LifeMD(LFMD) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (unaudited) This section presents Conversion Labs, Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 31, 2019, covering balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $1,671,286 | $1,605,070 | | Total Assets | $2,626,918 | $2,616,135 | | Total Current Liabilities | $2,274,172 | $1,192,397 | | Total Liabilities | $2,404,441 | $1,796,397 | | Total Stockholders' Equity | $222,477 | $819,738 | Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Sales | $2,698,990 | $1,606,491 | | Gross Profit | $2,021,017 | $1,251,038 | | Operating Loss | ($563,369) | ($279,314) | | Net Income (Loss) | ($733,563) | $639,974 | | Basic loss per share from continuing operations | ($0.02) | ($0.01) | Condensed Consolidated Statements of Cash Flows Highlights | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $546,464 | $65,928 | | Net cash (used in) provided by investing activities | ($500,000) | $190,000 | | Net cash provided by (used in) financing activities | $15,702 | ($167,479) | | Net increase in cash | $153,527 | $88,449 | - The company's business model is internet-based direct response marketing, selling proprietary and in-licensed products like Shapiro MD (hair care), iNR Wellness MD (immune support), and PDF Simpli (software)[24] - The company has substantial doubt about its ability to continue as a going concern due to an accumulated deficit of approximately $12.9 million and negative cash flows from operations[29] - In January 2018, the company sold the net assets of its legacy beta glucan business for $1,000,000, resulting in a gain on sale of $744,752[63] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial results, highlighting a 68% net sales increase driven by acquisitions and product growth, alongside a net loss due to increased marketing and ongoing going concern doubts - The company's growth strategy includes acquiring or licensing new products, expanding into international markets (with a focus on Asia), and launching a new e-commerce marketing service, Conversion Labs Media LLC[126][127][128] - In Q1 2019, Robert Kalkstein resigned as CFO, effective March 31, 2019, and was replaced by Juan Manuel Piñeiro Dagnery, the former Controller[129][132] Results of Operations Net sales increased 68% to $2.7 million in Q1 2019, driven by acquisitions and product growth, but a net loss of $733,000 resulted from a 69% rise in operating expenses, primarily marketing Comparison of Operations for the Three Months Ended March 31 | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net sales | $2,698,990 | $1,606,491 | | Gross profit | $2,021,017 | $1,251,038 | | Operating expenses | $2,584,386 | $1,530,352 | | Operating (loss) | ($563,369) | ($279,314) | | Net (loss) income | ($733,563) | $639,974 | - The 68% increase in net sales is mainly attributed to revenue from the acquisition of LegalSimpli and increased investment and sales of the in-licensed Shapiro MD hair loss products[135] - Operating expenses increased by 69%, primarily due to a ~$795,000 increase in marketing efforts for the Shapiro MD product line[139] Liquidity and Capital Resources The company faces a $602,886 working capital deficit and negative operating cash flows, raising substantial doubt about its going concern ability and necessitating future equity or debt financing Working Capital Summary | | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Current assets | $1,671,286 | $1,605,070 | | Current liabilities | $2,274,172 | $1,192,397 | | Working capital | ($602,886) | $412,673 | - The company has substantial doubt about its ability to continue as a going concern due to negative operating cash flows and its working capital deficit[147][155] - Management states that additional funds will be required to implement its growth strategy, which may be raised through equity or debt financing, potentially resulting in further dilution to shareholders[148][156] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Conversion Labs, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide information on market risk as it qualifies as a smaller reporting company[157] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2019, due to material weaknesses, with a remediation plan underway to improve internal controls - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[160] - Material weaknesses identified include: lack of a functioning audit committee, inadequate segregation of duties, insufficient written policies for accounting and financial reporting, and no written whistleblower policy[163] - The company's remediation plan involves searching for qualified independent directors, retaining consulting firms to draft policies, developing a disaster recovery plan, and migrating the accounting functions of LegalSimpli under the company's policies[164][166] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any litigation expected to have a material adverse effect on its financial condition or operations - As of the report date, the company is not involved in any litigation expected to have a material adverse effect[168] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - There are no material changes to the risk factors previously disclosed in the 2018 Form 10-K[169] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2019, the company issued 1,000,000 restricted shares to JLS Ventures, LLC, 100,000 restricted shares for a note, and granted a 500,000 share option to the new CFO - On January 1, 2019, the Company issued 1,000,000 shares of restricted stock to JLS Ventures, LLC[170] - On February 27, 2019, the Company issued 100,000 restricted shares of common stock to a note holder as part of a short-term note agreement[170] - On April 1, 2019, the Company granted its new CFO, Juan Manuel Piñeiro Dagnery, an option to purchase 500,000 shares at an exercise price of $0.23 per share[171] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[173] Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[174] Other Information No other information required to be disclosed under this item has not been previously reported - No other information is required to be disclosed[175] Exhibits This section lists exhibits filed with the Form 10-Q, including material agreements and Sarbanes-Oxley Act certifications - The report includes exhibits such as material agreements and certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act[177]