LifeMD, Inc. (LFMD)

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, 2024 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, 2024, as compared
to the fiscal year ended December 31, 2023. This discussion should be read in conjunction with our consolidated financial statements
for the two-year period ended December 31, 2024 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.”

Overview

LifeMD,
Inc. is a direct-to-patient telehealth company with a portfolio of health and wellness brands. Our subscriptions and 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 the District of Columbia and Puerto Rico. We have also established a 50-state
medical group that provides virtual consultations to our patients. Since inception, we have treated approximately 1,118,000 customers
and 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.

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Developments
in 2024

Key
developments in our business during 2024 are described below:

Vertically
Integrated Pharmacy

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. The launch
of the LifeMD Pharmacy enhances the Company’s vertically integrated telehealth platform, which now includes a proprietary virtual-first
care technology platform, a 50-state affiliated medical group, a U.S.-based patient care center, and a vertically integrated pharmacy.
Activity through the LifeMD Pharmacy was immaterial for the year ended December 31, 2024.

Commercial
Health Insurance

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. As part of its early
2025 roadmap, the Company expects to begin accepting Medicare.

Regulatory
Landscape

The
Food and Drug Administration (“FDA”) potential restrictions on compounding of GLP-1s, including removal of tirzepatide (marketed
as Mounjaro® and Zepbound®) and/or semaglutide (marketed as Ozempic® and Wegovy®) from the drug shortage list, have
the potential to disrupt patient treatment continuity, by limiting our ability to provide personalized treatment plans that meet individual
patient needs, and could adversely impact our financial results. For additional discussion of the regulatory landscape applicable to GLP-1s,
see “Government Regulation” under Part I, Item 1. “Description of Business”.

33

Results
of Operations

Comparison
of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

Our
financial results for the year ended December 31, 2024 are summarized as follows in comparison to the year ended December 31, 2023:

Total
revenue, net. Revenues for the year ended December 31, 2024 were approximately $212.4 million, an increase of 39% compared to approximately
$152.5 million for the year ended December 31, 2023. The increase in revenues was attributable to the increase in telehealth revenue
of 61% slightly offset by the decrease in WorkSimpli revenue of 1%. Telehealth revenue accounts for 75% of total revenue and has increased
during the year ended December 31, 2024 due to an increase in online sales demand primarily for LifeMD virtual primary care which experienced
an increase in revenue of approximately $65.7 million during the year ended December 31, 2024 compared to the year ended December 31,
2023. WorkSimpli revenue accounts for 25% of total revenue and has decreased year over year due to lower demand.

Total
cost of revenue. Total cost of revenue consists of (1) the cost of 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) the
cost of 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 27% to approximately $24.1 million for the year ended December 31,
2024 compared to approximately $18.9 million for the year ended December 31, 2023. The combined cost of revenue increase was due to increased
telehealth sales volume during the year ended December 31, 2024 when compared to the year ended December 31, 2023. Telehealth costs decreased
to 14% of associated telehealth revenues during the year ended December 31, 2024, from 18% of associated telehealth revenues during the
year ended December 31, 2023 primarily due to improved pricing. WorkSimpli costs increased to 5% of associated WorkSimpli revenues during
the year ended December 31, 2024, from 3% of associated WorkSimpli revenues during the year ended December 31, 2023.

Gross
profit. Gross profit increased by approximately 41% to approximately $188.4 million for the year ended December 31, 2024 compared to
approximately $133.6 million for the year ended December 31, 2023. Gross profit as a percentage of revenues was 89% for the year ended
December 31, 2024 compared to 88% for the year ended December 31, 2023. Gross profit as a percentage of revenues for telehealth was 86%
for the year ended December 31, 2024 compared to 82% for the year ended December 31, 2023, and for WorkSimpli was 95% for the year ended
December 31, 2024 compared to 97% for the year ended December 31, 2023. The increase in sales volume for LifeMD virtual primary care
and improved pricing have contributed to the increase in gross profit.

Total
expenses. Operating expenses for the year ended December 31, 2024 were approximately $204.5 million, as compared to approximately $148.1
million for the year ended December 31, 2023. This represents an increase of 38%, or $56.4 million. The increase is primarily attributable
to:

34

Interest
expense, net. Interest expense, net consists of interest expense on the Avenue Facility and notes payable, partially offset by interest
income on the Company’s cash account balances for the year ended December 31, 2024 and interest expensed related to the Avenue
Facility, notes payable and the Series B Preferred Stock for the year ended December 31, 2023. Interest expense decreased by approximately
$415 thousand during the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to an increase in
interest income on the Company’s cash account balances.

Loss
on debt extinguishment. The Company recorded a $325 thousand loss on debt extinguishment related to the repayment of the CRG Financial
loan during the year ended December 31, 2023 due to a prepayment penalty and various fees associated with the CRG Financial loan.

Working
Capital

Working
capital decreased by approximately $19.3 million during the year ended December 31, 2024. The increase in current assets is primarily
attributable to an increase in accounts receivable of approximately $2.9 million, an increase in cash of approximately $1.9 million,
and an increase in other current assets of approximately $1.7 million. Current liabilities increased by approximately $25.5 million,
which was primarily attributable to an increase in accounts payable and accrued expenses of $11.8 million as a result of the Company
extending payables and credit terms with vendors, an increase in the current portion of long-term debt of $8.4 million, and an increase
in deferred revenue of approximately $5.7 million due to increased recurring telehealth subscription revenue.

Liquidity
and Capital Resources

Net
cash provided by operating activities was approximately $17.5 million for the year ended December 31, 2024, as compared with approximately
$8.8 million for the year ended December 31, 2023. Significant factors contributing to net cash provided by operating activities during
the year ended December 31, 2024, include $12.2 million in non-cash stock-based compensation charges, $9.9 million in non-cash depreciation
and amortization, a net increase in accounts payable and accrued expenses of $12.4 million, and an increase in deferred revenue of $5.7
million. These factors were partially offset by the Company’s net loss of $18.7 million for the year ended December 31, 2024. The
significant factors contributing to net cash provided by operating activities during the year ended December 31, 2023, include the decrease
in the Company’s net loss of $27.2 million to $17.8 million for the year ended December 31, 2023, as compared with $45.0 million
for the year ended December 31, 2022. Other significant factors contributing to net cash provided by operating activities during the
year ended December 31, 2023, include $12.5 million in non-cash stock-based compensation charges, $6.9 million in non-cash depreciation
and amortization, a net increase in accounts payable, accrued expenses and other operating activities of $5.1 million, an increase in
deferred revenue of $3.3 million and a $325 thousand loss on debt extinguishment.

Net
cash used in investing activities for the year ended December 31, 2024 was approximately $11.5 million, as compared with $8.7 million
for the year ended December 31, 2023. Net cash used in investing activities for the year ended December 31, 2024 was primarily due to
cash paid for capitalized software costs of approximately $10.0 million, and cash paid for the purchase of equipment of approximately
$1.5 million. Net cash used in investing activities for the year ended December 31, 2023 was primarily due to cash paid for capitalized
software costs of approximately $8.4 million, cash paid for the purchase of equipment of $204 thousand and cash paid for the purchase
of intangible assets of approximately $149 thousand.

35

Net
cash used in financing activities for the year ended December 31, 2024 was approximately $4.1 million as compared with net cash provided
by financing activities of approximately $29.1 million for the year ended December 31, 2023. Significant factors contributing to net
cash used in financing activities during the year ended December 31, 2024, include preferred stock dividends of approximately $3.1 million,
distributions to non-controlling interest of approximately $774 thousand, and repayments of notes payable of approximately $328 thousand.
During the year ended December 31, 2023, net cash provided by financing activities consisted of: (1) $19.5 million in net proceeds received
from the Avenue Facility, (2) $10.0 million in proceeds received from the Medifast Private Placement, (3) $6.2 million in net proceeds
received from the sale of common stock under the ATM Sales Agreement (as defined below), (4) $2.3 million in proceeds received from notes
payable and (5) $95 thousand in proceeds received from the exercise of stock options. These factors contributing to net cash provided
by financing activities were partially offset by repayments of notes payable of approximately $5.1 million net of a $325 thousand loss
on debt extinguishment on the CRG Financial loan, preferred stock dividends of approximately $3.1 million, contingent consideration payments
made related to the ResumeBuild brand acquisition of approximately $313 thousand, net payments made related to adjustments in the membership
interest units of WorkSimpli of approximately $306 thousand, and distributions to non-controlling interest of $144 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 9—Leases to our 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
December 11, 2023, the Company entered into a collaboration with Medifast, Inc. through and with certain of its wholly-owned subsidiaries
(“Medifast”). Pursuant to certain agreements between the parties, Medifast has agreed to pay to the Company the amount of
$10 million to support the collaboration, funding enhancements to the Company platform, operations and supporting infrastructure, of
which $5 million was paid at the closing on December 12, 2023, $2.5 million was paid during the three months ended March 31, 2024, and
the remaining $2.5 million was paid during the three months ended June 30, 2024 (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.

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 December 31,
2024, 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 December 31, 2024, 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.

36

As
of March 7, 2025, the Company has a current cash balance of approximately $27.2 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 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 year ended December
31, 2024, (3) cash on hand of $35.0 million as of December 31, 2024, (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 already
evidenced by the Medifast Collaboration and Medifast Private Placement noted above.

Critical
Accounting Estimates

We
prepare our 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 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.

Recently
Adopted Accounting Pronouncements

In
November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 became effective for the Company’s annual period beginning
on January 1, 2024 and interim periods beginning after January 1, 2025. The Company adopted this guidance in the fourth quarter of 2024.
Refer to Note 13-Segment Data for additional information.

Other
Recent Accounting Pronouncements

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. This 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.

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, 2023 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, 2023, as compared
to the fiscal year ended December 31, 2022. This discussion should be read in conjunction with our consolidated financial statements
for the two-year period ended December 31, 2023 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.”

Overview

LifeMD,
Inc. is a direct-to-patient telehealth company with a portfolio of health and wellness brands. Our subscriptions
and 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 the District of Columbia and Puerto Rico. We have
also established a 50-state medical group that provides virtual consultations to our patients. Since inception, we have treated
approximately 854,000 customers and 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.

28

Developments
in 2023

Key
developments in our business during 2023 are described below:

Medifast
Collaboration and Private Placement

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, and the remainder
is to be paid in two $2.5 million installments on March 31, 2024 and 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.

Series
B Preferred Stock Conversion

On
July 10, 2023 and August 14, 2023, PA001 Holdings, LLC (“PA001 Holdings”), the holder of the Company’s Series B Preferred
Stock, elected to convert 2,275 and 1,225 shares, respectively, of the Company’s Series B Preferred Stock into common stock, at
a price of $3.25 per share of Series B Preferred Stock, pursuant to the terms of the Securities Purchase Agreement dated August 28, 2020
(the “PA001 Securities Purchase Agreement”). The conversion was calculated based on the original issuance price of the Series
B Preferred Stock plus all accrued dividends to date. The conversion resulted in 1,010,170 and 550,694 shares of the Company’s
common stock issued to PA001 Holdings, on July 12, 2023 and August 15, 2023, respectively. In connection with the PA001 Securities Purchase
Agreement, the Company and PA001 Holdings entered into a registration rights agreement pursuant to which the Company agreed to register
the shares of the Company’s common stock underlying the Series B Preferred Stock and associated warrants.

Avenue
Capital Credit Facility

On
March 21, 2023, the Company entered into and closed on a loan and security agreement (the “Avenue Credit Agreement”), and
a supplement to the Credit Agreement (the “Avenue Supplement”), with Avenue Venture Opportunities Fund II, L.P. and Avenue
Venture Opportunities Fund, L.P. (collectively, “Avenue”). The Avenue Credit Agreement provides for a convertible senior
secured credit facility of up to an aggregate amount of $40 million, comprised of the following: (1) $15 million in term loans funded
at closing, (2) $5 million of additional committed term loans which the Company received on September 26, 2023 under the First Amendment
to the Avenue Credit Agreement (the “Avenue First Amendment”) and (3) $20 million of additional uncommitted term loans, collectively
referred to as the “Avenue Facility”. The Avenue Facility matures on October 1, 2026. The Company issued Avenue warrants
to purchase $1.2 million of the Company’s common stock at an exercise price of $1.24, subject to adjustments (the “Avenue
Warrants”). In addition, Avenue may convert up to $2 million of the $15 million in term loans funded at closing into shares of
the Company’s common stock at any time while the loans are outstanding, at a price per share equal to $1.49. Proceeds from the
Avenue Facility were used to repay the Company’s outstanding notes payable balances with CRG Financial and are expected to be used
for general corporate purposes. The Company is subject to certain affirmative and negative covenants under the Avenue Facility, including
the requirement, beginning on the closing date, to maintain at least $5 million of unrestricted cash to be tested at the end of each
month, and beginning on the period ended September 30, 2023, and at the end of each quarter thereafter, a trailing six-month cash flow,
subject to certain adjustments as provided by the Avenue Credit Agreement, of at least $2 million.

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 December 31, 2023, there was $19 million outstanding under the Avenue Facility and the Company was in compliance with the Avenue Facility
covenants.

Amendment
to the Cleared Stock Purchase Agreement

On
February 4, 2023, the Company entered into the First Amendment (the ‘Cleared First Amendment”) to the Stock Purchase Agreement,
dated January 11, 2022, between the Company and the sellers of Cleared (the “Cleared Stock Purchase Agreement”). The Cleared
Stock Purchase Agreement was amended to, among other things: (i) reduce the total purchase price by $250 thousand to a total of $3.67
million; (ii) change the timing of the payment of the purchase price to $460 thousand paid at closing, with the remaining amount to be
paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024; (iii) removing all “earn-out”
payments payable by the Company to the sellers; and (iv) removing certain representations and warranties of the Company and sellers in
connection with the transaction (See Note 3—Acquisitions to our consolidated financial statements included in this report). The
Company issued the following shares of common stock to the sellers of Cleared under the Cleared First Amendment: (1) 337,895 shares on
February 6, 2023, (2) 455,319 shares on April 17, 2023, (3) 158,129 shares on July 17, 2023, (4) 117,583 shares on October 17, 2023 and
(5) 95,821 shares on January 16, 2024.

29

WorkSimpli
Software Capitalization Update

Effective
March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli. Following the retirement, Conversion Labs PR’s
ownership interest in WorkSimpli increased to 74.06%. On June 30, 2023, WorkSimpli’s Chief Operating Officer, exercised her option
agreement (the “WorkSimpli COO Option Agreement”) to purchase 889 membership interest units of WorkSimpli for an exercise
price of $1.00 per membership interest unit. Following the exercise of the WorkSimpli COO Option Agreement, Conversion Labs PR decreased
its ownership interest in WorkSimpli from 74.06% to 73.32%.

2020
Equity and Incentive Plan

On
January 8, 2021, the Company approved the 2020 Equity and Incentive Plan (the “2020 Plan”). The 2020 Plan is administered
by the Compensation Committee of the Board and initially provided for the issuance of up to 1,500,000 shares of Common Stock. The number
of shares of Common Stock available for issuance under the 2020 Plan automatically increases by 150,000 shares of Common Stock on January
1st of each year, for a period of not more than ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030.
Awards under the 2020 Plan can be granted in the form of stock options, non-qualified and incentive options, stock appreciation rights,
restricted stock, and restricted stock units.

On
June 24, 2021, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase
the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by 1,500,000 shares.

On
June 16, 2022, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase
the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by an additional 1,500,000
shares. As of December 31, 2023, the 2020 Plan, as amended and restated, provided for the issuance of up to 4,950,000 shares of Common
Stock. Remaining authorization under the 2020 Plan, as amended and restated, was 61,611 shares as of December 31, 2023.

Results
of Operations

Comparison
of the Year Ended December 31, 2023 to the Year Ended December 31, 2022

Our
financial results for the year ended December 31, 2023 are summarized as follows in comparison to the year ended December 31, 2022:

30

Total
revenue, net. Revenues for the year ended December 31, 2023 were approximately $152.5 million, an increase of 28% compared to approximately
$119.0 million for the year ended December 31, 2022. The increase in revenues was attributable to both the increase in telehealth revenue
of 19% and an increase in WorkSimpli revenue of 50%. Telehealth revenue accounts for 64% of total revenue and has increased during the
year ended December 31, 2023 due to an increase in online sales demand primarily for LifeMD virtual primary care which experienced an
increase in revenue of approximately $11.8 million during the year ended December 31, 2023 compared to the year ended December 31, 2022,
Medifast Collaboration revenue and a decrease in product refunds and rebates. WorkSimpli revenue accounts for 36% 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 (1) the cost of 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) the cost of 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 1% to approximately $18.9 million for the year
ended December 31, 2023 compared to approximately $18.7 million for the year ended December 31, 2022. The combined cost of revenue
increase was due to an increase in WorkSimpli sales volume partially offset by improved pricing on telehealth costs during the year
ended December 31, 2023 when compared to the year ended December 31, 2022. Telehealth costs decreased to 18% of associated
telehealth revenues during the year ended December 31, 2023, from 22% of associated telehealth revenues during the year ended
December 31, 2022 primarily due to improved pricing on pharmacy fulfillment costs and shipping. WorkSimpli costs increased to 3% of associated WorkSimpli revenues during the
year ended December 31, 2023, from 2% of associated WorkSimpli revenues during the year ended December 31, 2022.

Gross
profit. Gross profit increased by approximately 33% to approximately $133.6 million for the year ended December 31, 2023 compared to
approximately $100.4 million for the year ended December 31, 2022. Gross profit as a percentage of revenues was 88% for the year ended
December 31, 2023 compared to 84% for the year ended December 31, 2022. Gross profit as a percentage of revenues for telehealth was 82%
for the year ended December 31, 2023 compared to 78% for the year ended December 31, 2022, and for WorkSimpli was 97% for the year ended
December 31, 2023 compared to 98% for the year ended December 31, 2022. The increase in sales volume for both telehealth and WorkSimpli,
Medifast Collaboration revenue, improved pricing and a decrease in product refunds and rebates have contributed to the increase in gross
profit.

Total
expenses. Operating expenses for the year ended December 31, 2023 were approximately $148.1 million, as compared to approximately $143.8
million for the year ended December 31, 2022. This represents an increase of 3%, or $4.3 million. The increase is primarily attributable
to:

31

These
increases in operating expenses were partially offset by decreases in the following:

Interest
expense, net. Interest expense, net consists of interest expense related to the Avenue Facility, notes payable and the Series B Preferred
Stock for the year ended December 31, 2023 and interest expensed on the Company’s notes payable and Series B Convertible Preferred
Stock for the year ended December 31, 2022. Interest expense increased by approximately $1.3 million during the year ended December 31,
2023 as compared to the year ended December 31, 2022 primarily due to interest expensed on the Avenue Facility during the year ended
December 31, 2023.

(Loss)
gain on debt extinguishment. The Company recorded a $325 thousand loss on debt extinguishment related to the repayment of the CRG Financial
loan during the year ended December 31, 2023 due to a prepayment penalty and various fees associated with the CRG Financial loan. The
Company recorded a $63 thousand gain on debt forgiveness of Paycheck Protection Program (“PPP”) loans during the year ended
December 31, 2022.

Working
Capital

Working
capital increased by approximately $27.9 million during the year ended December 31, 2023. The increase in current assets is primarily
attributable to an increase in cash of approximately $29.2 million as a result of the Avenue Facility and the Medifast Collaboration
and Private Placement and an increase in accounts receivable of $2.4 million. Current liabilities increased by $3.4 million, which was
primarily attributable to an increase in deferred revenue of
$3.3 million and an increase in accounts payable and accrued expenses of $2.7 million, partially offset by a decrease in notes payable of $2.5 million.

Liquidity
and Capital Resources

Net
cash provided by operating activities was approximately $8.8 million for the year ended December 31, 2023, as compared with net cash
used in operating activities of approximately $22.9 million for the year ended December 31, 2022. The increase in net cash provided by
operating activities was primarily related to the decrease in the Company’s net loss of $27.2 million to $17.8 million for the
year ended December 31, 2023, as compared with $45.0 million for the year ended December 31, 2022. Other significant factors contributing
to net cash provided by operating activities during the year ended December 31, 2023, include $12.5 million in non-cash stock-based compensation
charges, $6.9 million in non-cash depreciation and amortization, a net increase in accounts payable, accrued expenses and other operating
activities of $5.1 million, an increase in deferred revenue of $3.3 million and a $325 thousand loss on debt extinguishment. The significant
factors contributing to the net cash used in operating activities during the year ended December 31, 2022, include $13.7 million in non-cash
stock-based compensation charges, $8.9 million in non-cash goodwill and intangible asset impairment charges related to a decline in the
estimated fair value of Cleared as a result of a decline in the Cleared financial projections and $3.8 million in non-cash depreciation
and amortization, partially offset by a $5.1 million reduction to the Cleared contingent consideration as a result of the remeasurement
of the fair value. Additionally, an increase in inventory of $2.2 million due to the timing of purchases, an increase in accounts receivable
of $2.2 million and a decrease in accrued expenses and other operating activities of $2.2 million excluding noncontingent payments to
Cleared contributed to net cash used in operations for the year ended December 31, 2022. These factors contributing to net cash used
in operations were partially offset by an increase in deferred revenue of $4.0 million due to increased sales for products which the
customer has not yet obtained control due to delivery not commensurate upon shipment of the product and accounts payable of $1.3 million
as a result of the Company extending payables and credit terms with vendors.

32

Net
cash used in investing activities for the year ended December 31, 2023 was approximately $8.7 million, as compared with net cash used
in investing activities of $13.9 million for the year ended December 31, 2022. Net cash used in investing activities for the year ended
December 31, 2023 was primarily due to cash paid for capitalized software costs of approximately $8.4 million, cash paid for the purchase
of equipment of $204 thousand and cash paid for the purchase of intangible assets of approximately $149 thousand. Net cash used in investing
activities for the year ended December 31, 2022 was primarily due to cash paid for capitalized software costs of approximately $8.5 million,
cash paid for the purchase of the ResumeBuild brand of approximately $4.0 million, cash paid for the Cleared acquisition of approximately
$1.0 million and cash paid for the purchase of equipment of $367 thousand.

Net
cash provided by financing activities for the year ended December 31, 2023 was approximately $29.1 million as compared with net cash
used in financing activities of approximately $528 thousand for the year ended December 31, 2022. During the year ended December 31,
2023, net cash provided by financing activities consisted of: (1) $19.5 million in net proceeds received from the Avenue Facility, (2)
$10 million in proceeds received from the Medifast Private Placement, (3) $6.2 million in net proceeds received from the sale of common
stock under the ATM Sales Agreement (as defined below), (4) $2.3 million in proceeds received from notes payable and (5) $95 thousand
in proceeds received from the exercise of stock options. These factors contributing to net cash provided by financing activities were
partially offset by repayments of notes payable of approximately $5.1 million net of a $325 thousand loss on debt extinguishment on the
CRG Financial loan, preferred stock dividends of approximately $3.1 million, contingent consideration payments made related to the ResumeBuild
brand acquisition of approximately $313 thousand, net payments made related to adjustments in the membership interest units of WorkSimpli
of approximately $306 thousand, and distributions to non-controlling interest of $144 thousand. During the year ended December 31, 2022,
net cash used in financing activities consisted of preferred stock dividends of $3.1 million, repayment of notes payable of $169 thousand,
contingent consideration payments made related to the ResumeBuild brand acquisition of $156 thousand and distributions to non-controlling
interest of $144 thousand. These decreases were partially offset by proceeds from notes payable of $2.9 million, proceeds from the exercise
of options and warrants of $129 thousand and proceeds received from the sale of a portion of the Company’s membership interest
in WorkSimpli of $12 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, noncontingent consideration, capital expenditures
and general corporate purposes. For more information on our operating lease obligations, see Note 9—Leases to our 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
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, and the remainder is to be
paid in two $2.5 million installments on March 31, 2024 and June 30, 2024 (or earlier upon the Company’s achievement of certain
program milestones). See “Medifast Collaboration and Private Placement” under Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”

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.

On
March 21, 2023, the Company entered into and closed on the Avenue Credit Agreement, and the Avenue Supplement. The Avenue Credit Agreement
provides for a convertible senior secured credit facility of up to an aggregate amount of $40 million, comprised of the following: (1)
$15 million in term loans funded at closing, (2) $5 million of additional committed term loans 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.
As of December 31, 2023, there was $19 million outstanding under the Avenue Facility, and the Company was in compliance with the Avenue
Facility covenants. Loans under the Avenue Facility accrue interest at a variable rate per annum equal to the greater of (i) the sum
of 4.75% plus the Prime Rate (as defined in the Avenue Supplement) and (ii) 12.50%. At December 31, 2023, the interest rate was 13.25%.
Payments are interest only until November 2024. The Company may prepay the loans, subject to a prepayment penalty of 1.00% to 3.00% of
the principal amount prepaid, depending on the timing of the prepayment.

33

In January and February 2023, the Company received proceeds of $2 million under a $2.5 million loan facility with CRG Financial,
maturing on December 15, 2023. The loan facility includes interest of 12%. The Company repaid the $2 million outstanding loan balance
on March 21, 2023 with the proceeds received from the Avenue Facility and recorded a $325 thousand loss on debt extinguishment due to
a prepayment penalty and various fees associated with the CRG Financial loan. As of both December 31, 2023 and 2022, the outstanding
balance was $0 related to the CRG Financial loan.

During
the year ended December 31, 2023, the Company received proceeds of $348 thousand under a 10-month financing agreement with Arthur J.
Gallagher Risk Management Services, LLC. The terms of the agreement include finance fees in the amount of $13 thousand. As of December
31, 2023 and 2022, the outstanding balance was $217 thousand and $0, respectively, and is included in notes payable, net, on the accompanying
consolidated balance sheet.

In
October 2022, the Company received proceeds of $976 thousand under a 12-month working capital loan with Amazon. The terms of the loan
include interest in the amount of $62 thousand. As of December 31, 2023 and 2022, the outstanding balance was $111 thousand and $976
thousand, respectively, and is included in notes payable, net, on the accompanying consolidated balance sheet. The outstanding balance as of December 31, 2023 was repaid in January 2024.

In
November 2022, the Company received proceeds of $1.9 million under two 10-month working capital loans with Balanced Management. The terms
of the loans include loan origination fees in the amount of $60 thousand and total interest of $840 thousand. As of December 31, 2023
and 2022, the outstanding balance was $0 and $1.821 million, respectively, and is included in notes payable, net, on the accompanying
consolidated balance sheet.

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, 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 December 31, 2023, the Company had $53.3 million available under the ATM Sales
Agreement and $32.0 million available under the 2021 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 its conclusion that the Company will have sufficient cash over the next 12 months following
the date of this report include: (1) its continued strengthening of the Company’s revenues and improvement of operational efficiencies
across the business, (2) the expected continued improvement in its cash burn rate over the next 12 months and positive operating cash
flows during the year ended December 31, 2023, (3) positive working capital of $7.8 million as of December 31, 2023, (4) $53.3 million
available under the ATM Sales Agreement and $32.0 million available under the 2021 Shelf, (5) current cash balance of approximately $26.4
million as of the filing date, (6) management’s ability to curtail expenses, if necessary, and (7) the overall market value of
the telehealth industry and how it believes that will continue to drive interest in the Company already evidenced by the Medifast Collaboration
and Private Placement noted above.

Critical
Accounting Estimates

We prepare
our 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.

34

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—Summary of Significant Accounting Policies to our 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.

Recently
Adopted Accounting Pronouncements

In
June 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial
Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires an entity to utilize
the current expected credit loss (“CECL”) impairment model to estimate its lifetime “expected credit loss” and
record an allowance that is deducted from the amortized cost basis of the financial assets and certain other instruments, including but
not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities are recorded through
an allowance for credit losses. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first
reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date
of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller
reporting companies. The Company adopted ASU 2016-13 as of January 1, 2023. The adoption did not have a material impact on the
Company’s financial statements.

In
October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. This new guidance affects all entities that enter into a business combination within the scope of
ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under
ASC 606, Revenue from Contracts with Customers, as of the acquisition date, as if the acquirer had entered into the original contract
at the same date and on the same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in
a business combination are recorded by the acquirer at fair value. The Company adopted ASU 2021-08 as of January 1, 2023. The adoption
did not have a material impact on the Company’s financial statements.

Other
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. The Company does not expect the application of ASU 2023-07 to have
a material impact to its consolidated financial statements and related disclosures.

35

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
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, 2022 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, 2022, as compared
to the fiscal year ended December 31, 2021. This discussion should be read in conjunction with our consolidated financial statements
for the two-year period ended December 31, 2022 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.”

Overview

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 the 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
approximately 680,000 customers and 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.

28

Developments
in 2022

Key
developments in our business during 2022 are described below:

Cleared
Acquisition

On
January 18, 2022, the Company acquired Cleared, a nationwide allergy telehealth platform that provides personalized treatments for allergy,
asthma, and immunology. The purchase price was approximately $9.1 million, including cash paid upfront of approximately $1.0 million
and payable in the future of approximately $3.0 million, and contingent consideration of $5.1 million.

On
February 4, 2023, the Company entered into the First Amendment to the Stock Purchase Agreement (the “First Amendment”) between
the Company and the sellers of Cleared. The First Amendment was amended to, among other things: (i) reduce the total purchase price by
$250 thousand to a total of $3.67 million; (ii) change the timing of the payment of the purchase price to $460 thousand paid at closing
(which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before
February 6, 2023 and ending January 15, 2024; (iii) removing all “earn-out” payments payable by the Company to the sellers;
and (iv) removing certain representations and warranties of the Company and sellers in connection with the transaction (See Note 3—Acquisitions
to our consolidated financial statements included in this report).

ResumeBuild
Asset Purchase Agreement

In
February 2022, our majority-owned subsidiary WorkSimpli closed on an Asset Purchase Agreement (the “ResumeBuild APA”) with
East Fusion FZCO, a Dubai, UAE corporation (the “Seller”), whereby WorkSimpli acquired substantially all of the assets associated
with the Seller’s business offering subscription-based resume building software through software as a service online platforms.
WorkSimpli paid to the Seller a purchase price $4.0 million. The Seller is also entitled to a minimum of $500 thousand to be paid out
in quarterly payments equal to the greater of 15% of net profits (as defined in the ResumeBuild APA) or $62,500, for a two-year period
ending on the two-year anniversary of the closing of the acquisition. WorkSimpli borrowed the purchase price from the Company pursuant
to a promissory note with the obligation secured by an equity purchase guarantee agreement and a stock option pledge agreement from Fitzpatrick
Consulting, LLC and its sole member Sean Fitzpatrick, who is Co-Founder and President of WorkSimpli.

WorkSimpli
Software Capitalization Update

On
September 30, 2022, Sean Fitzpatrick and Varun Pathak exercised their options to purchase 10,300 and 2,100 membership interest units,
respectively, of WorkSimpli for an exercise price of $1.00 per membership interest unit pursuant to certain option agreements between
Conversion Labs PR and each of Sean Fitzpatrick and Varun Pathak. Following the exercise of such option agreements, Conversion Labs PR
decreased its ownership interest in WorkSimpli from 85.58% to 73.64%.

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.

Among
other things, our supply chain is subject to the effects of 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

On
January 8, 2021, the Company approved the 2020 Plan. The 2020 Plan is administered by the Compensation Committee of the Board and initially
provided for the issuance of up to 1,500,000 shares of Common Stock. The number of shares of Common Stock available for issuance under
the Plan automatically increases by 150,000 shares of Common Stock on January 1st of each year, for a period of not more than ten years,
commencing on January 1, 2021 and ending on (and including) January 1, 2030. Awards under the 2020 Plan can be granted in the form of
stock options, non-qualified and incentive options, stock appreciation rights, restricted stock, and restricted stock units.

29

On
June 24, 2021, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase
the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by 1,500,000 shares.

On
June 16, 2022, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase
the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by an additional 1,500,000
shares. As of December 31, 2022, the Plan provided for the issuance of up to 4,800,000 shares of Common Stock. Remaining authorization
under the 2020 Plan was 1,732,163 shares as of December 31, 2022.

Results
of Operations

Comparison
of the Year Ended December 31, 2022 to the Year Ended December 31, 2021

Our
financial results for the year ended December 31, 2022 are summarized as follows in comparison to the year ended December 31, 2021:

Total
revenue, net. Total revenue for the year ended December 31, 2022 was approximately $119.0 million, an increase of 28% compared to approximately
$92.9 million for the year ended December 31, 2021. The increase in revenues was attributable to both the increase in telehealth revenue
of 21% and an increase in WorkSimpli revenue of 47%. Telehealth revenue accounts for 69% of total revenue and has increased in the year
ended December 31, 2022 due to an increase in online sales demand, with the majority of the growth of our telehealth brands, RexMD and
ShapiroMD. WorkSimpli revenue accounts for 31% 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. While a portion of our growth could be attributable to the COVID-19 pandemic, management strongly
believes our growth is primarily a result of the strength of our healthcare brands.

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) the
cost of 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 4% to approximately $18.7 million for the year ended December 31, 2022
compared to approximately $18.0 million for the year ended December 31, 2021. The increased combined cost of revenue was due to increased
sales volume when compared to the year ended December 31, 2021. Telehealth costs decreased to 22% of associated telehealth revenues experienced
during the year ended December 31, 2022, from 26% of associated telehealth revenues during the year ended December 31, 2021. WorkSimpli
costs were 2% of associated WorkSimpli revenues for both the years ended December 31, 2022 and 2021.

30

Gross
profit. Gross profit increased by approximately 34% to approximately $100.4 million for the year ended December 31, 2022 compared to
approximately $74.9 million for the year ended December 31, 2021. Gross profit as a percentage of revenues was 84% for the year ended
December 31, 2022 compared to 81% for the year ended December 31, 2021. Gross profit as a percentage of revenues for telehealth was 78%
for the year ended December 31, 2022 compared to 74% for the year ended December 31, 2021, and for WorkSimpli was 98% for both the years
ended December 31, 2022 and 2021. The increase in sales volume for both telehealth and WorkSimpli and improved pricing have contributed
to the increase in gross profit.

Total
expenses. Operating expenses for the year ended December 31, 2022 were approximately $143.8 million, as compared to approximately $129.2
million for the year ended December 31, 2021. This represents an increase of 11%, or $14.6 million. The increase is primarily attributable
to:

These
increases in operating expenses were partially offset by a decrease in selling and marketing expenses which consist of online marketing
and advertising expenses. During the year ended December 31, 2022, the Company had a decrease of approximately $4.2 million in selling
and marketing costs resulting from a Company-wide strategic reduction in costs and alignment of sales and marketing initiatives to drive
the Company’s recurring revenue subscription-based sales model.

Other
Expenses, net

Other
expenses, net for the year ended December 31, 2022, consists of interest expensed on the Company’s notes payable and Series B
Convertible Preferred Stock partially offset by the gain on debt forgiveness of Paycheck Protection Program loans. Other expenses for the year ended December
31, 2021, consists of interest expense and amortization of debt discount recorded related to the June 1, 2021 Purchase Agreement and
loss on debt extinguishment which is attributable to the extinguishment of the June 1, 2021 Purchase Agreement of $4,180,473 in
October 2021 partially offset by the gain on debt forgiveness of Paycheck Protection Program loans of $184,914 recorded during the
year ended December 31, 2021.

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Working
Capital

Working
capital decreased by approximately $42.2 million during the year ended December 31, 2022. The decrease in current assets is primarily
attributable to a decrease in cash of approximately $37.4 million, partially offset by an increase in inventory of $2.1 million due to
timing of purchases and an increase in accounts receivable of approximately $1.9 million. Current liabilities increased by $8.5 million,
which was primarily attributable to an increase in deferred revenue of approximately $4.0 million due to increased sales for products
which the customer has not yet obtained control due to delivery not commensurate upon shipment of the product, an increase in notes payable
of $2.7 million, an increase in accounts payable and accrued expenses of $1.6 million as a result of the Company extending payables and
credit terms with vendors and accrual of the noncontingent milestone payments related to the Cleared acquisition of $2.6 million due
in 2023.

Liquidity
and Capital Resources

Since
inception, the Company has funded operations through the collections from revenues provided by the sales of its products, issuances of
common and preferred stock, receipt of loans and advances from officers and directors, and the issuance of convertible notes to third-party
investors. Rising interest rates and inflation may increase the cost of capital and make it more difficult for us to access capital markets.

Net
cash used in operating activities was approximately $23.0 million for the year ended December 31, 2022, as compared with approximately
$33.1 million for the year ended December 31, 2021. The significant factors contributing to the net cash used in operations during the
year ended December 31, 2022, include the net loss of approximately $45.0 million inclusive of the following: (1) $13.7 million in non-cash
stock-based compensation charges, (2) $8.9 million in non-cash goodwill and intangible asset impairment charges related to a decline
in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections and (3) $3.8 million in non-cash
depreciation and amortization, partially offset by a $5.1 million reduction to the Cleared contingent consideration as a result of the
remeasurement of the fair value. Additionally, an increase in inventory of $2.2 million due to the timing of purchases, an increase in
accounts receivable of $2.2 million and a decrease in accrued expenses and other operating activities of $2.2 million excluding noncontingent
payments to Cleared contributed to net cash used in operations for the year ended December 31, 2022. These factors contributing to net
cash used in operations were partially offset by an increase in deferred revenue of $4.0 million due to increased sales for products
which the customer has not yet obtained control due to delivery not commensurate upon shipment of the product and accounts payable of
$1.3 million as a result of the Company extending payables and credit terms with vendors.

Net
cash used in investing activities for the year ended December 31, 2022 was approximately $13.9 million, as compared with net cash used
in investing activities of $3.4 million for the year ended December 31, 2021. Net cash used in investing activities was primarily due
to cash paid for capitalized software costs of approximately $8.5 million, cash paid for the purchase of the ResumeBuild brand of approximately
$4.0 million, cash paid for the Cleared acquisition of approximately $1.0 million and cash paid for the purchase of equipment of $367
thousand. Net cash used in investing activities for the year ended December 31, 2021 was primarily due to cash paid for capitalized software
costs of approximately $3.1 million, the purchase of equipment of approximately $247 thousand and the purchase of an intangible asset
of approximately $22 thousand.

Net
cash used in financing activities for the year ended December 31, 2022 was approximately $528 thousand as compared with net cash provided
by financing activities of approximately $68.6 million for the year ended December 31, 2021. During the year ended December 31, 2022,
net cash used in financing activities consisted of preferred stock dividends of $3.1 million, repayment of notes payable of $169 thousand,
contingent consideration payments made related to the ResumeBuild brand acquisition of $156 thousand and distributions to non-controlling
interest of $144 thousand. These decreases were partially offset by proceeds from notes payable of $2.9 million, proceeds from the exercise
of options and warrants of $129 thousand and proceeds received from the sale of a portion of the Company’s membership interest
in WorkSimpli of $12 thousand. Net cash provided by financing activities for the year ended December 31, 2021, consisted of (1) net proceeds
of $14.9 million from the private placement, pursuant to the June 1, 2021 Purchase Agreement, (2) net proceeds of $13.5 million from
the private placement pursuant to the February 2021 Purchase Agreement, (3) net proceeds from the exercise of options and warrants during
the period of approximately $1.2 million, (4) net proceeds from the sale of common stock under the ATM Sales Agreement of approximately
$0.5 million, in connection with our filed shelf registration and launch of an at-the-market program on June 8, 2021, (5) our entry into
a merchant funding agreement, and (6) the October 4, 2021 Offerings whereby the Company received total net proceeds of $55.3 million.
These increases in net cash from financing activities were partially offset by the repayment of $15.0 million outstanding on the June
1, 2021 Purchase Agreement, repayment of notes payable, and the purchase of the additional membership interest of WorkSimpli.

32

Liquidity
and Capital Resources Outlook

As
of December 31, 2022, the Company has an accumulated deficit approximating $190.6 million and has experienced significant losses from
its operations. 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 from officers and directors. Our primary short-term and long-term requirements for liquidity
and capital are for customer acquisitions, fund 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.
The Company has a current cash balance of approximately $14.6 million as of the filing date.

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 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 December 31,
2022, the Company has $59.5 million available under the ATM Sales Agreement and $32 million available under the 2021 Shelf.

In
October 2022, the Company received proceeds of $976,000 under a 12-month working capital loan with Amazon pursuant to the Amazon Lending
Agreement. The terms of the loan include interest in the amount of $62,157. The total outstanding balance of $976,000, is included in
notes payable, net, on the accompanying consolidated balance sheet as of December 31, 2022.

In
November 2022, the Company received proceeds of $1,930,000 under two 10-month working capital loans with Balanced Management pursuant
to the Business Loan and Security Agreement. The terms of the loans include loan origination fees in the amount of $60,000 and total
interest of $840,000. The total outstanding balance of $1,821,250, is included in notes payable, net on the accompanying consolidated
balance sheet as of December 31, 2022.

During
the year ended December 31, 2022, we issued an aggregate of 90,400 shares of common stock for the exercise of stock options for cash
proceeds of $90,400.

During
the year ended December 31, 2022, we issued an aggregate of 22,000 shares of common stock for the exercise of warrants for cash proceeds
of $38,500.

The
Company’s continued operations are dependent upon obtaining an increase in its sales volumes which the Company has been successful
in achieving to date. However, there can be no assurances that we will continue to 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.

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. The Company’s continuance as a going concern is highly dependent on its future profitability and on the on-going support
of its stockholders, affiliates, and creditors. Based on these circumstances, management has determined that these conditions raise substantial
doubt about the Company’s ability to continue as a going concern.

The
Company has begun to implement strategies to strengthen revenues and improve operational efficiencies across the business and is significantly
curtailing expenses, however, these strategies do not mitigate the substantial doubt about the Company’s ability to continue as
a going concern. Management believes that the overall market value of the telehealth industry is positive and that it will continue to
drive interest in the Company.

Critical
Accounting Policies and Estimates

Our
significant accounting policies are more fully described in Note 2—Summary of Significant Accounting Policies to our consolidated
financial statements included in this report. We believe that the accounting policies below are critical for one to fully understand
and evaluate our financial condition and results of operations.

33

Revenue
Recognition

The
Company records revenue under the adoption of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, by analyzing exchanges with its
customers using a five-step analysis:

For
the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation, which
is the delivery of the product; this performance obligation is transferred at a discrete point in time. The Company generally records
sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped by a third-party
fulfillment service provider. In some cases, the customer does not obtain control until the product reaches the customer’s delivery
site; in these cases, recognition of revenue is deferred until that time. In all cases, delivery is considered to have occurred when
the customer obtains control, which is usually commensurate upon shipment of the product. In the case where delivery is not commensurate
upon shipment of the product, recognition of revenue is deferred until that time. In the case of its product-based contracts, the Company
provides a subscription sensitive service based on the recurring shipment of products. The Company records the related revenue under
the subscription agreements subsequent to receiving the monthly product order, recording the revenue at the time it fulfills the shipment
obligation to the customer.

For
its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances, customer
rebates, and other adjustments for its product shipments and are reflected as contra revenues in arriving at reported net revenues. The
Company’s discounts and customer rebates are known at the time of sale; correspondingly, the Company reduces gross product sales
for such discounts and customer rebates. The Company estimates customer returns and allowances based on information derived from historical
transaction detail and accounts for such provisions, as contra revenue, during the same period in which the related revenues are earned.
The Company has determined that the population of its product-based contracts with customers are homogenous, supporting the ability to
record estimates for returns and allowances to be applied to the entire product-based portfolio population. Customer discounts, returns
and rebates on product revenues approximated $5.2 million and $4.7 million, respectively, during the years ended December 31, 2022 and
2021.

The
Company, through its majority-owned subsidiary WorkSimpli, offers a subscription-based service providing a suite of software applications
to its subscribers, principally on a monthly subscription basis. The software suite allows the subscriber/user to convert almost any
type of document to another electronic form of editable document, providing ease of editing. For these subscription-based contracts with
customers, the Company offers an initial 14-day trial period which is billed at $1.95, followed by a monthly subscription, or a yearly
subscription to the Company’s software suite dependent on the subscriber’s enrollment selection. The Company has estimated
that there is one product and one performance obligation that is delivered over time, as the Company allows the subscriber to access
the suite of services for the time period of the subscription purchased. The Company allows the customer to cancel at any point during
the billing cycle, in which case the customers subscription will not be renewed for the following month or year depending on the original
subscription. The Company records the revenue over the customers subscription period for monthly and yearly subscribers or at the end
of the initial 14-day service period for customers who purchased the initial subscription, as the circumstances dictate. The Company
offers a discount for the monthly or yearly subscriptions being purchased, which is deducted at the time of payment at the initiation
of the contract term; therefore the Contract price is fixed and determinable at the contract initiation. Monthly and annual subscriptions
for the service are recorded net of the Company’s known discount rates. Customer discounts and allowances on WorkSimpli revenues
approximated $2.5 million and $1.8 million, respectively, during the years ended December 31, 2022 and 2021.

As
of December 31, 2022 and 2021, the Company has accrued contract liabilities, as deferred revenue, of approximately $5.5 million and $1.5
million respectively, which represent the following: (1) obligations for products which the customer has not yet obtained control due
to delivery not commensurate upon shipment of the product, (2) obligations on WorkSimpli in-process monthly or yearly contracts with
customers and (3) a portion attributable to the yet to be recognized WorkSimpli initial 14-day trial period collections.

Capitalized
Software Costs

The
Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes these
costs using the straight-line method over the estimated useful life of the software, generally three years. The Company does not sell
internally developed software other than through the use of subscription service. Certain development costs not meeting the criteria
for capitalization, in accordance with ASC 350-40, Internal-Use Software, are expensed as incurred. As of December 31, 2022 and
2021, the Company capitalized $12.1 million and $3.6 million, respectively, related to internally developed software costs which is amortized
over the useful life and included in development costs on our statement of operations. The increase in capitalized software costs of
$8.5 million or 236%, is primarily attributable to costs incurred related to development efforts of our LifeMD PC platform.

34

Goodwill
and Intangible Assets

Goodwill
represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination.
Goodwill is not amortized but is tested for impairment annually or more frequently, if events or changes in circumstances indicate that
the asset may be impaired. Goodwill in the amount of $8.0 million was recognized in conjunction with the Cleared acquisition during the
three months ended March 31, 2022 (see Note 3—Acquisitions to our consolidated financial statements included in this report). The
Company recorded an $8.0 million goodwill impairment charge and an $827 thousand intangible asset impairment charge during the year ended
December 31, 2022 related to a decline in the estimated fair value of Cleared as a result of a decline in the Cleared financial projections.

Other
intangible assets are comprised of: (1) a customer relationship asset, (2) the Cleared trade name, (3) Cleared developed technology, (4)
a purchased license and (5) a purchased domain name. During the year ended December 31, 2022, the
Company recorded an $827 thousand impairment loss related to a decline in the estimated fair value of the Cleared customer
relationship intangible asset with an original cost of $919 thousand and accumulated amortization of $92 thousand. Other intangible
assets are amortized over their estimated lives using the straight-line method. Costs incurred to renew or extend the term of
recognized intangible assets are capitalized and amortized over the useful life of the asset.

Impairment
of Long-Lived Assets

Long-lived
assets include equipment and capitalized software. Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, an impairment is
recognized as the amount by which the carrying amount of the assets exceeds the estimated fair values of the assets. As of December 31,
2022 and 2021, the Company determined that no events or changes in circumstances existed that would indicate any impairment of its long-lived
assets.

Recently
Issued Accounting Standards

In
October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.
This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance,
the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606, Revenue from Contracts
with Customers, as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the
same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in a business combination are
recorded by the acquirer at fair value. This update is effective for fiscal years beginning after December 15, 2022. Early adoption is
permitted. The Company is currently evaluating the effects that the adoption of this guidance will have on our consolidated financial
statements and related disclosures.

Application
of New or Revised Accounting Standards—Not Yet Adopted

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
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.”

Overview

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.

42

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:

Financing
Transactions

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.

43

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.

44

Partnerships

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.

45

Chief
Financial Officer

On
February 4, 2021, Mr. Juan Manuel Piñeiro 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 Piñeiro 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.

President

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.

46

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.

47

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:

Total
revenue for the year ended December 31, 2021 was approximately $92.9 million, an increase of 149% compared to approximately $37.3 million
for the year ended December 31, 2020. The increase in revenues was attributable to both the increase in telehealth revenue of 123% and
an increase in WorkSimpli revenue of 267%. Telehealth revenue accounts for 73% of total revenue and has increased in the year ended December
31, 2021 due to an increase in online sales demand, with the majority of the growth of our telehealth brands, RexMD and ShapiroMD. WorkSimpli
revenue accounts for 27% of total revenue and has steadily increased year over year due to a combination of higher demand, increased
market awareness, enhanced digital capabilities, and continued marketing campaign expansion. While a portion of our growth could
be attributable to the COVID-19 pandemic, management strongly believes our growth is primarily a result of the strength of our healthcare
brands.

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 over-the-counter (“OTC”) products and
(2) the cost of 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 103% to approximately $18.0 million for the year ended December
31, 2021 compared to approximately $8.9 million for the year ended December 31, 2020. The combined cost of revenue was due to increased
sales volume when compared to the year ended December 31, 2020. Telehealth costs increased to 26% of associated telehealth revenues experienced
during the year ended December 31, 2021, from 23% of associated telehealth revenues during the year ended December 31, 2020. WorkSimpli
costs decreased to 2% of associated WorkSimpli revenues for the year ended December 31, 2021, from 4% of associated WorkSimpli revenues
for the year ended December 31, 2020.

48

Gross
profit increased by approximately 163% to approximately $74.9 million for the year ended December 31,2021 compared to approximately $28.4
million for the year ended December 31, 2020, as a result of increased combined sales. Gross profit as a percentage of revenues was 81%
for the year ended December 31, 2021 compared to 76% for the year ended December 31, 2020. Gross profit as a percentage of revenues for
telehealth was 74% for the year ended December 31, 2021 compared to 72% for the year ended December 31, 2020, and for WorkSimpli was
98% for the year ended December 31, 2021 compared to 96% for the year ended December 31, 2020. The increase in gross profit was principally
attributable to higher product costs experienced during the year ended December 31, 2020, from the use of new suppliers, at higher costs,
resulted from the impact of COVID-19 related disruptions to product supply chain.

Operating
expenses for the year ended December 31, 2021 were approximately $129.2 million, as compared to approximately $86.3 million for the year
ended December 31, 2020. This represents an increase of 50%, or $42.9 million. The increase is primarily attributable to:

Other
Expenses

Other
expenses, which consist of interest expense and loss on debt extinguishment, for the year ended December 31, 2021 increased by approximately
$4.4 million compared to the year ended December 31, 2020. The increase in interest expense is primarily attributable to interest expense
and amortization of debt discount recorded related to the June 1, 2021 Purchase Agreement. Loss on debt extinguishment is attributable
to the extinguishment of the June 1, 2021 Purchase Agreement of $4,180,473 in October 2021 partially offset by the gain on debt forgiveness
of Paycheck Protection Program loans of $184,914 recorded during the year ended December 31, 2021. Other expense consisted of interest
expense and acceleration of debt discount for the year ended December 31, 2020 of approximately $500 thousand. Loss on debt settlement
is attributable to the issuance of common shares and warrants in exchange for debt during the year ended December 31, 2020.

49

Working
Capital

Working
capital increased by approximately $23.6 million during the year ended December 31, 2021. The increase in current assets is primarily
attributable to an increase in cash of approximately $32.2 million due to the net proceeds received from the October 4, 2021 Offerings.
Current liabilities increased by $8.9 million which was primarily attributable to an increase in accounts payable and accrued expenses
as a result of the overall increase in sales volume and the Company extending payables and credit terms with vendors during the year
ended December 31, 2021.

Liquidity
and Capital Resources

Since
inception, the Company has funded operations through the collection from revenues provided by the sales of its products, issuances of
common and preferred stock, receipt of loans and advances from officers and directors, and the issuance of convertible notes to
third-party investors.

Net
cash used in operating activities was approximately $33.1 million for the year ended December 31, 2021, as compared with approximately
$12.1 million for the year ended December 31, 2020. The significant factors contributing to the cash used in operations during the year
ended December 31, 2021, include the net loss of approximately $61.3 million (inclusive of $12.1 million in non-cash stock-based compensation
charges), principally offset by the Company’s increase in accounts payable and accrued expenses of approximately $9.0 million,
loss on extinguishment of debt of approximately $4.0 million, and amortization of debt discount of approximately $2.1 million.

Net
cash used in investing activities for the year ended December 31, 2021 was approximately $3.4 million, as compared with net cash used
in investing activities of $798 thousand for the year ended December 31, 2020. Net cash used in investing activities was primarily due
to cash paid for capitalized software costs of approximately $3.1 million, the purchase of equipment of approximately $247 thousand and
the purchase of an intangible asset of approximately $22 thousand.

Net
cash provided by financing activities for the year ended December 31, 2021 was approximately $68.6 million as compared with net cash
provided by financing activities of approximately $21.0 million for the year ended December 31, 2020. During the year ended December
31, 2021, financing activities consisted of (1) net proceeds of $14.9 million from the private placement whereby investors purchased
(a) a senior secured redeemable debenture in the aggregate principal amount of $15.0 million and (b) warrants to purchase up to an additional
1,500,000 shares of the Company’s common stock at an exercise price of $12.00 per share, pursuant to the June 1, 2021 Purchase
Agreement, (2) net proceeds of $13.5 million from the private placement of 608,696 common shares, at a purchase price of $23.00 per share
for aggregate gross proceeds of $14.0 million pursuant to the February 2021 Purchase Agreement, (3) net proceeds from the exercise of
options and warrants during the period of approximately $1.2 million, (4) net proceeds from the sale of common stock under the ATM Sales
Agreement of approximately $0.5 million, in connection with our filed shelf registration and launch of an at-the-market program on June
8, 2021, (5) our entry into a merchant funding agreement pursuant to which we may obtain cash advances, and (6) the October 4,
2021 Offerings whereby the Company received total net proceeds of $55.3 million. These increases in net cash from financing activities
were partially offset by the repayment of $15.0 million outstanding on the June 1, 2021 Purchase Agreement, repayment of notes payable,
and the purchase of the additional membership interest of WorkSimpli.

50

Liquidity
and Capital Resources Outlook

The
Company has funded operations in the past through the sales of its products, issuance of common and preferred stock and through loans
and advances from officers and directors. The Company’s continued operations are dependent upon obtaining an increase in its sale
volumes which the Company has been successful in achieving to date. The Company reviewed its forecasted operating results and sources
and uses of cash used in management’s assessment, which included the available financing, consideration of positive and negative
evidence impacting management’s forecasts, and market and industry factors. Positive indicators that lead to its conclusion
that the Company will have sufficient cash over the next 12 months following the date of this report include: (1) its 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, (3) the Company’s ability to raise up to $150 million under the 2021 Shelf, of which $58.5
million was utilized during the year ended December 31, 2021, with approximately $59.5 million available under the ATM Sales Agreement
and $32 million available under the 2021 Shelf as of December 31, 2021, (4) management’s ability to curtail expenses if necessary,
and (5) the overall market value of the telehealth industry and how it believes that will continue to drive interest in the Company.
The Company intends to use the net proceeds of the financing activities described above for customer acquisition, as well as for working
capital and for general corporate purposes.

Critical
Accounting Policies and Estimates

Our
significant accounting policies are more fully described in the notes to our consolidated financial statements. We believe that the accounting
policies below are critical for one to fully understand and evaluate our financial condition and results of operations.

Revenue
Recognition

The
Company records revenue under the adoption of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with
Customers, by analyzing exchanges with its customers using a five-step analysis:

For
the Company’s product-based contracts with customers, the Company has determined that there is one performance obligation, which
is the delivery of the product; this performance obligation is transferred at a discrete point in time. The Company generally records
sales of finished products once the customer places and pays for the order, with the product being simultaneously shipped by a third-party
fulfillment service provider; in limited cases, title does not pass until the product reaches the customer’s delivery site.
In these limited cases, recognition of revenue should be deferred until that time, however the Company does not have a process to
properly record the recognition of revenue if orders are not immediately shipped, and deems the impact to be immaterial. In all cases,
delivery is considered to have occurred when title and risk of loss have transferred to the customer, which is usually commensurate upon
shipment of the product. In the case of its product-based contracts, the Company provides a subscription sensitive service based on the
recurring shipment of products and records the related revenue under the subscription agreements subsequent to receiving the monthly
product order, recording the revenue at the time it fulfills the shipment obligation to the customer.

For
its product-based contracts with customers, the Company records an estimate for provisions of discounts, returns, allowances, customer
rebates, and other adjustments for its product shipments and are reflected as contra revenues in arriving at reported net revenues.
The Company’s discounts and customer rebates are known at the time of sale; correspondingly, the Company reduces gross product
sales for such discounts and customer rebates. The Company estimates customer returns and allowances based on information derived from
historical transaction detail and accounts for such provisions, as contra revenue, during the same period in which the related revenues
are earned. The Company has determined that the population of its product-based contracts with customers are homogenous, supporting the
ability to record estimates for returns and allowances to be applied to the entire product-based portfolio population.

The
Company, through its majority-owned subsidiary WorkSimpli, offers a subscription based service providing a suite of software applications
to its subscribers, principally on a monthly subscription basis. The software suite allows the subscriber/user to convert almost any
type of document to another electronic form of editable document, providing ease of editing. For these subscription-based contracts with
customers, the Company offers an initial 14-day trial period which is billed at $1.95, followed by a monthly subscription, or a yearly
subscription to the Company’s software suite dependent on the subscriber’s enrollment selection. The Company has estimated
that there is one product and one performance obligation that is delivered over time, as the Company allows the subscriber to access
the suite of services for the time period of the subscription purchased. The Company allows the customer to cancel at any point during
the billing cycle, in which case the customers subscription will not be renewed for the following month or year depending on the original
subscription. The Company records the revenue over the customers subscription period for monthly and yearly subscribers or at the end
of the initial 14 day service period for customers who purchased the initial subscription, as the circumstances dictate. The Company
offers a discount for the monthly or yearly subscriptions being purchased, which is deducted at the time of payment at the initiation
of the contract term; therefore the Contract price is fixed and determinable at the contract initiation. Monthly and annual subscriptions
for the service are recorded net of the Company’s known discount rates. As of December 31, 2021 and 2020, the Company has accrued
contract liabilities, as deferred revenue, of approximately $1.5 million and $917 thousand, respectively, which represent obligations
on in-process monthly or yearly contracts with customers and a portion attributable to the yet to be recognized initial 14-day trial
period collections.

51

Customer
discounts, returns, and rebates on telehealth revenues during the years ended December 31, 2021 and 2020 approximated $4.7 million
and $3.3 million, respectively. Customer discounts and allowances on WorkSimpli revenues during the years ended December 31, 2021 and
2020 approximated $1.8 million and $1.0 million, respectively.

Capitalized
Software Costs

The
Company capitalizes certain internal payroll costs and third-party costs related to internally developed software and amortizes these
costs using the straight-line method over the estimated useful life of the software, generally three years. The Company does not sell
internally developed software, other than through the use of subscription service. Certain development costs not meeting the criteria
for capitalization, in accordance with ASC 350-40, Internal-Use Software, are expensed as incurred. As of December 31, 2021 and
2020, the Company capitalized $3.6 million and $438 thousand related to internally developed software costs, which is amortized
over the useful life and included in development costs on our statement of operations.

Income
Taxes

The
Company files corporate federal and state tax returns. Conversion Labs PR and WorkSimpli file tax returns in Puerto Rico. Both are limited
liability companies and file separate tax returns with any tax liabilities or benefits passing through to its members.

The
Company records current and deferred taxes in accordance with ASC 740, Accounting for Income Taxes. This ASC requires recognition
of deferred tax assets and liabilities for temporary differences between tax basis of assets and liabilities and the amounts at which
they are carried in the consolidated financial statements, based upon the enacted rates in effect for the year in which the differences
are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected
to be realized. The Company periodically assesses the value of its deferred tax asset, a majority of which has been generated by a history
of net operating losses and management determines the necessity for a valuation allowance. ASC 740 also provides a recognition threshold
and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return. Using
this guidance, a company may recognize the tax benefit from an uncertain tax position in its financial statements only if it is more
likely-than-not (i.e., a likelihood of more than 50%) that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The Company’s tax returns for all years since December 31, 2018, remain open to
audit by all related taxing authorities.

Stock-based
Compensation

The
Company follows the provisions of ASC 718, Share-Based Payment. Under this guidance compensation cost generally is recognized
at fair value on the date of the grant and amortized over the respective vesting or service period. The fair value of options at the
date of grant is estimated using the Black-Scholes option pricing model. The expected option life is derived from assumed exercise rates
based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected
volatility is based upon historical volatility of the Company’s common stock shares using weekly price observations over an observation
period that approximates the expected life of the options. The risk-free rate approximates the U.S. Treasury yield curve rate in effect
at the time of grant for periods similar to the expected option life. Due to limited history of forfeitures, the Company has elected
to account for forfeitures as they occur.

Many
of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation
expense.

52

Recently
Issued Accounting Standards

In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,
Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40); Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which addresses
issues identified as a result of the complexities associated with applying U.S. GAAP for certain financial instruments with characteristics
of liabilities and equity. This update addresses, among other things, the number of accounting models for convertible debt instruments
and convertible preferred stock, targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”)
guidance and amendments to the guidance for the derivatives scope exception for contracts in an entity’s own equity, as well as
the related EPS guidance. This update applies to all entities that issue convertible instruments and/or contracts in an entity’s
own equity. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim
periods within those fiscal years. Early adoption is permitted, but no earlier than for fiscal years beginning after December 15, 2020,
including interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its
annual fiscal year, or January 1, 2021, should the Company elect to early adopt. This standard was adopted on January 1, 2021 and did
not have a material impact on the Company’s financial position, results of operations, or cash flows.

Application
of New or Revised Accounting Standards—Not Yet Adopted

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.