Business context and reporting period
LifeMD, Inc. (formerly Conversion Labs, Inc.; Nasdaq ticker changed from CVLB to LFMD in February 2021) filed this annual report for the year ended December 31, 2020. It is an annual filing, not a standalone fourth-quarter report, so separate Q4 results are not provided in the filing text.
The company combines direct-to-patient telehealth and health-product sales—including ShapiroMD and RexMD—with PDFSimpli, a subscription software business. Approximately 80% of company revenue was described as recurring subscriptions. Telemedicine revenue grew 208% in 2020; PDFSimpli revenue grew 165%.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net revenue | $37.29 million | $12.47 million |
| Gross profit / margin | $28.39 million / 76.1% | $9.94 million / 79.7% |
| Operating loss | $(57.82) million | $(2.89) million |
| Net loss | $(60.52) million | $(3.53) million |
| Net loss attributable to LifeMD common stockholders | $(63.36) million | $(3.14) million |
| Cash from operating activities | $(12.13) million | $0.25 million |
| Cash from investing activities | $(0.80) million | $(0.10) million |
| Cash from financing activities | $21.00 million | $0.78 million |
| Cash at year-end | $9.18 million | $1.11 million |
| Working capital | $(1.43) million | $(1.23) million |
| Total liabilities | $13.88 million | $4.58 million |
Revenue increased 199% year over year, led by product revenue of $30.56 million (up 208%) and software revenue of $6.73 million (up 165%). Product and software revenue were 82% and 18% of total revenue, respectively. Gross margin declined about 3.6 percentage points, which management attributed principally to higher product costs and COVID-related supply-chain disruption.
Selling and marketing expense rose to $41.67 million from $8.92 million. General and administrative expense increased to $42.21 million from $2.40 million, including approximately $37.0 million of stock-based compensation and stock issued for services. The filing reports $36.96 million of total stock-based compensation expense. A $3.5 million deemed dividend related to Series B preferred stock and warrants, other deemed distributions, and noncontrolling interests contribute to differences among the reported net-loss measures.
Year-end current assets were $12.06 million and current liabilities were $13.49 million. Current notes payable, net, were $0.78 million; the company reported $3.66 million of Series B preferred stock in mezzanine equity and a total stockholders’ deficit of $4.48 million. Operating cash use was partly offset by a $9.50 million increase in accounts payable and accrued expenses. Financing included $14.9 million net proceeds from a November equity placement and $2.89 million cash proceeds from Series B preferred stock.
Material changes, outlook and risks
- Growth and spending: Management cited increased online demand, brand growth, and expanded marketing as drivers of revenue. It plans further investment in customer acquisition, provider capacity, supply chain, and new offerings, while targeting improved gross margins, marketing efficiency, and operating leverage.
- Profitability and funding: The company has a history of annual losses and an accumulated deficit of approximately $80.2 million. Management expected further losses through 2021 and continued cash burn through Q1 2021, with improvement anticipated thereafter. It could not predict when significant positive operating cash flow or profitability would be achieved.
- Post-year-end financing: A February 2021 private placement generated approximately $13.4 million net proceeds. At filing, management reported approximately $12 million in cash, including those proceeds, and estimated using approximately $10 million over the next 12 months. Management and the auditor concluded available cash was sufficient for the 12 months after issuance, subject to forecast assumptions; financing availability and future performance are not assured. The 2019 audit report had highlighted substantial doubt about the company’s ability to continue as a going concern.
- Expansion: Planned 2021 initiatives included NavaMD dermatology/skincare, additional RexMD indications, and a subscription concierge-care service under LifeMD. The company also completed a January 2021 restructuring that increased its LegalSimpli ownership from 51% to approximately 85.58%, subject to options that could reduce the stake.
- Significant risks: Key exposures include continued losses and financing needs; dependence on subscriptions, digital advertising platforms, third-party pharmacies, manufacturers and cloud services; competition; telehealth, prescribing, FDA/FTC and privacy regulation; cybersecurity and data protection; and whether pandemic-driven telehealth demand persists. Vendor concentration, supply disruption, and customer acquisition costs could affect growth and margins.
- Controls and unusual items: Management concluded disclosure controls and internal control over financial reporting were ineffective because of material weaknesses, including inadequate segregation of duties, insufficient accounting policies, system-access and disaster-recovery deficiencies, and missing formal related-party and whistleblower policies. Remediation was underway; the auditor did not attest to internal-control effectiveness. The 2020 results also include substantial equity compensation, a 1-for-5 reverse split, convertible and preferred financing, warrant adjustments, and related-party transactions.
- Legal matters: Management reported no known legal proceedings expected to have a material adverse effect as of the filing, while noting ordinary-course litigation risk. The filing also describes a $249,000 PPP loan and subsequent forgiveness of $125,643 during early 2021; full forgiveness was not assured.
Important facts for investors to verify
- Reconcile reported net loss, loss attributable to LifeMD, and loss attributable to common stockholders, including the deemed dividends and noncontrolling-interest treatment.
- Assess recurring-revenue retention, subscription cancellation and return rates, customer-acquisition costs, and the profitability of telehealth versus PDFSimpli.
- Track cash burn, payables and vendor terms, remaining debt and preferred-stock obligations, and whether the 2021 cash forecast and financing assumptions hold.
- Confirm progress in remediating the disclosed material weaknesses and monitor any subsequent control findings.
- Review dilution exposure from outstanding options, warrants, convertible preferred stock, and subsequent equity issuances, as well as the terms and potential ownership effects of the LegalSimpli restructuring.
- Evaluate whether new brands and services launch as planned and whether telehealth growth and supply costs remain sustainable as pandemic conditions change.