LifeMD(LFMD) - 2023 Q2 - Quarterly Report

Filing Information & Registrant Details - Registrant: LIFEMD, INC.[2] - Filing Type: Quarterly Report (Form 10-Q) for the period ended June 30, 2023[2] Securities Registered | Title of each class | Trading symbol(s) | Name of exchange on which registered | |---|---|---| | Common Stock, par value $.01 per share | LFMD | The Nasdaq Global Market | | 8.875% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share | LFMDP | The Nasdaq Global Market | Filer Status | Filer Status | | |---|---| | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☐ | - As of August 8, 2023, there were 36,032,740 shares of the registrant's common stock outstanding[6] PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (unaudited) This section presents the company's unaudited condensed consolidated financial statements for the quarter ended June 30, 2023 Condensed Consolidated Balance Sheets Key Balance Sheet Data | Metric | June 30, 2023 | December 31, 2022 | |---|---|---| | Cash | $11,906,741 | $3,958,957 | | Total Current Assets | $20,180,896 | $11,311,357 | | Total Non-current Assets | $15,265,493 | $14,354,496 | | Total Assets | $35,446,389 | $25,665,853 | | Total Current Liabilities | $31,517,806 | $31,374,151 | | Total Liabilities | $45,651,398 | $32,971,356 | | Total Stockholders' Deficit | $(15,237,938) | $(11,871,325) | - Cash increased by approximately $7.9 million from December 31, 2022, to June 30, 2023[10] - Total assets increased by approximately $9.8 million, while total liabilities increased by approximately $12.7 million[10] Condensed Consolidated Statements of Operations Three Months Ended June 30, 2023 vs 2022 | Metric | 2023 | 2022 | Change (YoY) | |---|---|---|---| | Total revenues, net | $35,946,913 | $30,458,498 | +18.0% | | Gross profit | $31,398,483 | $25,823,187 | +21.6% | | Operating loss | $(4,895,546) | $(12,904,125) | -62.1% | | Net loss | $(5,891,216) | $(12,972,961) | -54.6% | | Net loss attributable to LifeMD, Inc. common stockholders | $(7,509,562) | $(13,795,524) | -45.6% | | Basic loss per share | $(0.23) | $(0.45) | -48.9% | Six Months Ended June 30, 2023 vs 2022 | Metric | 2023 | 2022 | Change (YoY) | |---|---|---|---| | Total revenues, net | $69,073,248 | $59,501,335 | +16.1% | | Gross profit | $60,309,849 | $49,617,849 | +21.5% | | Operating loss | $(7,748,356) | $(26,011,140) | -70.2% | | Net loss | $(9,333,689) | $(26,247,910) | -64.5% | | Net loss attributable to LifeMD, Inc. common stockholders | $(12,294,581) | $(27,871,762) | -55.9% | | Basic loss per share | $(0.38) | $(0.91) | -58.2% | - WorkSimpli revenue significantly increased, contributing to overall revenue growth, while telehealth revenue remained relatively stable for the three months ended June 30, 2023, and decreased for the six months ended June 30, 2023[14] Condensed Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' Deficit Summary | Metric | June 30, 2023 | January 1, 2023 | |---|---|---| | Total LifeMD, Inc. Stockholders' Deficit | $(16,021,557) | $(11,395,777) | | Total Stockholders' Deficit | $(15,237,938) | $(11,871,325) | - Stock compensation expense contributed $2.66 million (Q1) and $2.86 million (Q2) to additional paid-in capital during the six months ended June 30, 2023[16][17] - Net loss attributable to LifeMD, Inc. was $(4.01) million for Q1 2023 and $(6.73) million for Q2 2023, increasing the accumulated deficit[17] - Preferred stock dividends of $(776,563) were paid in both Q1 and Q2 2023[17] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 | 2022 | |---|---|---| | Net cash provided by (used in) operating activities | $2,030,386 | $(18,190,108) | | Net cash used in investing activities | $(4,112,939) | $(9,893,154) | | Net cash provided by (used in) financing activities | $10,030,337 | $(1,527,475) | | Net increase (decrease) in cash | $7,947,784 | $(29,610,737) | | Cash at end of period | $11,906,741 | $11,717,302 | - Operating cash flow improved by over $20 million year-over-year, turning positive in 2023[20] - Financing activities provided $10.03 million in cash in 2023, primarily from $14.47 million in long-term debt proceeds, partially offset by debt repayments and preferred stock dividends[20] - Investing activities used $4.11 million, mainly for capitalized software costs ($3.90 million)[20] Notes to Condensed Consolidated Financial Statements NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS - LifeMD, Inc. (formerly Immudyne, Inc. and Conversion Labs, Inc.) is a direct-to-patient telehealth company providing virtual healthcare and OTC products, often on a subscription basis[22][27][28] - The company acquired 51% of LegalSimpli Software, LLC (now WorkSimpli) in June 2018, increasing its ownership to 73.32% by June 30, 2023, through various restructuring transactions[24][25] - Cleared Technologies, PBC, an allergy telehealth platform, was acquired on January 18, 2022[26] - As of June 30, 2023, the Company has an accumulated deficit of approximately $202.9 million and has experienced significant operating losses, raising substantial doubt about its ability to continue as a going concern[37][38] - On March 21, 2023, the Company secured a convertible senior secured credit facility of up to $40 million (Avenue Facility), with $15 million funded at closing, to repay existing debt and for general corporate purposes[35][101] - The company's public float increased above $75.0 million in June 2023, removing 'baby shelf limitations' and making $59.5 million available under its ATM Sales Agreement[40] NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The consolidated financial statements include LifeMD, Inc., Cleared, WorkSimpli (majority-owned subsidiary, 73.32% ownership as of June 30, 2023), and LifeMD PC (variable interest entity)[44][45][49] - Revenue recognition follows ASC 606, with product-based revenue recognized at shipment/control transfer and subscription-based software revenue recognized over the subscription period[53][55] Disaggregated Revenue (Three Months Ended June 30) | Revenue Type | 2023 ($) | 2023 (%) | 2022 ($) | 2022 (%) | |---|---|---|---|---| | Telehealth revenue | $22,351,128 | 62% | $22,267,963 | 73% | | WorkSimpli revenue | $13,595,785 | 38% | $8,190,535 | 27% | | Total net revenue | $35,946,913 | 100% | $30,458,498 | 100% | Disaggregated Revenue (Six Months Ended June 30) | Revenue Type | 2023 ($) | 2023 (%) | 2022 ($) | 2022 (%) | |---|---|---|---|---| | Telehealth revenue | $42,553,931 | 62% | $44,866,024 | 75% | | WorkSimpli revenue | $26,519,317 | 38% | $14,635,311 | 25% | | Total net revenue | $69,073,248 | 100% | $59,501,335 | 100% | - Deferred revenues were approximately $5.7 million as of June 30, 2023, related to unearned product and subscription obligations[57][58] - Capitalized software costs, primarily for internally developed software, increased to $10.4 million net as of June 30, 2023, amortized over three years[66] - Goodwill and intangible assets are tested for impairment; an $8.0 million goodwill impairment and $827 thousand intangible asset impairment were recorded in 2022 related to Cleared[67][68] - The Company adopted ASU 2016-13 (CECL) and ASU 2021-08 (Business Combinations) as of January 1, 2023, with no material impact on financial statements[82][83] NOTE 3 – ACQUISITIONS - Cleared Technologies, PBC, an allergy telehealth platform, was acquired on January 18, 2022, for an initial purchase price of approximately $9.1 million[85][86] - An amendment on February 4, 2023, reduced Cleared's total purchase price by $250 thousand to $3.67 million and eliminated all earn-out payments[89] - The reduction in Cleared's contingent consideration by $5.1 million and an $8.0 million goodwill impairment charge were recorded in 2022 due to revised financial projections and the amendment[90] - WorkSimpli acquired ResumeBuild, a subscription-based resume building software, in February 2022 for $4.5 million, including $500 thousand in contingent consideration[92] NOTE 4 – GOODWILL AND INTANGIBLE ASSETS - Goodwill related to the Cleared acquisition was $0 as of June 30, 2023, due to an $8.0 million impairment charge recorded in 2022[93] Amortizable Intangible Assets (Net) | Asset | June 30, 2023 | December 31, 2022 | |---|---|---| | ResumeBuild brand | $4,500,000 | $4,500,000 | | Customer relationship asset | $1,006,840 | $1,006,840 | | Cleared trade name | $133,339 | $133,339 | | Cleared developed technology | $12,920 | $12,920 | | Purchased licenses | $200,000 | $200,000 | | Website domain names | $171,599 | $22,731 | | Less: accumulated amortization | $(2,523,499) | $(2,043,971) | | Total net amortizable intangible assets | $3,501,199 | $3,831,859 | - Aggregate amortization expense for intangible assets was $480 thousand for the six months ended June 30, 2023, compared to $341 thousand for the same period in 2022[93] NOTE 5 – ACCRUED EXPENSES Accrued Expenses | Expense Type | June 30, 2023 | December 31, 2022 | |---|---|---| | Accrued selling and marketing expenses | $5,273,738 | $3,508,883 | | Sales tax payable | $2,501,035 | $2,501,035 | | Purchase price payable | $1,872,037 | $2,463,002 | | Accrued dividends payable | $776,562 | $776,563 | | Accrued compensation | $1,568,737 | $576,027 | | Accrued interest | $4,042 | $448,718 | | Other accrued expenses | $2,765,605 | $1,892,281 | | Total accrued expenses | $14,761,756 | $12,166,509 | - Accrued selling and marketing expenses increased by approximately $1.76 million[94] - Accrued compensation increased by approximately $992 thousand[94] NOTE 6 – NOTES PAYABLE - Outstanding notes payable, net, decreased from $2,797,250 at December 31, 2022, to $735,534 at June 30, 2023[10] - The $2 million CRG Financial loan was repaid on March 21, 2023, using proceeds from the Avenue Facility, incurring a $325 thousand loss on debt extinguishment[97] Working Capital Loans Outstanding | Lender | June 30, 2023 | December 31, 2022 | |---|---|---| | Amazon | $442,000 | $976,000 | | Balanced Management | $294,000 | $1,821,000 | - Total interest expense on notes payable was $34 thousand for the six months ended June 30, 2023, compared to $0 in the prior year[99] NOTE 7 – LONG-TERM DEBT - On March 21, 2023, the Company closed a $40 million convertible senior secured credit facility (Avenue Facility), with $15 million funded at closing[100] - The facility includes warrants to purchase $1.2 million of common stock and an option for Avenue to convert up to $2 million of term loans into common stock at $1.49 per share[100] - A total debt discount of $1.6 million was recorded and is being amortized over 42 months; amortization was $154 thousand for the six months ended June 30, 2023[100] - The Avenue Facility matures on October 1, 2026, with an interest rate of 12.75% as of June 30, 2023[101] - The Company must maintain at least $5 million in unrestricted cash and a trailing six-month cash flow of at least $2 million, and was in compliance as of the filing date[102] - Total interest expense on long-term debt was $694 thousand for the six months ended June 30, 2023, compared to $0 in the prior year[103] NOTE 8 – STOCKHOLDERS' EQUITY - As of June 30, 2023, the Company had 32,564,835 common shares issued and 1,400,000 Series A Preferred Stock shares outstanding[104] - The Company's ownership interest in WorkSimpli decreased to 73.32% as of June 30, 2023, due to option exercises and redemptions[119] - Preferred stock dividends of $776,562 were declared and paid quarterly on Series A Preferred Stock[120] - Total stock-based compensation expense was $5.5 million for the six months ended June 30, 2023, down from $8.5 million in the prior year, with $15.0 million in unamortized expense remaining[133] Stock Options Activity (Six Months Ended June 30, 2023) | Metric | 2020 Plan Options | Service-Based Options (Prior Plan) | |---|---|---| | Balance, Dec 31, 2022 | 1,784,587 | 1,439,333 | | Granted | 78,000 | 140,000 | | Cancelled/Forfeited/Expired | (473,167) | - | | Exercised | - | (40,000) | | Balance, June 30, 2023 | 1,389,420 | 1,539,333 | | Weighted Average Exercise Price (June 30, 2023) | $10.09 | $5.84 | RSUs and RSAs Activity (Six Months Ended June 30, 2023) | Metric | 2020 Plan RSUs/RSAs | Outside 2020 Plan RSUs/RSAs | |---|---|---| | Balance, Dec 31, 2022 | 1,028,250 | 715,000 | | Granted | 1,974,500 | 425,000 | | Vested | (322,625) | (165,000) | | Cancelled/Forfeited | (480,000) | - | | Balance, June 30, 2023 | 2,200,125 | 975,000 | Warrants Activity (Six Months Ended June 30, 2023) | Metric | Warrants Outstanding | |---|---| | Balance, Dec 31, 2022 | 3,859,638 | | Granted | 967,742 | | Balance, June 30, 2023 | 4,827,380 | | Weighted Average Exercise Price (June 30, 2023) | $4.74 | NOTE 9 – LEASES Operating Lease Balances (June 30, 2023) | Metric | Amount | |---|---| | Operating right-of-use assets | $928,696 | | Operating lease liabilities - current | $758,927 | | Operating lease liabilities - noncurrent | $276,340 | | Total Operating Lease Liabilities | $1,035,267 | - Operating lease expenses were $429 thousand for the six months ended June 30, 2023, an increase from $404 thousand in the prior year[137] - The weighted average remaining lease term is 2.36 years, with a weighted average discount rate of 7.16% as of June 30, 2023[138] NOTE 10 - COMMITMENTS AND CONTINGENCIES - The Company has a royalty agreement with Pilaris Laboratories, LLC for PilarisMax shampoo, paying 10% of net income[139] - A license agreement with M.ALPHABET, LLC for the PURPUREX business entails a 13% royalty on Gross Receipts, with no amounts earned or owed as of June 30, 2023[140] - Implicit purchase commitments with inventory vendors totaled approximately $168 thousand as of June 30, 2023[142] - Legal proceedings, including lawsuits from Harborside Advisors LLC and Specialty Medical Drugstore, LLC, were settled in September 2022, involving the issuance of common stock[144][145] - A breach of contract lawsuit from William Blair LLC was settled in June 2023, with costs reflected in the Company's financial results[147][149] NOTE 11 – RELATED PARTY TRANSACTIONS - A $2 million loan facility with CRG Financial was repaid on March 21, 2023; a LifeMD Board member also serves on CRG Financial's Board[150] - WorkSimpli paid LegalSubmit Pvt. Ltd. $1.2 million for software development services during the six months ended June 30, 2023; LegalSubmit is owned by WorkSimpli's Chief Software Engineer[151] NOTE 12 – SEGMENT DATA Segment Revenue and Gross Margin (Six Months Ended June 30) | Segment | 2023 Revenue | 2022 Revenue | YoY Change (Revenue) | 2023 Gross Margin | 2022 Gross Margin | |---|---|---|---|---|---| | Telehealth | $42,553,931 | $44,866,024 | -5.1% | 81.1% | 78.7% | | WorkSimpli | $26,519,317 | $14,635,311 | +81.2% | 97.3% | 97.7% | | Consolidated | $69,073,248 | $59,501,335 | +16.1% | 87.3% | 83.4% | Segment Operating Results (Six Months Ended June 30) | Segment | 2023 Operating Loss/Income | 2022 Operating Loss/Income | |---|---|---| | Telehealth Operating loss | $(13,143,226) | $(26,482,656) | | WorkSimpli Operating income | $5,394,870 | $471,516 | | Consolidated Operating loss | $(7,748,356) | $(26,011,140) | - WorkSimpli's operating income increased significantly from $471,516 in 2022 to $5,394,870 in 2023[152] Segment Total Assets | Segment | June 30, 2023 | December 31, 2022 | |---|---|---| | Telehealth | $26,561,946 | $18,163,464 | | WorkSimpli | $8,884,443 | $7,502,389 | | Consolidated | $35,446,389 | $25,665,853 | NOTE 13 – SUBSEQUENT EVENTS - In July and August 2023, 112,500 common shares were issued for vested RSUs and RSAs[153] - In July 2023, 88,021 common shares were sold under the ATM Sales Agreement, yielding $410 thousand in net proceeds[154] - On July 10, 2023, 100,000 common shares were issued to settle legal proceedings[155] - On July 12, 2023, 2,275 shares of Series B Preferred Stock were converted into 1,010,170 common shares[156] - On July 17, 2023, 158,129 common shares were issued as a quarterly installment payment for the Cleared acquisition[157] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, strategic initiatives, and liquidity Note Regarding Forward-Looking Statements - Forward-looking statements are based on management's beliefs and assumptions and are subject to risks and uncertainties[159] - Readers are cautioned not to place undue reliance on these statements, and the Company does not intend to update them except as required by law[159][160][163] - Risk factors include changes in market acceptance, competition, regulatory conditions, commercialization ability, customer/supplier relationships, technological developments, intellectual property, integration of acquisitions, economic conditions, business interruptions, internal control weaknesses, going concern ability, need for additional funds, personnel recruitment, business plan implementation, and industry regulation[162] Corporate History - LifeMD, Inc. was formed in 1994 as Immudyne, Inc., later becoming Conversion Labs, Inc. in 2018, and LifeMD, Inc. in 2021[166] - The Company acquired 51% of WorkSimpli in June 2018, increasing its ownership to 73.32% by June 30, 2023, through various restructuring transactions[166][178] - Cleared, a nationwide allergy telehealth platform, was acquired on January 18, 2022[166] Business Overview - LifeMD is a direct-to-patient telehealth company offering virtual healthcare and OTC products, aiming to elevate the healthcare experience through its proprietary technology platform and affiliated provider network[167][168] - The company's mission is to empower healthier lives by increasing access to high-quality, affordable virtual and in-home healthcare[169] - LifeMD has served approximately 755,000 customers, with about 92% of total revenue from recurring subscriptions[170] - WorkSimpli, a majority-owned subsidiary (73.32%), operates PDFSimpli, a software-as-a-service platform, and has seen 81% year-over-year revenue growth with 98% recurring revenue[170] Our Platform and Business Strategy - LifeMD's proprietary platform integrates EMR, scheduling, CRM, lab testing, digital prescriptions, and cloud pharmacy to deliver comprehensive virtual healthcare[171][172] - Offerings are sold on a subscription basis, providing recurring revenue streams and discounted pricing for patients[172] - The platform supports Direct-to-Consumer Virtual Primary Care (LifeMD PC) with 24/7 access to providers in all 50 states[174] - Direct-to-Patient Telehealth brands include RexMD (men's health), ShapiroMD (hair loss), NavaMD (tele-dermatology), and Cleared (allergy, asthma, immunology)[175][176] - The company also provides Enterprise Telehealth Offerings to healthcare product companies for digital patient awareness and engagement[177] - WorkSimpli, a majority-owned subsidiary, operates PDFSimpli, a software-as-a-service platform for document management[178] Significant Developments During the Three Months Ended June 30, 2023 - The Cleared Stock Purchase Agreement was amended on February 4, 2023, reducing the total purchase price by $250 thousand to $3.67 million[179] - The amendment changed payment timing to five quarterly installments, removing all earn-out payments[179] - The Company issued 337,895 shares of common stock on February 6, 2023, and 455,319 shares on April 17, 2023, for the first two quarterly installment payments for Cleared[179] Results of Operations Comparison of the Three Months Ended June 30, 2023 to the Three Months Ended June 30, 2022 Q2 2023 vs Q2 2022 Financial Highlights | Metric | June 30, 2023 | June 30, 2022 | Change (YoY) | |---|---|---|---| | Total revenue, net | $35,946,913 | $30,458,498 | +18.0% | | Telehealth revenue, net | $22,351,128 | $22,267,963 | +0.4% | | WorkSimpli revenue, net | $13,595,785 | $8,190,535 | +66.0% | | Gross profit | $31,398,483 | $25,823,187 | +21.6% | | Gross profit margin | 87.35% | 84.78% | +2.57 pp | | Selling and marketing expenses | $19,567,903 | $21,817,966 | -10.3% | | General and administrative expenses | $12,119,573 | $13,159,937 | -7.9% | | Operating loss | $(4,895,546) | $(12,904,125) | -62.1% | | Net loss attributable to common shareholders | $(7,509,562) | $(13,795,524) | -45.6% | - The increase in WorkSimpli revenue was attributed to higher demand, increased market awareness, enhanced digital capabilities, and marketing expansion[182] - Telehealth costs decreased to 18% of associated revenues in Q2 2023 from 20% in Q2 2022, primarily due to improved pricing[183] - Customer service expenses increased by 90% ($906 thousand) due to increased headcount[189] - Development costs increased by 97% ($680 thousand) due to technology platform improvements and amortization[189] - Interest expense, net, increased by $863 thousand due to the Avenue Facility and notes payable[186] Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022 YTD June 2023 vs YTD June 2022 Financial Highlights | Metric | June 30, 2023 | June 30, 2022 | Change (YoY) | |---|---|---|---| | Total revenue, net | $69,073,248 | $59,501,335 | +16.1% | | Telehealth revenue, net | $42,553,931 | $44,866,024 | -5.1% | | WorkSimpli revenue, net | $26,519,317 | $14,635,311 | +81.2% | | Gross profit | $60,309,849 | $49,617,849 | +21.5% | | Gross profit margin | 87.31% | 83.39% | +3.92 pp | | Selling and marketing expenses | $36,285,548 | $43,727,791 | -17.1% | | General and administrative expenses | $22,722,336 | $25,372,680 | -10.4% | | Operating loss | $(7,748,356) | $(26,011,140) | -70.2% | | Net loss attributable to common shareholders | $(12,294,581) | $(27,871,762) | -55.9% | - Selling and marketing costs decreased by $7.4 million (17%) due to strategic cost reductions and alignment with the recurring revenue subscription model[194] - General and administrative expenses decreased by $2.7 million (11%), primarily due to a $3.0 million decrease in stock-based compensation[194] - Customer service expenses increased by $1.5 million (79%) due to increased headcount[200] - Development costs increased by $1.4 million (127%) due to technology platform improvements and amortization[200] - Interest expense, net, increased by $960 thousand due to the Avenue Facility and notes payable[195] - A $325 thousand loss on debt extinguishment was recorded for the repayment of the CRG Financial loan[196] Working Capital Working Capital Summary | Metric | June 30, 2023 | December 31, 2022 | |---|---|---| | Current assets | $20,180,896 | $11,311,357 | | Current liabilities | $31,517,806 | $31,374,151 | | Working capital | $(11,336,910) | $(20,062,794) | - Working capital increased by approximately $8.7 million during the six months ended June 30, 2023[197] - The increase in current assets was primarily due to a $7.9 million increase in cash from the Avenue Facility[197] - Current liabilities increased by $144 thousand, driven by increases in accounts payable and accrued expenses ($2.1 million) and deferred revenue ($120 thousand), partially offset by a $2.1 million decrease in notes payable[197] Liquidity and Capital Resources Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 | 2022 | |---|---|---| | Net cash provided by (used in) operating activities | $2,030,386 | $(18,190,108) | | Net cash used in investing activities | $(4,112,939) | $(9,893,154) | | Net cash provided by (used in) financing activities | $10,030,337 | $(1,527,475) | | Net increase (decrease) in cash | $7,947,784 | $(29,610,737) | - Net cash provided by operating activities increased by $20.2 million, driven by a $16.9 million decrease in net loss[199] - Financing activities provided $10.0 million, primarily from $14.5 million in net proceeds from the Avenue Facility and $2.0 million from the CRG Financial loan[202] - Investing activities used $4.1 million, mainly for capitalized software costs ($3.9 million)[201] Liquidity and Capital Resources Outlook - As of June 30, 2023, the Company has an accumulated deficit of approximately $202.9 million and has experienced significant operating losses, raising substantial doubt about its ability to continue as a going concern[203][211] - The Company secured a $40 million convertible senior secured credit facility (Avenue Facility) in March 2023, with $15 million funded at closing, for general corporate purposes and debt repayment[204] - As of June 30, 2023, the Company has $59.5 million available under its At Market Issuance Sales Agreement (ATM Sales Agreement) after its public float increased above $75.0 million[209] - The Company's continued operations are dependent on increasing sales volumes, improving operational efficiencies, and obtaining additional funding[210] - Management is implementing strategies to strengthen revenues and curtail expenses, and believes the telehealth industry market value is positive[212] Critical Accounting Policies and Estimates - Revenue recognition follows ASC 606, with product-based revenue recognized upon customer control and subscription-based software revenue recognized over the subscription period[214][216] - Capitalized software costs, primarily for internally developed software, increased by $1.6 million (18%) to $10.4 million net as of June 30, 2023, mainly due to development efforts for the LifeMD PC platform[220] - Goodwill and intangible assets are tested for impairment annually; an $8.0 million goodwill impairment and $827 thousand intangible asset impairment were recorded in 2022 related to Cleared[221][222] - Long-lived assets are reviewed for impairment when circumstances indicate carrying amounts may not be recoverable; no impairment was indicated as of June 30, 2023[223] - The Company adopted ASU 2016-13 (CECL) and ASU 2021-08 (Business Combinations) as of January 1, 2023, with no material impact on financial statements[224][225] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is not required to provide disclosures about market risk - As a smaller reporting company, LifeMD, Inc. is not required to provide disclosures about market risk[226] ITEM 4. Controls and Procedures Management concluded that disclosure controls were not effective due to material weaknesses in internal control over financial reporting - Disclosure controls and procedures were deemed not effective as of June 30, 2023, due to material weaknesses in internal control over financial reporting[228] - Material weaknesses identified include inadequate segregation of duties, inadequate controls related to revenue recognition, insufficient written policies and procedures for accounting and financial reporting, and inadequate information technology general controls[229] - Management is implementing remediation measures, including controls for revenue recognition upon shipment, further documentation of control procedures, and addressing gaps in IT general controls[230] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The company is involved in ordinary routine litigation incidental to its business - Material legal proceedings are described under Note 10, 'Commitments and Contingencies,' in the financial statements[232] ITEM 1A. Risk Factors No material changes to risk factors have occurred since the company's Annual Report on Form 10-K - Investors should review risk factors from the Annual Report on Form 10-K for December 31, 2022[233] - No material changes to risk factors have occurred since the Annual Report filing[233] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued common shares for option exercises, acquisition payments, and services, relying on registration exemptions - On April 10, 2023, 16,471 common shares were issued for the cashless exercise of options[234] - On April 17, 2023, 455,319 common shares were issued as the second quarterly installment payment for the Cleared acquisition[235] - On May 1 and May 23, 2023, 53,000 common shares were issued for services to employees and consultants[236] - These sales were unregistered, relying on exemptions under Section 4(a)(2) and/or Regulation D of the Securities Act[236] ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[237] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[238] ITEM 5. Other Information The company reported no other information required by this item - No other information was reported under this item[239] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements, certifications, and XBRL documents - The exhibits include management contracts, compensatory plans, and certifications (Rule 13a-14(a) / 15d-14(a) and Section 1350) from the CEO and CFO[241] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase) are also filed[241] SIGNATURES - The report is signed by Justin Schreiber (Chief Executive Officer and Chairman), Marc Benathen (Chief Financial Officer), and Maria Stan (Principal Accounting Officer) on August 9, 2023[246]