UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Quarterly Period Ended
or
For the Transition Period from _________ to _________
Commission
file number:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| ☒ | Smaller reporting company | |||
| Emerging growth company |
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LIFEMD, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
LIFEMD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Product deposit | ||||||||
| Inventory, net | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-current Assets | ||||||||
| Equipment, net | ||||||||
| Right of use asset | ||||||||
| Capitalized software, net | ||||||||
| Intangible assets, net | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Notes payable, net | ||||||||
| Current operating lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities | ||||||||
| Long-term debt, net | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Contingent consideration | ||||||||
| Purchase price payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 10) | ||||||||
| Mezzanine Equity | ||||||||
| Preferred
Stock, $ par value; shares authorized Series B Preferred Stock, $ par value; shares authorized, and shares issued and outstanding, liquidation value approximately, $ | ||||||||
| Stockholders’ Deficit | ||||||||
| Series A Preferred Stock,
$ par value; shares authorized, shares issued and outstanding, liquidation value approximately, $ | ||||||||
| Common stock, $ par value; shares authorized, and shares issued, and outstanding as of June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, and shares, at cost, as of June 30, 2023 and December 31, 2022, respectively | ( | ) | ( | ) | ||||
| Total LifeMD, Inc. Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ||||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Mezzanine Equity and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
LIFEMD, INC.
CONDENSED Consolidated STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | ||||||||||||||||
| Telehealth revenue, net | $ | $ | $ | $ | ||||||||||||
| WorkSimpli revenue, net | ||||||||||||||||
| Total revenues, net | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Cost of telehealth revenue | ||||||||||||||||
| Cost of WorkSimpli revenue | ||||||||||||||||
| Total cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Expenses | ||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Customer service expenses | ||||||||||||||||
| Development costs | ||||||||||||||||
| Goodwill impairment charge | ||||||||||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||||||||||
| Total expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on debt extinguishment | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||
| Net loss attributable to LifeMD, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to LifeMD, Inc. common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic loss per share attributable to LifeMD, Inc. common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted loss per share attributable to LifeMD, Inc. common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
LIFEMD, INC.
CONDENSED Consolidated STATEMENTS of CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| LifeMD, Inc. | ||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Treasury | Non- controlling | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Total | Interest | Total | |||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||||||||||||||
| Cashless exercise of stock options | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Exercise of warrants | - | |||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dvidend | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Distribution to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock compensation expense | - | - | ||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | |||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dividend | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Distribution to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| LifeMD, Inc. | ||||||||||||||||||||||||||||||||||||||||
| Series
A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Treasury | Non-
controlling | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Stock | Total | Interest | Total | |||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||||||||||||||
| Stock issued for noncontingent consideration payment | - | |||||||||||||||||||||||||||||||||||||||
| Warrants issued with debt instrument | - | - | ||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dividend | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Distribution to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Adjustment of membership interest in WorkSimpli | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||||||||||||||
| Stock issued for noncontingent consideration payment | - | |||||||||||||||||||||||||||||||||||||||
| Cashless exercise of stock options | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dividend | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Distribution to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Adjustment of membership interest in WorkSimpli | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
LIFEMD, INC.
CONDENSED Consolidated STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of capitalized software | ||||||||
| Amortization of intangibles | ||||||||
| Accretion of consideration payable | ||||||||
| Depreciation of fixed assets | ||||||||
| Loss (gain) on debt extinguishment | ( | ) | ||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Goodwill impairment charge | ||||||||
| Operating lease payments | ||||||||
| Stock compensation expense | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Product deposit | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Change in operating lease liability | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Other operating activity | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for capitalized software costs | ( | ) | ( | ) | ||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Acquisition of business, net of cash acquired | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from long-term debt, net | ||||||||
| Proceeds from notes payable | ||||||||
| Repayment of notes payable, net of prepayment penalty | ( | ) | ||||||
| Cash proceeds from exercise of options | ||||||||
| Cash proceeds from exercise of warrants | ||||||||
| Preferred stock dividends | ( | ) | ( | ) | ||||
| Contingent consideration payment for ResumeBuild acquisition | ( | ) | ( | ) | ||||
| Net payments for membership interest in WorkSimpli | ( | ) | ||||||
| Distributions to non-controlling interest | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Cash paid for interest | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Warrants issued for debt instruments | $ | $ | ||||||
| Cashless exercise of options | $ | $ | ||||||
| Consideration payable for Cleared acquisition | $ | $ | ||||||
| Consideration payable for ResumeBuild acquisition | $ | $ | ||||||
| Stock issued for noncontingent consideration payment | $ | $ | ||||||
| Principal of Paycheck Protection Program loans forgiven | $ | $ | ||||||
| Right of use asset | $ | $ | ||||||
| Right of use lease liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
LIFEMD, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Corporate History
LifeMD, Inc. was formed in the State of Delaware on May 24, 1994, under its prior name, Immudyne, Inc. The Company changed its name to Conversion Labs, Inc. on June 22, 2018 and then subsequently, on February 22, 2021, it changed its name to LifeMD, Inc. Effective February 22, 2021, the trading symbol for the Company’s common stock, par value $ per share on The Nasdaq Stock Market LLC changed from “CVLB” to “LFMD”.
On
April 1, 2016, the original operating agreement of Immudyne PR LLC (“Immudyne PR”), a joint venture to market the
Company’s skincare products, was amended and restated and the Company increased its ownership and voting interest in Immudyne
PR to
In
June 2018, the Company closed the strategic acquisition of
Effective March 31,
2023, the Company redeemed
On January 18, 2022, the Company acquired Cleared Technologies, PBC, a Delaware public benefit corporation (“Cleared”), a nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology (See Note 3).
Nature of Business
The Company is a direct-to-patient telehealth company providing patients a high-quality, cost-effective, and convenient way of accessing comprehensive, virtual healthcare. The Company believes the traditional model of visiting a doctor’s office, traveling to a local pharmacy, and returning for follow up care or prescription refills is complex, inefficient, and costly, and discourages many individuals from seeking much needed medical care. The Company is positioned to elevate the healthcare experience through telehealth with our proprietary technology platform, affiliated provider network, broad treatment capabilities, and unique ability to nurture patient relationships. Direct-to-patient telehealth technology companies, like the Company, connect consumers to affiliated, licensed, healthcare professionals for care across numerous indications, including urgent and primary care, men’s and women’s health, and dermatology, chronic care management and more.
The Company’s telehealth platform helps patients access their licensed providers for diagnoses, virtual care, and prescription medications, often delivered on a recurring basis. In addition to its telehealth prescription offerings, the Company sells over-the-counter (“OTC”) products. All products are available on a subscription or membership basis, where a patient can subscribe to receive regular shipments of prescribed medications or products. This creates convenience and often discounted pricing opportunities for patients and recurring revenue streams for the Company.
With its first brand, ShapiroMD, the Company has built a full line of proprietary OTC products for male and female hair loss—including Food and Drug Administration (“FDA”) approved OTC minoxidil and an FDA-cleared medical device—and now a personalized telehealth platform offering that gives consumers access to virtual medical treatment from their providers and, when appropriate, a full line of oral and topical prescription medications for hair loss. The Company’s men’s brand, RexMD, currently offers access to provider-based treatment for erectile dysfunction, as well as treatment for other common men’s health issues, including premature ejaculation and hair loss. In the first quarter of 2021, the Company launched NavaMD, a tele-dermatology and skincare brand for women. The Company has built a platform that allows it to efficiently launch telehealth and wellness product lines wherever it determines there is a market need.
| 7 |
Business and Subsidiary History
In early 2019, the Company launched a service-based business under the name Conversion Labs Media LLC (“CVLB Media”), a Puerto Rico limited liability company. However, this business initiative was terminated in early 2019. In May 2019, Conversion Labs Rx, LLC (“CVLB Rx”), a Puerto Rico limited liability company, signed a strategic partnership agreement with Specialty Medical Drugstore, Inc. (doing business as “GoGoMeds”). However, since its inception, CVLB Rx did not conduct any business and CVLB Rx was dissolved on August 7, 2020. Additionally, Conversion Labs Asia Limited (“Conversion Labs Asia”), a Hong Kong company, had no activity during the three and six months ended June 30, 2023 and 2022.
On
January 18, 2022, the Company acquired Cleared, a nationwide allergy telehealth platform that provides personalized treatments for allergy,
asthma, and immunology. Under the terms of the agreement, the Company acquired all outstanding shares of Cleared at closing in exchange
for a $
In
February 2022, WorkSimpli closed on an Asset Purchase Agreement (the “ResumeBuild APA”) with East Fusion FZCO, a Dubai, UAE
corporation (the “Seller”), whereby WorkSimpli acquired substantially all of the assets associated with the Seller’s
business, offering subscription-based resume building software through software as a service online platforms (the “Acquisition”).
WorkSimpli paid $
Unless otherwise indicated, the terms “LifeMD,” “Company,” “we,” “us,” and “our” refer to LifeMD, Inc. (formerly known as Conversion Labs, Inc.), Cleared, a Delaware public benefit corporation and our majority-owned subsidiary, WorkSimpli. The affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., (“LifeMD PC”) is the Company’s affiliated, variable interest entity in which we hold a controlling financial interest. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
Liquidity & Going Concern Evaluation
The Company has funded operations in the past through the sales of its products, issuance of common and preferred stock, and through loans and advances. The Company’s continued operations are dependent upon obtaining an increase in its sale volumes and obtaining funding from third-party sources or the issuance of additional shares of common stock.
On
March 21, 2023, the Company entered into and closed on a loan and security agreement (the “Credit Agreement”), and a supplement
to the Credit Agreement (the “Supplement”), with Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities
Fund, L.P. (collectively, “Avenue”). The Credit Agreement provides for a convertible senior secured credit facility of up
to an aggregate amount of $
| 8 |
As
of June 30, 2023, the Company has an accumulated deficit approximating $
The
Company has a current cash balance of approximately $
The Company has begun to implement strategies to strengthen revenues and improve operational efficiencies across the business and is significantly curtailing expenses, however, these strategies do not mitigate the substantial doubt about the Company’s ability to continue as a going concern.
Additionally,
on June 8, 2021, the Company filed a shelf registration statement on Form S-3 under the Securities Act, which was declared effective
on June 22, 2021 (the “2021 Shelf”). Under the 2021 Shelf at the time of effectiveness, the Company originally had the ability
to raise up to $ million by selling common stock, preferred stock, debt securities, warrants, and units. In conjunction with the 2021
Shelf, the Company also entered into an At Market Issuance Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities,
Inc. and Cantor Fitzgerald & Co. relating to the sale of its common stock. In accordance with the terms of the ATM Sales Agreement,
the Company may, but is not obligated to, offer and sell, from time to time, shares of common stock, through or to the Agents, acting
as agent or principal. Sales of common stock, if any, will be made by any method permitted that is deemed an “at the market offering”
as defined in Rule 415 under the Securities Act. On March 22, 2023, the date the Company filed its Annual Report on Form 10-K for the
fiscal year ended December 31, 2022, the Company became subject to the offering limits in General Instruction I.B.6 of Form S-3 (i.e.,
the “baby shelf limitations”). As a result of the baby shelf limitations, the Company was only able to offer and sell shares
of common stock having an aggregate offering price of up to $
Management believes that the overall market value of the telehealth industry is positive and that it will continue to drive interest in the Company.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete audited financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended December 31, 2022, included in our 2022 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or for any future period.
Principles of Consolidation
The Company evaluates the need to consolidate affiliates based on standards set forth in Accounting Standards Codification (“ASC”) 810, Consolidation.
The
consolidated financial statements include the accounts of the Company, Cleared, its majority
owned subsidiary, WorkSimpli, and LifeMD PC, the Company’s affiliated, variable interest entity in which we hold a controlling
financial interest. During the year ended December 31, 2021, the Company purchased an additional
All significant intercompany transactions and balances have been eliminated in consolidation.
| 9 |
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of June 30, 2023 and December 31, 2022, there were no cash equivalents. The Company maintains deposits in financial institutions in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. Cash and cash equivalents are maintained at financial institutions, and at times, balances may exceed federally insured limits. These balances could be impacted if one or more of the financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets. We have never experienced any losses related to these balances.
Variable Interest Entities
In accordance with ASC 810, Consolidation, the Company determines whether any legal entity in which the Company becomes involved is a variable interest entity (a “VIE”) and subject to consolidation. This determination is based on whether an entity has sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of the characteristics of a controlling financial interest and whether the interest will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE.
The Company determined that the LifeMD PC entity, the Company’s affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., is a VIE and subject to consolidation. LifeMD PC and the Company do not have any stockholders in common. LifeMD PC is owned by licensed physicians, and the Company maintains a managed service agreement with LifeMD PC whereby we provide all non-clinical services to LifeMD PC. The Company determined that it is the primary beneficiary of LifeMD PC and must consolidate, as we have both the power to direct the activities of LifeMD PC that most significantly impact the economic performance of the entity and we have the obligation to absorb the losses. As a result, the Company presents the financial position, results of operations, and cash flows of LifeMD PC as part of the consolidated financial statements of the Company. There is no non-controlling interest upon consolidation of LifeMD PC.
Total
revenue for LifeMD PC was approximately $
Use of Estimates
The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include the determination of reserves for accounts receivable, returns and allowances, the valuation of inventory and stockholders’ equity-based transactions. Actual results could differ from those estimates.
Reclassifications
Certain
reclassifications have been made to conform the prior year’s data to the current presentation. These reclassifications have no
effect on previously reported operating loss, stockholders’ deficit or cash flows. The Company has changed their categories for
reporting operations and, as a result, the Company has made reclassifications to the prior year presentation in order to conform it to
the current periods’ presentation. The reclassifications include $
| 10 |
Revenue Recognition
The Company records revenue under the adoption of ASC 606, Revenue from Contracts with Customers, by analyzing exchanges with its customers using a five-step analysis:
| 1. | Identify the contract |
| 2. | Identify performance obligations |
| 3. | Determine the transaction price |
| 4. | Allocate the transaction price |
| 5. | Recognize revenue |
For the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation, which is the delivery of the product; this performance obligation is transferred at a discrete point in time. The Company generally records sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped by a third-party fulfillment service provider. In some cases, the customer does not obtain control until the product reaches the customer’s delivery site; in these cases, recognition of revenue is deferred until that time. In all cases, delivery is considered to have occurred when the customer obtains control, which is usually commensurate upon shipment of the product. In the case where delivery is not commensurate upon shipment of the product, recognition of revenue is deferred until that time. In the case of its product-based contracts, the Company provides a subscription sensitive service based on the recurring shipment of products. The Company records the related revenue under the subscription agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment obligation to the customer.
For
its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances, customer
rebates, and other adjustments for its product shipments and are reflected as contra revenues in arriving at reported net revenues. The
Company’s discounts and customer rebates are known at the time of sale; correspondingly, the Company reduces gross product sales
for such discounts and customer rebates. The Company estimates customer returns and allowances based on information derived from historical
transaction detail and accounts for such provisions, as contra revenue, during the same period in which the related revenues are earned.
The Company has determined that the population of its product-based contracts with customers are homogenous, supporting the ability to
record estimates for returns and allowances to be applied to the entire product-based portfolio population. Customer discounts, returns
and rebates on telehealth revenues approximated $
The
Company, through its majority-owned subsidiary, WorkSimpli, offers a subscription-based service providing a suite of software applications
to its subscribers, principally on a monthly subscription basis. The software suite allows the subscriber/user to convert almost any
type of document to another electronic form of editable document, providing ease of editing. For these subscription-based contracts with
customers, the Company offers an initial 14-day trial period which is billed at $, followed by a monthly subscription, or a yearly
subscription to the Company’s software suite dependent on the subscriber’s enrollment selection. The Company has estimated
that there is one product and one performance obligation that is delivered over time, as the Company allows the subscriber to access
the suite of services for the time period of the subscription purchased. The Company allows the customer to cancel at any point during
the billing cycle, in which case the customers subscription will not be renewed for the following month or year depending on the original
subscription. The Company records the revenue over the customers subscription period for monthly and yearly subscribers or at the end
of the initial 14-day service period for customers who purchased the initial subscription, as the circumstances dictate. The Company
offers a discount for the monthly or yearly subscriptions being purchased, which is deducted at the time of payment at the initiation
of the contract term; therefore the Contract price is fixed and determinable at the contract initiation. Monthly and annual subscriptions
for the service are recorded net of the Company’s known discount rates. Customer discounts and allowances on WorkSimpli revenues
approximated $
For the three and six months ended June 30, 2023 and 2022, the Company had the following disaggregated revenue:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2023 | % | 2022 | % | 2023 | % | 2022 | % | |||||||||||||||||||||||||
| Telehealth revenue | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| WorkSimpli revenue | % | % | % | % | ||||||||||||||||||||||||||||
| Total net revenue | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| 11 |
Deferred Revenues
The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to the following: (1) obligations for products which the customer has not yet obtained control due to delivery not commensurate upon shipment of the product, (2) obligations on WorkSimpli in-process monthly or yearly contracts with customers and (3) a portion attributable to the yet to be recognized WorkSimpli initial 14-day trial period collections.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Beginning of period | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Revenue recognized | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| End of period | $ | $ | $ | $ | ||||||||||||
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets, net on the unaudited condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current operating lease liabilities and noncurrent operating lease liabilities, respectively, on the unaudited condensed consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded in the balance sheet.
Accounts Receivable, net
Accounts
receivable principally consist of amounts due from third-party merchant processors, who process our subscription revenues; the merchant
accounts balance receivable represents the charges processed by the merchants that have not yet been deposited with the Company. The
unsettled merchant receivable amount normally represents processed sale transactions from the final one to three days of the month, with
collections being made by the Company within the first week of the following month. Management determines the need, if any, for an allowance
for future credits to be granted to customers, by regularly evaluating aggregate customer refund activity, coupled with the consideration
and current economic conditions in its evaluation of an allowance for future refunds and chargebacks. As of June 30, 2023 and December
31, 2022, the reserve for sales returns and allowances was approximately $
Inventory
As of June 30, 2023 and December 31, 2022, inventory primarily consisted of finished goods related to the Company’s OTC products included in the telehealth revenue section of the table above. Inventory is maintained at the Company’s third-party warehouse location in Wyoming and at various Amazon fulfillment centers. The Company also maintains inventory at a company owned warehouse in Pennsylvania.
Inventory
is valued at the lower of cost or net realizable value with cost determined on an average cost basis. Management compares the cost of
inventory with the net realizable value and an allowance is made for writing down inventory to net realizable, if lower. As of both June
30, 2023 and December 31, 2022, the Company recorded an inventory reserve of approximately $
As of June 30, 2023 and December 31, 2022, the Company’s inventory consisted of the following:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Finished goods - products | $ | $ | ||||||
| Raw materials and packaging components | ||||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Total Inventory - net | $ | $ | ||||||
| 12 |
Product Deposit
Many
of our vendors require deposits when a purchase order is placed for goods or fulfillment services. These deposits typically range from
Capitalized Software Costs
The
Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes these
costs using the straight-line method over the estimated useful life of the software, generally three years. The Company does not sell
internally developed software other than through the use of subscription service. Certain development costs not meeting the criteria
for capitalization, in accordance with ASC 350-40, Internal-Use Software, are expensed as incurred. As of June 30, 2023 and December
31, 2022, the Company capitalized a net amount of $
Goodwill and Intangible Assets
Goodwill
represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination.
Goodwill is not amortized but is tested for impairment annually or more frequently, if events or changes in circumstances indicate that
the asset may be impaired. Goodwill in the amount of $
Other
intangible assets are comprised of: (1) the ResumeBuild brand, (2) a customer relationship asset, (3) the Cleared trade name, (4) Cleared
developed technology, (5) a purchased license and (6) two purchased domain names. During the year ended December 31, 2022, the Company
recorded an $
Impairment of Long-Lived Assets
Long-lived assets include equipment and capitalized software. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, an impairment is recognized as the amount by which the carrying amount of the assets exceeds the estimated fair values of the assets. As of June 30, 2023 and December 31, 2022, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived assets.
Income Taxes
The Company files corporate federal, state and local tax returns. WorkSimpli files a tax return in Puerto Rico; WorkSimpli is a limited liability company and files tax returns with any tax liabilities or benefits passing through to its members.
The Company records current and deferred taxes in accordance with ASC 740, Accounting for Income Taxes. This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax asset, a majority of which has been generated by a history of net operating losses and management determines the necessity for a valuation allowance. ASC 740 also provides a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return. Using this guidance, a company may recognize the tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood of more than 50%) that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company’s tax returns for all years since December 31, 2019, remain open to audit by all related taxing authorities.
| 13 |
Stock-based Compensation
The Company follows the provisions of ASC 718, Share-Based Payment. Under this guidance compensation cost generally is recognized at fair value on the date of the grant and amortized over the respective vesting or service period. The fair value of options at the date of grant is estimated using the Black-Scholes option pricing model. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of the Company’s common shares using weekly price observations over an observation period that approximates the expected life of the options. The risk-free interest rate approximates the U.S. Treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. Due to limited history of forfeitures, the Company has elected to account for forfeitures as they occur. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense.
Basic earnings (loss) per common share (“EPS”) is based on the weighted average number of shares outstanding during each period presented. Shares of unissued vested restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) are included in our calculation of basic weighted average shares outstanding. Convertible securities, warrants and options to purchase common stock are included as common stock equivalents only when dilutive. Potential common stock equivalents are excluded from dilutive earnings per share when the effects would be antidilutive.
The Company follows the provisions of ASC 260, Diluted Earnings per Share. In computing diluted EPS, basic EPS is adjusted for the assumed issuance of all potentially dilutive securities. The dilutive effect of call options, warrants and share-based payment awards is calculated using the “treasury stock method,” which assumes that the “proceeds” from the exercise of these instruments are used to purchase common shares at the average market price for the period. The dilutive effect of traditional convertible debt and preferred stock is calculated using the “if-converted method.” Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted EPS calculation for the entire period being presented.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Series B Preferred Stock | ||||||||||||||||
| RSUs and RSAs | ||||||||||||||||
| Stock options | ||||||||||||||||
| Warrants | ||||||||||||||||
| Convertible long-term debt | ||||||||||||||||
| Potentially dilutive securities | ||||||||||||||||
Segment Data
Our portfolio of brands are included within two operating segments: Telehealth and WorkSimpli. We believe our current segments and brands within our segments complement one another and position us well for future growth. Segment operating results are reviewed by the chief operating decision maker to make determinations about resources to be allocated and to assess performance. Other factors, including type of business, revenue recognition and operating results are reviewed in determining the Company’s operating segments.
Fair Value of Financial Instruments
The fair value of a financial instrument is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities subject to ongoing fair value measurement are categorized and disclosed into one of the three categories depending on observable or unobservable inputs employed in the measurement. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows:
| 1. | Level 1: Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. | |
| 2. | Level 2: Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. | |
| 3. | Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
| 14 |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued expenses, the face amount of notes payable and convertible long-term debt approximate fair value for all periods presented.
Concentrations of Risk
The Company monitors its positions with, and the credit quality of, the financial institutions with which it invests. The Company, at times, maintains balances in various operating accounts in excess of federally insured limits. We are dependent on certain third-party manufacturers and pharmacies, although we believe that other contract manufacturers or third-party pharmacies could be quickly secured if any of our current manufacturers or pharmacies cease to perform adequately. As of June 30, 2023, we utilized five suppliers for fulfillment services, six suppliers for manufacturing finished goods, six suppliers for packaging, bottling, and labeling, and four suppliers for prescription medications. As of December 31, 2022, we utilized four suppliers for fulfillment services, six suppliers for manufacturing finished goods, five suppliers for packaging, bottling, and labeling, and three suppliers for prescription medications.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires an entity to utilize the current expected credit loss (“CECL”) impairment model to estimate its lifetime “expected credit loss” and record an allowance that is deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities are recorded through an allowance for credit losses. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. The Company adopted ASU 2016-13 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606, Revenue from Contracts with Customers, as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The Company adopted ASU 2021-08 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
Other Recent Accounting Pronouncements
All other accounting standards updates that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE 3 – ACQUISITIONS
On January 18, 2022, the Company completed the acquisition of Cleared. The acquisition adds to the Company’s growing portfolio of telehealth capabilities. The Company accounted for the transaction using the acquisition method in accordance with ASC 805, Business Combinations, with the purchase price being allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. Fair values were determined using income approaches. The results of Cleared are included within the consolidated financial statements commencing on the acquisition date.
The
purchase price was approximately $
| 15 |
The following table summarizes the acquisition date fair values of assets acquired and liabilities assumed:
| Purchase price, net of cash acquired | $ | |||
| Less: | ||||
| Customer relationship intangible asset | ||||
| Trade name intangible asset | ||||
| Developed technology intangible asset | ||||
| Inventory | ||||
| Fixed assets | ||||
| Deferred taxes | ||||
| Accounts payable and other current liabilities | ( | ) | ||
| Goodwill | $ |
The
purchase price and purchase price allocation for Cleared was finalized as of September 30, 2022 with no significant changes to preliminary
amounts. Based on the final purchase price allocation, the aggregate goodwill recognized was $
On
February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between
the Company and the sellers of Cleared. The First Amendment was amended to, among other things: (i) reduce the total purchase price by
$
During
the year ended December 31, 2022, the Company recorded a decrease of $
The pro forma financial information, assuming the acquisition had taken place on January 1, 2022, as well as the revenue and earnings generated during the period after the acquisition date, were not material for separate disclosure and, accordingly, have not been presented.
In
February 2022, WorkSimpli closed on the ResumeBuild APA to purchase the related intangible assets associated with the ResumeBuild brand,
a subscription-based resume building software. The acquisition further adds to the capabilities of the WorkSimpli software as a service
application. The purchase price was $
| 16 |
NOTE 4 – GOODWILL AND INTANGIBLE ASSETS
The
Company’s goodwill balance related to the Cleared acquisition was $
As of June 30, 2023 and December 31, 2022, the Company has the following amounts related to amortizable intangible assets:
| June 30, | December 31, | Amortizable | ||||||||||
| 2023 | 2022 | Life | ||||||||||
| Amortizable Intangible Assets: | ||||||||||||
| ResumeBuild brand | $ | $ | ||||||||||
| Customer relationship asset | ||||||||||||
| Cleared trade name | ||||||||||||
| Cleared developed technology | ||||||||||||
| Purchased licenses | ||||||||||||
| Website domain names | ||||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||||
| Total net amortizable intangible assets | $ | $ | ||||||||||
During
the year ended December 31, 2022, the Company recorded an $
NOTE 5 – ACCRUED EXPENSES
As of June 30, 2023 and December 31, 2022, the Company has the following amounts related to accrued expenses:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued selling and marketing expenses | $ | $ | ||||||
| Sales tax payable | ||||||||
| Purchase price payable | ||||||||
| Accrued dividends payable | ||||||||
| Accrued compensation | ||||||||
| Accrued interest | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses | $ | $ | ||||||
NOTE 6 – NOTES PAYABLE
Working Capital Loans
In
October 2022, the Company received proceeds of $
In
November 2022, the Company received proceeds of $
During
the six months ended June 30, 2023, the Company received proceeds of $
| 17 |
Total
interest expense on notes payable amounted to $
NOTE 7 – LONG-TERM DEBT
Avenue Capital Credit Facility
As
noted in Note 1 above, on March 21, 2023, the Company entered into and closed on a Credit Agreement, and a Supplement to the Credit Agreement
with Avenue. The Credit Agreement provides for a convertible senior secured credit facility of up to an aggregate amount of $
The
Avenue Facility matures on
Total
interest expense on long-term debt, inclusive of amortization of debt discounts, amounted to $
NOTE 8 – STOCKHOLDERS’ EQUITY
The
Company has authorized the issuance of up to shares of common stock, $ par value, and shares of preferred stock,
$ par value, of which shares are designated as Series B Convertible Preferred Stock, are designated as Series A
Preferred Stock and
On
June 8, 2021, the Company filed the 2021 Shelf. Under the 2021 Shelf at the time of effectiveness, the Company originally had the ability
to raise up to $ million by selling common stock, preferred stock, debt securities, warrants and units. In conjunction with the 2021
Shelf, the Company also entered into the ATM Sales Agreement whereby the Company may offer and sell, from time to time, shares of common
stock. On March 22, 2023, the date the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the
Company became subject to the offering limits in General Instruction I.B.6 of Form S-3 (i.e., the “baby shelf limitations”).
As a result of the baby shelf limitations, the Company may only offer and sell shares of common stock having an aggregate offering price
of up to $
| 18 |
Options
During the six months ended June 30, 2023, the Company issued an aggregate of shares of common stock related to the cashless exercise of options.
Common Stock
Common Stock Transactions During the Six Months Ended June 30, 2023
During the six months ended June 30, 2023, the Company issued an aggregate of shares of common stock for service, including vested restricted stock units.
On
February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between
the Company and the sellers of Cleared. The First Amendment was amended to, among other things change the timing of the payment of the
purchase price to $
On
March 21, 2023, in connection with the Company’s closing of a Credit Agreement with Avenue, the Company issued Avenue warrants
to purchase $
Noncontrolling Interest
Net
income attributed to the non-controlling interest amounted to $
WorkSimpli Software Restructuring Transaction
Effective
January 22, 2021 (the “WSS Effective Date”), the Company consummated the WSS Restructuring, which is described in Note 1.
To effect the WSS Restructuring the Company’s wholly-owned subsidiary Conversion Labs PR, entered into a series of membership interest
exchange agreements, pursuant to which, Conversion Labs PR exchanged that certain promissory note, dated May 8, 2019 with an outstanding
balance of $
Concurrently,
in furtherance of the WSS Restructuring, Conversion Labs PR entered into two Membership Interest Purchase Agreements (the “Founding
Members MIPAs”) with two founding members of WSS (the “Founding Members”) whereby Conversion Labs PR purchased from
the Founding Members an aggregate of membership interests of WSS for an aggregate purchase price of $
In
furtherance of the WSS Restructuring, Conversion Labs PR entered into a Membership Interest Purchase Agreement with WSS, (the “CVLB
PR MIPA”), pursuant to which Conversion Labs PR purchased membership interests of WSS for an aggregate purchase price of
$
Following
the consummation of the WSS Restructuring, Conversion Labs PR increased its ownership of WSS from
.
| 19 |
.
.
On
September 30, 2022, Sean Fitzpatrick and Varun Pathak exercised their options to purchase and membership interest units,
respectively, of WorkSimpli for an exercise price of $
Dividends
The
Company pays cumulative distributions on its Series A Preferred Stock, in the amount of $ per share each year, which is equivalent
to
On
June 30, 2023, WorkSimpli declared a cash dividend in the amount of $
Stock Options
On January 8, 2021, the Company approved the Company’s 2020 Equity and Incentive Plan (the “2020 Plan”). Approval of the 2020 Plan was included as Proposal 1 in the Company’s definitive proxy statement for its Special Meeting of Shareholders filed with the Securities and Exchange Commission on December 7, 2020. The 2020 Plan is administered by the Compensation Committee of the Board of Directors (the “Board”) and initially provided for the issuance of up to shares of Common Stock. The number of shares of Common Stock available for issuance under the 2020 Plan automatically increases by shares of Common Stock on January 1st of each year, for a period of not more than ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030. Awards under the 2020 Plan can be granted in the form of stock options, non-qualified and incentive options, stock appreciation rights, restricted stock, and restricted stock units.
On June 24, 2021, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by shares.
On June 16, 2022, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by shares. As of June 30, 2023, the 2020 Plan, as amended, provided for the issuance of up to shares of Common Stock. Remaining authorization under the 2020 Plan, as amended, was shares as of June 30, 2023.
The forms of award agreements to be used in connection with awards made under the 2020 Plan to the Company’s executive officers and non-employee directors are:
| ● | Form of Non-Qualified Option Agreement (Non-Employee Director Awards) |
| ● | Form of Non-Qualified Option Agreement (Employee Awards); and |
| ● | Form of Restricted Stock Award Agreement. |
| 20 |
Previously, the Company had granted service-based stock options and performance-based stock options separate from the 2020 Plan.
During the six months ended June 30, 2023, the Company issued an aggregate of stock options to employees under the 2020 Plan and the prior plan. These stock options have a contractual term of to years and vest in increments which fully vest the options over a two to three-year period, dependent on the specific agreements’ terms.
Options Outstanding Number of Shares | Exercise Price per Share | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price per Share | |||||||||||||
| Balance, December 31, 2022 | $ – | years | $ | |||||||||||||
| Granted | – | years | ||||||||||||||
| Cancelled/Forfeited/Expired | ( | ) | – | |||||||||||||
| Balance at June 30, 2023 | $ – | years | $ | |||||||||||||
| Exercisable at December 31, 2022 | $ – | years | $ | |||||||||||||
| Exercisable at June 30, 2023 | $ – | years | $ | |||||||||||||
The
total fair value of the options granted was $ thousand, which was determined by the Black-Scholes Pricing Model with the following
assumptions: dividend yield of %, expected term of years, volatility of % – % and risk-free rate of % –
%. Total compensation expense under the 2020 Plan options above was $ million and $ million for the three months ended June
30, 2023 and 2022, respectively, with unamortized expense remaining of $
Options Outstanding Number of Shares | Exercise Price per Share | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price per Share | |||||||||||||
| Balance, December 31, 2022 | $– | years | $ | |||||||||||||
| Granted | – | years | ||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Balance at June 30, 2023 | $ – | years | $ | |||||||||||||
| Exercisable December 31, 2022 | $ – | years | $ | |||||||||||||
| Exercisable at June 30, 2023 | $ – | years | $ | |||||||||||||
The
total fair value of the options granted was $ thousand, which was determined by the Black-Scholes Pricing Model with the following
assumptions: dividend yield of %, expected term of years, volatility of % – % and risk-free rate of % –
%. Total compensation expense under the above service-based option plan was $ thousand and $ thousand for the three months
ended June 30, 2023 and 2022, respectively, with unamortized expense remaining of $
| 21 |
Options Outstanding Number of Shares | Exercise Price per Share | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price per Share | |||||||||||||
| Balance at December 31, 2022 | $ – | years | $ | |||||||||||||
| Granted | ||||||||||||||||
| Balance at June 30, 2023 | $ – | years | $ | |||||||||||||
| Exercisable December 31, 2022 | $ – | years | $ | |||||||||||||
| Exercisable at June 30, 2023 | $– | years | $ | |||||||||||||
compensation expense was recognized on the performance-based options above for the three and six months ended June 30, 2023, as the performance terms have not been met or are not probable. Total compensation expense under the above performance-based options was $ thousand and $ thousand for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, aggregate intrinsic value of vested performance options outstanding was $ million.
RSUs and RSAs
| RSU
Outstanding Number of Shares | ||||
| Balance at December 31, 2022 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Cancelled/Forfeited | ( | ) | ||
| Balance at June 30, 2023 | ||||
The
total fair value of the RSUs and RSAs granted was $
| RSU
Outstanding Number of Shares | ||||
| Balance at December 31, 2022 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Balance at June 30, 2023 | ||||
The
total fair value of the RSUs and RSAs granted was $
| 22 |
Warrants
The following is a summary of outstanding and exercisable warrants activity during the six months ended June 30, 2023:
Warrants Outstanding Number of Shares | Exercise Price per Share | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price per Share | |||||||||||||
| Balance at December 31, 2022 | $ – | years | $ | |||||||||||||
| Granted | years | |||||||||||||||
| Balance at June 30, 2023 | $ – | years | $ | |||||||||||||
| Exercisable December 31, 2022 | $ – | years | $ | |||||||||||||
| Exercisable June 30, 2023 | $ – | years | $ | |||||||||||||
The
total fair value of the warrants granted was $
Stock-based Compensation
The
total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based stock
options, warrants, RSUs and RSAs amounted to $ million and $ million for the three months ended June 30, 2023 and 2022, respectively.
The total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based
stock options, warrants RSUs and RSAs amounted to $ million and $ million for the six months ended June 30, 2023 and 2022, respectively.
Such amounts are included in general and administrative expenses in the unaudited condensed consolidated statement of operations. Unamortized
expense remaining related to service-based stock options, performance-based stock options, warrants, RSUs and RSAs was $
NOTE 9 – LEASES
The Company leases office space domestically under operating leases. The Company’s headquarters are located in New York, New York for which the lease expires in 2025. We operate a marketing and sales center in Huntington Beach, California for which the lease expires in 2024, a patient care center in Greenville, South Carolina for which the lease expires in 2024 and a warehouse and fulfillment center in Columbia, Pennsylvania for which the lease expires in 2024. WorkSimpli leases office space in Puerto Rico for which the lease expires in 2024.
The following is a summary of the Company’s operating right-of-use assets and operating lease liabilities as of June 30, 2023:
| Operating right-of-use assets | $ | |||
| Operating lease liabilities - current | $ | |||
| Operating lease liabilities - noncurrent | $ |
Total
accumulated amortization of the Company’s operating right-of-use assets was $
The table below reconciles the undiscounted future minimum lease payments under the above noted operating leases to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2023:
| Fiscal year 2023 | $ | |||
| Fiscal year 2024 | ||||
| Fiscal year 2025 | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
| 23 |
Operating
lease expenses were $
Supplemental cash flow information related to operating lease liabilities consisted of the following:
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
Supplemental balance sheet information related to operating lease liabilities consisted of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Weighted average remaining lease term in years | ||||||||
| Weighted average discount rate | % | % | ||||||
We
have elected to apply the short-term lease exception to the warehouse space we lease in Lancaster, Pennsylvania. This lease has a term
of
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Royalty Agreements
During
2016, Conversion Labs PR entered into a sole and exclusive license, royalty and advisory agreement with Pilaris Laboratories, LLC (“Pilaris”)
relating to Pilaris’ PilarisMax shampoo formulation and conditioner. The term of the agreement will be the life of the US Patent
held by Pilaris,
During
2018, the Company entered into a license agreement (the “Alphabet Agreement”) with M.ALPHABET, LLC (“Alphabet”),
pursuant to which Alphabet agreed to license its PURPUREX business which consists of methods and compositions developed by Alphabet for
the treatment of purpura, bruising, post-procedural bruising, and traumatic bruising (the “Product Line”). Pursuant to the
license granted under the Alphabet Agreement, Conversion Labs PR obtains an exclusive license to incorporate (i) any intellectual property
rights related to the Product Line and (ii) all designs, drawings, formulas, chemical compositions and specifications used or useable
in the Product Line into one or more products manufactured, sold, and/or distributed by Alphabet for the treatment of purpura, bruising,
post-procedural bruising and traumatic bruising and for all other fields of use or purposes (the “Licensed Product(s)”),
and to make, have made, advertise, promote, market, sell, import, export, use, offer to sell, and distribute the Licensed Product(s)
throughout the world with the exception of China, Hong Kong, Japan, and Australia (the “License”).
Upon
execution of the Alphabet Agreement, Alphabet was granted a -year stock option to purchase shares of the Company’s common
stock at an exercise price of $. Further, if Licensed Products have gross receipts of $
Purchase Commitments
Many
of the Company’s vendors require product deposits when a purchase order is placed for goods or fulfillment services related to
inventory requirements. The Company’s history of product deposits with its inventory vendors, creates an implicit purchase commitment
equaling the total expected product acceptance cost in excess of the product deposit. As of June 30, 2023, the Company approximates its
implicit purchase commitments to be $
| 24 |
Legal Matters
In the normal course of business operations, the Company may become involved in various legal matters. As of June 30, 2023, other than as set forth below, the Company’s management does not believe that there are any potential legal matters that could have a material effect on the Company’s consolidated financial position.
On
December 10, 2021, a purported breach of contract, breach of duty of good faith and fair dealing, unjust enrichment, quantum meruit,
and fraud lawsuit, captioned Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, was filed in the United States District
Court for the Southern District of New York against the Company. The Harborside Complaint alleges, among other things, that the Company
breached a Consulting Services Agreement dated as of June 5, 2019, and Harborside was entitled to million shares (i.e.,
shares post
On
December 10, 2021, a purported breach of contract, unjust enrichment, quantum meruit, and account stated lawsuit, captioned Specialty
Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599, was filed in the United States District Court for the
Southern District of New York against the Company. The GoGoMeds Complaint alleges, among other things, that Conversion Labs Rx breached
a Strategic Partnership Agreement (dated May 27, 2019) (the “SPA”) by the Company not paying two invoices (#3269 and 3270)
totaling $
On
February 28, 2022, a purported breach of contract lawsuit (with six counts of alleged breach, and indemnity reliance concerning reasonable
costs and expenses), captioned William Blair LLC v. LifeMD, Inc., Case No. 2022L001978, was filed in the Circuit Court of Cook
County, Illinois County Department, Law Division against the Company (the “Blair Complaint”). The Blair Complaint alleges,
among other things, that LifeMD breached an engagement letter agreement entered into on January 7, 2021 with Blair that concerned potential
debt financing. In particular, Blair alleges that the Company breached its obligations by, inter alia: (i) failing to advise Blair
of, and ultimately completing, a debt financing transaction with a different investment banking firm on or about June 3, 2021; (ii) reproducing
several pages from a Confidential Information Brochure used in the Company’s debt financing transaction with a different investment
banking firm; (iii) failing to provide Blair with a right of first refusal to be its joint active bookrunning manager for a common stock
sales agreement that it executed on or about June 3, 2021, through a different investment banking firm; (iv) failing to provide Blair
with a right of first refusal to be its joint active bookrunning manager for a common stock sales agreement that it executed on or about
September 28, 2021, through a different investment banking firm (despite the Company having formally terminated the engagement letter
with Blair on or about July 16, 2021); (v) failing to provide Blair with a right of first refusal to be its joint active bookrunning
manager for a preferred stock offering that it executed on or about September 28, 2021, through two different investment banking firms
as bookrunning co-managers (despite the Company having formally terminated the engagement letter with Blair on or about July 16, 2021);
and (vi) purchasing a convertible note from a pharmaceutical investor in connection with its acquisition of all outstanding shares of
allergy telehealth platform, Cleared. The Blair Complaint seeks damages adequate to compensate Blair for the aforementioned alleged breaches
(i.e., which implicitly meets or exceeds the purported $
| 25 |
The Court conducted virtual case management conferences on June 30, 2022 and August 3, 2022, and fact discovery (i.e., written discovery requests and responses) commenced thereafter. On August 29, 2022, the plaintiff subpoenaed B. Riley Financial, Inc. for documents. The Court subsequently held several case management and status conferences, beginning in October 2022 and continuing through March 2023. On April 5, 2023, the court granted the plaintiff’s motion to compel certain discovery and ordered the Company to conduct certain additional searches for documents and to produce responsive documents by April 26, 2023, which the Company did in compliance with the order. A further case management conference was held on May 17, 2023. In June 2023, the parties attended a mediation resulting in a settlement that fully resolved the matters in this case. The costs of this settlement are reflected in the Company’s financial results.
NOTE 11 – RELATED PARTY TRANSACTIONS
Working Capital Loan
During
the six months ended June 30, 2023, the Company received proceeds of $
WorkSimpli Software
During
the six months ended June 30, 2023 and 2022, WorkSimpli utilized LegalSubmit Pvt. Ltd. (“LegalSubmit”), a company owned by
WorkSimpli’s Chief Software Engineer, to provide software development services. WorkSimpli paid LegalSubmit a total of $
NOTE 12 – SEGMENT DATA
Our portfolio of brands are included within two operating segments: Telehealth and WorkSimpli. We believe our current segments and brands within our segments complement one another and position us well for future growth. Relevant segment data for the three and six months ended June 30, 2023 and 2022 is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Telehealth | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross margin | % | % | % | % | ||||||||||||
| Operating loss | $ | ( | ) | $ | ( | ) | $ |
( | ) | $ | ( | ) | ||||
| WorkSimpli | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross margin | % | % | % | % | ||||||||||||
| Operating income | $ | $ | $ | $ | ||||||||||||
| Consolidated | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross margin | % | % | % | % | ||||||||||||
| Operating loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Relevant segment data as of June 30, 2023 and December 31, 2022 is as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Total Assets | ||||||||
| Telehealth | $ | $ | ||||||
| WorkSimpli | ||||||||
| Consolidated | $ | $ | ||||||
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NOTE 13 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these consolidated financial statements were issued and has identified the following:
Stock Issued for Service
In July and August 2023, the Company issued shares of common stock related to vested RSUs and RSAs.
ATM Sales Agreement
In
July 2023, the Company sold shares of common stock under the ATM Sales Agreement and net proceeds received were $
Stock Issued for Legal Settlement
On July 10, 2023, the Company issued shares of common stock related to the settlement of the Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, and the Specialty Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599.
Series B Preferred Stock Conversion
On July 12, 2023, the holder of the Company’s Series B Preferred Stock elected to convert shares of the Company’s Series B Preferred Stock. The conversion resulted in shares of the Company’s common stock issued to the holder of the Company’s Series B Preferred Stock.
Stock Issued for Noncontingent Consideration Payment
On July 17, 2023, the Company issued shares of common stock related to the third of five quarterly installment payments due to the sellers of Cleared under the First Amendment.
| 27 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q. Certain statements made in this discussion are “forward-looking statements” within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
Risk factors include, by way of example and without limitation:
| ● | changes in the market acceptance of our products; |
| ● | increased levels of competition; |
| ● | changes in political, economic, or regulatory conditions generally and in the markets in which we operate; |
| ● | our ability to successfully commercialize our products on a large enough scale to generate profitable operations; |
| ● | our ability to maintain and develop relationships with customers and suppliers; |
| ● | our ability to respond to new technological developments quickly and effectively; |
| ● | our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on our proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on our proprietary rights; |
| ● | our ability to successfully integrate acquired businesses or new brands; |
| ● | the impact of competitive products and pricing; |
| ● | supply constraints or difficulties; |
| ● | general economic and business conditions, including inflation, slower growth or recession; |
| ● | business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as COVID-19); |
| ● | current and potential material weaknesses in our internal control over financial reporting; |
| ● | our ability to continue as a going concern; |
| ● | our need to raise additional funds in the future; |
| ● | our ability to successfully recruit and retain qualified personnel; |
| ● | our ability to successfully implement our business plan; |
| ● | our ability to successfully acquire, develop or commercialize new products and equipment; |
| ● | being able to scale our telehealth platform built to improve the experience and medical care provided to patients across the country; |
| ● | intellectual property claims brought by third parties; and |
| ● | the impact of any industry regulation. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”). We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
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Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to LifeMD, Inc. (formerly known as Conversion Labs, Inc.), Cleared Technologies PBC, a Delaware public benefit corporation (“Cleared”) and our majority-owned subsidiary WorkSimpli Software, LLC (formerly known as LegalSimpli Software, LLC), a Puerto Rico limited liability company (“WorkSimpli”). The affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., (“LifeMD PC”) is the Company’s variable interest entity in which we hold a controlling financial interest. Unless otherwise specified, all dollar amounts are expressed in United States (“U.S.”) dollars.
Corporate History
We were formed in the State of Delaware on May 24, 1994, under our prior name, Immudyne, Inc. We changed our name to Conversion Labs, Inc. on June 22, 2018 and then subsequently, on February 22, 2021, we changed our name to LifeMD, Inc. Further, in connection with our name change, we changed our trading symbol to LFMD. In June 2018, the Company closed the strategic acquisition of 51% of WorkSimpli, a company that provides a software as a service for converting, editing, signing and sharing PDF documents called PDFSimpli. Effective January 22, 2021, we consummated a transaction to restructure the ownership of WorkSimpli through a series of agreements and concurrently increased our ownership stake in WorkSimpli to 85.58%. Effective September 30, 2022, two option agreements were exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.64%. Effective March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli and, as a result, the Company’s ownership interest in WorkSimpli increased to 74.06%. Effective June 30, 2023, an option agreement was exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.32%. On January 18, 2022, the Company acquired Cleared, a nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology.
Business Overview
We are a direct-to-patient telehealth company providing patients a high-quality, cost-effective, and convenient way of accessing comprehensive, virtual healthcare. We believe the traditional model of visiting a doctor’s office, traveling to a local pharmacy, and returning for follow up care or prescription refills is complex, inefficient, and costly, and discourages many individuals from seeking much needed medical care. LifeMD is positioned to elevate the healthcare experience through telehealth with our proprietary technology platform, affiliated provider network, broad treatment capabilities, and unique ability to nurture patient relationships.
The LifeMD telehealth platform seamlessly integrates a clinician-centric electronic medical record (“EMR”) system, proprietary algorithms for case-load balancing and scheduling, customer relationship management (“CRM”) functionality, remote and in-home lab testing, and digital prescription capabilities, patient-provider audio/video interfacing, cloud pharmacy fulfillment, and more. Our proprietary technology platform, combined with our 50-state affiliated provider network, enables the management of virtual treatment offerings and complex patient journeys for hundreds of conditions spanning men’s and women’s health, dermatology, urgent, and primary care, chronic care management and more. Our telehealth offerings in general seek to connect patients to licensed providers for diagnoses, virtual care, and prescription medications when appropriate. We also offer over-the-counter (“OTC”) products that are complementary to the conditions we treat. Our virtual primary care services are primarily offered on a subscription basis.
Our mission is to empower people to live healthier lives by increasing access to high quality and affordable virtual and in-home healthcare. We believe our success has and will continue to be attributable to an amazing patient experience, retaining the highest-quality providers in the industry, and our end-to-end technology platform. We plan to build a diverse portfolio of differentiated telehealth service offerings that meet the needs of a growing and diversified patient base.
Since inception, we have helped approximately 755,000 customers and patients, providing them greater access to high-quality, convenient, and affordable care in all 50 states. Total revenue from recurring subscriptions is approximately 92%. In addition to our telehealth business, we own 73.32% of WorkSimpli, which operates PDFSimpli, a rapidly growing software as a service platform for converting, signing, editing, and sharing PDF documents. This business has seen 81% year-over-year revenue growth, with recurring revenue of 98%.
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Our Platform and Business Strategy
We are a patient-centric telehealth company dedicated to delivering seamless end-to-end virtual healthcare to consumers. Our mission is facilitated by our robust technology platform that is purpose-built to seamlessly connect the touchpoints involved in delivering complex care, including scheduling for a national provider network, EMR capabilities, secure synchronous and asynchronous communication, digital prescriptions, cloud pharmacy, and more. Our platform enables us to deliver modern personalized health experiences and offerings through our websites and mobile applications, spanning customer discovery, purchase, and connection with licensed providers, to pharmacy and OTC order fulfillment, through ongoing care. We believe that our seamless approach significantly reduces the complication, cost and time burden of healthcare, incentivizing consumers to stick with our brands.
Our proprietary platform also facilitates and accelerates the development and launch of novel offerings throughout clinical protocol establishment, marketing, and fulfillment. Our offerings are sold to consumers on a subscription basis thus creating convenience and discounted pricing opportunities for patients and recurring revenue streams for the Company. Our offerings range from prescription medication fulfilled on a recurring basis, to complementary OTC products, to ongoing care from a team of medical providers. In general, our offerings seek to serve a patient from beginning to end, starting from brand or offering discovery to the medical intake and product selection process, after which a licensed U.S. physician conducts a virtual consultation and determines a treatment plan. As appropriate, prescription medications and OTC products are filled by pharmacy fulfillment partners, and if preferred, shipped directly to the patient. The number of patients and customers we serve across the nation continues to increase at a robust pace, with more than 755,000 individuals having purchased our products and services to date.
Serving as a robust CRM system, and with built in analytics and integrations with best-in-class performance marketing platforms, our platform also enhances our ability to effectively and efficiently acquire new patients and customers and drive brand visibility through strategic media placements, influencer partnerships, and direct response advertising methods across highly scalable marketing channels (i.e., national TV, streaming TV, streaming audio, YouTube, podcasts, Out of Home, print, magazines, online search, social media, and digital).
We leverage our telehealth technology platform and services across the three core areas described below:
Direct-to-Consumer Virtual Primary Care
In the first quarter of 2022, we launched our flagship virtual primary care offering under the LifeMD brand, LifeMD PC. This offering provides patients in all 50 states with 24/7 access to an affiliated high-quality provider for their primary care, urgent care, and chronic care needs. LifeMD’s virtual primary care offering is a mobile-first full-service destination that provides seamless access to high-quality clinical care including virtual consultations and treatment, prescription medications, diagnostics, and imaging, wellness coaching and more. This offering is also supported by robust partnerships that provide our patients benefits such as substantial discounts on lab work and a prescription discount card that can be presented at over 60,000 pharmacies to save up to 92% on their prescription medication.
Direct-to-Patient Telehealth
We also leverage our telehealth platform’s provider network, cloud pharmacy, and EMR capabilities across our direct-to-patient telehealth brands. Our telehealth brands RexMD, ShapiroMD, NavaMD, and Cleared address largely unaddressed or underserved needs and are leading destinations in their respective treatment verticals of men’s health, hair loss, dermatology, and immunology.
| ○ | RexMD is a men’s telehealth platform brand that offers access to virtual medical treatment for a variety of men’s health needs. After treatment from an affiliated licensed physician, if appropriate, one of our partner pharmacies will dispense and ship prescription medications and OTC products directly to the customer. Since RexMD’s initial launch in the erectile dysfunction treatment market, it has expanded into additional indications, including but not limited to, premature ejaculation, testosterone, and hair loss. RexMD is a leading men’s telehealth platform across the U.S. and has served more than 443,000 customers and patients since inception with a 4.6-star Trustpilot rating. | |
| ○ | ShapiroMD offers access to virtual medical treatment, prescription medications, patented doctor formulated OTC products, topical compounded medications, and Food and Drug Administration (“FDA”) approved medical devices treating male and female hair loss through our telehealth platform. ShapiroMD has emerged as a leading destination for hair loss treatment across the U.S. and has served more than 265,000 customers and patients since inception with a 4.9-star Trustpilot rating. |
| ○ | NavaMD is a female-oriented, tele-dermatology brand that offers access to virtual medical treatment from dermatologists and other providers, and, if appropriate, prescription oral and compounded topical medications to treat dermatological conditions such as aging and acne. In addition to the brand’s telehealth offerings, NavaMD’s proprietary products leverage intellectual property and proprietary formulations licensed from Restorsea, a leading medical grade skincare technology platform. | |
| ○ | Cleared is a telehealth brand that provides personalized treatments for allergy, asthma, and immunology. Offerings include in-home tests for both environmental and food allergies, prescriptions for allergies and asthma, and FDA-approved immunotherapies for treating chronic allergies. Cleared leverages a network of affiliated medical professionals and providers in all 50 states, various pharmaceutical partners, and treatments and tests that cost up to 50 percent less than the brand-name competition. The offerings include free consultations, prescription medication, complementary OTC products, and ongoing care from U.S.-licensed allergists and nurses. |
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Enterprise Telehealth Offerings
Organizations commercializing healthcare products face a challenging commercial landscape. Increased competition, shrinking market sizes and challenges reaching patients via the traditional brick and mortar doctor are forcing pharmaceutical, medical device and diagnostic companies to rethink their commercial strategies and focus more on digital patient awareness and engagement initiatives. Spending on digital solutions to facilitate greater access to their end markets accounts for one-third of their collective $30 billion commercial spend in the U.S. We believe LifeMD’s unique telehealth technology platform and virtual clinical expertise is well-positioned to address the unmet needs of healthcare product companies as they relate to digital patient awareness, access to care, adherence and compliance.
Majority Owned Subsidiary: WorkSimpli
WorkSimpli operates PDFSimpli, an online software as a service platform that allows users to create, edit, convert, sign, and share PDF documents. WorkSimpli was acquired through the purchase of 51% of the membership interests of WorkSimpli Software LLC, a Puerto Rico limited liability company, which operates a marketing-driven software solutions business. In addition to WorkSimpli’s growth business model, this acquisition added deep search engine optimization and search engine marketing expertise to the Company. On January 22, 2021, the Company consummated a transaction and increased its ownership of WorkSimpli to 85.58%. Effective September 30, 2022, two option agreements were exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.64%. Effective March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli and, as a result, the Company’s ownership interest in WorkSimpli increased to 74.06%. Effective June 30, 2023, an option agreement was exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.32%.
Significant Developments During the Three Months Ended June 30, 2023
Amendment to Cleared Stock Purchase Agreement
On February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between the Company and the sellers of Cleared. The First Amendment was amended to, among other things: (i) reduce the total purchase price by $250 thousand to a total of $3.67 million; (ii) change the timing of the payment of the purchase price to $460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024; (iii) remove all “earn-out” payments payable by the Company to the sellers; and (iv) removing certain representations and warranties of the Company and sellers in connection with the transaction. On February 6, 2023, the Company issued 337,895 shares of common stock related to the first of five quarterly installment payments due to the sellers of Cleared under the First Amendment. On April 17, 2023, the Company issued 455,319 shares of common stock related to the second of five quarterly installment payments due to the sellers of Cleared under the First Amendment.
Results of Operations
Comparison of the Three Months Ended June 30, 2023 to the Three Months Ended June 30, 2022
Our financial results for the three months ended June 30, 2023 are summarized as follows in comparison to the three months ended June 30, 2022:
| June 30, 2023 | June 30, 2022 | |||||||||||||||
| % of | % of | |||||||||||||||
| $ | Sales | $ | Sales | |||||||||||||
| Telehealth revenue, net | $ | 22,351,128 | 62.18 | % | $ | 22,267,963 | 73.11 | % | ||||||||
| WorkSimpli revenue, net | 13,595,785 | 37.82 | % | 8,190,535 | 26.89 | % | ||||||||||
| Total revenue, net | 35,946,913 | 100 | % | 30,458,498 | 100 | % | ||||||||||
| Cost of telehealth revenue | 4,125,945 | 11.48 | % | 4,453,126 | 14.62 | % | ||||||||||
| Cost of WorkSimpli revenue | 422,485 | 1.17 | % | 182,185 | 0.60 | % | ||||||||||
| Total cost of revenue | 4,548,430 | 12.65 | % | 4,635,311 | 15.22 | % | ||||||||||
| Gross profit | 31,398,483 | 87.35 | % | 25,823,187 | 84.78 | % | ||||||||||
| Selling and marketing expenses | 19,567,903 | 54.44 | % | 21,817,966 | 71.63 | % | ||||||||||
| General and administrative expenses | 12,119,573 | 33.72 | % | 13,159,937 | 43.22 | % | ||||||||||
| Other operating expenses | 1,313,789 | 3.65 | % | 2,041,976 | 6.70 | % | ||||||||||
| Customer service expenses | 1,912,078 | 5.32 | % | 1,006,363 | 3.30 | % | ||||||||||
| Development costs | 1,380,686 | 3.84 | % | 701,070 | 2.30 | % | ||||||||||
| Goodwill impairment charge | - | - | % | 2,735,000 | 8.98 | % | ||||||||||
| Change in fair value of contingent consideration | - | - | % | (2,735,000 | ) | (8.98 | )% | |||||||||
| Total expenses | 36,294,029 | 100.97 | % | 38,727,312 | 127.15 | % | ||||||||||
| Operating loss | (4,895,546 | ) | (13.62 | )% | (12,904,125 | ) | (42.37 | )% | ||||||||
| Interest expense, net | (995,670 | ) | (2.77 | )% | (132,236 | ) | (0.43 | )% | ||||||||
| Gain on debt forgiveness | - | - | % | 63,400 | 0.21 | % | ||||||||||
| Net loss | (5,891,216 | ) | (16.39 | )% | (12,972,961 | ) | (42.59 | )% | ||||||||
| Net income attributable to non-controlling interest | 841,784 | 2.34 | % | 46,001 | 0.15 | % | ||||||||||
| Net loss attributable to LifeMD, Inc. | (6,733,000 | ) | (18.73 | )% | (13,018,962 | ) | (42.74 | )% | ||||||||
| Preferred stock dividends | (776,562 | ) | (2.16 | )% | (776,562 | ) | (2.55 | )% | ||||||||
| Net loss attributable to common shareholders | $ | (7,509,562 | ) | (20.89 | )% | $ | (13,795,524 | ) | (45.29 | )% | ||||||
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Total revenue, net. Revenues for the three months ended June 30, 2023 were approximately $35.9 million, an increase of 18% compared to approximately $30.5 million for the three months ended June 30, 2022. The increase in revenues was attributable to an increase in WorkSimpli revenue of 66% and an increase in telehealth revenue of 0.4%. Telehealth revenue accounts for 62% of total revenue and has increased during the three months ended June 30, 2023 due to a decrease product refunds and rebates, partially offset by a reduction in online sales demand. WorkSimpli revenue accounts for 38% of total revenue and has steadily increased year over year due to a combination of higher demand, increased market awareness, enhanced digital capabilities, continued marketing campaign expansion and the addition of the ResumeBuild brand in the first quarter of 2022.
Total cost of revenue. Total cost of revenue consists of the cost of (1) telehealth revenues, which primarily include product costs, pharmacy fulfillment costs, physician consult fees, and shipping costs directly attributable to our prescription and OTC products and (2) the cost of WorkSimpli revenue consisting primarily of information technology fees related to providing the services made available on our online platform. Total cost of revenue decreased by approximately 2% to approximately $4.5 million for the three months ended June 30, 2023 compared to approximately $4.6 million for the three months ended June 30, 2022. The combined cost of revenue decrease was due to decreased telehealth costs during the three months ended June 30, 2023 when compared to the three months ended June 30, 2022. Telehealth costs decreased to 18% of associated telehealth revenues experienced during the three months ended June 30, 2023, from 20% of associated telehealth revenues during the three months ended June 30, 2022 primarily due to improved pricing. WorkSimpli costs were 3% of associated WorkSimpli revenues for the three months ended June 30, 2023 and were 2% of associated WorkSimpli revenues for the three months ended June 30, 2022.
Gross profit. Gross profit increased by approximately 22% to approximately $31.4 million for the three months ended June 30, 2023 compared to approximately $25.8 million for the three months ended June 30, 2022, as a result of increased combined sales. Gross profit as a percentage of revenues was 87% for the three months ended June 30, 2023 as compared to 85% for the three months ended June 30, 2022. Gross profit as a percentage of revenues for telehealth was 82% for the three months ended June 30, 2023 compared to 80% for the three months ended June 30, 2022, and for WorkSimpli was 97% for the three months ended June 30, 2023 and 98% for the three months ended June 30, 2022. The increase in sales volume for WorkSimpli and improved pricing for Telehealth have contributed to the increase in gross profit.
Total expenses. Operating expenses for the three months ended June 30, 2023 were approximately $36.3 million, as compared to approximately $38.7 million for the three months ended June 30, 2022. This represents a decrease of 6%, or $2.4 million. The decrease is primarily attributable to:
| (i) | Selling and marketing expenses: This mainly consists of online marketing and advertising expenses. During the three months ended June 30, 2023, the Company had a decrease of approximately $2.3 million, or 10% in selling and marketing costs as a result of a Company-wide strategic reduction in costs and alignment of sales and marketing initiatives to drive the Company’s recurring revenue subscription-based sales model. |
| (ii) | General and administrative expenses: During the three months ended June 30, 2023, stock-based compensation was $2.9 million, with the majority related to stock compensation expense attributable to service-based stock options and restricted stock units, as compared to stock-based compensation expense of $4.0 million for the three months ended June 30, 2022. This category also consists of merchant processing fees, payroll expenses for corporate employees, taxes and licenses, amortization expense and legal and professional fees. During the three months ended June 30, 2023, the Company had a decrease of approximately $1.0 million in general and administrative expenses, primarily related to the decrease in stock-based compensation costs referenced above and a Company-wide strategic reduction in costs. |
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| (iii) | Other operating expenses: This consists of rent and lease expense, insurance, office supplies and software subscriptions, royalty expense and bank charges. During the three months ended June 30, 2023, the Company had a decrease of approximately $728 thousand, or 36%, primarily related to decreases in office supplies and software subscriptions. |
| (iv) | Goodwill impairment charge: During the three months ended June 30, 2022, the Company recorded a $2.7 million goodwill impairment charge related to a decline in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections. |
| (v) | Change in fair value of contingent consideration: During the three months ended June 30, 2022, the Company recorded a $2.7 million reduction to the Cleared contingent consideration as a result of the remeasurement of the fair value. |
These decreases in operating expenses were partially offset by increases in the following:
| (i) | Customer service expenses: This consists of rent, insurance, payroll and benefit expenses related to the Company’s customer service department located in South Carolina and Puerto Rico. During the three months ended June 30, 2023, the Company had an increase of approximately $906 thousand, or 90%, primarily related to increases in headcount in the Company’s customer service department. |
| (ii) | Development costs: This mainly relates to third-party technology services for developing and maintaining our online platforms. During the three months ended June 30, 2023, the Company had an increase of approximately $680 thousand, or 97%, primarily resulting from technology platform improvements and amortization expense. |
Interest expense, net. Interest expense, net consists of interest expense related to the Avenue Facility, notes payable and the Series B Convertible Preferred Stock for the three months ended June 30, 2023 and interest accrued on the Series B Convertible Preferred Stock for the three months ended June 30, 2022. Interest expense increased by approximately $863 thousand during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.
Gain on debt forgiveness. The Company recorded a $63 thousand gain on debt forgiveness of Paycheck Protection Program (“PPP”) loans during the three months ended June 30, 2022.
Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022
Our financial results for the six months ended June 30, 2023 are summarized as follows in comparison to the six months ended June 30, 2022:
| June 30, 2023 | June 30, 2022 | |||||||||||||||
| % of | % of | |||||||||||||||
| $ | Sales | $ | Sales | |||||||||||||
| Telehealth revenue, net | $ | 42,553,931 | 61.61 | % | $ | 44,866,024 | 75.40 | % | ||||||||
| WorkSimpli revenue, net | 26,519,317 | 38.39 | % | 14,635,311 | 24.60 | % | ||||||||||
| Total revenue, net | 69,073,248 | 100 | % | 59,501,335 | 100 | % | ||||||||||
| Cost of telehealth revenue | 8,046,126 | 11.65 | % | 9,539,194 | 16.03 | % | ||||||||||
| Cost of WorkSimpli revenue | 717,273 | 1.04 | % | 344,292 | 0.58 | % | ||||||||||
| Total cost of revenue | 8,763,399 | 12.69 | % | 9,883,486 | 16.61 | % | ||||||||||
| Gross profit | 60,309,849 | 87.31 | % | 49,617,849 | 83.39 | % | ||||||||||
| Selling and marketing expenses | 36,285,548 | 52.53 | % | 43,727,791 | 73.49 | % | ||||||||||
| General and administrative expenses | 22,722,336 | 32.90 | % | 25,372,680 | 42.64 | % | ||||||||||
| Other operating expenses | 3,018,554 | 4.37 | % | 3,459,445 | 5.81 | % | ||||||||||
| Customer service expenses | 3,467,482 | 5.02 | % | 1,939,670 | 3.26 | % | ||||||||||
| Development costs | 2,564,285 | 3.71 | % | 1,129,403 | 1.90 | % | ||||||||||
| Goodwill impairment charge | - | - | % | 2,735,000 | 4.60 | % | ||||||||||
| Change in fair value of contingent consideration | - | - | % | (2,735,000 | ) | (4.60 | )% | |||||||||
| Total expenses | 68,058,205 | 98.53 | % | 75,628,989 | 127.10 | % | ||||||||||
| Operating loss | (7,748,356 | ) | (11.22 | )% | (26,011,140 | ) | (43.71 | )% | ||||||||
| Interest expense, net | (1,260,135 | ) | (1.82 | )% | (300,170 | ) | (0.50 | )% | ||||||||
| (Loss) gain on debt extinguishment | (325,198 | ) | (0.47 | )% | 63,400 | 0.10 | % | |||||||||
| Net loss | (9,333,689 | ) | (13.51 | )% | (26,247,910 | ) | (44.11 | )% | ||||||||
| Net income attributable to non-controlling interest | 1,407,767 | 2.04 | % | 70,727 | 0.12 | % | ||||||||||
| Net loss attributable to LifeMD, Inc. | (10,741,456 | ) | (15.55 | )% | (26,318,637 | ) | (44.23 | )% | ||||||||
| Preferred stock dividends | (1,553,125 | ) | (2.25 | )% | (1,553,125 | ) | (2.61 | )% | ||||||||
| Net loss attributable to common shareholders | $ | (12,294,581 | ) | (17.80 | )% | $ | (27,871,762 | ) | (46.84 | )% | ||||||
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Total revenue, net. Revenues for the six months ended June 30, 2023 were approximately $69.1 million, an increase of 16% compared to approximately $59.5 million for the six months ended June 30, 2022. The increase in revenues was attributable to an increase in WorkSimpli revenue of 81%, partially offset by a decrease in telehealth revenue of 5%. Telehealth revenue accounts for 62% of total revenue and has decreased during the six months ended June 30, 2023 due to a reduction in online sales demand. WorkSimpli revenue accounts for 38% of total revenue and has steadily increased year over year due to a combination of higher demand, increased market awareness, enhanced digital capabilities, continued marketing campaign expansion and the addition of the ResumeBuild brand in the first quarter of 2022.
Total cost of revenue. Total cost of revenue consists of the cost of (1) telehealth revenues, which primarily include product costs, pharmacy fulfillment costs, physician consult fees, and shipping costs directly attributable to our prescription and OTC products and (2) the cost of WorkSimpli revenue consisting primarily of information technology fees related to providing the services made available on our online platform. Total cost of revenue decreased by approximately 11% to approximately $8.8 million for the six months ended June 30, 2023 compared to approximately $9.9 million for the six months ended June 30, 2022. The combined cost of revenue decrease was due to decreased telehealth sales volume during the six months ended June 30, 2023 when compared to the six months ended June 30, 2022. Telehealth costs decreased to 19% of associated telehealth revenues experienced during the six months ended June 30, 2023, from 21% of associated telehealth revenues during the six months ended June 30, 2022 primarily due to lower sales volume and improved pricing. WorkSimpli costs were 3% of associated WorkSimpli revenues for the six months ended June 30, 2023 and were 2% of associated WorkSimpli revenues for the six months ended June 30, 2022.
Gross profit. Gross profit increased by approximately 22% to approximately $60.3 million for the six months ended June 30, 2023 compared to approximately $49.6 million for the six months ended June 30, 2022, as a result of increased combined sales. Gross profit as a percentage of revenues was 87% for the six months ended June 30, 2023 as compared to 83% for the six months ended June 30, 2022. Gross profit as a percentage of revenues for telehealth was 81% for the six months ended June 30, 2023 compared to 79% for the six months ended June 30, 2022, and for WorkSimpli was 97% for the six months ended June 30, 2023 and 98% for the six months ended June 30, 2022. The increase in sales volume for WorkSimpli and improved pricing for Telehealth have contributed to the increase in gross profit.
Total expenses. Operating expenses for the six months ended June 30, 2023 were approximately $68.1 million, as compared to approximately $75.6 million for the six months ended June 30, 2022. This represents a decrease of 10%, or $7.6 million. The decrease is primarily attributable to:
| (i) | Selling and marketing expenses: This mainly consists of online marketing and advertising expenses. During the six months ended June 30, 2023, the Company had a decrease of approximately $7.4 million, or 17% in selling and marketing costs as a result of a Company-wide strategic reduction in costs and alignment of sales and marketing initiatives to drive the Company’s recurring revenue subscription-based sales model. |
| (ii) | General and administrative expenses: During the six months ended June 30, 2023, stock-based compensation was $5.5 million, with the majority related to stock compensation expense attributable to service-based stock options and restricted stock units, as compared to stock-based compensation expense of $8.5 million for the six months ended June 30, 2022. This category also consists of merchant processing fees, payroll expenses for corporate employees, taxes and licenses, amortization expense and legal and professional fees. During the six months ended June 30, 2023, the Company had a decrease of approximately $2.7 million in general and administrative expenses, primarily related to the decrease in stock-based compensation costs referenced above and a Company-wide strategic reduction in costs. |
| (iii) | Other operating expenses: This consists of rent and lease expense, insurance, office supplies and software subscriptions, royalty expense and bank charges. During the six months ended June 30, 2023, the Company had a decrease of approximately $441 thousand, or 13%, primarily related to decreases in office supplies and software subscriptions. |
| (iv) | Goodwill impairment charge: During the six months ended June 30, 2022, the Company recorded a $2.7 million goodwill impairment charge related to a decline in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections. |
| (v) | Change in fair value of contingent consideration: During the six months ended June 30, 2022, the Company recorded a $2.7 million reduction to the Cleared contingent consideration as a result of the remeasurement of the fair value. |
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These decreases in operating expenses were partially offset by increases in the following:
| (i) | Customer service expenses: This consists of rent, insurance, payroll and benefit expenses related to the Company’s customer service department located in South Carolina and Puerto Rico. During the six months ended June 30, 2023, the Company had an increase of approximately $1.5 million, or 79%, primarily related to increases in headcount in the Company’s customer service department. |
| (ii) | Development costs: This mainly relates to third-party technology services for developing and maintaining our online platforms. During the six months ended June 30, 2023, the Company had an increase of approximately $1.4 million, or 127%, primarily resulting from technology platform improvements and amortization expense. |
Interest expense, net. Interest expense, net consists of interest expense related to the Avenue Facility, notes payable and the Series B Convertible Preferred Stock for the six months ended June 30, 2023 and interest accrued on the Series B Convertible Preferred Stock for the six months ended June 30, 2022. Interest expense increased by approximately $960 thousand during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.
(Loss) gain on debt extinguishment. The Company recorded a $325 thousand loss on debt extinguishment related to the repayment of the CRG Financial loan during the six months ended June 30, 2023 due to a prepayment penalty and various fees associated with the CRG Financial loan. The Company recorded a $63 thousand gain on debt forgiveness of PPP loans during the six months ended June 30, 2022.
Working Capital
| 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. The increase in current assets is primarily attributable to an increase in cash of approximately $7.9 million as a result of the Avenue Facility, an increase in accounts receivable of $834 thousand and an increase in product deposits of $108 thousand. Current liabilities increased by $144 thousand, which was primarily attributable to an increase in accounts payable and accrued expenses of $2.1 million and an increase in deferred revenue of $120 thousand, partially offset by a decrease in notes payable of $2.1 million.
Liquidity and Capital Resources
| Six Months Ended June 30, | ||||||||
| 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 | ) | |||||
Since inception, the Company has funded operations through the collections from revenues provided by the sales of its products, issuances of common and preferred stock, receipt of loans and advances from officers and directors, and the issuance of convertible notes to third-party investors. Rising interest rates and inflation may increase the cost of capital and make it more difficult for us to access capital markets.
Net cash provided by operating activities increased by $20.2 million to $2.0 million for the six months ended June 30, 2023, as compared with net cash used in operating activities of approximately $18.2 million for the six months ended June 30, 2022 primarily related to the decrease in the Company’s net loss of $16.9 million to $9.3 million for the six months ended June 30, 2023, as compared with $26.2 million for the six months ended June 30, 2022. Other significant factors contributing to net cash provided by operating activities during the six months ended June 30, 2023, include $5.5 million in non-cash stock-based compensation charges, $3.2 million in non-cash depreciation and amortization, a net increase in accounts payable, accrued expenses and other operating activities of $3.1 million, a $325 thousand loss on debt extinguishment and an increase in deferred revenue of $120 thousand. Net cash used in operating activities for the six months ended June 30, 2022, was driven primarily by the net loss of approximately $26.2 million (inclusive of $8.5 million in non-cash, stock-based compensation charges), an increase in accounts receivable of $1.5 million and the purchase of inventory of $1.3 million, partially offset by the Company’s increase in accounts payable and accrued expenses of approximately $0.7 million.
Net cash used in investing activities for the six months ended June 30, 2023 was approximately $4.1 million, as compared with approximately $9.9 million for the six months ended June 30, 2022. Net cash used in investing activities for the six months ended June 30, 2023, was due to cash paid for capitalized software costs of approximately $3.9 million, cash paid for the purchase of intangible assets of approximately $149 thousand and cash paid for the purchase of equipment of approximately $64 thousand. Net cash used in investing activities for the six months ended June 30, 2022, was due to cash paid for capitalized software costs of approximately $4.5 million, cash paid for the purchase of the ResumeBuild brand of approximately $4.0 million, cash paid for the Cleared acquisition of approximately $1.0 million and cash paid for the purchase of equipment of $357 thousand.
| 35 |
Net cash provided by financing activities for the six months ended June 30, 2023 was approximately $10.0 million as compared with net cash used in financing activities of approximately $1.5 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, net cash provided by financing activities consisted of: (1) $14.5 million in net proceeds received from the Avenue Facility and (2) $2.0 million in proceeds received from the CRG Financial loan. These factors contributing to net cash provided by financing activities were partially offset by repayments of notes payable of approximately $4.4 million net of a $325 thousand loss on debt extinguishment on the CRG Financial loan, preferred stock dividends of approximately $1.6 million, net payments made related to adjustments in the membership interest units of WorkSimpli of approximately $306 thousand, contingent consideration payments made related to the ResumeBuild brand acquisition of approximately $125 thousand and distributions to non-controlling interest of $72 thousand. Net cash used in financing activities for the six months ended June 30, 2022, consisted of preferred stock dividends of $1.6 million, distributions to non-controlling interest of $72 thousand and a contingent consideration payment related the ResumeBuild acquisition of $31 thousand, partially offset by proceeds from the exercise of options and warrants of $129 thousand.
Liquidity and Capital Resources Outlook
As of June 30, 2023, the Company has an accumulated deficit approximating $202.9 million and has experienced significant losses from its operations. To date, the Company has been funding operations primarily through the sales of its products, issuance of common and preferred stock and through loans and advances from officers and directors. Our primary short-term and long-term requirements for liquidity and capital are for customer acquisitions, funding business acquisitions and investments we may make from time to time, working capital including our noncancelable operating lease obligations, noncontingent consideration, capital expenditures and general corporate purposes. The Company has a current cash balance of approximately $6.4 million as of the filing date.
On March 21, 2023, the Company entered into and closed on a Credit Agreement, and a supplement to the Credit Agreement with Avenue. The Credit Agreement provides for a convertible senior secured credit facility of up to an aggregate amount of $40 million, comprised of the following: (1) $15 million in term loans funded at closing, (2) $5 million of additional committed term loans available in the fourth quarter of 2023 and (3) $20 million of additional uncommitted term loans, collectively referred to as the “Avenue Facility”. The Avenue Facility matures on October 1, 2026. The Company issued Avenue warrants to purchase $1.2 million of the Company’s common stock at an exercise price of $1.24, subject to adjustments. In addition, Avenue may convert up to $2 million of the $15 million in term loans funded at closing into shares of the Company’s common stock at any time while the loans are outstanding, at a price per share equal to $1.49. Proceeds from the Avenue Facility were used to repay the Company’s outstanding notes payable balances with CRG Financial and are expected to be used for general corporate purposes and at the Company’s election, re-financing up to $5 million liquidation value plus accrued interest of the Series B Preferred Stock.
During the six months ended June 30, 2023, the Company received proceeds of $2 million under a $2.5 million loan facility with CRG Financial, maturing on December 15, 2023. The loan facility includes interest of 12%. The Company repaid the $2 million outstanding loan balance on March 21, 2023 with the proceeds received from the Avenue Facility and recorded a $325 thousand loss on debt extinguishment due to a prepayment penalty and various fees associated with the CRG Financial loan. As of both June 30, 2023 and December 31, 2022, the outstanding balance was $0 related to the CRG Financial loan.
In October 2022, the Company received proceeds of $976 thousand under a 12-month working capital loan with Amazon. The terms of the loan include interest in the amount of $62 thousand. As of June 30, 2023 and December 31, 2022, the outstanding balance was $442 thousand and $976 thousand, respectively, and is included in notes payable, net, on the accompanying unaudited condensed consolidated balance sheet.
In November 2022, the Company received proceeds of $1.9 million under two 10-month working capital loans with Balanced Management. The terms of the loans include loan origination fees in the amount of $60 thousand and total interest of $840 thousand. As of June 30, 2023 and December 31, 2022, the outstanding balance was $294 thousand and $1.821 million, respectively, and is included in notes payable, net, on the accompanying unaudited condensed consolidated balance sheet.
On June 8, 2021, the Company filed a shelf registration statement on Form S-3 under the Securities Act, which was declared effective on June 22, 2021 (the “2021 Shelf”). Under the 2021 Shelf at the time of effectiveness, the Company originally had the ability to raise up to $150 million by selling common stock, preferred stock, debt securities, warrants, and units. In conjunction with the 2021 Shelf, the Company also entered into an At Market Issuance Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc. and Cantor Fitzgerald & Co. relating to the sale of its common stock. In accordance with the terms of the ATM Sales Agreement, the Company may, but is not obligated to, offer and sell, from time to time, shares of common stock, through or to the Agents, acting as agent or principal. Sales of common stock, if any, will be made by any method permitted that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act. On March 22, 2023, the date the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the Company became subject to the offering limits in General Instruction I.B.6 of Form S-3 (i.e., the “baby shelf limitations”). As a result of the baby shelf limitations, the Company was only able to offer and sell shares of common stock having an aggregate offering price of up to $18.435 million pursuant to the ATM Sales Agreement, and it filed a prospectus supplement with the SEC to that effect on March 27, 2023. In June 2023, the Company’s public float increased above $75.0 million. As a result, the Company is no longer subject to the baby shelf limitations. The Company filed another prospectus supplement with the SEC to that effect on June 29, 2023. As of June 30, 2023, the Company has $59.5 million available under the ATM Sales Agreement.
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The Company’s continued operations are dependent upon obtaining an increase in its sales volumes which the Company has been successful in achieving to date. However, there can be no assurances that we will continue to be successful in increasing revenues, improving operational efficiencies or that financing will be available or, if available, that such financing will be available under favorable terms.
The Company reviewed its forecasted operating results and sources and uses of cash used in management’s assessment, which included the available financing and consideration of positive and negative evidence impacting management’s forecasts, market, and industry factors. The Company’s continuance as a going concern is highly dependent on its future profitability and on the on-going support of its stockholders, affiliates, and creditors. Based on these circumstances, management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company has begun to implement strategies to strengthen revenues and improve operational efficiencies across the business and is significantly curtailing expenses, however, these strategies do not mitigate the substantial doubt about the Company’s ability to continue as a going concern. Management believes that the overall market value of the telehealth industry is positive and that it will continue to drive interest in the Company.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
Revenue Recognition
The Company records revenue under the adoption of ASC 606, Revenue from Contracts with Customers, by analyzing exchanges with its customers using a five-step analysis:
| 1. | Identify the contract |
| 2. | Identify performance obligations |
| 3. | Determine the transaction price |
| 4. | Allocate the transaction price |
| 5. | Recognize revenue |
For the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation, which is the delivery of the product; this performance obligation is transferred at a discrete point in time. The Company generally records sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped by a third-party fulfillment service provider. In some cases, the customer does not obtain control until the product reaches the customer’s delivery site; in these cases, recognition of revenue is deferred until that time. In all cases, delivery is considered to have occurred when the customer obtains control, which is usually commensurate upon shipment of the product. In the case where delivery is not commensurate upon shipment of the product, recognition of revenue is deferred until that time. In the case of its product-based contracts, the Company provides a subscription sensitive service based on the recurring shipment of products. The Company records the related revenue under the subscription agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment obligation to the customer.
For its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances, customer rebates, and other adjustments for its product shipments and are reflected as contra revenues in arriving at reported net revenues. The Company’s discounts and customer rebates are known at the time of sale; correspondingly, the Company reduces gross product sales for such discounts and customer rebates. The Company estimates customer returns and allowances based on information derived from historical transaction detail and accounts for such provisions, as contra revenue, during the same period in which the related revenues are earned. The Company has determined that the population of its product-based contracts with customers are homogenous, supporting the ability to record estimates for returns and allowances to be applied to the entire product-based portfolio population. Customer discounts, returns and rebates on telehealth revenues approximated $497 thousand and $1.6 million, respectively, during the three months ended June 30, 2023 and 2022, respectively. Customer discounts, returns and rebates on telehealth revenues approximated $828 thousand and $3.1 million, respectively, during the six months ended June 30, 2023 and 2022, respectively.
The Company, through its majority-owned subsidiary WorkSimpli, offers a subscription-based service providing a suite of software applications to its subscribers, principally on a monthly subscription basis. The software suite allows the subscriber/user to convert almost any type of document to another electronic form of editable document, providing ease of editing. For these subscription-based contracts with customers, the Company offers an initial 14-day trial period which is billed at $1.95, followed by a monthly subscription, or a yearly subscription to the Company’s software suite dependent on the subscriber’s enrollment selection. The Company has estimated that there is one product and one performance obligation that is delivered over time, as the Company allows the subscriber to access the suite of services for the time period of the subscription purchased. The Company allows the customer to cancel at any point during the billing cycle, in which case the customers subscription will not be renewed for the following month or year depending on the original subscription. The Company records the revenue over the customers subscription period for monthly and yearly subscribers or at the end of the initial 14-day service period for customers who purchased the initial subscription, as the circumstances dictate. The Company offers a discount for the monthly or yearly subscriptions being purchased, which is deducted at the time of payment at the initiation of the contract term; therefore the Contract price is fixed and determinable at the contract initiation. Monthly and annual subscriptions for the service are recorded net of the Company’s known discount rates. Customer discounts and allowances on WorkSimpli revenues approximated $788 thousand and $580 thousand, respectively, during the three months ended June 30, 2023 and 2022, respectively. Customer discounts and allowances on WorkSimpli revenues approximated $1.7 million and $1.0 million, respectively, during the six months ended June 30, 2023 and 2022, respectively.
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As of June 30, 2023 and December 31, 2022, the Company has accrued contract liabilities, as deferred revenue, of approximately $5.7 million and $5.5 million, respectively, which represent the following: (1) obligations for products which the customer has not yet obtained control due to delivery not commensurate upon shipment of the product, (2) obligations on WorkSimpli in-process monthly or yearly contracts with customers and (3) a portion attributable to the yet to be recognized WorkSimpli initial 14-day trial period collections.
Capitalized Software Costs
The Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes these costs using the straight-line method over the estimated useful life of the software, generally three years. The Company does not sell internally developed software other than through the use of subscription service. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40, Internal-Use Software, are expensed as incurred. As of June 30, 2023 and December 31, 2022, the Company capitalized a net amount of $10.4 million and $8.8 million, respectively, related to internally developed software costs which are amortized over the useful life and included in development costs on our statement of operations. The increase in capitalized software costs of $1.6 million or 18%, is primarily attributable to costs incurred related to development efforts of our LifeMD PC platform.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently, if events or changes in circumstances indicate that the asset may be impaired. Goodwill in the amount of $8.0 million was recognized in conjunction with the Cleared acquisition. The Company recorded an $8.0 million goodwill impairment charge and an $827 thousand intangible asset impairment charge during the year ended December 31, 2022 related to a decline in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections (see Note 3).
Other intangible assets are comprised of: (1) the ResumeBuild brand, (2) a customer relationship asset, (3) the Cleared trade name, (4) Cleared developed technology, (5) a purchased license and (6) two purchased domain names. During the year ended December 31, 2022, the Company recorded an $827 thousand impairment loss related to a decline in the estimated fair value of the Cleared customer relationship intangible asset with an original cost of $919 thousand and accumulated amortization of $92 thousand. Other intangible assets are amortized over their estimated lives using the straight-line method. Costs incurred to renew or extend the term of recognized intangible assets are capitalized and amortized over the useful life of the asset.
Impairment of Long-Lived Assets
Long-lived assets include equipment and capitalized software. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, an impairment is recognized as the amount by which the carrying amount of the assets exceeds the estimated fair values of the assets. As of June 30, 2023 and December 31, 2022, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived assets.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires an entity to utilize the current expected credit loss (“CECL”) impairment model to estimate its lifetime “expected credit loss” and record an allowance that is deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities are recorded through an allowance for credit losses. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. The Company adopted ASU 2016-13 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
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In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606, Revenue from Contracts with Customers, as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The Company adopted ASU 2021-08 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our chief executive officer and chief financial officer concluded that, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses which are indicative of many small companies with small number of staff:
| (i) | inadequate segregation of duties consistent with control objectives; |
| (ii) | inadequate controls related to revenue recognition; |
| (iii) | insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC Guidelines; and |
| (iv) | inadequate information technology general controls specifically related to security, segregation of duties, user access, restricted access and change management. |
Management’s Plan to Remediate the Material Weakness
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The Company has formally documented its procedures for many of the significant accounting and financial reporting processes, in addition to, identifying and remediating design deficiencies in its processes. The other remediation actions planned include:
| (i) | implementation of controls to ensure revenue is recognized upon shipment; |
| (ii) | further documentation and implementation of control procedures and the implementation of control monitoring; and |
| (iii) | identify and remedy gaps in our information technology general controls specifically related to the areas of security, segregation of duties, user access, restricted access and change management. |
Changes in Internal Control over Financial Reporting
As discussed above, we are implementing certain measures to remediate the material weaknesses identified in the design and operation of our internal control over financial reporting. Other than those measures, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2023, that materially affected, our internal control over financial reporting as of that date.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of our operations, we become involved in ordinary routine litigation incidental to the business. Material proceedings are described under Note 10, “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
An investment in the Company’s common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 22, 2023, in addition to other information contained in our reports and in this quarterly report in evaluating the Company and its business before purchasing shares of our common stock. There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2022. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following disclosures set forth certain information with respect to all securities sold by the Company during the three months ended June 30, 2023 without registration under the Securities Act:
On April 10, 2023, the Company issued an aggregate of 16,471 shares of common stock related to the cashless exercise of options held by Dmytry Shepsen.
On February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between the Company and the sellers of Cleared. The First Amendment was amended to, among other things change the timing of the payment of the purchase price to $460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024. On April 17, 2023, the Company issued 455,319 shares of common stock related to the second of five quarterly installment payments due to the sellers of Cleared under the First Amendment.
On May 1, 2023 and May 23, 2023, the Company issued 3,000 and 50,000 shares, respectively, of common stock for services, including vested restricted stock units, to employees and consultants.
The above transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering. The Company relied upon the exemption from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and/or Regulation D promulgated by the SEC under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
# Indicates management contract or compensatory plan, contract or arrangement.
* Filed herewith.
** Furnished herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LIFEMD, INC.
| By: | /s/ Justin Schreiber | |
| Justin Schreiber | ||
| Chief Executive Officer and Chairman of the Board of Directors | ||
| Date: | August 9, 2023 | |
| By: | /s/ Marc Benathen | |
| Marc Benathen | ||
| Chief Financial Officer | ||
| Date: | August 9, 2023 | |
| By: | /s/ Maria Stan | |
| Maria Stan | ||
| Principal Accounting Officer | ||
| Date: | August 9, 2023 |
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Exhibit 10.1
THIRD AMENDMENT TO THE AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS THIRD AMENDMENT TO THE AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Third Amendment”) is entered into as of June 13, 2023 (the “Third Amendment Effective Date”) by and between Brad Roberts, an individual and resident of the State of South Carolina, (the “Employee”) and LifeMD, Inc. (formerly known as Conversion Labs, Inc.), (the “Company”), a Delaware Corporation. The Employee and the Company are also each hereinafter referred to individually as a “Party” and together as the “Parties”.
RECITALS
WHEREAS, on December 21, 2020 (“Effective Date”), the Company and the Employee entered into an Amended and Restated Employment Agreement (the “Amended and Restated Employment Agreement”) whereby Employee was hired to serve the Company in the capacity as Chief Operating Officer. Therein, amongst other things, the Company granted Employee 10,000 restricted stock units which vested on December 21, 2021.
WHEREAS, on June 15, 2021, the Company and the Employee entered into a First Amendment To The Amended and Restated Employment Agreement (the “First Amendment”) wherein Employee’s Base Salary was increased and the terms concerning the Annual Bonus were updated, as described in more detail therein;
WHEREAS, on June 29, 2021, the Company and the Employee entered into a Second Amendment To The Amended and Restated Employment Agreement (the “Second Amendment”) wherein terms concerning the Annual Bonus were further defined, and Employee was granted 300,000 restricted shares subject to vesting upon the achievement of certain milestones as described in more detail therein;
WHEREAS, on March 11, 2022, the Company granted Employee 40,000 restricted shares as part of a 2021 Merit Bonus Award. For the avoidance of doubt, the aforementioned grant remains in effect today and moving forward.
WHEREAS, for avoidance of doubt, other than the amendments set forth below in this Third Amendment, all other provisions of the Amended and Restated Employment (as amended by the First and Second Amendments) remain in effect today and moving further, unless and until amended in the future.
WHEREAS, the Parties desire to further amend the Amended and Restated Employment Agreement to: (i) cancel the 200,000 stock options previously awarded under Section 4(c) of the Amended and Restated Employment Agreement (all of which carry a $7.50 exercise price and are underwater); (ii) cancel the 300,000 restricted shares previously awarded under the Second Amendment (none of which have become earned and vested); (iii) replace the cancelled awards with a new grant of 600,000 shares of restricted stock subject to vesting and other terms as described below; and (iv) add an express indemnification provision and agreement.
NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the Parties hereby agree as follows:
1. Preamble.
| a. | The March 11, 2022 grant of 40,000 restricted shares remains effective. |
| b. | Both the 200,000 stock options previously awarded under Section 4(c) of the Amended and Restated Employment Agreement and the 300,000 restricted shares previously awarded under the Second Amendment are hereby cancelled. |
2. Amendments. The Amended and Restated Employment Agreement shall be further amended as follows, in accordance with the terms and conditions of Section 7 thereof:
| a. | Section 4(c) of the Amended and Restated Employment Agreement is hereby added: |
(c) Replacement of Long-Term Equity Incentive. In exchange for the cancellation of the 200,000 stock options granted under Section 4(c) and the 300,000 RSUs granted under Section 4(e), pursuant to the Company’s 2020 Equity and Incentive Plan (the “Plan”) and any amendments thereto, Employee shall receive, upon the Third Amendment Effective Date, an award of 600,000 restricted shares of the Company’s common stock (“Restricted Shares”), with 150,000 restricted shares vesting on January 1, 2024 (or, if earlier, vesting immediately upon the resignation or removal of Justin Schreiber as CEO of the Company or as Chairman of the Board of the Company); and an additional 450,000 restricted shares vesting upon achievement of the performance milestones described below:
| ● | 100,000 restricted shares vest upon the healthcare business achieving $100,000,000 in net revenue (defined as gross healthcare sales minus healthcare-related refunds and returns) with a 5% adjusted EBITDA margin, on or before December 31, 2025; |
| ● | 100,000 restricted shares vest upon the healthcare business achieving $150,000,000 in net revenue with a 10% adjusted EBITDA margin, on or before December 31, 2026; |
| ● | 100,000 restricted shares vest upon the healthcare business achieving $200,000,000 in net revenue with a 10% adjusted EBITDA margin, on or before December 31, 2027; |
| ● | 75,000 restricted shares vest on 3/1/24 based on the performance of Employee in the 2023 calendar year, at the discretion of the CEO and approval by the Board of Directors (or, if earlier, vesting immediately upon the resignation or removal of Justin Schreiber as CEO of the Company or as Chairman of the Board of the Company); and |
| ● | 75,000 restricted shares vest on 3/1/25 based on the performance of Employee in the 2024 calendar year, at the discretion of the CEO and approval by the Board of Directors (or, if earlier, vesting immediately upon the resignation or removal of Justin Schreiber as CEO of the Company or as Chairman of the Board of the Company). |
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Except as otherwise set forth herein or in the associated Restricted Stock Agreement, vesting of the Restricted Shares will cease upon the termination of Employee’s employment with the Company subject to the terms of the Amended and Restated Employment Agreement and any amendments thereto. All Restricted Shares vest immediately and become exercisable in full upon a Change in Control, regardless of whether or not any performance milestone has been met at the time of the Change in Control. As used herein, “Change of Control” means (i) a bona fide transfer or series of related transfers of Shares to any person or Group in which, or as a result of which, such person or Group obtains the direct or indirect right to elect a majority of the board of directors of the Company; or (ii) a sale of all or substantially all of the assets of the Company. As used herein, “Group” means any group or syndicate that would be considered a “person” for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended. The foregoing grant of Restricted Shares shall be made on the Company’s customary form of restricted stock award for employees.
| b. | Paragraph 17 of the Amended and Restated Employment Agreement, “Indemnification”, is hereby added : |
The Company agrees to indemnify the Employee for his activities as an Officer of the Company, as set forth in the Director and Officer Indemnification Agreement attached hereto as Exhibit A. In addition, the Company shall exercise its best efforts to increase the coverage limit of its directors’ and officers’ liability insurance policy (and not otherwise diminish the scope or value of such coverage) based on market conditions and advice received from the Audit Committee of the Board of Directors and shall thereafter maintain in effect such coverage with a coverage limit of at least that amount and containing not materially less favorable provisions.
3. Governing Law; Jurisdiction. This Third Amendment shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction). Any legal proceeding arising out of or based upon this Third Amendment shall be instituted in the federal courts or the courts of the State of New York and each party irrevocably submits to the exclusive jurisdiction of such courts in any such proceeding.
4. Counterparts. This Third Amendment may be executed in several counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one agreement binding on all parties hereto, notwithstanding that all the parties shall not have signed the same counterpart.
[signature on next page]
| 3 |
IN WITNESS WHEREOF, each of the undersigned hereby (a) executes this Third Amendment to the Amended and Restated Employment Agreement; (b) confirms its agreement with the provisions and covenants herein provided; and (c) agrees to be bound by this Third Amendment to the Amended and Restated Employment Agreement.
EXECUTED as of the Third Amendment Effective Date, as set forth above.
| LIFEMD, INC. | |
| /s/ Justin Schreiber | |
| By: Justin Schreiber, Chairman & CEO | |
| EMPLOYEE | |
| /s/ Brad Roberts | |
| By: Brad Roberts, Chief Operating Officer |
| 4 |
Exhibit 10.2
LIFEMD, INC.
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT (this “Agreement”) is entered into as of June 13, 2023 (the “Memorial Date”) between LifeMD, Inc. (the “Company”) and Brad Roberts (the “Employee”) memorializing the grant of restricted stock to Employee as set forth below (the “Grant Date”)
WHEREAS, the Company desires to grant the Employee, shares of the Company’s Common Stock, $0.01 par value (“Shares”), subject to certain restrictions as set forth in this Agreement (this “Restricted Stock Award”), pursuant to the LifeMD, Inc. 2020 Equity Incentive Plan (the “Plan”) and any Amendments thereto (capitalized terms not otherwise defined herein shall have the same meanings as in the Plan);
WHEREAS, the Board of Directors (the “Board”) has determined that it would be to the advantage and best interest of the Company and its stockholders to grant the Shares herein to the Employee; and
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Grant of Restricted Shares. Subject to the terms and conditions of the Plan and the additional terms and conditions set forth in this Agreement, the Company hereby grants to the Employee a restricted Shares award of 600,000 Shares (the “Restricted Shares”). The Restricted Shares shall vest in accordance with Section 2 hereof.
2. Vesting.
| (a) | 150,000 Restricted Shares vesting January 1, 2024 (or, if earlier, vesting immediately upon the resignation or removal of Justin Schreiber as CEO of the Company or as Chairman of the Board of the Company); |
| (b) | 100,000 Restricted Shares vest upon the healthcare business achieving $100,000,000 in net revenue (defined as gross healthcare sales minus healthcare-related refunds and returns) with a 5% adjusted EBITDA margin, on or before December 31, 2025; |
| (c) | 100,000 restricted shares vest upon the healthcare business achieving $150,000,000 in net revenue with a 10% adjusted EBITDA margin, on or before December 31, 2026; |
| (d) | 100,000 restricted shares vest upon the healthcare business achieving $200,000,000 in net revenue with a 10% adjusted EBITDA margin, on or before December 31, 2027; |
| (e) | 75,000 restricted shares vest on 3/1/24 based on the performance of the Employee in the 2023 calendar year, at the discretion of the CEO and approval by the Board of Directors (or, if earlier, vesting immediately upon the resignation or removal of Justin Schreiber as CEO of the Company or as Chairman of the Board of the Company); and |
| (f) | 75,000 restricted shares vest on 3/1/25 based on the performance of the Employee in the 2024 calendar year, at the discretion of the CEO and approval by the Board of Directors (or, if earlier, vesting immediately upon the resignation or removal of Justin Schreiber as CEO of the Company or as Chairman of the Board of the Company). |
(g) To the extent it is then unvested, the Restricted Shares shall vest upon the termination of the Employee’s employment with the Company without Cause (if termination is by the Company) or for Good Reason (if termination is by Employee), as such terms are defined in the employment agreement of such Employee or if such term or terms is not defined in the employment agreement or there is not an employment agreement, as defined by the Plan. In lieu of fractional vesting, the number of Restricted Shares shall be rounded up each time until fractional Restricted Shares are eliminated.
(h) However, notwithstanding any other provisions of this Agreement, at the option of the Board in its sole and absolute discretion, all Restricted Shares shall be immediately forfeited in the event any of the following events occur:
(i) The Employee purchases or sells securities of the Company without written authorization in accordance with the Company’s insider trading policy then in effect, if any;
(ii) The Employee (A) discloses, publishes, or authorizes anyone else to use, disclose or publish, without the prior written consent of the Company, any proprietary or confidential information of the Company, including, without limitation, any information relating to existing or potential customers, business methods, financial information, trade or industry practices, sales and marketing strategies, employee information, vendor lists, business strategies, intellectual property, trade secrets, or any other proprietary or confidential information or (B) directly or indirectly uses any such proprietary or confidential information for the individual benefit of the Employee or the benefit of a third party;
(iii) During the term of employment and for a period of two (2) years thereafter, the Employee disrupts or damages, impairs, or interferes with the business of the Company or its Affiliates by recruiting, soliciting, or otherwise inducing any of their respective employees to enter into employment or other relationship with any other business entity, or terminate or materially diminish their relationship with the Company or its Affiliates, as applicable;
(iv) During the term of employment and for a period of one (1) year thereafter, the Employee solicits or directs business of any person or entity who is (A) a customer of the Company or its Affiliates at any time or (B) solicited to be a “prospective customer” of the Company or its Affiliates, in any case either for such Employee or for any other person or entity. For purposes of this clause (v), “prospective customer” means a person or entity who contacted, or is contacted by, the Company or its Affiliates regarding the provision of services to or on behalf of such person or entity; provided that the Employee has actual knowledge of such prospective customer;
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(v) The Employee fails to reasonably cooperate to effect a smooth transition of the Employee’s duties and to ensure that the Company is apprised of the status of all matters the Employee is overseeing or is unavailable for consultation after termination of employment of the Employee, if such availability is a condition of any agreement to which the Company and the Employee are parties;
(vi) The Employee fails to assign all of such Employee’s rights, title, and interest in and to any and all ideas, inventions, formulas, source codes, techniques, processes, concepts, systems, programs, software, computer data bases, trademarks, service marks, brand names, trade names, compilations, documents, data, notes, designs, drawings, technical data and/or training materials, including improvements thereto or derivatives therefrom, whether or not patentable or subject to copyright or trademark or trade secret protection, developed and produced by the Employee used or intended for use by or on behalf of the Company or the Company’s clients;
(vii) The Employee acts in a disloyal manner to the Company, such as making comments, whether oral or in writing, that tend to disparage or injure: (i) the reputation or business of the Company or its Affiliates, or is likely to result in discredit to, or loss of, business reputation or goodwill of the Company or its Affiliates or (ii) its directors, officers, or stockholders; or
(viii) A finding by the Board that the Employee has acted against the interests of the Company or in a manner that has or may have a detrimental effect on the Company.
In addition, all of the Restricted Shares shall, to the extent it is then unvested, vest immediately prior to the closing for any Change of Control. As used herein, “Change of Control” means: (i) a bona fide transfer or series of related transfers of Shares to any person or Group in which, or as a result of which, such person or Group obtains the direct or indirect right to elect a majority of the board of directors of the Company; or (ii) a sale of all or substantially all of the assets of the Company. As used herein, “Group” means any group or syndicate that would be considered a “person” for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended.
(c) For purposes of this Agreement, “Affiliate” means with respect to a person or entity, any other person or entity controlled by, in control of, or under common control with such person or entity, and “controlled,” “controlled by,” and “under common control with” shall mean direct or indirect possession of the power to direct or cause the direction of management policies (whether through ownership of voting securities, by contract, or otherwise, of a person or entity.
3. Representations and Warranties; Acknowledgements. In connection with the grant of the Restricted Shares hereunder, Employee represents and warrants to the Company that:
(a) Employee is acquiring Restricted Shares for Employee’s own account, not as a nominee or agent, for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.
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(b) Employee understands that: (a) the Restricted Shares have not been registered under the Securities Act of 1933 as amended (the “Securities Act”), or any state securities laws, and may not be offered for sale, sold, assigned, or transferred unless (A) subsequently registered thereunder or (B) sold in reliance on an exemption therefrom; and (b) neither the Company nor any other person is under any obligation to register such securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. In this regard, Employee represents that Employee is familiar with SEC Rule 144, and understands the resale limitations imposed thereby and by the Securities Act.
(c) Employee is able to bear the economic risk of Employee’s investment in the Shares for an indefinite period of time because the Restricted Shares have not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.
(d) Employee and Employee’s advisers have had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of the Shares as Employee and Employee’s advisers have requested and have had full and free access and opportunity to inspect, review, examine, and inquire about such other information concerning the Company and its Affiliates as they have requested. Employee and Employee’s advisers have also been provided an opportunity to review and ask questions about the Plan.
(e) Employee has had an opportunity to consult with independent legal counsel regarding Employee’s rights and obligations under this Agreement and the Plan, and fully understands the terms and conditions contained herein. Employee is not relying on the Company or any of its employees, agents, or representatives with respect to the legal, tax, economic, and related considerations of an investment in the Shares. Employee understands that in the future the Shares may significantly increase or decrease in value, and the Company has not made any representation to the Employee about the potential future value of the Shares.
(f) Employee understands and agrees that the investment in the Company involves a high degree of risk and that no guarantees have been made or can be made with respect to the future value of the Restricted Shares or the future profitability or success of the Company.
4. Termination of Relationship. Subject to Paragraph 2(a), upon the termination of employment, all unvested Shares of Restricted Shares shall be automatically and irrefutably forfeited. If such forfeiture occurs, Employee shall execute and deliver to the Company any and all further documents (including an Assignment Separate From Certificate) as the Company reasonably requests to further document the forfeiture. As used in this Agreement, “employment”, “employ”, and like terms shall be construed to include any employment or consulting relationship with the Company or its Affiliates. For purposes of this Agreement, a change from such an employment relationship to such a consulting relationship or a relationship as a member of the Board or vice versa shall not be treated as a termination of employment.
5. Redemption. If any of the events specified in Section 2(h) of this Agreement occur within the time periods set forth therein, all Restricted Shares that vested during the applicable timer periods shall be forfeited and forthwith, as necessary, surrendered by the Employee to the Company within ten (10) days after the Employee receives written demand from the Company for such Restricted Shares.
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6. Certificates. Certificates—which may be in electronic book entry format or other format used by the Company in ordinary course of doing business— evidencing the Restricted Shares shall be issued by the Company and shall be registered in the Employee’s name promptly after the date the shares are vested. No certificates shall be issued for fractional shares, but rather rounded up to the next whole share.
7. Rights as a Stockholder. Neither the Employee, the Employee’s estate, nor the Transferee have any rights as a shareholder with respect to any Common Stock covered by the Restricted Shares unless and until such Restricted Shares have vested. “Transferee” shall mean an individual to whom such Employee’s vested Restricted Shares are transferred by will or by the laws of descent and distribution.
8. Legend on Certificates. The Certificates representing the vested Restricted Shares delivered to the Employee as contemplated by Section 6 shall bear such legends, and be subject to such stop transfer orders, as the Company may deem advisable to give notice of restrictions imposed by this Agreement, the Plan, the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, or any applicable law. The Company may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
9. Transferability. To the extent that the Restricted Shares are then unvested, Employee shall not transfer, sell, assign, pledge, hypothecate or otherwise dispose of the Restricted Shares.
10. Employment by the Company. Nothing contained in this Agreement or in any other agreement entered into by the Company and the Employee contemporaneously with the execution of this Agreement (i) shall be deemed to obligate the Company or any of its Affiliates to employ the Employee in any capacity whatsoever, or (ii) shall prohibit or restrict the Company or any of its Affiliates from terminating the employment, if any, of the Employee at any time or for any reason whatsoever, and the Employee hereby acknowledges and agrees that neither the Company nor any other Person has made any representations or promises whatsoever to the Employee concerning the Employee’s employment or continued employment by the Company.
11. Sale of Shares Acquired. Any shares of the Company’s Common Stock acquired pursuant to Restricted Stock Awards granted hereunder cannot be sold by the Employee, subject to registration or an exemption from registration such as to Rule 144 promulgated under the Securities Act, until at least six (6) months elapse from the date of grant of this Restricted Stock Award, except in the case of death or disability or if the grant was exempt from the short-swing profit provisions of Section 16(b).
12. Withholding. The Employee acknowledges that the Employee is responsible for all liability for applicable tax related to the issuance or vesting of this Restricted Stock Award. Unless Employee uses a designated broker to sell Shares with an aggregate fair market value sufficient to cover the amount required to be withheld by the Company, or the Employee delivers in cash or certified check the amount required to be withheld by the Company, the Company will issue the number of Shares owed to the Employee under this Restricted Stock Award less a number of Shares equal to, in the aggregate, the amount of applicable tax related to the delivery of such Shares.
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13. Adjustments. The Restricted Shares under this Agreement shall be subject to the terms of the Plan, including but not limited to Section 3(b) (Changes in Stock) and 3(c) (Sale Events) of the Plan.
14. Limitation on Obligations. The Company’s obligation with respect to the Restricted Shares granted hereunder is limited solely to the delivery to the Employee of Shares on the date when such Shares are due to be delivered hereunder, and in no way shall the Company become obligated to pay cash in respect of such obligation. This Restricted Stock Award shall not be secured by any specific assets of the Company, nor shall any assets of the Company be designated as attributable or allocated to the satisfaction of the Company’s obligations under this Agreement. In addition, the Company shall not be liable to the Employee for damages relating to any delays in issuing the share certificates to him/her (or his/her designated entities), any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves.
15. Securities Laws. Upon the vesting of any Restricted Shares, the Company may require the Employee to make or enter into such written representations, warranties, and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. The granting of the Restricted Shares hereunder shall be subject to all applicable laws, rules, and regulations and to such approvals of any governmental agencies as may be required.
16. Arbitration. Any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation, breach, or enforcement which the parties hereto are unable to resolve by mutual agreement, shall be settled by submission by either party of the controversy, claim, or dispute to binding arbitration in New York County, New York (unless the parties agree in writing to a different location), before a single arbitrator in accordance with the rules of the American Arbitration Association then in effect. The decision and award made by the arbitrator shall be final, binding, and conclusive on all parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction thereof.
17. Governing Law. This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance, shall be governed or interpreted according to the laws of the State of Delaware without regard to choice of law considerations.
18. Restricted Stock Award Subject to Plan. This Restricted Stock Award shall be subject to the terms and provisions of the Plan. In the event of any conflict between this Agreement and the Plan, the terms of this Agreement shall control.
19. Signature in Counterparts. This Agreement may be signed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be deemed one and the same instrument.
20. Copy of Plan. By execution of this Agreement, Employee acknowledges receipt of a copy of the Plan.
21. New Shares.
(a) Any shares of capital stock of the Company or any successor thereto (“New Shares”) issued by the Company from time to time (including without limitation in any stock split or stock dividend) with respect to Restricted Shares (“Old Shares”) shall also be treated as Restricted Shares for all purposes of this Agreement.
(b) The New Shares so issued shall at all times be vested in the same proportion as the Old Shares are vested. For example: (i) if none of the Old Shares are vested as of the date that the New Shares are issued, then none of the New Shares will be vested when issued, (ii) if, from time to time, 25% of the Old Shares become vested at any later date, then 25% of the New Shares shall also become vested on that date; and (ii) if all of the Old Shares are vested on a date, then all of the New Shares shall be vested on that date.
(c) The New Shares shall be subject to this Agreement, including without limitation Section 3 thereof, to the same extent as the Old Shares.
22. Complete Agreement. By execution of this Agreement, Employee acknowledges that this Agreement contains the complete agreement between the Parties, and supersedes all previous agreements concerning grants of shares, restricted shares, share options, RSUs or other awards pursuant to the Plan or any prior agreement. For avoidance of doubt, all other such awards or grants are cancelled and void.
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IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock Award Agreement as of the date first above written.
| COMPANY: | |
| LIFEMD, INC. | |
| /s/ Justin Schreiber | |
| Justin Schreiber | |
| Chief Executive Officer & Chairman of the Board | |
| EMPLOYEE: | |
| /s/ Brad Roberts | |
| Brad Roberts | |
| Email: bradmichaelroberts@gmail.com | |
| Address: 300 Chafford Court | |
Simpsonville, SC 29681-8400 |
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Exhibit 10.3
EXHIBIT A
LIFEMD, INC.
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
This Director and Officer Indemnification Agreement, dated as of June 13, 2023 (the “Agreement”), is made by and between LifeMD, Inc., a Delaware corporation (the “Company”), and Brad Roberts (the “Indemnitee”).
RECITALS:
A. The Delaware General Corporation Law provides that the business and affairs of a corporation shall be managed by or under the direction of its board of directors.
B. By virtue of the managerial prerogatives vested in the directors and officers of a Delaware corporation, directors, and officers act as fiduciaries of the corporation and its stockholders.
C. It is critically important to the Company and its stockholders that the Company be able to attract and retain the most capable persons reasonably available to serve as directors and officers of the Company.
D. In recognition of the need for corporations to be able to induce capable and responsible persons to accept positions in corporate management, Delaware law authorizes (and in some instances requires) corporations to indemnify their directors and officers, and further authorizes corporations to purchase and maintain insurance for the benefit of their directors and officers.
E. Courts have recognized that indemnification by a corporation serves the dual policies of (1) allowing corporate officials to resist unjustified lawsuits, secure in the knowledge that, if vindicated, the corporation will bear the expense of litigation, and (2) encouraging capable women and men to serve as corporate directors and officers, secure in the knowledge that the corporation will absorb the costs of defending their honesty and integrity.
F. The number of lawsuits challenging the judgment and actions of directors and officers of corporations, the costs of defending those lawsuits, and the threat to personal assets have all materially increased over the past several years, chilling the willingness of capable women and men to undertake the responsibilities imposed on corporate directors and officers.
G. Recent federal legislation and rules adopted by the Securities and Exchange Commission and the national securities exchanges have exposed such directors and officers to new and substantially broadened civil liabilities.
H. Under Delaware law, a director’s or officer’s right to be reimbursed for the costs of defense of criminal actions, whether such claims are asserted under state or federal law, does not depend upon the merits of the claims asserted against the director or officer and is separate and distinct from any right to indemnification the director may be able to establish.
I. Indemnitee is, or will be, a director of the Company and his or her willingness to serve in such capacity is predicated, in substantial part, upon the Company’s willingness to indemnify him or her in accordance with the principles reflected above, to the fullest extent permitted by the laws of the State of Delaware, and upon the other undertakings set forth in this Agreement.
J. In recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s service as a director of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Company’s certificate of incorporation or bylaws (collectively, the “Constituent Documents”), any change in the composition of the Company’s Board of Directors (the “Board”), or any change-in-control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification and advancement of Expenses (as defined herein) to Indemnitee on the terms, and subject to the conditions, set forth in this Agreement.
K. In light of the considerations referred to in the preceding recitals, it is the Company’s intention and desire that the provisions of this Agreement be construed liberally, subject to their express terms, to maximize the protections to be provided to Indemnitee hereunder.
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AGREEMENT:
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Certain Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement:
(a) “Change in Control” shall have occurred at such time, if any, as Incumbent Directors cease for any reason to constitute a majority of the directors. For purposes of this Section 1(a), “Incumbent Directors” means the individuals who, as of the date hereof, are directors of the Company and any individual becoming a director subsequent to the date hereof whose election, nomination for election by the Company’s stockholders, or appointment, was approved by a vote of at least a majority of the then Incumbent Directors (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination); provided, however, that an individual shall not be an Incumbent Director if such individual’s election or appointment to the Board occurs as a result of an actual or threatened election contest (as described in Rule 14a-12(c) of the Securities Exchange Act of 1934, as amended) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.
(b) “Claim” means (i) any threatened, asserted, pending, or completed claim, demand, action, suit, or proceeding—whether civil, criminal, administrative, arbitrative, investigative, or other, and whether made pursuant to federal, state or other law; and (ii) any inquiry or investigation—whether made, instituted, or conducted by the Company or any other Person—including, without limitation, any federal, state, or other governmental entity that Indemnitee reasonably determines might lead to the institution of any such claim, demand, action, suit or proceeding. For the avoidance of doubt, the Company intends the indemnity to be provided hereunder for acts or failure to act prior to, on, or after the date hereof.
(c) “Controlled Affiliate” means any corporation, limited liability company, partnership, joint venture, trust, or other entity or enterprise, whether or not for profit, that is directly or indirectly controlled by the Company. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity or enterprise, whether through the ownership of voting securities, through other voting rights, by contract, or otherwise; provided that direct or indirect beneficial ownership of capital stock or other interests in an entity or enterprise entitling the holder to cast 15% or more of the total number of votes generally entitled to be cast in the election of directors (or persons performing comparable functions) of such entity or enterprise shall be deemed to constitute control for purposes of this definition.
(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee.
(e) “Expenses” means reasonable attorneys’ and experts’ fees and expenses, and all other costs and expenses paid or payable in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in (including on appeal), any Claim.
(f) “Indemnifiable Claim” means any Claim based upon, arising out of or resulting from (i) any actual, alleged or suspected act or failure to act by Indemnitee in his capacity as a director, officer, employee, or agent of the Company or as a director, officer, employee, member, manager, trustee, or agent of any other corporation, limited liability company, partnership, joint venture, trust, or other entity or enterprise, whether or not for profit, as to which Indemnitee is or was serving at the request of the Company, (ii) any actual, alleged or suspected act or failure to act by Indemnitee in respect of any business, transaction, communication, filing, disclosure or other activity of the Company or any other entity or enterprise referred to in clause (i) of this sentence, or (iii) Indemnitee’s status as a current or former director, officer, employee, or agent of the Company or as a current or former director, officer, employee, member, manager, trustee, or agent of the Company or any other entity or enterprise referred to in clause (i) of this sentence or any actual, alleged, or suspected act or failure to act by Indemnitee in connection with any obligation or restriction imposed upon Indemnitee by reason of such status. In addition to any service at the actual request of the Company, for purposes of this Agreement, Indemnitee shall be deemed to be serving or to have served at the request of the Company as a director, officer, employee, member, manager, trustee, or agent of another entity or enterprise if Indemnitee is or was serving as a director, officer, employee, member, manager, agent, trustee or other fiduciary of such entity or enterprise and (i) such entity or enterprise is, or at the time of such service was, a Controlled Affiliate, (ii) such entity or enterprise is or at the time of such service was an employee benefit plan (or related trust) sponsored or maintained by the Company or a Controlled Affiliate, or (iii) the Company or a Controlled Affiliate (by action of the Board, any committee thereof or the Company’s Chief Executive Officer (“CEO”) (other than as the CEO himself)) caused or authorized Indemnitee to be nominated, elected, appointed, designated, employed, engaged, or selected to serve in such capacity.
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(g) “Indemnifiable Losses” means any and all Losses relating to, arising out of or resulting from any Indemnifiable Claim; provided, however, that Indemnifiable Losses shall not include Expenses incurred by Indemnitee in respect of any Indemnifiable Claim (or any matter or issue therein) as to which Indemnitee shall have been adjudged liable to the Company, unless and only to the extent that the court in which such Indemnifiable Claim was brought shall have determined upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such Expenses as the court shall deem proper (i.e., there was no bad faith, gross negligence, and/or willful misconduct by the Director).
(h) “Independent Counsel” means a nationally recognized law firm, or a member of a nationally recognized law firm, that is experienced in matters of Delaware corporate law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company (or any subsidiary) or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements) or (ii) any other named (or, as to a threatened matter, reasonably likely to be named) party to the Indemnifiable Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
(i) “Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal, or other), and amounts paid or payable in settlement, including, without limitation, all interest, assessments, and other charges paid or payable in connection with or in respect of any of the foregoing.
(j) “Person” means any individual, entity, or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
(k) “Standard of Conduct” means the standard for conduct by Indemnitee that is a condition precedent to indemnification of Indemnitee hereunder against Indemnifiable Losses relating to, arising out of, or resulting from an Indemnifiable Claim. The Standard of Conduct is (i) good faith and a reasonable belief by Indemnitee that his action was in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, that Indemnitee had no reasonable cause to believe that his conduct was unlawful, or (ii) any other applicable standard of conduct that may hereafter be substituted under the Delaware General Corporation Law.
2. Indemnification Obligation. Subject only to Section 7 and to the proviso in this Section, the Company shall indemnify, defend and hold harmless Indemnitee, to the fullest extent permitted by the laws of the State of Delaware in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against any and all Indemnifiable Claims and Indemnifiable Losses; provided, however, that, except as provided in Section 5, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with (i) any Claim initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Claim or the Claim relates to or arises from the enforcement or prosecution of a right to indemnification under this Agreement, or (ii) the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended. Nothing herein is intended to limit the scope of permitted indemnification to Indemnitee under the laws of the State of Delaware.
3. Advancement of Expenses. Indemnitee shall have the right to advancement by the Company, prior to the final disposition of any Indemnifiable Claim, of any and all actual and reasonable Expenses relating to, arising out of, or resulting from any Indemnifiable Claim paid or incurred by Indemnitee. Without limiting the generality or effect of any other provision hereof, Indemnitee’s right to such advancement is not subject to the satisfaction of any Standard of Conduct. Without limiting the generality or effect of the foregoing, within ten business days after any request by Indemnitee that is accompanied by supporting documentation for specific reasonable Expenses to be reimbursed or advanced, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses; provided that Indemnitee shall repay, without interest, any amounts actually advanced to Indemnitee that, at the final disposition of the Indemnifiable Claim to which the advance related, were in excess of amounts paid or payable by Indemnitee in respect of Expenses relating to, arising out of or resulting from such Indemnifiable Claim. In connection with any such payment, advancement, or reimbursement, at the request of the Company, Indemnitee shall execute and deliver to the Company an undertaking, which need not be secured and shall be accepted without reference to Indemnitee’s ability to repay the Expenses, by or on behalf of the Indemnitee, to repay any amounts paid, advanced, or reimbursed by the Company in respect of Expenses relating to, arising out of, or resulting from any Indemnifiable Claim in respect of which it shall have been determined, following the final disposition of such Indemnifiable Claim and in accordance with Section 7, that Indemnitee is not entitled to indemnification hereunder.
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4. Indemnification for Additional Expenses. Without limiting the generality or effect of the foregoing, the Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within ten business days of such request accompanied by supporting documentation for specific Expenses to be reimbursed or advanced, any and all actual and reasonable Expenses paid or incurred by Indemnitee in connection with any Claim made, instituted, or conducted by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company; provided, however, if it is ultimately determined that the Indemnitee is not entitled to such indemnification, reimbursement, advance or insurance recovery, as the case may be, then the Indemnitee shall be obligated to repay any such Expenses to the Company; provided further, that, regardless in each case of whether Indemnitee ultimately is determined to be entitled to such indemnification, reimbursement, advance, or insurance recovery, as the case may be, Indemnitee shall return, without interest, any such advance of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to which the advance related.
5. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss but not for the entire amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
6. Procedure for Notification. To obtain indemnification under this Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee shall submit to the Company a written request therefore, including a brief description (based upon information then available to Indemnitee) of such Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of such request, the Company has directors’ and officers’ liability insurance in effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss is potentially available, the Company shall give prompt written notice of such Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all Indemnifiable Claims and Indemnifiable Losses in accordance with the terms of such policies. The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, substantially concurrently with the delivery thereof by the Company. The failure by Indemnitee to timely notify the Company of any Indemnifiable Claim or Indemnifiable Loss shall not relieve the Company from any liability hereunder unless, and only to the extent that, the Company did not otherwise learn of such Indemnifiable Claim or Indemnifiable Loss and to the extent that such failure results in forfeiture by the Company of substantial defenses, rights, or insurance coverage.
7. Determination of Right to Indemnification.
(a) To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Indemnifiable Claim or any portion thereof or in defense of any issue or matter therein, including, without limitation, dismissal without prejudice, Indemnitee shall be indemnified against all Indemnifiable Losses relating to, arising out of or resulting from such Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct Determination (as defined in Section 7(b)) shall be required.
(b) To the extent that the provisions of Section 7(a) are inapplicable to an Indemnifiable Claim that shall have been finally disposed of, any determination required to be made under the laws of the State of Delaware as to whether Indemnitee has satisfied the applicable Standard of Conduct (a “Standard of Conduct Determination”) shall be made as follows: (i) if a Change in Control shall not have occurred, or if a Change in Control shall have occurred but Indemnitee shall have requested that the Standard of Conduct Determination be made pursuant to this clause (i), (A) by a majority vote of the Disinterested Directors, even if less than a quorum of the Board, (B) if such Disinterested Directors so direct, by a majority vote of a committee of Disinterested Directors designated by a majority vote of all Disinterested Directors, or (C) if there are no such Disinterested Directors, or if a majority of the Disinterested Directors so direct, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee; and (ii) if a Change in Control shall have occurred and Indemnitee shall not have requested that the Standard of Conduct Determination be made pursuant to clause (i) above, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee.
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(c) If (i) Indemnitee shall be entitled to indemnification hereunder against any Indemnifiable Losses pursuant to Section 7(a), (ii) no determination of whether Indemnitee has satisfied any applicable standard of conduct under Delaware law is a legally required condition precedent to indemnification of Indemnitee hereunder against any Indemnifiable Losses, or (iii) Indemnitee has been determined or deemed pursuant to Section 7(b) to have satisfied the applicable Standard of Conduct, then the Company shall pay to Indemnitee, within ten business days after the later of (x) the notification date in respect of the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses are related, out of which such Indemnifiable Losses arose or from which such Indemnifiable Losses resulted, and (y) the earliest date on which the applicable criterion specified in clause (i), (ii) or (iii) above shall have been satisfied, an amount equal to the amount of such Indemnifiable Losses. Nothing herein is intended to mean or imply that the Company is intending to use the Delaware General Corporations Law to dispense with a requirement that Indemnitee meet the applicable Standard of Conduct where it is otherwise required by such statute.
(d) If a Standard of Conduct Determination is required to be, but has not been, made by Independent Counsel pursuant to Section 7(b)(i), the Independent Counsel shall be selected by the Board or a committee of the Board, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Standard of Conduct Determination is required to be, or to have been, made by Independent Counsel pursuant to Section 7(b)(ii), the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either case, Indemnitee or the Company, as applicable, may, within ten business days after receiving written notice of selection from the other, deliver to the other a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of “Independent Counsel” in Section 1(h), and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the Person so selected shall act as Independent Counsel. If such written objection is properly and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit and (ii) the non-objecting party may, at its option, select an alternative Independent Counsel and give written notice to the other party advising such other party of the identity of the alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences and clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 7(d) to make the Standard of Conduct Determination shall have been selected within 30 calendar days after the Company gives its initial notice pursuant to the first sentence of this Section 7(d) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 7(d), as the case may be, either the Company or Indemnitee may petition the courts of the State of Delaware for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person or firm selected by such court or by such other person as such Court shall designate, and the person or firm with respect to whom all objections are so resolved or the person or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the actual and reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsel’s determination pursuant to Section 7(b).
8. Cooperation. Indemnitee shall cooperate with reasonable requests of the Company in connection with any Indemnifiable Claim and any individual or firm making such Standard of Conduct Determination, including providing to such Person documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to defend the Indemnifiable Claim or make any Standard of Conduct Determination without incurring any unreimbursed cost in connection therewith. The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within ten business days of such request accompanied by supporting documentation for specific costs and expenses to be reimbursed or advanced, any and all costs and expenses (including reasonable attorneys’ and experts’ fees and expenses) actually and reasonably incurred by Indemnitee in so cooperating with the Person defending the Indemnifiable Claim or making such Standard of Conduct Determination.
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9. Presumption of Entitlement. Notwithstanding any other provision hereof, in making any Standard of Conduct Determination, the Person making such determination shall presume that Indemnitee has satisfied the applicable Standard of Conduct.
10. No Other Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any applicable Standard of Conduct or that indemnification hereunder is otherwise not permitted.
11. Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, or the substantive laws of the State of Delaware, any other contract or otherwise (collectively, “Other Indemnity Provisions”); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will without further action be deemed to have such greater right hereunder, and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder. The Company may not, without the consent of Indemnitee, adopt any amendment to any of the Constituent Documents the effect of which would be to deny, diminish, or encumber Indemnitee’s right to indemnification under this Agreement.
12. Liability Insurance and Funding. For the duration of Indemnitee’s service as a director of the Company and for a reasonable period of time thereafter, which such period shall be determined by the Company in its sole discretion but shall in no event be less than two (2) years, the Company shall cause to be maintained in effect policies of directors’ and officers’ liability insurance providing coverage for directors and/or officers of the Company, that is substantially comparable in scope and amount to that provided by the Company’s current policies of directors’ and officers’ liability insurance. Upon reasonable request, the Company shall provide Indemnitee or his or her counsel with a copy of all directors’ and officers’ liability insurance applications, binders, policies, declarations, endorsements, and other related materials. In all policies of directors’ and officers’ liability insurance obtained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company’s directors and officers most favorably insured by such policy. Notwithstanding the foregoing, the Company may, but shall not be required to, create a trust fund, grant a security interest, or use other means, including, without limitation, a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy its obligations to indemnify and advance expenses pursuant to this Agreement. The Company understands and acknowledges that the Director may resign from all positions with the Company if it fails to timely implement, or to thereafter maintain in place, such increased coverages.
13. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other Persons (other than Indemnitee’s successors), including any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(f). Indemnitee shall execute all papers reasonably required to evidence such rights (all of Indemnitee’s reasonable Expenses, including reasonable attorneys’ fees and charges, related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Company).
14. No Duplication of Payments.
(a) The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee has otherwise already actually received payment (net of Expenses incurred in connection therewith) under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise (including from any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(f)) in respect of such Indemnifiable Losses otherwise indemnifiable hereunder.
(b) Notwithstanding anything to the contrary contained in Section 14(a) above, the Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement of expenses, and/or insurance provided by one or more venture capital funds, the general partners, managing members, or other control persons and/or any affiliated management companies of such venture capital funds, and certain of its or their affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees that in connection with any Indemnifiable Claim, (i) it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines, and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Company’s Constituent Documents (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and, (iii) it irrevocably waives, relinquishes, and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 14(b).
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15. Defense of Claims. Subject to the provisions of applicable policies of directors’ and officers’ liability insurance, if any, the Company shall be entitled to participate in the defense of any Indemnifiable Claim or to assume or lead the defense thereof with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee determines, after consultation with counsel selected by Indemnitee, that (a) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict, (b) the named parties in any such Indemnifiable Claim (including any impleaded parties) include both the Company and Indemnitee, and Indemnitee shall conclude that there may be one or more legal defenses available to him or her that are different from or in addition to those available to the Company, (c) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, or (d) Indemnitee has interests in the claim or underlying subject matter that are different from or in addition to those of other Persons against whom the Claim has been made or might reasonably be expected to be made, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Indemnifiable Claim for all indemnitees in Indemnitee’s circumstances) at the Company’s expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Indemnifiable Claim effected without the Company’s prior written consent. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any threatened or pending Indemnifiable Claim to which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of the Indemnitee from all liability on any claims that are the subject matter of such Indemnifiable Claim. Neither the Company nor Indemnitee shall unreasonably withhold its consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.
16. Mutual Acknowledgment. Both the Company and the Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company may be required in the future to undertake to the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee and, in that event, the Indemnitee’s rights and the Company’s obligations hereunder shall be subject to that determination.
17. Successors and Binding Agreement.
(a) This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including, without limitation, any Person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization, or otherwise (and such successor will thereafter be deemed the “Company” for purposes of this Agreement), but shall not otherwise be assignable or delegable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by the Indemnitee’s personal or legal representatives, executors, administrators, heirs, distributees, legatees, and other successors.
(c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 17(a) and 17(b). Without limiting the generality or effect of the foregoing, Indemnitee’s right to receive payments hereunder shall not be assignable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Indemnitee’s will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 17(c), the Company shall have no liability to pay any amount so attempted to be assigned or transferred.
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18. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests, or approvals, required or permitted to be given hereunder must be in writing and shall be deemed to have been duly given when hand delivered, email with read receipt (legal@lifemd.com), or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or one business day after having been sent for next-day delivery by a nationally recognized overnight courier service, addressed to the Company (to the attention of the General Counsel of the Company) and to Indemnitee at the applicable address shown on the signature page hereto, or to such other address as any party hereto may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.
19. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware, without giving effect to the principles of conflict of laws of such State. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement, waive all procedural objections to suit in that jurisdiction, including, without limitation, objections as to venue or inconvenience, agree that service in any such action may be made by notice given in accordance with Section 18 and also agree that any action instituted under this Agreement shall be brought only in the Chancery Court of the State of Delaware.
20. Dispute Resolution. In the event of any dispute arising under or pursuant to this Agreement, the parties agree to attempt to resolve the dispute in a commercially reasonable fashion before instituting any litigation (with the exception of emergency injunctive relief). If the parties are unable to resolve the dispute within thirty (30) days, then the parties agree to mediate the dispute with a mutually agreed upon mediator in New York, NY. If the parties cannot agree upon a mediator within ten (10) days after either party shall first request commencement of mediation, each party will select a mediator within five (5) days thereof, and those mediators shall select the mediator to be used. The mediation shall be scheduled within thirty (30) days following the selection of the mediator. The parties further agree that any applicable statute of limitations will be tolled for the period of time from the date mediation is requested until 14 days following the mediation. If the mediation does not resolve the dispute, then the parties irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
20. Validity. If any provision of this Agreement or the application of any provision hereof to any Person or circumstance is held invalid, unenforceable, or otherwise illegal, the remainder of this Agreement and the application of such provision to any other Person or circumstance shall not be affected, and the provision so held to be invalid, unenforceable, or otherwise illegal shall be reformed to the extent, and only to the extent, necessary to make it enforceable, valid, or legal. In the event that any court or other adjudicative body shall decline to reform any provision of this Agreement held to be invalid, unenforceable, or otherwise illegal as contemplated by the immediately preceding sentence, the parties hereto shall take all such action as may be necessary or appropriate to replace the provision so held to be invalid, unenforceable, or otherwise illegal with one or more alternative provisions that effectuate the purpose and intent of the original provisions of this Agreement as fully as possible without being invalid, unenforceable, or otherwise illegal.
21. Miscellaneous. No provision of this Agreement may be waived, modified, or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party hereto that is not set forth expressly in this Agreement.
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22. Certain Interpretive Matters. Unless the context of this Agreement otherwise requires, (1) “it” or “its” or words of any gender include each other gender, (2) words using the singular or plural number also include the plural or singular number, respectively, (3) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement, (4) the terms “Article,” “Section,” “Annex” or “Exhibit” refer to the specified Article, Section, Annex, or Exhibit of or to this Agreement, (5) the terms “include,” “includes” and “including” will be deemed to be followed by the words “without limitation” (whether or not so expressed), and (6) the word “or” is disjunctive but not exclusive. Whenever this Agreement refers to a number of days, such number will refer to calendar days unless business days are specified and whenever action must be taken (including the giving of notice or the delivery of documents) under this Agreement during a certain period of time or by a particular date that ends or occurs on a non-business day, then such period or date will be extended until the immediately following business day. As used herein, “business day” means any day other than Saturday, Sunday, or a United States federal holiday.
23. Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter of this Agreement. Any prior agreements or understandings between the parties hereto with respect to indemnification are hereby terminated and of no further force or effect. This Agreement is not the exclusive means of securing indemnification rights of Indemnitee and is in addition to any rights Indemnitee may have under any Constituent Documents or Delaware Law.
24. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together shall constitute one and the same agreement.
25. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) six years after the date that the Indemnitee shall have ceased to serve as a director, officer, employee, agent, or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise which the Indemnitee served at the request of the Company; (b) the expiration of the applicable statutes of limitations pertaining to any and all potential proceedings covered by the indemnification provided for herein; or (c) the final termination of all pending proceedings in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to this Agreement relating thereto.
[-Signature Page Follows-]
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IN WITNESS WHEREOF, Indemnitee has executed, and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written.
| LIFEMD, INC. | ||
| By: | /s/ Justin Schreiber | |
| Justin Schreiber | ||
| Chief Executive Officer | ||
| INDEMNITEE: | ||
| By: | /s/ Brad Roberts | |
| Brad Roberts, Chief Operating Officer | ||
[Signature Page To Director And Officer Indemnification Agreement]
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Exhibit 10.4
SECOND CONSULTING SERVICES AGREEMENT
This Second Consulting Services Agreement (“Consulting Agreement” or the “Agreement”) is made effective as of June 14, 2023 (the “Effective Date”), by and between Naveen Bhatia, an individual with an address at 1327 Bay Head Road, Annapolis, MD 21409 (the “Consultant”) and LifeMD, Inc., a corporation with an address of 236 Fifth Avenue, Suite 400, New York, NY 10001 (the “Company”) (the Company and Consultant together the “Parties” or individually a “Party”).
WHEREAS, the Company and the Consultant desire to enter into this Consulting Agreement, pursuant to which the Consultant will provide services as a Consultant to the Company, subject to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the Company and the Consultant, intending to be legally bound, hereby agree as follows:
A. Engagement
The Consultant shall provide the Services defined below in Section C herein for the Company, reporting to Justin Schreiber, Chairman & CEO of LifeMD (the “Engagement”). In this capacity, the Consultant agrees to devote its best efforts, energies, and skill to the full discharge of its duties and responsibilities.
B. Commencement, Term, and Termination
1. Commencement; Initial & Extended Terms
Services under this Consulting Agreement shall commence on June 15, 2023 (the “Commencement Date”) and shall continue until June 14, 2025 (the “Initial Term”) unless terminated.
2. Termination for Cause
The Company may terminate this Agreement if the Board of Directors of LifeMD (the “Board”) determines—upon a majority vote of the Board—that the Consultant has:
| (a) | materially breached any provision hereof or habitually neglected the duties which the Consultant was required to perform under any provision of this Agreement; |
| (b) | misappropriated funds or property of the Company or otherwise engaged in acts of dishonesty, fraud, misrepresentation, or other acts of moral turpitude, even if not in connection with the performance of the Services, which could reasonably be expected to result in serious prejudice to the interests of the Company if the Consultant was retained by the Company; |
| (c) | secured any personal profit not completely disclosed to and approved by the Company in connection with any transaction entered into on behalf of or with the Company or any affiliate of the Company; or |
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| (d) | failed to carry out and perform duties assigned to the Consultant in accordance with the terms hereof in a manner acceptable to the Board after a written demand for substantial performance is delivered to the Consultant which identifies the manner in which the Consultant has not substantially performed the Consultant’s duties and provided further that the Consultant shall be given a reasonable opportunity to cure such failure. |
For purposes of this section, the Consultant shall not be terminated for Cause without: (i) reasonable notice to the Consultant setting forth the reasons for the Company’s intention to Terminate for Cause and a reasonable opportunity to cure such situation (if capable of cure), (ii) an opportunity for the Consultant, together with counsel, to be heard before the Board, and (iii) delivery to the Consultant of a notice of termination from the Board of the Company, finding that, in the good faith opinion of the Board, the Consultant had engaged in the conduct set forth above and specifying the particulars thereof in detail.
C. Services to be Performed
1. During the Term of this Consulting Agreement, the Consultant shall provide business development related services to the Company, including but not limited to providing the following services:
| ○ | Introductions to individuals and entities that are supportive of the company’s business development and growth objectives; |
| ○ | General assistance with increasing the company’s awareness among institutional investors. |
2. The Consultant will use the highest degree of skill and expertise to accomplish the Services within the Initial Term, and any Extended Term(s), of this Agreement professionally and ethically, and to project a positive image of the Company, in accordance with the Company’s policies and procedures, and applicable law.
D. Compensation for Services
1. Compensation for Consulting Services. The Company shall issue Consultant 225,000 shares of LifeMD restricted common stock (collectively, the “Restricted Stock Grants”), according to the following schedule:
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the execution date of this Agreement |
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the 6 month anniversary of this Agreement; |
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the 12 month anniversary of this Agreement; |
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the 18 month anniversary of this Agreement; |
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Any unissued Restricted Stock Grants shall be issued immediately prior to the closing for any Change of Control. As used herein, “Change of Control” means: (i) a bona fide transfer or series of related transfers of Shares to any person or Group in which, or as a result of which, such person or Group obtains the direct or indirect right to elect a majority of the board of directors of the Company; or (ii) a sale of all or substantially all of the assets of the Company. As used herein, “Group” means any group or syndicate that would be considered a “person” for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended. Upon a termination for cause, as defined in Section 2, any unissued awards will be forfeited.
2. Entire Compensation. Consultant acknowledges that the foregoing provisions of this Section D constitute the sole and entire compensation payable to it for the Engagement and the provision of the Services of Consultant, and the Parties specifically agree that no compensation, benefits, or other reimbursements of any other nature are required to be paid or payable to Consultant as a result of the provision of Services hereunder.
E. Ownership of Materials
1. Ownership. All materials, reports, plans, information, ideas, inventions, discoveries, improvements, methods, processes, drawings, renditions, mock-ups, prototypes, creative execution, advertising ideas, creative concepts, or other works conceived, created, reduced to practice, delivered, or disclosed to the Company or produced or otherwise arising out of the Services, in whole or in part and whether alone or in conjunction with others (whether or not during work hours devoted to the Services) (collectively, the “Creative Materials”), and all rights, title, and interests (including copyrights) in and to such Creative Materials throughout the world, are hereby assigned to the Company and shall be the sole and exclusive property of the Company.
2. Works Made for Hire. All copyrightable works comprising the Creative Materials shall be considered “works made for hire” as defined in the United States Copyright Act, whether published or unpublished, and all rights, title, and interest to all such copyrightable works shall be the exclusive property of the Company, and the Company shall be deemed to be the author and owner of such copyrightable works. Consultant shall not distribute the copyrightable works, in part or in entirety, to any third party without the express written consent of the Company.
3. Disclosure; Cooperation. Consultant shall promptly disclose all such Creative Materials to the Company, and the Company shall have full power and authority to file any patent or copyright registrations, or other intellectual property submissions, applications, or registrations throughout the world thereon and to procure and maintain any patents, copyrights, or other intellectual property rights thereon. Consultant agrees, at the Company’s reasonable request and expense, to execute any applications, assignments, instruments, and other documents, and perform such acts, as the Company may deem necessary or advisable to confirm and vest in the Company all such rights, title and interests throughout the world in and to such Creative Materials and all intellectual property rights pertaining thereto, and to assist the Company in procuring, maintaining, enforcing, and defending such intellectual property rights and protection throughout the world thereon. To the extent not covered by the foregoing, The Company shall have the fully paid-up and irrevocable right to use and disclose freely and for any purpose all information and ideas disclosed by Consultant to the Company in performing the Services hereunder.
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4. Consultant’s Obligations. With respect to any Creative Materials, Consultant shall:
| (a) | Treat all information with respect thereto as Confidential Information of the Company; |
| (b) | Keep complete and accurate records thereof, which records shall be the property of the Company; and |
| (c) | From time to time, upon the request and at the expense of the Company, but without payment to Consultant by the Company of additional consulting fees, execute all assignment or other instruments required to transfer and assign to the Company (or as it may direct) all Creative Materials, and all patents and applications for patents, copyrights, or applications for registration of copyrights, covering such inventions or otherwise required to protect the rights and interests of the Company. |
F. Confidentiality
1. Confidential Information. Consultant acknowledges that it may be necessary for the Company during the course of the Engagement, to disclose certain confidential and proprietary information (“Confidential Information”) to Consultant, in order for Consultant to perform the Services pursuant to this Agreement. Consultant shall not disclose or use, at any time either during or after the Term of this Agreement, for their own benefit or for the benefit of any third party, any Confidential Information without the Company’s prior written permission except to the extent necessary to perform the Services on the Company’s behalf. Confidential Information includes, without limitation:
| (a) | The written, printed, graphic, or electronically recorded materials furnished by the Company for Consultant to use; |
| (b) | Any written or tangible information stamped “confidential,” “proprietary,” or with a similar legend or any information that the Company makes reasonable efforts to maintain its secrecy; |
| (c) | Business, research and development, regulatory, and marketing plans; objectives and/or strategies; financial information; corporate initiatives; contractual and business arrangements; customer and supplier lists; sales projections; product information and launch plans; regulatory submissions; and pricing information of the Company and its affiliates; |
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| (d) | Information, data, test results, patent applications, methodologies, operating procedures, trade secrets, design formulas, know-how, techniques, analyses, technology, processes, protocols, specifications, and instructions relating to the Company’s proprietary products, including safety data and reference standards, investigators brochures, documents and reports, computer programs and inventories, discoveries and improvements of any kind, sales projections, product information, and pricing information of the Company and its affiliates; |
| (e) | Information, know-how, trade secrets, materials, and tangible property belonging to customers and suppliers of the Company and other third parties who have disclosed such confidential and proprietary information to the Company about whom Consultant gained knowledge as a result of providing Services to the Company; |
| (f) | Any data, deliverables, or other work product or information generated or developed by Consultant in connection with the performance of Services under this Agreement, including all Creative Materials; and |
| (g) | Any copies, extracts, notes, or summaries of any information described in clauses (a) through (f). |
Notwithstanding any of the foregoing, Confidential Information shall not include any information that:
| (a) | is or becomes available in the public domain through no fault of, or act or failure to act on the part of, Consultant; |
| (b) | is rightfully in Consultant’s possession at the time of disclosure by the Company, as evidenced by Consultant’s written records maintained in the ordinary course of business; or |
| (c) | is obtained, after the Effective Date, by Consultant from any third party that is lawfully in possession of such Confidential Information and not in violation of any contractual or legal obligation with respect to such Confidential Information. |
2. At any time upon request of the Company or upon Termination of this Agreement, Consultant shall promptly deliver to the Company: (i) all Confidential Information (and all copies thereof) and all other property furnished to Consultant, by the Company and all other materials prepared by Consultant, containing any Confidential Information; and (ii) a certification that all Confidential Information has been delivered to the Company.
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3. Notwithstanding the return of Confidential Information or the Termination of this Agreement, Consultant, will continue to be bound by the obligations of confidentiality pursuant to this Section F. In addition to its other legal rights, the Company shall be entitled to temporary and permanent injunctive relief and specific performance to remedy any breach or attempted breach of this Section F of the Agreement, and in the event the Company prevails in any action brought under this Section F, the Company shall also be entitled to recover its reasonable attorney’s fees and costs expended in such action from Consultant.
G. Non-Solicitation; Non-Disparagement
1. Non-Solicitation. Consultant covenants and agrees that during the term of this Agreement, and for a two (2) year period immediately following the termination of this Agreement, regardless of the reason therefor, the Consultant shall not solicit, induce, aid, or suggest to: (a) any employee to leave such employ, (b) any contractor, consultant, or other service provider to terminate such relationship, or (b) any customer, agency, vendor, or supplier of the Company to cease doing business with the Company.
2. Mutual Non-Disparagement. The parties mutually agree to forbear from making, causing to be made, publishing, ratifying, or endorsing any and all disparaging remarks, derogatory statements or comments made to any party with respect to either of them.
H. RESERVED.
I. Indemnification
1. The Company agrees to defend, indemnify, and hold Consultant harmless from and against any and all claims, liabilities, losses, damages, and expenses arising out of: (a) any breach by the Company of its warranties, representations, covenants, and obligations outlined in this Agreement; and (b) the gross negligence or willful misconduct of the Company; and (c) the failure of the Company to comply with all legal requirements to the best of its knowledge at the time.
2. Consultant agrees to defend, indemnify, and hold the Company harmless from and against any and all claims, liabilities, losses, damages, and expenses arising out of: (a) any breach by Consultant of his warranties, representations, covenants, and obligations outlined in this Agreement; (b) the gross negligence or willful misconduct of Consultant; and (c) the failure of Consultant to comply with all legal requirements to the best of his knowledge at the time. Consultant’s indemnification obligations under this Agreement will be limited to $1 million US Dollars and will be subordinate to any payment to the Company received with respect to the D&O insurance or any other payments to the Company received by the Company, directly or indirectly, as a result of any of the above actions by Consultant that would give rise to an indemnification claim by the Company against Consultant.
3. The Parties further agree that they shall not, without the prior written consent of the other Party, settle, compromise, or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which defense and/or indemnification may be sought hereunder unless such settlement, compromise, or consent includes an unconditional release of the Party seeking defense and/or indemnity from all liability arising out of such claim, action, suit, or proceeding.
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4. The Party seeking defense or indemnification hereunder shall: (i) promptly notify the other Party of the matter for which defense or indemnification is sought; (ii) subject to the immediately preceding sentence of this paragraph, provide the other Party with sole control over the defense and/or settlement thereof, including but not limited to the selection of counsel; and (iii) at the request of the Party providing defense and/or indemnification, fully cooperate in the provision of full and complete information and reasonable assistance with respect to the defense of such matter.
J. Survival
The obligations of the Parties pursuant to Sections E, F, G, and J shall survive the Termination of this Agreement, regardless of the reason for such Termination, along with any and all other provisions that expressly provide for survival of Termination.
K. Relationship of the Parties; Independent Contractor Status
The Parties agree that the relationship created by this Engagement is one of an independent contractor. The Parties further agree that Consultant, are not and shall not be considered employees of the Company and are not and shall not be entitled to any of the rights and/or benefits that the Company provides for the Company’s employees (including any employee pension, health, vacation pay, sick pay, or other fringe benefits offered by the Company under plan or practice) by virtue of the Services being rendered by Consultant. Consultant acknowledges and agrees that the Company does not, and shall not, maintain or procure any workers’ compensation or unemployment compensation insurance for or on behalf of Consultant, and shall make no state temporary disability or family leave insurance payments on behalf of Consultant, and Consultant agrees that Consultant will not be entitled to these benefits in connection with performance of the Services under this Agreement. Consultant acknowledges and agrees that it shall be solely responsible for paying all salaries, wages, benefits, and other compensation which Consultant, may be entitled to receive in connection with the performance of the Services under this Agreement. Consultant is responsible for all taxes, if any, imposed on it in connection with its performance of Services under this Agreement, including any federal, state, and local income, sales, use, excise, and other taxes or assessments thereon.
L. Binding Nature; Assignments
This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors, representatives, administrators, heirs, executors, and permitted assigns, except that the duties of Consultant are personal and shall not be assigned or subcontracted without the Company’s prior written consent and any purported assignment without such written consent shall be deemed void and unenforceable.
M. Entire Agreement; Amendments
This Agreement contains the entire understanding between the Parties with respect to its subject matter and supersedes all previous negotiations, agreements, or understandings between the Parties—as well as between Consultant and Cleared—whether written or verbal. This Agreement may not be amended or modified, except in writing, executed by duly authorized representatives of the Parties hereto.
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N. Governing Law; Consent to Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with the laws of New York, without giving effect to principles of conflicts of laws. The Parties agree that any dispute concerning or arising under this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts of New York, and each Party agrees to submit to the personal and exclusive jurisdiction and venue of such courts.
O. Notices
All notices required or permitted to be delivered under this Agreement shall be in writing and sent to the principal place of business of the Party to whom they are addressed. Notices to Consultant shall be delivered to the attention of Consultant. Notices to the Company shall be delivered to the attention of the CEO and General Counsel (legal@lifemd.com). All notices under this Agreement shall be deemed delivered only if sent by overnight mail or courier with return receipt, or email with read receipt.
P. Severability
If any provision of this Agreement is found to be invalid or unenforceable for any reason by a court of competent jurisdiction, that provision shall be stricken from this Agreement and that finding shall not invalidate any other terms of this Agreement, which terms shall remain in full force and effect according to the surviving terms of this Agreement. In such an event, the Parties shall negotiate with one another to agree on a provision which the Parties would have agreed if they had known of the defect when they signed this Agreement, in order to achieve the same commercial outcome and objectives of this Agreement that were intended upon its execution.
Q. Dispute Resolution
In the event of any dispute arising under or pursuant to this Agreement, the Parties agree to attempt to resolve the dispute in a commercially reasonable fashion before instituting any litigation or arbitration (except for emergency injunctive relief). If the parties are unable to resolve the dispute within thirty (30) days, then the parties agree to mediate the dispute with a mutually agreed upon mediator in New York, NY. If the parties cannot agree upon a mediator within ten (10) days after either party shall first request commencement of mediation, each party will select a mediator within five (5) days thereof, and those mediators shall select the mediator to be used. The mediation shall be scheduled within thirty (30) days following the selection of the mediator. The parties further agree that any applicable statute of limitations will be tolled for the period from the date mediation is requested until 14 days following the mediation. If the mediation does not resolve the dispute, then the parties irrevocably and unconditionally agree to the arbitration provisions in Paragraph R below.
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R. Arbitration
To ensure the rapid and economical resolution of disputes that may arise in connection with this Agreement, Consultant and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Consultant’s consulting with the Company, or the termination of this Agreement, shall be resolved pursuant to the employment arbitration rules and procedures under the Federal Arbitration Act, 9 U.S.C. § 1-16, to the fullest extent permitted by law, by final, binding and confidential arbitration conducted by JAMS or its successor, under JAMS’ then applicable rules and procedures for disputes (available upon request and also currently available at http://www.jamsadr.com/rules-employment-arbitration/ ). Consultant agrees that the use of the JAMS rules and procedures does not change Consultant’s classification to that of an employee. To the contrary, Consultant reaffirms that the Consultant is an independent contractor. The arbitration will take place in New York, NY unless otherwise agreed to by the Parties. Consultant acknowledges that by agreeing to this arbitration procedure, both Consultant and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. In addition, all claims, disputes, or causes of action under this section, whether by Consultant or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity. The arbitrator may not consolidate the claims of more than one person or entity and may not preside over any form of representative or class proceeding. To the extent that the preceding description regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration. This paragraph shall not apply to any action or claim that cannot be subject to mandatory arbitration as a matter of law, including, without limitation, claims brought pursuant to the California Private Attorneys General Act of 2004, as amended, the California Fair Employment and Housing Act, as amended, and the California Labor Code, as amended, to the extent such claims are not permitted by applicable law(s) to be submitted to mandatory arbitration and the applicable law(s) are not preempted by the Federal Arbitration Act or otherwise invalid (collectively, the “Excluded Claims”). In the event Consultant intends to bring multiple claims, including one of the Excluded Claims listed above, the Excluded Claims may be filed with a court, while any other claims will remain subject to mandatory arbitration. Consultant will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. The arbitrator shall be authorized to award all relief that Consultant or the Company would be entitled to seek in a court of law. Nothing in this Agreement is intended to prevent either Consultant or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
S. Fees, Costs, & Damages
If any action is necessary to enforce the provisions of this Agreement, including any claims or demands, or to interpret this Agreement, the prevailing Party shall be entitled to reasonable attorneys’ fees, costs, and disbursements in addition to any other relief to which it may otherwise he entitled.
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If any legal action or other proceeding is brought for the enforcement of this Agreement or any agreement or instrument delivered under or in connection with this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing Party or Parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action.
T. Counsel
The Parties acknowledge and represent that, prior to the execution of this Agreement, they have had an opportunity to consult with their respective counsel concerning the terms and conditions set forth herein. Additionally, Consultant represents that it has had an opportunity to receive independent legal advice concerning the taxability of any consideration received under this Agreement. Consultant has not relied upon any advice from the Company and/or its attorneys with respect to the taxability of any consideration received under this Agreement. Consultant further acknowledges that the Company has not made any representations to Consultant with respect to tax issues.
U. Force Majeure
Neither of the Parties shall be liable to the other for any delay or failure to perform hereunder, which delay or failure is due to causes beyond the control of said Party, including, but not limited to acts of God; acts of the public enemy; acts of the United States of America or any state, territory, or political subdivision thereof or of the District of Columbia; fires; floods; epidemics; quarantine restrictions; strike; or freight embargoes. Notwithstanding the foregoing provisions of this Section, in every case the delay or failure to perform must be beyond the control and without the fault or negligence of the Party claiming excusable delay.
V. Counterparts
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall be construed as a single instrument. This Agreement may be executed by facsimile or other electronic transmissions, and signatures on any facsimile or electronic transmission copy hereof shall be deemed authorized original signatures.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Consulting Agreement has been duly executed by or on behalf of the Parties as of its Effective Date.
| CONSULTANT | LIFEMD, INC. | |
| /s/ Naveen Bhatia | /s/ Justin Schreiber | |
| Naveen Bhatia | Justin Schreiber | |
| Chairman & CEO |
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Exhibit 10.5
CONSULTING SERVICES AGREEMENT
This Consulting Services Agreement (“Consulting Agreement” or the “Agreement”) is made effective as of June 14, 2023 (the “Effective Date”), by and between Robert Jindal, having an address at 15040 Audubon Lakes Drive, Baton Rouge, LA 70810 (the “Consultant”) and LifeMD, Inc., a corporation with an address of 236 Fifth Avenue, Suite 400, New York, NY 10001 (the “Company”) (the Company and Consultant together the “Parties” or individually a “Party”).
WHEREAS, the Company and the Consultant desire to enter into this Consulting Agreement, pursuant to which the Consultant will provide services as a Consultant to the Company, subject to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the Company and the Consultant, intending to be legally bound, hereby agree as follows:
A. Engagement
The Consultant shall provide the Services defined below in Section C herein for the Company, reporting to Justin Schreiber, Chairman & CEO of LifeMD (the “Engagement”). In this capacity, the Consultant agrees to devote its best efforts, energies, and skill to the full discharge of its duties and responsibilities.
B. Commencement, Initial & Extended Terms, and Termination
1. Commencement; Initial & Extended Terms
Services under this Consulting Agreement shall commence on June 15, 2023 (the “Commencement Date”) and shall continue until June 14, 2025 (the “Initial Term”) unless terminated. The Parties, through mutual consent to do so, may choose to renew this Agreement for the same length of time as the Initial Term or some other mutually agreed upon length of time on or before the expiration of the then existing Term (the “Extended Term”).
2. Termination for Cause
The Company may terminate this Agreement if the Board of Directors of LifeMD (the “Board”) determines—upon a majority vote of the Board—that the Consultant has:
| (a) | materially breached any provision hereof or habitually neglected the duties which the Consultant was required to perform under any provision of this Agreement; |
| (b) | misappropriated funds or property of the Company or otherwise engaged in acts of dishonesty, fraud, misrepresentation, or other acts of moral turpitude, even if not in connection with the performance of the Services, which could reasonably be expected to result in serious prejudice to the interests of the Company if the Consultant was retained by the Company; |
| (c) | secured any personal profit not completely disclosed to and approved by the Company in connection with any transaction entered into on behalf of or with the Company or any affiliate of the Company; or |
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| (d) | failed to carry out and perform duties assigned to the Consultant in accordance with the terms hereof in a manner acceptable to the Board after a written demand for substantial performance is delivered to the Consultant which identifies the manner in which the Consultant has not substantially performed the Consultant’s duties and provided further that the Consultant shall be given a reasonable opportunity to cure such failure. |
For purposes of this section, the Consultant shall not be terminated for Cause without: (i) reasonable notice to the Consultant setting forth the reasons for the Company’s intention to Terminate for Cause and a reasonable opportunity to cure such situation (if capable of cure), (ii) an opportunity for the Consultant, together with counsel, to be heard before the Board, and (iii) delivery to the Consultant of a notice of termination from the Board of the Company, finding that, in the good faith opinion of the Board, the Consultant had engaged in the conduct set forth above and specifying the particulars thereof in detail.
C. Services to be Performed
1. During the Term of this Consulting Agreement, the Consultant shall provide business development related services to the Company, including but not limited to providing the following services:
| ● | Strategic Introductions |
| ○ | Introductions to healthcare product companies and other executives in the healthcare sector that result in revenue/growth opportunities for LifeMD; |
| ○ | Introductions to pharma services providers, agencies, and other entities that can support the enterprise sales objectives of LifeMD. |
| ● | Compliance |
| ○ | High level assistance with developing, implementing and maintaining a best-in-class compliance program. |
| ● | Managed Care |
| ○ | Strategic guidance around development of the optimal strategy and timing for participation in Medicare and Medicaid programs. |
2. The Consultant will use the highest degree of skill and expertise to accomplish the Services within the Initial Term, and any Extended Term(s), of this Agreement professionally and ethically, and to project a positive image of the Company, in accordance with the Company’s policies and procedures, and applicable law.
D. Compensation for Services
1. Compensation for Consulting Services. The Company shall issue Consultant 225,000 shares of LifeMD restricted common stock (collectively, the “Restricted Stock Grants”), according to the following schedule:
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the execution date of this Agreement |
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the 6 month anniversary of this Agreement; |
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the 12 month anniversary of this Agreement; |
| ● | 56,250 shares of Common Stock of LifeMD, Inc. on the 18 month anniversary of this Agreement; |
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Any unissued Restricted Stock Grants shall be issued immediately prior to the closing for any Change of Control. As used herein, “Change of Control” means: (i) a bona fide transfer or series of related transfers of Shares to any person or Group in which, or as a result of which, such person or Group obtains the direct or indirect right to elect a majority of the board of directors of the Company; or (ii) a sale of all or substantially all of the assets of the Company. As used herein, “Group” means any group or syndicate that would be considered a “person” for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended.
2. Entire Compensation. Consultant acknowledges that the foregoing provisions of this Section D constitute the sole and entire compensation payable to it for the Engagement and the provision of the Services of Consultant, and the Parties specifically agree that no compensation, benefits, or other reimbursements of any other nature are required to be paid or payable to Consultant as a result of the provision of Services hereunder.
E. Ownership of Materials
1. Ownership. All materials, reports, plans, information, ideas, inventions, discoveries, improvements, methods, processes, drawings, renditions, mock-ups, prototypes, creative execution, advertising ideas, creative concepts, or other works conceived, created, reduced to practice, delivered, or disclosed to the Company or produced or otherwise arising out of the Services, in whole or in part and whether alone or in conjunction with others (whether or not during work hours devoted to the Services) (collectively, the “Creative Materials”), and all rights, title, and interests (including copyrights) in and to such Creative Materials throughout the world, are hereby assigned to the Company and shall be the sole and exclusive property of the Company.
2. Works Made for Hire. All copyrightable works comprising the Creative Materials shall be considered “works made for hire” as defined in the United States Copyright Act, whether published or unpublished, and all rights, title, and interest to all such copyrightable works shall be the exclusive property of the Company, and the Company shall be deemed to be the author and owner of such copyrightable works. Consultant shall not distribute the copyrightable works, in part or in entirety, to any third party without the express written consent of the Company.
3. Disclosure; Cooperation. Consultant shall promptly disclose all such Creative Materials to the Company, and the Company shall have full power and authority to file any patent or copyright registrations, or other intellectual property submissions, applications, or registrations throughout the world thereon and to procure and maintain any patents, copyrights, or other intellectual property rights thereon. Consultant agrees, at the Company’s reasonable request and expense, to execute any applications, assignments, instruments, and other documents, and perform such acts, as the Company may deem necessary or advisable to confirm and vest in the Company all such rights, title and interests throughout the world in and to such Creative Materials and all intellectual property rights pertaining thereto, and to assist the Company in procuring, maintaining, enforcing, and defending such intellectual property rights and protection throughout the world thereon. To the extent not covered by the foregoing, The Company shall have the fully paid-up and irrevocable right to use and disclose freely and for any purpose all information and ideas disclosed by Consultant to the Company in performing the Services hereunder.
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4. Consultant’s Obligations. With respect to any Creative Materials, Consultant shall:
| (a) | Treat all information with respect thereto as Confidential Information of the Company; |
| (b) | Keep complete and accurate records thereof, which records shall be the property of the Company; and |
| (c) | From time to time, upon the request and at the expense of the Company, but without payment to Consultant by the Company of additional consulting fees, execute all assignment or other instruments required to transfer and assign to the Company (or as it may direct) all Creative Materials, and all patents and applications for patents, copyrights, or applications for registration of copyrights, covering such inventions or otherwise required to protect the rights and interests of the Company. |
F. Confidentiality
1. Confidential Information. Consultant acknowledges that it may be necessary for the Company during the course of the Engagement, to disclose certain confidential and proprietary information (“Confidential Information”) to Consultant, in order for Consultant to perform the Services pursuant to this Agreement. Consultant shall not disclose or use, at any time either during or after the Term of this Agreement, for their own benefit or for the benefit of any third party, any Confidential Information without the Company’s prior written permission except to the extent necessary to perform the Services on the Company’s behalf. Confidential Information includes, without limitation:
| (a) | The written, printed, graphic, or electronically recorded materials furnished by the Company for Consultant to use; |
| (b) | Any written or tangible information stamped “confidential,” “proprietary,” or with a similar legend or any information that the Company makes reasonable efforts to maintain its secrecy; |
| (c) | Business, research and development, regulatory, and marketing plans; objectives and/or strategies; financial information; corporate initiatives; contractual and business arrangements; customer and supplier lists; sales projections; product information and launch plans; regulatory submissions; and pricing information of the Company and its affiliates; |
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| (d) | Information, data, test results, patent applications, methodologies, operating procedures, trade secrets, design formulas, know-how, techniques, analyses, technology, processes, protocols, specifications, and instructions relating to the Company’s proprietary products, including safety data and reference standards, investigators brochures, documents and reports, computer programs and inventories, discoveries and improvements of any kind, sales projections, product information, and pricing information of the Company and its affiliates; |
| (e) | Information, know-how, trade secrets, materials, and tangible property belonging to customers and suppliers of the Company and other third parties who have disclosed such confidential and proprietary information to the Company about whom Consultant gained knowledge as a result of providing Services to the Company; |
| (f) | Any data, deliverables, or other work product or information generated or developed by Consultant in connection with the performance of Services under this Agreement, including all Creative Materials; and |
| (g) | Any copies, extracts, notes, or summaries of any information described in clauses (a) through (f). |
Notwithstanding any of the foregoing, Confidential Information shall not include any information that:
| (a) | is or becomes available in the public domain through no fault of, or act or failure to act on the part of, Consultant; |
| (b) | is rightfully in Consultant’s possession at the time of disclosure by the Company, as evidenced by Consultant’s written records maintained in the ordinary course of business; or |
| (c) | is obtained, after the Effective Date, by Consultant from any third party that is lawfully in possession of such Confidential Information and not in violation of any contractual or legal obligation with respect to such Confidential Information. |
2. At any time upon request of the Company or upon Termination of this Agreement, Consultant shall promptly deliver to the Company: (i) all Confidential Information (and all copies thereof) and all other property furnished to Consultant, by the Company and all other materials prepared by Consultant, containing any Confidential Information; and (ii) a certification that all Confidential Information has been delivered to the Company.
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3. Notwithstanding the return of Confidential Information or the Termination of this Agreement, Consultant, will continue to be bound by the obligations of confidentiality pursuant to this Section F. In addition to its other legal rights, the Company shall be entitled to temporary and permanent injunctive relief and specific performance to remedy any breach or attempted breach of this Section F of the Agreement, and in the event the Company prevails in any action brought under this Section F, the Company shall also be entitled to recover its reasonable attorney’s fees and costs expended in such action from Consultant.
G. Non-Solicitation; Non-Disparagement
1. Non-Solicitation. Consultant covenants and agrees that during the term of this Agreement, and for a two (2) year period immediately following the termination of this Agreement, regardless of the reason therefor, the Consultant shall not solicit, induce, aid, or suggest to: (a) any employee to leave such employ, (b) any contractor, consultant, or other service provider to terminate such relationship, or (b) any customer, agency, vendor, or supplier of the Company to cease doing business with the Company.
2. Mutual Non-Disparagement. The parties mutually agree to forbear from making, causing to be made, publishing, ratifying, or endorsing any and all disparaging remarks, derogatory statements or comments made to any party with respect to either of them.
H. RESERVED.
I. Indemnification
1. The Company agrees to defend, indemnify, and hold Consultant harmless from and against any and all claims, liabilities, losses, damages, and expenses arising out of: (a) any breach by the Company of its warranties, representations, covenants, and obligations outlined in this Agreement; and (b) the gross negligence or willful misconduct of the Company; and (c) the failure of the Company to comply with all legal requirements to the best of its knowledge at the time.
2. Consultant agrees to defend, indemnify, and hold the Company harmless from and against any and all claims, liabilities, losses, damages, and expenses arising out of: (a) any breach by Consultant of his warranties, representations, covenants, and obligations outlined in this Agreement; (b) the gross negligence or willful misconduct of Consultant; and (c) the failure of Consultant to comply with all legal requirements to the best of his knowledge at the time. Consultant’s indemnification obligations under this Agreement will be limited to $1 million US Dollars and will be subordinate to any payment to the Company received with respect to the D&O insurance or any other payments to the Company received by the Company, directly or indirectly, as a result of any of the above actions by Consultant that would give rise to an indemnification claim by the Company against Consultant.
3. The Parties further agree that they shall not, without the prior written consent of the other Party, settle, compromise, or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which defense and/or indemnification may be sought hereunder unless such settlement, compromise, or consent includes an unconditional release of the Party seeking defense and/or indemnity from all liability arising out of such claim, action, suit, or proceeding.
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4. The Party seeking defense or indemnification hereunder shall: (i) promptly notify the other Party of the matter for which defense or indemnification is sought; (ii) subject to the immediately preceding sentence of this paragraph, provide the other Party with sole control over the defense and/or settlement thereof, including but not limited to the selection of counsel; and (iii) at the request of the Party providing defense and/or indemnification, fully cooperate in the provision of full and complete information and reasonable assistance with respect to the defense of such matter.
J. Survival
The obligations of the Parties pursuant to Sections E, F, G, and J shall survive the Termination of this Agreement, regardless of the reason for such Termination, along with any and all other provisions that expressly provide for survival of Termination.
K. Relationship of the Parties; Independent Contractor Status
The Parties agree that the relationship created by this Engagement is one of an independent contractor. The Parties further agree that Consultant, are not and shall not be considered employees of the Company and are not and shall not be entitled to any of the rights and/or benefits that the Company provides for the Company’s employees (including any employee pension, health, vacation pay, sick pay, or other fringe benefits offered by the Company under plan or practice) by virtue of the Services being rendered by Consultant. Consultant acknowledges and agrees that the Company does not, and shall not, maintain or procure any workers’ compensation or unemployment compensation insurance for or on behalf of Consultant, and shall make no state temporary disability or family leave insurance payments on behalf of Consultant, and Consultant agrees that Consultant will not be entitled to these benefits in connection with performance of the Services under this Agreement. Consultant acknowledges and agrees that it shall be solely responsible for paying all salaries, wages, benefits, and other compensation which Consultant, may be entitled to receive in connection with the performance of the Services under this Agreement. Consultant is responsible for all taxes, if any, imposed on it in connection with its performance of Services under this Agreement, including any federal, state, and local income, sales, use, excise, and other taxes or assessments thereon.
L. Binding Nature; Assignments
This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors, representatives, administrators, heirs, executors, and permitted assigns, except that the duties of Consultant are personal and shall not be assigned or subcontracted without the Company’s prior written consent and any purported assignment without such written consent shall be deemed void and unenforceable.
M. Entire Agreement; Amendments
This Agreement contains the entire understanding between the Parties with respect to its subject matter and supersedes all previous negotiations, agreements, or understandings between the Parties—as well as between Consultant and Cleared—whether written or verbal. This Agreement may not be amended or modified, except in writing, executed by duly authorized representatives of the Parties hereto.
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N. Governing Law; Consent to Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with the laws of New York, without giving effect to principles of conflicts of laws. The Parties agree that any dispute concerning or arising under this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts of New York, and each Party agrees to submit to the personal and exclusive jurisdiction and venue of such courts.
O. Notices
All notices required or permitted to be delivered under this Agreement shall be in writing and sent to the principal place of business of the Party to whom they are addressed. Notices to Consultant shall be delivered to the attention of Consultant. Notices to the Company shall be delivered to the attention of the CEO and General Counsel (legal@lifemd.com). All notices under this Agreement shall be deemed delivered only if sent by overnight mail or courier with return receipt, or email with read receipt.
P. Severability
If any provision of this Agreement is found to be invalid or unenforceable for any reason by a court of competent jurisdiction, that provision shall be stricken from this Agreement and that finding shall not invalidate any other terms of this Agreement, which terms shall remain in full force and effect according to the surviving terms of this Agreement. In such an event, the Parties shall negotiate with one another to agree on a provision which the Parties would have agreed if they had known of the defect when they signed this Agreement, in order to achieve the same commercial outcome and objectives of this Agreement that were intended upon its execution.
Q. Dispute Resolution
In the event of any dispute arising under or pursuant to this Agreement, the Parties agree to attempt to resolve the dispute in a commercially reasonable fashion before instituting any litigation or arbitration (except for emergency injunctive relief). If the parties are unable to resolve the dispute within thirty (30) days, then the parties agree to mediate the dispute with a mutually agreed upon mediator in New York, NY. If the parties cannot agree upon a mediator within ten (10) days after either party shall first request commencement of mediation, each party will select a mediator within five (5) days thereof, and those mediators shall select the mediator to be used. The mediation shall be scheduled within thirty (30) days following the selection of the mediator. The parties further agree that any applicable statute of limitations will be tolled for the period from the date mediation is requested until 14 days following the mediation. If the mediation does not resolve the dispute, then the parties irrevocably and unconditionally agree to the arbitration provisions in Paragraph R below.
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R. Arbitration
To ensure the rapid and economical resolution of disputes that may arise in connection with this Agreement, Consultant and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Consultant’s consulting with the Company, or the termination of this Agreement, shall be resolved pursuant to the employment arbitration rules and procedures under the Federal Arbitration Act, 9 U.S.C. § 1-16, to the fullest extent permitted by law, by final, binding and confidential arbitration conducted by JAMS or its successor, under JAMS’ then applicable rules and procedures for disputes (available upon request and also currently available at http://www.jamsadr.com/rules-employment-arbitration/ ). Consultant agrees that the use of the JAMS rules and procedures does not change Consultant’s classification to that of an employee. To the contrary, Consultant reaffirms that the Consultant is an independent contractor. The arbitration will take place in New York, NY unless otherwise agreed to by the Parties. Consultant acknowledges that by agreeing to this arbitration procedure, both Consultant and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. In addition, all claims, disputes, or causes of action under this section, whether by Consultant or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity. The arbitrator may not consolidate the claims of more than one person or entity and may not preside over any form of representative or class proceeding. To the extent that the preceding description regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration. This paragraph shall not apply to any action or claim that cannot be subject to mandatory arbitration as a matter of law, including, without limitation, claims brought pursuant to the California Private Attorneys General Act of 2004, as amended, the California Fair Employment and Housing Act, as amended, and the California Labor Code, as amended, to the extent such claims are not permitted by applicable law(s) to be submitted to mandatory arbitration and the applicable law(s) are not preempted by the Federal Arbitration Act or otherwise invalid (collectively, the “Excluded Claims”). In the event Consultant intends to bring multiple claims, including one of the Excluded Claims listed above, the Excluded Claims may be filed with a court, while any other claims will remain subject to mandatory arbitration. Consultant will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. The arbitrator shall be authorized to award all relief that Consultant or the Company would be entitled to seek in a court of law. Nothing in this Agreement is intended to prevent either Consultant or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
S. Fees, Costs, & Damages
If any action is necessary to enforce the provisions of this Agreement, including any claims or demands, or to interpret this Agreement, the prevailing Party shall be entitled to reasonable attorneys’ fees, costs, and disbursements in addition to any other relief to which it may otherwise he entitled.
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If any legal action or other proceeding is brought for the enforcement of this Agreement or any agreement or instrument delivered under or in connection with this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing Party or Parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action.
T. Counsel
The Parties acknowledge and represent that, prior to the execution of this Agreement, they have had an opportunity to consult with their respective counsel concerning the terms and conditions set forth herein. Additionally, Consultant represents that it has had an opportunity to receive independent legal advice concerning the taxability of any consideration received under this Agreement. Consultant has not relied upon any advice from the Company and/or its attorneys with respect to the taxability of any consideration received under this Agreement. Consultant further acknowledges that the Company has not made any representations to Consultant with respect to tax issues.
U. Force Majeure
Neither of the Parties shall be liable to the other for any delay or failure to perform hereunder, which delay or failure is due to causes beyond the control of said Party, including, but not limited to acts of God; acts of the public enemy; acts of the United States of America or any state, territory, or political subdivision thereof or of the District of Columbia; fires; floods; epidemics; quarantine restrictions; strike; or freight embargoes. Notwithstanding the foregoing provisions of this Section, in every case the delay or failure to perform must be beyond the control and without the fault or negligence of the Party claiming excusable delay.
V. Counterparts
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall be construed as a single instrument. This Agreement may be executed by facsimile or other electronic transmissions, and signatures on any facsimile or electronic transmission copy hereof shall be deemed authorized original signatures.
[Signature Page Follows]
| 10 |
IN WITNESS WHEREOF, this Consulting Agreement has been duly executed by or on behalf of the Parties as of its Effective Date.
| CONSULTANT | LIFEMD, INC. | |
| /s/ Robert Jindal | /s/ Justin Schreiber | |
Robert Jindal | Justin Schreiber | |
| Chairman & CEO |
| 11 |
Exhibit 31.1
LIFEMD, INC.
CEO CERTIFICATE
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Justin Schreiber, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2023; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Date: | August 9, 2023 | |
| By: | /s/ Justin Schreiber | |
| Name: | Justin Schreiber | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
LIFEMD, INC.
CFO CERTIFICATE
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc Benathen, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2023; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Date: | August 9, 2023 | |
| By: | /s/ Marc Benathen | |
| Name: | Marc Benathen | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
LIFEMD, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| Date: | August 9, 2023 | |
| By: | /s/ Justin Schreiber | |
| Name: | Justin Schreiber | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
LIFEMD, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| Date: | August 9, 2023 | |
| By: | /s/ Marc Benathen | |
| Name: | Marc Benathen | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Revenues | ||||
| Total revenues, net | $ 35,946,913 | $ 30,458,498 | $ 69,073,248 | $ 59,501,335 |
| Cost of revenues | ||||
| Total cost of revenues | 4,548,430 | 4,635,311 | 8,763,399 | 9,883,486 |
| Gross profit | 31,398,483 | 25,823,187 | 60,309,849 | 49,617,849 |
| Expenses | ||||
| Selling and marketing expenses | 19,567,903 | 21,817,966 | 36,285,548 | 43,727,791 |
| General and administrative expenses | 12,119,573 | 13,159,937 | 22,722,336 | 25,372,680 |
| Other operating expenses | 1,313,789 | 2,041,976 | 3,018,554 | 3,459,445 |
| Customer service expenses | 1,912,078 | 1,006,363 | 3,467,482 | 1,939,670 |
| Development costs | 1,380,686 | 701,070 | 2,564,285 | 1,129,403 |
| Goodwill impairment charge | 2,735,000 | 2,735,000 | ||
| Change in fair value of contingent consideration | (2,735,000) | (2,735,000) | ||
| Total expenses | 36,294,029 | 38,727,312 | 68,058,205 | 75,628,989 |
| Operating loss | (4,895,546) | (12,904,125) | (7,748,356) | (26,011,140) |
| Interest expense, net | (995,670) | (132,236) | (1,260,135) | (300,170) |
| Gain (loss) on debt extinguishment | 63,400 | (325,198) | 63,400 | |
| Net loss | (5,891,216) | (12,972,961) | (9,333,689) | (26,247,910) |
| Net income attributable to non-controlling interest | 841,784 | 46,001 | 1,407,767 | 70,727 |
| Net loss attributable to LifeMD, Inc. | (6,733,000) | (13,018,962) | (10,741,456) | (26,318,637) |
| Preferred stock dividends | (776,562) | (776,562) | (1,553,125) | (1,553,125) |
| Net loss attributable to LifeMD, Inc. common stockholders | $ (7,509,562) | $ (13,795,524) | $ (12,294,581) | $ (27,871,762) |
| Basic loss per share attributable to LifeMD, Inc. common stockholders | $ (0.23) | $ (0.45) | $ (0.38) | $ (0.91) |
| Diluted loss per share attributable to LifeMD, Inc. common stockholders | $ (0.23) | $ (0.45) | $ (0.38) | $ (0.91) |
| Weighted average number of common shares outstanding: | ||||
| Basic | 32,560,035 | 30,804,465 | 32,189,954 | 30,777,377 |
| Diluted | 32,560,035 | 30,804,465 | 32,189,954 | 30,777,377 |
| Telehealth Revenue [Member] | ||||
| Revenues | ||||
| Total revenues, net | $ 22,351,128 | $ 22,267,963 | $ 42,553,931 | $ 44,866,024 |
| Cost of revenues | ||||
| Total cost of revenues | 4,125,945 | 4,453,126 | 8,046,126 | 9,539,194 |
| WorkSimpli Revenue [Member] | ||||
| Revenues | ||||
| Total revenues, net | 13,595,785 | 8,190,535 | 26,519,317 | 14,635,311 |
| Cost of revenues | ||||
| Total cost of revenues | $ 422,485 | $ 182,185 | $ 717,273 | $ 344,292 |
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited) - USD ($) |
Preferred Stock [Member]
Series A Preferred Stock [Member]
|
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Treasury Shares [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|---|
| Beginning balance at Dec. 31, 2021 | $ 140 | $ 307,045 | $ 164,517,634 | $ (141,921,085) | $ (163,701) | $ 22,740,033 | $ (1,031,745) | $ 21,708,288 |
| Beginning balance, shares at Dec. 31, 2021 | 1,400,000 | 30,704,434 | ||||||
| Stock compensation expense | $ 1,475 | 4,471,306 | 4,472,781 | 4,472,781 | ||||
| Stock compensation expense, shares | 147,500 | |||||||
| Cashless exercise of stock options | $ 255 | (255) | ||||||
| Cashless exercise of stock options, shares | 25,535 | |||||||
| Exercise of warrants | $ 220 | 38,280 | 38,500 | 38,500 | ||||
| Exercise of warrants, shares | 22,000 | |||||||
| Series A Preferred Stock dividend | (776,563) | (776,563) | (776,563) | |||||
| Distribution to non-controlling interest | (36,000) | (36,000) | ||||||
| Net (loss) income | (13,299,675) | (13,299,675) | 24,726 | (13,274,949) | ||||
| Ending balance at Mar. 31, 2022 | $ 140 | $ 308,995 | 169,026,965 | (155,997,323) | (163,701) | 13,175,076 | (1,043,019) | 12,132,057 |
| Ending balance, shares at Mar. 31, 2022 | 1,400,000 | 30,899,469 | ||||||
| Beginning balance at Dec. 31, 2021 | $ 140 | $ 307,045 | 164,517,634 | (141,921,085) | (163,701) | 22,740,033 | (1,031,745) | 21,708,288 |
| Beginning balance, shares at Dec. 31, 2021 | 1,400,000 | 30,704,434 | ||||||
| Distribution to non-controlling interest | (72,000) | |||||||
| Net (loss) income | (26,247,910) | |||||||
| Ending balance at Jun. 30, 2022 | $ 140 | $ 309,899 | 173,157,467 | (169,792,847) | (163,701) | 3,510,958 | (1,033,018) | 2,477,940 |
| Ending balance, shares at Jun. 30, 2022 | 1,400,000 | 30,989,869 | ||||||
| Beginning balance at Mar. 31, 2022 | $ 140 | $ 308,995 | 169,026,965 | (155,997,323) | (163,701) | 13,175,076 | (1,043,019) | 12,132,057 |
| Beginning balance, shares at Mar. 31, 2022 | 1,400,000 | 30,899,469 | ||||||
| Stock compensation expense | 4,041,006 | 4,041,006 | 4,041,006 | |||||
| Series A Preferred Stock dividend | (776,562) | (776,562) | (776,562) | |||||
| Distribution to non-controlling interest | (36,000) | (36,000) | ||||||
| Net (loss) income | (13,018,962) | (13,018,962) | 46,001 | (12,972,961) | ||||
| Exercise of stock options | $ 904 | 89,496 | 90,400 | 90,400 | ||||
| Exercise of stock options, shares | 90,400 | |||||||
| Ending balance at Jun. 30, 2022 | $ 140 | $ 309,899 | 173,157,467 | (169,792,847) | (163,701) | 3,510,958 | (1,033,018) | 2,477,940 |
| Ending balance, shares at Jun. 30, 2022 | 1,400,000 | 30,989,869 | ||||||
| Beginning balance at Dec. 31, 2022 | $ 140 | $ 315,528 | 179,015,250 | (190,562,994) | (163,701) | (11,395,777) | (475,548) | (11,871,325) |
| Beginning balance, shares at Dec. 31, 2022 | 1,400,000 | 31,552,775 | ||||||
| Stock compensation expense | $ 1,494 | 2,662,020 | 2,663,514 | 2,663,514 | ||||
| Stock compensation expense, shares | 149,375 | |||||||
| Series A Preferred Stock dividend | (776,563) | (776,563) | (776,563) | |||||
| Distribution to non-controlling interest | (36,000) | (36,000) | ||||||
| Net (loss) income | (4,008,456) | (4,008,456) | 565,983 | (3,442,473) | ||||
| Stock issued for noncontingent consideration payment | $ 3,379 | 638,621 | 642,000 | 642,000 | ||||
| Stock issued for noncontingent consideration payment, shares | 337,895 | |||||||
| Warrants issued with debt instrument | 1,088,343 | 1,088,343 | 1,088,343 | |||||
| Adjustment of membership interest in WorkSimpli | (220,582) | (220,582) | (85,932) | (306,514) | ||||
| Ending balance at Mar. 31, 2023 | $ 140 | $ 320,401 | 183,183,652 | (195,348,013) | (163,701) | (12,007,521) | (31,497) | (12,039,018) |
| Ending balance, shares at Mar. 31, 2023 | 1,400,000 | 32,040,045 | ||||||
| Beginning balance at Dec. 31, 2022 | $ 140 | $ 315,528 | 179,015,250 | (190,562,994) | (163,701) | (11,395,777) | (475,548) | (11,871,325) |
| Beginning balance, shares at Dec. 31, 2022 | 1,400,000 | 31,552,775 | ||||||
| Distribution to non-controlling interest | (72,000) | |||||||
| Net (loss) income | $ (9,333,689) | |||||||
| Exercise of stock options, shares | 16,471 | |||||||
| Ending balance at Jun. 30, 2023 | $ 140 | $ 325,649 | 186,673,930 | (202,857,575) | (163,701) | (16,021,557) | 783,619 | $ (15,237,938) |
| Ending balance, shares at Jun. 30, 2023 | 1,400,000 | 32,564,835 | ||||||
| Beginning balance at Mar. 31, 2023 | $ 140 | $ 320,401 | 183,183,652 | (195,348,013) | (163,701) | (12,007,521) | (31,497) | (12,039,018) |
| Beginning balance, shares at Mar. 31, 2023 | 1,400,000 | 32,040,045 | ||||||
| Stock compensation expense | $ 530 | 2,861,439 | 2,861,969 | 2,861,969 | ||||
| Stock compensation expense, shares | 53,000 | |||||||
| Cashless exercise of stock options | $ 165 | (165) | ||||||
| Cashless exercise of stock options, shares | 16,471 | |||||||
| Series A Preferred Stock dividend | (776,562) | (776,562) | (776,562) | |||||
| Distribution to non-controlling interest | (36,000) | (36,000) | ||||||
| Net (loss) income | (6,733,000) | (6,733,000) | 841,784 | (5,891,216) | ||||
| Stock issued for noncontingent consideration payment | $ 4,553 | 637,447 | 642,000 | 642,000 | ||||
| Stock issued for noncontingent consideration payment, shares | 455,319 | |||||||
| Adjustment of membership interest in WorkSimpli | (8,443) | (8,443) | 9,332 | 889 | ||||
| Ending balance at Jun. 30, 2023 | $ 140 | $ 325,649 | $ 186,673,930 | $ (202,857,575) | $ (163,701) | $ (16,021,557) | $ 783,619 | $ (15,237,938) |
| Ending balance, shares at Jun. 30, 2023 | 1,400,000 | 32,564,835 |
NATURE OF THE ORGANIZATION AND BUSINESS |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| NATURE OF THE ORGANIZATION AND BUSINESS | NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Corporate History
LifeMD, Inc. was formed in the State of Delaware on May 24, 1994, under its prior name, Immudyne, Inc. The Company changed its name to Conversion Labs, Inc. on June 22, 2018 and then subsequently, on February 22, 2021, it changed its name to LifeMD, Inc. Effective February 22, 2021, the trading symbol for the Company’s common stock, par value $ per share on The Nasdaq Stock Market LLC changed from “CVLB” to “LFMD”.
On April 1, 2016, the original operating agreement of Immudyne PR LLC (“Immudyne PR”), a joint venture to market the Company’s skincare products, was amended and restated and the Company increased its ownership and voting interest in Immudyne PR to 78.2%. Concurrent with the name change of the parent company to Conversion Labs, Inc., Immudyne PR was renamed to Conversion Labs PR LLC (“Conversion Labs PR”). On April 25, 2019, the operating agreement of Conversion Labs PR was amended and restated in its entirety to increase the Company’s ownership and voting interest in Conversion Labs PR to 100%. On February 22, 2021, concurrent with the name of the parent company to LifeMD, Inc., Conversion Labs PR was renamed to LifeMD PR, LLC.
In June 2018, the Company closed the strategic acquisition of 51% of LegalSimpli Software, LLC, which operates a software as a service application for converting, editing, signing, and sharing PDF documents called PDFSimpli. In addition to LegalSimpli Software, LLC’s growth business model, this acquisition added deep search engine optimization and search engine marketing expertise to the Company. On July 15, 2021, LegalSimpli Software, LLC, changed its name to WorkSimpli Software LLC, (“WorkSimpli”). Effective January 22, 2021, the Company consummated a transaction to restructure the ownership of WorkSimpli (the “WSS Restructuring”) concurrently increased its ownership interest in WorkSimpli to 85.58%. Effective September 30, 2022, two option agreements were exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.64%. Effective December 15, 2022, LifeMD PR, LLC merged into WorkSimpli, with WorkSimpli being the surviving entity.
Effective March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli and, as a result, the Company’s ownership interest in WorkSimpli increased to 74.06%. Effective June 30, 2023, an option agreement was exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.32%. See Note 8 for additional information.
On January 18, 2022, the Company acquired Cleared Technologies, PBC, a Delaware public benefit corporation (“Cleared”), a nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology (See Note 3).
Nature of Business
The Company is a direct-to-patient telehealth company providing patients a high-quality, cost-effective, and convenient way of accessing comprehensive, virtual healthcare. The Company believes the traditional model of visiting a doctor’s office, traveling to a local pharmacy, and returning for follow up care or prescription refills is complex, inefficient, and costly, and discourages many individuals from seeking much needed medical care. The Company is positioned to elevate the healthcare experience through telehealth with our proprietary technology platform, affiliated provider network, broad treatment capabilities, and unique ability to nurture patient relationships. Direct-to-patient telehealth technology companies, like the Company, connect consumers to affiliated, licensed, healthcare professionals for care across numerous indications, including urgent and primary care, men’s and women’s health, and dermatology, chronic care management and more.
The Company’s telehealth platform helps patients access their licensed providers for diagnoses, virtual care, and prescription medications, often delivered on a recurring basis. In addition to its telehealth prescription offerings, the Company sells over-the-counter (“OTC”) products. All products are available on a subscription or membership basis, where a patient can subscribe to receive regular shipments of prescribed medications or products. This creates convenience and often discounted pricing opportunities for patients and recurring revenue streams for the Company.
With its first brand, ShapiroMD, the Company has built a full line of proprietary OTC products for male and female hair loss—including Food and Drug Administration (“FDA”) approved OTC minoxidil and an FDA-cleared medical device—and now a personalized telehealth platform offering that gives consumers access to virtual medical treatment from their providers and, when appropriate, a full line of oral and topical prescription medications for hair loss. The Company’s men’s brand, RexMD, currently offers access to provider-based treatment for erectile dysfunction, as well as treatment for other common men’s health issues, including premature ejaculation and hair loss. In the first quarter of 2021, the Company launched NavaMD, a tele-dermatology and skincare brand for women. The Company has built a platform that allows it to efficiently launch telehealth and wellness product lines wherever it determines there is a market need.
Business and Subsidiary History
In early 2019, the Company launched a service-based business under the name Conversion Labs Media LLC (“CVLB Media”), a Puerto Rico limited liability company. However, this business initiative was terminated in early 2019. In May 2019, Conversion Labs Rx, LLC (“CVLB Rx”), a Puerto Rico limited liability company, signed a strategic partnership agreement with Specialty Medical Drugstore, Inc. (doing business as “GoGoMeds”). However, since its inception, CVLB Rx did not conduct any business and CVLB Rx was dissolved on August 7, 2020. Additionally, Conversion Labs Asia Limited (“Conversion Labs Asia”), a Hong Kong company, had no activity during the three and six months ended June 30, 2023 and 2022.
On January 18, 2022, the Company acquired Cleared, a nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology. Under the terms of the agreement, the Company acquired all outstanding shares of Cleared at closing in exchange for a $460 thousand upfront cash payment, and two non-contingent milestone payments for a total of $3.46 million ($1.73 million each on or before the first and second anniversaries of the closing date). The Company purchased a convertible note from a strategic pharmaceutical investor for $507 thousand which was converted upon closing of the Cleared acquisition. The Company also agreed to a performance-based earnout based on Cleared’s future net sales, payable in cash or shares at the Company’s discretion. On February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between the Company and the sellers of Cleared. The First Amendment was amended to, among other things: (i) reduce the total purchase price by $250 thousand to a total of $3.67 million; (ii) change the timing of the payment of the purchase price to $460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024; (iii) removing all “earn-out” payments payable by the Company to the sellers; and (iv) remove certain representations and warranties of the Company and sellers in connection with the transaction (See Note 3). On February 6, 2023, the Company issued shares of common stock related to the first of five quarterly installment payments due to the sellers of Cleared under the First Amendment. On April 17, 2023, the Company issued shares of common stock related to the second of five quarterly installment payments due to the sellers of Cleared under the First Amendment. On July 17, 2023, the Company issued shares of common stock related to the third of five quarterly installment payments due to the sellers of Cleared under the First Amendment.
In February 2022, WorkSimpli closed on an Asset Purchase Agreement (the “ResumeBuild APA”) with East Fusion FZCO, a Dubai, UAE corporation (the “Seller”), whereby WorkSimpli acquired substantially all of the assets associated with the Seller’s business, offering subscription-based resume building software through software as a service online platforms (the “Acquisition”). WorkSimpli paid $4.0 million to the Seller upon closing. The Seller is also entitled to a minimum of $500 thousand to be paid out in quarterly payments equal to the greater of 15% of net profits (as defined in the ResumeBuild APA) or approximately $63 thousand, for a two-year period ending on the two-year anniversary of the closing of the Acquisition. As of June 30, 2023, WorkSimpli has paid the Seller approximately $281 thousand in accordance with the ResumeBuild APA. WorkSimpli borrowed the purchase price from the Company pursuant to a promissory note with the obligation secured by an equity purchase guarantee agreement and a stock option pledge agreement from Fitzpatrick Consulting, LLC and its sole member Sean Fitzpatrick, who is Co-Founder and President of WorkSimpli (See Note 3).
Unless otherwise indicated, the terms “LifeMD,” “Company,” “we,” “us,” and “our” refer to LifeMD, Inc. (formerly known as Conversion Labs, Inc.), Cleared, a Delaware public benefit corporation and our majority-owned subsidiary, WorkSimpli. The affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., (“LifeMD PC”) is the Company’s affiliated, variable interest entity in which we hold a controlling financial interest. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
Liquidity & Going Concern Evaluation
The Company has funded operations in the past through the sales of its products, issuance of common and preferred stock, and through loans and advances. The Company’s continued operations are dependent upon obtaining an increase in its sale volumes and obtaining funding from third-party sources or the issuance of additional shares of common stock.
On March 21, 2023, the Company entered into and closed on a loan and security agreement (the “Credit Agreement”), and a supplement to the Credit Agreement (the “Supplement”), with Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund, L.P. (collectively, “Avenue”). The Credit Agreement provides for a convertible senior secured credit facility of up to an aggregate amount of $40 million, comprised of the following: (1) $15 million in term loans funded at closing, (2) $5 million of additional committed term loans available in the fourth quarter of 2023 and (3) $20 million of additional uncommitted term loans, collectively referred to as the “Avenue Facility”. The Avenue Facility matures on October 1, 2026. The Company issued Avenue warrants to purchase $1.2 million of the Company’s common stock at an exercise price of $1.24, subject to adjustments (the “Warrants”). In addition, Avenue may convert up to $2 million of the $15 million in term loans funded at closing into shares of the Company’s common stock at any time while the loans are outstanding, at a price per share equal to $1.49. Proceeds from the Avenue Facility were used to repay the Company’s outstanding notes payable balances with CRG Financial and are expected to be used for general corporate purposes and at the Company’s election, re-financing up to $5 million liquidation value plus accrued interest on the Series B Preferred Stock. The Company is subject to certain affirmative and negative covenants under the Avenue Facility, including the requirement, beginning on the closing date, to maintain at least $5 million of unrestricted cash to be tested at the end of each month, and beginning on the period ended September 30, 2023, and at the end of each quarter thereafter, a trailing six-month cash flow, subject to certain adjustments as provided by the Credit Agreement, of at least $2 million.
As of June 30, 2023, the Company has an accumulated deficit approximating $202.9 million and has experienced significant losses from its operations. To date, the Company has been funding operations primarily through the sales of its products, sale of equity in private placements and securities purchased by a financial institution. There can be no assurances that we will be successful in increasing revenues, improving operational efficiencies or that financing will be available or, if available, that such financing will be available under favorable terms.
The Company has a current cash balance of approximately $6.4 million as of the filing date. The Company reviewed its forecasted operating results and sources and uses of cash used in management’s assessment, which included the available financing and consideration of positive and negative evidence impacting management’s forecasts, market, and industry factors. The Company’s continuance as a going concern is highly dependent on its future profitability and on the on-going support of its stockholders, affiliates, and creditors. Based on these circumstances, management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has begun to implement strategies to strengthen revenues and improve operational efficiencies across the business and is significantly curtailing expenses, however, these strategies do not mitigate the substantial doubt about the Company’s ability to continue as a going concern.
Additionally, on June 8, 2021, the Company filed a shelf registration statement on Form S-3 under the Securities Act, which was declared effective on June 22, 2021 (the “2021 Shelf”). Under the 2021 Shelf at the time of effectiveness, the Company originally had the ability to raise up to $ million by selling common stock, preferred stock, debt securities, warrants, and units. In conjunction with the 2021 Shelf, the Company also entered into an At Market Issuance Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc. and Cantor Fitzgerald & Co. relating to the sale of its common stock. In accordance with the terms of the ATM Sales Agreement, the Company may, but is not obligated to, offer and sell, from time to time, shares of common stock, through or to the Agents, acting as agent or principal. Sales of common stock, if any, will be made by any method permitted that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act. On March 22, 2023, the date the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the Company became subject to the offering limits in General Instruction I.B.6 of Form S-3 (i.e., the “baby shelf limitations”). As a result of the baby shelf limitations, the Company was only able to offer and sell shares of common stock having an aggregate offering price of up to $18.435 million pursuant to the ATM Sales Agreement, and it filed a prospectus supplement with the SEC to that effect on March 27, 2023. In June 2023, the Company’s public float increased above $75.0 million. As a result, the Company is no longer subject to the baby shelf limitations. The Company filed another prospectus supplement with the SEC to that effect on June 29, 2023. As of June 30, 2023, the Company has $59.5 million available under the ATM Sales Agreement.
Management believes that the overall market value of the telehealth industry is positive and that it will continue to drive interest in the Company.
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete audited financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended December 31, 2022, included in our 2022 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or for any future period.
Principles of Consolidation
The Company evaluates the need to consolidate affiliates based on standards set forth in Accounting Standards Codification (“ASC”) 810, Consolidation.
The consolidated financial statements include the accounts of the Company, Cleared, its majority owned subsidiary, WorkSimpli, and LifeMD PC, the Company’s affiliated, variable interest entity in which we hold a controlling financial interest. During the year ended December 31, 2021, the Company purchased an additional 34.6% of WorkSimpli for a total equity interest of approximately 85.58% as of December 31, 2021. Effective September 30, 2022, two option agreements were exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.64%. Effective March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli and, as a result, the Company’s ownership interest in WorkSimpli increased to 74.06%. Effective June 30, 2023, an option agreement was exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.32%. See Note 8 for additional information.
All significant intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of June 30, 2023 and December 31, 2022, there were no cash equivalents. The Company maintains deposits in financial institutions in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. Cash and cash equivalents are maintained at financial institutions, and at times, balances may exceed federally insured limits. These balances could be impacted if one or more of the financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets. We have never experienced any losses related to these balances.
Variable Interest Entities
In accordance with ASC 810, Consolidation, the Company determines whether any legal entity in which the Company becomes involved is a variable interest entity (a “VIE”) and subject to consolidation. This determination is based on whether an entity has sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of the characteristics of a controlling financial interest and whether the interest will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE.
The Company determined that the LifeMD PC entity, the Company’s affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., is a VIE and subject to consolidation. LifeMD PC and the Company do not have any stockholders in common. LifeMD PC is owned by licensed physicians, and the Company maintains a managed service agreement with LifeMD PC whereby we provide all non-clinical services to LifeMD PC. The Company determined that it is the primary beneficiary of LifeMD PC and must consolidate, as we have both the power to direct the activities of LifeMD PC that most significantly impact the economic performance of the entity and we have the obligation to absorb the losses. As a result, the Company presents the financial position, results of operations, and cash flows of LifeMD PC as part of the consolidated financial statements of the Company. There is no non-controlling interest upon consolidation of LifeMD PC.
Total revenue for LifeMD PC was approximately $436 thousand and $0 for the three months ended June 30, 2023 and 2022, respectively, and $794 thousand and $0 for the six months ended June 30, 2023 and 2022, respectively. Total net loss for LifeMD PC was approximately $600 thousand and $1.4 million for the three months ended June 30, 2023 and 2022, respectively, and $1.6 million and $2.9 million for the six months ended June 30, 2023 and 2022, respectively.
Use of Estimates
The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include the determination of reserves for accounts receivable, returns and allowances, the valuation of inventory and stockholders’ equity-based transactions. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to conform the prior year’s data to the current presentation. These reclassifications have no effect on previously reported operating loss, stockholders’ deficit or cash flows. The Company has changed their categories for reporting operations and, as a result, the Company has made reclassifications to the prior year presentation in order to conform it to the current periods’ presentation. The reclassifications include $91 thousand and $181 thousand of lease expenses reclassified from general and administrative expenses to other operating expenses for the three and six months ended June 30, 2022, respectively.
Revenue Recognition
The Company records revenue under the adoption of ASC 606, Revenue from Contracts with Customers, by analyzing exchanges with its customers using a five-step analysis:
For the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation, which is the delivery of the product; this performance obligation is transferred at a discrete point in time. The Company generally records sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped by a third-party fulfillment service provider. In some cases, the customer does not obtain control until the product reaches the customer’s delivery site; in these cases, recognition of revenue is deferred until that time. In all cases, delivery is considered to have occurred when the customer obtains control, which is usually commensurate upon shipment of the product. In the case where delivery is not commensurate upon shipment of the product, recognition of revenue is deferred until that time. In the case of its product-based contracts, the Company provides a subscription sensitive service based on the recurring shipment of products. The Company records the related revenue under the subscription agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment obligation to the customer.
For its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances, customer rebates, and other adjustments for its product shipments and are reflected as contra revenues in arriving at reported net revenues. The Company’s discounts and customer rebates are known at the time of sale; correspondingly, the Company reduces gross product sales for such discounts and customer rebates. The Company estimates customer returns and allowances based on information derived from historical transaction detail and accounts for such provisions, as contra revenue, during the same period in which the related revenues are earned. The Company has determined that the population of its product-based contracts with customers are homogenous, supporting the ability to record estimates for returns and allowances to be applied to the entire product-based portfolio population. Customer discounts, returns and rebates on telehealth revenues approximated $497 thousand and $1.6 million, respectively, during the three months ended June 30, 2023 and 2022, respectively. Customer discounts, returns and rebates on telehealth revenues approximated $828 thousand and $3.1 million, respectively, during the six months ended June 30, 2023 and 2022, respectively.
The Company, through its majority-owned subsidiary, WorkSimpli, offers a subscription-based service providing a suite of software applications to its subscribers, principally on a monthly subscription basis. The software suite allows the subscriber/user to convert almost any type of document to another electronic form of editable document, providing ease of editing. For these subscription-based contracts with customers, the Company offers an initial 14-day trial period which is billed at $, followed by a monthly subscription, or a yearly subscription to the Company’s software suite dependent on the subscriber’s enrollment selection. The Company has estimated that there is one product and one performance obligation that is delivered over time, as the Company allows the subscriber to access the suite of services for the time period of the subscription purchased. The Company allows the customer to cancel at any point during the billing cycle, in which case the customers subscription will not be renewed for the following month or year depending on the original subscription. The Company records the revenue over the customers subscription period for monthly and yearly subscribers or at the end of the initial 14-day service period for customers who purchased the initial subscription, as the circumstances dictate. The Company offers a discount for the monthly or yearly subscriptions being purchased, which is deducted at the time of payment at the initiation of the contract term; therefore the Contract price is fixed and determinable at the contract initiation. Monthly and annual subscriptions for the service are recorded net of the Company’s known discount rates. Customer discounts and allowances on WorkSimpli revenues approximated $788 thousand and $580 thousand, respectively, during the three months ended June 30, 2023 and 2022, respectively. Customer discounts and allowances on WorkSimpli revenues approximated $1.7 million and $1.0 million, respectively, during the six months ended June 30, 2023 and 2022, respectively.
For the three and six months ended June 30, 2023 and 2022, the Company had the following disaggregated revenue:
Deferred Revenues
The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to the following: (1) obligations for products which the customer has not yet obtained control due to delivery not commensurate upon shipment of the product, (2) obligations on WorkSimpli in-process monthly or yearly contracts with customers and (3) a portion attributable to the yet to be recognized WorkSimpli initial 14-day trial period collections.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets, net on the unaudited condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current operating lease liabilities and noncurrent operating lease liabilities, respectively, on the unaudited condensed consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded in the balance sheet.
Accounts Receivable, net
Accounts receivable principally consist of amounts due from third-party merchant processors, who process our subscription revenues; the merchant accounts balance receivable represents the charges processed by the merchants that have not yet been deposited with the Company. The unsettled merchant receivable amount normally represents processed sale transactions from the final one to three days of the month, with collections being made by the Company within the first week of the following month. Management determines the need, if any, for an allowance for future credits to be granted to customers, by regularly evaluating aggregate customer refund activity, coupled with the consideration and current economic conditions in its evaluation of an allowance for future refunds and chargebacks. As of June 30, 2023 and December 31, 2022, the reserve for sales returns and allowances was approximately $424 thousand and $815 thousand, respectively. For all periods presented, as noted above, the sales returns and allowances were recorded in accrued expenses on the unaudited condensed consolidated balance sheets.
Inventory
As of June 30, 2023 and December 31, 2022, inventory primarily consisted of finished goods related to the Company’s OTC products included in the telehealth revenue section of the table above. Inventory is maintained at the Company’s third-party warehouse location in Wyoming and at various Amazon fulfillment centers. The Company also maintains inventory at a company owned warehouse in Pennsylvania.
Inventory is valued at the lower of cost or net realizable value with cost determined on an average cost basis. Management compares the cost of inventory with the net realizable value and an allowance is made for writing down inventory to net realizable, if lower. As of both June 30, 2023 and December 31, 2022, the Company recorded an inventory reserve of approximately $100 thousand and $161 thousand, respectively.
As of June 30, 2023 and December 31, 2022, the Company’s inventory consisted of the following:
Product Deposit
Many of our vendors require deposits when a purchase order is placed for goods or fulfillment services. These deposits typically range from 10% to 33% of the total purchased amount. Our vendors include a credit memo within their final invoice, recognizing the deposit amount previously paid. As of June 30, 2023 and December 31, 2022, the Company has approximately $235 thousand and $127 thousand, respectively, of product deposits with multiple vendors for the purchase of raw materials or finished goods. The Company’s history of product deposits with its inventory vendors, creates an implicit purchase commitment equaling the total expected product acceptance cost in excess of the product deposit. As of June 30, 2023, the Company approximates its implicit purchase commitments to be $168 thousand, of which the vast majority are with two vendors that manufacture the Company’s finished goods inventory for its RexMD product line.
Capitalized Software Costs
The Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes these costs using the straight-line method over the estimated useful life of the software, generally three years. The Company does not sell internally developed software other than through the use of subscription service. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40, Internal-Use Software, are expensed as incurred. As of June 30, 2023 and December 31, 2022, the Company capitalized a net amount of $10.4 million and $8.8 million, respectively, related to internally developed software costs which are amortized over the useful life and included in development costs on our statement of operations.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently, if events or changes in circumstances indicate that the asset may be impaired. Goodwill in the amount of $8.0 million was recognized in conjunction with the Cleared acquisition. The Company recorded an $8.0 million goodwill impairment charge and an $827 thousand intangible asset impairment charge during the year ended December 31, 2022 related to a decline in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections (see Note 3).
Other intangible assets are comprised of: (1) the ResumeBuild brand, (2) a customer relationship asset, (3) the Cleared trade name, (4) Cleared developed technology, (5) a purchased license and (6) two purchased domain names. During the year ended December 31, 2022, the Company recorded an $827 thousand impairment loss related to a decline in the estimated fair value of the Cleared customer relationship intangible asset with an original cost of $919 thousand and accumulated amortization of $92 thousand. Other intangible assets are amortized over their estimated lives using the straight-line method. Costs incurred to renew or extend the term of recognized intangible assets are capitalized and amortized over the useful life of the asset.
Impairment of Long-Lived Assets
Long-lived assets include equipment and capitalized software. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, an impairment is recognized as the amount by which the carrying amount of the assets exceeds the estimated fair values of the assets. As of June 30, 2023 and December 31, 2022, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived assets.
Income Taxes
The Company files corporate federal, state and local tax returns. WorkSimpli files a tax return in Puerto Rico; WorkSimpli is a limited liability company and files tax returns with any tax liabilities or benefits passing through to its members.
The Company records current and deferred taxes in accordance with ASC 740, Accounting for Income Taxes. This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax asset, a majority of which has been generated by a history of net operating losses and management determines the necessity for a valuation allowance. ASC 740 also provides a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return. Using this guidance, a company may recognize the tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood of more than 50%) that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company’s tax returns for all years since December 31, 2019, remain open to audit by all related taxing authorities.
Stock-based Compensation
The Company follows the provisions of ASC 718, Share-Based Payment. Under this guidance compensation cost generally is recognized at fair value on the date of the grant and amortized over the respective vesting or service period. The fair value of options at the date of grant is estimated using the Black-Scholes option pricing model. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of the Company’s common shares using weekly price observations over an observation period that approximates the expected life of the options. The risk-free interest rate approximates the U.S. Treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. Due to limited history of forfeitures, the Company has elected to account for forfeitures as they occur. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense.
Basic earnings (loss) per common share (“EPS”) is based on the weighted average number of shares outstanding during each period presented. Shares of unissued vested restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) are included in our calculation of basic weighted average shares outstanding. Convertible securities, warrants and options to purchase common stock are included as common stock equivalents only when dilutive. Potential common stock equivalents are excluded from dilutive earnings per share when the effects would be antidilutive.
The Company follows the provisions of ASC 260, Diluted Earnings per Share. In computing diluted EPS, basic EPS is adjusted for the assumed issuance of all potentially dilutive securities. The dilutive effect of call options, warrants and share-based payment awards is calculated using the “treasury stock method,” which assumes that the “proceeds” from the exercise of these instruments are used to purchase common shares at the average market price for the period. The dilutive effect of traditional convertible debt and preferred stock is calculated using the “if-converted method.” Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted EPS calculation for the entire period being presented.
Segment Data
Our portfolio of brands are included within two operating segments: Telehealth and WorkSimpli. We believe our current segments and brands within our segments complement one another and position us well for future growth. Segment operating results are reviewed by the chief operating decision maker to make determinations about resources to be allocated and to assess performance. Other factors, including type of business, revenue recognition and operating results are reviewed in determining the Company’s operating segments.
Fair Value of Financial Instruments
The fair value of a financial instrument is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities subject to ongoing fair value measurement are categorized and disclosed into one of the three categories depending on observable or unobservable inputs employed in the measurement. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows:
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued expenses, the face amount of notes payable and convertible long-term debt approximate fair value for all periods presented.
Concentrations of Risk
The Company monitors its positions with, and the credit quality of, the financial institutions with which it invests. The Company, at times, maintains balances in various operating accounts in excess of federally insured limits. We are dependent on certain third-party manufacturers and pharmacies, although we believe that other contract manufacturers or third-party pharmacies could be quickly secured if any of our current manufacturers or pharmacies cease to perform adequately. As of June 30, 2023, we utilized five suppliers for fulfillment services, six suppliers for manufacturing finished goods, six suppliers for packaging, bottling, and labeling, and four suppliers for prescription medications. As of December 31, 2022, we utilized four suppliers for fulfillment services, six suppliers for manufacturing finished goods, five suppliers for packaging, bottling, and labeling, and three suppliers for prescription medications.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires an entity to utilize the current expected credit loss (“CECL”) impairment model to estimate its lifetime “expected credit loss” and record an allowance that is deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities are recorded through an allowance for credit losses. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. The Company adopted ASU 2016-13 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606, Revenue from Contracts with Customers, as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The Company adopted ASU 2021-08 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
Other Recent Accounting Pronouncements
All other accounting standards updates that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
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ACQUISITIONS |
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| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITIONS | NOTE 3 – ACQUISITIONS
On January 18, 2022, the Company completed the acquisition of Cleared. The acquisition adds to the Company’s growing portfolio of telehealth capabilities. The Company accounted for the transaction using the acquisition method in accordance with ASC 805, Business Combinations, with the purchase price being allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. Fair values were determined using income approaches. The results of Cleared are included within the consolidated financial statements commencing on the acquisition date.
The purchase price was approximately $9.1 million, including cash paid upfront of approximately $1.0 million and payable in the future of approximately $3.0 million, and contingent consideration of $5.1 million. The purchase agreement included up to $72.8 million of potential earn-out payable in cash or stock upon achievement of revenue targets, which was originally recognized as contingent consideration. The Company, with the assistance of a third-party valuation expert, estimated the fair value of the acquired tangible and identifiable intangible assets using significant estimates such as revenue projections. The fair value of the identified intangible assets was based primarily on significant unobservable inputs and thus represent a Level 3 measurement as defined in ASC 820, Fair Value Measurement. The fair value of the trade name and developed technology were determined using the relief-from-royalty method under the income approach. The royalty rates used to determine the fair value of the trade name and developed technology were 0.10% and 1.0%, respectively. The fair value of the customer relationships was determined using the multi-period excess earnings method which involves forecasting the net earnings expected to be generated. The customer attrition rate used to determine the fair value of the customer relationships was 10.0%. The discount rate used to determine the fair value of the trade name, developed technology and customer relationships was 70.5%.
The following table summarizes the acquisition date fair values of assets acquired and liabilities assumed:
The purchase price and purchase price allocation for Cleared was finalized as of September 30, 2022 with no significant changes to preliminary amounts. Based on the final purchase price allocation, the aggregate goodwill recognized was $8.0 million, which is not expected to be deductible for income tax purposes. The amount allocated to goodwill and intangible assets reflected the benefits the Company expected to realize from the growth of the acquisition’s operations.
On February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between the Company and the sellers of Cleared. The First Amendment was amended to, among other things: (i) reduce the total purchase price by $250 thousand to a total of $3.67 million; (ii) change the timing of the payment of the purchase price to $460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024; (iii) remove all “earn-out” payments payable by the Company to the sellers; and (iv) removing certain representations and warranties of the Company and sellers in connection with the transaction. On February 6, 2023, the Company issued shares of common stock related to the first of five quarterly installment payments due to the sellers of Cleared under the First Amendment. On April 17, 2023, the Company issued shares of common stock related to the second of five quarterly installment payments due to the sellers of Cleared under the First Amendment. On July 17, 2023, the Company issued shares of common stock related to the third of five quarterly installment payments due to the sellers of Cleared under the First Amendment.
During the year ended December 31, 2022, the Company recorded a decrease of $5.1 million to the Cleared contingent consideration as a result of the remeasurement of the fair value. The decline in the estimated fair value of the Cleared contingent consideration is a result of a decline in the Cleared financial projections and the removal of all earn-out payments payable by the Company from the terms of the First Amendment. During the year ended December 31, 2022, the Company also recorded an $8.0 million goodwill impairment charge and an $827 thousand intangible asset impairment charge based on the decline in the Cleared financial projections (See Note 4).
The pro forma financial information, assuming the acquisition had taken place on January 1, 2022, as well as the revenue and earnings generated during the period after the acquisition date, were not material for separate disclosure and, accordingly, have not been presented.
In February 2022, WorkSimpli closed on the ResumeBuild APA to purchase the related intangible assets associated with the ResumeBuild brand, a subscription-based resume building software. The acquisition further adds to the capabilities of the WorkSimpli software as a service application. The purchase price was $4.5 million, including cash paid upfront of $4.0 million and contingent consideration of $500 thousand. In accordance with ASC 805, Business Combinations, the Company accounted for the ResumeBuild APA as an acquisition of assets as substantially all the fair value of the gross assets acquired is concentrated in a group of similar assets. The Company has elected to group the complementary intangible assets acquired as a single brand intangible asset. Additionally, the Seller is entitled to quarterly payments equal to the greater of 15% of net profits (as defined in the ResumeBuild APA) or approximately $63 thousand, for a two-year period ending on the two-year anniversary of the closing of the Acquisition. As of June 30, 2023, WorkSimpli has paid the Seller approximately $281 thousand in accordance with the ResumeBuild APA. The Company estimated the fair value of the contingent consideration using the income approach and will remeasure the fair value quarterly with changes accounted for through earnings.
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GOODWILL AND INTANGIBLE ASSETS |
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| GOODWILL AND INTANGIBLE ASSETS | NOTE 4 – GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill balance related to the Cleared acquisition was $0 as of both June 30, 2023 and December 31, 2022. During the year ended December 31, 2022, the Company recorded an $8.0 million goodwill impairment charge related to a decline in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections.
As of June 30, 2023 and December 31, 2022, the Company has the following amounts related to amortizable intangible assets:
During the year ended December 31, 2022, the Company recorded an $827 thousand impairment charge related to a decline in the estimated fair value of the Cleared customer relationship intangible asset with an original cost of $919 thousand and accumulated amortization of $92 thousand. The aggregate amortization expense of the Company’s intangible assets for the three months ended June 30, 2023 and 2022 was $246 thousand and $227 thousand, respectively. The aggregate amortization expense of the Company’s intangible assets for the six months ended June 30, 2023 and 2022 was $480 thousand and $341 thousand, respectively. Total amortization expense for the remainder of 2023 is approximately $492 thousand, 2024 through 2025 is approximately $980 thousand per year, 2026 is approximately $940 thousand and 2027 is approximately $113 thousand.
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ACCRUED EXPENSES |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCRUED EXPENSES | NOTE 5 – ACCRUED EXPENSES
As of June 30, 2023 and December 31, 2022, the Company has the following amounts related to accrued expenses:
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NOTES PAYABLE |
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| Debt Disclosure [Abstract] | |
| NOTES PAYABLE | NOTE 6 – NOTES PAYABLE
Working Capital Loans
In October 2022, the Company received proceeds of $976 thousand under a 12-month working capital loan with Amazon. The terms of the loan include interest in the amount of $62 thousand. As of June 30, 2023 and December 31, 2022, the outstanding balance was $442 thousand and $976 thousand, respectively, and is included in notes payable, net, on the accompanying unaudited condensed consolidated balance sheet.
In November 2022, the Company received proceeds of $1.9 million under two 10-month working capital loans with Balanced Management. The terms of the loans include loan origination fees in the amount of $60 thousand and total interest of $840 thousand. As of June 30, 2023 and December 31, 2022, the outstanding balance was $294 thousand and $1.821 million, respectively, and is included in notes payable, net, on the accompanying unaudited condensed consolidated balance sheet.
During the six months ended June 30, 2023, the Company received proceeds of $2 million under a $2.5 million loan facility with CRG Financial, maturing on December 15, 2023. The loan facility includes interest of 12%. The Company repaid the $2 million outstanding loan balance on March 21, 2023 with the proceeds received from the Avenue Facility and recorded a $325 thousand loss on debt extinguishment related to the repayment of the CRG Financial loan due to a prepayment penalty and various fees. As of both June 30, 2023 and December 31, 2022, the outstanding balance was $0 related to the CRG Financial loan.
Total interest expense on notes payable amounted to $13 thousand and $0 for the three months ended June 30, 2023 and 2022, respectively. Total interest expense on notes payable amounted to $34 thousand and $0 for the six months ended June 30, 2023 and 2022, respectively.
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LONG-TERM DEBT |
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Jun. 30, 2023 | |
| Debt Disclosure [Abstract] | |
| LONG-TERM DEBT | NOTE 7 – LONG-TERM DEBT
Avenue Capital Credit Facility
As noted in Note 1 above, on March 21, 2023, the Company entered into and closed on a Credit Agreement, and a Supplement to the Credit Agreement with Avenue. The Credit Agreement provides for a convertible senior secured credit facility of up to an aggregate amount of $40 million, comprised of the following: (1) $15 million in term loans funded at closing, (2) $5 million of additional committed term loans available in the fourth quarter of 2023 and (3) $20 million of additional uncommitted term loans, collectively referred to as the “Avenue Facility”. The Company issued Avenue warrants to purchase $1.2 million of the Company’s common stock at an exercise price of $1.24, subject to adjustments. The Warrants have a term of five years. The relative fair value of the Warrants issued to Avenue upon closing was $1.1 million. In addition, Avenue may convert up to $2 million of the $15 million in term loans funded at closing into shares of the Company’s common stock at any time while the loans are outstanding, at a price per share equal to $1.49. The relative fair value was recorded to debt discount and is included as a reduction to long-term debt on the unaudited condensed consolidated balance sheet as of June 30, 2023. The Company incurred other fees associated with the Avenue Facility including: (1) a $300 thousand financing fee, (2) a $200 thousand upfront commitment fee of 1% of the total $20 million in committed capital and (3) $27 thousand in legal fees. The total debt discount recorded of $1.6 million will be amortized over a forty-two-month period. Total amortization of debt discount was $115 thousand and $154 thousand for the three and six months ended June 30, 2023, respectively.
The Avenue Facility matures on October 1, 2026 and interest is based on the greater of: (1) the Prime Rate (as defined in the Supplement) plus 4.75% and (2) 12.5%. At June 30, 2023, the interest rate was 12.75%. Payments are interest only until November 2024. The Company received gross proceeds of $15.0 million (net proceeds of $12.3 million after repayment of the $2 million outstanding CRG loan balance and various fees). Proceeds from the Avenue Facility were used to repay the Company’s outstanding notes payable balances with CRG Financial and are expected to be utilized for general corporate purposes and at the Company’s election, re-financing up to $5 million liquidation value plus accrued interest of the Series B Preferred Stock.
The Company is subject to certain affirmative and negative covenants under the Avenue Facility, including the requirement, beginning on the closing date, to maintain at least $5 million of unrestricted cash to be tested at the end of each month, and beginning on the period ended September 30, 2023, and at the end of each quarter thereafter, a trailing six-month cash flow, subject to certain adjustments as provided by the Credit Agreement, of at least $2 million. As of the date of filing, there is $15 million outstanding under the Avenue Facility and the Company is in compliance with the Avenue Facility terms.
Total interest expense on long-term debt, inclusive of amortization of debt discounts, amounted to $598 thousand and $0 for the three months ended June 30, 2023 and 2022, respectively. Total interest expense on long-term debt, inclusive of amortization of debt discounts, amounted to $694 thousand and $0 for the six months ended June 30, 2023 and 2022, respectively.
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STOCKHOLDERS’ EQUITY |
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| STOCKHOLDERS’ EQUITY | NOTE 8 – STOCKHOLDERS’ EQUITY
The Company has authorized the issuance of up to shares of common stock, $ par value, and shares of preferred stock, $ par value, of which shares are designated as Series B Convertible Preferred Stock, are designated as Series A Preferred Stock and 3,385,000 shares of preferred stock remain undesignated.
On June 8, 2021, the Company filed the 2021 Shelf. Under the 2021 Shelf at the time of effectiveness, the Company originally had the ability to raise up to $ million by selling common stock, preferred stock, debt securities, warrants and units. In conjunction with the 2021 Shelf, the Company also entered into the ATM Sales Agreement whereby the Company may offer and sell, from time to time, shares of common stock. On March 22, 2023, the date the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the Company became subject to the offering limits in General Instruction I.B.6 of Form S-3 (i.e., the “baby shelf limitations”). As a result of the baby shelf limitations, the Company may only offer and sell shares of common stock having an aggregate offering price of up to $18.435 million pursuant to the ATM Sales Agreement, and it filed a prospectus supplement with the SEC to that effect on March 27, 2023. In June 2023, the Company’s public float increased above $75.0 million. As a result, the Company is no longer subject to the baby shelf limitations. The Company filed another prospectus supplement with the SEC to that effect on June 29, 2023. As of June 30, 2023, the Company has $59.5 million available under the ATM Sales Agreement.
Options
During the six months ended June 30, 2023, the Company issued an aggregate of shares of common stock related to the cashless exercise of options.
Common Stock
Common Stock Transactions During the Six Months Ended June 30, 2023
During the six months ended June 30, 2023, the Company issued an aggregate of shares of common stock for service, including vested restricted stock units.
On February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between the Company and the sellers of Cleared. The First Amendment was amended to, among other things change the timing of the payment of the purchase price to $460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024. On February 6, 2023, the Company issued shares of common stock related to the first of five quarterly installment payments due to the sellers of Cleared under the First Amendment. On April 17, 2023, the Company issued shares of common stock related to the second of five quarterly installment payments due to the sellers of Cleared under the First Amendment.
On March 21, 2023, in connection with the Company’s closing of a Credit Agreement with Avenue, the Company issued Avenue warrants to purchase $1.2 million of the Company’s common stock at an exercise price of $1.24, subject to adjustments. In addition, Avenue may convert up to $2 million of the $15 million in term loans funded at closing into shares of the Company’s common stock at any time while the loans are outstanding, at a price per share equal to $1.49.
Noncontrolling Interest
Net income attributed to the non-controlling interest amounted to $842 thousand and $46 thousand for the three months ended June 30, 2023 and 2022, respectively. During both the three months ended June 30, 2023 and 2022, the Company paid distributions to non-controlling shareholders of $36 thousand. Net income attributed to the non-controlling interest amounted to $1.4 million and $71 thousand for the six months ended June 30, 2023 and 2022, respectively. During both the six months ended June 30, 2023 and 2022, the Company paid distributions to non-controlling shareholders of $72 thousand.
WorkSimpli Software Restructuring Transaction
Effective January 22, 2021 (the “WSS Effective Date”), the Company consummated the WSS Restructuring, which is described in Note 1. To effect the WSS Restructuring the Company’s wholly-owned subsidiary Conversion Labs PR, entered into a series of membership interest exchange agreements, pursuant to which, Conversion Labs PR exchanged that certain promissory note, dated May 8, 2019 with an outstanding balance of $376 thousand (the “CVLBPR Note”), issued by WSS in favor of Conversion Labs PR, for newly issued membership interests of WSS (the “Exchange”). Upon consummation of the Exchange the CVLBPR Note was extinguished.
Concurrently, in furtherance of the WSS Restructuring, Conversion Labs PR entered into two Membership Interest Purchase Agreements (the “Founding Members MIPAs”) with two founding members of WSS (the “Founding Members”) whereby Conversion Labs PR purchased from the Founding Members an aggregate of membership interests of WSS for an aggregate purchase price of $225,000, paid in December 2020.
In furtherance of the WSS Restructuring, Conversion Labs PR entered into a Membership Interest Purchase Agreement with WSS, (the “CVLB PR MIPA”), pursuant to which Conversion Labs PR purchased membership interests of WSS for an aggregate purchase price of $300 thousand. .
Following the consummation of the WSS Restructuring, Conversion Labs PR increased its ownership of WSS from 51% to approximately 85.58% on a fully diluted basis. WSS entered into an amendment to its operating agreement (the “WSS Operating Agreement Amendment”) to reflect the change in ownership.
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On September 30, 2022, Sean Fitzpatrick and Varun Pathak exercised their options to purchase and membership interest units, respectively, of WorkSimpli for an exercise price of $1.00 per membership interest unit under the Option Agreements. Following the exercise of the Option Agreements, Conversion Labs PR decreased its ownership interest in WorkSimpli from 85.58% to 73.64%. Effective March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli. Following the retirement, Conversion Labs PR’s ownership interest in WorkSimpli increased to 74.06%. On June 30, 2023, Lisa Bowlin, WorkSimpli’s Chief Operating Officer, exercised her option agreement (the “Bowlin Option Agreement”) to purchase membership interest units of WorkSimpli for an exercise price of $1.00 per membership interest unit. Following the exercise of the Bowlin Option Agreement, Conversion Labs PR decreased its ownership interest in WorkSimpli from 74.06% to 73.32%.
Dividends
The Company pays cumulative distributions on its Series A Preferred Stock, in the amount of $ per share each year, which is equivalent to 8.875% of the $25.00 liquidation preference per share. Dividends on the Series A Preferred Stock are payable quarterly in arrears, on or about the 15th day of January, April, July, and October of each year. Dividends declared and paid on the Series A Preferred Stock during the six months ended June 30, 2023 are as follows: (1) quarterly dividend declared on March 28, 2023 to holders of record as of April 7, 2023 and was paid on April 17, 2023 and (2) quarterly dividend declared on June 27, 2023 to holders of record as of July 7, 2023 and was paid on July 17, 2023. The dividends are included in the Company’s results of operations for the three and six months ended June 30, 2023.
On June 30, 2023, WorkSimpli declared a cash dividend in the amount of $22.40 per membership interest unit to all unit holders of record as of June 30, 2023 and was paid on July 3, 2023. The total dividend declared to noncontrolling interest holders was $534 thousand for the three and six months ended June 30, 2023 and is included in the Company’s results of operations for the three and six months ended June 30, 2023.
Stock Options
On January 8, 2021, the Company approved the Company’s 2020 Equity and Incentive Plan (the “2020 Plan”). Approval of the 2020 Plan was included as Proposal 1 in the Company’s definitive proxy statement for its Special Meeting of Shareholders filed with the Securities and Exchange Commission on December 7, 2020. The 2020 Plan is administered by the Compensation Committee of the Board of Directors (the “Board”) and initially provided for the issuance of up to shares of Common Stock. The number of shares of Common Stock available for issuance under the 2020 Plan automatically increases by shares of Common Stock on January 1st of each year, for a period of not more than ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030. Awards under the 2020 Plan can be granted in the form of stock options, non-qualified and incentive options, stock appreciation rights, restricted stock, and restricted stock units.
On June 24, 2021, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by shares.
On June 16, 2022, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by shares. As of June 30, 2023, the 2020 Plan, as amended, provided for the issuance of up to shares of Common Stock. Remaining authorization under the 2020 Plan, as amended, was shares as of June 30, 2023.
The forms of award agreements to be used in connection with awards made under the 2020 Plan to the Company’s executive officers and non-employee directors are:
Previously, the Company had granted service-based stock options and performance-based stock options separate from the 2020 Plan.
During the six months ended June 30, 2023, the Company issued an aggregate of stock options to employees under the 2020 Plan and the prior plan. These stock options have a contractual term of to years and vest in increments which fully vest the options over a two to three-year period, dependent on the specific agreements’ terms.
The total fair value of the options granted was $ thousand, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of %, expected term of years, volatility of % – % and risk-free rate of % – %. Total compensation expense under the 2020 Plan options above was $ million and $ million for the three months ended June 30, 2023 and 2022, respectively, with unamortized expense remaining of $3.2 million as of June 30, 2023. Total compensation expense under the 2020 Plan options above was $ million and $ million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, aggregate intrinsic value of vested service-based options outstanding was $ thousand.
The total fair value of the options granted was $ thousand, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of %, expected term of years, volatility of % – % and risk-free rate of % – %. Total compensation expense under the above service-based option plan was $ thousand and $ thousand for the three months ended June 30, 2023 and 2022, respectively, with unamortized expense remaining of $1.6 million as of June 30, 2023. Total compensation expense under the above service-based option plan was $ million for both the six months ended June 30, 2023 and 2022. Of the total service-based options exercised during the six months ended June 30, 2023, options were exercised on a cashless basis, which resulted in shares issued. As of June 30, 2023, aggregate intrinsic value of vested service-based options outstanding was $ million.
compensation expense was recognized on the performance-based options above for the three and six months ended June 30, 2023, as the performance terms have not been met or are not probable. Total compensation expense under the above performance-based options was $ thousand and $ thousand for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, aggregate intrinsic value of vested performance options outstanding was $ million.
RSUs and RSAs
The total fair value of the RSUs and RSAs granted was $5.6 million which was determined using the fair value of the quoted market price on the date of grant. Total compensation expense under the 2020 Plan RSUs and RSAs above was $ thousand and $ thousand for the three months ended June 30, 2023 and 2022, respectively, with unamortized expense remaining of $4.8 million as of June 30, 2023. Total compensation expense under the 2020 Plan RSUs and RSAs above was $million and $ million for the six months ended June 30, 2023 and 2022, respectively. During the six months ended June 30, 2023, RSUs and RSAs vested, of which RSUs and RSAs were issued. During the six months ended June 30, 2023, RSUs and service-based stock options were cancelled and replaced with RSAs for two executives. Incremental compensation cost resulting from the modifications was immaterial to the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023.
The total fair value of the RSUs and RSAs granted was $860 thousand which was determined using the fair value of the quoted market price on the date of grant. Total compensation expense for RSUs and RSAs outside of the 2020 Plan was $ thousand and $ thousand for the three months ended June 30, 2023 and 2022, respectively, with unamortized expense remaining of $5.4 million as of June 30, 2023. Total compensation expense for RSUs and RSAs outside of the 2020 Plan was $ thousand and $ thousand for the six months ended June 30, 2023 and 2022, respectively. During the six months ended June 30, 2023, RSUs and RSAs vested, of which RSUs and RSAs were issued.
Warrants
The following is a summary of outstanding and exercisable warrants activity during the six months ended June 30, 2023:
The total fair value of the warrants granted was $1.1 million, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of %, expected term of years, volatility of % and risk-free rate of %. Total compensation expense on the above warrants was $thousand and $ thousand for the three months ended June 30, 2023 and 2022, respectively, with no unamortized expense remaining as of June 30, 2023. Total compensation expense on the above warrants was $thousand and $ million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, aggregate intrinsic value of vested warrants outstanding was $3.9 million.
Stock-based Compensation
The total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based stock options, warrants, RSUs and RSAs amounted to $ million and $ million for the three months ended June 30, 2023 and 2022, respectively. The total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based stock options, warrants RSUs and RSAs amounted to $ million and $ million for the six months ended June 30, 2023 and 2022, respectively. Such amounts are included in general and administrative expenses in the unaudited condensed consolidated statement of operations. Unamortized expense remaining related to service-based stock options, performance-based stock options, warrants, RSUs and RSAs was $15.0 million as of June 30, 2023, which is expected to be recognized through 2026.
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LEASES |
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| LEASES | NOTE 9 – LEASES
The Company leases office space domestically under operating leases. The Company’s headquarters are located in New York, New York for which the lease expires in 2025. We operate a marketing and sales center in Huntington Beach, California for which the lease expires in 2024, a patient care center in Greenville, South Carolina for which the lease expires in 2024 and a warehouse and fulfillment center in Columbia, Pennsylvania for which the lease expires in 2024. WorkSimpli leases office space in Puerto Rico for which the lease expires in 2024.
The following is a summary of the Company’s operating right-of-use assets and operating lease liabilities as of June 30, 2023:
Total accumulated amortization of the Company’s operating right-of-use assets was $1.7 million as of June 30, 2023.
The table below reconciles the undiscounted future minimum lease payments under the above noted operating leases to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2023:
Operating lease expenses were $206 thousand and $201 thousand for the three months ended June 30, 2023 and 2022, respectively, and $429 thousand and $404 thousand for the six months ended June 30, 2023 and 2022, respectively, and were included in other operating expenses in our unaudited condensed consolidated statement of operations.
Supplemental cash flow information related to operating lease liabilities consisted of the following:
Supplemental balance sheet information related to operating lease liabilities consisted of the following:
We have elected to apply the short-term lease exception to the warehouse space we lease in Lancaster, Pennsylvania. This lease has a term of 12 months and is not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term. Straight-line lease payments are $3 thousand per month. Additionally, Conversion Labs PR utilizes office space in Puerto Rico on a month-to-month basis incurring rental expense of approximately $3 thousand per month.
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COMMITMENTS AND CONTINGENCIES |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 10 - COMMITMENTS AND CONTINGENCIES
Royalty Agreements
During 2016, Conversion Labs PR entered into a sole and exclusive license, royalty and advisory agreement with Pilaris Laboratories, LLC (“Pilaris”) relating to Pilaris’ PilarisMax shampoo formulation and conditioner. The term of the agreement will be the life of the US Patent held by Pilaris, ten years. As consideration for granting Conversion Labs PR this license, Pilaris will receive on quarterly basis, 10% of the net income collected by the licensed products based on the following formula: Net Income = total income – cost of goods sold – advertising and operating expenses directly related to the marketing of the licensed products. As of June 30, 2023 and December 31, 2022, $0 and approximately $138 thousand, respectively, were included in accrued expenses in regard to this agreement.
During 2018, the Company entered into a license agreement (the “Alphabet Agreement”) with M.ALPHABET, LLC (“Alphabet”), pursuant to which Alphabet agreed to license its PURPUREX business which consists of methods and compositions developed by Alphabet for the treatment of purpura, bruising, post-procedural bruising, and traumatic bruising (the “Product Line”). Pursuant to the license granted under the Alphabet Agreement, Conversion Labs PR obtains an exclusive license to incorporate (i) any intellectual property rights related to the Product Line and (ii) all designs, drawings, formulas, chemical compositions and specifications used or useable in the Product Line into one or more products manufactured, sold, and/or distributed by Alphabet for the treatment of purpura, bruising, post-procedural bruising and traumatic bruising and for all other fields of use or purposes (the “Licensed Product(s)”), and to make, have made, advertise, promote, market, sell, import, export, use, offer to sell, and distribute the Licensed Product(s) throughout the world with the exception of China, Hong Kong, Japan, and Australia (the “License”). The Company shall pay Alphabet a royalty equal to 13% of Gross Receipts (as defined in the Agreement) realized from the sales of Licensed Products. No amounts were earned or owed as of June 30, 2023.
Upon execution of the Alphabet Agreement, Alphabet was granted a -year stock option to purchase shares of the Company’s common stock at an exercise price of $. Further, if Licensed Products have gross receipts of $7.5 million in any calendar year, the Company will grant Alphabet an option to purchase shares of the Company’s common stock at an exercise price of $; (ii) if Licensed Products have gross receipts of $10.0 million in any calendar year, the Company will grant Alphabet an additional option to purchase shares of the Company’s common stock at an exercise price of $ and (iii) if Licensed Products have gross receipts of $20.0 million in any calendar year, the Company will grant Alphabet an option to purchase shares of the Company’s common stock at an exercise price of $. The likelihood of meeting these performance goals for the licensed products are remote and, therefore, the Company has not recognized any compensation.
Purchase Commitments
Many of the Company’s vendors require product deposits when a purchase order is placed for goods or fulfillment services related to inventory requirements. The Company’s history of product deposits with its inventory vendors, creates an implicit purchase commitment equaling the total expected product acceptance cost in excess of the product deposit. As of June 30, 2023, the Company approximates its implicit purchase commitments to be $168 thousand.
Legal Matters
In the normal course of business operations, the Company may become involved in various legal matters. As of June 30, 2023, other than as set forth below, the Company’s management does not believe that there are any potential legal matters that could have a material effect on the Company’s consolidated financial position.
On December 10, 2021, a purported breach of contract, breach of duty of good faith and fair dealing, unjust enrichment, quantum meruit, and fraud lawsuit, captioned Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, was filed in the United States District Court for the Southern District of New York against the Company. The Harborside Complaint alleges, among other things, that the Company breached a Consulting Services Agreement dated as of June 5, 2019, and Harborside was entitled to million shares (i.e., shares post 5-for-1 reverse stock split) in the Company if the Conversion Labs Rx business achieved a topline revenue of $10 million and an additional million shares (i.e., shares post 5-for-1 reverse stock split) for each additional $5 million in topline revenue up to a maximum of 5 million shares (i.e., shares post 5-for-1 reverse stock split). The Complaint further alleges that the Company fraudulently induced Harborside to give up its ownership interest in Conversion Labs Rx and that it was a breach of the duty of good faith and fair dealing and fraudulent for the Company to have dissolved Conversion Labs Rx. Consequently, alleges Harborside, the Company was unjustly enriched, and Harborside is entitled to recover from the Company for quantum meruit. The Harborside Complaint implies between $5.0 million and $33.0 million in alleged damages related to failure to award the aforementioned stock but only specifically states that “Harborside has incurred damages in excess of $75 thousand, with the exact amount to be determined with specificity at trial” for each of the 5 counts. On February 11, 2022, the Company filed a Motion to Dismiss the Harborside Complaint, which Harborside opposed. The Company replied on April 4, 2022 and was awaiting a decision from the Court on whether the case will be fully or partially dismissed. In the meantime, the parties agreed to mediate both cases (Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, and Specialty Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599, noted below) together. On September 22, 2022, as a result of mediation, the parties reached a settlement to resolve the matters in these cases. The Company issued shares of common stock during the year ended December 31, 2022 and additional shares of common stock on July 10, 2023 related to this settlement. The costs of this settlement are reflected in the Company’s financial results.
On December 10, 2021, a purported breach of contract, unjust enrichment, quantum meruit, and account stated lawsuit, captioned Specialty Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599, was filed in the United States District Court for the Southern District of New York against the Company. The GoGoMeds Complaint alleges, among other things, that Conversion Labs Rx breached a Strategic Partnership Agreement (dated May 27, 2019) (the “SPA”) by the Company not paying two invoices (#3269 and 3270) totaling $274 thousand, and, therefore, “LifeMD has been unjustly enriched in an amount in excess of $274 thousand, with the exact amount to be determined with specificity at trial.” Further, GoGoMeds alleges that “to the extent that the SPA is inapplicable, GoGoMeds is entitled to recover from LifeMD from quantum meruit” because “GoGoMeds conferred a benefit on LifeMD by fulfilling over 17,000 prescriptions and over the counter drug orders for LifeMD’s clients.” On February 11, 2022, the Company filed its Answer and Counterclaim to the GoGoMeds Complaint, pleading the affirmative defenses that the claims are barred, in whole or in part: (i) because they fail to state claims upon which relief can be granted; (ii) by breach of contract by plaintiff; (iii) by offset, recoupment, and/or unjust enrichment to plaintiff; (iv) by accord and satisfaction; (v) for failure of condition precedent; (vi) because adequate remedies at law exist; (vii) by failure to mitigate; (viii) by the doctrine of unclean hands; and (ix) by consent ratification, waiver, excuse, and/or estoppel, (x) as well as that attorney fees and costs, as well as special, indirect, incidental, and/or consequential damages are not recoverable. Further, the Company counterclaimed against GoGoMeds for: (a) breach of contract for failing to: (i) provide adequate customer service and related pharmacy services; (ii) charge LifeMD actual costs for prescription and over the counter drugs (including shipping), as was contractually required; and (iii) provide regular reports and allow audits for review to establish adequate service and accurate costs; (b) trade secret misappropriation of the LifeMD Information, Data, and Materials, as defined therein; (c) unjust enrichment of GoGoMeds through its retention of such LifeMD Information, Data, and Materials, and for the benefit of the creation of the GoGoCare telehealth company; (d) conversion by GoGoMeds by exercising unauthorized dominion and control over the LifeMD Information, Data, and Materials; (e) detinue; and (f) an accounting. GoGoMeds’ responded to the counterclaims on March 4, 2022 and the parties had commenced fact discovery. In the meantime, the parties agreed to mediate both cases (Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, and Specialty Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599) together. The court granted a 60-day stay in the Specialty Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599, and the parties were amenable in the Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, to the court foregoing any decision on our motion to dismiss until after mediation. On September 22, 2022, as a result of mediation, the parties reached a settlement to resolve the matters in these cases. As noted above, the Company issued shares of common stock during the year ended December 31, 2022 and additional shares of common stock on July 10, 2023 related to this settlement. The costs of this settlement are reflected in the Company’s financial results.
On February 28, 2022, a purported breach of contract lawsuit (with six counts of alleged breach, and indemnity reliance concerning reasonable costs and expenses), captioned William Blair LLC v. LifeMD, Inc., Case No. 2022L001978, was filed in the Circuit Court of Cook County, Illinois County Department, Law Division against the Company (the “Blair Complaint”). The Blair Complaint alleges, among other things, that LifeMD breached an engagement letter agreement entered into on January 7, 2021 with Blair that concerned potential debt financing. In particular, Blair alleges that the Company breached its obligations by, inter alia: (i) failing to advise Blair of, and ultimately completing, a debt financing transaction with a different investment banking firm on or about June 3, 2021; (ii) reproducing several pages from a Confidential Information Brochure used in the Company’s debt financing transaction with a different investment banking firm; (iii) failing to provide Blair with a right of first refusal to be its joint active bookrunning manager for a common stock sales agreement that it executed on or about June 3, 2021, through a different investment banking firm; (iv) failing to provide Blair with a right of first refusal to be its joint active bookrunning manager for a common stock sales agreement that it executed on or about September 28, 2021, through a different investment banking firm (despite the Company having formally terminated the engagement letter with Blair on or about July 16, 2021); (v) failing to provide Blair with a right of first refusal to be its joint active bookrunning manager for a preferred stock offering that it executed on or about September 28, 2021, through two different investment banking firms as bookrunning co-managers (despite the Company having formally terminated the engagement letter with Blair on or about July 16, 2021); and (vi) purchasing a convertible note from a pharmaceutical investor in connection with its acquisition of all outstanding shares of allergy telehealth platform, Cleared. The Blair Complaint seeks damages adequate to compensate Blair for the aforementioned alleged breaches (i.e., which implicitly meets or exceeds the purported $1.0 million minimum fee in the engagement letter), as well as reasonable costs and expenses incurred in this action. On May 22, 2022, the Company filed its answer, affirmative defenses, and counterclaim, denying the alleged breaches of its obligations under the engagement letter agreement. Further, the Company asserted the following affirmative defenses: (1) failure to state a claim on which relief can be granted; (2) laches; (3) breach of the engagement letter agreement; (4) unclean hands; (5) failure to mitigate; (6) the doctrines of waiver, accord, and satisfaction, and res judicata; (7) estoppel; and (8) repudiation/anticipatory breach. The Company also counterclaimed for a declaratory judgment that: (i) Plaintiff breached, repudiated and/or anticipatorily breached the engagement letter agreement; (ii) as a result, the Company was not bound by the terms of the engagement letter agreement from that time forward; (iii) Plaintiff is not owed any amounts under the engagement letter agreement; and (iv) and an award to the Company of any further relief that the Court deems just and proper.
The Court conducted virtual case management conferences on June 30, 2022 and August 3, 2022, and fact discovery (i.e., written discovery requests and responses) commenced thereafter. On August 29, 2022, the plaintiff subpoenaed B. Riley Financial, Inc. for documents. The Court subsequently held several case management and status conferences, beginning in October 2022 and continuing through March 2023. On April 5, 2023, the court granted the plaintiff’s motion to compel certain discovery and ordered the Company to conduct certain additional searches for documents and to produce responsive documents by April 26, 2023, which the Company did in compliance with the order. A further case management conference was held on May 17, 2023. In June 2023, the parties attended a mediation resulting in a settlement that fully resolved the matters in this case. The costs of this settlement are reflected in the Company’s financial results.
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RELATED PARTY TRANSACTIONS |
6 Months Ended |
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Jun. 30, 2023 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 11 – RELATED PARTY TRANSACTIONS
Working Capital Loan
During the six months ended June 30, 2023, the Company received proceeds of $2 million under a $2.5 million loan facility with CRG Financial, maturing on December 15, 2023. The loan facility includes interest of 12%. The Company repaid the $2 million outstanding loan balance on March 21, 2023 with the proceeds received from the Avenue Facility and recorded a $325 thousand loss on debt extinguishment related to the repayment of the CRG Financial loan (see Note 6). As of both June 30, 2023 and December 31, 2022, the outstanding balance was $0 related to the CRG Financial loan. Mr. Bhatia, a member of the Board of the Company, also serves on the Board of Directors of CRG Financial.
WorkSimpli Software
During the six months ended June 30, 2023 and 2022, WorkSimpli utilized LegalSubmit Pvt. Ltd. (“LegalSubmit”), a company owned by WorkSimpli’s Chief Software Engineer, to provide software development services. WorkSimpli paid LegalSubmit a total of $570 thousand and $352 thousand during the three months ended June 30, 2023 and 2022, respectively, and $1.2 million and $651 thousand during the six months ended June 30, 2023 and 2022, respectively, for these services. There were no amounts owed to LegalSubmit as of both June 30, 2023 and December 31, 2022.
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SEGMENT DATA |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT DATA | NOTE 12 – SEGMENT DATA
Our portfolio of brands are included within two operating segments: Telehealth and WorkSimpli. We believe our current segments and brands within our segments complement one another and position us well for future growth. Relevant segment data for the three and six months ended June 30, 2023 and 2022 is as follows:
Relevant segment data as of June 30, 2023 and December 31, 2022 is as follows:
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SUBSEQUENT EVENTS |
6 Months Ended |
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Jun. 30, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 13 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these consolidated financial statements were issued and has identified the following:
Stock Issued for Service
In July and August 2023, the Company issued shares of common stock related to vested RSUs and RSAs.
ATM Sales Agreement
In July 2023, the Company sold shares of common stock under the ATM Sales Agreement and net proceeds received were $410 thousand.
Stock Issued for Legal Settlement
On July 10, 2023, the Company issued shares of common stock related to the settlement of the Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, and the Specialty Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599.
Series B Preferred Stock Conversion
On July 12, 2023, the holder of the Company’s Series B Preferred Stock elected to convert shares of the Company’s Series B Preferred Stock. The conversion resulted in shares of the Company’s common stock issued to the holder of the Company’s Series B Preferred Stock.
Stock Issued for Noncontingent Consideration Payment
On July 17, 2023, the Company issued shares of common stock related to the third of five quarterly installment payments due to the sellers of Cleared under the First Amendment. |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Basis of Presentation | Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete audited financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended December 31, 2022, included in our 2022 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or for any future period.
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| Principles of Consolidation | Principles of Consolidation
The Company evaluates the need to consolidate affiliates based on standards set forth in Accounting Standards Codification (“ASC”) 810, Consolidation.
The consolidated financial statements include the accounts of the Company, Cleared, its majority owned subsidiary, WorkSimpli, and LifeMD PC, the Company’s affiliated, variable interest entity in which we hold a controlling financial interest. During the year ended December 31, 2021, the Company purchased an additional 34.6% of WorkSimpli for a total equity interest of approximately 85.58% as of December 31, 2021. Effective September 30, 2022, two option agreements were exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.64%. Effective March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli and, as a result, the Company’s ownership interest in WorkSimpli increased to 74.06%. Effective June 30, 2023, an option agreement was exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.32%. See Note 8 for additional information.
All significant intercompany transactions and balances have been eliminated in consolidation.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of June 30, 2023 and December 31, 2022, there were no cash equivalents. The Company maintains deposits in financial institutions in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. Cash and cash equivalents are maintained at financial institutions, and at times, balances may exceed federally insured limits. These balances could be impacted if one or more of the financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets. We have never experienced any losses related to these balances.
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| Variable Interest Entities | Variable Interest Entities
In accordance with ASC 810, Consolidation, the Company determines whether any legal entity in which the Company becomes involved is a variable interest entity (a “VIE”) and subject to consolidation. This determination is based on whether an entity has sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of the characteristics of a controlling financial interest and whether the interest will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE.
The Company determined that the LifeMD PC entity, the Company’s affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., is a VIE and subject to consolidation. LifeMD PC and the Company do not have any stockholders in common. LifeMD PC is owned by licensed physicians, and the Company maintains a managed service agreement with LifeMD PC whereby we provide all non-clinical services to LifeMD PC. The Company determined that it is the primary beneficiary of LifeMD PC and must consolidate, as we have both the power to direct the activities of LifeMD PC that most significantly impact the economic performance of the entity and we have the obligation to absorb the losses. As a result, the Company presents the financial position, results of operations, and cash flows of LifeMD PC as part of the consolidated financial statements of the Company. There is no non-controlling interest upon consolidation of LifeMD PC.
Total revenue for LifeMD PC was approximately $436 thousand and $0 for the three months ended June 30, 2023 and 2022, respectively, and $794 thousand and $0 for the six months ended June 30, 2023 and 2022, respectively. Total net loss for LifeMD PC was approximately $600 thousand and $1.4 million for the three months ended June 30, 2023 and 2022, respectively, and $1.6 million and $2.9 million for the six months ended June 30, 2023 and 2022, respectively.
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| Use of Estimates | Use of Estimates
The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include the determination of reserves for accounts receivable, returns and allowances, the valuation of inventory and stockholders’ equity-based transactions. Actual results could differ from those estimates.
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| Reclassifications | Reclassifications
Certain reclassifications have been made to conform the prior year’s data to the current presentation. These reclassifications have no effect on previously reported operating loss, stockholders’ deficit or cash flows. The Company has changed their categories for reporting operations and, as a result, the Company has made reclassifications to the prior year presentation in order to conform it to the current periods’ presentation. The reclassifications include $91 thousand and $181 thousand of lease expenses reclassified from general and administrative expenses to other operating expenses for the three and six months ended June 30, 2022, respectively.
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| Revenue Recognition | Revenue Recognition
The Company records revenue under the adoption of ASC 606, Revenue from Contracts with Customers, by analyzing exchanges with its customers using a five-step analysis:
For the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation, which is the delivery of the product; this performance obligation is transferred at a discrete point in time. The Company generally records sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped by a third-party fulfillment service provider. In some cases, the customer does not obtain control until the product reaches the customer’s delivery site; in these cases, recognition of revenue is deferred until that time. In all cases, delivery is considered to have occurred when the customer obtains control, which is usually commensurate upon shipment of the product. In the case where delivery is not commensurate upon shipment of the product, recognition of revenue is deferred until that time. In the case of its product-based contracts, the Company provides a subscription sensitive service based on the recurring shipment of products. The Company records the related revenue under the subscription agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment obligation to the customer.
For its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances, customer rebates, and other adjustments for its product shipments and are reflected as contra revenues in arriving at reported net revenues. The Company’s discounts and customer rebates are known at the time of sale; correspondingly, the Company reduces gross product sales for such discounts and customer rebates. The Company estimates customer returns and allowances based on information derived from historical transaction detail and accounts for such provisions, as contra revenue, during the same period in which the related revenues are earned. The Company has determined that the population of its product-based contracts with customers are homogenous, supporting the ability to record estimates for returns and allowances to be applied to the entire product-based portfolio population. Customer discounts, returns and rebates on telehealth revenues approximated $497 thousand and $1.6 million, respectively, during the three months ended June 30, 2023 and 2022, respectively. Customer discounts, returns and rebates on telehealth revenues approximated $828 thousand and $3.1 million, respectively, during the six months ended June 30, 2023 and 2022, respectively.
The Company, through its majority-owned subsidiary, WorkSimpli, offers a subscription-based service providing a suite of software applications to its subscribers, principally on a monthly subscription basis. The software suite allows the subscriber/user to convert almost any type of document to another electronic form of editable document, providing ease of editing. For these subscription-based contracts with customers, the Company offers an initial 14-day trial period which is billed at $, followed by a monthly subscription, or a yearly subscription to the Company’s software suite dependent on the subscriber’s enrollment selection. The Company has estimated that there is one product and one performance obligation that is delivered over time, as the Company allows the subscriber to access the suite of services for the time period of the subscription purchased. The Company allows the customer to cancel at any point during the billing cycle, in which case the customers subscription will not be renewed for the following month or year depending on the original subscription. The Company records the revenue over the customers subscription period for monthly and yearly subscribers or at the end of the initial 14-day service period for customers who purchased the initial subscription, as the circumstances dictate. The Company offers a discount for the monthly or yearly subscriptions being purchased, which is deducted at the time of payment at the initiation of the contract term; therefore the Contract price is fixed and determinable at the contract initiation. Monthly and annual subscriptions for the service are recorded net of the Company’s known discount rates. Customer discounts and allowances on WorkSimpli revenues approximated $788 thousand and $580 thousand, respectively, during the three months ended June 30, 2023 and 2022, respectively. Customer discounts and allowances on WorkSimpli revenues approximated $1.7 million and $1.0 million, respectively, during the six months ended June 30, 2023 and 2022, respectively.
For the three and six months ended June 30, 2023 and 2022, the Company had the following disaggregated revenue:
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| Deferred Revenues | Deferred Revenues
The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to the following: (1) obligations for products which the customer has not yet obtained control due to delivery not commensurate upon shipment of the product, (2) obligations on WorkSimpli in-process monthly or yearly contracts with customers and (3) a portion attributable to the yet to be recognized WorkSimpli initial 14-day trial period collections.
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| Leases | Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets, net on the unaudited condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current operating lease liabilities and noncurrent operating lease liabilities, respectively, on the unaudited condensed consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded in the balance sheet.
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| Accounts Receivable, net | Accounts Receivable, net
Accounts receivable principally consist of amounts due from third-party merchant processors, who process our subscription revenues; the merchant accounts balance receivable represents the charges processed by the merchants that have not yet been deposited with the Company. The unsettled merchant receivable amount normally represents processed sale transactions from the final one to three days of the month, with collections being made by the Company within the first week of the following month. Management determines the need, if any, for an allowance for future credits to be granted to customers, by regularly evaluating aggregate customer refund activity, coupled with the consideration and current economic conditions in its evaluation of an allowance for future refunds and chargebacks. As of June 30, 2023 and December 31, 2022, the reserve for sales returns and allowances was approximately $424 thousand and $815 thousand, respectively. For all periods presented, as noted above, the sales returns and allowances were recorded in accrued expenses on the unaudited condensed consolidated balance sheets.
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| Inventory | Inventory
As of June 30, 2023 and December 31, 2022, inventory primarily consisted of finished goods related to the Company’s OTC products included in the telehealth revenue section of the table above. Inventory is maintained at the Company’s third-party warehouse location in Wyoming and at various Amazon fulfillment centers. The Company also maintains inventory at a company owned warehouse in Pennsylvania.
Inventory is valued at the lower of cost or net realizable value with cost determined on an average cost basis. Management compares the cost of inventory with the net realizable value and an allowance is made for writing down inventory to net realizable, if lower. As of both June 30, 2023 and December 31, 2022, the Company recorded an inventory reserve of approximately $100 thousand and $161 thousand, respectively.
As of June 30, 2023 and December 31, 2022, the Company’s inventory consisted of the following:
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| Product Deposit | Product Deposit
Many of our vendors require deposits when a purchase order is placed for goods or fulfillment services. These deposits typically range from 10% to 33% of the total purchased amount. Our vendors include a credit memo within their final invoice, recognizing the deposit amount previously paid. As of June 30, 2023 and December 31, 2022, the Company has approximately $235 thousand and $127 thousand, respectively, of product deposits with multiple vendors for the purchase of raw materials or finished goods. The Company’s history of product deposits with its inventory vendors, creates an implicit purchase commitment equaling the total expected product acceptance cost in excess of the product deposit. As of June 30, 2023, the Company approximates its implicit purchase commitments to be $168 thousand, of which the vast majority are with two vendors that manufacture the Company’s finished goods inventory for its RexMD product line.
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| Capitalized Software Costs | Capitalized Software Costs
The Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes these costs using the straight-line method over the estimated useful life of the software, generally three years. The Company does not sell internally developed software other than through the use of subscription service. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40, Internal-Use Software, are expensed as incurred. As of June 30, 2023 and December 31, 2022, the Company capitalized a net amount of $10.4 million and $8.8 million, respectively, related to internally developed software costs which are amortized over the useful life and included in development costs on our statement of operations.
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| Goodwill and Intangible Assets | Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently, if events or changes in circumstances indicate that the asset may be impaired. Goodwill in the amount of $8.0 million was recognized in conjunction with the Cleared acquisition. The Company recorded an $8.0 million goodwill impairment charge and an $827 thousand intangible asset impairment charge during the year ended December 31, 2022 related to a decline in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections (see Note 3).
Other intangible assets are comprised of: (1) the ResumeBuild brand, (2) a customer relationship asset, (3) the Cleared trade name, (4) Cleared developed technology, (5) a purchased license and (6) two purchased domain names. During the year ended December 31, 2022, the Company recorded an $827 thousand impairment loss related to a decline in the estimated fair value of the Cleared customer relationship intangible asset with an original cost of $919 thousand and accumulated amortization of $92 thousand. Other intangible assets are amortized over their estimated lives using the straight-line method. Costs incurred to renew or extend the term of recognized intangible assets are capitalized and amortized over the useful life of the asset.
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| Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
Long-lived assets include equipment and capitalized software. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, an impairment is recognized as the amount by which the carrying amount of the assets exceeds the estimated fair values of the assets. As of June 30, 2023 and December 31, 2022, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived assets.
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| Income Taxes | Income Taxes
The Company files corporate federal, state and local tax returns. WorkSimpli files a tax return in Puerto Rico; WorkSimpli is a limited liability company and files tax returns with any tax liabilities or benefits passing through to its members.
The Company records current and deferred taxes in accordance with ASC 740, Accounting for Income Taxes. This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax asset, a majority of which has been generated by a history of net operating losses and management determines the necessity for a valuation allowance. ASC 740 also provides a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return. Using this guidance, a company may recognize the tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood of more than 50%) that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company’s tax returns for all years since December 31, 2019, remain open to audit by all related taxing authorities.
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| Stock-based Compensation | Stock-based Compensation
The Company follows the provisions of ASC 718, Share-Based Payment. Under this guidance compensation cost generally is recognized at fair value on the date of the grant and amortized over the respective vesting or service period. The fair value of options at the date of grant is estimated using the Black-Scholes option pricing model. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of the Company’s common shares using weekly price observations over an observation period that approximates the expected life of the options. The risk-free interest rate approximates the U.S. Treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. Due to limited history of forfeitures, the Company has elected to account for forfeitures as they occur. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense.
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| Earnings (Loss) Per Share |
Basic earnings (loss) per common share (“EPS”) is based on the weighted average number of shares outstanding during each period presented. Shares of unissued vested restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) are included in our calculation of basic weighted average shares outstanding. Convertible securities, warrants and options to purchase common stock are included as common stock equivalents only when dilutive. Potential common stock equivalents are excluded from dilutive earnings per share when the effects would be antidilutive.
The Company follows the provisions of ASC 260, Diluted Earnings per Share. In computing diluted EPS, basic EPS is adjusted for the assumed issuance of all potentially dilutive securities. The dilutive effect of call options, warrants and share-based payment awards is calculated using the “treasury stock method,” which assumes that the “proceeds” from the exercise of these instruments are used to purchase common shares at the average market price for the period. The dilutive effect of traditional convertible debt and preferred stock is calculated using the “if-converted method.” Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted EPS calculation for the entire period being presented.
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| Segment Data | Segment Data
Our portfolio of brands are included within two operating segments: Telehealth and WorkSimpli. We believe our current segments and brands within our segments complement one another and position us well for future growth. Segment operating results are reviewed by the chief operating decision maker to make determinations about resources to be allocated and to assess performance. Other factors, including type of business, revenue recognition and operating results are reviewed in determining the Company’s operating segments.
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| Fair Value of Financial Instruments | Fair Value of Financial Instruments
The fair value of a financial instrument is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities subject to ongoing fair value measurement are categorized and disclosed into one of the three categories depending on observable or unobservable inputs employed in the measurement. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows:
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued expenses, the face amount of notes payable and convertible long-term debt approximate fair value for all periods presented.
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| Concentrations of Risk | Concentrations of Risk
The Company monitors its positions with, and the credit quality of, the financial institutions with which it invests. The Company, at times, maintains balances in various operating accounts in excess of federally insured limits. We are dependent on certain third-party manufacturers and pharmacies, although we believe that other contract manufacturers or third-party pharmacies could be quickly secured if any of our current manufacturers or pharmacies cease to perform adequately. As of June 30, 2023, we utilized five suppliers for fulfillment services, six suppliers for manufacturing finished goods, six suppliers for packaging, bottling, and labeling, and four suppliers for prescription medications. As of December 31, 2022, we utilized four suppliers for fulfillment services, six suppliers for manufacturing finished goods, five suppliers for packaging, bottling, and labeling, and three suppliers for prescription medications.
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| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires an entity to utilize the current expected credit loss (“CECL”) impairment model to estimate its lifetime “expected credit loss” and record an allowance that is deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities are recorded through an allowance for credit losses. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. The Company adopted ASU 2016-13 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606, Revenue from Contracts with Customers, as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The Company adopted ASU 2021-08 as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
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| Other Recent Accounting Pronouncements | Other Recent Accounting Pronouncements
All other accounting standards updates that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DISAGGREGATED REVENUE | For the three and six months ended June 30, 2023 and 2022, the Company had the following disaggregated revenue:
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| SCHEDULE OF CONTRACT WITH CUSTOMER LIABILITY | The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to the following: (1) obligations for products which the customer has not yet obtained control due to delivery not commensurate upon shipment of the product, (2) obligations on WorkSimpli in-process monthly or yearly contracts with customers and (3) a portion attributable to the yet to be recognized WorkSimpli initial 14-day trial period collections.
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| SUMMARY OF INVENTORY | As of June 30, 2023 and December 31, 2022, the Company’s inventory consisted of the following:
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| SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES |
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ACQUISITIONS (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FAIR VALUE OF ASSETS AND LIABILITIES | The following table summarizes the acquisition date fair values of assets acquired and liabilities assumed:
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GOODWILL AND INTANGIBLE ASSETS (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF GOODWILL AND INTANGIBLE ASSETS | As of June 30, 2023 and December 31, 2022, the Company has the following amounts related to amortizable intangible assets:
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ACCRUED EXPENSES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCRUED EXPENSES | As of June 30, 2023 and December 31, 2022, the Company has the following amounts related to accrued expenses:
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STOCKHOLDERS’ EQUITY (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WARRANT OUTSTANDING AND EXERCISABLE | The following is a summary of outstanding and exercisable warrants activity during the six months ended June 30, 2023:
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| Service-Based Stock Options [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPTION ACTIVITY |
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| Performance Shares [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPTION ACTIVITY |
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| Restricted Stock Units (RSUs) [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY |
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| Restricted Stock Units (RSUs) [Member] | 2020 Plan [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY |
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| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPTION ACTIVITY |
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LEASES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPERATING RIGHT OF USE OF ASSETS | The following is a summary of the Company’s operating right-of-use assets and operating lease liabilities as of June 30, 2023:
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| SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES | The table below reconciles the undiscounted future minimum lease payments under the above noted operating leases to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2023:
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| SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE LIABILITIES | Supplemental cash flow information related to operating lease liabilities consisted of the following:
Supplemental balance sheet information related to operating lease liabilities consisted of the following:
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SEGMENT DATA (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RELEVANT SEGMENT DATA |
Relevant segment data as of June 30, 2023 and December 31, 2022 is as follows:
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SCHEDULE OF DISAGGREGATED REVENUE (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Total net revenue | $ 35,946,913 | $ 30,458,498 | $ 69,073,248 | $ 59,501,335 |
| Total net revenue, percent | 100.00% | 100.00% | 100.00% | 100.00% |
| Telehealth Revenue [Member] | ||||
| Total net revenue | $ 22,351,128 | $ 22,267,963 | $ 42,553,931 | $ 44,866,024 |
| Total net revenue, percent | 62.00% | 73.00% | 62.00% | 75.00% |
| WorkSimpli Revenue [Member] | ||||
| Total net revenue | $ 13,595,785 | $ 8,190,535 | $ 26,519,317 | $ 14,635,311 |
| Total net revenue, percent | 38.00% | 27.00% | 38.00% | 25.00% |
SCHEDULE OF CONTRACT WITH CUSTOMER LIABILITY (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
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| Accounting Policies [Abstract] | ||||
| Beginning of period | $ 5,895,545 | $ 1,788,555 | $ 5,547,506 | $ 1,499,880 |
| Additions | 14,319,067 | 7,853,216 | 27,557,658 | 14,221,187 |
| Revenue recognized | (14,546,402) | (7,649,269) | (27,436,954) | (13,728,565) |
| End of period | $ 5,668,210 | $ 1,992,502 | $ 5,668,210 | $ 1,992,502 |
SUMMARY OF INVENTORY (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Finished goods - products | $ 2,380,392 | $ 2,587,370 |
| Raw materials and packaging components | 1,417,623 | 1,276,891 |
| Inventory reserve | (99,713) | (160,898) |
| Total Inventory - net | $ 3,698,302 | $ 3,703,363 |
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES (Details) - shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Potentially dilutive securities | 13,970,009 | 10,898,879 | 13,672,094 | 10,923,669 |
| Restricted Stock Units (RSUs) [Member] | ||||
| Potentially dilutive securities | 2,788,000 | 1,445,750 | 2,341,438 | 1,429,125 |
| Share-Based Payment Arrangement, Option [Member] | ||||
| Potentially dilutive securities | 3,463,753 | 4,259,198 | 3,667,003 | 4,318,065 |
| Warrant [Member] | ||||
| Potentially dilutive securities | 4,827,380 | 3,859,638 | 4,827,380 | 3,859,638 |
| Convertible Long-term Debt [Member] | ||||
| Potentially dilutive securities | 1,342,282 | 1,342,282 | ||
| Series B Preferred Stock [Member] | ||||
| Potentially dilutive securities | 1,548,594 | 1,334,293 | 1,493,991 | 1,316,841 |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Mar. 31, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
Jan. 22, 2021 |
|
| Net loss | $ (6,733,000) | $ (13,018,962) | $ (10,741,456) | $ (26,318,637) | |||||
| Subscription price per share | $ 1.95 | $ 1.95 | |||||||
| Sales returns and allowances | $ 424,000 | $ 424,000 | $ 815,000 | ||||||
| Inventory reserve | 99,713 | 99,713 | 160,898 | ||||||
| Deposits assets, current | 235,115 | 235,115 | 127,265 | ||||||
| Purchase obligation | 168,000 | 168,000 | |||||||
| Capitalized software costs | 10,400,000 | 10,400,000 | 8,800,000 | ||||||
| Goodwill impairment loss | 8,000,000.0 | 8,000,000.0 | |||||||
| Goodwill impairment loss | 2,735,000 | 8,000,000.0 | |||||||
| Intangible asset impairment charge | 827,000 | ||||||||
| Accumulated amortization | $ 2,523,499 | $ 2,523,499 | 2,043,971 | ||||||
| Cleared Customer Relationships [Member] | |||||||||
| Goodwill impairment loss | 827,000 | ||||||||
| Finite lived intangible assets | 919,000 | ||||||||
| Accumulated amortization | $ 92,000 | ||||||||
| Minimum [Member] | |||||||||
| Percentage of interest-bearing domestic deposits | 10.00% | 10.00% | |||||||
| Maximum [Member] | |||||||||
| Percentage of interest-bearing domestic deposits | 33.00% | 33.00% | |||||||
| Product [Member] | |||||||||
| Customer discounts and allowance | $ 497,000 | 1,600,000 | $ 828,000 | 3,100,000 | |||||
| Software Revenue [Member] | |||||||||
| Customer discounts and allowance | 788,000 | 580,000 | 1,700,000 | 1,000,000.0 | |||||
| Other Operating Expense [Member] | |||||||||
| Lease costs | 91,000 | 91,000 | 181,000 | 181,000 | |||||
| LifeMD PC [Member] | |||||||||
| Revenues | 436,000 | 0 | 794,000 | 0 | |||||
| Net loss | $ 600,000 | $ 1,400,000 | $ 1,600,000 | $ 2,900,000 | |||||
| WorkSimpli Software LLC [Member] | |||||||||
| Ownership Interest | 73.32% | 74.06% | 73.32% | 73.64% | 85.58% | 85.58% | |||
| Number of membership interest units redeemed | 500 | ||||||||
| WorkSimpli Software LLC [Member] | |||||||||
| Non-controlling interest rate | 34.60% | ||||||||
SCHEDULE OF FAIR VALUE OF ASSETS AND LIABILITIES (Details) - USD ($) |
Jun. 30, 2023 |
Jan. 18, 2022 |
|---|---|---|
| Business Combination and Asset Acquisition [Abstract] | ||
| Purchase price, net of cash acquired | $ 9,091,762 | |
| Customer relationship intangible asset | 918,812 | |
| Trade name intangible asset | 133,339 | |
| Developed technology intangible asset | 12,920 | |
| Inventory | 7,168 | |
| Fixed assets | 37,888 | |
| Deferred taxes | 354,000 | |
| Accounts payable and other current liabilities | (408,030) | |
| Goodwill | $ 8,000,000.0 | $ 8,035,665 |
SCHEDULE OF ACCRUED EXPENSES (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| 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 |
LONG-TERM DEBT (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Mar. 21, 2023 |
Mar. 21, 2023 |
Dec. 31, 2023 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Line of Credit Facility [Line Items] | ||||||||
| Amortization of debt discount premium | $ 115,000 | $ 153,842 | ||||||
| Avenue [Member] | ||||||||
| Line of Credit Facility [Line Items] | ||||||||
| Warrant to purchase stock | $ 1,200,000 | |||||||
| Exercise price | $ 1.24 | $ 1.24 | ||||||
| Warrants term | 5 years | 5 years | ||||||
| Fair value of warrants | $ 1,100,000 | |||||||
| Debt conversion amount | $ 2,000,000 | |||||||
| Conversion price per share | $ 1.49 | $ 1.49 | ||||||
| Avenue Facility [Member] | ||||||||
| Line of Credit Facility [Line Items] | ||||||||
| Line of credit amount | $ 40,000,000 | $ 40,000,000 | ||||||
| Line of credit | 15,000,000 | |||||||
| Line of credit | $ 20,000,000 | |||||||
| Debt instrument description | The Company incurred other fees associated with the Avenue Facility including: (1) a $300 thousand financing fee, (2) a $200 thousand upfront commitment fee of 1% of the total $20 million in committed capital and (3) $27 thousand in legal fees. The total debt discount recorded of $1.6 million will be amortized over a forty-two-month period | |||||||
| Line of Credit Facility, Expiration Date | Oct. 01, 2026 | |||||||
| Debt Instrument, Interest Rate Terms | interest is based on the greater of: (1) the Prime Rate (as defined in the Supplement) plus 4.75% and (2) 12.5%. At June 30, 2023, the interest rate was 12.75%. Payments are interest only until November 2024 | |||||||
| Proceeds from Issuance of Debt | $ 15,000,000.0 | |||||||
| Proceeds from Debt, Net of Issuance Costs | 12,300,000 | |||||||
| Repayments of Long-Term Debt | $ 2,000,000 | |||||||
| Line of credit, description | The Company is subject to certain affirmative and negative covenants under the Avenue Facility, including the requirement, beginning on the closing date, to maintain at least $5 million of unrestricted cash to be tested at the end of each month, and beginning on the period ended September 30, 2023, and at the end of each quarter thereafter, a trailing six-month cash flow | The Company is subject to certain affirmative and negative covenants under the Avenue Facility, including the requirement, beginning on the closing date, to maintain at least $5 million of unrestricted cash to be tested at the end of each month, and beginning on the period ended September 30, 2023, and at the end of each quarter thereafter, a trailing six-month cash flow | ||||||
| Debt instrument, face amount | $ 15,000,000 | $ 15,000,000 | ||||||
| Interest expense, debt | $ 598 | $ 0 | $ 694 | $ 0 | ||||
| Avenue Facility [Member] | Series B Preferred Stock [Member] | ||||||||
| Line of Credit Facility [Line Items] | ||||||||
| Preferred Stock, Liquidation Preference, Value | $ 5,000,000 | $ 5,000,000 | ||||||
| Avenue Facility [Member] | Forecast [Member] | ||||||||
| Line of Credit Facility [Line Items] | ||||||||
| Line of credit | $ 5,000,000 | |||||||
SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY (Details) - Restricted Stock Units (RSUs) [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2023
shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| RSU Outstanding Number of Shares, Beginning | 715,000 |
| RSU Outstanding Number of Shares, Granted | 425,000 |
| RSU Outstanding Number of Shares, Vested | (165,000) |
| RSU Outstanding Number of Shares, Ending | 975,000 |
| 2020 Plan [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| RSU Outstanding Number of Shares, Beginning | 1,028,250 |
| RSU Outstanding Number of Shares, Granted | 1,974,500 |
| RSU Outstanding Number of Shares, Vested | (322,625) |
| RSU Outstanding Number of Shares, Forfeited | (480,000) |
| RSU Outstanding Number of Shares, Ending | 2,200,125 |
SCHEDULE OF OPERATING RIGHT OF USE OF ASSETS (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| Operating right-of-use assets | $ 928,696 | $ 1,206,009 |
| Operating lease liabilities - current | 758,927 | 756,093 |
| Operating lease liabilities - noncurrent | $ 276,340 | $ 574,136 |
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES (Details) |
Jun. 30, 2023
USD ($)
|
|---|---|
| Leases | |
| Fiscal year 2023 | $ 453,908 |
| Fiscal year 2024 | 562,206 |
| Fiscal year 2025 | 68,850 |
| Less: imputed interest | (49,697) |
| Present value of operating lease liabilities | $ 1,035,267 |
SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE LIABILITIES (Details) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Leases | |||
| Cash paid for operating lease liabilities | $ 441,290 | $ 323,580 | |
| Weighted average remaining lease term in years | 2 years 4 months 9 days | 2 years 9 months 25 days | |
| Weighted average discount rate | 7.16% | 7.15% | |
LEASES (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Leases | ||||
| Amortization of right of use of asset | $ 1,700 | |||
| Operating lease expenses | $ 206 | $ 201 | $ 429 | $ 404 |
| Lessee, operating lease, term of contract | 12 months | 12 months | ||
| Short term lease payments | $ 3 | |||
| Payments for rent | $ 3 | |||
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Mar. 21, 2023 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Related Party Transaction [Line Items] | ||||||
| Gains losses on extinguishment of debt | $ 63,400 | $ (325,198) | $ 63,400 | |||
| Software Development Services [Member] | Work Simpli Software [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Stock issued | 570,000 | $ 352,000 | 1,200,000 | $ 651,000 | ||
| CRG Financial [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Proceeds from short term loan | 2,000,000 | |||||
| Total loan facility | $ 2,500,000 | |||||
| Maturity date | Dec. 15, 2023 | |||||
| Loan facility interest | 12.00% | |||||
| Repayments of long term debt | $ 2,000,000 | |||||
| Gains losses on extinguishment of debt | $ 325,000 | |||||
| Notes payable | $ 0 | $ 0 | $ 0 | |||
SCHEDULE OF RELEVANT SEGMENT DATA (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Segment Reporting Information [Line Items] | |||||
| Revenue | $ 35,946,913 | $ 30,458,498 | $ 69,073,248 | $ 59,501,335 | |
| Gross margin | 87.40% | 84.80% | 87.30% | 83.40% | |
| Operating loss | $ (4,895,546) | $ (12,904,125) | $ (7,748,356) | $ (26,011,140) | |
| Assets | 35,446,389 | 35,446,389 | $ 25,665,853 | ||
| Telehealth [Member] | |||||
| Segment Reporting Information [Line Items] | |||||
| Revenue | $ 22,351,128 | $ 22,267,963 | $ 42,553,931 | $ 44,866,024 | |
| Gross margin | 81.50% | 80.00% | 81.10% | 78.70% | |
| Operating loss | $ (8,141,868) | $ (13,210,799) | $ (13,143,226) | $ (26,482,656) | |
| Assets | 26,561,946 | 26,561,946 | 18,163,464 | ||
| WorkSimpli Software LLC [Member] | |||||
| Segment Reporting Information [Line Items] | |||||
| Revenue | $ 13,595,785 | $ 8,190,535 | $ 26,519,317 | $ 14,635,311 | |
| Gross margin | 96.90% | 97.80% | 97.30% | 97.70% | |
| Operating loss | $ 3,246,322 | $ 306,674 | $ 5,394,870 | $ 471,516 | |
| Assets | $ 8,884,443 | $ 8,884,443 | $ 7,502,389 | ||