LifeMD, Inc. (LFMD) FY 2021 MD&A

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.