LifeMD, Inc. (LFMD) FY 2024 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, 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”.

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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:

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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.

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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.

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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.