Business context and reporting period
Registrant: Immudyne, Inc. (the filing is not for LifeMD, Inc.). This Form 10-K covers the fiscal year ended December 31, 2017; it is not a quarterly filing. In 2017, the company operated legacy yeast beta-glucan ingredient and finished-cosmetics businesses, alongside its online direct-to-consumer platform. Its Shapiro MD hair-care line launched in 2017. The company reported launching iNR Wellness in early 2018 and planned additional product launches that year.
In February 2018, Immudyne sold its legacy yeast beta-glucan manufacturing business to former CEO Mark McLaughlin. The amended consideration was $190,000 at closing, $200,000 due within 120 days, and 2 million Immudyne shares. After the sale, management said the company would focus on the Immudyne PR online direct-marketing business.
Financial results and liquidity
| Metric | 2017 | 2016 | Change / context |
|---|---|---|---|
| Net sales | $5.055 million | $5.239 million | Down about 3.5% |
| Gross profit / margin | $3.571 million / 70.7% | $3.293 million / 62.9% | Margin increased |
| Operating expenses | $4.639 million | $4.467 million | Up about 3.8% |
| Operating loss | $(1.068) million | $(1.175) million | Improved |
| Net loss attributable to Immudyne | $(1.206) million | $(1.108) million | Loss widened; $(0.03) per share in both years |
| Cash and working capital | $141,379 cash; $622,839 working capital | $182,561 cash; $(361,725) working capital | Working capital improved |
| Operating cash flow | $(817,216) in cash-flow statement | $(407,914) | Cash use increased |
Gross profit rose as cost of sales fell to $1.484 million from $1.946 million. Finished cosmetic sales declined to $3.685 million from $4.241 million, while nutraceutical and cosmetic additives sales rose to approximately $1.373 million from $1.024 million. One customer represented 25% of consolidated sales and 65% of year-end accounts receivable.
At year-end, current assets were $1.264 million and current liabilities $641,000; the reported current ratio was 1.97. Current liabilities included a $42,479 line-of-credit balance and $125,000 of related-party notes. The related-party notes were reported as satisfied by the filing date. The company had no reported long-term debt balance.
Financing activities supplied cash, principally through borrowing and equity issuance. The cash-flow statement reports $776,034 provided by financing activities; MD&A instead states $786,034. MD&A also gives operating cash use as $827,215, versus $817,216 in the cash-flow statement. These figures do not reconcile in the supplied filing text and should be checked against the filed statements.
Material changes versus the prior period
- Revenue decreased modestly overall as finished-cosmetics sales fell, partly offset by growth in additives.
- Gross margin increased, while operating expenses rose, including compensation costs associated with share-based service arrangements. Compensation and related expense increased to $1.699 million from $1.247 million.
- Net loss attributable to Immudyne widened despite improved operating loss. Results included a $502,830 gain from the change in fair value of derivative liabilities and a $553,222 loss on extinguishment of debt; the derivative liability was eliminated after the company increased authorized shares.
- Cash used in operations increased, and year-end cash declined. The company also raised capital through common-stock and warrant sales.
- The legacy manufacturing-business sale, CEO transition to Justin Schreiber, and strategic shift to online direct marketing occurred after the reporting year.
Outlook, risks, contingencies and unusual items
- Going concern: The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern, while expressing an unmodified opinion on the financial statements. Management said it expected available business proceeds and financing, including proceeds from the legacy-business sale, to fund operations through 2018, but acknowledged possible need for additional capital and no assurance of obtaining it.
- Growth plans: Management intended to expand products and online marketing and projected additional launches in 2018. The filing provides no quantified revenue or earnings guidance.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing material weaknesses including inadequate segregation of duties, insufficient written accounting and SEC-reporting procedures, and ineffective period-end reporting controls. A CFO was hired in 2017; remediation was ongoing.
- Regulatory and commercial risks: Products are marketed as cosmetics or dietary supplements; the filing states that regulators have not attested to product efficacy and restrict disease-treatment claims. Other stated risks include marketing-cost effectiveness, competition from larger companies, customer concentration, cybersecurity, product liability, and reliance on key personnel.
- Related-party matters: The CEO-owned JOJ Holdings transaction involved acquiring Blockchain Industries shares; Immudyne agreed to issue shares based on proceeds realized from sales, up to 5 million Immudyne shares. The arrangement was not recorded as an asset or liability at initial assessment and was to be reassessed. The filing also discloses related-party services, office arrangements, loans, and share-based compensation.
- Equity and market risk: The company issued substantial shares, options, and warrants; further financing could dilute shareholders. Its OTCQB shares had no liquid trading market, and the company did not expect to pay dividends in the foreseeable future.
Important facts for investors to verify
- Confirm the filing identity: it is Immudyne, Inc., not LifeMD, Inc., and covers year-end 2017 rather than “2017 Q4” alone.
- Reconcile the cash-flow and financing figures that differ between MD&A and the audited cash-flow statement.
- Review liquidity, cash runway, the going-concern disclosure, and whether the legacy-business sale proceeds and 2018 financing needs were realized.
- Verify the final sale consideration, share issuance, and accounting treatment for the February 2018 divestiture.
- Assess remediation of material control weaknesses, related-party arrangements, customer concentration, and potential dilution from outstanding equity awards and warrants.