LifeMD, Inc. 10-Q

Item 1. Financial Statements LIFEMD, INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2024 December 31, 2023 (Unaudited) ASSETS Current Assets Cash $ 35,110,929 $ 33,146,725 Accounts receivable, net 5,336,491 5,277,250 Product deposit 288,938 485,850 Inventory, net 2,373,640 2,759,932 Other current assets 1,298,737 934,510 Total Current Assets 44,408,735 42,604,267 Non-current Assets Equipment, net 585,980 476,303 Right of use assets 1,674,014 594,897 Capitalized software, net 12,023,248 11,795,979 Intangible assets, net 2,763,297 3,009,263 Total Non-current Assets 17,046,539 15,876,442 Total Assets $ 61,455,274 $ 58,480,709 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) Current Liabilities Accounts payable $ 12,395,032 $ 11,084,855 Accrued expenses 14,555,480 13,937,494 Notes payable, net 115,907 327,597 Current operating lease liabilities 447,559 603,180 Current portion of long-term debt 3,958,333 - Deferred revenue 13,202,757 8,828,598 Total Current Liabilities 44,675,068 34,781,724 Long-term Liabilities Long-term debt, net 14,069,838 17,927,727 Noncurrent operating lease liabilities 1,311,452 73,849 Contingent consideration 100,000 131,250 Total Liabilities 60,156,358 52,914,550 Commitments and contingencies (Note 10) - - Mezzanine Equity Preferred Stock, $ 0.0001 par value; 5,000,000 shares authorized Series B Convertible Preferred Stock, $ 0.0001 par value; 5,000 shares authorized, zero shares issued and outstanding, liquidation value, $ 0 per share as of March 31, 2024 and December 31, 2023 - - Stockholders’ Equity (Deficit) Series A Preferred Stock, $ 0.0001 par value; 1,610,000 shares authorized, 1,400,000 shares issued and outstanding, liquidation value approximately, $ 25.55 per share as of March 31, 2024 and December 31, 2023 140 140 Common Stock, $ 0.01 par value; 100,000,000 shares authorized, 40,731,676 and 38,358,641 shares issued, 40,628,636 and 38,255,601 outstanding as of March 31, 2024 and December 31, 2023, respectively 407,317 383,586 Additional paid-in capital 220,721,095 217,550,583 Accumulated deficit ( 221,810,154 ) ( 214,265,236 ) Treasury stock, 103,040 , at cost, as of March 31, 2024 and December 31, 2023 ( 163,701 ) ( 163,701 ) Total LifeMD, Inc. Stockholders’ (Deficit) Equity ( 845,303 ) 3,505,372 Non-controlling interest 2,144,219 2,060,787 Total Stockholders’ Equity 1,298,916 5,566,159 Total Liabilities, Mezzanine Equity and Stockholders’ Equity (Deficit) $ 61,455,274 $ 58,480,709 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 LIFEMD, INC. CONDENSED Consolidated STATEMENTS OF OPERATIONS (Unaudited) 2024 2023 Three Months Ended March 31, 2024 2023 Revenues Telehealth revenue, net $ 30,841,402 $ 20,202,803 WorkSimpli revenue, net 13,302,862 12,923,532 Total revenues, net 44,144,264 33,126,335 Cost of revenues Cost of telehealth revenue 4,194,595 3,920,182 Cost of WorkSimpli revenue 405,582 294,787 Total cost of revenues 4,600,177 4,214,969 Gross profit 39,544,087 28,911,366 Expenses Selling and marketing expenses 24,173,880 16,717,645 General and administrative expenses 15,305,732 10,602,763 Other operating expenses 2,300,447 1,704,765 Development costs 2,087,232 1,183,599 Customer service expenses 1,848,041 1,555,404 Total expenses 45,715,332 31,764,176 Operating loss ( 6,171,245 ) ( 2,852,810 ) Interest expense, net ( 477,678 ) ( 264,465 ) Loss on debt extinguishment - ( 325,198 ) Net loss ( 6,648,923 ) ( 3,442,473 ) Net income attributable to non-controlling interest 119,432 565,983 Net loss attributable to LifeMD, Inc. ( 6,768,355 ) ( 4,008,456 ) Preferred stock dividends ( 776,563 ) ( 776,563 ) Net loss attributable to LifeMD, Inc. common stockholders $ ( 7,544,918 ) $ ( 4,785,019 ) Basic loss per share attributable to LifeMD, Inc. common stockholders $ ( 0.19 ) $ ( 0.15 ) Diluted loss per share attributable to LifeMD, Inc. common stockholders $ ( 0.19 ) $ ( 0.15 ) Weighted average number of common shares outstanding: Basic 39,242,237 31,680,776 Diluted 39,242,237 31,680,776 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 LIFEMD, INC. CONDENSED Consolidated STATEMENTS of CHANGES IN STOCKHOLDERS’ EQUITY (Deficit) (Unaudited) 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, 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 convertible 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 ) 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, 2024 1,400,000 $ 140 38,358,641 $ 383,586 $ 217,550,583 $ ( 214,265,236 ) $ ( 163,701 ) $ 3,505,372 $ 2,060,787 $ 5,566,159 Balance 1,400,000 $ 140 38,358,641 $ 383,586 $ 217,550,583 $ ( 214,265,236 ) $ ( 163,701 ) $ 3,505,372 $ 2,060,787 $ 5,566,159 Stock compensation expense - - 943,375 9,434 2,534,996 - - 2,544,430 - 2,544,430 Stock issued for noncontingent consideration payment - - 95,821 958 641,042 - - 642,000 - 642,000 Exercise of stock options - - 1,250 13 7,800 - - 7,813 - 7,813 Cashless exercise of warrants - - 1,268,476 12,685 ( 12,685 ) - - - - - Cashless exercise of options - - 64,113 641 ( 641 ) - - - - - Series A Preferred Stock Dividend - - - - - ( 776,563 ) - ( 776,563 ) - ( 776,563 ) Distribution to non-controlling interest - - - - - - - - ( 36,000 ) ( 36,000 ) Net (loss) income - - - - - ( 6,768,355 ) - ( 6,768,355 ) 119,432 ( 6,648,923 ) Balance, March 31, 2024 1,400,000 $ 140 40,731,676 $ 407,317 $ 220,721,095 $ ( 221,810,154 ) $ ( 163,701 ) $ ( 845,303 ) $ 2,144,219 $ 1,298,916 Balance 1,400,000 $ 140 40,731,676 $ 407,317 $ 220,721,095 $ ( 221,810,154 ) $ ( 163,701 ) $ ( 845,303 ) $ 2,144,219 $ 1,298,916 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 LIFEMD, INC. CONDENSED Consolidated STATEMENTS OF CASH FLOWS (Unaudited) 2024 2023 Three Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 6,648,923 ) $ ( 3,442,473 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization of debt discount 100,444 38,461 Amortization of capitalized software 1,787,404 1,088,645 Amortization of intangibles 245,966 233,560 Accretion of consideration payable 13,644 65,478 Depreciation of fixed assets 65,915 47,651 Loss on debt extinguishment - 325,198 Operating lease payments 206,809 184,333 Stock compensation expense 2,544,430 2,663,514 Changes in Assets and Liabilities Accounts receivable ( 59,241 ) ( 102,249 ) Product deposit 196,912 ( 119,014 ) Inventory 386,292 320,781 Other current assets ( 364,227 ) ( 387,041 ) Operating lease liabilities ( 203,944 ) ( 193,546 ) Deferred revenue 4,374,159 348,039 Accounts payable 1,310,177 ( 3,203,759 ) Accrued expenses 1,246,342 97,803 Other operating activity - ( 579,319 ) Net cash provided by (used in) operating activities 5,202,159 ( 2,613,938 ) CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for capitalized software costs ( 2,014,673 ) ( 1,777,983 ) Purchase of equipment ( 175,592 ) ( 33,656 ) Net cash used in investing activities ( 2,190,265 ) ( 1,811,639 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt, net - 14,473,002 Proceeds from notes payable - 2,000,000 Repayment of notes payable, net of prepayment penalty ( 211,690 ) ( 3,299,959 ) Cash proceeds from exercise of options 7,813 - Preferred stock dividends ( 776,563 ) ( 776,563 ) Contingent consideration payments for ResumeBuild acquisition ( 31,250 ) ( 62,500 ) Net payments for membership interest in WorkSimpli - ( 306,514 ) Distributions to non-controlling interest ( 36,000 ) ( 36,000 ) Net cash (used in) provided by financing activities ( 1,047,690 ) 11,991,466 Net increase in cash 1,964,204 7,565,889 Cash at beginning of period 33,146,725 3,958,957 Cash at end of period $ 35,110,929 $ 11,524,846 Cash paid for interest Cash paid during the period for interest $ 644,919 $ 273,000 Non-cash investing and financing activities Cashless exercise of options $ 641 $ - Cashless exercise of warrants $ 12,685 $ - Stock issued for noncontingent consideration payment $ 642,000 $ 642,000 Warrants issued for debt instruments $ - $ 873,100 Right of use asset $ 1,285,926 $ 93,115 Right of use lease liability $ 1,285,926 $ 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 skincare products, was amended and restated and the Company increased its ownership and voting interest in Immudyne PR to 78.2 %. Concurrent with the name change of the parent company to Conversion Labs, Inc., Immudyne PR was renamed to Conversion Labs PR LLC (“Conversion Labs PR”). On April 25, 2019, the operating agreement of Conversion Labs PR was amended and restated in its entirety to increase the Company’s ownership and voting interest in Conversion Labs PR to 100 %. On February 22, 2021, concurrent with the name of the parent company to LifeMD, Inc., Conversion Labs PR was renamed to LifeMD PR, LLC. In June 2018, the Company closed the strategic acquisition of 51 % of LegalSimpli Software, LLC, which operates a software as a service application for converting, editing, signing, and sharing PDF documents called PDFSimpli. In addition to LegalSimpli Software, LLC’s growth business model, this acquisition added deep search engine optimization and search engine marketing expertise to the Company. On July 15, 2021, LegalSimpli Software, LLC, changed its name to WorkSimpli Software LLC, (“WorkSimpli”). Effective January 22, 2021, the Company consummated a transaction to restructure the ownership of WorkSimpli and concurrently increased its ownership interest in WorkSimpli to 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 73.6 %. 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 74.1 %. 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 73.3 %. See Note 8 for additional information. On January 18, 2022, the Company acquired Cleared Technologies, PBC, a Delaware public benefit corporation (“Cleared”), a nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology (See Note 3). Nature of Business The Company is a direct-to-patient telehealth company providing a high-quality, cost-effective, and convenient way to access comprehensive, virtual and in-home healthcare. The Company believes the traditional model of visiting a doctor’s office, traveling to a retail pharmacy, and returning for follow up care or prescription refills is complex, inefficient, and costly, and discourages many individuals from seeking medical care. The Company is improving the delivery of healthcare through telehealth with our proprietary technology platform, affiliated-and-dedicated provider network, broad and expanding treatment capabilities, and unique ability to nurture patient relationships. Direct-to-patient telehealth technology companies, like the Company, connect consumers to affiliated, licensed, healthcare professionals for care across numerous indications, including urgent and primary care, weight management, sleep, hair loss, men’s and women’s health, hormonal therapy and dermatology, chronic care management and more. The Company’s telehealth platform helps patients access their licensed providers for diagnoses, virtual care, and prescription medications, often delivered on a recurring basis. In addition to its telehealth prescription offerings, the Company sells over-the-counter (“OTC”) products. All products are available on a subscription or membership basis, where a patient can subscribe to receive regular shipments of prescribed medications or products. This creates convenience and often discounted pricing opportunities for patients and recurring revenue streams for the Company. With its first brand, ShapiroMD, the Company has built a full line of proprietary OTC products for male and female hair loss—including Food and Drug Administration (“FDA”) approved OTC minoxidil and an FDA-cleared medical device—and now a personalized telehealth platform offering that gives consumers access to virtual medical treatment from their providers and, when appropriate, a full line of oral and topical prescription medications for hair loss. The Company’s men’s brand, RexMD, currently offers access to provider-based treatment for erectile dysfunction, as well as treatment for other common men’s health issues, including premature ejaculation and hair loss. In the first quarter of 2021, the Company launched NavaMD, a tele-dermatology and skincare brand for women. The Company has built a platform that allows it to efficiently launch telehealth and wellness product lines wherever it determines there is a market need. 7 In the first quarter of 2022, we launched our virtual primary care offering under the LifeMD brand, LifeMD Primary Care. This offering provides patients with 24/7 access to an affiliated high-quality provider for their primary care, urgent care, and chronic care needs. In April 2023, we launched our GLP-1 Weight Management program providing primary care, weight loss, holistic healthcare, lab work and prescription services, as appropriate, to patients seeking to access a medically supported weight loss solution. Business and Subsidiary History In June 2018, the Company closed the strategic acquisition of 51 % of WorkSimpli. As a result of various ownership restructurings, the Company’s ownership interest in WorkSimpli is 73.3 % as of December 31, 2023. See Note 8 for additional information. On January 18, 2022, the Company acquired Cleared, a nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology. Under the terms of the agreement, the Company acquired all outstanding shares of Cleared at closing in exchange for a $ 460 thousand upfront cash payment, and two non-contingent milestone payments for a total of $ 3.46 million ($ 1.73 million each on or before the first and second anniversaries of the closing date). The Company purchased a convertible note from a strategic pharmaceutical investor for $ 507 thousand which was converted upon closing of the Cleared acquisition. The Company also agreed to a performance-based earnout based on Cleared’s future net sales, payable in cash or shares at the Company’s discretion. On February 4, 2023, the Company entered into the First Amendment (the “Cleared First Amendment”) to the Stock Purchase Agreement, dated January 11, 2022, between the Company and the sellers of Cleared (the “Cleared Stock Purchase Agreement”). The Cleared Stock Purchase Agreement was amended to, among other things: (i) reduce the total purchase price by $ 250 thousand to a total of $ 3.67 million; (ii) change the timing of the payment of the purchase price to $ 460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024; (iii) remove all “earn-out” payments payable by the Company to the sellers; and (iv) remove certain representations and warranties of the Company and sellers in connection with the transaction (See Note 3). The Company issued the following shares of common stock to the sellers of Cleared under the Cleared First Amendment: (1) 337,895 shares on February 6, 2023, (2) 455,319 shares on April 17, 2023, (3) 158,129 shares on July 17, 2023, (4) 117,583 shares on October 17, 2023 and (5) 95,821 shares on January 16, 2024. In February 2022, WorkSimpli closed on an Asset Purchase Agreement (the “ResumeBuild APA”) with East Fusion FZCO, a Dubai, UAE corporation (the “Seller”), whereby WorkSimpli acquired substantially all of the assets associated with the Seller’s business, offering subscription-based resume building software through software as a service online platforms (the “Acquisition”). WorkSimpli paid $ 4.0 million to the Seller upon closing. The Seller is also entitled to a minimum of $ 500 thousand to be paid out in quarterly payments equal to the greater of 15 % of net profits (as defined in the ResumeBuild APA) or approximately $ 63 thousand, for a two-year period ending on the two-year anniversary of the closing of the Acquisition. As of March 31, 2024, WorkSimpli has paid the Seller $ 500 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). As of March 31, 2024, there is no remaining balance outstanding related to the promissory note. Unless otherwise indicated, the terms “LifeMD,” “Company,” “we,” “us,” and “our” refer to LifeMD, Inc. (formerly known as Conversion Labs, Inc.), Cleared, a Delaware public benefit corporation and our majority-owned subsidiary, WorkSimpli. The affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C. (“LifeMD PC”) is the Company’s affiliated, variable interest entity in which we hold a controlling financial interest. Unless otherwise specified, all dollar amounts are expressed in United States dollars. Liquidity Evaluation As of March 31, 2024, the Company has an accumulated deficit approximating $ 221.8 million and has experienced significant losses from its operations. Although the Company is showing significant positive revenue trends, the Company expects to incur further losses through 2024. Additionally, the Company expects its burn rate of cash to continue to improve and to maintain positive operating cash flows for the next 12 months following the date of this report. To date, the Company has been funding operations primarily through the sales of its products, issuance of common and preferred stock, and through loans and advances. The Company’s continued operations are dependent upon obtaining an increase in its sale volumes or the issuance of additional shares of common stock. There can be no assurances that we will be successful in increasing revenues and improving operational efficiencies. 8 On March 21, 2023, the Company entered into and closed on a loan and security agreement (the “Avenue Credit Agreement”), and a supplement to the Credit Agreement (the “Avenue Supplement”), with Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund, L.P. (collectively, “Avenue”). The Avenue 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 which the Company received on September 26, 2023 under the First Amendment to the Avenue Credit Agreement (the “Avenue First Amendment”) and (3) $ 20 million of additional uncommitted term loans, collectively referred to as the “Avenue Facility”. The Avenue Facility matures on October 1, 2026 . The Company issued Avenue warrants to purchase $ 1.2 million of the Company’s common stock at an exercise price of $ 1.24 , subject to adjustments (the “Avenue Warrants”). In addition, Avenue may convert up to $ 2 million of the $ 15 million in term loans funded at closing into shares of the Company’s common stock at any time while the loans are outstanding, at a price per share equal to $ 1.49 . Proceeds from the Avenue Facility were used to repay the Company’s outstanding notes payable balances with CRG Financial and are expected to be used for general corporate purposes. 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 Avenue Credit Agreement, of at least $2 million. As of March 31, 2024, there was $ 19 million outstanding under the Avenue Facility, and the Company was in compliance with the Avenue Facility covenants. Loans under the Avenue Facility accrue interest at a variable rate per annum equal to the greater of (i) the sum of 4.75% plus the Prime Rate (as defined in the Avenue Supplement) and (ii) 12.50%. Payments are interest only for up to 24 months and then fully amortized thereafter. The Avenue Facility matures on October 1, 2026 . The Company may prepay the loans, subject to a prepayment penalty of 1.00 % to 3.00 % of the principal amount prepaid, depending on the timing of the prepayment. On December 11, 2023, the Company entered into a collaboration with Medifast, Inc. through and with certain of its wholly-owned subsidiaries (“Medifast”). Pursuant to certain agreements between the parties, Medifast has agreed to pay to the Company the amount of $ 10 million to support the collaboration, funding enhancements to the Company platform, operations and supporting infrastructure, of which $ 5 million was paid at the closing on December 12, 2023, $ 2.5 million was paid during the three months ended March 31, 2024, and the remainder $ 2.5 million is to be paid by June 30, 2024 (or earlier upon the Company’s achievement of certain program milestones) (the “Medifast Collaboration”). In addition, in connection with the Medifast Collaboration, the Company entered into a stock purchase agreement and registration rights agreement with Medifast’s wholly-owned subsidiary, Jason Pharmaceuticals, Inc., whereby the Company issued 1,224,425 shares of its common stock in a private placement (the “Medifast Private Placement”) at a purchase price of $ 8.1671 per share, for aggregate proceeds of approximately $ 10 million. 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”). The Company expects to file a new shelf registration statement in 2024 (the “2024 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. As of March 31, 2024, the Company had $ 53.3 million available under the ATM Sales Agreement and $ 32.0 million available under the 2021 Shelf. The Company has a current cash balance of approximately $ 29.3 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. Positive indicators that lead to the Company’s expectation that it will have sufficient cash over the next 12 months following the date of this report include: (1) the Company’s continued strengthening of its revenues and improvement of operational efficiencies across the business, (2) the expected improvement in its cash burn rate over the next 12 months and positive operating cash flows during the quarter ended March 31, 2024, (3) cash on hand of $ 35.1 million as of March 31, 2024, (4) $ 53.3 million available under the ATM Sales Agreement and $ 32.0 million available under the 2021 Shelf, with an expectation of continued availability under the 2024 Shelf, (5) management’s ability to curtail expenses, if necessary, and (6) the overall market value of the telehealth industry, which it believes that will continue to drive interest in the Company as already evidenced by the Medifast Collaboration and Medifast Private Placement noted above. NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited 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, 2023, included in our 2023 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 months ended March 31, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or for any future period. 9 Principles of Consolidation The Company evaluates the need to consolidate affiliates based on standards set forth in Accounting Standards Codification (“ASC”) 810, Consolidation . The consolidated financial statements include the accounts of the Company, Cleared, its majority owned subsidiary, WorkSimpli, and LifeMD PC, the Company’s affiliated, variable interest entity in which we hold a controlling financial interest. During the year ended December 31, 2021, the Company purchased an additional 34.6 % of WorkSimpli for a total equity interest of approximately 85.6 % as of December 31, 2021. Effective September 30, 2022, two option agreements were exercised which further restructured the ownership of WorkSimpli. As a result, the Company’s ownership interest in WorkSimpli decreased to 73.6 %. 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 74.1 %. 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 73.3 %. See Note 8 for additional information. All significant intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of March 31, 2024 and December 31, 2023, there were no cash equivalents. The Company maintains deposits in financial institutions in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. Cash and cash equivalents are maintained at financial institutions, and at times, balances may exceed federally insured limits. These balances could be impacted if one or more of the financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets. We have never experienced any losses related to these balances. Variable Interest Entities In accordance with ASC 810, Consolidation , the Company determines whether any legal entity in which the Company becomes involved is a variable interest entity (a “VIE”) and subject to consolidation. This determination is based on whether an entity has sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of the characteristics of a controlling financial interest and whether the interest will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The Company determined that the LifeMD PC entity, the Company’s affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., is a VIE and subject to consolidation. LifeMD PC and the Company do not have any stockholders in common. LifeMD PC is owned by licensed physicians, and the Company maintains a managed service agreement with LifeMD PC whereby we provide all non-clinical services to LifeMD PC. The Company determined that it is the primary beneficiary of LifeMD PC and must consolidate, as we have both the power to direct the activities of LifeMD PC that most significantly impact the economic performance of the entity and we have the obligation to absorb the losses. As a result, the Company presents the financial position, results of operations, and cash flows of LifeMD PC as part of the consolidated financial statements of the Company. There is no non-controlling interest upon consolidation of LifeMD PC. Total revenue for LifeMD PC was approximately $ 7.6 million and $ 358 thousand for the three months ended March 31, 2024 and 2023, respectively. Total net income for LifeMD PC was approximately $ 5.2 million for the three months ended March 31, 2024 and net loss for LifeMD PC was approximately $ 1.0 million for the three months ended March 31, 2023. Use of Estimates The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include returns and allowances, stockholders’ equity-based transactions, the capitalization and impairment of capitalized software and impairment of other long-lived assets, estimates to cash flow projections, and liquidity assessment. Actual results could differ from those estimates. 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 all cases, delivery is considered to have occurred when the customer obtains control, which is usually commensurate upon shipment of the product. In the case where delivery is not commensurate upon shipment of the product, recognition of revenue is deferred until that time. In the case of its product-based contracts, the Company provides a subscription sensitive service based on the recurring shipment of products. The Company records the related revenue under the subscription agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment obligation to the customer. For its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances, customer rebates, and other adjustments for its product shipments and are reflected as contra revenues in arriving at reported net revenues. The Company’s discounts and customer rebates are known at the time of sale; correspondingly, the Company reduces gross product sales for such discounts and customer rebates. The Company estimates customer returns and allowances based on information derived from historical transaction detail and accounts for such provisions, as contra revenue, during the same period in which the related revenues are earned. The Company has determined that the population of its product-based contracts with customers are homogenous, supporting the ability to record estimates for returns and allowances to be applied to the entire product-based portfolio population. Customer discounts, returns and rebates on telehealth product revenues approximated $ 991 thousand and $ 331 thousand, respectively, during the three months ended March 31, 2024 and 2023, respectively. For its LifeMD PC contracts with customers, the Company offers one-time and subscription-based access to the Company’s telehealth platform. The Company offers monthly and yearly subscriptions dependent upon the subscriber’s enrollment selection. The Company has estimated that there is one performance obligation that is delivered over time, as the Company allows the subscriber to access the telehealth platform for the time period of the subscription purchased. The Company records the revenue over the customer’s subscription period for monthly and yearly subscribers. 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 customer’s subscription will not be renewed for the following month or year depending on the original subscription. The Company records the revenue over the customer’s 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. The Company offers a discount for the monthly or yearly subscriptions being purchased, which is deducted at the time of payment at the initiation of the contract term; therefore the Contract price is fixed and determinable at the contract initiation. Monthly and annual subscriptions for the service are recorded net of the Company’s known discount rates. Customer discounts and allowances on WorkSimpli revenues approximated $ 766 thousand and $ 912 thousand, respectively, during the three months ended March 31, 2024 and 2023, respectively. As noted above, on December 11, 2023, the Company entered into the Medifast Collaboration. Pursuant to certain agreements between the parties, Medifast agreed to pay to the Company the amount of $ 10 million to support the collaboration, funding enhancements to the Company platform, operations and supporting infrastructure, of which $ 5 million was paid at the closing on December 12, 2023, $ 2.5 million was paid during the three months ended March 31, 2024, and the remainder of $ 2.5 million is to be paid by June 30, 2024. 11 The Company determined the transaction price totaled $ 10 million, of which $ 5 million was collected in December 2023 and $ 2.5 million was collected during the three months ended March 31, 2024. The Company has allocated the total $ 10 million initial transaction price to three distinct performance obligations. As the Company completed its first performance obligation related to this agreement, the $ 5 million payment was fully recognized during the year ended December 31, 2023. The Company recognized approximately $ 2 million related to the second performance obligation during the three months ended March 31, 2024. For the three months ended March 31, 2024 and 2023, the Company had the following disaggregated revenue: SCHEDULE OF DISAGGREGATED REVENUE Three Months Ended March 31, 2024 % 2023 % Telehealth product revenue $ 21,264,864 48 % $ 19,845,054 60 % WorkSimpli revenue 13,302,862 30 % 12,923,532 39 % LifeMD PC subscription revenue 7,607,788 17 % 357,749 1 % Medifast collaboration revenue 1,968,750 5 % - - % Total revenues, net $ 44,144,264 100 % $ 33,126,335 100 % Deferred Revenues The Company records deferred revenues when cash payments are received or due in advance of its performance. As of March 31, 2024 and December 31, 2023, the Company has accrued contract liabilities, as deferred revenue, of approximately $ 13.2 million and $ 8.8 million, respectively, which represent the following: (1) $ 8.4 million and $ 4.2 million as of March 31, 2024 and December 31, 2023, respectively, related to obligations on telehealth in-process monthly or yearly contracts with customers, (2) $ 2.3 million and $ 2.1 million as of March 31, 2024 and December 31, 2023, respectively, related to obligations for telehealth products which the customer has not yet obtained control due to non-shipment of the product and (3) $ 2.5 million and $ 2.5 million as of March 31, 2024 and December 31, 2023, respectively, related to obligations on WorkSimpli in-process monthly or yearly contracts with customers. Deferred revenue increased by $ 4.4 million to $ 13.2 million as of March 31, 2024 compared to $ 8.8 million as of December 31, 2023. The increase is primarily due to the increase in monthly and yearly subscription revenue related to LifeMD PC of approximately $ 7.6 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The amount of revenue recognized during the three months ended March 31, 2024, that was included in the deferred revenue balance as of December 31, 2023, was $ 3.4 million. The Company expects to recognize all of the deferred revenue related to future performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2024 as revenue by March 31, 2025. The following table summarizes deferred revenue activities for the periods presented: SCHEDULE OF CONTRACT WITH CUSTOMER LIABILITY 2024 2023 Three Months Ended March 31, 2024 2023 Beginning of period $ 8,828,598 $ 5,547,506 Additions 17,773,373 13,238,591 Revenue recognized ( 13,399,214 ) ( 12,890,552 ) End of period $ 13,202,757 $ 5,895,545 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 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. 12 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 March 31, 2024 and December 31, 2023, the reserve for sales returns and allowances was approximately $ 530 thousand and $ 528 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 March 31, 2024 and December 31, 2023, inventory primarily consisted of finished goods, raw materials and packaging 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 March 31, 2024 and December 31, 2023, the Company recorded an inventory reserve of approximately $ 59 thousand and $ 356 thousand, respectively. As of March 31, 2024 and December 31, 2023, the Company’s inventory consisted of the following: SUMMARY OF INVENTORY March 31, December 31, 2024 2023 Raw materials and packaging components $ 1,245,284 $ 1,216,833 Finished goods 1,186,939 1,898,784 Inventory reserve ( 58,583 ) ( 355,685 ) Total inventory, net $ 2,373,640 $ 2,759,932 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 March 31, 2024 and December 31, 2023, the Company has approximately $ 289 thousand and $ 486 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 March 31, 2024, the Company approximates its implicit purchase commitments to be $ 186 thousand, of which the vast majority are with two vendors that manufacture the Company’s finished goods inventory for its RexMD product line. Capitalized Software Costs The Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes these costs using the straight-line method over the estimated useful life of the software, generally three years. The Company does not sell internally developed software other than through the use of subscription service. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40 , Internal-Use Software , are expensed as incurred. As of March 31, 2024 and December 31, 2023, the Company capitalized a net amount of $ 12.0 million and $ 11.8 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. Intangible Assets 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. 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. 13 Impairment of Long-Lived Assets Long-lived assets include equipment and capitalized software. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, an impairment is recognized as the amount by which the carrying amount of the assets exceeds the estimated fair values of the assets. As of March 31, 2024 and December 31, 2023, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived assets. Income Taxes The Company files corporate federal, state and local tax returns. WorkSimpli files a tax return in Puerto Rico. The Company records current and deferred taxes in accordance with ASC 740, Accounting for Income Taxes . This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax asset, a majority of which has been generated by a history of net operating losses and management determines the necessity for a valuation allowance. ASC 740 also provides a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return. Using this guidance, a company may recognize the tax benefit from an uncertain tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood of more than 50%) that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company’s tax returns for all years since December 31, 2020, remain open to audit by all related taxing authorities. Stock-Based Compensation The Company follows the provisions of ASC 718, Share-Based Payment . Under this guidance compensation cost generally is recognized at fair value on the date of the grant and amortized over the respective vesting or service period. The fair value of options at the date of grant is estimated using the Black-Scholes option pricing model. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of the Company’s common shares using weekly price observations over an observation period that approximates the expected life of the options. The risk-free interest rate approximates the U.S. Treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. Due to limited history of forfeitures, the Company has elected to account for forfeitures as they occur. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense. 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 2024 2023 Three Months Ended March 31, 2024 2023 Series B Preferred Stock - 1,439,389 RSUs and RSAs 2,312,500 1,894,875 Stock options 2,159,750 3,870,253 Warrants 2,393,107 4,827,380 Convertible long-term debt 671,141 1,342,282 Potentially dilutive securities 7,536,498 13,374,179 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. The Company’s Chief Executive Officer is the chief operating decision maker and is responsible for reviewing segment operating results 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. 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 March 31, 2024, we utilized four (4) suppliers for fulfillment services, nine (9) suppliers for manufacturing finished goods, seven (7) suppliers for packaging, bottling, and labeling, and six (6) suppliers for prescription medications. As of December 31, 2023, we utilized three (3) suppliers for fulfillment services, nine (9) suppliers for manufacturing finished goods, seven (7) suppliers for packaging, bottling, and labeling, and five (5) suppliers for prescription medications. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) . The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 will become effective for the Company’s annual period beginning on January 1, 2024 and interim periods within beginning after January 1, 2025. The Company does not expect the application of ASU 2023-07 to have a material impact to its consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , to improve its income tax disclosure requirements. Under ASU 2023-09, entities must annually: (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will become effective for the Company beginning on January 1, 2025. The Company does not expect the application of ASU 2023-09 to have a material impact to its consolidated financial statements and related disclosures. 15 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 condensed consolidated financial statements upon adoption. NOTE 3 – ACQUISITIONS On January 18, 2022, the Company completed the acquisition of Cleared. The Company accounted for the transaction using the acquisition method in accordance with ASC 805, Business Combinations , with the purchase price being allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. Fair values were determined using income approaches. The results of Cleared are included within the consolidated financial statements commencing on the acquisition date. On February 4, 2023, the Company entered into the Cleared First Amendment. The Cleared Stock Purchase Agreement was amended to, among other things: (i) reduce the total purchase price by $ 250 thousand to a total of $ 3.67 million; (ii) change the timing of the payment of the purchase price to $ 460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024; (iii) remove all “earn-out” payments payable by the Company to the sellers; and (iv) remove certain representations and warranties of the Company and sellers in connection with the transaction. The Company issued the following shares of common stock to the sellers of Cleared under the Cleared First Amendment: (1) 337,895 shares on February 6, 2023, (2) 455,319 shares on April 17, 2023, (3) 158,129 shares on July 17, 2023, (4) 117,583 shares on October 17, 2023 and (5) 95,821 shares on January 16, 2024. In February 2022, WorkSimpli closed on the ResumeBuild APA to purchase the related intangible assets associated with the ResumeBuild brand, a subscription-based resume building software. The acquisition further adds to the capabilities of the WorkSimpli software as a service application. The purchase price was $ 4.5 million, including cash paid upfront of $ 4.0 million and contingent consideration of $ 500 thousand. In accordance with ASC 805, Business Combinations , the Company accounted for the ResumeBuild APA as an acquisition of assets as substantially all the fair value of the gross assets acquired is concentrated in a group of similar assets. The Company has elected to group the complementary intangible assets acquired as a single brand intangible asset. Additionally, the Seller is entitled to quarterly payments equal to the greater of 15 % of net profits (as defined in the ResumeBuild APA) or approximately $ 63 thousand, for a two-year period ending on the two-year anniversary of the closing of the Acquisition. As of March 31, 2024, WorkSimpli has paid the Seller $ 500 thousand in accordance with the ResumeBuild APA. The Company estimated the fair value of the contingent consideration using the income approach. NOTE 4 – INTANGIBLE ASSETS As of March 31, 2024 and December 31, 2023, the Company has the following amounts related to amortizable intangible assets: SCHEDULE OF INTANGIBLE ASSETS March 31, December 31, Amortizable 2024 2023 Life Amortizable Intangible Assets: ResumeBuild brand $ 4,500,000 $ 4,500,000 5 years Customer relationship asset 1,006,840 1,006,840 3 years Cleared trade name 133,339 133,339 5 years Cleared developed technology 12,920 12,920 1 year Purchased licenses 200,000 200,000 10 years Website domain names 171,599 171,599 3 years Amortizable intangible assets 171,599 171,599 3 years Less: accumulated amortization ( 3,261,401 ) ( 3,015,435 ) Total intangible assets, net $ 2,763,297 $ 3,009,263 The aggregate amortization expense of the Company’s intangible assets for the three months ended March 31, 2024 and 2023 was $ 246 thousand and $ 234 thousand, respectively. Total amortization expense for the remainder of 2024 is approximately $ 735 thousand, 2025 is approximately $ 976 thousand, 2026 is approximately $ 939 thousand and for 2027 is approximately $ 113 thousand. 16 NOTE 5 – ACCRUED EXPENSES As of March 31, 2024 and December 31, 2023, the Company has the following amounts related to accrued expenses: SCHEDULE OF ACCRUED EXPENSES March 31, December 31, 2024 2023 Accrued selling and marketing expenses $ 7,401,289 $ 5,198,123 Accrued compensation 1,621,608 3,003,007 Sales tax payable 2,467,447 2,501,035 Accrued dividends payable 776,563 776,563 Purchase price payable - 641,042 Other accrued expenses 2,288,573 1,817,724 Total accrued expenses $ 14,555,480 $ 13,937,494 NOTE 6 – NOTES PAYABLE Working Capital Loans In October 2022, the Company received proceeds of $ 976 thousand under a 12-month working capital loan with Amazon. The terms of the loan include interest in the amount of $ 62 thousand. As of March 31, 2024 and December 31, 2023, the outstanding balance was $ 0 and $ 111 thousand, respectively, and is included in notes payable, net, on the accompanying unaudited condensed consolidated balance sheet. In January and February 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 March 31, 2024 and December 31, 2023, the outstanding balance was $ 0 related to the CRG Financial loan. During the year ended December 31, 2023, the Company financed a $ 348 thousand prepaid insurance policy under a 10-month financing agreement with Arthur J. Gallagher Risk Management Services, LLC. The terms of the agreement include finance fees in the amount of $ 13 thousand. As of March 31, 2024 and December 31, 2023, the outstanding balance was $ 116 thousand and $ 217 thousand, respectively, and is included in notes payable, net, on the accompanying consolidated balance sheet. Total interest expense on notes payable amounted to $ 5 thousand and $ 21 thousand for the three months ended March 31, 2024 and 2023, respectively. NOTE 7 – LONG-TERM DEBT Avenue Capital Credit Facility As noted in Note 1 above, on March 21, 2023, the Company entered into the Avenue Credit Agreement and the Avenue Supplement. The Avenue 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 received on September 26, 2023 in conjunction with the Avenue First Amendment 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 Avenue Warrants have a term of five years. The relative fair value of the Avenue Warrants upon closing was $ 873 thousand. 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 of the Avenue Warrants was recorded to debt discount and is included as a reduction to long-term debt on the unaudited condensed consolidated balance sheet as of March 31, 2024. 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 $1.4 million will be amortized over a forty-two-month period. Total amortization of debt discount was $ 100 thousand for the three months ended March 31, 2024. The Company received gross proceeds of $ 15.0 million at closing (net proceeds of $ 12.3 million after repayment of the $ 2 million outstanding CRG loan balance and various fees). 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%. As of March 31, 2024, the interest rate was 13.25%. Payments are interest only until November 2024. The Company may prepay the loans, subject to a prepayment penalty of 1.00 % to 3.00 % of the principal amount prepaid, depending on the timing of the prepayment. 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. 17 As of March 31, 2024, the Company expects to pay $ 1.6 million in 2024, $ 9.5 million in 2025 and $ 7.9 million in 2026 in principal payments under the Avenue Facility. 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 Avenue Credit Agreement, of at least $ 2 million. As of March 31, 2024, there was $ 19 million outstanding under the Avenue Facility and the Company was in compliance with the Avenue Facility covenants. Total interest expense on long-term debt, inclusive of amortization of debt discounts, amounted to $ 679 and $ 96 thousand for the three months ended March 31, 2024 and 2023, respectively. NOTE 8 – 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. As of March 31, 2024, the Company had $ 53.3 million available under the ATM Sales Agreement and $ 32.0 million available under the 2021 Shelf. The Company expects to file a new shelf registration statement in 2024 (the “2024 Shelf”). Options and Warrants During the three months ended March 31, 2024, the Company issued an aggregate of 64,113 shares of common stock related to the cashless exercise of options. During the three months ended March 31, 2024, the Company issued an aggregate of 1,268,476 shares of common stock related to the cashless exercise of warrants. During the three months ended March 31, 2024, the Company issued an aggregate of 1,250 shares of common stock related to the exercise of options for total proceeds of approximately $ 8 thousand. Common Stock Common Stock Transactions During the Three Months Ended March 31, 2024 During the three months ended March 31, 2024, the Company issued an aggregate of 943,375 shares of common stock for service, including vested restricted stock. On February 4, 2023, the Company entered into the Cleared First Amendment between the Company and the sellers of Cleared. The Cleared Stock Purchase Agreement 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. The Company issued the following shares of common stock to the sellers of Cleared under the Cleared First Amendment: (1) 337,895 shares on February 6, 2023, (2) 455,319 shares on April 17, 2023, (3) 158,129 shares on July 17, 2023, (4) 117,583 shares on October 17, 2023 and (5) 95,821 shares on January 16, 2024. The fair value of the stock issuances under the Cleared First Amendment was $ 3.2 million. Noncontrolling Interest Net income attributed to the non-controlling interest amounted to approximately $ 119 thousand and $ 566 thousand for the three months ended March 31, 2024 and 2023, respectively. During both the three months ended March 31, 2024 and 2023, the Company paid distributions to non-controlling shareholders of $ 36 thousand. 18 WorkSimpli Software Capitalization Update 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 85.6 % to 73.6 %. 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 74.1 %. On June 30, 2023, WorkSimpli’s Chief Operating Officer, exercised her option agreement (the “WorkSimpli COO 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 WorkSimpli COO Option Agreement, Conversion Labs PR decreased its ownership interest in WorkSimpli from 74.1 % to 73.3 %. On March 31, 2024, WorkSimpli declared a cash dividend in the amount of $ 11.20 per membership interest unit to all unit holders of record as of March 31, 2024 and was paid on April 10, 2024 . The total dividends declared to noncontrolling interest holders was $ 267 thousand for the three months ended March 31, 2024, and is included in the Company’s results of operations for the three months ended March 31, 2024. Dividends The Company pays cumulative dividends 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. During the three months ended March 31, 2024, the Company declared the dividend on March 26, 2024 to holders of record as of April 5, 2024 which was paid on April 15, 2024. During the three months ended March 31, 2023, the Company declared the dividend on March 28, 2023 to holders of record as of April 7, 2023 which was paid on April 17, 2023. The dividends are included in the Company’s results of operations for the three months ended March 31, 2024 and 2023. Stock Options On January 8, 2021, the Company approved the Company’s 2020 Equity and Incentive Plan (the “2020 Plan”). Approval of the 2020 Plan was included as Proposal 1 in the Company’s definitive proxy statement for its Special Meeting of Stockholders 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 the amendment and restatement to the 2020 Plan, which amended 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. On June 16, 2022, at the Annual Meeting of Stockholders, the stockholders of the Company approved the second amendment and restatement of the 2020 Plan (the “Amended 2020 Plan”), which amended 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 March 31, 2024, the Amended 2020 Plan provided for the issuance of up to 5,100,000 shares of Common Stock. Remaining authorization under the Amended 2020 Plan, as amended, was 661,611 shares as of March 31, 2024. 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. 19 Previously, the Company had granted service-based stock options and performance-based stock options separate from the 2020 Plan. The following is a summary of outstanding options activity under our Amended 2020 Plan for the three months ended March 31, 2024: 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, 2023 726,889 $ 1.84 – 13.74 6.11 years $ 8.08 Granted - - - - Exercised ( 172,222 ) 6.00 – 7.50 6.61 years 6.44 Balance at March 31, 2024 554,667 $ 1.84 – 13.74 5.63 years $ 8.59 Exercisable at December 31, 2023 604,758 $ 1.84 – 13.74 6.23 years $ 8.44 Exercisable at March 31, 2024 472,949 $ 1.84 – 13.74 5.74 years $ 9.12 Total compensation expense under the Amended 2020 Plan options above was approximately $ 669 thousand and $ 1.2 million for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of $ 565 thousand as of March 31, 2024. During the three months ended March 31, 2024, 172,222 options were exercised on a cashless basis, which resulted in 62,781 shares issued. As of March 31, 2024, aggregate intrinsic value of vested service-based options outstanding was $ 1.5 million. The following is a summary of outstanding service-based options activity (prior to the establishment of our 2020 Plan above) for the three months ended March 31, 2024: 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, 2023 1,124,333 $ 1.00 – 11.98 4.60 years $ 3.69 Granted - - - - Exercised ( 4,250 ) 6.25 6.44 years 6.25 Balance at March 31, 2024 1,120,083 $ 1.00 – 11.98 4.34 years $ 3.68 Exercisable December 31, 2023 1,090,083 $ 1.00 – 11.98 4.62 years $ 3.66 Exercisable at March 31, 2024 1,098,893 $ 1.00 – 11.98 4.37 years $ 3.67 Total compensation expense under the above service-based option plan was approximately $ 192 thousand and $ 643 thousand for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of $ 99 thousand as of March 31, 2024. Of the total service-based options exercised during the three months ended March 31, 2024, 3,000 options were exercised on a cashless basis, which resulted in 1,332 shares issued. As of March 31, 2024, aggregate intrinsic value of vested service-based options outstanding was $ 7.4 million. The following is a summary of outstanding performance-based options activity for the three months ended March 31, 2024: 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, 2023 485,000 $ 1.25 – 2.50 4.13 years $ 1.56 Granted - - - - Balance at March 31, 2024 485,000 $ 1.25 – 2.50 3.88 years $ 1.56 Exercisable December 31, 2023 420,000 $ 1.50 – 2.50 4.20 years $ 1.56 Exercisable at March 31, 2024 420,000 $ 1.50 – 2.50 3.95 years $ 1.56 No compensation expense was recognized on the performance-based options above for the three months ended March 31, 2024 and 2023, as the performance terms have not been met or are not probable. As of March 31, 2024, aggregate intrinsic value of vested performance options outstanding was $ 3.7 million. 20 RSUs and RSAs (under our Amended 2020 Plan) The following is a summary of outstanding RSUs and RSAs activity under our Amended 2020 Plan for the three months ended March 31, 2024: SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY RSU Outstanding Number of Shares Balance at December 31, 2023 3,194,375 RSU Outstanding Number of Shares, Beginning 3,194,375 Granted - RSU Outstanding Number of Shares, Granted - Vested ( 834,125 ) RSU Outstanding Number of Shares, Vested ( 834,125 ) Cancelled/Forfeited ( 450,000 ) RSU Outstanding Number of Shares, Forfeited ( 450,000 ) Balance at March 31, 2024 1,910,250 RSU Outstanding Number of Shares, Ending 1,910,250 Total compensation expense under the Amended 2020 Plan RSUs and RSAs above was approximately $ 1.4 million and $ 543 thousand for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of approximately $ 3.1 million as of March 31, 2024. During the three months ended March 31 2024, 880,875 RSUs and RSAs were issued, which included 834,125 RSUs and RSAs that vested during the three months ended March 31, 2024 and 46,750 RSUs and RSAs that vested previously. RSUs and RSAs (outside of our Amended 2020 Plan) The following is a summary of outstanding RSUs and RSAs activity (outside of our Amended 2020 Plan) for the three months ended March 31, 2024: SCHEDULE OF WARRANT AND RESTRICTED STOCK OUTSTANDING AND EXERCISABLE RSU Outstanding Number of Shares Balance at December 31, 2023 550,000 RSU Outstanding Number of Shares, Beginning 550,000 Granted - RSU Outstanding Number of Shares, Granted - Vested ( 62,500 ) RSU Outstanding Number of Shares, Vested ( 62,500 ) Balance at March 31, 2024 487,500 RSU Outstanding Number of Shares, Ending 487,500 Total compensation expense for RSUs and RSAs outside of the Amended 2020 Plan was approximately $ 255 thousand and $ 305 thousand for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of approximately $ 554 thousand as of March 31, 2024. During the three months ended March 31, 2024, 62,500 RSUs and RSAs vested and were issued. Warrants The following is a summary of outstanding and exercisable warrants activity during the three months ended March 31, 2024: 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, 2023 4,730,607 $ 1.24 – 12.00 3.95 years $ 4.81 Exercised ( 2,337,500 ) 4.60 – 5.75 4.41 years 4.91 Cancelled/Forfeited/Expired - - - - Balance at March 31, 2024 2,393,107 $ 1.24 – 12.00 3.01 years $ 4.71 Exercisable December 31, 2023 4,730,607 $ 1.24 – 12.00 3.95 years $ 4.80 Exercisable March 31, 2024 2,393,107 $ 1.24 – 12.00 3.01 years $ 4.69 Total compensation expense on the above warrants for services was approximately $ 0 and $ 12 thousand for the three months ended March 31, 2024 and 2023, respectively, with no unamortized expense remaining as of March 31, 2024. 21 Stock-based Compensation The total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based stock options, warrants, RSUs and RSAs amounted to approximately $ 2.5 million and $ 2.7 million for the three months ended March 31, 2024 and 2023, respectively. Such amounts are included in general and administrative expenses in the unaudited condensed consolidated statement of operations. Unamortized expense remaining related to service-based stock options, performance-based stock options, warrants, RSUs and RSAs was approximately $ 4.3 million as of March 31, 2024, which is expected to be recognized through 2026. NOTE 9 – LEASES The Company leases office space domestically under operating leases including: (1) the Company’s headquarters in New York, New York for which the lease expires in 2025, (2) a marketing and sales center in Huntington Beach, California for which the lease expires in 2024, (3) a patient care center in Greenville, South Carolina for which the lease expires in 2024, (4) warehouse and fulfillment centers in Columbia, Pennsylvania and Lancaster, Pennsylvania for which the leases expire in 2024 and (5) a warehouse and pharmacy operations center in Lancaster, Pennsylvania for which the lease expires in 2029, with an additional five year option to extend, for which the Company expects to utilize. WorkSimpli leases two office spaces in Puerto Rico for which the leases expire in 2024. The following is a summary of the Company’s operating right-of-use assets and operating lease liabilities as of March 31, 2024: SCHEDULE OF OPERATING RIGHT OF USE OF ASSETS Operating right-of-use assets $ 1,674,014 Operating lease liabilities - current $ 447,559 Operating lease liabilities - noncurrent $ 1,311,452 Total accumulated amortization of the Company’s operating right-of-use assets was $ 2.3 million and $ 1.5 million as of the three months ended March 31, 2024 and 2023, respectively. 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 March 31, 2024: SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES Fiscal year 2024 $ 519,253 Fiscal year 2025 273,749 Fiscal year 2026 211,046 Fiscal year 2027 217,378 Fiscal year 2028 223,899 Thereafter 1,333,857 Less: imputed interest ( 1,020,171 ) Present value of operating lease liabilities $ 1,759,011 Operating lease expenses were approximately $ 226 thousand and $ 223 thousand for the three months ended March 31, 2024 and 2023, 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 INFORMATION RELATED TO OPERATING LEASE LIABILITIES March 31, 2024 2023 Cash paid for operating lease liabilities $ 227,028 $ 226,797 Supplemental balance sheet information related to operating lease liabilities consisted of the following: March 31, 2024 December 31, 2023 Weighted average remaining lease term in years 8.72 2.18 Weighted average discount rate 11.11 % 7.17 % We have elected to apply the short-term lease exception to the warehouse and fulfillment center spaces we lease in Columbia, Pennsylvania and Lancaster, Pennsylvania. These leases have a term of less than 12 months and are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term. Straight-line lease payments are approximately $ 2 thousand and $ 3 thousand per month, for Columbia, Pennsylvania and Lancaster, Pennsylvania, respectively. Additionally, Conversion Labs PR utilizes office space in Puerto Rico on a month-to-month basis incurring rental expense of approximately $ 3 thousand per month. 22 NOTE 10 - COMMITMENTS AND CONTINGENCIES Royalty Agreements During 2016, Conversion Labs PR entered into a sole and exclusive license, royalty and advisory agreement with Pilaris Laboratories, LLC (“Pilaris”) relating to Pilaris’ PilarisMax shampoo formulation and conditioner. The term of the agreement will be the life of the US Patent held by Pilaris, ten years . As consideration for granting Conversion Labs PR this license, Pilaris will receive on quarterly basis, 10 % of the net income collected by the licensed products based on the following formula: Net Income = total income – cost of goods sold – advertising and operating expenses directly related to the marketing of the licensed products. As of March 31, 2024 and December 31, 2023, $ 0 and $ 5 thousand, respectively, was included in accrued expenses in regard to this agreement. The Company paid Pilaris approximately $ 5 thousand and $ 0 during the three months ended March 31, 2024 and 2023, respectively, in regard to this agreement. During 2018, the Company entered into a license agreement (the “Alphabet Agreement”) with M.ALPHABET, LLC (“Alphabet”), pursuant to which Alphabet agreed to license its PURPUREX business which consists of methods and compositions developed by Alphabet for the treatment of purpura, bruising, post-procedural bruising, and traumatic bruising (the “Product Line”). Pursuant to the license granted under the Alphabet Agreement, Conversion Labs PR obtains an exclusive license to incorporate (i) any intellectual property rights related to the Product Line and (ii) all designs, drawings, formulas, chemical compositions and specifications used or useable in the Product Line into one or more products manufactured, sold, and/or distributed by Alphabet for the treatment of purpura, bruising, post-procedural bruising and traumatic bruising and for all other fields of use or purposes (the “Licensed Product(s)”), and to make, have made, advertise, promote, market, sell, import, export, use, offer to sell, and distribute the Licensed Product(s) throughout the world with the exception of China, Hong Kong, Japan, and Australia (the “License”). The Company shall pay Alphabet a royalty equal to 13% of Gross Receipts (as defined in the Agreement) realized from the sales of Licensed Products. No amounts were earned or owed as of March 31, 2024. 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 $ 7.5 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 $ 10.0 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 and (iii) if Licensed Products have gross receipts of $ 20.0 million in any calendar year, the Company will grant Alphabet an option to purchase 40,000 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 March 31, 2024, the Company approximates its implicit purchase commitments to be $ 186 thousand. Legal Matters In the normal course of business operations, the Company may become involved in various legal matters. As of March 31, 2024, 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 effect on the Company’s consolidated financial position. On September 5, 2023, the Internal Revenue Service (the “IRS”) issued a notice of deficiency to the Company in which the IRS asserted an income tax deficiency of approximately $ 1.9 million for the Company’s tax year ending December 31, 2019. The Company timely filed a petition in the United States Tax Court disputing all of the proposed tax deficiency. The case remains in its earliest stages. The Company should be served with the IRS’s answer to the Company’s petition in the near future. The Company filed an amended return well before the notice of deficiency was issued that the Company believes will resolve all or substantially all of the issues in the case. The Company intends to vigorously defend this case. NOTE 11 – RELATED PARTY TRANSACTIONS Working Capital Loan In January and February 2023, the Company received proceeds of $ 2 million under a $ 2.5 million loan facility with CRG Financial, maturing on December 15, 2023 . The loan facility includes interest of 12 %. The Company repaid the $ 2 million outstanding loan balance on March 21, 2023 with the proceeds received from the Avenue Facility and recorded a $ 325 thousand loss on debt extinguishment related to the repayment of the CRG Financial loan (see Note 6). As of both March 31, 2024 and December 31, 2023, the outstanding balance was $ 0 related to the CRG Financial loan. Mr. Bhatia, a member of the Board of the Company, is a 3% owner and also serves on the Board of Directors of CRG Financial. 23 WorkSimpli Software During the three months ended March 31, 2024 and 2023, the Company utilized CloudBoson Technologies Pvt. Ltd. (“CloudBoson”), formerly LegalSubmit Pvt. Ltd., a company owned by WorkSimpli’s Chief Software Engineer, to provide software development services. The Company paid CloudBoson a total of approximately $ 1.1 million and $ 623 thousand during the three months ended March 31, 2024 and 2023, respectively, for these services. The Company owed CloudBoson $ 28 thousand as of March 31, 2024 and $ 226 thousand as of December 31, 2023. Director Consulting Agreements On May 30, 2023, Will Febbo, a member of the Board of the Company, entered into a consulting services agreement with the Company, pursuant to which he provides certain investor relations and strategic business development services, in consideration for 375,000 restricted shares of the Company’s common stock, which will vest in quarterly installments from August 30, 2023 through November 30, 2024. The Company issued 62,500 restricted shares of common stock related to this agreement during the three months ended March 31, 2024. On June 14, 2023, Robert Jindal, a member of the Board of the Company, entered into a consulting services agreement with the Company, pursuant to which Mr. Jindal provides certain investor relations and strategic business development services, in consideration for 225,000 restricted shares of the Company’s common stock, which will vest in six-month installments from June 14, 2023 through December 31, 2024. On June 14, 2023, Naveen Bhatia, a member of the Board of the Company, entered into a consulting services agreement with the Company, pursuant to which Mr. Bhatia provides certain investor relations and strategic business development services, in consideration for 225,000 restricted shares of the Company’s common stock, which will vest in six-month installments from June 14, 2023 through December 31, 2024. NOTE 12 – SEGMENT DATA Our portfolio of brands are included within two operating segments: Telehealth and WorkSimpli. We believe our current segments and brands within our segments complement one another and position us well for future growth. Relevant segment data for the three months ended March 31, 2024 and 2023 is as follows: SCHEDULE OF RELEVANT SEGMENT DATA 2024 2023 Three Months Ended March 31, 2024 2023 Telehealth Revenue $ 30,841,402 $ 20,202,803 Gross margin 86.4 % 80.6 % Operating loss $ ( 6,619,763 ) $ ( 5,001,358 ) WorkSimpli Revenue $ 13,302,862 $ 12,923,532 Gross margin 97.0 % 97.7 % Operating income $ 448,518 $ 2,148,548 Consolidated Revenue $ 44,144,264 $ 33,126,335 Gross margin 89.6 % 87.3 % Operating loss $ ( 6,171,245 ) $ ( 2,852,810 ) Relevant segment data as of March 31, 2024 and December 31, 2023 is as follows: March 31, 2024 December 31, 2023 Total Assets Telehealth $ 50,901,504 $ 48,126,006 WorkSimpli 10,553,770 10,354,703 Consolidated $ 61,455,274 $ 58,480,709 Total Assets $ 61,455,274 $ 58,480,709 NOTE 13 – SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date these unaudited condensed consolidated financial statements were issued and has identified the following: Stock Issued for Service In April and May 2024, the Company issued 122,250 shares of common stock related to vested restricted stock with a total fair value of $ 601 thousand. Cashless Exercise of Options and Warrants In April and May 2024, the Company issued 285,554 shares of common stock related to the cashless exercise of warrants and 22,050 shares of common stock related to the cashless exercise of options. 24