Quarterly report pursuant to Section 13 or 15(d)

6. Stockholders' Deficit

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6. Stockholders' Deficit
6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
Stockholders' Deficit

NOTE 6 – STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

The Company has 5,000,000 shares of Preferred Stock authorized. On November 18, 2019, the Company’s Board of Directors designated 1,000,000 of those preferred shares as “Series A Preferred Stock.” Each share of Series A Preferred Stock has voting rights equal to 250 shares of common stock, with a total of 250,000,000 votes available to holders of the Series A Preferred Stock. The Series A Preferred Stock has no conversion rights, no dividend rights and no liquidation preference. The Board of Directors concurrently authorized the issuance of 500,000 shares of Series A Preferred Stock each to Steven Raack, the Company’s Chief Executive Officer, and Thomas Raack, the Company’s Chief Financial Officer.

 

 Common Stock

 

On November 22, 2019, a majority of the Company’s shareholders approved an increase in the authorized common shares from 112,500,000 to 195,000,000. On May 29, 2020, a majority of the Company’s shareholders approved an increase in the authorized common shares to 495,000,000.

 

During the years ended December 31, 2019 and 2018, the Company entered into various agreements with third parties to provide legal, consulting and marketing services. These agreements generally contain performance conditions such as the completion of certain milestones and sales targets through January 2021. Certain agreements contained service conditions grants of common stock upon signing the agreement, or at recurring periods of 90 days. The Company begins recognizing compensation cost for performance awards when the satisfaction of the performance milestone considered probable. Any awards with service only conditions are recognized over the requisite service period. Certain of these agreements also awarded common stock warrants, which are disclosed below under “Common Stock Warrants

 

The following table summarizes the common share activity related to these agreements for the three months ended June 30, 2020:

 

   

Six Months Ended

June 30, 2020

 
Common shares to be issued, beginning balance     1,747,500  
Shares awarded for potential future issuance     50,000  
Forfeited     (497,500 )
Shares issued     (50,000 )
Remaining shares to be issued, ending balance     1,250,000  

 

In February 2020, the Company issued 50,000 shares of common stock to advisors under 2019 agreements. During the three and six months ended June 30, 2020, the Company recognized expense of $4,022 and $66,167, respectively related to all stock-based compensation share awards. As of June 30, 2020, the Company expects to recognize a total of $1,17,500 of expense related to the above shares that have not yet vested, assume all vest.

 

Bruce Lee Beverage Agreement

 

On December 31, 2018, the Company entered into a business alliance agreement with Bruce Lee Beverage, LLC. (“BLB”). Under the terms of the agreement, the parties will develop a new product utilizing the intellectual property of BLB, with an initial term of five years and automatic five-year renewals thereafter unless terminated by either party with 120 days’ prior written notice. The Company issued 150,000 shares of common stock to BLB on December 31, 2018, and an additional 350,000 shares in January 2019, which are included in the table above.

 

The Company also issued 1,500,000 warrants in January 2019, with an exercise price of $1.01 per share, with 500,000 vesting upon issuance. BLB can receive up to an additional 1,000,000 shares of common stock, and vest in the remaining 1,000,000 warrants as follows:

 

  · 500,000 shares of common stock and 500,000 warrants will vest upon approval of co-branded product formula, packaging and marketing strategy; execution of licensing agreement between the two parties; and commencement of a mutually agreed upon marketing campaign.

 

  · 250,000 shares of common stock and 250,000 warrants will vest upon sale of 10,000 units of the new product.

 

  · 250,000 shares of common stock and 250,000 warrants will vest upon sale of 30,000 units of the new product.

 

 In June 2019, the Company and BLB executed the license agreement referred to in the first milestone above and the launch of the co-branded product, which began sales in July 2019. The license agreement has a term of 3 years, and specifies that the Company will pay royalties to BLB related to sales of the underlying product as follows:

 

  · 20% of any net sales up to $499 through BLB’s customers;

 

  · 25% of any net sales of between $500 and $999 through BLB’s customers;

 

  · 30% of any net sales exceeding $1,000 through BLB’s customers;

 

  · 5% of net sales on sales up to $2,499 by the Company’s Level 1 Ambassadors;

 

  · 7% of net sales on sales between $2,500 and $4,999 by the Company’s Level 1 Ambassadors;

 

  · 10% of net sales on sales exceeding $5,000 by the Company’s Level 1 Ambassadors;

 

  · 5% of net sales on any sales by the Company’s Level 2 Ambassadors.

 

Pursuant to the terms of milestone, the Company issued 500,000 shares of common stock and 500,000 warrants to BLB in June 2019.

 

During the six months ended June 30, 2020 and 2019, the Company recorded a total of $1,507 and $0, respectively, for royalties earned under the agreement.

 

Common Stock Warrants

 

Certain of the agreements noted above also awarded common stock purchase warrants to certain third parties. These warrants are earned upon the recipient earning certain performance metrics. Certain of the agreements issued warrants to the recipient upon execution of the agreement.

 

The following table summarizes warrant activity for the six months ended June 30, 2020:

 

        Common Stock Warrants  
        Shares       Weighted
Average
Exercise
Price
      Weighted
average
Remaining
Life in years
 
Outstanding at December 31, 2019       4,440,000     $ 1.33       2.6  
Granted                    
Cancelled                    
Expired                    
Exercised                    
Outstanding at June 30, 2020       4,440,000     $ 1.33       2.05  
Exercisable at June 30, 2020       1,334,000     $ 1.13       1.10  

 

 As of June 30, 2020, the outstanding and exercisable warrants had no intrinsic value. The Company recognized compensation expense of $0 during the three and six months ended June 30, 2020, respectively related to the warrants. The Company expects to recognize a total of $1,547,148 of expense related to all warrants that have not yet vested, assume all vest.