LifeMD(LFMD) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited financial statements for September 30, 2023, present increased assets and cash, a net loss, and continued going concern uncertainty Condensed Consolidated Balance Sheets As of September 30, 2023, total assets reached $40.7 million, liabilities $51.8 million, and stockholders' deficit improved to $(11.1) million Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | Sep 30, 2023 (Unaudited USD) | Dec 31, 2022 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash | $15,288,330 | $3,958,957 | | Total Current Assets | $24,886,286 | $11,311,357 | | Total Assets | $40,691,024 | $25,665,853 | | Liabilities & Stockholders' Deficit | | | | Total Current Liabilities | $32,521,927 | $31,374,151 | | Long-term debt, net | $18,827,283 | - | | Total Liabilities | $51,775,281 | $32,971,356 | | Total Stockholders' Deficit | $(11,084,257) | $(11,871,325) | Condensed Consolidated Statements of Operations Q3 2023 total revenues grew 23% to $38.6 million, narrowing operating loss to $(4.6) million and net loss to $(6.9) million Statement of Operations Summary (Three Months Ended Sep 30) | Metric | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Total revenues, net | $38,613,911 | $31,412,469 | | Gross profit | $33,832,405 | $26,695,627 | | Operating loss | $(4,569,381) | $(7,065,701) | | Net loss attributable to LifeMD, Inc. common stockholders | $(6,898,998) | $(8,058,236) | | Basic and Diluted loss per share | $(0.20) | $(0.26) | Statement of Operations Summary (Nine Months Ended Sep 30) | Metric | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Total revenues, net | $107,687,158 | $90,913,804 | | Gross profit | $94,142,253 | $76,313,476 | | Operating loss | $(12,317,737) | $(33,076,840) | | Net loss attributable to LifeMD, Inc. common stockholders | $(19,193,579) | $(35,929,997) | | Basic and Diluted loss per share | $(0.58) | $(1.17) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' deficit improved to $(11.1) million by September 30, 2023, primarily due to stock compensation and issuances, despite ongoing net losses - The accumulated deficit increased to $(209.8) million as of September 30, 2023, from $(190.6) million at the start of the year, reflecting ongoing net losses[18][19] - Key equity activities during the first nine months of 2023 included stock compensation expense of $8.8 million, issuance of stock for noncontingent consideration payments, conversion of Series B Preferred Stock, and sales under the ATM agreement[18][19] Condensed Consolidated Statements of Cash Flows Net cash from operations turned positive at $3.1 million for the nine months ended September 30, 2023, with $14.7 million from financing, significantly increasing cash Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,106,602 | $(20,966,110) | | Net cash used in investing activities | $(6,516,645) | $(12,134,718) | | Net cash provided by (used in) financing activities | $14,739,416 | $(2,390,388) | | Net increase (decrease) in cash | $11,329,373 | $(35,491,216) | | Cash at end of period | $15,288,330 | $5,836,823 | Notes to Condensed Consolidated Financial Statements Notes detail the company's telehealth model, going concern doubts, acquisitions, a new $40 million credit facility, and stock-based compensation - The company is a direct-to-patient telehealth company offering virtual care, prescriptions, and OTC products through brands like ShapiroMD, RexMD, and NavaMD[28][29][30] - 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 $209.8 million and significant historical losses[37][38] - In March 2023, the company secured a credit facility of up to $40 million from Avenue Capital, using initial proceeds to repay other debt and for corporate purposes, with $20 million drawn as of September 2023[36][100] - The company operates through two segments: Telehealth and WorkSimpli; for Q3 2023, Telehealth generated $24.3 million in revenue with an operating loss of $(7.7) million, while WorkSimpli generated $14.3 million in revenue with an operating income of $3.1 million[155] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 revenue growth to $38.6 million and narrowed operating loss, reiterating going concern doubts and financing dependence Business Overview and Strategy LifeMD is a direct-to-patient telehealth company with a 73.32% stake in WorkSimpli, focused on building a diverse portfolio to meet patient demand - The company's platform integrates EMR, CRM, lab testing, digital prescriptions, and pharmacy fulfillment to manage patient care across various conditions[168] - LifeMD has served approximately 803,000 customers and patients to date, with recurring subscriptions accounting for about 93% of total revenue[170][172] - The company's majority-owned subsidiary, WorkSimpli, has seen 65% year-over-year revenue growth and has 100% recurring revenue[170] Results of Operations Q3 2023 total revenue grew 23% to $38.6 million, gross margin expanded to 88%, and operating loss narrowed to $(4.6) million Comparison of Three Months Ended September 30, 2023 and 2022 | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue, net | $38.6M | $31.4M | +23% | | Gross Profit | $33.8M | $26.7M | +27% | | Operating Loss | $(4.6)M | $(7.1)M | -35% | | Net Loss Attributable to Common Shareholders | $(6.9)M | $(8.1)M | -15% | - The increase in revenue was driven by a 42% rise in WorkSimpli revenue and a 14% increase in Telehealth revenue, attributed to higher demand, marketing expansion, and for Telehealth, a decrease in refunds and rebates[185] - Operating expenses increased by $4.6 million (14%), mainly due to a $2.6 million rise in selling and marketing expenses to support sales growth[188][189] Liquidity and Capital Resources Liquidity remains challenging with $12.9 million cash, a $40 million credit facility, and a $58.6 million ATM, with operations dependent on sales and financing - The company has an accumulated deficit of $209.8 million and has historically funded operations through equity and debt financing[202] - A new convertible senior secured credit facility with Avenue provides up to $40 million, with $20 million committed and drawn as of September 26, 2023[203] - The company has an active ATM Sales Agreement and is no longer subject to 'baby shelf limitations', with $58.6 million available for issuance as of Sep 30, 2023; an additional $5.3 million was raised via the ATM in October and November 2023[208] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, LifeMD is not required to provide the information for this item - The company is exempt from this disclosure requirement due to its status as a smaller reporting company[224] Controls and Procedures Disclosure controls were ineffective as of September 30, 2023, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Disclosure controls and procedures were deemed ineffective as of the end of the reporting period[226] - Material weaknesses identified include inadequate segregation of duties, weak revenue recognition controls, insufficient written accounting policies, and inadequate IT general controls (security, user access, change management)[227] - A remediation plan is underway, which includes formalizing procedures, implementing new controls, and addressing gaps in IT general controls[227] PART II. OTHER INFORMATION Legal Proceedings The company settled several legal matters, including lawsuits with Harborside Advisors and William Blair, with settlement costs reflected in financial results - The company settled two related lawsuits, Harborside Advisors LLC v. LifeMD, Inc. and Specialty Medical Drugstore, LLC v. LifeMD, Inc., through mediation in September 2022, involving issuing 400,000 shares of common stock in 2022 and an additional 100,000 shares on July 10, 2023[148][149] - A breach of contract lawsuit, William Blair LLC v. LifeMD, Inc., was settled in June 2023 following mediation[152] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - The company directs investors to review the risk factors detailed in its 2022 Annual Report on Form 10-K, stating there have been no material changes since its filing[231] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2023, the company issued unregistered securities, including common stock for services, legal settlements, non-contingent acquisition payments, and Series B Preferred Stock conversion, all in reliance on Securities Act registration exemptions - Issued 137,500 shares of common stock for services to employees and consultants[232] - Issued 100,000 shares of common stock for a legal settlement[233] - Issued 1,560,864 shares of common stock upon the conversion of Series B Preferred Stock by PA001 Holdings[235] Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - The company reported no defaults upon its senior securities during the period[237] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[238] Other Information The company reported no other information for this item - The company reported no other information for this item[239] Exhibits The report lists several exhibits filed with the Form 10-Q, including amendments to credit and employment agreements, CEO and CFO certifications, and XBRL data files - Key exhibits filed include the First Amendment to the Credit Agreement with Avenue, amendments to executive employment agreements, and required certifications by the CEO and CFO[241]