LifeMD(LFMD) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (unaudited) Unaudited Q1 2020 financial statements show revenue growth to $4.3 million but a widened net loss of $2.5 million, with 'going concern' uncertainty Condensed Consolidated Balance Sheets As of March 31, 2020, total assets decreased to $2.3 million, while total liabilities increased to $6.0 million, resulting in a widened stockholders' deficit of $3.7 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash | $357,877 | $1,106,624 | | Total Current Assets | $1,571,843 | $2,747,102 | | Total Assets | $2,291,048 | $3,446,179 | | Liabilities & Stockholders' Deficit | | | | Total Current Liabilities | $4,639,464 | $3,975,442 | | Total Liabilities | $6,000,455 | $4,575,420 | | Total Stockholders' (Deficit) | ($3,709,407) | ($1,129,241) | Condensed Consolidated Statements of Operations Q1 2020 net revenues increased 59.5% to $4.3 million, but operating and net losses widened to $1.7 million and $2.5 million respectively due to higher expenses Q1 2020 vs. Q1 2019 Statement of Operations (Unaudited) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total revenues, net | $4,304,812 | $2,698,990 | | Gross Profit | $2,545,173 | $1,986,545 | | Operating Loss | ($1,740,505) | ($563,369) | | Net loss | ($2,533,544) | ($733,563) | | Basic and Diluted loss per share | ($0.05) | ($0.02) | - Software revenues saw a substantial increase, growing from $277 thousand in Q1 2019 to $1.3 million in Q1 2020, representing 31% of total net revenue[13][35] Condensed Consolidated Statements of Cash Flows Q1 2020 operating cash flow was $661 thousand, but investing and financing activities, including $1.64 million debt repayment, led to a $748 thousand overall cash decrease Q1 2020 vs. Q1 2019 Cash Flow Summary (Unaudited) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $661,355 | $546,464 | | Net cash (used in) investing activities | ($468,400) | ($500,000) | | Net cash (used in) provided by financing activities | ($941,702) | $15,702 | | Net (decrease) increase in cash | ($748,747) | $62,166 | | Cash at end of the period | $357,877 | $242,259 | Notes to Condensed Consolidated Financial Statements The notes detail the company's healthcare business, accounting policies, and a 'going concern' warning due to a $20.2 million accumulated deficit and low cash, alongside debt and stock disclosures - The company is a direct response healthcare company focusing on Over The Counter (OTC) products and prescription medications through telemedicine[22] - Management has determined that there is substantial doubt about the Company's ability to continue as a going concern due to its accumulated deficit of approximately $20.2 million and its cash balance of $358 thousand as of March 31, 2020[25] - In February 2020, the company repaid convertible notes to Alpha and Brio totaling $1.29 million and amended the associated warrants, reducing exercise prices and increasing the number of shares issuable[61][75][77] - Subsequent to the quarter end, in May 2020, Alpha and Brio exercised their amended warrants on a cashless basis, resulting in the issuance of over 2.5 million shares of common stock[95][96] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 59.5% Q1 2020 revenue growth to software and telemedicine, with COVID-19 positively impacting online behavior, but gross margin decreased and net loss widened, highlighting a going concern risk - The company is a direct-to-consumer telemedicine company offering virtual treatment from licensed physicians and home delivery of prescription and OTC products[107] - The COVID-19 pandemic has driven significant growth, with website traffic to Rex MD and Shapiro MD increasing 371% and 91% respectively from Q4 2019 to Q1 2020, and subscription customers for Shapiro MD and Rex MD grew by 96% and 1,380% quarter-over-quarter[128] Q1 2020 vs. Q1 2019 Performance | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Revenues | ~$4.3 million | ~$2.7 million | | Gross Profit | ~$2.5 million | ~$2.0 million | | Gross Margin | ~59% | ~74% | | Operating Expenses | ~$4.3 million | ~$2.5 million | | Net Loss | ($2.5 million) | ($0.7 million) | - The company faces a going concern risk, with an accumulated deficit of $20.4 million as of March 31, 2020, and will need to increase sales or raise additional capital to fund operations through 2020[145] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Conversion Labs is not required to provide quantitative and qualitative disclosures about market risk[162] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2020, due to material weaknesses including a lack of an audit committee and inadequate segregation of duties - Management evaluated disclosure controls and procedures and concluded they were not effective as of the end of the reporting period[164] - Material weaknesses identified include: - Lack of a functioning audit committee and majority of outside directors - Inadequate segregation of duties - Insufficient written policies for accounting and financial reporting - Lack of a formal policy for related-party transactions - No written whistleblower policy[168] 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 - The company is not currently involved in any litigation expected to have a material adverse effect on its financial condition or operations[167] Risk Factors The company highlights risks associated with managing organizational growth, including personnel recruitment and system improvements, and its reliance on independent consultants and advisors - The company highlights the risk associated with managing its growth, which includes recruiting personnel, improving controls, and managing internal development efforts effectively[170] - The company relies substantially on independent organizations, advisors, and consultants, and there is no assurance their services will remain available or that qualified replacements can be found[171] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2020, the company agreed to sell 5.25 million common shares for $840 thousand and issued 739 thousand shares via cashless warrant exercise, all exempt from registration - In February and March 2020, the company entered into agreements to sell 5.25 million shares of common stock for $840 thousand in cash consideration, with shares not yet issued as of March 31, 2020[173][174] - In March 2020, Alpha and Brio performed a cashless exercise of warrants, resulting in the issuance of 739 thousand shares of common stock[174] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[176] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[177] Other Information Post-quarter, the company raised $1.25 million from stock sales, acquired exclusive telehealth platform rights, and amended key executive employment and consulting agreements - In April and May 2020, the company raised an aggregate of approximately $1.25 million through unregistered sales of common stock to accredited investors[178][179] - On April 14, 2020, the company entered into an agreement with Auxo Technology Labs to acquire exclusive rights to its telehealth platform for the North American direct-to-consumer market[181][182] - The company entered into or amended employment and consulting agreements for key executives, including the CEO, Chief Acquisition Officer, and Chief Technology Officer, effective in March and April 2020[185][186][188] Exhibits The report includes a list of filed exhibits, such as warrant amendments, consulting agreements, and officer certifications - The report includes a list of filed exhibits, such as warrant amendments, consulting agreements, and officer certifications[190]