Item 2. Management’s Discussion and Analysis
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 materially 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 compounded medications, insurance claims, 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.
24
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 which discourages many individuals from seeking much-needed medical care. LifeMD is improving
the delivery of the healthcare experience through telehealth with our proprietary technology platform, affiliated and dedicated provider
network, broad and expanding treatment capabilities, and the 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, a wholly-owned affiliated commercial
pharmacy, nationwide laboratory and diagnostic testing capabilities, a fully integrated electronic medical records (“EMR”)
system and a 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 approximately 291,000
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 more than 1,191,000 customers and patients by providing them with 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 vertically integrated care 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.
In June 2024, the Company launched
the acceptance of private health insurance for its virtual primary care services, including weight management for medically qualified
patients. Initially available in select states, the Company plans to continue enrollments with private payors to facilitate access to
medically necessary services, ultimately having broad coverage options across all 50 states. In April 2025, the Company expanded acceptance
of insurance to Medicare beneficiaries for qualifying care. Initially available to more than 21 million Medicare Part B beneficiaries
in 26 states, the Company expects to expand access to medically necessary services for more than 60 million Medicare beneficiaries nationwide,
with access to qualifying services across 49 states anticipated by the end of the second quarter of 2025.
Our telehealth revenue increased
70% for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. Total revenue from recurring subscriptions
is approximately 86%. In addition to our telehealth business, we own 73.3% of WorkSimpli, which operates PDFSimpli, a software as a service
platform for converting, signing, editing, and sharing PDF documents. WorkSimpli revenue from recurring subscriptions is 100%.
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, an EMR system, secure synchronous and asynchronous
communication, prescriptions, pharmacy and laboratory integrations, 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 fulfilment, through ongoing care. We believe that our seamless approach significantly reduces the
complication, cost and time burden of healthcare, therefore incentivizing consumers to stick with our brands.
Our offerings are sold to consumers
on a primarily 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 delivered by a team of dedicated medical providers. In general, our offerings seek to serve a patient throughout the
lifecycle of their urgent, chronic, and lifestyle healthcare needs. As appropriate, prescription medications and OTC products are filled
by our in-house mail order pharmacy or third-party pharmacy fulfilment partners, and are shipped directly to patients. The number of patients
and customers we serve across the nation continues to increase at a robust pace, with more than 1,191,000 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).
25
We leverage
our telehealth technology platform and services across the two core areas described below:
Direct-to-Patient Telehealth Brands
We leverage our telehealth platform’s
affiliated provider network, pharmacy, and EMR capabilities across our direct-to-patient telehealth brands. Our core telehealth brands
LifeMD and Rex MD target largely unaddressed or underserved healthcare needs and are leading destinations in their respective treatment
verticals of virtual primary care and men’s health.
○
LifeMD is a telehealth brand that offers access
to virtual primary care and telehealth services, offering comprehensive healthcare solutions across more than 200 conditions. This brand
provides patients with access to affiliated high-quality providers for their urgent care and chronic care needs. LifeMD’s offering
is a mobile-first full-service destination that provides seamless access to comprehensive virtual medical care including on-demand consultations
and treatment, prescription medications, diagnostics and imaging, wellness coaching, integration with in-home tools and more. This offering
is also supported by partnerships that provide our patients with benefits such as substantial discounts on lab work and a prescription
discount card. LifeMD has served over 267,000 customers and patients to date.
In April 2023, we launched our rapidly growing GLP-1
Weight Management Program providing primary care, metabolic coaching, 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
approximately 85,000 patient subscribers as of March 31, 2025, remaining at the forefront of the rapidly growing GLP-1 weight loss market,
with our highly differentiated and comprehensive offering. In September 2024, we expanded our Weight Management Program with a personalized,
non-GLP-1 treatment plan consisting of three oral medications – metformin, bupropion, and topiramate - which is expected to grow
the program’s addressable market.
As part of its commitment to increasing access to branded prescription GLP-1 medications, we have developed an electronic benefits verification program that allows patients to check pharmacy benefits verification upon enrolling in a LifeMD virtual care program. Secondly, we have partnered with an AI-powered platform that optimizes prior authorization submissions and appeals to improve approval rates for patients. Thirdly, we are establishing direct integrations with branded manufacturers who are also committed to lower cost offerings. These enhancements are designed to minimize delays in care, reduce barriers to accessing brand-name medications, and ensure that a broader range of patients can benefit from LifeMD’s offerings.
○
Rex MD is a men’s telehealth platform brand that offers access to virtual medical treatment for a variety of men’s health needs, including erectile dysfunction, premature ejaculation and hair loss. 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 Rex MD’s initial launch, it has expanded into additional indications including weight management and testosterone replacement therapy. Rex MD has served more than 638,000 customers and patients to date.
○
ShapiroMD is a legacy brand offering 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 is a leading destination for hair loss treatment across the United States (“U.S.”) and has served approximately 265,000 customers and patients to date.
To support our telehealth brands,
in November 2024 we announced the opening of a state-of-the-art wholly-owned affiliated commercial pharmacy, marking an important milestone
in creating a fully integrated, end-to-end telehealth platform. This 22,500-square-foot facility, located in Lancaster, PA and designed
to fill up to 5,000 daily prescriptions, allows us to offer patients a more cohesive care journey for relevant conditions from initial
consultation to prescription fulfillment within a single integrated ecosystem.
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.
During the three months ended
March 31, 2025, LifeMD executed its integration with LillyDirect’s (“Lilly”) pharmacy provider, Gifthealth, to offer
streamlined access of single-dose vials of Lilly’s prescription obesity treatment Zepbound® (tirzepatide) to the Company’s
eligible patients.
26
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. As a result of a series of restructuring transactions, the Company’s ownership
interest in WorkSimpli is 73.3%. WorkSimpli had more than 158,000 active subscriptions as of March 31, 2025.
Results of Operations
Our financial results for the
three months ended March 31, 2025 are summarized as follows in comparison to the three months ended March 31, 2024:
March 31, 2025
March 31, 2024
% of
% of
$
Sales
$
Sales
Telehealth revenue, net
$ 52,456,481
79.85 %
$ 30,841,402
69.87 %
WorkSimpli revenue, net
13,241,275
20.15 %
13,302,862
30.13 %
Total revenue, net
65,697,756
100 %
44,144,264
100 %
Cost of telehealth revenue
8,136,462
12.39 %
4,194,595
9.50 %
Cost of WorkSimpli revenue
507,254
0.77 %
405,582
0.92 %
Total cost of revenue
8,643,716
13.16 %
4,600,177
10.42 %
Gross profit
57,054,040
86.84 %
39,544,087
89.58 %
Selling and marketing expenses
29,194,061
44.44 %
24,173,880
54.76 %
General and administrative expenses
17,055,669
25.95 %
15,305,732
34.67 %
Customer service expenses
3,071,494
4.68 %
1,848,041
4.19 %
Development costs
2,675,134
4.07 %
2,087,232
4.73 %
Other operating expenses
2,514,758
3.83 %
2,300,447
5.21 %
Total expenses
54,511,116
82.97 %
45,715,332
103.56 %
Operating income (loss)
2,542,924
3.87 %
(6,171,245 )
(13.98 )%
Interest expense, net
(626,275 )
(0.95 )%
(477,678 )
(1.08 )%
Net income (loss)
1,916,649
2.92 %
(6,648,923 )
(15.06 )%
Net income attributable to non-controlling interest
531,845
0.81 %
119,432
0.27 %
Net income (loss) attributable to LifeMD, Inc.
1,384,804
2.11 %
(6,768,355 )
(15.33 )%
Preferred stock dividends
(776,563 )
(1.18 )%
(776,563 )
(1.76 )%
Net income (loss) attributable to LifeMD, Inc. common stockholders
$ 608,241
0.93 %
$ (7,544,918 )
(17.09 )%
Total revenue, net. Revenues for
the three months ended March 31, 2025 were approximately $65.7 million, an increase of 49% compared to approximately $44.1 million for
the three months ended March 31, 2024. The increase in revenues was attributable to the increase in telehealth revenue of 70%. Telehealth
revenue accounts for 80% of total revenue and has increased during the three months ended March 31, 2025 due to an increase in online
sales demand primarily for LifeMD primary care which experienced an increase of approximately $22.5 million during the three months ended
March 31, 2025 compared to the three months ended March 31, 2024. WorkSimpli revenue accounts for 20% of total revenue and has stayed
consistent year over year.
Total cost of revenue. Total cost
of revenue consists of the cost of (1) telehealth revenues, which primarily include product costs, pharmacy fulfilment 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 88% to approximately $8.6 million for the three months ended March 31, 2025 compared to approximately $4.6 million for
the three months ended March 31, 2024. The combined cost of revenue increase was due to increased sales volume during the three months
ended March 31, 2025 when compared to the three months ended March 31, 2024. Telehealth costs increased to 16% of associated telehealth
revenues experienced during the three months ended March 31, 2025, from 14% of associated telehealth revenues during the three months
ended March 31, 2024. WorkSimpli costs increased to 4% of associated WorkSimpli revenues for the three months ended March 31, 2025 as
compared to 3% of associated WorkSimpli revenues for the three months ended March 31, 2024.
Gross profit. Gross profit increased
by approximately 44% to approximately $57.1 million for the three months ended March 31, 2025 compared to approximately $39.5 million
for the three months ended March 31, 2024. Gross profit as a percentage of revenues was approximately 87% for the three months ended March
31, 2025 as compared to approximately 90% for the three months ended March 31, 2024. Gross profit as a percentage of revenues for telehealth
was 84% for the three months ended March 31, 2025 compared to 86% for the three months ended March 31, 2024, and for WorkSimpli was 96%
for the three months ended March 31, 2025 compared to 97% for the three months ended March 31, 2024. The increase in sales volume and
demand for LifeMD primary care partially offset by an increase in shipping and physician consult fees have contributed to the increase
in gross profit. The increase in shipping and physician consult fees also contributed to the decrease in gross profit as a percentage
of telehealth revenue.
27
Total expenses. Operating expenses
for the three months ended March 31, 2025 were approximately $54.5 million, as compared to approximately $45.7 million for the three months
ended March 31, 2024. This represents an increase of 19%, or approximately $8.8 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, 2025, the Company had an increase of approximately $5.0 million, or 21% in selling and marketing costs resulting from additional sales and marketing initiatives to drive the current period’s sales growth primarily for LifeMD virtual 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: This category mainly consists of stock-based compensation expense, 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, 2025, the Company had an increase of approximately $1.7 million in general and administrative expenses, primarily related to increases in compensation costs of $1.7 million and merchant processing fees of $690 thousand, partially offset by a reduction in legal and professional fees of $626 thousand.
(iii)
Customer service expenses: This consists of rent, insurance, payroll and benefit expenses related to the Company’s patient care center in South Carolina. During the three months ended March 31, 2025, the Company had an increase of approximately $1.2 million, or 66%, primarily related to increases in infrastructure costs and compensation costs due to increased headcount to support the Company’s growth.
(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, 2025, the Company had an increase of approximately $588 thousand, or 28%, primarily resulting from technology platform improvements and amortization expenses.
(v)
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, 2025, the Company had an increase of approximately $214 thousand, or 9%, primarily related to increases in software subscriptions.
Interest expense, net. Interest
expense, net consists of interest expense related to the Avenue Facility, partially offset by interest income on the Company’s cash
account balances for the three months ended March 31, 2025 and 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. Interest expense increased
by approximately $149 thousand during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily
due to an increase in interest expensed on the Avenue Facility during the three months ended March 31, 2025.
Working Capital
March 31, 2025
December 31, 2024
Current assets
$ 49,972,921
$ 48,733,089
Current liabilities
60,901,560
60,255,145
Working capital
$ (10,928,639 )
$ (11,522,056 )
Working capital increased by approximately
$593 thousand during the three months ended March 31, 2025. The increase in current assets is primarily attributable to an increase in
accounts receivable of approximately $2 million, partially offset by a decrease in cash of approximately $611 thousand and a decrease
in other current assets of approximately $445 thousand. Current liabilities increased by approximately $646 thousand, which was primarily
attributable to an increase in current portion of long-term debt of approximately $3.2 million and an increase in deferred revenue of
approximately $145 thousand, partially offset by a decrease in accounts payable and accrued expenses of approximately $2.6 million.
Liquidity and Capital Resources
Three Months Ended March 31,
2025
2024
Net cash provided by operating activities
$ 3,068,387
$ 5,202,159
Net cash used in investing activities
(2,867,338 )
(2,190,265 )
Net cash used in financing activities
(812,563 )
(1,047,690 )
Net (decrease) increase in cash
(611,514 )
1,964,204
28
Net cash provided by operating
activities was approximately $3.1 million for the three months ended March 31, 2025, as compared with approximately $5.2 million for the
three months ended March 31, 2024. The significant factors contributing to the net cash provided by operating activities during the three
months ended March 31, 2025, include: (1) the Company’s net income of $1.9 million, (2) $2.8 million in non-cash depreciation and
amortization and (3) $2.5 million in non-cash stock-based compensation charges, partially offset by a decrease in accounts payable and
accrued expenses of $2.6 million. The significant factors contributing to the net cash provided by operating activities 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.
Net cash
used in investing activities for the three months ended March 31, 2025 was approximately $2.9 million, as compared with approximately
$2.2 million for the three months ended March 31, 2024. Net cash used in investing activities for the three months ended March 31, 2025,
was due to cash paid for capitalized software costs of approximately $2.7 million, and cash paid for the purchase of equipment of approximately
$122 thousand. 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 financing activities
for the three months ended March 31, 2025 was approximately $813 thousand as compared with approximately $1.0 million for the three months
ended March 31, 2024. Net cash used in financing activities for the three months ended March 31, 2025, consisted of: (1) preferred stock
dividends of $777 thousand, and (2) distributions to non-controlling interest of $36 thousand. 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.
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 and obtaining funding from third-party
sources 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, long-term debt obligations, capital expenditures and general corporate purposes. For more
information on our operating lease obligations, see Note 8—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, improving operational efficiencies, or that
financing will be available or, if available, that such financing will be available under favorable terms.
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. 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. As of March 31, 2025, there was $19.0 million outstanding
under the Avenue Facility.
The Company entered into an At
Market Issuance Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc. and Cantor Fitzgerald & Co.
relating to the sale of its common stock. In accordance with the terms of the ATM Sales Agreement, the Company may, but is not obligated
to, offer and sell, from time to time, shares of common stock, through or to the Agents, acting as agent or principal. Sales of common
stock, if any, will be made by any method permitted that is deemed an “at the market offering” as defined in Rule 415 under
the Securities Act. On June 7, 2024, the Company filed a shelf registration statement on Form S-3 under the Securities Act, which was
declared effective on July 18, 2024 (the “2024 Shelf”). Under the 2024 Shelf at the time of effectiveness, the Company had
the ability to raise up to $150.0 million by selling common stock, preferred stock, debt securities, warrants, and units including $53.3
million of its common stock under the ATM Sales Agreement. As of March 31, 2025, the Company had $53.3 million available under the ATM
Sales Agreement, which is part of the $150.0 million available under the 2024 Shelf.
29
As of
May 5, 2025, the Company has a current cash balance of approximately $24.5 million. 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, reduction in losses 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 three
months ended March 31, 2025, (3) cash on hand of $34.4 million as of March 31, 2025, (4) $53.3 million available under the ATM Sales Agreement,
which is part of the $150.0 million available under the 2024 Shelf, (5) management’s ability to curtail expenses, if necessary,
and (6) the overall market value of the telehealth industry, which the Company believes will continue to drive interest in the Company
as evidenced by the collaboration with Medifast, Inc. (“Medifast”) during the year ended December 31, 2024. The Company received
$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 remaining $2.5 million was paid during the three months ended June 30, 2024 (the
“Medifast Collaboration”).
The Company
also 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, which was paid at the closing on December 12, 2023.
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.
Recent Accounting Pronouncements
In December 2023, the Financial
Accounting Standards Board (“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. The amendments in
this update are effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that ASU
2023-09 will have to its consolidated financial statements and related disclosures.
In November 2024, the FASB issued
ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) to
improve the disclosures about a public business entity’s expenses and provide more detailed information about the types of expenses
included in certain expense captions in the consolidated financial statements. The amendments in this update are effective for annual
reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is
permitted and the amendments in this update should be applied either prospectively or retrospectively. The Company is evaluating the impact
this guidance will have on the disclosures in the consolidated financial statements.
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.
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