LifeMD(LFMD) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's Q2 2022 financials show revenue growth but also a net loss and decreased cash, raising going concern doubts Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2022, reflects decreased assets and a sharp decline in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $11,717 | $41,328 | | Total Current Assets | $18,510 | $44,921 | | Total Assets | $37,969 | $49,923 | | Liabilities & Equity | | | | Total Current Liabilities | $25,869 | $22,826 | | Total Liabilities | $31,155 | $24,104 | | Total Stockholders' Equity | $2,478 | $21,708 | Condensed Consolidated Statements of Operations Q2 2022 operations saw revenue growth and higher gross profit, but operating expenses led to a significant net loss Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues, net | $30,458 | $22,314 | $59,501 | $40,512 | | Gross Profit | $25,823 | $18,193 | $49,618 | $33,180 | | Operating Loss | ($15,639) | ($16,127) | ($28,746) | ($28,045) | | Net Loss Attributable to Common Stockholders | ($13,796) | ($16,831) | ($27,872) | ($28,433) | | Basic and Diluted Loss Per Share | ($0.45) | ($0.64) | ($0.91) | ($1.12) | - A goodwill impairment charge of $2.7 million was recorded in Q2 2022, which was not present in the prior year[12] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity significantly decreased in the first half of 2022, primarily driven by the net loss Changes in Stockholders' Equity (6 Months Ended June 30, 2022) | Description | Amount (in thousands) | | :--- | :--- | | Balance, January 1, 2022 | $21,708 | | Net Loss | ($26,248) | | Preferred Stock Dividend | ($1,553) | | Stock issued for service/compensation | $8,514 | | Other | ($243) | | Balance, June 30, 2022 | $2,478 | Condensed Consolidated Statements of Cash Flows The company experienced a net cash decrease of $29.6 million in the first half of 2022 due to operational and investment activities Cash Flow Summary (6 Months Ended June 30) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($18,190) | ($19,840) | | Net cash used in investing activities | ($9,893) | ($970) | | Net cash (used in) provided by financing activities | ($1,527) | $29,046 | | Net (decrease) increase in cash | ($29,611) | $8,235 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, acquisitions, legal issues, and a substantial doubt about its going concern status - The company is a direct-to-patient telehealth technology company and acquired Cleared Technologies, an allergy telehealth platform, on January 18, 2022[22][23] - Management has determined that conditions raise substantial doubt about the Company's ability to continue as a going concern, citing an accumulated deficit of approximately $170 million and significant losses[40][41][42] - A goodwill impairment charge of $2.7 million was recorded during Q2 2022 related to a decline in the estimated fair value of the recently acquired Cleared business[67][87][91] - The company is involved in several legal matters, including breach of contract lawsuits filed by Harborside Advisors LLC, GoGoMeds, and William Blair LLC[135][137][138] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 revenue growth, rising operating losses, and significant liquidity challenges Business Overview and Strategy The company operates a direct-to-patient telehealth model focused on building recurring revenue through its brand portfolio - The company's business model is direct-to-patient telehealth, aiming to provide a more convenient and cost-effective alternative to traditional healthcare[157] - The brand portfolio includes ShapiroMD, RexMD, LifeMD Primary Care, NavaMD, and Cleared, addressing various health markets[163][165][166] - Recurring subscription revenue constitutes approximately 90% of total revenue, with over 600,000 customers and patients served to date[159] Results of Operations Q2 2022 results show a 37% revenue increase and improved gross margin, offset by higher operating expenses Revenue Comparison (Q2 2022 vs Q2 2021) | Segment | Q2 2022 Revenue | Q2 2021 Revenue | % Change | | :--- | :--- | :--- | :--- | | Telehealth | $22,267,963 | $15,799,610 | +41% | | WorkSimpli | $8,190,535 | $6,514,001 | +26% | | Total | $30,458,498 | $22,313,611 | +37% | - Gross profit as a percentage of revenues increased to 85% in Q2 2022 from 82% in Q2 2021, attributed to improved pricing and a favorable product mix[177] - The 21% increase in operating expenses was primarily due to a $2.7M goodwill impairment charge, a $2.7M increase in G&A expenses, and higher other operating costs[179][180] Liquidity and Capital Resources The company faces a significant liquidity deficit and substantial doubt about its going concern status - Working capital decreased by $29.5 million, resulting in a deficit of $7.4 million as of June 30, 2022[186] - Management has determined that conditions raise substantial doubt about the Company's ability to continue as a going concern[194] - Mitigation strategies include strengthening revenues, improving efficiencies, curtailing expenses, and utilizing available financing facilities like a $59.5 million ATM Sales Agreement[195] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, this disclosure is not required - As a smaller reporting company, LifeMD is not required to provide quantitative and qualitative disclosures about market risk[215] Controls and Procedures Disclosure controls were deemed ineffective as of June 30, 2022, due to material weaknesses in internal control - The company's disclosure controls and procedures were deemed not effective as of the end of the period[217] - The ineffectiveness was due to material weaknesses, including inadequate segregation of duties and insufficient written policies[218] - Remediation actions are underway, including adding qualified personnel and redesigning accounting processes[218][219] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine litigation, with details referenced in the financial statement notes - Details regarding material legal proceedings are described in Note 9, "Commitments and Contingencies" of the financial statements[221] Risk Factors The primary risk factor is the substantial doubt about the company's ability to continue as a going concern - A key risk factor is the substantial doubt about the company's ability to continue as a going concern[223] - As of June 30, 2022, the company had an accumulated deficit of $170 million and a working capital deficit of $7.4 million[223] - The company will need to raise additional capital, which may not be available on favorable terms and could cause significant dilution to existing stockholders[223] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 90,400 shares of common stock from option exercises under a registration exemption in Q2 2022 - In Q2 2022, the company issued 90,400 shares of common stock upon the exercise of stock options, resulting in gross proceeds of $90,400[224] - The transactions were exempt from registration under the Securities Act of 1933[225] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - There were no defaults upon senior securities during the period[226] Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company[227] Other Information No other information was reported for this period - No other information was reported under this item[228] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data - Exhibits filed include the company's Amended and Restated 2020 Equity and Incentive Plan, CEO and CFO certifications, and Inline XBRL documents[229]