LifeMD, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Note Regarding Forward-Looking Statements The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q. Certain statements made in this discussion are “forward-looking statements” within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report. Risk factors include, by way of example and without limitation: ● changes in the market acceptance of our products; ● the impact of competitive products and pricing; ● our ability to successfully commercialize our products on a large enough scale to generate profitable operations; ● our ability to maintain and develop relationships with customers and suppliers; ● our ability to respond to new technological developments quickly and effectively, including applications and risks of artificial intelligence (“AI”); ● our ability to prevent, detect and remediate cybersecurity incidents; ● our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on our proprietary rights; ● our ability to successfully acquire, develop or commercialize new products and equipment; ● our ability to collaborate successfully with other businesses and to integrate acquired businesses or new brands; ● supply chain constraints or difficulties; ● current and potential material weaknesses in our internal control over financial reporting; ● our need to raise additional funds in the future; ● our ability to successfully recruit and retain qualified personnel; ● the impact of industry regulation, including regulation of privacy and digital healthcare; ● general economic and business conditions, including inflation, slower growth or recession; ● changes in the political or regulatory conditions in the markets in which we operate; and ● business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”). We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. 25 Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report. As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to LifeMD, Inc. (formerly known as Conversion Labs, Inc.), Cleared Technologies PBC, a Delaware public benefit corporation (“Cleared”) and our majority-owned subsidiary WorkSimpli Software, LLC (formerly known as LegalSimpli Software, LLC), a Puerto Rico limited liability company (“WorkSimpli”). The affiliated network of medical Professional Corporations and medical Professional Associations administratively led by LifeMD Southern Patient Medical Care, P.C., (“LifeMD PC”) is the Company’s variable interest entity in which we hold a controlling financial interest. Unless otherwise specified, all dollar amounts are expressed in United States (“U.S.”) dollars. Corporate History We were formed in the State of Delaware on May 24, 1994, under our prior name, Immudyne, Inc. We changed our name to Conversion Labs, Inc. on June 22, 2018 and then subsequently, on February 22, 2021, we changed our name to LifeMD, Inc. Further, in connection with our name change, we changed our trading symbol to LFMD. In June 2018, the Company closed the strategic acquisition of 51% of WorkSimpli, a company that provides a software as a service for converting, editing, signing and sharing PDF documents called PDFSimpli. Effective January 22, 2021, we consummated a transaction to restructure the ownership of WorkSimpli through a series of agreements and concurrently increased our ownership stake in WorkSimpli to 85.6%. 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 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%. On January 18, 2022, the Company acquired Cleared, a nationwide allergy telehealth platform that provides personalized treatments for allergy, asthma, and immunology. Business Overview We are a direct-to-patient telehealth company providing a high-quality, cost-effective, and convenient way to access comprehensive, virtual and in-home healthcare. We believe 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 much needed medical care. LifeMD is improving the delivery of healthcare experience through telehealth with our proprietary technology platform, affiliated and dedicated provider network, broad and expanding treatment capabilities, and unique ability to nurture patient relationships. The LifeMD telehealth platform integrates best-in-class capabilities including a 50-state medical group, a nationwide pharmacy network, nationwide laboratory and diagnostic testing capabilities, a fully integrated electronic medical records (“EMR”) system and an internal patient care and service call center. These capabilities are integrated by an industry-leading, proprietary telehealth technology that supports a broad range of primary care, chronic disease and lifestyle healthcare needs. Currently, LifeMD treats over 235,000 active patient subscribers across a range of their medical needs including primary care, men’s sexual health, weight management, sleep, hair loss and hormonal therapy by providing telehealth clinical services and prescription and over-the-counter (“OTC”) treatments, as medically appropriate. Our virtual primary care services are primarily offered on a subscription basis. Since inception, we have helped approximately 918,000 customers and patients by providing them greater access to high-quality, convenient, and affordable care. Our mission is to empower people to live healthier lives by increasing access to high-quality and affordable virtual and in-home healthcare. We believe our success has been, and will continue to be, attributable to an amazing patient experience, made possible by attracting and retaining the highest-quality providers in the country, and our proprietary end-to-end technology platform. As we continue to pursue long-term growth, we plan to continue to introduce new telehealth product and service offerings that complement our already expansive treatment areas. During April 2023, we launched a highly successful and differentiated GLP-1 Weight Management offering driven by our existing primary care capabilities that already had more than 42,000 patient subscribers as of March 31, 2024. Patients receive a range of weight loss services including prescriptions for GLP-1 medications, as medically appropriate, lab work services, general primary care and holistic healthcare and coaching. The GLP-1 medically supported weight loss market is rapidly growing and is projected to increase from over $13 billion to over $100 billion by 2030, according to J.P. Morgan Research. 26 Our telehealth revenue increased 53% for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Total revenue from recurring subscriptions is approximately 97%. In addition to our telehealth business, we own 73.32% of WorkSimpli, which operates PDFSimpli, a rapidly growing software as a service platform for converting, signing, editing, and sharing PDF documents. This business experienced 3% year-over-year revenue growth, with recurring revenue of 100%, due to a combination of higher demand, increased market awareness, enhanced digital capabilities, continued marketing campaign expansion and the addition of the ResumeBuild brand in the first quarter of 2022. Our Platform and Business Strategy We are a patient-centric telehealth company dedicated to delivering seamless end-to-end virtual healthcare directly to consumers and through select enterprise (“B2B”) partnerships. Our mission is facilitated by our robust technology platform that is purpose-built to seamlessly connect the various touchpoints involved in delivering complex care, including scheduling for a national provider network, EMR capabilities, secure synchronous and asynchronous communication, digital prescriptions, cloud pharmacy and more. Our platform enables us to deliver modern personalized health experiences and offerings through our websites and mobile applications, spanning customer discovery, purchase and connection with licensed providers, to pharmacy and OTC order fulfillment, through ongoing care. We believe that our seamless approach significantly reduces the complication, cost and time burden of healthcare, incentivizing consumers to stick with our brands. Our offerings are sold to consumers on a subscription basis thus creating a relationship-driven patient experience to bolster retention rates and recurring revenue. Our offerings range from prescription medication and OTC products fulfilled on a recurring basis, to primary care and weight management clinical services and ongoing care from a team of dedicated medical providers. In general, our offerings seek to serve a patient throughout the lifecycle of both their general and chronic healthcare needs. As appropriate, prescription medications and OTC products are filled by pharmacy fulfillment partners, and are shipped directly to the patient. The number of patients and customers we serve across the nation continues to increase at a robust pace, with approximately 918,000 individuals having purchased our products and services to date. Our platform also includes a robust customer relationship management (“CRM”) system, and performance marketing platform that enables us to acquire and retain new patients and customers at scale by driving brand visibility through strategic media placements, influencer partnerships, and direct response advertising methods across highly visible marketing channels ( i.e ., national TV, streaming TV, streaming audio, YouTube, podcasts, Out of Home, print, magazines, online search, social media, and digital). We leverage our telehealth technology platform and services across the three core areas described below: Direct-to-Consumer Virtual Primary Care In the first quarter of 2022, we launched our flagship virtual primary care offering under the LifeMD brand, LifeMD PC. This offering provides patients with 24/7 access to an affiliated high-quality provider for their primary care, urgent care, and chronic care needs. LifeMD’s virtual primary care offering is a mobile-first full-service destination that provides seamless access to high-quality clinical care including virtual consultations and treatment, prescription medications, diagnostics and imaging, wellness coaching and more. This offering is also supported by robust partnerships that provide our patients benefits such as substantial discounts on lab work and a prescription discount card that can be presented at over 60,000 pharmacies to save up to 92% on their prescription medication. In April 2023, we launched our rapidly growing 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. Since inception, our Weight Management program has grown exponentially to over 42,000 patient subscribers as of March 31, 2024. We remain at the forefront of the rapidly growing GLP-1 weight loss market, which is expected to exceed $100 billion by 2030, with our highly differentiated and comprehensive offering. Direct-to-Patient Telehealth We also leverage our telehealth platform’s provider network, cloud pharmacy, and EMR capabilities across our direct-to-patient telehealth brands. Our telehealth brands RexMD, ShapiroMD, NavaMD, and Cleared address largely unaddressed or underserved needs and are leading destinations in their respective treatment verticals of men’s health, hair loss, dermatology, and immunology. ○ RexMD is a men’s telehealth platform brand that offers access to virtual medical treatment for a variety of men’s health needs. After treatment from an affiliated licensed physician, if appropriate, one of our partner pharmacies will dispense and ship prescription medications and OTC products directly to the customer. Since RexMD’s initial launch in the erectile dysfunction treatment market, it has expanded into additional indications including but not limited to, premature ejaculation, hormone therapy and hair loss. RexMD has served approximately 522,000 customers and patients since inception with a 4.6-star Trustpilot rating. 27 ○ ShapiroMD offers access to virtual medical treatment, prescription medications, patented doctor formulated OTC products, topical compounded medications and Food and Drug Administration (“FDA”) approved medical devices treating male and female hair loss through our telehealth platform. ShapiroMD has emerged as a leading destination for hair loss treatment across the United States (“U.S.”) and has served approximately 265,000 customers and patients since inception with a 4.9-star Trustpilot rating. ○ NavaMD is a female-oriented, tele-dermatology brand that offers access to virtual medical treatment from dermatologists and other providers, and, if appropriate, prescription oral and compounded topical medications to treat dermatological conditions such as aging and acne. In addition to the brand’s telehealth offerings, NavaMD’s proprietary products leverage intellectual property and proprietary formulations licensed from Restorsea, a leading medical-grade skincare technology platform. ○ Cleared is a telehealth brand that provides personalized treatments for allergy, asthma and immunology. Offerings include in-home tests for both environmental and food allergies, prescriptions for allergies and asthma and FDA-approved immunotherapies for treating chronic allergies. Cleared leverages a 50-state network of affiliated medical professionals and providers, various pharmaceutical partners and treatments and tests that cost up to 50% less than the brand-name competition. The offerings include free consultations, prescription medication, complementary OTC products and ongoing care from U.S.-licensed allergists and nurses. B2B Telehealth Partnerships Organizations selling healthcare products face a challenging commercial landscape. Increased competition, shrinking market sizes and challenges reaching patients via the traditional brick-and-mortar physician offices are forcing pharmaceutical, medical device and diagnostic companies to rethink their commercial strategies and increase their focus on digital patient awareness and engagement initiatives. It is estimated that spending on digital solutions to facilitate greater access to end markets accounts for one-third of the collective $30 billion commercial spend by these companies in the U.S. We believe LifeMD’s unique telehealth technology platform and virtual care expertise is well-positioned to address the unmet needs of healthcare product companies as they relate to digital patient awareness, access to care, adherence and compliance. To date, LifeMD has executed the following enterprise commercial agreements providing access to our industry leading telehealth platform capabilities. ○ In September 2023, LifeMD executed a partnership agreement with ASCEND Therapeutics, LLC (“ASCEND”), a subsidiary of Besins Healthcare, and a specialty pharmaceutical company concentrating on women’s health, to provide integrated telehealth services to improve access to EstroGel®. Under the terms of the agreement, LifeMD receives fees related to certain corporate services provided to ASCEND while having our telehealth services featured on the www.estrogel.com website. ○ On December 11, 2023, the Company entered into a collaboration with Medifast, Inc. through and with certain of its wholly-owned subsidiaries (“Medifast”). Medifast will utilize the Company’s virtual care technology platform to provide its clients access to a clinically supported weight management program, including GLP-1 medications, which are a class of medications that mainly help manage blood sugar (glucose) levels in people with Type 2 diabetes but can also treat obesity. 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. The Company granted Jason Pharmaceuticals the right, for a period contemporaneous with the ongoing collaboration, to appoint one non-voting observer to the Board of Directors of the Company, entitled to attend Board meetings. Majority Owned Subsidiary: WorkSimpli WorkSimpli is a leading provider of workplace and document services for consumers, gig workers and small businesses. WorkSimpli operates the following brands: (1) PDFSimpli, an online software as a service platform that allows users to create, edit, convert, sign, and share PDF documents, (2) ResumeBuild, a leading provider of digital resume and cover letter services, (3) SignSimpli, a digital signature platform and (4) LegalSimpli, a provider of legal forms for consumers and small businesses. We acquired WorkSimpli through the purchase of 51% of the membership interests of WorkSimpli Software LLC, a Puerto Rico limited liability company, which operates a marketing-driven software solutions business. On January 22, 2021, LifeMD consummated a transaction and increased its ownership of 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 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%. 28 WorkSimpli was ranked in the top 25,000 websites globally, with more than 56 million registrants. Since its launch, WorkSimpli has converted or edited over 276 terabytes of documents for customers from the legal, financial, real-estate and academic sectors. WorkSimpli had over 166,000 active subscriptions as of March 31, 2024. Results of Operations Our financial results for the three months ended March 31, 2024 are summarized as follows in comparison to the three months ended March 31, 2023: March 31, 2024 March 31, 2023 % of % of $ Sales $ Sales Telehealth revenue, net $ 30,841,402 69.87 % $ 20,202,803 60.99 % WorkSimpli revenue, net 13,302,862 30.13 % 12,923,532 39.01 % Total revenue, net 44,144,264 100 % 33,126,335 100 % Cost of telehealth revenue 4,194,595 9.50 % 3,920,182 11.83 % Cost of WorkSimpli revenue 405,582 0.92 % 294,787 0.89 % Total cost of revenue 4,600,177 10.42 % 4,214,969 12.72 % Gross profit 39,544,087 89.58 % 28,911,366 87.28 % Selling and marketing expenses 24,173,880 54.76 % 16,717,645 50.46 % General and administrative expenses 15,305,732 34.67 % 10,602,763 32.01 % Other operating expenses 2,300,447 5.21 % 1,704,765 5.15 % Development costs 2,087,232 4.73 % 1,183,599 3.57 % Customer service expenses 1,848,041 4.19 % 1,555,404 4.70 % Total expenses 45,715,332 103.56 % 31,764,176 95.89 % Operating loss (6,171,245 ) (13.98 )% (2,852,810 ) (8.61 )% Interest expense, net (477,678 ) (1.08 )% (264,465 ) (0.80 )% Loss on debt extinguishment - - % (325,198 ) (0.98 )% Net loss (6,648,923 ) (15.06 )% (3,442,473 ) (10.39 )% Net income attributable to non-controlling interest 119,432 0.27 % 565,983 1.71 % Net loss attributable to LifeMD, Inc. (6,768,355 ) (15.33 )% (4,008,456 ) (12.10 )% Preferred stock dividends (776,563 ) (1.76 )% (776,563 ) (2.34 )% Net loss attributable to common shareholders $ (7,544,918 ) (17.09 )% $ (4,785,019 ) (14.44 )% Total revenue, net. Revenues for the three months ended March 31, 2024 were approximately $44.1 million, an increase of 33% compared to approximately $33.1 million for the three months ended March 31, 2023. The increase in revenues was attributable to both the increase in telehealth revenue of 53% and an increase in WorkSimpli revenue of 3%. Telehealth revenue accounts for 70% of total revenue and has increased during the three months ended March 31, 2024 due to an increase in online sales demand primarily for LifeMD primary care which experienced an increase of approximately $7.3 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 and Medifast Collaboration revenue. WorkSimpli revenue accounts for 30% of total revenue and has steadily increased year over year due to a combination of higher demand, increased market awareness, enhanced digital capabilities, continued marketing campaign expansion and the addition of the ResumeBuild brand in the first quarter of 2022. Total cost of revenue. Total cost of revenue consists of the cost of (1) telehealth revenues, which primarily include product costs, pharmacy fulfillment costs, physician consult fees, and shipping costs directly attributable to our prescription and OTC products and (2) WorkSimpli revenue consisting primarily of information technology fees related to providing the services made available on our online platform. Total cost of revenue increased by approximately 9% to approximately $4.6 million for the three months ended March 31, 2024 compared to approximately $4.2 million for the three months ended March 31, 2023. The combined cost of revenue increase was due to increased sales volume during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023. Telehealth costs decreased to 14% of associated telehealth revenues experienced during the three months ended March 31, 2024, from 19% of associated telehealth revenues during the three months ended March 31, 2023. WorkSimpli costs increased to 3% of associated WorkSimpli revenues for the three months ended March 31, 2024 as compared to 2% of associated WorkSimpli revenues for the three months ended March 31, 2023. Gross profit. Gross profit increased by approximately 37% to approximately $39.5 million for the three months ended March 31, 2024 compared to approximately $28.9 million for the three months ended March 31, 2023. Gross profit as a percentage of revenues was approximately 90% for the three months ended March 31, 2024 as compared to approximately 87% for the three months ended March 31, 2023. Gross profit as a percentage of revenues for telehealth was 86% for the three months ended March 31, 2024 compared to 81% for the three months ended March 31, 2023, and for WorkSimpli was 97% for the three months ended March 31, 2024 compared to 98% for the three months ended March 31, 2023. The increase in sales volume and demand for LifeMD primary care, Medifast Collaboration revenue, and improved pricing have contributed to the increase in gross profit. 29 Total expenses. Operating expenses for the three months ended March 31, 2024 were approximately $45.7 million, as compared to approximately $31.8 million for the three months ended March 31, 2023. This represents an increase of 44%, or approximately $14.0 million. The increase is primarily attributable to: (i) Selling and marketing expenses: This mainly consists of online marketing and advertising expenses. During the three months ended March 31, 2024, the Company had an increase of approximately $7.5 million, or 45% in selling and marketing costs resulting from additional sales and marketing initiatives to drive the current period’s sales growth primarily for LifeMD primary care. This ramp up is expected to both increase and maintain sustained revenue growth in future years, based on the Company’s recurring revenue subscription-based sales model. (ii) General and administrative expenses: During the three months ended March 31, 2024, stock-based compensation was $2.5 million, with the majority related to stock compensation expense attributable to service-based stock options and restricted stock units, as compared to stock-based compensation expense of $2.7 million for the three months ended March 31, 2023. This category also consists of merchant processing fees, payroll expenses for corporate employees, taxes and licenses, amortization expense and legal and professional fees. During the three months ended March 31, 2024, the Company had an increase of approximately $4.7 million in general and administrative expenses, primarily related to increases in compensation costs of $1.9 million and legal and professional fees of $1.6 million. (iii) Other operating expenses: This consists of rent and lease expense, insurance, office supplies and software subscriptions, royalty expense and bank charges. During the three months ended March 31, 2024, the Company had an increase of approximately $596 thousand, or 35%, primarily related to rent and lease expenses, office supplies and software subscriptions. (iv) Development costs: This mainly relates to third-party technology services for developing and maintaining our online platforms. During the three months ended March 31, 2024, the Company had an increase of approximately $904 thousand, or 76%, primarily resulting from technology platform improvements and amortization expenses. (v) Customer service expenses: This consists of rent, insurance, payroll and benefit expenses related to the Company’s customer service department located in South Carolina and Puerto Rico. During the three months ended March 31, 2024, the Company had an increase of approximately $293 thousand, or 19%, primarily related to increases in infrastructure costs and headcount in the Company’s customer service department. Interest expense, net. Interest expense, net consists of interest expense related to the Avenue Facility and notes payable, partially offset by interest income on the Company’s cash account balances for the three months ended March 31, 2024 and interest expense related to the Avenue Facility, notes payable and interest accrued on the Company’s Series B Convertible Preferred Stock for the three months ended March 31, 2023. Interest expense increased by approximately $213 thousand during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to an increase in interest expensed on the Avenue Facility during the three months ended March 31, 2024. Working Capital March 31, 2024 December 31, 2023 Current assets $ 44,408,735 $ 42,604,267 Current liabilities 44,675,068 34,781,724 Working capital $ (266,333 ) $ 7,822,543 Working capital decreased by approximately $8.1 million during the three months ended March 31, 2024. The increase in current assets is primarily attributable to an increase in cash of approximately $2 million. Current liabilities increased by approximately $9.9 million, which was primarily attributable to an increase in deferred revenue of $4.4 million, an increase in current portion of long-term debt of $4.0 million, and in accounts payable and accrued expenses of $1.9 million as a result of the Company extending payables and credit terms with vendors. 30 Liquidity and Capital Resources Three Months Ended March 31, 2024 2023 Net cash provided by (used in) operating activities $ 5,202,159 $ (2,613,938 ) Net cash used in investing activities (2,190,265 ) (1,811,639 ) Net cash (used in) provided by financing activities (1,047,690 ) 11,991,466 Net increase in cash 1,964,204 7,565,889 Net cash provided by operating activities was approximately $5.2 million for the three months ended March 31, 2024, as compared with approximately $2.6 million net cash used in operating activities for the three months ended March 31, 2023. The significant factors contributing to the net cash provided by operations during the three months ended March 31, 2024, include: (1) an increase in deferred revenue of $4.4 million, (2) an increase in accounts payable and accrued expenses of $2.6 million, (3) $2.5 million in non-cash stock-based compensation charges and (4) $2.2 million in non-cash depreciation and amortization, partially offset by the Company’s net loss of $6.6 million for the three months ended March 31, 2024. Net cash used in operating activities for the three months ended March 31, 2023, was driven primarily by the net loss of approximately $3.4 million inclusive of the following: (1) $2.7 million in non-cash stock-based compensation charges, (2) $1.5 million in non-cash depreciation and amortization and (3) a $325 thousand loss on debt extinguishment. Additionally, a decrease in accounts payable and other operating activities of $3.8 million contributed to net cash used in operations for the three months ended March 31, 2023. These factors contributing to net cash used in operations were partially offset by an increase in deferred revenue of $348 thousand and an increase in inventory of $321 thousand due to the timing of purchases. Net cash used in investing activities for the three months ended March 31, 2024 was approximately $2.2 million, as compared with approximately $1.8 million for the three months ended March 31, 2023. Net cash used in investing activities for the three months ended March 31, 2024, was due to cash paid for capitalized software costs of approximately $2.0 million, and cash paid for the purchase of equipment of approximately $176 thousand. Net cash used in investing activities for the three months ended March 31, 2023, was due to cash paid for capitalized software costs of approximately $1.8 million and cash paid for the purchase of equipment of approximately $32 thousand. Net cash used in financing activities for the three months ended March 31, 2024 was approximately $1.0 million as compared with approximately $12.0 million in net cash provided by financing activities for the three months ended March 31, 2023. Net cash used in financing activities for the three months ended March 31, 2024, consisted of: (1) preferred stock dividends of $777 thousand, (2) repayments of notes payable of approximately $212 thousand, (3) distributions to non-controlling interest of $36 thousand, and (4) the final contingent consideration payment made related to the ResumeBuild acquisition of approximately $31 thousand, partially offset by proceeds from the exercise of options of approximately $8 thousand. Net cash provided by financing activities for the three months ended March 31, 2023, consisted of: (1) $14.5 million in net proceeds received from the Avenue Facility and (2) $2.0 million in proceeds received from the CRG Financial loan. These factors contributing to net cash provided by financing activities were partially offset by repayments of notes payable of approximately $3.3 million net of a $325 thousand loss on debt extinguishment on the CRG Financial loan, preferred stock dividends of approximately $777 thousand, payments made to redeem 500 WorkSimpli membership interest units of approximately $307 thousand, contingent consideration payments made related to the ResumeBuild brand acquisition of approximately $63 thousand and distributions to non-controlling interest of $36 thousand. Liquidity and Capital Resources Outlook 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. Our primary short-term and long-term requirements for liquidity and capital are for customer acquisitions, funding business acquisitions and investments we may make from time to time, working capital including our noncancelable operating lease obligations, noncontingent consideration, capital expenditures and general corporate purposes. For more information on our operating lease obligations, see Note 9—Leases to our unaudited condensed consolidated financial statements included in this report. There can be no assurances that we will be successful in increasing revenues and improving operational efficiencies. On December 11, 2023, the Company entered into a collaboration with 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). In addition, in connection with the Medifast Collaboration, on December 11, 2023, the Company entered into a stock purchase agreement with Medifast’s wholly-owned subsidiary, Jason Pharmaceuticals, Inc., whereby the Company issued 1,224,425 shares of its common stock in the Medifast Private Placement, at a purchase price of $8.1671 per share, for aggregate proceeds of approximately $10 million. 31 On March 21, 2023, the Company entered into and closed on a Credit Agreement, and a supplement to the Credit Agreement with Avenue. The Credit Agreement provides for a convertible senior secured credit facility of up to an aggregate amount of $40 million, comprised of the following: (1) $15 million in term loans funded at closing, (2) $5 million of additional committed term loans which the Company received on September 26, 2023 under 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. 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. On November 15, 2023, Avenue converted $1 million of the principal amount of the outstanding term loans into shares of the Company’s common stock. This resulted in 672,042 shares of common stock issued to Avenue. Additionally on November 15, 2023, Avenue exercised 96,773 of the Avenue Warrants on a cashless basis resulting in 79,330 shares of the Company’s common stock issued. On June 8, 2021, the Company filed a shelf registration statement on Form S-3 under the Securities Act, which was declared effective on June 22, 2021 (the “2021 Shelf”). Under the 2021 Shelf at the time of effectiveness, the Company originally had the ability to raise up to $150 million by selling common stock, preferred stock, debt securities, warrants, and units. In conjunction with the 2021 Shelf, the Company also entered into an At Market Issuance Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc. and Cantor Fitzgerald & Co. relating to the sale of its common stock. In accordance with the terms of the ATM Sales Agreement, the Company may, but is not obligated to, offer and sell, from time to time, shares of common stock having an aggregate offering price of up to $60 million, through or to the Agents, acting as agent or principal. Sales of common stock, if any, will be made by any method permitted that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act. 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”). 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 the Company’s 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 the 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 will continue to drive interest in the Company already evidenced by the Medifast Collaboration and Medifast Private Placement noted above. Critical Accounting Estimates We prepare our unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking into account our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above. Our significant accounting policies are more fully described in Note 2—Basis of Presentation and Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this report. We believe that these accounting policies are critical for one to fully understand and evaluate our financial condition and results of operations. 32 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. All other accounting standards updates that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, we are not required to provide the information required by this Item.