense is primarily attributable to increases in interest and amortization of debt discount.

June 30, 2020

December 31, 2019

Current assets

Current liabilities

Working capital

the nine months ended September 30, 2020, the Company had an increase of approximately $131,000, primarily resulting from

technology platform improvements for LegalSimpli and amortization expenses at CLPR.

Months Ended September 30,

expense for the nine months ended September 30, 2020 increased by $882,054 compared to the nine months ended September 30, 2019.

The increase in other expense, interest expense, is primarily attributable to increased debt.

$ (4,782,914 )

$ (1,228,340 )

assets decreased by approximately $556,000 for the six months ended June 30,2020.

This is primarily attributable to a decrease

in cash and cash equivalents of $770,000 due to payments on convertible notes.

This was offset by an increase in accounts receivable

and other current assets of $214,000.

capital (deficit) had a negative turn of approximately $3.6 million during the nine months ended September 30, 2020.

to this decline in working capital included current assets increasing by approximately $1.9 million for the nine months ended

September 30,2020.

This increase in current assets is attributable to a decrease in cash and cash equivalents of approximately

$190,000, being offset by increases in accounts receivable (approximately $317,000), and inventory and product deposits (combined

at approximately $1.9 million).

Current liabilities increased by $5.5 million which was primarily attributable to an increase

in accounts payable and accrued liabilities as a result of the Company extending payables and credit terms with vendors during

the six months ended June 30, 2020.

the nine months ended September 30, 2020.

and Capital Resources

Six Months Ended

June 30, 2020

$ (26,804,394 )

$ (2,801,196 )

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

inception, the Company has funded operations through the revenues of its products, issuance of common stock, receipt of loans

and advances from officers and directors and the issuance of convertible notes to third-party investors.

cash provided by operating activities was approximately $1.1 million for the six months ended June 30, 2020, as compared

with net cash used in operating activities of approximately $640,000 for the six months ended June 30, 2019.

cash used in investing activities for the six months ended June 30, 2020 was approximately $677,000, as compared with net

cash provided by investing activities of $500,000 for the six months ended June 30, 2019.

cash (used in) provided by operating activities

cash used in investing activities

cash provided by financing activities

(decrease) increase in cash

inception, the Company has funded operations through the collections from revenues provided by the sales of its products, issuances

of common and preferred stock equivalents, receipt of loans and advances from officers and directors and the issuance of convertible

notes to third-party investors.

cash used in operating activities was approximately $5.6 million for the nine months ended September 30, 2020, as compared with

net cash provided by operating activities of approximately $92,000 for the nine months ended September 30, 2019, the significant

factors contributing to the cash used in operations were the nine month, September 30, 2020 loss of approximately $26.8 million

(inclusive of $16.9 million in stock based compensation charges) , principally offset by the Company’s increase in accounts

payable of approximately $4.2 million.

cash used in investing activities for the nine months ended September 30, 2020 was approximately $731,000, as compared with net

cash used in investing activities of $500,000 for the nine months ended September 30, 2019.

Net cash used in investing activities

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software costs of approximately $331,000.

cash provided by financing activities for the six months ended June 30, 2020 was $1,003,969, as compared with net cash

used in financing activities of $55,168 for the six months ended June 30, 2019.

During the six months ended June

30, 2020, financing activities consisted of proceeds from convertible notes payable $1,750,000, and cash receipts for shares of

$1,889,000 which were offset by the repayment of notes payable of approximately $2,500,000, distributions of noncontrolling interests

of $121,223 and payment for debt issuance costs of $15,000.

cash provided by financing activities for the nine months ended September 30, 2020 was $6,135,981, as compared with net cash provided

by financing activities of $1,008,303 for the nine months ended September 30, 2019.

During the nine months ended September 30,

2020, financing activities consisted of proceeds from notes payable of $2,350,000, proceeds of $2,892,500 from the issuance of

mezzanine equity, and cash receipts for share issuances of $2,088,349, cash proceeds from the sales of warrants of $622,763 and

proceeds from the exercise of stock options of $300,400, which were offset by the repayment of notes payable of approximately

$2,500,000, distributions of noncontrolling interests of $121,223 and payment for debt issuance costs of $15,000.

and Capital Resources Outlook

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from officers and directors.

The Company’s continued operations are dependent upon obtaining an increase in its sales volume

The Company’s continued operations are dependent upon obtaining an increase in its sale volumes

and the continued financial support from officers and directors, obtaining funding from third-party sources or the issuance of

additional shares of common stock.

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.

As of June 30, 2020, the Company

has an accumulated deficit approximating $23.7 million and has experienced significant losses from continuing operations.

on the Company’s cash balance as of June 30, 2020, and projected cash needs, management estimates that it will need an additional

$4.0 million through the next 12 months, either from increasing sales revenue and/or raising additional capital via the

sale of common stock or other equity securities, or obtaining debt financing.

Although management has been successful to date

in raising necessary funding, 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.

See Subsequent Event Note 9 for a further discussion of a private placement offering, which

closed on November 3, 2020, yielding approximately $13.2 million in net proceeds to the Company after deduction of placement fees

and other offering expenses.

The Company intends to use the net proceeds for customer acquisition, as well as for general corporate

Concern Evaluation

accompanying unaudited 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.

As of September

30, 2020, the Company has an accumulated deficit approximating $47.9 million and has experienced significant losses from

its operations.

on the Company’s cash balance as of September 30, 2020, and projected cash needs, management estimates that it will need

an additional $7.2 million through the next 12 months.

The Company has also closed a private placement offering, discussed

in “Liquidity”

above, and further in Note 9, “Subsequent Events”.

Although management has been successful

to date in raising necessary funding, 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.

Based on these circumstances,

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the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation,

and the delivery of this performance obligation is transferred at a point in time.

The Company generally records sales of finished

products once the customer places and pays for the order and the product is simultaneously shipped, but in limited cases if title

does not pass until the product reaches the customer’s delivery site, then recognition of revenue should be deferred until

that time, however the Company does not have a process to properly record the recognition of revenue if orders are not immediately

Delivery is considered to have occurred when title and risk of loss have transferred to the customer, which is usually

upon shipment of the product.

The Company does sell a subscription based service which is based on the recurring shipment of products

and billed as if the Company were receiving recurring revenues and orders each month, therefore, the Company records these upon

shipment to the customer.

Company records an estimate for provisions of discounts, returns, allowances, customer rebates and other adjustments for each

shipment, and are netted with gross sales.

The Company’s discounts and customer rebates are known at the time of sale and

the Company appropriately debits net product revenues for these transactions based on the known discount and customer rebates.

The Company estimates for customer returns and allowances based on estimates of historical transactions and accounts for such

provisions during the same period in which the related revenues are earned.

The Company has determined that the population of

contracts with customers tends to be homogenous, so that review of the contracts and estimate of various revenue related adjustments

can be applied to the entire portfolio population.

Company offers a suite of software to customers as a monthly subscription-based service.

This suite of software allows the user

or subscriber to convert almost any type of document to other editable document type formats for easy editing.

which is the delivery of the product;

this performance obligation is transferred at a discrete point in time.

The Company generally

records sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped

by a third-party fulfillment service provider;

in limited cases, title does not pass until the product reaches the customer’s

delivery site, in these limited cases, recognition of revenue should be deferred until that time, however the Company does not

have a process to properly record the recognition of revenue if orders are not immediately shipped, and deems the impact to be

In all cases, delivery is considered to have occurred when title and risk of loss have transferred to the customer,

which is usually commensurate upon shipment of the product.

In the case of its product-based contracts, the Company provides a

subscription sensitive service based on the recurring shipment of products and records the related revenue under the subscription

agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment obligation

to the customer.

its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances,

customer rebates and other adjustments for its product shipments, and are reflected as contra revenues in arriving at reported

net revenues.

The Company’s discounts and customer rebates are known at the time of sale, correspondingly, the Company reduces

gross product sales for such discounts and customer rebates.

The Company estimates customer returns and allowances based on information

derived from historical transaction detail, and accounts for such provisions, as contra revenue, during the same period in which

the related revenues are earned.

The Company has determined that the population of its product-based contracts with customers

are homogenous, supporting the ability to record estimates for returns and allowances to be applied to the entire product-based

portfolio population.

Company, through its majority-owned subsidiary LegalSimpli, offers a subscription based service providing a suite of software

applications to its subscribers, principally on a monthly subscription basis.

The software suite allows the subscriber/user to

convert almost any type of document to another electronic form of editable document, providing ease of editing.

For these subscription-based

contracts with customers, the Company offers a 14-day trial period which is billed at $1.95 for an initial period, a monthly subscription,

or a yearly subscription to the Company’s software.

The Company has estimated that there is one product and performance

obligation that is delivered over time, as the Company allows the subscriber to access the service for the time period purchased.

The Company allows the customer to cancel at any point during the billing cycle, in which case the customers subscription will

not be renewed for the following month or year depending on the original subscription.

The Company records the sales over the

customers subscription period for monthly and yearly subscribers or at the end of the initial 14 day service period for customers

who purchased the initial subscription.

The Company offers a discount for purchase of the monthly and yearly subscriptions, which

must be paid at the initiation of the contract term, so that the contract price is fixed at the contract initiation.

monthly subscriptions for the subscription are recorded net of the Company’s known discount.

As of the period ended June

30, 2020 and as the year ended December 31, 2019, the Company has accrued contract liabilities of approximately $303,000 and $110,000,

respectively which represent obligation on in-process monthly or yearly contracts with customers and yet to be recognized initial

14-day trial periods.

discounts, returns and rebates on product revenues during the six months ended June 30, 2020 and six months ended June 30,2019

approximated $1.3 million and $713,000, respectively.

Customer discounts and allowances on software revenues during the three

months ended June 30, 2020 and the three months ended June 30, 2019 approximated $163,000 and $26,500, respectively.

contracts with customers, the Company offers an initial 14-day trial period which is billed at $1.95, followed by a monthly subscription,

or a yearly subscription to the Company’s software suite dependent on the subscriber’s enrollment selection.

has estimated that there is one product and one performance obligation that is delivered over time, as the Company allows the

subscriber to access the suite of services for the time period of the subscription purchased.

The Company allows the customer

to cancel at any point during the billing cycle, in which case the customers subscription will not be renewed for the following

month or year depending on the original subscription.

The Company records the revenue over the customers subscription period for

monthly and yearly subscribers or at the end of the initial 14 day service period for customers who purchased the initial subscription,

as the circumstances dictate.

The Company offers a discount for the monthly or yearly subscriptions being purchased, which is

deducted at the time of payment at the initiation of the contract term, therefore the Contract price is fixed and determinable

at the contract initiation.

Monthly and annual subscriptions for the service are recorded net of the Company’s known discount

As of September 30, 2020 and December 31, 2019, the Company has accrued contract liabilities, as deferred revenue, of approximately

$413,000 and $110,000, respectively, which represent obligations on in-process monthly or yearly contracts with customers and

a portion attributable to the yet to be recognized initial 14-day trial period collections.

discounts, returns and rebates on product revenues during the nine months ended September 30, 2020 and 2019 approximated $2.2

million and $1 million, respectively.

Customer discounts and allowances on software revenues during the nine months ended September

30, 2020 and 2019 approximated $545,000 and $241,000, respectively.

Software Costs

Company capitalizes certain payroll and third-party costs related to internally developed software and amortize these costs using

the straight-line method over the estimated useful life of the software, generally three years.

The Company does not sell internally

developed software.

Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40 Internal-Use

Software, are expensed as incurred.

As of June 30, 2020 and 2019, the Company capitalized $313,827 and $0 related to internally

developed software costs which is included in development.

As of June 30,2020, these costs include $40,000 in capitalized stock

based compensation that was given to a third-party service provider.

During the three months ending June 30, 2020 and 2019, the

Company amortized $8,251 and $0 of capitalized software costs.

assets are comprised of customer relationship asset and purchased licenses with estimated useful lives of three years and indefinite

Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes

these costs using the straight-line method over the estimated useful life of the software, generally three years.

does not sell internally developed software other than through the use of subscription service.

Certain development costs not

meeting the criteria for capitalization, in accordance with Accounting Standards Codification (“ASC”) ASC 350-40

Internal-Use Software , are expensed as incurred.

As of September 30, 2020 and 2019, the Company capitalized $334,585 and $0

related to internally developed software costs which is included in development costs on our statement of operations.

As of September

30, 2020, these costs include $40,000 in capitalized stock based compensation for a third-party service provider.

During the nine

months ending September 30, 2020 and 2019, the Company amortized $28,278 and $0 of capitalized software costs, respectively.

assets are comprised of a customer relationship asset and purchased license with an estimated useful life of three years and indefinite

lived, respectively.

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are limited liability companies and file separate tax returns with any tax liabilities or benefits passing through to its members.

Company records current and deferred taxes in accordance with Accounting Standards Codification (ASC) 740, “Accounting for

Income Taxes.”

This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax

basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted

Company records current and deferred taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Accounting

for Income Taxes.”

This ASC requires recognition of deferred tax assets and liabilities for temporary differences between

tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted

rates in effect for the year in which the differences are expected to reverse.

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The Company periodically assesses the value of

its deferred tax asset, a majority of which has been generated by a history of net operating losses and determines the necessity

for a valuation allowance.

ASC 740 also provides a recognition threshold and measurement attribute for the financial statement

recognition of a tax position taken or expected to be taken in a tax return.

Using this guidance, a company may recognize the

tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood

its deferred tax asset, a majority of which has been generated by a history of net operating losses and management determines

the necessity for a valuation allowance.

ASC 740 also provides a recognition threshold and measurement attribute for the financial

statement recognition of a tax position taken or expected to be taken in a tax return.

Using this guidance, a company may recognize

the tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood

of more than 50%) that the tax position will be sustained on examination by the taxing authorities, based on the technical merits

of the position.

The Company’s tax returns for all years since December 31, 2016, remain open to taxing authorities.

The Company’s tax returns for all years since December 31, 2016, remain open to audit by all related taxing

Company follows the provisions of ASC 718, “Share-Based Payment”.

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Issued Accounting Standards

June 2018, the FASB issued ASU 2018-07, “Compensation –

Stock Compensation (Topic 718):

Improvements to Nonemployee

Share-Based Payment Accounting”

that expands the scope of ASC Topic 718 to include share-based payment transactions for

acquiring goods and services from nonemployees.

An entity should apply the requirements of ASC Topic 718 to nonemployee awards

except for certain exemptions specified in the amendment.

The guidance is effective for fiscal years beginning after December

15, 2018, including interim reporting periods within that fiscal year.

Early adoption is permitted, but no earlier than an entity’s

adoption date of Topic 606.

We do not expect the implementation of this new pronouncement to have a material impact on our consolidated

financial statements.

July 2017, the FASB issued ASU No.

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Equity-linked instruments, such

as warrants and convertible instruments may contain down round features that result in the strike price being reduced on the basis

of the pricing of future equity offerings.

Under ASU 2017-11, a down round feature will no longer require a freestanding equity-linked

instrument (or embedded conversion option) to be classified as a liability that is remeasured at fair value through the income

statement (i.e.

marked-to-market).

However, other features of the equity-linked instrument (or embedded conversion option) must

still be evaluated to determine whether liability or equity classification is appropriate.

Equity classified instruments are not

as warrants, and convertible instruments may contain down round features that result in the strike price being reduced on the

basis of the pricing of future equity offerings.

Under ASU 2017-11, a down round feature will no longer require a freestanding

equity-linked instrument (or embedded conversion option) to be classified as a liability that is remeasured at fair value through

the income statement (i.e.

marked-to-market).

For earnings per share (“EPS”) reporting, the ASU requires companies to recognize the effect of

the down round feature only when it is triggered by treating it as a dividend and as a reduction of income available to common

However, other features of the equity-linked instrument (or embedded conversion

option) must still be evaluated to determine whether liability or equity classification is appropriate.

Equity classified instruments

are not marked-to-market.

For earnings per share (“EPS”) reporting, the ASU requires companies to recognize the effect

of the down round feature only when it is triggered by treating it as a dividend and as a reduction of income available to common

shareholders in basic EPS.

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impact on the Company’s financial position, results of operations or cash flows.

of New or Revised Accounting Standards—Not Yet Adopted

August 2020, the FASB issued ASU 2020-06, “

Debt with Conversion and Other Options (Subtopic 470-20) and

Derivatives and Hedging –

Contracts in Entity’s Own Equity (Subtopic 815-40);

Accounting for Convertible Instruments

and Contracts in an Entity’s Own Equity (“ASU 2020-06”)”, which addresses issues identified as a result

of the complexities associated with applying U.S.

GAAP for certain financial instruments with characteristics of liabilities and

This update addresses, among other things, the number of accounting models for convertible debt instruments and convertible

preferred stock, targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”)

guidance and amendments to the guidance for the derivatives scope exception for contracts in an entity’s own equity, as

well as the related EPS guidance.

This update applies to all entities that issue convertible instruments and/or contracts in an

entity’s own equity.

This guidance is effective for financial statements issued for fiscal years beginning after December

15, 2021, and interim periods within those fiscal years.

Early adoption is permitted, but no earlier than for fiscal years beginning

after December 15, 2020, including interim periods within those fiscal years.

FASB specified that an entity should adopt the guidance

as of the beginning of its annual fiscal year, or January 1, 2021, should the Company elect to early adopt.

The Company is currently

evaluating the impact the adoption of ASU 2020-06 could have on the Company’s financial statements and disclosures.

Sheet Arrangements

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements