(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the period ended December 31, 2021 and highlight certain other information which, in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the fiscal year ended December 31, 2021, as compared to the fiscal year ended December 31, 2020. This discussion should be read in conjunction with our consolidated financial statements for the two-year period ended December 31, 2021 and related notes included elsewhere in this Annual Report on Form 10-K. These historical financial statements may not be indicative of our future performance. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in "Item 1A. Risk Factors."
LifeMD, Inc. is a diversified online direct-to-patient marketing and telehealth company with a portfolio of health and wellness brands. Our products are marketed and sold directly to consumers through advertisements on Facebook, Google, Amazon, and other social media and e-commerce platforms. Secondarily, we also sell our products through third party partner channels. We market branded and generic prescription drugs that are then sold and shipped online directly to consumers in all 50 states and District of Columbia and Puerto Rico. We have also established a 50-state affiliated medical group that provides virtual consultations to our patients. Since inception, we have treated over 490,000 patients nationwide. We operate our business using a proprietary telehealth technology platform that facilitates a compliant relationship between the patient, provider, us and pharmacy.
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.
Developments in 2021
Key developments in our business during 2021 are described below:
On February 11, 2021, we consummated the closing of a private placement offering (the "February 2021 Offering"), whereby pursuant to the securities purchase agreement (the "February 2021 Purchase Agreement") entered into by the Company and certain accredited investors on February 11, 2021, the Investors purchased 608,696 shares of the Company's common stock par value $0.01 per share at a purchase price of $23.00 per share for aggregate gross proceeds of approximately $14.0 million (the "Purchase Price"). The Purchase Price was funded on the closing date and resulted in net proceeds to the Company of approximately $13.5 million after deducting fees payable to the placement agent and other estimated offering expenses payable by the Company.
On June 1, 2021, we entered into a securities purchase agreement (the "June 1, 2021 Purchase Agreement") with a financial institution (the "Purchaser"), pursuant to which the Company sold and issued: (i) a senior secured redeemable debenture (the "Debenture") in the aggregate principal amount of $15.0 million (the "Aggregate Principal Amount"), and (ii) warrants to purchase up to an aggregate of 1,500,000 shares of the Company's common stock at an exercise price of $12.00 per share (the "Warrant") of which 500,000 warrants were issued to the Purchaser upon closing. The Company received gross proceeds of $15.0 million. In October 2021, the Company used a portion of the net proceeds from the October 4, 2021 Offerings noted below to pay the $15.0 million outstanding on the June 1, 2021 Purchase Agreement.
On June 8, 2021, the Company filed a shelf registration statement on Form S-3 under the Securities Act of 1933, (the "Securities Act"), which was declared effective on June 22, 2021 (the "2021 Shelf"). Under the 2021 Shelf at the time of effectiveness, the Company had the ability to raise up to $150 million by selling common stock, preferred stock, debt securities, warrants, and units. In conjunction with the 2021 Shelf, the Company also entered into an At Market Issuance Sales Agreement (the "ATM Sales Agreement") with B. Riley Securities, Inc. ("B. Riley") and Cantor Fitzgerald & Co. ("Cantor", and collectively the "Agents") relating to the sale of its common stock. In accordance with the terms of the ATM Sales Agreement, the Company may, but is not obligated to, offer and sell, from time to time, shares of common stock having an aggregate offering price of up to $60 million, through or to the Agents, acting as agent or principal. Sales of common stock, if any, will be made by any method permitted that is deemed an "at the market offering" as defined in Rule 415 under the Securities Act. There were 70,786 shares of common stock sold under the ATM Sales Agreement as of December 31, 2021 and net proceeds received were $493,481. Under the 2021 Shelf, the Company had the ability to raise up to $150 million, of which $58.5 million was utilized during the year ended December 31, 2021. The Company has approximately $59.5 million available under the ATM Sales Agreement and $32 million available under the 2021 Shelf as of December 31, 2021.
In September 2021, the Company entered into the Preferred Underwriting Agreement and the Common Underwriting Agreement with B. Riley. Pursuant to the Preferred Underwriting Agreement, the Company agreed to sell 1,400,000 shares of its Series A Preferred Stock under the Preferred Stock Offering. In addition, the Company granted the underwriters an option to purchase up to an additional 210,000 shares of Series A Preferred Stock within 30 days. The option was not exercised. Under the Common Underwriting Agreement, the Company agreed to sell to B. Riley 3,833,334 shares of common stock (including 500,000 shares pursuant to B. Riley's option) under the Common Stock Offering. The Preferred Stock Offering and Common Stock Offering collectively referred to as the "October 4, 2021 Offerings", closed on October 4, 2021. Net proceeds after deducting the underwriting discounts, and commissions, the structuring fee and estimated offering expenses payable by the Company, but before repayment of debt, from the Offerings was approximately $55.3 million. The Company used a portion of the net proceeds to pay the $15.0 million outstanding on the June 1, 2021 Purchase Agreement.
The Series A Preferred Stock is perpetual and has no maturity date. The Series A Preferred Stock ranks senior to the Company's common stock with respect to payment of dividends and liquidation rights. Holders of Series A Preferred Stock have no voting rights except in the case of certain dividend repayments. The Series A Preferred Stock is redeemable at our option on or after October 15, 2022. The Company will pay cumulative distributions on the Series A Preferred Stock, from the date of original issuance, in the amount of $2.21875 per share each year, which is equivalent to 8.875% of the $25.00 liquidation preference per share. Dividends on the Series A Preferred Stock will be payable quarterly in arrears, on or about the 15th day of January, April, July and October of each year. The first dividend on the Series A Preferred Stock sold in this offering was declared on December 23, 2021 to holders of record as of January 4, 2022 and was paid on January 14, 2022. The first dividend in included in the Company's results of operations for the year ended December 31, 2021.
During the year ended December 31, 2021, we issued an aggregate of 873,047 shares of common stock related to the cashless exercise of options.
During the year ended December 31, 2021, we issued an aggregate of 375,000 shares of common stock for the exercise of stock options for cash proceeds of $670,750.
During the year ended December 31, 2021, we issued an aggregate of 162,033 shares of common stock for the exercise of warrants for cash proceeds of $480,609.
WorkSimpli Software Restructuring Transaction
Effective January 22, 2021 (the "WSS Effective Date"), the Company consummated a transaction to restructure the ownership of WorkSimpli, (the "WSS Restructuring"). To effect the WSS Restructuring, the Company's wholly-owned subsidiary Conversion Labs PR, entered into a series of membership interest exchange agreements, pursuant to which, Conversion Labs PR exchanged that certain promissory note, dated May 8, 2019 with an outstanding balance of $375,823 (the "CVLBPR Note"), issued by WSS in favor of Conversion Labs PR, for 37,531 newly issued membership interests of WSS (the "Exchange"). Upon consummation of the Exchange the CVLBPR Note was extinguished.
Concurrently, in furtherance of the WSS Restructuring, Conversion Labs PR entered into two Membership Interest Purchase Agreements (the "Founding Members MIPAs") with two founding members of WSS (the "Founding Members") whereby Conversion Labs PR purchased from the Founding Members an aggregate of 2,183 membership interests of WSS for an aggregate purchase price of $225,000, paid in December 2020.
In furtherance of the WSS Restructuring, Conversion Labs PR entered into a Membership Interest Purchase Agreement with WSS, (the "CVLB PR MIPA"), pursuant to which Conversion Labs PR purchased 12,000 membership interests of WSS for an aggregate purchase price of $300,000. The CVLB PR MIPA provides that the transaction may be completed in three (3) tranches with a purchase price of $100,000 per tranche to be made at the sole discretion of Conversion Labs PR. Payment for the first tranche of $100,000 was made upon execution of the CVLB PR MIPA in January 2021. Payments for the second and third tranches were made on the 60-day anniversary and the 120-day anniversary of the WSS Effective Date.
Following the consummation of the WSS Restructuring, Conversion Labs PR increased its ownership of WSS from 51% to approximately 85.58% on a fully diluted basis. WSS entered into an amendment to its operating agreement (the "WSS Operating Agreement Amendment") to reflect the change in ownership.
Concurrently with the WSS Restructuring, Conversion Labs PR entered into option agreements with Sean Fitzpatrick (the "Fitzpatrick Option Agreement") and Varun Pathak (the "Pathak Option Agreement" together with Fitzpatrick Option Agreement the "Option Agreements"), pursuant to which Conversion Labs PR granted options to purchase membership interest units of WSS. Upon vesting, the Fitzpatrick Options and the Pathak Options provide for the potential re-purchase of up to an additional 13.25% of WSS by Fitzpatrick and Pathak in the aggregate with Conversion Labs PR ownership ratably reduced to approximately 72.98%.
The Fitzpatrick Option Agreement grants Sean Fitzpatrick the option to purchase 10,300 membership interest units of WSS for an exercise price of $1.00 per membership interest unit. The Fitzpatrick Options vest in accordance with the following (i) 3,434 membership interests upon WSS achieving $2,500,000 of gross sales in any fiscal quarter (ii) 3,434 membership interests upon WSS achieving $4,000,000 of gross sales in any fiscal quarter and (iii) 3,434 membership interests upon WSS achieving $8,000,000 of gross sales with a ten percent (10%) net profit margin in any fiscal quarter.
The Pathak Options shall vest in accordance with the following (i) 700 membership interests upon WSS achieving $2,500,000 of gross sales in any fiscal quarter (ii) 700 membership interests upon WSS achieving $4,000,000 of gross sales in any fiscal quarter and (iii) 700 membership interests upon WSS achieving $8,000,000 of gross sales with a ten percent (10%) net profit margin in any fiscal quarter.
The first two tranches of performance options granted to Sean Fitzpatrick and Varun Pathak vested immediately after the consummation of the restructuring transaction and therefore have been recorded as part of the acquisition through equity. The third tranche is not deemed probable and therefore has not been recognized to date.
On July 13, 2021, the Company entered into an agreement to engage Quest Diagnostics Incorporated ("Quest Diagnostics") as the Company's laboratory services provider to perform certain clinical laboratory diagnostic services based on orders submitted to Quest Diagnostics by licensed health care providers who are under contract with the Company and are authorized under U.S. federal or state law to order laboratory tests.
On July 14, 2021, the Company entered into an agreement to engage Axle Health Inc. ("Axle Health") to assist the Company in establishing a platform to enable patients of the Company's medical practice clients ("MP Clients") to schedule certain nursing services, including blood draws, injections, and other basic healthcare services, and to furnish operational support services to medical practices using the platform. In connection with the agreement, Axle Health granted the Company a revocable, nontransferable, non-exclusive right and license to install and use the software and other technology relating to the platform to facilitate the scheduling and provision of certain nursing services to patients of MP Clients.
On August 4, 2021, the Company entered into a partnership agreement with Particle Health, a state-of-the-art, digital health company with a HIPAA-compliant technology platform that converts electronic medical records data into a user-friendly Fast Healthcare Interoperability Resource format. Particle Health's platform, and patient consent, allow licensed affiliated medical providers on the LifeMD virtual primary care platform to gain instant access to comprehensive patient health records from a database covering over 90% of the US population, therefore enabling best-in-class, personalized care through a deeper understanding of their patients' medical histories.
On August 30, 2021, the Company signed a letter of intent with Prescryptive Health ("Prescryptive"), a healthcare technology company empowering consumers by improving the way healthcare is delivered. The partnership is expected to accelerate growth for both companies by combining LifeMD's expanding direct-to-patient telehealth brands and the LifeMD virtual primary care platform with Prescryptive's best-in-class digital pharmacy fulfillment and e-prescribing technology platform.
Appointments and Resignations of Officers and Directors
Chief Digital Officer
On January 5, 2021, our board of directors ("Board") appointed Mr. Bryant Hussey as the Company's Chief Digital Officer. Bryant Hussey, age 45, combines over 20 years senior and executive level management with both direct-to-consumer and traditional e-commerce companies. From 2018 to 2020, he was the Chief Digital Officer for AVS Products, LLC., a direct response nutraceutical company acting as Playboy's global licensee for sexual wellness supplements. From 2009 to 2018 he was the Vice President of Marketing for Atlantic Coast Brands, an omni-channel international beauty company which has serviced more than 10 million customers. Bryant's undergraduate studies were in Economics at St. Peters University and he also attended New York University completing professional studies programs in Integrated Marketing.
Chief Medical Officer
On January 11, 2021, our Board appointed Dr. Anthony Puopolo as the Company's Chief Medical Officer. Anthony Puopolo, age 49, combines over 20 years of experience in medicine and wellness. In 2018 he founded Alpha Medical Group, where he serves as president to present. From September 2019 to December 2020, he served as a staff physician at Teledoc. From July 2017 to December 2020, he served as a regional medical director at Swift MD. In January 2014 he founded the Integrative Wellness Medical Group, where he remained until May 2017. From August 2010 to May 2017, he served as a partner staff physician at Sharp-Rees Stealy Medical Group ("Sharp-Rees"). From September 2008 to July 2010, he served as afloat physician at Sharp-Rees. From September 2005 to August 2008, he served at the mental health clinic of the 121st General Hospital in South Korea, first as a chief of outpatient and medical director of alcohol treatment center, then as chief of inpatient at the psychiatric ward. From September 2004 to August 2005, he served as a staff physician and chief of outpatient at the mental health clinic at the U.S. military base of Camp Casey in South Korea. He has an undergraduate degree from Tufts University and a Medical Degree from Boston University School of Medicine.
Chief Business Officer
On February 3, 2021, our Board appointed Corey Deutsch as our Chief Business Officer. Corey Deutsch has over 5 years of experience in various healthcare finance roles. In May 2020, Mr. Deutsch founded a long only hedge fund focused exclusively on the healthcare end-market. From June 2019 through June 2020, Mr. Deutsch served as an investment professional at Amulet Capital Partners, a healthcare focused private equity firm. From November 2018 to June 2019, Mr. Deutsch was an investment professional for Arsenal Capital Partners, a middle-market healthcare private equity firm. From June 2016 to November 2018, Mr. Deutsch was an investment banker at MTS Health Partners, a boutique investment bank focused on the healthcare sector. Mr. Deutsch is also currently an advisor for Heat Biologics, an oncology focused pharmaceutical Company. He received his undergraduate degree from the University of Pennsylvania, graduating Summa Cum Laude with a B.A. in economics. On February 4, 2022, Mr. Deutsch was terminated from his position at the Company, and the parties are pursuing a potential return to a consulting relationship.
Chief Financial Officer
On February 4, 2021, Mr. Juan Manuel Pi�eiro Dagnery submitted to the Board his resignation from his position as Chief Financial Officer of the Company (the "Resignation"). Mr. Dagnery did not resign as a result of any disagreement with the Company on any matter relating to the Company's operations, policies, or practices. Mr. Dagnery continued to serve as an executive of the Company, assuming the role of Chief Revenue Officer, effective on the date of the Resignation.
On April 2, 2021 (the "Effective Date"), Mr. Juan Manuel Pi�eiro Dagnery resigned from his position as Chief Revenue Officer. Mr. Dagnery did not resign as a result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices. In connection with Mr. Dagnery's resignation, the Board appointed Mr. Marc Benathen as the Company's Chief Financial Officer. Mr. Benathen combines over 18 years of experience in financial, operational, and consumer products/services senior management. Previously, he had been involved in six companies in the consumer, technology and media industries holding positions including Chief Financial Officer, Vice President, and Director. From 2017 through January 2021, Mr. Benathen was the Chief Financial Officer for Blink Holdings, Inc. (dba Blink Fitness), a national fitness company. From 2014 to 2017, he was Vice President of Finance for Blink Fitness. From December 2010 to January 2014, he was Senior Manager of Corporate Finance of ANN, Inc., a NYSE-listed retail company that focused on women's fashion. Mr. Benathen is also currently a director of Baruch College Alumni Association and past Trustee of the Baruch College Fund, a charitable and alumni arm of Baruch College. He has an undergraduate degree from Baruch College with Honors.
On June 10, 2021, the Board appointed Mr. Alex Mironov as the Company's President. Mr. Mironov brings a wealth of knowledge from his over 20 years of experience leading business development, mergers, and acquisitions, as well as corporate strategy in the pharmaceutical space, most recently at Covis Pharma, a global private pharmaceutical company backed by Apollo Global Management, Inc., an investment manager with nearly half a trillion of total assets under management. Over his career, Mr. Mironov has led transactions in the pharmaceutical space totaling over $5 billion in value including M&A, licensing, and equity and debt financings. At Covis, he served as Chief Business Officer from 2016 to 2021, leading global business development and M&A, corporate strategy, and life-cycle management, and taking responsibility for over half a dozen transformational transactions, which significantly contributed to the accelerated growth and expansion of Covis to over 50 global markets and new therapeutic segments. His contributions at Covis directly led to revenues increasing over 10x during his tenure. Prior to Covis, Mr. Mironov held similar roles focusing on a buy and build strategy at Alvogen, Pernix Pharma, Esprit Pharma, EKR Therapeutics, and Valera Pharma.
Principal Accounting Officer
On February 4, 2022, Maria Stan was appointed as Controller and Principal Accounting Officer of the Company. Ms. Stan combines more than 20 years of experience in accounting and finance, operational advisory, and international relations. Prior to her promotion to Principal Accounting Officer, Ms. Stan had served as Controller of the Company since March 2021. Ms. Stan was a Director in the accounting and advisory practice of Eventus Advisory Group, a Boutique CFO solutions firm focused on structuring financial and accounting processes, from 2017 to 2021. She also held a position as Vice President and Controller for Kaplan North America, a subsidiary of Graham Holdings Company, a NYSE-listed company, with operations in the US, Latin America, Europe, and Asia, from 2009 to 2017. Ms. Stan's career started in public accounting at Ernst & Young where she ascended to Manager in 2003 and then Senior Manager at KPMG in the audit and advisory practice from 2004 to 2009. Ms. Stan speaks three languages including English, Spanish, and Portuguese. She is a Certified Public Accountant. She earned her bachelor's in accounting from the City University of New York at Brooklyn College.
Board of Directors
On September 8, 2021, Happy Walters voluntarily resigned from his position as a member of the Board. Mr. Walters did not resign as a result of any disagreement with the Company or any matter relating to the Company's operations, policies, or practices.
On September 8, 2021, our Board appointed Mr. Naveen Bhatia as a member of the Board. Mr. Bhatia is a private investor. From 2013 to 2020, he was a Senior Director in the Tactical Opportunities Group of Blackstone, a leading global investment business specializing in alternative asset classes. Before joining Blackstone, Mr. Bhatia was a Managing Director at 40 North Industries LLC, a private investment firm where he focused on special situations equity and debt investments, both public and private. Prior to 40 North, he was a Principal at a family office in New York. From 2003 to 2008, Mr. Bhatia was a Co-Founder and Partner of Eagle Lake Capital LLC, a private investment partnership focused on fundamental, value investing across the capital structure. He started his career as a member of the Restructuring Group at Rothschild. Mr. Bhatia received a BA in Public Health from The Johns Hopkins University. He has served as a director of various public and private companies, currently serving as a member of the Board of Directors of private companies Blue Yonder, EquipmentShare, RG Barry, and CRG Financial. From 2010-2019, Mr. Bhatia served as Chairman of the Board of Cotton Holdings, a leading, global infrastructure support services company. He was also an Adjunct Professor at Columbia Business School and taught Applied Security Analysis I & II for eight years.
On November 8, 2021, Dr. Eleanor C. Mariano voluntarily resigned from her position as a member of the Board. Dr. Mariano did not resign as a result of any disagreement with the Company or any matter relating to the Company's operations, policies, or practices.
Manufacturing and Supply Chain
We have not experienced any material adverse effect on our business as a result of shortages of raw materials or packaging materials used in the manufacturing of our products. An unexpected interruption or a shortage in supply could adversely affect our business derived from these products. We are not substantially dependent on any raw material supplier or packaging supplier since alternative sources of materials, with equal quality, could be quickly obtained if any of our current suppliers cease to supply us adequately.
The ongoing impact on business activity brought about by COVID-19 continues to evolve, globally in macro terms, and in micro terms, as such affects the Company. Among other things, our supply chain is subject to the effects of COVID-19, as well as to natural disasters and other events beyond our control, such as raw material, component, and labor shortages; global and regional shipping and logistics constraints; work stoppages; power outages; and the physical effects of climate change, including changes in weather patterns. In addition, human rights concerns, including forced labor and human trafficking, in foreign countries and associated governmental responses have the potential to disrupt our supply chain, and our operations could be adversely impacted. Although we do not believe that raw materials used in the products we sell are sourced from regions with forced labor concerns, any delays or other supply chain disruption resulting from these concerns, associated governmental responses, or a desire to source products, components, or materials from other manufacturers or regions could result in shipping delays, cancellations, penalty payments, or loss of revenue and market share, any of which could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
In connection with these potential impacts on our supply chain, we are, as a general matter, seeing a trend of modest increases in (i) pricing on air and ocean freight, as well as for component and product parts, (ii) the overall time to receive shipments, and (iii) the overall time for shipment and delivery to our customers from third-party shippers.
2020 Equity Incentive Plan (the "2020 Plan")
On January 8, 2021, at a special meeting of the stockholders, the Company's stockholders approved the 2020 Plan. The 2020 Plan provided for the issuance of up to 1,500,000 shares of the Company's common stock to the Company's employees, non-employee directors, consultants and advisors. 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. The 2020 Plan is administered by the Compensation Committee of the Board.
On June 24, 2021, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the Company's 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. For additional information see Note 7-Stockholders' Equity to our consolidated financial statements included in this report.
Results of Operations
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Our financial results for the year ended December 31, 2021 are summarized as follows in comparison to the year ended December 31, 2020:
December 31, 2021 December 31, 2020 % of % of $ Sales $ Sales Telehealth revenue, net $ 68,197,128 73.43 % $ 30,561,163 81.95 % WorkSimpli revenue, net 24,678,678 26.57 % 6,732,747 18.05 % Total revenue, net 92,875,806 100 % 37,293,910 100 % . . .
Mar 07, 2022
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