UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _________ to _________

Commission file number: 001-39785

LIFEMD, INC.

(Exact name of registrant as specified in its charter)

Delaware

76-0238453

(State or other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer

Identification No.)

236 Fifth Avenue, Suite 400

New York, New York

10001

(Address of Principal Executive Offices)

(Zip Code)

(866) 351-5907

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of exchange on which registered
Common Stock, par value $.01 per share	LFMD	The Nasdaq Global Market
8.875% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share	LFMDP	The Nasdaq Global Market

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.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 9, 2022,~~August 8, 2023, there were ~~31,449,735~~36,032,740 shares of the registrant’s common stock outstanding.

LIFEMD, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023

TABLE OF CONTENTS

		Page

PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) ~~Equity~~	5

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2628

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	3739

ITEM 4.	Controls and Procedures	3739

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	3840

ITEM 1A.	Risk Factors	3840

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3840

ITEM 3.	Defaults Upon Senior Securities	3840

ITEM 4.	Mine Safety Disclosures	3840

ITEM 5.	Other Information	3840

ITEM 6.	Exhibits	3941

SIGNATURES		4042

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

LIFEMD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
		(Unaudited)					(Unaudited)
ASSETS
Current Assets
Cash	$	5,836,823		$	41,328,039		$	11,906,741		$	3,958,957
Accounts receivable, net		2,538,118			980,055			3,668,543			2,834,750
Product deposit		108,051			203,556			235,115			127,265
Inventory, net		3,676,131			1,616,600			3,698,302			3,703,363
Other current assets		814,576			793,190			672,195			687,022
Total Current Assets		12,973,699			44,921,440			20,180,896			11,311,357
Non-current Assets
Equipment, net		533,561			233,805			444,226			476,441
Right of use asset, net		1,289,250			1,752,448
Right of use asset								928,696			1,206,009
Capitalized software, net		7,991,836			2,995,789			10,391,372			8,840,187
Goodwill		5,654,665			-
Intangible assets, net		4,918,550			19,761			3,501,199			3,831,859
Total Non-current Assets		20,387,862			5,001,803			15,265,493			14,354,496
Total Assets	$	33,361,561		$	49,923,243		$	35,446,389		$	25,665,853
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ (DEFICIT) EQUITY
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable	$	10,797,544		$	9,059,214		$	9,593,379		$	10,106,793
Accrued expenses		11,082,354			11,595,605			14,761,756			12,166,509
Notes payable, net		-			63,400			735,534			2,797,250
Current operating lease liabilities		702,237			607,490			758,927			756,093
Deferred revenue		2,353,152			1,499,880			5,668,210			5,547,506
Total Current Liabilities		24,935,287			22,825,589			31,517,806			31,374,151
Long-term Liabilities
Long-term debt, net								13,538,502			-
Noncurrent operating lease liabilities		705,702			1,178,544			276,340			574,136
Contingent consideration		3,120,250			100,000			318,750			443,750
Purchase price payable		1,517,381			-			-			579,319
Total Liabilities		30,278,620			24,104,133			45,651,398			32,971,356
Commitments and Contingencies (Note 9)		-
Commitments and Contingencies (Note 10)								-			-
Mezzanine Equity
Preferred Stock, $0.0001 par value; 5,000,000 shares authorized Series B Preferred Stock, $0.0001 par value; 5,000 shares authorized, 3,500 and 3,500 shares issued and outstanding, liquidation value approximately $1,272 and $1,175 per share as of September 30, 2022 and December 31, 2021, respectively		4,451,137			4,110,822
Stockholders’ (Deficit) Equity
Series A Preferred Stock, $0.0001 par value; 1,610,000 shares authorized, 1,400,000 shares issued and outstanding, liquidation value approximately, $27.27 and $25.62 per share as of September 30, 2022 and December 31, 2021, respectively		140			140
Common stock, $0.01 par value; 100,000,000 shares authorized, 31,457,775 and 30,704,434 shares issued, 31,354,735 and 30,601,394 outstanding as of September 30, 2022 and December 31, 2021, respectively		314,578			307,045
Preferred Stock, $0.0001 par value; 5,000,000 shares authorized Series B Preferred Stock, $0.0001 par value; 5,000 shares authorized, 3,500 and 3,500 shares issued and outstanding, liquidation value approximately, $1,438 and $1,305 per share as of June 30, 2023 and December 31, 2022, respectively								5,032,929			4,565,822
Stockholders’ Deficit
Series A Preferred Stock, $0.0001 par value; 1,610,000 shares authorized, 1,400,000 shares issued and outstanding, liquidation value approximately, $28.94 and $27.84 per share as of June 30, 2023 and December 31, 2022, respectively								140			140
Common stock, $0.01 par value; 100,000,000 shares authorized, 32,564,835 and 31,552,775 shares issued, 32,461,795 and 31,449,735 outstanding as of June 30, 2023 and December 31, 2022, respectively								325,649			315,528
Additional paid-in capital		177,131,586			164,517,634			186,673,930			179,015,250
Accumulated deficit		(177,851,083	)		(141,921,085	)		(202,857,575	)		(190,562,994	)
Treasury stock, 103,040 and 103,040 shares, at cost		(163,701	)		(163,701	)
Total LifeMD, Inc. Stockholders’ (Deficit) Equity		(568,480	)		22,740,033
Treasury stock, 103,040 and 103,040 shares, at cost, as of June 30, 2023 and December 31, 2022, respectively								(163,701	)		(163,701	)
Total LifeMD, Inc. Stockholders’ Deficit								(16,021,557	)		(11,395,777	)
Non-controlling interest		(799,716	)		(1,031,745	)		783,619			(475,548	)
Total Stockholders’ (Deficit) Equity		(1,368,196	)		21,708,288
Total Liabilities, Mezzanine Equity and Stockholders’ (Deficit) Equity	$	33,361,561		$	49,923,243
Total Stockholders’ Deficit								(15,237,938	)		(11,871,325	)
Total Liabilities, Mezzanine Equity and Stockholders’ Deficit							$	35,446,389		$	25,665,853

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

LIFEMD, INC.

CONDENSED Consolidated STATEMENTS OF OPERATIONS

(Unaudited)

	2022			2021			2022			2021			2023			2022			2023			2022
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Revenues
Telehealth revenue, net	$	21,365,178		$	18,540,897		$	66,231,202		$	47,623,822		$	22,351,128		$	22,267,963		$	42,553,931		$	44,866,024
WorkSimpli revenue, net		10,047,291			6,406,302			24,682,602			17,835,100			13,595,785			8,190,535			26,519,317			14,635,311
Total revenues, net		31,412,469			24,947,199			90,913,804			65,458,922			35,946,913			30,458,498			69,073,248			59,501,335
Cost of revenues
Cost of telehealth revenue		4,502,919			4,969,306			14,042,112			12,113,336			4,125,945			4,453,126			8,046,126			9,539,194
Cost of WorkSimpli revenue		213,923			127,181			558,216			314,428			422,485			182,185			717,273			344,292
Total cost of revenues		4,716,842			5,096,487			14,600,328			12,427,764			4,548,430			4,635,311			8,763,399			9,883,486
Gross profit		26,695,627			19,850,712			76,313,476			53,031,158			31,398,483			25,823,187			60,309,849			49,617,849

Expenses
Selling and marketing expenses		17,200,859			20,293,935			60,928,649			61,372,815			19,567,903			21,817,966			36,285,548			43,727,791
General and administrative expenses		12,476,760			10,695,663			38,029,907			28,194,305			12,119,573			13,159,937			22,722,336			25,372,680
Goodwill impairment charge		-			-			2,735,000			-
Other operating expenses		1,525,645			818,404			4,804,623			2,264,257			1,313,789			2,041,976			3,018,554			3,459,445
Customer service expenses		1,488,428			505,880			3,428,098			1,274,392			1,912,078			1,006,363			3,467,482			1,939,670
Development costs		821,636			128,134			1,951,039			561,793			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		33,513,328			32,442,016			111,877,316			93,667,562			36,294,029			38,727,312			68,058,205			75,628,989
Operating loss		(6,817,701	)		(12,591,304	)		(35,563,840	)		(40,636,404	)		(4,895,546	)		(12,904,125	)		(7,748,356	)		(26,011,140	)
Interest expense, net		(132,235	)		(1,824,777	)		(432,405	)		(2,866,150	)		(995,670	)		(132,236	)		(1,260,135	)		(300,170	)
Change in fair value of contingent consideration		(248,000	)		-			2,487,000			-
Gain on debt forgiveness		-			-			63,400			184,914
Gain (loss) on debt extinguishment														-			63,400			(325,198	)		63,400
Net loss		(7,197,936	)		(14,416,081	)		(33,445,845	)		(43,317,640	)		(5,891,216	)		(12,972,961	)		(9,333,689	)		(26,247,910	)
Net income (loss) attributable to non-controlling interest		83,737			(62,706	)		154,464			(531,182	)
Net income attributable to non-controlling interest														841,784			46,001			1,407,767			70,727
Net loss attributable to LifeMD, Inc.		(7,281,673	)		(14,353,375	)		(33,600,309	)		(42,786,458	)		(6,733,000	)		(13,018,962	)		(10,741,456	)		(26,318,637	)
Preferred stock dividends		(776,563	)		-			(2,329,688	)		-			(776,562	)		(776,562	)		(1,553,125	)		(1,553,125	)
Net loss attributable to LifeMD, Inc. common stockholders	$	(8,058,236	)	$	(14,353,375	)	$	(35,929,997	)	$	(42,786,458	)	$	(7,509,562	)	$	(13,795,524	)	$	(12,294,581	)	$	(27,871,762	)
Basic loss per share attributable to LifeMD, Inc. common stockholders	$	(0.26	)	$	(0.54	)	$	(1.17	)	$	(1.66	)	$	(0.23	)	$	(0.45	)	$	(0.38	)	$	(0.91	)
Diluted loss per share attributable to LifeMD, Inc. common stockholders	$	(0.26	)	$	(0.54	)	$	(1.17	)	$	(1.66	)	$	(0.23	)	$	(0.45	)	$	(0.38	)	$	(0.91	)
Weighted average number of common shares outstanding:
Basic		30,935,643			26,684,591			30,830,533			25,820,478			32,560,035			30,804,465			32,189,954			30,777,377
Diluted		30,935,643			26,684,591			30,830,533			25,820,478			32,560,035			30,804,465			32,189,954			30,777,377

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

LIFEMD, INC.

CONDENSED Consolidated STATEMENTS of CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) ~~EQUITY~~

(Unaudited)

Shares Amount Shares Amount Capital Deficit Stock Total Interest Total
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, 2021 - $ - 23,433,663 $ 234,337 $ 77,779,370 $ (80,151,905 ) $ (163,701 ) $ (2,301,899 ) $ (2,175,687 ) $ (4,477,586 )
Stock compensation expense - - 1,203,750 12,038 2,313,737 - - 2,325,775 - 2,325,775
Cashless exercise of stock options - - 608,905 6,089 (6,089 ) - - - - -
Exercise of stock options - - 30,000 300 23,700 - - 24,000 - 24,000
Sale of stock in private placement, net - - 608,696 6,087 13,489,183 - - 13,495,270 - 13,495,270
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 )
Purchase of additional membership interest of WSS - - - - (377,419 ) - - (377,419 ) (66,603 ) (444,022 )
Adjustment of noncontrolling interest for additional investment - - - - (1,636,875 ) - - (1,636,875 ) 1,780,897 144,022
Net loss - - - - - (11,602,383 ) - (11,602,383 ) (270,503 ) (11,872,886 )
Balance, March 31, 2021 - $ - 25,885,014 $ 258,851 $ 91,585,607 $ (91,754,288 ) $ (163,701 ) $ (73,531 ) $ (767,896 ) $ (841,427 )

Stock compensation expense - - 30,000 300 2,547,000 - - 2,547,300 - 2,547,300
Exercise of stock options - - 391,000 3,910 738,840 - - 742,750 - 742,750
Cashless exercise of stock options - - 264,142 2,641 (2,641 ) - - - - -
Exercise of warrants - - 65,684 657 311,342 - - 311,999 - 311,999
Warrants issued for debt instruments - - - - 6,270,710 - - 6,270,710 - 6,270,710
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 )
Net loss - - - - - (16,830,700 ) - (16,830,700 ) (197,973 ) (17,028,673 )
Balance, June 30, 2021 - $ - 26,635,840 $ 266,359 $ 101,450,858 $ (108,584,988 ) $ (163,701 ) $ (7,031,472 ) $ (1,001,869 ) $ (8,033,341 )

Stock compensation expense - - 30,000 300 3,110,516 - - 3,110,816 - 3,110,816
Exercise of stock options - - 30,000 300 53,700 - - 54,000 - 54,000
Exercise of warrants - - 96,349 963 167,647 - - 168,610 - 168,610
Sale of common stock under ATM - - 70,786 708 492,773 - - 493,481 - 493,481
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 )
Net loss - - - - - (14,353,375 ) - (14,353,375 ) (62,706 ) (14,416,081 )
Balance, September 30, 2021 - $ - 26,862,975 $ 268,630 $ 105,275,494 $ (122,938,363 ) $ (163,701 ) $ (17,557,940 ) $ (1,100,575 ) $ (18,658,515 )

Shares Amount Shares Amount Capital Deficit Stock Total Interest Total
LifeMD, Inc. LifeMD, Inc.
Series A Preferred
Stock Common Stock Additional Paid-in Accumulated Treasury Non-controlling
Series A Preferred
Stock
Common Stock Additional Paid-in Accumulated Treasury Non- controlling
Shares Amount Shares Amount Capital Deficit Stock Total Interest Total Shares Amount Shares Amount Capital Deficit Stock Total Interest Total
Balance, January 1, 2022 1,400,000 $ 140 30,704,434 $ 307,045 $ 164,517,634 $ (141,921,085 ) $ (163,701 ) $ 22,740,033 $ (1,031,745 ) $ 21,708,288 1,400,000 $ 140 30,704,434 $ 307,045 $ 164,517,634 $ (141,921,085 ) $ (163,701 ) $ 22,740,033 $ (1,031,745 ) $ 21,708,288
Stock compensation expense - - 147,500 1,475 4,471,306 - - 4,472,781 - 4,472,781 - - 147,500 1,475 4,471,306 - - 4,472,781 - 4,472,781
Cashless exercise of stock options - - 25,535 255 (255 ) - - - - - - - 25,535 255 (255 ) - - - - -
Exercise of warrants - - 22,000 220 38,280 - - 38,500 - 38,500 - - 22,000 220 38,280 - - 38,500 - 38,500
Series A Preferred Stock Dividend - - - - - (776,563 ) - (776,563 ) - (776,563 )
Series A Preferred Stock dvidend - - - - - (776,563 ) - (776,563 ) - (776,563 )
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 ) - - - - - - - - (36,000 ) (36,000 )
Net (loss) income - - - - - (13,299,675 ) - (13,299,675 ) 24,726 (13,274,949 ) - - - - - (13,299,675 ) - (13,299,675 ) 24,726 (13,274,949 )
Balance, March 31, 2022 1,400,000 $ 140 30,899,469 $ 308,995 $ 169,026,965 $ (155,997,323 ) $ (163,701 ) $ 13,175,076 $ (1,043,019 ) $ 12,132,057 1,400,000 $ 140 30,899,469 $ 308,995 $ 169,026,965 $ (155,997,323 ) $ (163,701 ) $ 13,175,076 $ (1,043,019 ) $ 12,132,057

Stock compensation expense - - - - 4,041,006 - - 4,041,006 - 4,041,006 - - - - 4,041,006 - - 4,041,006 - 4,041,006
Exercise of stock options - - 90,400 904 89,496 - 90,400 - 90,400 - - 90,400 904 89,496 - - 90,400 - 90,400
Series A Preferred Stock Dividend - - - - - (776,562 ) - (776,562 ) - (776,562 )
Series A Preferred Stock dividend - - - - - (776,562 ) - (776,562 ) - (776,562 )
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 ) - - - - - - - - (36,000 ) (36,000 )
Net (loss) income - - - - - (13,018,962 ) - (13,018,962 ) 46,001 (12,972,961 ) - - - - - (13,018,962 ) - (13,018,962 ) 46,001 (12,972,961 )

Balance, June 30, 2022 1,400,000 $ 140 30,989,869 $ 309,899 $ 173,157,467 $ (169,792,847 ) $ (163,701 ) $ 3,510,958 $ (1,033,018 ) $ 2,477,940 1,400,000 $ 140 30,989,869 $ 309,899 $ 173,157,467 $ (169,792,847 ) $ (163,701 ) $ 3,510,958 $ (1,033,018 ) $ 2,477,940

Stock compensation expense - - 63,750 637 3,335,576 - - 3,336,213 - 3,336,213
Stock issued for legal settlement - - 400,000 4,000 812,000 - - 816,000 - 816,000
Cashless exercise of stock options - - 4,156 42 (42 ) - - - - -
Series A Preferred Stock Dividend - - - - - (776,563 ) - (776,563 ) - (776,563 )
Adjustment of membership interest in WorkSimpli - - - - (173,415 ) - - (173,415 ) 185,565 12,150
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 )
Net (loss) income - - - - - (7,281,673 ) - (7,281,673 ) 83,737 (7,197,936 )
Balance, September 30, 2022 1,400,000 $ 140 31,457,775 $ 314,578 $ 177,131,586 $ (177,851,083 ) $ (163,701 ) $ (568,480 ) $ (799,716 ) $ (1,368,196 )
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 1,400,000 $ 140 31,552,775 $ 315,528 $ 179,015,250 $ (190,562,994 ) $ (163,701 ) $ (11,395,777 ) $ (475,548 ) $ (11,871,325 )
Stock compensation expense - - 149,375 1,494 2,662,020 - - 2,663,514 - 2,663,514
Stock issued for noncontingent consideration payment - - 337,895 3,379 638,621 - - 642,000 - 642,000
Warrants issued with debt instrument - - - - 1,088,343 - - 1,088,343 - 1,088,343
Series A Preferred Stock dividend - - - - - (776,563 ) - (776,563 ) - (776,563 )
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 )
Adjustment of membership interest in WorkSimpli - - - - (220,582 ) - - (220,582 ) (85,932 ) (306,514 )
Net (loss) income - - - - - (4,008,456 ) - (4,008,456 ) 565,983 (3,442,473 )
Balance, March 31, 2023 1,400,000 $ 140 32,040,045 $ 320,401 $ 183,183,652 $ (195,348,013 ) $ (163,701 ) $ (12,007,521 ) $ (31,497 ) $ (12,039,018 )
Beginning balance 1,400,000 $ 140 32,040,045 $ 320,401 $ 183,183,652 $ (195,348,013 ) $ (163,701 ) $ (12,007,521 ) $ (31,497 ) $ (12,039,018 )
Stock compensation expense - - 53,000 530 2,861,439 - - 2,861,969 - 2,861,969
Stock issued for noncontingent consideration payment - - 455,319 4,553 637,447 - - 642,000 - 642,000
Cashless exercise of stock options - - 16,471 165 (165 ) - - - - -
Series A Preferred Stock dividend - - - - - (776,562 ) - (776,562 ) - (776,562 )
Distribution to non-controlling interest - - - - - - - - (36,000 ) (36,000 )
Adjustment of membership interest in WorkSimpli - - - - (8,443 ) - - (8,443 ) 9,332 889
Net (loss) income - - - - - (6,733,000 ) - (6,733,000 ) 841,784 (5,891,216 )
Balance, June 30, 2023 1,400,000 $ 140 32,564,835 $ 325,649 $ 186,673,930 $ (202,857,575 ) $ (163,701 ) $ (16,021,557 ) $ 783,619 $ (15,237,938 )
Ending balance 1,400,000 $ 140 32,564,835 $ 325,649 $ 186,673,930 $ (202,857,575 ) $ (163,701 ) $ (16,021,557 ) $ 783,619 $ (15,237,938 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

LIFEMD, INC.
CONDENSED Consolidated STATEMENTS OF CASH FLOWS
(Unaudited)

2022 2021 2023 2022
Nine Months Ended September 30, Six Months Ended June 30,
2022 2021 2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (33,445,845 ) $ (43,317,640 ) $ (9,333,689 ) $ (26,247,910 )
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of debt discount - 2,090,236 153,842 -
Amortization of capitalized software 1,746,899 177,926 2,348,667 976,026
Amortization of intangibles 666,782 340,457 479,528 341,287
Accretion of consideration payable 172,741 - 114,216 135,368
Depreciation of fixed assets 117,008 2,865 96,434 73,247
Gain on debt forgiveness (63,400 ) (184,914 )
Loss (gain) on debt extinguishment 325,198 (63,400 )
Change in fair value of contingent consideration (2,487,000 ) - - (2,735,000 )
Goodwill impairment charge 2,735,000 - - 2,735,000
Operating lease payments 463,198 73,767 370,428 290,362
Stock issued for legal settlement 816,000 -
Stock compensation expense 11,850,000 7,983,891 5,525,483 8,513,787
Changes in Assets and Liabilities
Accounts receivable (1,558,063 ) (969,053 ) (833,793 ) (1,533,572 )
Product deposit 95,505 (95,183 ) (107,850 ) (237,285 )
Inventory (2,052,363 ) (322,836 ) 5,061 (1,341,474 )
Other current assets (21,386 ) (534,479 ) 14,827 (80,015 )
Change in operating lease liability (378,095 ) (68,085 ) (388,077 ) (210,451 )
Deferred revenue 853,272 519,101 120,704 492,622
Accounts payable 1,827,103 (1,150,858 ) (513,414 ) 2,853,811
Accrued expenses (2,303,466 ) 8,195,255 4,232,140 (2,152,511 )
Net cash used in operating activities (20,966,110 ) (27,259,550 )
Other operating activity (579,319 ) -
Net cash provided by (used in) operating activities 2,030,386 (18,190,108 )
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for capitalized software costs (6,742,946 ) (1,731,507 ) (3,899,852 ) (4,522,928 )
Purchase of equipment (378,877 ) (70,105 ) (64,219 ) (357,331 )
Purchase of intangible assets (4,000,500 ) (22,231 ) (148,868 ) (4,000,500 )
Acquisition of business, net of cash acquired (1,012,395 ) - - (1,012,395 )
Net cash used in investing activities (12,134,718 ) (1,823,843 ) (4,112,939 ) (9,893,154 )
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from private placement offering, net - 13,495,270
Proceeds from issuance of debt instruments - 15,000,000
Cash proceeds from sale of common stock under ATM - 493,481
Proceeds from long-term debt, net 14,473,002 -
Proceeds from notes payable 2,000,000 -
Repayment of notes payable, net of prepayment penalty (4,386,915 ) -
Cash proceeds from exercise of options 90,400 820,750 - 90,400
Cash proceeds from exercise of warrants 38,500 480,609 - 38,500
Preferred stock dividends (2,329,688 ) - (1,553,125 ) (1,553,125 )
Adjustment of membership interest in WorkSimpli 12,150 -
Contingent consideration payment for ResumeBuild acquisition (93,750 ) - (125,000 ) (31,250 )
Proceeds from notes payable - 963,965
Repayment of notes payable - (1,494,784 )
Purchase of membership interest of WSS - (300,000 )
Net payments for membership interest in WorkSimpli (305,625 ) -
Distributions to non-controlling interest (108,000 ) (108,000 ) (72,000 ) (72,000 )
Net cash (used in) provided by financing activities (2,390,388 ) 29,351,291
Net (decrease) increase in cash (35,491,216 ) 267,898
Net cash provided by (used in) financing activities 10,030,337 (1,527,475 )
Net increase (decrease) in cash 7,947,784 (29,610,737 )
Cash at beginning of period 41,328,039 9,179,075 3,958,957 41,328,039
Cash at end of period $ 5,836,823 $ 9,446,973 $ 11,906,741 $ 11,717,302
Cash paid for interest
Cash paid during the period for interest $ - $ 120,062 $ 768,188 $ -
Non-cash investing and financing activities
Warrants issued for debt instruments $ 1,088,343 $ -
Cashless exercise of options $ 297 $ 8,730 $ 165 $ 255
Consideration payable for Cleared acquisition $ 8,079,367 $ - $ - $ 8,079,367
Consideration payable for ResumeBuild acquisition $ 500,000 $ - $ - $ 500,000
Warrants issued for debt instruments $ - $ 6,270,710
Principal of Paycheck protection Program loans forgiven $ 63,400 $ 184,914
Additional purchase of membership interest in WSS issued in performance options $ - $ 144,002
Stock issued for noncontingent consideration payment $ 1,284,000 $ -
Principal of Paycheck Protection Program loans forgiven $ - $ 63,400
Right of use asset $ 93,115 $ -
Right of use lease liability $ 93,115 $ -

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 $0.01 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 ~~immune support,~~ skincare ~~and hair loss~~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.~~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 ~~change~~ of the parent company to LifeMD, Inc., Conversion Labs PR ~~LLC~~ 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”) ~~(See Note 7) and~~ concurrently increased its ownership interest in WorkSimpli to ~~85.6~~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 78 for additional information.

On January 18, 2022, the Company acquired Cleared Technologies, PBC, a Delaware public benefit corporation (“Cleared”), a ~~rapidly growing~~ 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 ~~technology~~ company ~~that provides~~providing patients a ~~smarter,~~high-quality, cost-effective, and convenient way ~~for patients~~ of ~~its affiliated medical group to access~~accessing comprehensive, virtual healthcare. The Company believes ~~that~~ the traditional model of visiting a doctor’s office, ~~receiving a physical prescription, visiting~~traveling to a local pharmacy, and returning ~~to see a doctor~~ for follow up care or prescription refills is complex, inefficient, and costly, ~~to patients,~~ and discourages many ~~patients~~individuals from seeking much needed medical care. The ~~U.S.~~Company is positioned to elevate the healthcare ~~system is undergoing a paradigm shift, due~~experience through telehealth with our proprietary technology platform, affiliated provider network, broad treatment capabilities, and unique ability to ~~new technologies and the emergence of direct-to-patient healthcare.~~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 ~~sexual~~and women’s health, and ~~dermatology.~~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.

~~The Company believes that brand innovation, customer acquisition, and service excellence form the heart of its business. As is exemplified with~~With its first brand, ShapiroMD, itthe 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 ~~its newest brand,~~ 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 June 2018, Conversion Labs closed the strategic acquisition of~~ 51% of WorkSimpli, which operates a software as a service application for converting, editing, signing, and sharing PDF documents called PDFSimpli. In addition to WorkSimpli’s growth business model, this acquisition added deep search engine optimization and search engine marketing expertise to the Company. The Company subsequently increased its ownership interest in WorkSimpli to its current ~~85.6%. 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%. See Note 7 for additional information.~~
7

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, which was to be used to run e-commerce marketing campaigns for other online businesses.~~company. However, this business initiative was terminated in early ~~2019 in order to focus on the core business, as well as on the expansion of telehealth opportunities.~~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”). ~~GoGoMeds is a nationwide pharmacy licensed to dispense prescription medications directly to consumers in all 50 states and the District of Columbia.~~ 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 ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

On January 18, 2022, the Company acquired Cleared, a ~~rapidly growing~~ 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 $~~460,000~~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 $~~507,000~~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~~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 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. On July 17, 2023, the Company issued 158,129 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~~.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 $~~62,500~~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.~~), our wholly subsidiary LifeMD PR LLC (formerly Immudyne PR LLC, and “Conversion Labs PR”), a Puerto Rico limited liability company (“Conversion Labs PR”, or “CLPR”~~), 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.

~~Partnerships~~
On July 13, 2021, the Company, on behalf of its customers, entered into an agreement to engage Quest Diagnostics Incorporated (“Quest Diagnostics”) as the Company’s laboratory services provider to perform certain clinical laboratory diagnostic services based on orders submitted to Quest Diagnostics by licensed health care providers who are under contract with the Company and are authorized under U.S. federal or state law to order laboratory tests. Patients of LifeMD Inc.’s affiliated providers gain access to more than 150 of the most ordered laboratory tests at preferential prices, and which can be completed in the comfort, safety, and convenience of their home or office, or at any one of Quest Diagnostics’ 2,000 facilities.
On August 4, 2021, the Company entered into a partnership agreement with Particle Health, a state-of-the-art, digital health company with a HIPAA-compliant technology platform that converts electronic medical records data into a user-friendly, Fast Healthcare Interoperability Resource (“FHIR”) format. Particle Health enables healthcare companies by offering simple, secure access to vital medical data. With Particle Health’s platform and patient consent, licensed affiliated medical providers on the LifeMD primary care platform gain instant access to comprehensive patient health records, therefore enabling best-in-class, personalized care through a deeper understanding of their patients’ medical histories.
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 February 11, 2021, the Company consummated the closing of a private placement offering (the “February 2021 Offering”), whereby pursuant to the securities purchase agreement (the “February 2021 Purchase Agreement”) entered into by the Company and certain accredited investors on February 11, 2021, the Investors purchased ~~608,696~~ ~~shares of the Company’s common stock par value $0.01~~ ~~per share at a purchase price of $~~23~~.00 per share for aggregate gross proceeds of approximately $14.0~~ ~~million (the “Purchase Price”). The Purchase Price was funded on the closing date and resulted in net proceeds to the Company of approximately $13.5~~ million after deducting fees payable to the placement agent and other estimated offering expenses payable by the Company. The Company is using the net proceeds to fund growth initiatives, as well as for general corporate purposes.
8
~~On June 1, 2021,~~March 21, 2023, the Company entered into and closed on a ~~securities purchase~~loan and security agreement (the ~~“June 1, 2021 Purchase~~“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 ~~financial institution (the “Purchaser”), pursuant to which the Company sold and issued: (i) a~~convertible senior secured ~~redeemable debenture (the “Debenture”) in the aggregate principal amount~~credit facility of $~~15.0~~ ~~million (the “Aggregate Principal Amount”), and (ii) warrants to purchase~~ up to an aggregate amount of $~~1,500,000~~40 ~~shares~~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 $~~12.00~~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 ~~(the “Warrant”) of which~~ equal to $~~500,000 warrants~~1.49. Proceeds from the Avenue Facility were ~~issued~~used to repay the ~~Purchaser upon closing~~Company’s outstanding notes payable balances with CRG Financial and are expected to be used for general corporate purposes and at the ~~remaining 1,000,000 warrants only issued~~Company’s election, re-financing up to $5 million liquidation value plus accrued interest on the ~~Purchaser in increments of 500,000 if~~Series B Preferred Stock. The Company is subject to certain affirmative and negative covenants under the ~~Debenture remains outstanding for twelve and twenty four months, respectively, following~~Avenue Facility, including the requirement, beginning on the closing date, to maintain at least $5 million of unrestricted cash to be tested at the ~~June 1, 2021 Purchase Agreement.~~ ~~The Warrant has a term~~end of ~~three years,~~each month, and ~~the Debenture has a maturity date of~~ ~~three years. The Company received gross proceeds of $15.0~~ ~~million. In October 2021, the Company used a portion of the net proceeds from the October 4, 2021 Offerings noted below to pay the $15.0~~ ~~million outstanding~~beginning on the ~~June 1, 2021 Purchase Agreement.~~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.

8
On June 8, 2021, the Company filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended (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 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. (“B. Riley”) and Cantor Fitzgerald & Co. (“Cantor”, and collectively the “Agents”) 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 having an aggregate offering price of up to $60 million, 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. The Company intends to use any net proceeds from the sale of securities for our operations and for other general corporate purposes, including, but not limited to, capital expenditures, general working capital, and possible future acquisitions. There were no shares of common stock sold under the ATM Sales Agreement during the three and nine months ended September 30, 2022. There were ~~70,786~~ ~~shares of common stock sold under the ATM Sales Agreement during the three and nine months ended September 30, 2021 and net proceeds received were $493,481. As of September 30, 2022, the Company has utilized $58.5~~ ~~million of the 2021 Shelf. The Company has approximately $59.5~~ ~~million available under the ATM Sales Agreement and $~~32 ~~million available under the 2021 Shelf as of September 30, 2022.~~
In September 2021, the Company entered into two underwriting agreements (the “Preferred Underwriting Agreement” and “the Common Underwriting Agreement”) with B. Riley. Pursuant to the Preferred Underwriting Agreement, the Company agreed to sell ~~1,400,000~~ ~~shares of its~~ ~~8.875% Series A Cumulative Perpetual Preferred Stock, par value $0.0001~~ ~~per share, (the “Series A Preferred Stock”) at a public offering price of $25.00~~ per share, prior to deducting underwriting discounts and commissions and estimated offering expenses (the “Preferred Stock Offering”). In addition, the Company granted the underwriters an option to purchase up to an additional ~~210,000~~ ~~shares of Series A Preferred Stock within 30 days. The option was not exercised. Under the Common Underwriting Agreement, the Company agreed to sell to B. Riley~~ ~~3,833,334~~ ~~shares of common stock (including~~ ~~500,000~~ ~~shares pursuant to B. Riley’s option) (the “Common Shares”), par value $0.01~~ ~~per share, of the Company at a public offering price of $6.00~~ per share of common stock, prior to deducting underwriting discounts and commissions and estimated offering expenses (the “Common Stock Offering”). The Preferred Stock Offering and Common Stock Offering collectively referred to as the “October 4, 2021 Offerings”, closed on October 4, 2021. Net proceeds after deducting the underwriting discounts, and commissions, the structuring fee and estimated offering expenses payable by the Company, but before repayment of debt, from the Offerings was approximately $~~55.3~~ ~~million. The Company used a portion of the net proceeds to pay the $15.0~~ million outstanding on the June 1, 2021 Purchase Agreement and is using the remaining net proceeds to fund the segregated dividend account, for working capital and general corporate purposes including, but not limited to, new patient customer acquisition expenses and capital expenditures.
~~The Company will pay cumulative distributions on the Series A Preferred Stock, from the date of original issuance, in the amount of $2.21875~~ ~~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 will be 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 nine months ended September 30, 2022 are as follows: (1) the second quarterly dividend on the Series A Preferred Stock was declared on March 25, 2022 to holders of record as of April 5, 2022 and was paid on April 15, 2022, (2) the third quarterly dividend on the Series A Preferred Stock was declared on June 27, 2022 to holders of record as of July 5, 2022 and was paid on July 15, 2022, and (3) the fourth quarterly dividend on the Series A Preferred Stock was declared on September 27, 2022 to holders of record as of October 7, 2022 and was paid on October 17, 2022. The dividends are included in the Company’s results of operations for the three and nine months ended September 30, 2022.
~~Going Concern Evaluation~~

As of ~~September~~June 30, ~~2022,~~2023, the Company has an accumulated deficit approximating $~~178~~202.9 million and has experienced significant losses from its operations. ~~Although the Company is showing positive revenue trends, the Company expects to incur further losses through the fourth quarter of 2022.~~ 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.

9
The Company has a current cash balance of approximately $~~3.4~~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.

~~In order to mitigate the going concern issues, the~~The Company has begun to implement strategies to strengthen revenues and improve operational efficiencies across the business and is significantly curtailing ~~expenses.~~ 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 $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 and $~~Agreement.
32 ~~million available under the 2021 Shelf.~~
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, ~~2021,~~2022, included in our ~~2021~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results for the year ending December 31, ~~2022~~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, ~~and its wholly owned subsidiary, LifeMD PR,~~ 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 ~~85.6~~85.58% as of December 31, ~~2021 (See Note 7).~~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 78 for additional information.

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~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 ~~not~~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 ~~has~~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 and has~~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.
10

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 $~~124~~600 thousand and $~~1.0~~1.4 million for the three months ended ~~September~~June 30, 2023 and 2022, respectively, and $~~124~~1.6 ~~thousand~~million and $~~3.9~~2.9 million for the ~~nine~~six months ended ~~September~~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 ~~(“U.S. GAAP”)~~ 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. ~~Given the increase in the Company’s software business and to conform the Company’s presentation of operating results to industry standards, the~~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 ($$~~3,026~~91) thousand and $~~126,437~~181 thousand of ~~development services costs~~lease expenses reclassified from general and administrative expenses to other operating expenses ~~to development costs,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

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 limited~~provider. In some cases, the customer does not obtain control until the product reaches the customer’s delivery site; in these ~~limited~~ cases, recognition of revenue ~~should be~~is deferred until that ~~time, however, the Company does not have a process to properly record the recognition of revenue if orders are not immediately shipped, and deems the impact to be immaterial.~~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; this estimate is~~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 $~~1.1~~497 thousand and $1.6 million, ~~and $871~~ ~~thousand for~~respectively, during the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Customer discounts, returns and rebates on telehealth revenues approximated $~~4.2~~828 thousand and $3.1 million, ~~and $3.5~~ ~~million for~~respectively, during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.
11

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. ~~As of September 30, 2022 and December 31, 2021, the Company has accrued contract liabilities, as deferred revenue, of approximately $2.4~~ ~~million and $1.5~~ million, respectively, which represent obligations on in-process monthly or yearly contracts with customers and a portion attributable to the yet to be recognized initial 14-day trial period collections. Customer discounts and allowances on WorkSimpli revenues approximated $~~710~~788 thousand and $~~377~~580 thousand, ~~for~~respectively, during the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Customer discounts and allowances on WorkSimpli revenues approximated $1.7 million and $~~1.6~~1.0 million, ~~for~~respectively, during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company had the following disaggregated revenue:
SCHEDULE OF DISAGGREGATED REVENUE
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended June 30, Six Months Ended June 30,
2022 % 2021 % 2022 % 2021 % 2023 % 2022 % 2023 % 2022 %
Telehealth revenue $ 21,365,178 68 % $ 18,540,897 74 % $ 66,231,202 73 % $ 47,623,822 73 % $ 22,351,128 62 % $ 22,267,963 73 % $ 42,553,931 62 % $ 44,866,024 75 %
WorkSimpli revenue 10,047,291 32 % 6,406,302 26 % 24,682,602 27 % 17,835,100 27 % 13,595,785 38 % 8,190,535 27 % 26,519,317 38 % 14,635,311 25 %
Total net revenue $ 31,412,469 100 % $ 24,947,199 100 % $ 90,913,804 100 % $ 65,458,922 100 % $ 35,946,913 100 % $ 30,458,498 100 % $ 69,073,248 100 % $ 59,501,335 100 %
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 ~~payments received~~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.

SCHEDULE OF CONTRACT WITH CUSTOMER LIABILITY
2023 2022 2023 2022
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021 2023 2022 2023 2022
Beginning of period $ 1,992,502 $ 1,381,938 $ 1,499,880 $ 916,880 $ 5,895,545 $ 1,788,555 $ 5,547,506 $ 1,499,880
Additions 9,346,553 6,020,061 23,567,740 17,233,084 14,319,067 7,853,216 27,557,658 14,221,187
Revenue recognized (8,985,903 ) (5,966,018 ) (22,714,468 ) (16,713,983 ) (14,546,402 ) (7,649,269 ) (27,436,954 ) (13,728,565 )
End of period $ 2,353,152 $ 1,435,981 $ 2,353,152 $ 1,435,981 $ 5,668,210 $ 1,992,502 $ 5,668,210 $ 1,992,502

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the reserve for sales returns and allowances was approximately $~~344~~424 thousand and $~~477~~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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~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 ~~September~~both June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company recorded an inventory reserve ~~in the amount~~ of approximately $44100 thousand and $57161 thousand, respectively.

12
As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s inventory consisted of the following:
SUMMARY OF INVENTORY
September 30, December 31, June 30, December 31,
2022 2021 2023 2022
Finished Goods - Products $ 2,829,053 $ 1,592,654

Finished goods - products $ 2,380,392 $ 2,587,370
Raw materials and packaging components 891,399 81,427 1,417,623 1,276,891
Inventory reserve (44,321 ) (57,481 ) (99,713 ) (160,898 )
Total Inventory - net $ 3,676,131 $ 1,616,600 $ 3,698,302 $ 3,703,363

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 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company has approximately $~~108~~235 thousand and $~~204~~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 ~~September~~June 30, ~~2022 and December 31, 2021,~~2023, the Company approximates its implicit purchase commitments to be $~~582~~168 thousand, ~~and $511~~ ~~thousand, respectively. As~~ of ~~September 30, 2022 and December 31, 2021,~~which the vast majority ~~of these product deposits~~ are with two vendors that manufacture the Company’s finished goods inventory for its ~~ShapiroMD and~~ RexMD product ~~lines.~~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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company capitalized a net amount of $~~10.3~~10.4 million and $~~3.6~~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 $~~8.4~~8.0 million was ~~acquired~~recognized in conjunction with the Cleared ~~acquisition during the three months ended March 31, 2022 (see Note 3).~~acquisition. The Company recorded aan $~~2.7~~8.0 million goodwill impairment charge and an $827 thousand intangible asset impairment charge during the ~~nine months~~year ended ~~September 30,~~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, and intangible assets subject to amortization.~~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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived assets.

~~Paycheck Protection Program~~
~~During the year ended December 31, 2020, the Company received aggregate loan proceeds in the amount of approximately $249,000~~ under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent, and utilities and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1~~%, with a deferral of payments for the first six months. The Company used the proceeds for purposes consistent with the PPP.~~
13
~~During the nine months ended September 30, 2022 and 2021, the Company had a total of $63,400~~ ~~and $184,914~~, respectively, of its PPP loans forgiven by the U.S. Small Business Administration (“SBA”) (See Note 6). As of September 30, 2022, the Company had no remaining PPP loan balance. As of December 31, 2021, the PPP loan balance was $~~63,400~~ ~~and is reflected on the Company’s unaudited condensed consolidated balance sheet as current liabilities, within notes payable, net.~~
Income Taxes

The Company files corporate federal, state and local tax returns. ~~LifeMD PR and~~ WorkSimpli ~~file~~files a tax ~~returns~~return in Puerto ~~Rico. Both are~~Rico; WorkSimpli is a limited liability ~~companies~~company and ~~file separate~~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.~~(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, ~~2018,~~2019, remain open to audit by all related taxing authorities.

13
~~Stock-Based~~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.

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.

The following table summarizes the number of shares of common stock issuable pursuant to our convertible securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares:
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months
Ended

Three Months
Ended

Nine Months
Ended

Nine Months
Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Series B Preferred Stock 1,369,581 1,229,581 1,334,421 1,195,446
Restricted Stock Units (RSUs) 1,830,750 996,375 1,563,000 569,417
Stock options 4,007,698 4,170,900 4,214,609 4,193,100
Warrants 3,859,638 3,888,438 3,859,638 3,807,899
Potentially dilutive securities 11,067,667 10,285,294 10,971,668 9,765,862
2023 2022 2023 2022
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022

Series B Preferred Stock 1,548,594 1,334,293 1,493,991 1,316,841
RSUs and RSAs 2,788,000 1,445,750 2,341,438 1,429,125
Stock options 3,463,753 4,259,198 3,667,003 4,318,065
Warrants 4,827,380 3,859,638 4,827,380 3,859,638
Convertible long-term debt 1,342,282 - 1,342,282 -
Potentially dilutive securities 13,970,009 10,898,879 13,672,094 10,923,669

14
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, ~~and~~ 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 ~~September~~June 30, ~~2022,~~2023, we utilized ~~four (4)~~five suppliers for fulfillment services, ~~seven (7)~~six suppliers for manufacturing finished goods, six suppliers for packaging, bottling, and labeling, and four ~~(4)~~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 ~~(3)~~ suppliers for prescription medications. ~~As of December 31, 2021, we utilized four (4) suppliers for fulfillment services, six (6) suppliers for manufacturing finished goods and four (4) suppliers for packaging, bottling, and labeling.~~

Recently ~~Issued~~Adopted Accounting Pronouncements

In ~~October 2021,~~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. ~~This update is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted.~~ The Company ~~is currently evaluating~~adopted ASU 2021-08 as of January 1, 2023. The adoption did not have a material impact on the ~~effects that the adoption of this guidance will have on our consolidated~~Company’s financial ~~statements and related disclosures.~~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. ~~Cleared is a transformational addition~~The acquisition adds to the Company’s growing portfolio of telehealth ~~capabilities which moves us beyond treating lifestyle conditions into chronic conditions with large addressable market demand.~~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. TheThe 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 ~~includes~~included up to $72.8 million of potential earn-out payable in cash or stock upon achievement of revenue targets, which iswas 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%.
15

The following table summarizes the acquisition date fair values of assets acquired and liabilities assumed:
SCHEDULE OF FAIR VALUE OF ASSETS AND LIABILITIES

Purchase price, net of cash acquired $ 9,091,762
Less:
Intangible assets 1,065,071
Inventory 7,168
Fixed assets 37,888
Accounts payable and other current liabilities (408,030 )
Goodwill $ 8,389,665
15

Purchase price, net of cash acquired $ 9,091,762
Less:
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 $ 8,035,665

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 $~~8.4~~8.0 million, which is not expected to be deductible for income tax purposes. The amount allocated to goodwill and intangible assets ~~reflects~~reflected the benefits the Company ~~expects~~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 ~~pro forma financial information, assuming~~First Amendment was amended to, among other things: (i) reduce the ~~acquisition had taken place~~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 ~~1, 2021, as well as~~15, 2024; (iii) remove all “earn-out” payments payable by the ~~revenue~~Company to the sellers; and ~~earnings generated during~~(iv) removing certain representations and warranties of the ~~period after~~Company and sellers in connection with the ~~acquisition date, were not material for separate disclosure and, accordingly, have not been presented.~~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. On July 17, 2023, the Company issued 158,129 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 ~~three and nine months~~year ended ~~September 30,~~December 31, 2022, the Company recorded ~~an increase of $248~~ ~~thousand and~~ a decrease of $~~2.5~~5.1 million ~~respectively,~~ 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 ~~through~~and the ~~earnout period.~~removal of all earn-out payments payable by the Company from the terms of the First Amendment. During the ~~nine months~~year ended ~~September 30,~~December 31, 2022, the Company also recorded aan $~~2.7~~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.~~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 $4.0million and contingent consideration of $50~~0 thousand~~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 $~~62,500~~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.
16
NOTE 4 – GOODWILL AND INTANGIBLE ASSETS
~~As of September 30, 2022 and December 31, 2021, the~~The Company’s goodwill balance related to the Cleared acquisition was $~~5.7~~ ~~million and $~~0~~, respectively.~~ as of both June 30, 2023 and December 31, 2022. During the ~~nine months~~year ended ~~September 30,~~December 31, 2022, the Company recorded aan $~~2.7~~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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company has the following amounts related to amortizable intangible assets:
SCHEDULE OF GOODWILL AND INTANGIBLE ASSETS
September 30, December 31, Amortizable June 30, December 31, Amortizable
2022 2021 Life 2023 2022 Life
Amortizable Intangible Assets:
ResumeBuild brand 4,500,000 - 5 years $ 4,500,000 $ 4,500,000 5 years
Customer relationship asset 1,006,840 1,006,840 3 years 1,006,840 1,006,840 3 years
Cleared trade name 133,339 - 5 years 133,339 133,339 5 years
Cleared developed technology 12,920 - 1 year 12,920 12,920 1 year
Cleared customer relationships 918,812 - 10 years
Purchased licenses 200,000 200,000 10 years 200,000 200,000 10 years
Website domain name 22,731 22,231 3 years
Website domain names 171,599 22,731 3 years
Amortizable intangible assets 171,599 22,731 3 years
Less: accumulated amortization (1,876,092 ) (1,209,310 ) (2,523,499 ) (2,043,971 )
Total net amortizable intangible assets $ 4,918,550 $ 19,761 $ 3,501,199 $ 3,831,859

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 ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was $~~325,495~~246 thousand and $~~617~~227, thousand, respectively. The aggregate amortization expense of the Company’s intangible assets for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was $~~666,782~~480 thousand and $~~340,457~~341, thousand, respectively. Total amortization expense for the remainder of ~~2022~~2023 is approximately $~~259,762~~492~~. Total amortization expense for 2023~~ thousand, 2024 through 2025 is approximately $980 thousand per year, 2026 is approximately $~~1.0~~940 ~~million per year, for~~thousand and 2027 is approximately $~~200,000~~113 ~~and for 2028 through 2031 is approximately $92,000~~ ~~per year.~~thousand.
16

NOTE 5 – ACCRUED EXPENSES

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company has the following amounts related to accrued expenses:
SCHEDULE OF ~~ACCOUNTS PAYABLE AND~~ ACCRUED EXPENSES
September 30, December 31,
2022 2021
Accrued selling and marketing expenses $ 3,152,143 $ 4,981,453
Accrued compensation 1,437,560 1,657,843
Accrued dividends payable 776,563 871,476
Sales tax payable 2,401,583 2,000,000
Purchase price payable 1,674,469 -
Other accrued expenses 1,640,036 2,084,833
Total accrued expenses $ 11,082,354 $ 11,595,605
June 30, December 31,
2023 2022
Accrued selling and marketing expenses $ 5,273,738 $ 3,508,883
Sales tax payable 2,501,035 2,501,035
Purchase price payable 1,872,037 2,463,002
Accrued dividends payable 776,562 776,563
Accrued compensation 1,568,737 576,027
Accrued interest 4,042 448,718
Other accrued expenses 2,765,605 1,892,281
Total accrued expenses $ 14,761,756 $ 12,166,509

NOTE 6 – NOTES PAYABLE

~~PPP Loan and Forgiveness~~Working Capital Loans

In ~~June 2020,~~October 2022, the Company ~~and its subsidiaries~~ received ~~three loans~~proceeds of $976 thousand under a 12-month working capital loan with Amazon. The terms of the loan include interest in the ~~aggregate~~ amount of ~~approximately~~ $~~249~~62 thousand. As of June 30, 2023 and December 31, 2022, the outstanding balance was $442 thousand ~~(the “PPP Loan”) under the Paycheck Protection Program legislation administered by the SBA. These loans bear interest at one percent per annum (1.0%) and mature five years from the date of the first disbursement.~~ The proceeds of the PPP Loan must be used for payroll costs, lease payments on agreements entered into before February 15, 2020, and utility payments under lease agreements entered into before February 1, 2020. At least 60% of the proceeds must be used for payroll costs and certain other expenses, and no more than 40% may be used on non-payroll expenses. Proceeds from the PPP Loan used by the Company for the approved expense categories may be fully forgiven by the SBA, if the Company satisfies applicable employee headcount and compensation requirements. During the nine months ended September 30, 2022 and 2021, the Company had a total of $~~63,400~~and $~~184,914~~976, thousand, respectively, ~~of its PPP loans forgiven by the SBA which~~and is included in ~~gain on debt forgiveness~~notes payable, net, on the accompanying unaudited condensed consolidated ~~statement of operations. As of September 30,~~balance sheet.
In November 2022, the Company ~~had no remaining PPP~~received proceeds of $1.9 million under two 10-month working capital loans with Balanced Management. The terms of the loans include loan ~~balance.~~origination fees in the amount of $60 thousand and total interest of $840 thousand. As of June 30, 2023 and December 31, ~~2021,~~2022, the ~~PPP loan~~outstanding balance was $~~63,400~~294 thousand and $1.821 million, respectively, and is ~~reflected~~included in notes payable, net, on the ~~Company’s~~accompanying unaudited condensed consolidated balance ~~sheet as current liabilities, within notes payable, net.~~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.
17

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.
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 ~~both~~ the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Total interest expense on ~~notes payable,~~long-term debt, inclusive of amortization of debt discounts, amounted to $0694 thousand and $~~10,647~~0 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

NOTE 78 – STOCKHOLDERS’ EQUITY

The Company has authorized the issuance of up to 100,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred stock, $0.0001 par value, of which 5,000 shares are designated as Series B Convertible Preferred Stock, 1,610,000 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 $150 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 $6018.435 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 ~~approximately~~ $59.5 million available under the ATM Sales ~~Agreement and $~~32 ~~million available under the 2021 Shelf as of September 30, 2022.~~Agreement.
18

Options ~~and Warrants~~

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company issued an aggregate of ~~29,691~~16,471 shares of common stock related to the cashless exercise of options.
~~During the nine months ended September 30, 2022, the Company issued an aggregate of~~ ~~90,400~~ ~~shares of common stock related to the exercise of options for gross proceeds of $90,400~~.
~~During the nine months ended September 30, 2022, the Company issued an aggregate of~~ ~~22,000~~ ~~shares of common stock related to the exercise of warrants for gross proceeds of $38,500~~.
17
~~Membership Interest Purchase Agreement~~
On July 31, 2019, the Company entered into a certain membership interest purchase agreement (the “MIPA”) by and between the Company; Conversion Labs PR (now “LifeMD PR”), a majority owned subsidiary; Taggart International Trust, an entity controlled by the Company’s Chief Executive Officer, Mr. Justin Schreiber; and American Nutra Tech LLC, a company controlled by its Chief Innovation and Marketing Officer, Mr. Stefan Galluppi (Mr. Schreiber, Taggart International Trust, Mr. Galluppi, and American Nutra Tech LLC each a “Related Party” and collectively, the “Related Parties”). Pursuant to the MIPA, the Company purchased ~~21.83333% of the membership interests (the “Remaining Interests”) of Conversion Labs PR from the Related Parties, bringing the Company’s ownership of Conversion Labs PR to~~ ~~100~~%.
As consideration for the Company’s purchase of the Remaining Interests from the Related Parties, Mr. Schreiber and Mr. Galluppi agreed to cancel all potential issuances of restricted stock and or options related to their employment with the Company, in exchange for the immediate issuance of ~~500,000~~ ~~shares of the Company’s restricted common stock to each of Mr. Schreiber and Mr. Galluppi (the “Initial Issuances”) (equal to~~ ~~1,000,000~~ ~~shares in the aggregate). Mr. Schreiber and Mr. Galluppi were also entitled to additional issuances pursuant to certain milestones as follows: (i)~~ ~~500,000~~ ~~shares of the Company’s Common Stock to each of Mr. Schreiber and Mr. Galluppi (1,000,000~~ shares in the aggregate) on the business day following a consecutive ninety (90) day period, during which the Company’s Common Stock shall have traded at an average price per share equal to or higher than $~~2.50~~ ~~(the “First Milestone”), and (ii) an additional~~ ~~500,000~~ ~~shares of the Company’s Common Stock to each of Mr. Schreiber and Mr. Galluppi (1,000,000~~ ~~shares in the aggregate) following a consecutive ninety (90) day period during which the Common Stock shall have traded at an average price per share equal to or higher than $3.75~~ ~~(the “Second Milestone” and, together with the First Milestones, the “Milestones”). Having achieved the Milestones, the Company, on December 9, 2020, issued an aggregate of~~ ~~1,000,000~~ ~~shares of the Company’s Common Stock to each of Mr. Schreiber and Mr. Galluppi (the “Milestone Shares”) (2,000,000~~ ~~shares in the aggregate).~~
~~The Company recorded an aggregate expense of $18,060,000~~ ~~reflected in general and administrative expenses during the three months ended September 30, 2020 for the issuance of these~~ ~~2,000,000~~ ~~shares, of which~~ ~~1,200,000~~ ~~shares were issued during the three months ended March 31, 2021.~~

Common Stock

Common Stock Transactions During the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company issued an aggregate of ~~211,250~~202,375 shares of common stock for ~~services expensed~~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 ~~prior periods.~~five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024. 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.
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

~~For the three months ended September 30, 2022, net~~Net income attributed to the non-controlling interest amounted to $~~83,737~~842 thousand and $46 thousand for the three months ended ~~September~~June 30, ~~2021, net loss attributed to the non-controlling interest amounted to $62,706~~.2023 and 2022, respectively. During both the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company paid distributions to non-controlling ~~stockholders~~shareholders of $~~36,000~~36~~. For the nine months ended September 30, 2022, net~~ thousand. Net income attributed to the non-controlling interest amounted to $~~154,464~~1.4 million and $71 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2021, net loss attributed to the non-controlling interest amounted to $531,182~~.2023 and 2022, respectively. During both the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company paid distributions to non-controlling ~~stockholders~~shareholders of $~~108,000~~72. thousand.

WorkSimpli Software Restructuring Transaction

Effective January 22, 2021 (the “WSS Effective Date”), the Company consummated ~~a transaction to restructure~~ the ~~ownership of WorkSimpli (the “WSS Restructuring”) and concurrently increased its ownership interest~~WSS Restructuring, which is described in ~~WorkSimpli to 85.6%.~~Note 1. To effect the WSS Restructuring the Company’s wholly-owned subsidiary Conversion Labs PR, ~~(now “LifeMD 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 $~~375,823~~376 thousand (the ~~“CVLB PR~~“CVLBPR Note”), issued by WSS in favor of Conversion Labs PR, for 37,531 newly issued membership interests of WSS (the “Exchange”). Upon consummation of the Exchange the ~~CVLB PR~~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 2,183 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 12,000 membership interests of WSS for an aggregate purchase price of $~~300,000~~300. thousand. The CVLB PR MIPA provides that the transaction may be completed in three (3) tranches with a purchase price of $~~100,000~~100 thousand per tranche to be made at the sole discretion of Conversion Labs PR. Payment for the first tranche of $~~100,000~~100 thousand was made upon execution of the CVLB PR MIPA in January 2021. Payments for the second and third tranches were made on the 60-day anniversary and the 120-day anniversary of the WSS Effective Date.
18

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.

Concurrently with the WSS Restructuring, Conversion Labs PR entered into option agreements with Sean Fitzpatrick (the “Fitzpatrick Option Agreement”) and Varun Pathak (the “Pathak Option Agreement” ~~and~~ together with Fitzpatrick Option Agreement the “Option Agreements”), pursuant to which Conversion Labs PR granted options to purchase membership interest units of WSS. Upon vesting, the Fitzpatrick Options and the Pathak Options provide for the potential re-purchase of up to an additional 13.25% of WSS by Fitzpatrick and Pathak in the aggregate with Conversion Labs PR ownership ratably reduced to approximately 72.98%%.
19

The Fitzpatrick Option Agreement grants Sean Fitzpatrick the option to purchase 10,300 membership interest units of WSS for an exercise price of $1.00 per membership interest unit. The Fitzpatrick Options vest in accordance with the following (i) 3,434 membership interests upon WSS achieving $~~2,500,000~~2.5 million of gross sales in any fiscal quarter (ii) 3,434 membership interests upon WSS achieving $~~4,000,000~~4.0 million of gross sales in any fiscal quarter, and (iii) 3,434 membership interests upon WSS achieving $~~8,000,000~~8.0 million of gross sales with a ten percent (10%) net profit margin in any fiscal quarter.

The Pathak Option Agreement grants Varun Pathak the option to purchase 2,100 membership interest units of WSS for an exercise price of $1.00 per membership interest unit. The Pathak Options vest in accordance with the following (i) 700 membership interests upon WSS achieving $~~2,500,000~~2.5 million of gross sales in any fiscal quarter (ii) 700 membership interests upon WSS achieving $~~4,000,000~~4.0 million of gross sales in any fiscal quarter, and (iii) 700 membership interests upon WSS achieving $~~8,000,000~~8.0 million of gross sales with a ten percent (10%) net profit margin in any fiscal quarter.

On September 30, 2022, Sean Fitzpatrick and Varun Pathak exercised their options to purchase 10,300 and 2,100 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 889 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 $2.21875 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
~~2020 Equity Incentive Plan (the “2020 Plan”)~~

On January 8, 2021, the Company approved the Company’s 2020 ~~Plan.~~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 ~~Stockholders~~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 1,500,000 shares of Common Stock. The number of shares of Common Stock available for issuance under the 2020 Plan automatically increases by 150,000 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 1,500,000 shares. ~~As of January 1, 2022, the Plan provided for the issuance of up to~~ ~~3,300,000~~ ~~shares of Common Stock.~~

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 1,500,000 shares. As of ~~September~~June 30, ~~2022,~~2023, the 2020 Plan, as amended, provided for the issuance of up to ~~4,800,000~~4,950,000 shares of Common Stock. Remaining authorization under the 2020 Plan, as amended, was~~1,265,885~~ 782,830 shares as of ~~September~~June 30, ~~2022.~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company issued an aggregate of ~~332,000~~218,000 stock options to employees under the 2020 Plan and the prior plan. These stock options have a contractual term of 4 to 56.5 years and vest in increments which fully vest the options over a two to three-year period, dependent on the specific agreements’ terms.

19
The following is a summary of outstanding options activity under our 2020 Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:
SCHEDULE OF OPTION ACTIVITY

Options
Outstanding
Number of Shares

Exercise Price
per Share

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise Price
per Share

Balance, December 31, 2021 2,063,500 $ 4.57 – 21.02 8.04 years $ 9.41
Granted 132,000 2.52 – 13.74 3.98 years 7.20
Cancelled/Forfeited/Expired (162,135 ) 5.08 – 13.74 8.40 years 8.99
Balance at September 30, 2022 2,033,365 $ 2.52 – 21.02 7.06 years $ 9.30

Exercisable at December 31, 2021 636,229 $ 4.57 – 21.02 8.95 years $ 9.18
Exercisable at September 30, 2022 1,154,107 $ 2.52 – 21.02 7.97 years $ 9.41

Options
Outstanding
Number of
Shares

Exercise Price
per Share

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise Price
per Share

Balance, December 31, 2022 1,784,587 $2.30 – 21.02 6.95 years $ 9.54
Granted 78,000 1.84 – 3.56 4.79 years 2.69
Cancelled/Forfeited/Expired (473,167 ) 2.30 – 7.50 6.79
Balance at June 30, 2023 1,389,420 $1.84 – 21.02 6.31 years $ 10.09

Exercisable at December 31, 2022 1,185,153 $2.30 – 21.02 7.64 years $ 9.62
Exercisable at June 30, 2023 1,096,732 $1.84 – 21.02 7.07 years $ 10.31

The total fair value of the options granted was $~~833,030~~181, thousand, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 4 years, volatility of ~~135.65~~119.16% – ~~691.48~~123.8%, and risk-free rate of ~~0.90~~3.58%–~~3.60~~3.96%. Total compensation expense under the 2020 Plan options above was $~~1,402,130~~1.2 million and $~~1,638,354~~1.8 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, with unamortized expense remaining of $~~7,916,419~~3.2 million as of ~~September~~June 30, ~~2022.~~2023. Total compensation expense under the 2020 Plan options above was $~~4,886,737~~2.3 million and $~~3,834,429~~3.5 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively. As of June 30, 2023, aggregate intrinsic value of vested service-based options outstanding was $206 thousand.

The following is a summary of outstanding service-based options activity (prior to the establishment of our 2020 Plan above) for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:
SCHEDULE OF OPTION ACTIVITY
Options Outstanding Number of Shares Exercise Price per Share Weighted Average Remaining Contractual Life Weighted Average Exercise Price per Share

Balance, December 31, 2021 1,658,733 $ 1.00 – 19.61 5.85 years $ 5.45
Granted 50,000 4.12 4.26 years 4.12
Exercised (149,400 ) 1.00 – 2.00 0.19 years 1.23
Cancelled/Forfeited/Expired (120,000 ) 1.00 – 4.12 4.26 years 4.12
Balance at September 30, 2022 1,439,333 $ 1.00 – 19.61 5.88 years $ 6.11

Exercisable December 31, 2021 1,019,164 $ 1.00 – 19.61 5.21 years $ 3.60
Exercisable at September 30, 2022 1,087,719 $ 1.00 – 19.61 5.84 years $ 5.04

Options
Outstanding
Number of
Shares

Exercise Price
per Share

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise Price
per Share

Balance, December 31, 2022 1,439,333 $1.00 – 19.61 5.63 years $ 6.11
Granted 140,000 1.00 – 2.00 2.44 years 1.71
Exercised (40,000 ) 1.00 1.00
Balance at June 30, 2023 1,539,333 $1.00 – 19.61 5.03 years $ 5.84

Exercisable December 31, 2022 1,158,764 $1.00 – 19.61 5.63 years $ 5.25
Exercisable at June 30, 2023 1,379,369 $1.00 – 19.61 5.05 years $ 5.34

The total fair value of the options granted was $~~205,995~~142 thousand, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 6.5 years, volatility of 187.76% – 195.58% and risk-free rate of 1.21% – 2.26%. Total compensation expense under the above service-based option plan was $505 thousand and $547 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 $1.1 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, 40,000 options were exercised on a cashless basis, which resulted in 16,471 shares issued. As of June 30, 2023, aggregate intrinsic value of vested service-based options outstanding was $2.0 million.
21
The following is a summary of outstanding performance-based options activity (separate from the 2020 Plan) for the six months ended June 30, 2023:
SCHEDULE OF OPTION ACTIVITY

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 535,000 $1.25 – 2.50 4.59 years $ 1.60
Granted -
Balance at June 30, 2023 535,000 $1.25 – 2.50 4.10 years $ 1.60

Exercisable December 31, 2022 470,000 $1.50 – 2.50 4.58 years $ 1.61
Exercisable at June 30, 2023 470,000 $1.50 – 2.50 4.09 years $ 1.61
No 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 $106 thousand and $212 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 $1.3 million.
RSUs and RSAs
The following is a summary of outstanding RSUs and RSAs activity under our 2020 Plan for the six months ended June 30, 2023:
SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY
RSU Outstanding
Number of Shares
Balance at December 31, 2022 1,028,250
Granted 1,974,500
Vested (322,625 )
Cancelled/Forfeited (480,000 )
Balance at June 30, 2023 2,200,125
The total fair value of the 1,974,500 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 $894 thousand and $595 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 $1.4 million and $1.6 million for the six months ended June 30, 2023 and 2022, respectively. During the six months ended June 30, 2023, 322,625 RSUs and RSAs vested, of which 52,375 RSUs and RSAs were issued. During the six months ended June 30, 2023, 405,000 RSUs and 400,000 service-based stock options were cancelled and replaced with 962,500 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 following is a summary of outstanding RSUs and RSAs activity (outside of our 2020 Plan) for the six months ended June 30, 2023:
SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY
RSU Outstanding
Number of Shares
Balance at December 31, 2022 715,000
Granted 425,000
Vested (165,000 )
Balance at June 30, 2023 975,000
The total fair value of the 425,000 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 $285 thousand and $348 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 $589 thousand and $939 thousand for the six months ended June 30, 2023 and 2022, respectively. During the six months ended June 30, 2023, 165,000 RSUs and RSAs vested, of which 150,000 RSUs and RSAs were issued.
22
Warrants
The following is a summary of outstanding and exercisable warrants activity during the six months ended June 30, 2023:
SCHEDULE OF WARRANT OUTSTANDING AND EXERCISABLE

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 3,859,638 $1.40 – 12.00 5.85 years $ 5.59
Granted 967,742 1.24 4.73 years 1.24
Balance at June 30, 2023 4,827,380 $1.24 – 12.00 4.46 years $ 4.74

Exercisable December 31, 2022 3,836,993 $1.40 – 12.00 4.88 years $ 5.63
Exercisable June 30, 2023 4,827,380 $1.24 – 12.00 4.46 years $ 4.73
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 0%, expected term of 4 years, volatility of ~~420.16~~122.6% and risk-free rate of ~~1.37~~3.73%. ~~Total compensation expense under the above service-based option plan was $493,097~~ ~~and $635,220~~ ~~for the three months ended September 30, 2022 and 2021, respectively, with unamortized expense remaining of $3,102,607~~ ~~as of September 30, 2022. Total compensation expense under the above service-based option plan was $1,590,878~~ ~~and $1,571,712~~ ~~for the nine months ended September 30, 2022 and 2021, respectively. Of the total service-based options exercised during the nine months ended September 30, 2022,~~ ~~59,000~~ ~~options were exercised on a cashless basis, which resulted in~~ ~~29,691~~ ~~shares issued and~~ ~~90,400~~ ~~options were exercised for cash.~~
~~The following is a summary of outstanding performance-based options activity for the nine months ended September 30, 2022:~~
~~SCHEDULE OF OPTION ACTIVITY~~
Options Outstanding Number of Shares Exercise Price per Share Weighted Average Remaining Contractual Life Weighted Average Exercise Price per Share

Balance at December 31, 2021 535,000 $ 1.25 – 2.50 5.59 years $ 1.60
Granted 150,000 4.12 3.26 years 4.12
Cancelled/Forfeited/Expired (150,000 ) 4.12 3.26 years 4.12
Balance at September 30, 2022 535,000 $ 1.25 – 2.50 4.84 years $ 1.60

Exercisable December 31, 2021 100,000 $ 1.75 – 2.50 1.96 years $ 2.01
Exercisable at September 30, 2022 100,000 $ 1.75 – 2.50 1.22 years $ 2.01
20
~~The total fair value of the options granted was $617,980, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of~~ 0~~%, expected term of~~ ~~3.5~~ ~~years, volatility of~~ ~~444% and risk-free rate of~~ ~~1.37%. Total compensation expense under the above performance-based option plan was $105,797~~ ~~and $~~0 ~~for the three months ended September 30, 2022 and 2021, respectively, with unamortized expense remaining of $105,797. Total compensation expense under the above performance-based option plan was $317,391~~ ~~and $173,397~~ ~~for the nine months ended September 30, 2022 and 2021, respectively.~~
~~Restricted Stock Units (RSUs) (under the 2020 Plan)~~
~~The following is a summary of outstanding RSU activity under our 2020 Plan for the nine months ended September 30, 2022:~~
~~SCHEDULE OF WARRANT AND RESTRICTED STOCK OUTSTANDING AND EXERCISABLE~~
RSUs Outstanding
Number of Shares
~~Balance at December 31, 2021~~ ~~375,375~~
~~Granted~~ ~~1,047,500~~
~~Vested~~ ~~(172,125~~ )
~~Balance at September 30, 2022~~ ~~1,250,750~~
~~The total fair value of the~~ ~~1,047,500~~ ~~RSUs granted was $3,071,940~~ ~~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 above was $702,598~~ ~~and $232,268~~ ~~for the three months ended September 30, 2022 and 2021, respectively, with unamortized expense remaining of $4,862,048~~ ~~as of September 30, 2022. Total compensation expense under the 2020 Plan RSUs above was $2,273,756~~ ~~and $589,431~~ ~~for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022,~~ ~~172,125~~ ~~RSUs vested, of which~~ ~~111,250~~ ~~RSUs were issued.~~
~~RSUs (outside of 2020 Plan)~~
~~The following is a summary of outstanding RSU activity outside of the 2020 Plan for the nine months ended September 30, 2022:~~
~~SCHEDULE OF WARRANT AND RESTRICTED STOCK OUTSTANDING AND EXERCISABLE~~
RSUs Outstanding
Number of Shares
~~Balance at December 31, 2021~~ ~~600,000~~
~~Granted~~ ~~60,000~~
~~Vested~~ ~~(80,000~~ )
~~Balance at September 30, 2022~~ ~~580,000~~
~~The total fair value of the~~ ~~60,000~~ ~~RSUs granted was $215,400~~ ~~which was determined using the fair value of the quoted market price on the date of grant. Total compensation expense for RSUs outside of the 2020 Plan was $225,279~~ ~~and $~~0 ~~for the three months ended September 30, 2022 and 2021, respectively, with unamortized expense remaining of $5,072,421~~ ~~as of September 30, 2022. Total compensation expense for RSUs outside of the 2020 Plan was $1,163,978~~ ~~and $~~0 ~~for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022,~~ ~~80,000~~ ~~RSUs vested, of which~~ ~~50,000~~ ~~were issued.~~
~~Warrants~~
~~The following is a summary of outstanding and exercisable warrants activity during the nine months ended September 30, 2022:~~
~~SCHEDULE OF WARRANT OUTSTANDING AND EXERCISABLE~~
Warrants Outstanding Number of Shares Exercise Price per Share Weighted Average Remaining Contractual Life Weighted Average Exercise Price per Share
Balance at December 31, 2021 3,888,438 $ 1.40 – 12.00 5.85 years $ 5.59
Exercised (22,000 ) 1.75 - 1.75
Cancelled/Forfeited/Expired (6,800 ) 2.00 - 2.00
Balance at September 30, 2022 3,859,638 $ 1.40 – 12.00 5.15 years $ 5.61

Exercisable December 31, 2021 2,621,307 $ 1.40 – 12.00 6.36 years $ 5.98
Exercisable September 30, 2022 3,760,906 $ 1.40 – 12.00 5.17 years $ 5.66
21
Total compensation expense on the above warrants ~~for services~~ was $~~407,312~~6 thousand and $~~604,974~~605 thousand for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, withno unamortized expense remaining ~~of $29,968~~as of ~~September~~June 30, ~~2022.~~2023. Total compensation expense on the above warrants ~~for services~~ was $~~1,617,260~~18 thousand and $~~1,814,922~~1.2 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ 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 ~~RSUs~~RSAs amounted to $~~3,336,213~~2.9 million and $~~3,110,816~~4.0 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~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 ~~RSUs~~RSAs amounted to $~~11,850,000~~5.5 million and $~~7,983,891~~8.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~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 ~~RSUs~~RSAs was $~~21,089,260~~15.0 million as of ~~September~~June 30, ~~2022.~~2023, which is expected to be recognized through 2026.

NOTE 89 – 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 ~~2023,~~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:
SCHEDULE OF OPERATING RIGHT OF USE OF ASSETS
2023
Operating right-of-use assets $ 928,696
Operating lease liabilities - current $ 758,927
Operating lease liabilities - noncurrent $ 276,340
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 ~~September~~June 30, ~~2022:~~2023:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES

Remainder of fiscal year 2022 $ 225,519
Fiscal year 2023 732,409
Fiscal year 2024 484,580
Fiscal year 2025 68,850
Less: imputed interest (103,419 )
Present value of operating lease liabilities $ 1,407,939

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
23

Operating lease expenses were $~~199,584~~206 thousand and $~~95,791~~201 thousand for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $~~603,275~~429 thousand and $~~286,294~~404 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~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:
SCHEDULE OF ~~CASH FLOW~~OTHER INFORMATION RELATED TO OPERATING LEASE LIABILITIES
September 30,
2022 2021
Cash paid for operating lease liabilities $ 517,871 $ 269,806

June 30,
2023 2022
Cash paid for operating lease liabilities $ 441,290 $ 323,580

Supplemental balance sheet information related to operating lease liabilities consisted of the following:
~~SCHEDULE OF BALANCE SHEETS RELATED TO OPERATING LEASE LIABILITIES~~
September 30, 2022 December 31, 2021 June 30, 2023 December 31, 2022
Weighted average remaining lease term in years 3.05 3.75 2.36 2.82
Weighted average discount rate 7.16 % 7.15 % 7.16 % 7.15 %

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 $~~2,100~~3 thousand per month. Additionally, Conversion Labs PR utilizes office space in Puerto Rico ~~which is subleased from Fried LLC,~~ on a month-to-month basis incurring rental expense of approximately $~~3,000~~3 thousand per month.
22

NOTE 910 - 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~~products.. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, no amount was~~2022, $0 and approximately $138 thousand, respectively, were included in ~~accounts payable and~~ 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%13% of Gross Receipts (as defined in the Agreement) realized from the sales of Licensed Products. No amounts were earned or owed as of ~~September~~June 30, ~~2022~~2023.

Upon execution of the Alphabet Agreement, Alphabet was granted a 10-year stock option to purchase 20,000 shares of the Company’s common stock at an exercise price of $2.50. Further, if Licensed Products have gross receipts of $~~7,500,000~~7.5 million in any calendar year, the Company will grant Alphabet an option to purchase 20,000 shares of the Company’s common stock at an exercise price of $2.50; (ii) if Licensed Products have gross receipts of $~~10,000,000~~10.0 million in any calendar year, the Company will grant Alphabet an additional option to purchase 20,000 shares of the Company’s common stock at an exercise price of ~~$2.50~~$2.50 and (iii) if Licensed Products have gross receipts of $~~20,000,000~~20.0 million in any calendar year, the Company will grant Alphabet an option to purchase40,000 shares of the Company’s common stock at an exercise price of $3.75. 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 ~~September~~June 30, ~~2022 and December 31, 2021,~~2023, the Company approximates its implicit purchase commitments to be $~~582~~168 ~~thousand and $511~~ ~~thousand, respectively.~~thousand.
24

Legal Matters

In the normal course of business operations, the Company may become involved in various legal matters. As of ~~September~~June 30, ~~2022,~~2023, other than as set forth below, the Company’s management does not believe that there are any potential legal matters that could have ~~an adverse~~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 1 million shares (i.e., 200,000 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 1 million shares (i.e., 200,000 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., 1,000,000 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 $~~5,020,000~~5.0 million and $~~33,020,000~~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 $~~75,000~~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 ~~400~~400,000 ~~thousand~~ shares of common stock during the ~~three months~~year ended ~~September 30,~~December 31, 2022 and ~~it is possible that the Company will issue~~ ~~100~~100,000 ~~thousand~~ additional shares of common stock ~~in the future~~on July 10, 2023 related to this settlement. The costs of this settlement are reflected in the Company’s financial results.
23

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 $~~273,859~~274, thousand, and, therefore, “LifeMD has been unjustly enriched in an amount in excess of $~~273,859~~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. ~~The~~As noted above, the Company issued ~~400~~400,000 ~~thousand~~ shares of common stock during the ~~three months~~year ended ~~September 30,~~December 31, 2022 and ~~it is possible that the Company will issue~~ ~~100~~100,000 ~~thousand~~ additional shares of common stock ~~in the future~~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 $~~1,000,000~~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.
25
The ~~parties have exchanged~~Court conducted virtual case management conferences on June 30, 2022 and August 3, 2022, and fact discovery (i.e., written discovery requests and ~~written responses.~~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 ~~completion of production of~~Company to conduct certain additional searches for documents and to produce responsive documents by ~~December 7, 2022 and scheduled a status hearing for December 14, 2022 to address discovery~~April 26, 2023, which the Company did in compliance ~~and entry of a~~with the order. A further case management ~~order.~~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 ~~Company intends to vigorously defend against~~costs of this ~~action. As this action is~~settlement are reflected in ~~its preliminary phase, a potential loss cannot yet be estimated.~~the Company’s financial results.

NOTE 1011 – RELATED PARTY TRANSACTIONS

~~Chief Executive Officer~~Working Capital Loan

~~Conversion Labs PR utilizes office space in Puerto Rico, which is subleased from Fried LLC,~~During the six months ended June 30, 2023, the Company received proceeds of $2 million under a ~~third party, and incurs expense~~$2.5 million loan facility with CRG Financial, maturing on December 15, 2023. The loan facility includes interest of ~~approximately $3,000~~12 ~~a month for this office space.~~%. The Company ~~previously made payments~~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 ~~JLS Ventures, an entity wholly owned by our Chief Executive Officer (“CEO”), for rent on Conversion Labs PR’s Puerto Rico office space which~~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 ~~and $15,000~~ ~~for the three months ended September 30, 2022 and 2021, respectively, and $~~0 ~~and $67,500~~ ~~for~~related to the ~~nine months ended September 30, 2022 and 2021, respectively.~~
~~Conversion Labs PR utilizes BV Global Fulfillment (“BV Global”), previously owned by~~CRG Financial loan. Mr. Bhatia, a ~~related person (the “Owner”)~~member of the ~~Company’s CEO, to warehouse a portion~~Board of the ~~Company’s finished goods inventory and for fulfillment services. On December 31, 2021, the~~ Company, entered into an Asset Purchase Agreement (the “APA”) with BV Global and the Owner, whereby BV Global and the Owner agreed to sell to the Company certain purchased assets of BV Global in exchange for approximately $9 ~~thousand. Prior to entering into the APA, the Company paid a monthly fee of $13,000~~ ~~to $16,000~~ ~~for fulfillment services and reimbursed BV Global for their direct costs associated with shipping the Company’s products.~~
24
~~The Company reimbursed BV Global a total of $660,877~~ ~~and $1,079,403~~ ~~during the three and nine months ended September 30, 2021, respectively. As of December 31, 2021, the Company owed BV Global $61,824, which is included in accounts payable~~also serves on the ~~accompanying unaudited condensed consolidated balance sheets.~~Board of Directors of CRG Financial.

WorkSimpli Software

During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~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 $~~403,424~~570 thousand and $~~240,187~~352 thousand during the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $~~1,054,747~~1.2 million and $~~599,527~~651 thousand during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, for these services. There were no amounts owed to LegalSubmit as of both ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~
~~Amended Officer Employment Agreements~~
On April 1, 2022, Justin Schreiber, the Company’s CEO, entered into an Employment Agreement (the “Schreiber Employment Agreement”) with the Company. The Schreiber Employment Agreement is for an indefinite term and may be terminated with or without cause. Pursuant to the Schreiber Employment Agreement, Mr. Schreiber will receive an annual base salary of $~~300,000~~ ~~and shall be eligible to earn a performance bonus in such amount, if any, as determined in the sole discretion of the Board, with a target amount of~~ 75~~% of the base salary.~~
~~On January 27, 2022, the Company and Marc Benathen, our Chief Financial Officer (“CFO”), entered into the First Amendment to his employment agreement to provide that Mr. Benathen receive~~ ~~75,000~~ ~~RSUs, with~~ ~~25,000~~ of the RSUs vesting on the grant date and the first and second anniversaries of the grant date. Additionally, the First Amendment to his employment agreement provided that Mr. Benathen is eligible to receive up to ~~250,000~~ ~~Performance Stock Units (“PSUs”), which will vest subject to the Company achieving certain key revenue, EBITDA and share price appreciation milestones.~~
On January 27, 2022, the Company and Eric H. Yecies, our General Counsel (“GC”) and Chief Compliance Officer (“CCO”), entered into the First Amendment to his employment agreement to provide that our CCO receive ~~37,500~~ ~~RSUs, with~~ ~~12,500~~ of the RSUs vesting on the grant date and the first and second anniversaries of the grant date. Additionally, the First Amendment to his employment agreement provided that our CCO is eligible to receive up to ~~105,000~~ ~~PSUs, which will vest subject to the Company achieving certain key revenue, EBITDA and share price appreciation milestones.~~
~~Officer Appointment~~
On February 4, 2022, Maria Stan was appointed as Controller and Principal Accounting Officer of the Company. In connection with her appointment as Principal Accounting Officer, Ms. Stan entered into an amendment to her employment agreement with the Company, whereby the Company granted her an additional long-term incentive award of ~~15,000~~ ~~RSUs, with~~ ~~5,000~~ ~~units vesting on the grant date and the first and second anniversaries of the grant date, and~~ ~~50,000~~ ~~PSUs. The PSUs vest upon the achievement of certain key revenue, EBITDA and share price appreciation milestones.~~
~~Board of Director Appointment~~
On September 14, 2022, the Company appointed Robert Jindal as a member of the Board. In connection with the appointment to the Board, the Company and Mr. Jindal entered into a director agreement (the “Director Agreement”), whereby, as compensation for his services as a member of the Board, Mr. Jindal received: ~~(i) a grant of~~ ~~75,000~~ ~~RSUs of the Company’s common stock, with~~ ~~37,500~~ ~~RSUs vesting immediately and~~ ~~37,500~~ ~~RSUs vesting on the two-year anniversary of the Director Agreement, and (ii)~~ ~~a stock option to purchase~~ ~~37,500~~ ~~shares of the Company’s common stock, vesting in four equal tranches on the 90, 180, 270 and 365-day anniversary of the Director Agreement. Additionally, Mr. Jindal shall be paid $6,000~~ ~~per quarter, as compensation for his services as a member of the Board.~~2022.

NOTE 1112 – 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 is as follows:
SCHEDULE OF RELEVANT SEGMENT DATA
2022 2021 2022 2021
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Telehealth
Revenue $ 21,365,178 $ 18,540,897 $ 66,231,202 $ 47,623,822
Gross margin 78.9 % 73.2 % 78.8 % 74.6 %
Operating loss $ (7,423,742 ) $ (12,150,140 ) $ (36,668,305 ) $ (37,047,599 )
WorkSimpli
Revenue $ 10,047,291 $ 6,406,302 $ 24,682,602 $ 17,835,100
Gross margin 97.9 % 98.0 % 97.7 % 98.2 %
Operating income (loss) $ 606,041 $ (441,164 ) $ 1,104,465 $ (3,588,805 )
Consolidated
Revenue $ 31,412,469 $ 24,947,199 $ 90,913,804 $ 65,458,922
Gross margin 85.0 % 79.6 % 83.9 % 81.0 %
Operating loss $ (6,817,701 ) $ (12,591,304 ) $ (35,563,840 ) $ (40,636,404 )
2023 2022 2023 2022
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Telehealth
Revenue $ 22,351,128 $ 22,267,963 $ 42,553,931 $ 44,866,024
Gross margin 81.5 % 80.0 % 81.1 % 78.7 %
Operating loss $ (8,141,868 ) $ (13,210,799 ) $ (13,143,226 ) $ (26,482,656 )
WorkSimpli
Revenue $ 13,595,785 $ 8,190,535 $ 26,519,317 $ 14,635,311
Gross margin 96.9 % 97.8 % 97.3 % 97.7 %
Operating income $ 3,246,322 $ 306,674 $ 5,394,870 $ 471,516
Consolidated
Revenue $ 35,946,913 $ 30,458,498 $ 69,073,248 $ 59,501,335
Gross margin 87.4 % 84.8 % 87.3 % 83.4 %
Operating loss $ (4,895,546 ) $ (12,904,125 ) $ (7,748,356 ) $ (26,011,140 )

Relevant segment data as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 is as follows:

September 30, 2022 December 31, 2021 June 30, 2023 December 31, 2022
Total Assets
Telehealth $ 25,513,814 $ 48,056,920 $ 26,561,946 $ 18,163,464
WorkSimpli 7,847,747 1,866,323 8,884,443 7,502,389
Consolidated $ 33,361,561 $ 49,923,243 $ 35,446,389 $ 25,665,853
26

NOTE 1213 – 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 ~~November 2022,~~July and August 2023, the Company issued ~~an aggregate~~112,500 shares of common stock related to vested RSUs and RSAs.
~~95,000~~
ATM Sales Agreement
In July 2023, the Company sold 88,021 shares of common stock under the ATM Sales Agreement and net proceeds received were $410 thousand.
Stock Issued for ~~services rendered.~~ Legal Settlement
On July 10, 2023, the Company issued 100,000 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 2,275 shares of the Company’s Series B Preferred Stock. The conversion resulted in 1,010,170 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 158,129 shares of common stock related to the third of five quarterly installment payments due to the sellers of Cleared under the First Amendment.

25
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.~~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.

The forward-looking statements made in this report are based only on events or information as of the date on which the statements are made in this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents we refer to in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. These risksRisk 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.

26
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.

28
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.~~), our wholly-owned subsidiary LifeMD PR LLC (formerly Immudyne PR LLC and Conversion Labs PR), a Puerto Rico limited liability company (“Conversion Labs PR”, or “CLPR”~~), 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 ~~affiliated,~~ 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 ~~application~~ 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 ~~its~~our ownership ~~interest~~stake in WorkSimpli to ~~85.6%~~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%. ~~See Note 7 for additional information.~~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 ~~rapidly growing~~ nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology.

Business Overview ~~and Strategy~~

We are a direct-to-patient telehealth ~~technology~~ company ~~that provides~~providing patients a ~~smarter,~~high-quality, cost-effective, and convenient way ~~for Americans to access~~of accessing comprehensive, virtual healthcare. We believe the traditional model of visiting a doctor’s office, ~~visiting~~traveling to a local pharmacy, and returning ~~to see a doctor~~ for follow up care or prescription refills is complex, inefficient, ~~costly,~~ and ~~slow,~~costly, and discourages many individuals from seeking much needed medical care. ~~The U.S.~~LifeMD is positioned to elevate the healthcare ~~system is undergoing a paradigm shift, due~~experience through telehealth with our proprietary technology platform, affiliated provider network, broad treatment capabilities, and unique ability to new technologies and the emergence of telehealth. Direct-to-patient telehealth companies, like LifeMD, Inc., are leading the shift by connecting consumers digitally to licensed healthcare professionals for care across various needs, such as virtual primary care, men’s sexual health and dermatology.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 ~~platform provides~~offerings in general seek to connect patients ~~with access~~ to licensed providers for diagnoses, virtual care, and prescription medications ~~often delivered~~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 ~~basis.~~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%.
29
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 ~~we sell complementary nutritional supplements~~through our websites and ~~over-the-counter (“OTC”) products. Many~~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 ~~products~~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 ~~available~~sold to consumers on a subscription basis ~~where patients can subscribe to receive regular shipments of prescribed medications or products. This creates~~thus creating convenience and discounted pricing opportunities for patients and recurring revenue streams for ~~us.~~the Company. Our ~~customer acquisition strategy combines~~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 ~~brand-building~~ 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).

Since inception, we have helped more than 650,000 customers and patients, providing them greater access to high-quality, convenient, and affordable care in all 50 states. Our telehealth revenue increased 39% for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Total revenue from recurring subscriptions is approximately 90%. In addition toWe leverage our telehealth ~~business, we own 73.64% of WorkSimpli, which operates PDFSimpli, a rapidly growing software as a service~~technology platform ~~for converting, signing, editing,~~ and ~~sharing PDF documents. This business has seen 38% year over year revenue growth, with recurring revenue of 98%.~~services across the three core areas described below:

We believe that telehealth platforms like ours will fundamentally shift how individuals perceive and access healthcare in the United States, by necessity and by preference. With the average wait time to see a physician in the United States now greater than 29 days, according to a 2018 Merritt Hawkins Survey, and the United States’ projected significant shortfall of licensed physicians by 2030, we believe the U.S. healthcare infrastructure must change to accommodate patients. Timely and convenient access to healthcare and prescription medications is a critical factor in improving quality of care and patient outcomes. Our mission is to radically change healthcare with our portfolio of direct-to-patient telehealth brands that encompass on-demand medical treatment, online pharmacy, and OTC products. We want our brands to be top-of-mind for consumers considering telehealth.Direct-to-Consumer Virtual Primary Care

In the United States, healthcare spending is currently $4.0 trillion and is expected to grow to $6.2 trillion by 2028, according to the Centers for Medicare and Medicaid Services. Physician services and prescription medications account for approximately 30%first quarter of ~~healthcare spending, or over $1 trillion annually, and~~2022, we believe that we have the infrastructure, medical expertise, and technical know-how necessary to help shift a substantial portion of this market to an online, virtual format. We believe that we are well positioned to capitalize on this large-scale shift in healthcare.
27
~~We believe that an amazing customer experience, incredible healthcare, and new customer acquisition form the heart of~~launched our business. As is exemplified with our first brand, ShapiroMD, we have built a full line of proprietary and patented OTC products for male and female hair loss, U.S. Food and Drug Administration (“FDA”) approved OTC minoxidil, and now a telehealth platform offering that gives consumers access to virtual medical treatment and, when appropriate, a full line of oral and topical prescription medications for hair loss. Our men’s brand, RexMD, currently offers access to provider-based treatment through telehealth for men’s health conditions, such as sexual health and hair loss. RexMD continues to expand its treatment offerings to address additional chronic indications present in men’s health. We have built a platform that allows us to efficiently launch telehealth brands and offerings wherever we identify a market need. Our platform is supported by a driven team of digital marketing and branding experts, data analysts, designers, and engineers focused on building enduring brands.
~~Our Brand Portfolio~~
We have built a strategic portfolio of wholly-owned telehealth platform brands supported by an affiliated, 50-state physician network and an integrated national network of third party pharmacies that address large unmet needs in men’s health, hair loss,flagship virtual primary care ~~and dermatology. We continue to experience aggressive growth across our brands.~~
~~Our process across each~~offering under the LifeMD brand, is to guide consumers through a medical intake process and product selection, after which a licensed U.S. physician conducts a virtual consultation and, if appropriate, prescribes prescription medications and/or recommends OTC products. Prescription medications and OTC products are filled by pharmacy fulfillment partners and 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 650,000 individuals having purchased our products and services to date.
~~Hair Loss: ShapiroMD~~
Launched in 2017, ShapiroMD is a telehealth platform brand that offers access to virtual medical treatment, prescription medications, patented-doctor formulated OTC products, an FDA approved medical device for male and female hair loss, and female specific topical compounded medications for hair loss through our telehealth platform. ShapiroMD has emerged as a leading destination for hair loss treatment across the United States and has served more than 260,000 customers and patients since inception with a 4.9-star Trustpilot rating.
~~Men’s Health: RexMD~~
Launched in 2019, 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 a 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. Our vision for RexMD is to become a leading telehealth destination for men. RexMD has emerged as a leading men’s telehealth platform across the United States and has served more than 360,000 customers and patients since inception with a 4.3-star Trustpilot rating.
~~Variable Interest Entity:~~ LifeMD ~~Primary Care~~
~~Beta launched in the fourth quarter of 2021, LifeMD PC is a personalized, subscription-based virtual primary care platform. The LifeMD PC clinic~~PC. This offering provides patients in all 50 states with 24/7 access to aan affiliated high-quality provider for their primary care, urgent care, and chronic care needs. ~~LifeMD PC offers~~LifeMD’s virtual primary care offering is a ~~mobile first platform~~mobile-first full-service destination that ~~incorporates~~provides seamless access to high-quality clinical care including virtual consultations and treatment, prescription medications, diagnostics, and ~~imaging. LifeMD PC capabilities are~~imaging, wellness coaching and more. This offering is also supported by robust partnerships that provide our patients benefits such as ~~further discussed below. Total revenue~~substantial discounts on lab work and net loss for LifeMD PC was approximately $124 thousand and $1.0 million for the three months ended September 30, 2022, respectively, and $124 thousand and $3.9 million for the nine months ended September 30, 2022, respectively.a prescription discount card that can be presented at over 60,000 pharmacies to save up to 92% on their prescription medication.

~~Dermatology: NavaMD~~Direct-to-Patient Telehealth

~~Launched~~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 ~~the first quarter~~their respective treatment verticals of ~~2021,~~ 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.
30
Enterprise Telehealth Offerings

~~Restorsea’s clinically proven skincare~~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 ~~result~~unmet needs of ~~more than $50 million invested in R&D~~healthcare product companies as they relate to digital patient awareness, access to care, adherence and intellectual property development, and Restorsea has received at least 35 patents along with broad industry and academic acclaim, with its breakthrough clinical results having been published in the peer-reviewed Journal of Drugs in Dermatology and Journal of Clinical and Aesthetic Dermatology. NavaMD is one of the first direct-to-patient brands to offer this advanced skincare technology.compliance.

~~Allergy, Asthma & Immunology: Cleared~~
In January 2022, the Company acquired Cleared, a telehealth brand that provides personalized treatments for allergy, asthma, and immunology. Its 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 medical professionals and providers in all 50 states, a growing pipeline of pharmaceutical partners, and treatments and tests that cost up to 50 percent less than the brand-name competition. The offerings include free consultations and ongoing care from U.S.-licensed allergists and nurses.
28
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 ~~85.6%~~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%.
~~Significant Developments During~~ Effective March 31, 2023, the ~~Three Months Ended September~~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, ~~2022~~
~~WorkSimpli~~
~~As noted above, effective September 30, 2022, two~~2023, an option ~~agreements were~~agreement was exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to ~~73.64%~~73.32%.

Significant Developments During the Three Months Ended June 30, 2023
~~Supply Chain~~Amendment to Cleared Stock Purchase Agreement

~~The ongoing impact on business activity brought about by COVID-19 continues to evolve, globally in macro terms, and in micro terms, as such affects~~On February 4, 2023, the ~~Company. Among other things, our supply chain is subject~~Company entered into the First Amendment to the effects of COVID-19, as well as to natural disasters and other events beyond our control, such as raw material, component, and labor shortages; increased fuel and freight costs; global and regional shipping and logistics constraints; work stoppages; power outages;Stock Purchase Agreement (the “First Amendment”) between the Company and the ~~physical effects~~sellers of ~~climate~~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 ~~including changes~~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 ~~weather patterns. In addition, human rights concerns, including forced labor,~~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 foreign countries and associated governmental responses have the potential to disrupt our supply chain, and our operations could be adversely impacted. Although we do not believe that raw materials used in the products we sell are sourced from regions with forced labor concerns, any delays or other supply chain disruption resulting from these concerns, associated governmental responses, or a desire to source products, components, or materials from other manufacturers or regions could result in shipping delays, cancellations, penalty payments, or loss of revenue and market share, any of which could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
In connection with ~~these potential impacts on our supply chain, we are, as a general matter, seeing a trend~~the transaction. On February 6, 2023, the Company issued 337,895 shares of ~~modest increases in (i) pricing on air and ocean freight, as well as for raw materials and finished goods, (ii)~~common stock related to the ~~overall time~~first of five quarterly installment payments due to ~~receive shipments, and (iii)~~ the ~~overall time for shipment and delivery~~sellers of Cleared under the First Amendment. On April 17, 2023, the Company issued 455,319 shares of common stock related to ~~our customers from third-party shippers. We are also seeing a trend~~the second of ~~shortages for key raw materials.~~five quarterly installment payments due to the sellers of Cleared under the First Amendment.

Results of Operations

Comparison of the Three Months Ended ~~September~~June 30, ~~2022~~2023 to the Three Months Ended ~~September~~June 30, ~~2021~~2022
~~Revenue~~

Our financial results for the three months ended ~~September~~June 30, ~~2022~~2023 are summarized as follows in comparison to the three months ended ~~September~~June 30, ~~2021:~~2022:

September 30, 2022 September 30, 2021 June 30, 2023 June 30, 2022
% of % of % of % of
$ Sales $ Sales $ Sales $ Sales
Telehealth revenue, net $ 21,365,178 68.01 % $ 18,540,897 74.32 % $ 22,351,128 62.18 % $ 22,267,963 73.11 %
WorkSimpli revenue, net 10,047,291 31.99 % 6,406,302 25.68 % 13,595,785 37.82 % 8,190,535 26.89 %
Total revenue, net 31,412,469 100 % 24,947,199 100 % 35,946,913 100 % 30,458,498 100 %
Cost of telehealth revenue 4,502,919 14.34 % 4,969,306 19.92 % 4,125,945 11.48 % 4,453,126 14.62 %
Cost of WorkSimpli revenue 213,923 0.68 % 127,181 0.51 % 422,485 1.17 % 182,185 0.60 %
Total cost of revenue 4,716,842 15.02 % 5,096,487 20.43 % 4,548,430 12.65 % 4,635,311 15.22 %
Gross profit 26,695,627 84.98 % 19,850,712 79.57 % 31,398,483 87.35 % 25,823,187 84.78 %
Selling and marketing expenses 17,200,859 54.74 % 20,293,935 81.35 % 19,567,903 54.44 % 21,817,966 71.63 %
General and administrative expenses 12,476,760 39.72 % 10,695,663 42.87 % 12,119,573 33.72 % 13,159,937 43.22 %
Other operating expenses 1,525,645 4.86 % 818,404 3.28 % 1,313,789 3.65 % 2,041,976 6.70 %
Customer service expenses 1,488,428 4.74 % 505,880 2.03 % 1,912,078 5.32 % 1,006,363 3.30 %
Development costs 821,636 2.62 % 128,134 0.51 % 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 33,513,328 106.68 % 32,442,016 130.04 % 36,294,029 100.97 % 38,727,312 127.15 %
Operating loss (6,817,701 ) (21.70 )% (12,591,304 ) (50.47 )% (4,895,546 ) (13.62 )% (12,904,125 ) (42.37 )%
Other expenses (380,235 ) (1.21 )% (1,824,777 ) (7.32 )%
Interest expense, net (995,670 ) (2.77 )% (132,236 ) (0.43 )%
Gain on debt forgiveness - - % 63,400 0.21 %
Net loss (7,197,936 ) (22.91 )% (14,416,081 ) (57.79 )% (5,891,216 ) (16.39 )% (12,972,961 ) (42.59 )%
Net income (loss) attributable to non-controlling interest 83,737 0.27 % (62,706 ) (0.25 )%
Net income attributable to non-controlling interest 841,784 2.34 % 46,001 0.15 %
Net loss attributable to LifeMD, Inc. (7,281,673 ) (23.18 )% (14,353,375 ) (57.54 )% (6,733,000 ) (18.73 )% (13,018,962 ) (42.74 )%
Preferred stock dividends (776,563 ) (2.47 )% - - % (776,562 ) (2.16 )% (776,562 ) (2.55 )%
Net loss attributable to common shareholders $ (8,058,236 ) (25.65 )% $ (14,353,375 ) (57.54 )% $ (7,509,562 ) (20.89 )% $ (13,795,524 ) (45.29 )%

29 31

Total revenue, net. Revenues for the three months ended ~~September~~June 30, ~~2022~~2023 were approximately ~~$31.4~~$35.9 million, an increase of ~~26%~~18% compared to approximately ~~$24.9~~$30.5 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase in revenues was attributable to ~~both the increase in telehealth revenue of 15% and~~ an increase in WorkSimpli revenue of ~~57%~~66% and an increase in telehealth revenue of 0.4%. Telehealth revenue accounts for ~~68%~~62% of total revenue and has increased during the three months ended ~~September~~June 30, ~~2022~~2023 due to ~~an increase~~a decrease product refunds and rebates, partially offset by a reduction in online sales ~~demand, with the majority of the growth of our telehealth brands, RexMD and ShapiroMD.~~demand. WorkSimpli revenue accounts for ~~32%~~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. ~~While a portion of our growth could be attributable to the COVID-19 pandemic, management strongly believes our growth is primarily a result of the strength of our healthcare brands.~~

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 7%2% to approximately ~~$4.7~~$4.5 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to approximately ~~$5.1~~$4.6 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The combined cost of revenue decrease was due to ~~improved pricing~~decreased telehealth costs during the three months ended ~~September~~June 30, ~~2022~~2023 when compared to the three months ended ~~September~~June 30, ~~2021.~~2022. Telehealth costs decreased to ~~21%~~18% of associated telehealth revenues experienced during the three months ended ~~September~~June 30, ~~2022,~~2023, from ~~27%~~20% of associated telehealth revenues during the three months ended ~~September~~June 30, ~~2021.~~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 ~~both the~~ three months ended ~~September~~June 30, ~~2022 and 2021.~~2022.

Gross profit. Gross profit increased by approximately ~~34%~~22% to approximately ~~$26.7~~$31.4 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to approximately ~~$19.9~~$25.8 million for the three months ended ~~September~~June 30, ~~2021,~~2022, as a result of increased combined sales. Gross profit as a percentage of revenues ~~increased to 85% during the three months ended September 30, 2022, from 80%~~was 87% for the three months ended ~~September~~June 30, ~~2021.~~2023 as compared to 85% for the three months ended June 30, 2022. Gross profit as a percentage of revenues for telehealth was ~~79%~~82% for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~73%~~80% for the three months ended ~~September~~June 30, ~~2021,~~2022, and for WorkSimpli was ~~98%~~97% for ~~both~~ the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~98% for the three months ended June 30, 2022. The increase in ~~revenues~~sales volume for ~~both telehealth~~WorkSimpli and ~~WorkSimpli,~~ improved pricing ~~and favorable product mix in 2022~~for Telehealth have contributed to the increase in gross profit.

~~Operating Expenses~~
Total expenses. Operating expenses for the three months ended ~~September~~June 30, ~~2022~~2023 were approximately ~~$33.5~~$36.3 million, as compared to approximately ~~$32.4~~$38.7 million for the three months ended ~~September~~June 30, ~~2021.~~2022. This represents ~~an increase~~a decrease of 3%6%, or ~~$1.1~~$2.4 million. The ~~increase~~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 ~~September~~June 30, ~~2022,~~2023, stock-based compensation was ~~$3.3~~$2.9 million, with the majority related to stock compensation expense attributable to ~~the~~ service-based stock options and restricted stock ~~units.~~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 ~~September~~June 30, ~~2022,~~2023, the Company ~~has~~ had ~~an increase~~a decrease of approximately ~~$1.8~~$1.0 million in general and administrative expenses, primarily related to ~~increases~~the decrease in ~~legal~~stock-based compensation costs referenced above and ~~professional fees and payroll related costs incurred to support the sales volume increases and growth of the Company, partially offset by~~ a Company-wide strategic reduction in costs.
32
~~(ii)~~(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 ~~September~~June 30, ~~2022,~~2023, the Company had ~~an increase~~a decrease of approximately ~~$707~~$728 thousand, or 36%, primarily related to ~~increases~~decreases in ~~the general cost environment necessary to support the Company’s sales growth.~~office supplies and software subscriptions.

~~(iii)~~(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 ~~September~~June 30, ~~2022,~~2023, the Company had an increase of approximately ~~$983~~$906 thousand, or 90%, primarily related to increases in headcount in the Company’s customer service department.

~~(iv)~~(ii) Development costs: This mainly relates to third-party technology services for developing and maintaining our online ~~platforms and information technology services for our online products.~~platforms. During the three months ended ~~September~~June 30, ~~2022,~~2023, the Company had an increase of approximately ~~$694~~$680 thousand, or 97%, primarily resulting from technology platform improvements and amortization expense.

30
~~These increases in operating expenses were partially offset by a decrease in selling~~Interest expense, net. Interest expense, net consists of interest expense related to the Avenue Facility, notes payable and ~~marketing expenses which consist of online marketing and advertising expenses. During~~ the three months ended September 30, 2022, the Company had a decrease of approximately $3.1 million, or 15% in selling and marketing costs resulting from 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.
~~Other Expenses~~
Three Months Ended September 30,
2022 2021
Interest expense, net $ (132,235 ) $ (1,824,777 )
Change in fair value of contingent consideration (248,000 ) -
Total $ (380,235 ) $ (1,824,777 )
~~Other expenses~~Series B Convertible Preferred Stock for the three months ended ~~September~~June 30, ~~2022, consists of~~2023 and interest accrued on the Series B Convertible Preferred Stock ~~and~~ ~~an increase to the Cleared contingent consideration as a result of the remeasurement of the fair value. Other expenses~~ for the three months ended ~~September~~June 30, ~~2021, consist of interest expense and amortization of debt discount recorded related to the June 1, 2021 Purchase Agreement.~~2022. Interest expense ~~decreased~~increased by approximately ~~$1.7 million~~$863 thousand during the three months ended ~~September~~June 30, ~~2022~~2023 as compared to the three months ended ~~September~~June 30, ~~2021.~~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 ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022
~~Revenue~~

Our financial results for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are summarized as follows in comparison to the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:

September 30, 2022 September 30, 2021 June 30, 2023 June 30, 2022
% of % of % of % of
$ Sales $ Sales $ Sales $ Sales
Telehealth revenue, net $ 66,231,202 72.85 % $ 47,623,822 72.75 % $ 42,553,931 61.61 % $ 44,866,024 75.40 %
WorkSimpli revenue, net 24,682,602 27.15 % 17,835,100 27.25 % 26,519,317 38.39 % 14,635,311 24.60 %
Total revenue, net 90,913,804 100 % 65,458,922 100 % 69,073,248 100 % 59,501,335 100 %
Cost of telehealth revenue 14,042,112 15.45 % 12,113,336 18.51 % 8,046,126 11.65 % 9,539,194 16.03 %
Cost of WorkSimpli revenue 558,216 0.61 % 314,428 0.48 % 717,273 1.04 % 344,292 0.58 %
Total cost of revenue 14,600,328 16.06 % 12,427,764 18.99 % 8,763,399 12.69 % 9,883,486 16.61 %
Gross profit 76,313,476 83.94 % 53,031,158 81.01 % 60,309,849 87.31 % 49,617,849 83.39 %
Selling and marketing expenses 60,928,649 67.02 % 61,372,815 93.76 % 36,285,548 52.53 % 43,727,791 73.49 %
General and administrative expenses 38,029,907 41.83 % 28,194,305 43.07 % 22,722,336 32.90 % 25,372,680 42.64 %
Other operating expenses 4,804,623 5.28 % 2,264,257 3.46 % 3,018,554 4.37 % 3,459,445 5.81 %
Customer service expenses 3,428,098 3.77 % 1,274,392 1.95 % 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 3.01 % - - % - - % 2,735,000 4.60 %
Development costs 1,951,039 2.15 % 561,793 0.85 %
Change in fair value of contingent consideration - - % (2,735,000 ) (4.60 )%
Total expenses 111,877,316 123.06 % 93,667,562 143.09 % 68,058,205 98.53 % 75,628,989 127.10 %
Operating loss (35,563,840 ) (39.12 )% (40,636,404 ) (62.08 )% (7,748,356 ) (11.22 )% (26,011,140 ) (43.71 )%
Other income (expenses), net 2,117,995 2.33 % (2,681,236 ) (4.10 )%
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 (33,445,845 ) (36.79 )% (43,317,640 ) (66.18 )% (9,333,689 ) (13.51 )% (26,247,910 ) (44.11 )%
Net income (loss) attributable to non-controlling interest 154,464 0.17 % (531,182 ) (0.82 )%
Net income attributable to non-controlling interest 1,407,767 2.04 % 70,727 0.12 %
Net loss attributable to LifeMD, Inc. (33,600,309 ) (36.96 )% (42,786,458 ) (65.36 )% (10,741,456 ) (15.55 )% (26,318,637 ) (44.23 )%
Preferred stock dividends (2,329,688 ) (2.56 )% - - % (1,553,125 ) (2.25 )% (1,553,125 ) (2.61 )%
Net loss attributable to common shareholders $ (35,929,997 ) (39.52 )% $ (42,786,458 ) (65.36 )% $ (12,294,581 ) (17.80 )% $ (27,871,762 ) (46.84 )%
33

Total revenue, net. Revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 were approximately ~~$90.9~~$69.1 million, an increase of ~~39%~~16% compared to approximately ~~$65.5~~$59.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increase in revenues was attributable to ~~both the increase in telehealth revenue of 39% and~~ an increase in WorkSimpli revenue of ~~38%~~81%, partially offset by a decrease in telehealth revenue of 5%. Telehealth revenue accounts for ~~73%~~62% of total revenue and has ~~increased~~decreased during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 due to ~~an increase~~a reduction in online sales ~~demand, with the majority of the growth of our telehealth brands, RexMD and ShapiroMD.~~demand. WorkSimpli revenue accounts for ~~27%~~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. ~~While a portion of our growth could be attributable to the COVID-19 pandemic, management strongly believes our growth is primarily a result of the strength of our healthcare brands.~~

31
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 ~~increased~~decreased by approximately ~~17%~~11% to approximately ~~$14.6~~$8.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to approximately ~~$12.4~~$9.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The combined cost of revenue ~~increase~~decrease was due to ~~increased~~decreased telehealth sales volume during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 when compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Telehealth costs decreased to ~~21%~~19% of associated telehealth revenues experienced during the ~~nine~~six months ended ~~September~~June 30, ~~2022, as compared to 25%~~2023, from 21% of associated telehealth revenues during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~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 ~~both~~ the ~~nine~~six months ended ~~September~~June 30, ~~2022 and 2021.~~2022.

Gross profit. Gross profit increased by approximately ~~44%~~22% to approximately ~~$76.3~~$60.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to approximately ~~$53.0~~$49.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as a result of increased combined sales. Gross profit as a percentage of revenues was ~~84%~~87% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~81%~~83% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~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 ~~nine~~six months ended ~~September~~June 30, 2022, ~~compared to 75% for the nine months ended September 30, 2021,~~ and for WorkSimpli was 97% for the six months ended June 30, 2023 and 98% for ~~both~~ the ~~nine~~six months ended ~~September~~June 30, ~~2022 and 2021.~~2022. The increase in ~~revenues~~sales volume for ~~both telehealth~~WorkSimpli and ~~WorkSimpli,~~ improved pricing ~~and favorable product mix in 2022~~for Telehealth have contributed to the increase in gross profit.

~~Operating Expenses~~
Total expenses. Operating expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 were approximately ~~$111.9~~$68.1 million, as compared to approximately ~~$93.7~~$75.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. This represents ~~an increase~~a decrease of ~~19%~~10%, or ~~$18.2~~$7.6 million. The ~~increase~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, stock-based compensation was ~~$11.9~~$5.5 million, with the majority related to stock compensation expense attributable to ~~the~~ service-based stock options and restricted stock ~~units.~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company ~~has~~ had ~~an increase~~a decrease of approximately ~~$9.8~~$2.7 million in general and administrative expenses, primarily related to the ~~increase~~decrease in stock-based compensation costs referenced above and ~~an increase in payroll and other infrastructure expenses incurred to support the sales volume increases and growth of the Company, partially offset by~~ a Company-wide strategic reduction in costs.

~~(ii)~~(iii) Other operating expenses: This consists of rent and lease expense, insurance, office supplies and software subscriptions, royalty expense and bank charges. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had ~~an increase~~a decrease of approximately ~~$2.5 million,~~$441 thousand, or 13%, primarily related to ~~increases~~decreases in ~~the general cost environment necessary to support the Company’s sales growth.~~
~~(iii)~~ ~~Customer service expenses: This consists of rent, insurance, payroll~~office supplies and benefit expenses related to the Company’s customer service department located in South Carolina and Puerto Rico. During the nine months ended September 30, 2022, the Company had an increase of approximately $2.2 million, primarily related to increases in headcount in the Company’s customer service department.software subscriptions.

(iv) Goodwill impairment charge: During the ~~nine~~six months ended ~~September~~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.
34
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.

~~(v)~~(ii) Development costs: This mainly relates to third-party technology services for developing and maintaining our online ~~platforms and information technology services for our online products.~~platforms. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had an increase of approximately $1.4 million, or 127%, primarily resulting from technology platform improvements and amortization expense.

~~These increases in operating expenses were partially offset by a decrease in selling~~Interest expense, net. Interest expense, net consists of interest expense related to the Avenue Facility, notes payable and ~~marketing expenses which consist of online marketing and advertising expenses. During~~ the ~~nine~~Series B Convertible Preferred Stock for the six months ended ~~September~~June 30, ~~2022, the Company had a decrease of approximately $444 thousand in selling~~2023 and ~~marketing costs resulting from 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.~~
~~Other Income (Expenses), net~~
Nine Months Ended September 30,
2022 2021
Interest expense, net $ (432,405 ) $ (2,866,150 )
Change in fair value of contingent consideration 2,487,000 -
Gain on debt forgiveness 63,400 184,914
Total $ 2,117,995 $ (2,681,236 )
32
~~Other income, net for the nine months ended September 30, 2022, consists of~~ ~~a $2.5 million reduction to the Cleared contingent consideration as a result of the remeasurement of the fair value,~~ ~~gain on debt forgiveness of PPP loans~~ ~~and~~ interest accrued on the Series B Convertible Preferred ~~Stock. Other expenses, net consist of interest~~Stock for the six months ended June 30, 2022. Interest expense ~~and amortization of~~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 ~~discount~~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 ~~1, 2021 Purchase Agreement~~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 ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2021. Interest expense decreased by approximately $2.4 million during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.~~2022.
Working Capital

September 30, 2022 December 31, 2021 June 30, 2023 December 31, 2022
Current assets $ 12,973,699 $ 44,921,440 $ 20,180,896 $ 11,311,357
Current liabilities 24,935,287 22,825,589 31,517,806 31,374,151
Working capital $ (11,961,588 ) $ 22,095,851 $ (11,336,910 ) $ (20,062,794 )

Working capital ~~decreased~~increased by approximately ~~$34.1~~$8.7 million during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. The ~~decrease~~increase in current assets is primarily attributable to ~~a decrease~~an increase in cash of approximately ~~$35.5~~$7.9 million ~~partially offset by an increase in inventory~~as a result of ~~$2.1 million due to timing of purchases and~~the Avenue Facility, an increase in accounts receivable of ~~approximately $1.6 million.~~$834 thousand and an increase in product deposits of $108 thousand. Current liabilities increased by ~~$2.1 million,~~$144 thousand, which was primarily attributable to an increase in accounts payable and accrued expenses of ~~$1.2~~$2.1 million as a result of the Company extending payables and credit terms with vendors and accrual of the first noncontingent milestone payment related to the Cleared acquisition of $1.6 million due on the first anniversary of the acquisition and an increase in deferred revenue of ~~approximately $853 thousand.~~$120 thousand, partially offset by a decrease in notes payable of $2.1 million.

Liquidity and Capital Resources

Nine Months Ended September 30,
2022 2021
Net cash used in operating activities $ (20,966,110 ) $ (27,259,550 )
Net cash used in investing activities (12,134,718 ) (1,823,843 )
Net cash (used in) provided by financing activities (2,390,388 ) 29,351,291
Net (decrease) increase in cash (35,491,216 ) 267,898
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 ~~was~~of approximately ~~$21.0~~$18.2 million for the ~~nine~~six months ended ~~September~~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 ~~approximately $27.3~~$26.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021. The~~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 ~~operations during~~operating activities for the ~~nine~~six months ended ~~September~~June 30, 2022, ~~include~~was driven primarily by the net loss of approximately ~~$33.4~~$26.2 million (inclusive of ~~$11.9~~$8.5 million in non-cash, stock-based compensation charges), an increase in ~~inventory of $2.1 million due to timing of purchases, an increase in~~ accounts receivable of ~~$1.6~~$1.5 million and ~~reduction in accrued expenses~~the purchase of ~~$2.3~~inventory of $1.3 million, ~~excluding the $1.6 million accrual for the first noncontingent milestone payment related to the Cleared acquisition due on the first anniversary of the acquisition. These decreases were~~ partially offset by anthe Company’s increase in accounts payable and accrued expenses of ~~$1.8 million as a result of the Company extending payables and credit terms with vendors.~~approximately $0.7 million.

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was approximately ~~$12.1~~$4.1 million, as compared with approximately ~~$1.8~~$9.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~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 ~~$6.7~~$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 ~~$379~~$357 thousand.
35

Net cash ~~used in~~provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was approximately ~~$2.4~~$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 ~~$29.4~~$4.4 million ~~for~~net of a $325 thousand loss on debt extinguishment on the ~~nine months ended September 30, 2021. During the nine months ended September 30, 2022, net cash used in financing activities consisted of~~CRG Financial loan, preferred stock dividends of ~~$2.3~~approximately $1.6 million, ~~distributions~~net payments made related to ~~non-controlling~~adjustments in the membership interest units of ~~$108~~WorkSimpli of approximately $306 thousand, ~~and~~ contingent consideration payments made related to the ResumeBuild brand acquisition of ~~$94~~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 and proceeds received from the sale of a portion of the Company’s membership interest in WorkSimpli of $12~~ thousand.

Liquidity and Capital Resources Outlook

~~The~~As of June 30, 2023, the Company has ~~funded~~an accumulated deficit approximating $202.9 million and has experienced significant losses from its operations. To date, the Company has been funding operations ~~in the past~~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 ~~acquisition, fund~~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.

33 36

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.

~~In order to mitigate the going concern issues, the~~The Company has begun to implement strategies to strengthen revenues and improve operational efficiencies across the business and is significantly curtailing ~~expenses. Additionally,~~expenses, however, these strategies do not mitigate the ~~Company has $59.5 million available under~~substantial doubt about the ~~ATM Sales Agreement and $32 million available under the 2021 Shelf.~~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 ~~Accounting Standards Codification (“ASC”)~~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 limited~~provider. In some cases, the customer does not obtain control until the product reaches the customer’s delivery ~~site,~~site; in these ~~limited~~ cases, recognition of revenue ~~should be~~is deferred until that ~~time, however the Company does not have a process to properly record the recognition of revenue if orders are not immediately shipped, and deems the impact to be immaterial.~~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 and~~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,~~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,~~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. As of September 30, 2022 and December 31, 2021, the Company has accrued contract liabilities, as deferred revenue, of approximately $2.4 million and $1.5 million, respectively, which represent obligations on in-process monthly or yearly contracts with customers and a portion attributable to the yet to be recognized initial 14-day trial period collections.
34
Customer discounts, returns, and rebates on telehealth revenues approximated $1.1 million and $871 thousand for the three months ended September 30, 2022 and 2021, respectively. Customer discounts, returns, and rebates on telehealth revenues approximated $4.2 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively.
Customer discounts and allowances on WorkSimpli revenues approximated ~~$710~~$788 thousand and ~~$377~~$580 thousand, ~~for~~respectively, during the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Customer discounts and allowances on WorkSimpli revenues approximated $1.7 million and ~~$1.6~~$1.0 million, ~~for~~respectively, during the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, respectively.
37
As of June 30, 2023 and ~~2021, respectively.~~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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company capitalized ~~$10.3~~a net amount of $10.4 million and ~~$3.6~~$8.8 million, respectively, related to internally developed software costs which isare amortized over the useful life and included in development costs on our statement of operations. The increase in capitalized software costs of ~~$6.7~~$1.6 million or ~~186%~~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 ~~$8.4~~$8.0 million was ~~acquired~~recognized in conjunction with the Cleared ~~acquisition during the three months ended March 31, 2022 (see Note 3).~~acquisition. The Company recorded ~~a $2.7~~an $8.0 million goodwill impairment charge and an $827 thousand intangible asset impairment charge during the ~~nine months~~year ended ~~September 30,~~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, and intangible assets subject to amortization.~~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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~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 and state tax returns. Conversion Labs PR and WorkSimpli file tax returns in Puerto Rico. Both are limited liability companies and file separate 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 consolidated 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, 2018, remain open to audit by all related taxing authorities.
35
~~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 stock shares using weekly price observations over an observation period that approximates the expected life of the options. The risk-free 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.~~
Recently ~~Issued~~Adopted Accounting Standards

In ~~October 2021,~~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.
38
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. ~~This update is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted.~~ The Company ~~is currently evaluating the effects that the~~adopted ASU 2021-08 as of January 1, 2023. The adoption ~~of this guidance will have on our consolidated financial statements and related disclosures.~~
~~Application of New or Revised Accounting Standards—Not Yet Adopted~~
~~All other accounting standards updates that have been issued or proposed by the FASB that do~~did not ~~require adoption until a future date are not expected to~~ have a material impact on the ~~consolidated~~Company’s financial ~~statements upon adoption.~~statements.
36

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 ~~respects~~respect to the requirements and application of both U.S. GAAP and SEC Guidelines; and
~~(iii)~~(iv) inadequate information technology general controls specifically related to security, ~~and~~segregation of duties, user access, restricted access ~~to computer systems including a disaster recovery plan.~~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 ~~added a functioning audit committee~~formally documented its procedures for many of the significant accounting and ~~adopted written policies on related party transactions~~financial reporting processes, in addition to, identifying and ~~whistleblower protection. Additionally, the Company has added qualified independent outside directors and hired additional qualified officers and skilled accounting personnel.~~remediating design deficiencies in its processes. The other remediation actions planned include:

(i) ~~re-design~~implementation of ~~our accounting processes and control procedures;~~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, ~~and~~segregation of duties, user access, restricted access ~~policies to computer systems~~ and ~~implement a disaster recovery plan.~~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 ~~September~~June 30, ~~2022,~~2023, that materially affected, our internal control over financial reporting as of that date.

37

39

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 9,10, “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, ~~2021,~~2022, as filed with the SEC on March ~~7, 2022,~~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. ~~Except as set forth below, there~~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, ~~2021.~~2022. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks. ~~In addition:~~
~~There is substantial doubt about our ability to continue as a going concern.~~
Our historical financial statements have been prepared under the assumption that we will continue as a going concern. As of September 30, 2022, the Company had an accumulated deficit of $178 million. We have limited financial resources, and as of September 30, 2022 we had a working capital deficit of $12.0 million and a cash balance of $5.8 million. We will need to raise additional capital or secure debt funding to support on-going operations. The sources of this capital are expected to be the sale of equity and debt, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues, our financial position, and liquidity. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Unless management is able to obtain additional financing, it is unlikely that the Company will be able to meet its funding requirements during the next 12 months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The doubt regarding our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all. Additionally, if we are unable to continue as a going concern, our stockholders may lose some or all of their investment in the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~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.

38
40

ITEM 6. EXHIBITS

Incorporated by Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date/Period End Date
~~10.1#~~10.1#* Third Amendment to Amended and Restated Employment Agreement, dated June 13, 2023, by and between the Company and Brad Roberts
10.2#* Restricted Stock Award Agreement dated June 13, 2023 between Brad Roberts and LifeMD, Inc.
10.3#* Director and Officer Indemnification Agreement between Brad Roberts and LifeMD, Inc. dated June 13, 2023
10.4#* Consulting Services Agreement, dated June 14, 2023, by and between the Company and Naveen Bhatia
10.5#* Consulting Services Agreement, dated June 14, 2023, by and between the Company and Robert Jindal
10.6# Second Amendment dated June 15, 2023 to the Employment Agreement between Eric Yecies and LifeMD, Inc. 8-K 10.3 6/20/2023
10.7# Restricted Stock Award Agreement dated June 15, 2023 between Eric Yecies and LifeMD, Inc 8-K 10.4 6/20/2023
10.8# Director Agreement, dated ~~September 14, 2022,~~June 20, 2023 between LifeMD, Inc. and ~~Robert Jindal~~William J. Febbo 8-K 10.1 ~~09/20/2022~~6/22/2023
~~10.2#~~10.9# Restricted Stock Award Agreement, dated ~~September 14, 2022,~~June 20, 2023, between LifeMD, Inc. and ~~Robert Jindal~~William J. Febbo 8-K 10.2 ~~09/20/2022~~6/22/2023
~~10.3#~~10.10# Non-Qualified Stock Option Agreement, dated ~~September 14, 2022,~~June 20, 2023, between LifeMD, Inc. and ~~Robert Jindal~~William J. Febbo 8-K 10.3 ~~09/20/2022~~6/22/2023
10.11# Consulting Services Agreement, dated May 30, 2023, between LifeMD, Inc. and William J. Febbo 8-K 10.4 6/22/2023
31.1* Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2* Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1** Section 1350 Certification of Chief Executive Officer.
32.2** Section 1350 Certification of Chief Financial Officer.
101.INS* Inline XBRL Instance Document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)

# Indicates management contract or compensatory plan, contract or arrangement.
* Filed herewith.
**Furnished herewith

39
41
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: ~~November 10, 2022~~August 9, 2023

By: /s/ Marc Benathen
Marc Benathen
Chief Financial Officer
Date: ~~November 10, 2022~~August 9, 2023

By: /s/ Maria Stan
Maria Stan
Principal Accounting Officer
Date: ~~November 10, 2022~~August 9, 2023

40 42

	Shares		Amount		Shares		Amount		Capital			Deficit			Stock			Total			Interest			Total
	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, 2021		-	$	-		23,433,663	$	234,337	$	77,779,370		$	(80,151,905	)	$	(163,701	)	$	(2,301,899	)	$	(2,175,687	)	$	(4,477,586	)
Stock compensation expense		-		-		1,203,750		12,038		2,313,737			-			-			2,325,775			-			2,325,775
Cashless exercise of stock options		-		-		608,905		6,089		(6,089	)		-			-			-			-			-
Exercise of stock options		-		-		30,000		300		23,700			-			-			24,000			-			24,000
Sale of stock in private placement, net		-		-		608,696		6,087		13,489,183			-			-			13,495,270			-			13,495,270
Distribution to non-controlling interest		-		-		-		-		-			-			-			-			(36,000	)		(36,000	)
Purchase of additional membership interest of WSS		-		-		-		-		(377,419	)		-			-			(377,419	)		(66,603	)		(444,022	)
Adjustment of noncontrolling interest for additional investment		-		-		-		-		(1,636,875	)		-			-			(1,636,875	)		1,780,897			144,022
Net loss		-		-		-		-		-			(11,602,383	)		-			(11,602,383	)		(270,503	)		(11,872,886	)
Balance, March 31, 2021		-	$	-		25,885,014	$	258,851	$	91,585,607		$	(91,754,288	)	$	(163,701	)	$	(73,531	)	$	(767,896	)	$	(841,427	)

Stock compensation expense		-		-		30,000		300		2,547,000			-			-			2,547,300			-			2,547,300
Exercise of stock options		-		-		391,000		3,910		738,840			-			-			742,750			-			742,750
Cashless exercise of stock options		-		-		264,142		2,641		(2,641	)		-			-			-			-			-
Exercise of warrants		-		-		65,684		657		311,342			-			-			311,999			-			311,999
Warrants issued for debt instruments		-		-		-		-		6,270,710			-			-			6,270,710			-			6,270,710
Distribution to non-controlling interest		-		-		-		-		-			-			-			-			(36,000	)		(36,000	)
Net loss		-		-		-		-		-			(16,830,700	)		-			(16,830,700	)		(197,973	)		(17,028,673	)
Balance, June 30, 2021		-	$	-		26,635,840	$	266,359	$	101,450,858		$	(108,584,988	)	$	(163,701	)	$	(7,031,472	)	$	(1,001,869	)	$	(8,033,341	)

Stock compensation expense		-		-		30,000		300		3,110,516			-			-			3,110,816			-			3,110,816
Exercise of stock options		-		-		30,000		300		53,700			-			-			54,000			-			54,000
Exercise of warrants		-		-		96,349		963		167,647			-			-			168,610			-			168,610
Sale of common stock under ATM		-		-		70,786		708		492,773			-			-			493,481			-			493,481
Distribution to non-controlling interest		-		-		-		-		-			-			-			-			(36,000	)		(36,000	)
Net loss		-		-		-		-		-			(14,353,375	)		-			(14,353,375	)		(62,706	)		(14,416,081	)
Balance, September 30, 2021		-	$	-		26,862,975	$	268,630	$	105,275,494		$	(122,938,363	)	$	(163,701	)	$	(17,557,940	)	$	(1,100,575	)	$	(18,658,515	)

	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		1,400,000	$	140		31,552,775	$	315,528	$	179,015,250		$	(190,562,994	)	$	(163,701	)	$	(11,395,777	)	$	(475,548	)	$	(11,871,325	)
Stock compensation expense		-		-		149,375		1,494		2,662,020			-			-			2,663,514			-			2,663,514
Stock issued for noncontingent consideration payment		-		-		337,895		3,379		638,621			-			-			642,000			-			642,000
Warrants issued with debt instrument		-		-		-		-		1,088,343			-			-			1,088,343			-			1,088,343
Series A Preferred Stock dividend		-		-		-		-		-			(776,563	)		-			(776,563	)		-			(776,563	)
Distribution to non-controlling interest		-		-		-		-		-			-			-			-			(36,000	)		(36,000	)
Adjustment of membership interest in WorkSimpli		-		-		-		-		(220,582	)		-			-			(220,582	)		(85,932	)		(306,514	)
Net (loss) income		-		-		-		-		-			(4,008,456	)		-			(4,008,456	)		565,983			(3,442,473	)
Balance, March 31, 2023		1,400,000	$	140		32,040,045	$	320,401	$	183,183,652		$	(195,348,013	)	$	(163,701	)	$	(12,007,521	)	$	(31,497	)	$	(12,039,018	)
Beginning balance		1,400,000	$	140		32,040,045	$	320,401	$	183,183,652		$	(195,348,013	)	$	(163,701	)	$	(12,007,521	)	$	(31,497	)	$	(12,039,018	)
Stock compensation expense		-		-		53,000		530		2,861,439			-			-			2,861,969			-			2,861,969
Stock issued for noncontingent consideration payment		-		-		455,319		4,553		637,447			-			-			642,000			-			642,000
Cashless exercise of stock options		-		-		16,471		165		(165	)		-			-			-			-			-
Series A Preferred Stock dividend		-		-		-		-		-			(776,562	)		-			(776,562	)		-			(776,562	)
Distribution to non-controlling interest		-		-		-		-		-			-			-			-			(36,000	)		(36,000	)
Adjustment of membership interest in WorkSimpli		-		-		-		-		(8,443	)		-			-			(8,443	)		9,332			889
Net (loss) income		-		-		-		-		-			(6,733,000	)		-			(6,733,000	)		841,784			(5,891,216	)
Balance, June 30, 2023		1,400,000	$	140		32,564,835	$	325,649	$	186,673,930		$	(202,857,575	)	$	(163,701	)	$	(16,021,557	)	$	783,619		$	(15,237,938	)
Ending balance		1,400,000	$	140		32,564,835	$	325,649	$	186,673,930		$	(202,857,575	)	$	(163,701	)	$	(16,021,557	)	$	783,619		$	(15,237,938	)

1.	Identify the contract
2.	Identify performance obligations
3.	Determine the transaction price
4.	Allocate the transaction price
5.	Recognize revenue

	September 30,			December 31,			June 30,			December 31,
	2022			2021			2023			2022
Finished Goods - Products	$	2,829,053		$	1,592,654

Finished goods - products							$	2,380,392		$	2,587,370
Raw materials and packaging components		891,399			81,427			1,417,623			1,276,891
Inventory reserve		(44,321	)		(57,481	)		(99,713	)		(160,898	)
Total Inventory - net	$	3,676,131		$	1,616,600		$	3,698,302		$	3,703,363

	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Series B Preferred Stock		1,369,581		1,229,581		1,334,421		1,195,446
Restricted Stock Units (RSUs)		1,830,750		996,375		1,563,000		569,417
Stock options		4,007,698		4,170,900		4,214,609		4,193,100
Warrants		3,859,638		3,888,438		3,859,638		3,807,899
Potentially dilutive securities		11,067,667		10,285,294		10,971,668		9,765,862

	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.


Purchase price, net of cash acquired	$	9,091,762
Less:
Intangible assets		1,065,071
Inventory		7,168
Fixed assets		37,888
Accounts payable and other current liabilities		(408,030	)
Goodwill	$	8,389,665

	September 30,			December 31,			Amortizable		June 30,			December 31,			Amortizable
	2022			2021			Life		2023			2022			Life
Amortizable Intangible Assets:
ResumeBuild brand		4,500,000			-			5 years	$	4,500,000		$	4,500,000			5 years
Customer relationship asset		1,006,840			1,006,840			3 years		1,006,840			1,006,840			3 years
Cleared trade name		133,339			-			5 years		133,339			133,339			5 years
Cleared developed technology		12,920			-			1 year		12,920			12,920			1 year
Cleared customer relationships		918,812			-			10 years
Purchased licenses		200,000			200,000			10 years		200,000			200,000			10 years
Website domain name		22,731			22,231			3 years
Website domain names										171,599			22,731			3 years
Amortizable intangible assets										171,599			22,731			3 years
Less: accumulated amortization		(1,876,092	)		(1,209,310	)				(2,523,499	)		(2,043,971	)
Total net amortizable intangible assets	$	4,918,550		$	19,761				$	3,501,199		$	3,831,859

●	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.

	Options Outstanding Number of Shares			Exercise Price per Share		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price per Share

Balance, December 31, 2021		2,063,500		$	4.57 – 21.02		8.04 years	$	9.41
Granted		132,000			2.52 – 13.74		3.98 years		7.20
Cancelled/Forfeited/Expired		(162,135	)		5.08 – 13.74		8.40 years		8.99
Balance at September 30, 2022		2,033,365		$	2.52 – 21.02		7.06 years	$	9.30

Exercisable at December 31, 2021		636,229		$	4.57 – 21.02		8.95 years	$	9.18
Exercisable at September 30, 2022		1,154,107		$	2.52 – 21.02		7.97 years	$	9.41

	Options Outstanding Number of Shares			Exercise Price per Share		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price per Share

Balance, December 31, 2022		1,784,587			$2.30 – 21.02		6.95 years	$	9.54
Granted		78,000			1.84 – 3.56		4.79 years		2.69
Cancelled/Forfeited/Expired		(473,167	)		2.30 – 7.50				6.79
Balance at June 30, 2023		1,389,420			$1.84 – 21.02		6.31 years	$	10.09

Exercisable at December 31, 2022		1,185,153			$2.30 – 21.02		7.64 years	$	9.62
Exercisable at June 30, 2023		1,096,732			$1.84 – 21.02		7.07 years	$	10.31

	Options Outstanding Number of Shares			Exercise Price per Share		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price per Share

Balance, December 31, 2021		1,658,733		$	1.00 – 19.61		5.85 years	$	5.45
Granted		50,000			4.12		4.26 years		4.12
Exercised		(149,400	)		1.00 – 2.00		0.19 years		1.23
Cancelled/Forfeited/Expired		(120,000	)		1.00 – 4.12		4.26 years		4.12
Balance at September 30, 2022		1,439,333		$	1.00 – 19.61		5.88 years	$	6.11

Exercisable December 31, 2021		1,019,164		$	1.00 – 19.61		5.21 years	$	3.60
Exercisable at September 30, 2022		1,087,719		$	1.00 – 19.61		5.84 years	$	5.04

	RSU Outstanding Number of Shares
Balance at December 31, 2022		1,028,250
Granted		1,974,500
Vested		(322,625	)
Cancelled/Forfeited		(480,000	)
Balance at June 30, 2023		2,200,125

	RSU Outstanding Number of Shares
Balance at December 31, 2022		715,000
Granted		425,000
Vested		(165,000	)
Balance at June 30, 2023		975,000

	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		3,859,638		$1.40 – 12.00		5.85 years	$	5.59
Granted		967,742		1.24		4.73 years		1.24
Balance at June 30, 2023		4,827,380		$1.24 – 12.00		4.46 years	$	4.74

Exercisable December 31, 2022		3,836,993		$1.40 – 12.00		4.88 years	$	5.63
Exercisable June 30, 2023		4,827,380		$1.24 – 12.00		4.46 years	$	4.73

	RSUs Outstanding Number of Shares
~~Balance at December 31, 2021~~		~~375,375~~
~~Granted~~		~~1,047,500~~
~~Vested~~		~~(172,125~~	)
~~Balance at September 30, 2022~~		~~1,250,750~~

	RSUs Outstanding Number of Shares
~~Balance at December 31, 2021~~		~~600,000~~
~~Granted~~		~~60,000~~
~~Vested~~		~~(80,000~~	)
~~Balance at September 30, 2022~~		~~580,000~~

	Warrants Outstanding Number of Shares			Exercise Price per Share		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price per Share
Balance at December 31, 2021		3,888,438		$	1.40 – 12.00		5.85 years	$	5.59
Exercised		(22,000	)		1.75		-		1.75
Cancelled/Forfeited/Expired		(6,800	)		2.00		-		2.00
Balance at September 30, 2022		3,859,638		$	1.40 – 12.00		5.15 years	$	5.61

Exercisable December 31, 2021		2,621,307		$	1.40 – 12.00		6.36 years	$	5.98
Exercisable September 30, 2022		3,760,906		$	1.40 – 12.00		5.17 years	$	5.66

		2023
Operating right-of-use assets	$	928,696
Operating lease liabilities - current	$	758,927
Operating lease liabilities - noncurrent	$	276,340


Remainder of fiscal year 2022	$	225,519
Fiscal year 2023		732,409
Fiscal year 2024		484,580
Fiscal year 2025		68,850
Less: imputed interest		(103,419	)
Present value of operating lease liabilities	$	1,407,939


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

●	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.

	○	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.


~~(ii)~~(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 ~~September~~June 30, ~~2022,~~2023, the Company had ~~an increase~~a decrease of approximately ~~$707~~$728 thousand, or 36%, primarily related to ~~increases~~decreases in ~~the general cost environment necessary to support the Company’s sales growth.~~office supplies and software subscriptions.

~~(iii)~~(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.

(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 ~~September~~June 30, ~~2022,~~2023, the Company had an increase of approximately ~~$983~~$906 thousand, or 90%, primarily related to increases in headcount in the Company’s customer service department.

~~(iv)~~(ii)	Development costs: This mainly relates to third-party technology services for developing and maintaining our online ~~platforms and information technology services for our online products.~~platforms. During the three months ended ~~September~~June 30, ~~2022,~~2023, the Company had an increase of approximately ~~$694~~$680 thousand, or 97%, primarily resulting from technology platform improvements and amortization expense.

~~(ii)~~(iii)	Other operating expenses: This consists of rent and lease expense, insurance, office supplies and software subscriptions, royalty expense and bank charges. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had ~~an increase~~a decrease of approximately ~~$2.5 million,~~$441 thousand, or 13%, primarily related to ~~increases~~decreases in ~~the general cost environment necessary to support the Company’s sales growth.~~

~~(iii)~~	~~Customer service expenses: This consists of rent, insurance, payroll~~office supplies and benefit expenses related to the Company’s customer service department located in South Carolina and Puerto Rico. During the nine months ended September 30, 2022, the Company had an increase of approximately $2.2 million, primarily related to increases in headcount in the Company’s customer service department.software subscriptions.

(iv)	Goodwill impairment charge: During the ~~nine~~six months ended ~~September~~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.

(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.

~~(v)~~(ii)	Development costs: This mainly relates to third-party technology services for developing and maintaining our online ~~platforms and information technology services for our online products.~~platforms. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had an increase of approximately $1.4 million, or 127%, primarily resulting from technology platform improvements and amortization expense.

(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 ~~respects~~respect to the requirements and application of both U.S. GAAP and SEC Guidelines; and
~~(iii)~~(iv)	inadequate information technology general controls specifically related to security, ~~and~~segregation of duties, user access, restricted access ~~to computer systems including a disaster recovery plan.~~and change management.

(i)	~~re-design~~implementation of ~~our accounting processes and control procedures;~~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, ~~and~~segregation of duties, user access, restricted access ~~policies to computer systems~~ and ~~implement a disaster recovery plan.~~change management.