STOCKHOLDERS’ EQUITY

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

STOCKHOLDERS’ EQUITY

NOTE 7 – STOCKHOLDERS’ EQUITY

The Company has authorized the issuance of up to 100,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred stock, $0.0001 par value, of which 5,000 shares are designated as Series B Convertible Preferred Stock, 1,610,000 are designated as Series A Preferred Stock, and 3,385,000 shares of preferred stock remain undesignated.

On June 8, 2021, the Company filed 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 the ATM Sales Agreement whereby the Company may offer and sell, from time to time, shares of common stock having an aggregate offering price of up to $60 million. Under the 2021 Shelf, the Company had the ability to raise up to $150 million. The Company has approximately $59.5 million available under the ATM Sales Agreement and $32 million available under the 2021 Shelf as of June 30, 2022.

Options and Warrants

During the six months ended June 30, 2022, the Company issued an aggregate of 25,535 shares of common stock related to the cashless exercise of options.

During the six months ended June 30, 2022, the Company issued an aggregate of 90,400 shares of common stock related to the exercise of options for gross proceeds of $90,400.

During the six months ended June 30, 2022, the Company issued an aggregate of 22,000 shares of common stock related to the exercise of warrants for gross proceeds of $38,500.

Membership Interest Purchase Agreement

On July 31, 2019 the Company entered into a certain membership interest purchase agreement (the “MIPA”) by and between the Company; Conversion Labs PR (now “LifeMD PR”), a majority owned subsidiary; Taggart International Trust, an entity controlled by the Company’s Chief Executive Officer, Mr. Justin Schreiber; and American Nutra Tech LLC, a company controlled by its Chief Innovation and Marketing Officer, Mr. Stefan Galluppi (“Mr. Schreiber, Taggart International Trust, Mr. Galluppi, and American Nutra Tech LLC each a “Related Party” and collectively, the “Related Parties”). Pursuant to the MIPA, the Company purchased 21.83333% of the membership interests (the “Remaining Interests”) of Conversion Labs PR from the Related Parties, bringing the Company’s ownership of Conversion Labs PR to 100%.

As consideration for the Company’s purchase of the Remaining Interests from the Related Parties, Mr. Schreiber and Mr. Galluppi agreed to cancel all potential issuances of restricted stock and or options related to their employment with the Company, in exchange for the immediate issuance of 500,000 shares of the Company’s restricted common stock to each of Mr. Schreiber and Mr. Galluppi (the “Initial Issuances”) (equal to 1,000,000 shares in the aggregate). Mr. Schreiber and Mr. Galluppi were also entitled to additional issuances pursuant to certain milestones as follows: (i) 500,000 shares of the Company’s Common Stock to each of Mr. Schreiber and Mr. Galluppi (1,000,000 shares in the aggregate) on the business day following a consecutive ninety (90) day period, during which the Company’s Common Stock shall have traded at an average price per share equal to or higher than $2.50 (the “First Milestone”), and (ii) an additional 500,000 shares of the Company’s Common Stock to each of Mr. Schreiber and Mr. Galluppi (1,000,000 shares in the aggregate) following a consecutive ninety (90) day period during which the Common Stock shall have traded at an average price per share equal to or higher than $3.75 (the “Second Milestone” and, together with the First Milestones, the “Milestones”). Having achieved the Milestones, the Company, on December 9, 2020, issued an aggregate of 1,000,000 shares of the Company’s Common Stock to each of Mr. Schreiber and Mr. Galluppi (the “Milestone Shares”) (2,000,000 shares in the aggregate). The Milestone Shares are subject to the previously disclosed 180-day Lock-Up Agreement, each of which Mr. Schreiber and Mr. Galluppi signed on November 3, 2020.

The Company recorded an aggregate expense of $18,060,000 reflected in general and administrative expenses during the three months ended September 30, 2020 for the issuance of these 2,000,000 shares, of which 1,200,000 shares were issued during the three months ended March 31, 2021.

Common Stock

Common Stock Transactions During the Six Months Ended June 30, 2022

During the six months ended June 30, 2022, the Company issued an aggregate of 147,500 shares of common stock for services expensed in prior periods.

Noncontrolling Interest

For the three months ended June 30, 2022, net income attributed to the non-controlling interest amounted to $46,001 and for the three months ended June 30, 2021, net loss attributed to the non-controlling interest amounted to $197,973. During both the three months ended June 30, 2022 and 2021, the Company paid distributions to non-controlling shareholders of $36,000. For the six months ended June 30, 2022, net income attributed to the non-controlling interest amounted to $70,727 and for the six months ended June 30, 2021, net loss attributed to the non-controlling interest amounted to $468,476. During both the six months ended June 30, 2022 and 2021, the Company paid distributions to non-controlling shareholders of $72,000.

WorkSimpli Software Restructuring Transaction

Effective January 22, 2021 (the “WSS Effective Date”), the Company consummated the WSS Restructuring. To effect the WSS Restructuring the Company’s wholly-owned subsidiary Conversion Labs PR (now “LifeMD 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 “CVLB PR 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 CVLB PR 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.

Stock Options

2020 Equity Incentive Plan (the “2020 Plan”)

On January 8, 2021, the Company approved the Company’s 2020 Plan. Approval of the 2020 Plan was included as Proposal 1 in the Company’s definitive proxy statement for its Special Meeting of Shareholders filed with the Securities and Exchange Commission on December 7, 2020. The 2020 Plan is administered by the Compensation Committee of the Board of Directors (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. As of January 1, 2022, the Plan provided for the issuance of up to 3,300,000 shares of Common Stock.

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 1,500,000 shares. As of June 30, 2022, the Plan provided for the issuance of up to 4,800,000 shares of Common Stock. Remaining authorization under the 2020 Plan was 1,787,885 shares as of June 30, 2022.

The forms of award agreements to be used in connection with awards made under the 2020 Plan to the Company’s executive officers and non-employee directors are:

● Form of Non-Qualified Option Agreement (Non-Employee Director Awards)

● Form of Non-Qualified Option Agreement (Employee Awards); and

● Form of Restricted Stock Award Agreement.

Previously, the Company had granted service-based stock options and performance-based stock options separate from the 2020 Plan.

During the six months ended June 30, 2022, the Company issued an aggregate of 288,500 stock options to employees under the 2020 Plan and the prior plan. These stock options have a contractual term of 4 to 5 years and vest in increments, which fully vest the options over a two to three-year period, dependent on the specific agreements’ terms.

The following is a summary of outstanding options activity under our 2020 Plan for the six months ended June 30, 2022:

	Options Outstanding Number of Shares			Exercise Price per Share		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price per Share
Balance, December 31, 2021		2,063,500		$	4.57 – 21.02	8.04 years	$	9.41
Granted		88,500			3.28 – 13.74	4.24 years		9.37
Cancelled/Forfeited/Expired		(156,135	)		7.07 – 13.74	8.82 years		9.14
Balance at June 30, 2022		1,995,865		$	3.28 – 21.02	7.34 years	$	9.43
Exercisable at December 31, 2021		636,229		$	4.57 – 21.02	8.95 years	$	9.18
Exercisable at June 30, 2022		977,326		$	3.28 – 21.02	8.22 years	$	9.43

The total fair value of the options granted was $711,312, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 4 years, volatility of 135.65% – 465.55%, and risk-free rate of 0.90%–1.62%. Total compensation expense under the 2020 Plan options above was $1,840,116 and $1,239,421 for the three months ended June 30, 2022 and 2021, respectively, with unamortized expense remaining of $9,225,969 as of June 30, 2022. Total compensation expense under the 2020 Plan options above was $3,484,606 and $2,196,074 for the six months ended June 30, 2022 and 2021, respectively.

The following is a summary of outstanding service-based options activity (prior to the establishment of our 2020 Plan above) for the six months ended June 30, 2022:

	Options Outstanding Number of Shares			Exercise Price per Share		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price per Share
Balance, December 31, 2021		1,658,733		$	1.00 – 19.61	5.85 years	$	5.45
Granted		50,000			4.12	4.51 years		4.12
Exercised		(130,400	)		1.00 – 1.40	0.47 years		1.12
Balance at June 30, 2022		1,578,333		$	1.00 – 19.61	5.73 years	$	5.77
Exercisable December 31, 2021		1,019,164		$	1.00 – 19.61	5.21 years	$	3.60
Exercisable at June 30, 2022		1,096,726		$	1.00 – 19.61	5.51 years	$	4.51

The total fair value of the options granted was $205,995, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 4 years, volatility of 420.16% and risk-free rate of 1.37%. Total compensation expense under the above service-based option plan was $547,381 and $529,508 for the three months ended June 30, 2022 and 2021, respectively, with unamortized expense remaining of $3,801,698 as of June 30, 2022. Total compensation expense under the above service-based option plan was $1,097,781 and $936,493 for the six months ended June 30, 2022 and 2021, respectively. Of the total service-based options exercised during the six months ended June 30, 2022, 40,000 options were exercised on a cashless basis, which resulted in 25,535 shares issued and 90,400 options were exercised for cash.

The following is a summary of outstanding performance-based options activity for the six months ended June 30, 2022:

	Options Outstanding Number of Shares		Exercise Price per Share		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price per Share
Balance at December 31, 2021		535,000	$	1.25 – 2.50	5.59 years	$	1.60
Granted		150,000		4.12	3.51 years		4.12
Balance at June 30, 2022		685,000	$	1.25 – 4.12	4.75 years	$	2.15
Exercisable December 31, 2021		100,000	$	1.75 – 2.50	1.96 years	$	2.01
Exercisable at June 30, 2022		100,000	$	1.75 – 2.50	1.47 years	$	2.01

The total fair value of the options granted was $617,980, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 3.5 years, volatility of 444% and risk-free rate of 1.37%. Total compensation expense under the above performance-based option plan was $105,797 and $173,397 for the three months ended June 30, 2022 and 2021, respectively, with unamortized expense remaining of $211,594. Total compensation expense under the above performance-based option plan was $211,594 and $173,397 for the six months ended June 30, 2022 and 2021, respectively.

Restricted Stock Units (RSUs) (under the 2020 Plan)

The following is a summary of outstanding RSU activity under our 2020 Plan for the six months ended June 30, 2022:

	RSUs Outstanding Number of Shares
Balance at December 31, 2021		375,375
Granted		563,000
Vested		(87,625	)
Balance at June 30, 2022		850,750

The total fair value of the 563,000 RSUs granted was $1,751,235 which was determined using the fair value of the quoted market price on the date of grant. Total compensation expense under the 2020 Plan RSUs above was $595,038 and $0 for the three months ended June 30, 2022 and 2021, respectively, with unamortized expense remaining of $4,243,941 as of June 30, 2022. Total compensation expense under the 2020 Plan RSUs above was $1,571,158 and $357,163 for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022, 87,625 RSUs vested, of which 47,500 RSUs were issued.

RSUs (outside of 2020 Plan)

The following is a summary of outstanding RSU activity outside of the 2020 Plan for the six months ended June 30, 2022:

	RSUs Outstanding Number of Shares
Balance at December 31, 2021		600,000
Granted		60,000
Vested		(65,000	)
Balance at June 30, 2022		595,000

The total fair value of the 60,000 RSUs granted was $215,400 which was determined using the fair value of the quoted market price on the date of grant. Total compensation expense for RSUs outside of the 2020 Plan was $347,700 and $0 for the three months ended June 30, 2022 and 2021, respectively, with unamortized expense remaining of $5,297,700 as of June 30, 2022. Total compensation expense for RSUs outside of the 2020 Plan was $938,700 and $0 for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022, 65,000 RSUs vested, of which 50,000 were issued.

Warrants

The following is a summary of outstanding and exercisable warrants activity during the six months ended June 30, 2022:

	Warrants Outstanding Number of Shares			Exercise Price per Share		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price per Share
Balance at December 31, 2021		3,888,438		$	1.40 – 12.00	4.94 years	$	5.59
Exercised		(22,000	)		1.75	0.46 years		1.75
Cancelled/Forfeited/Expired		(6,800	)		2.00	-		2.00
Balance at June 30, 2022		3,859,638		$	1.40 – 12.00	4.23 years	$	5.61
Exercisable December 31, 2021		2,621,307		$	1.40 – 12.00	6.36 years	$	5.98
Exercisable June 30, 2022		3,747,319		$	1.40 – 12.00	4.26 years	$	5.66

Total compensation expense on the above warrants for services was $604,974 for both the three months ended June 30, 2022 and 2021, with unamortized expense remaining of $437,279 as of June 30, 2022. Total compensation expense on the above warrants for services was $1,209,948 for both the six months ended June 30, 2022 and 2021.

Stock-based Compensation

The total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based stock options, warrants and RSUs amounted to $4,041,006 and $2,547,300 for the three months ended June 30, 2022 and 2021, respectively. The total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based stock options, warrants and RSUs amounted to $8,513,787 and $4,873,075 for the six months ended June 30, 2022 and 2021, respectively. Such amounts are included in general and administrative expenses in the unaudited condensed consolidated statement of operations. Unamortized expense remaining related to service-based stock options, performance-based stock options, warrants and RSUs was $23,218,181 as of June 30, 2022.