Filing summary
Company and period: The supplied filing is Immudyne, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2014, not a filing identified as LifeMD, Inc. It describes a business developing and selling yeast beta-glucan nutraceutical and cosmetic products. The company reports that it completed its exit from the animal feed-additive market in 2013.
Financial performance
| Metric | Three months ended September 30, 2014 | Three months ended September 30, 2013 | Nine months ended September 30, 2014 | Nine months ended September 30, 2013 |
|---|---|---|---|---|
| Sales | $165,469 | $94,676 | $554,509 | $647,837 |
| Gross profit / margin | $93,864 / 56.7% | $52,306 / 55.2% | $364,658 / 65.8% | $470,704 / 72.7% |
| Operating loss | $(132,945) | $(168,666) | $(385,960) | $(259,608) |
| Net loss | $(103,904) | $(139,366) | $(316,348) | $(196,708) |
| Basic and diluted loss per share | $(0.00) | $(0.00) | $(0.01) | $(0.01) |
Third-quarter sales increased 74.8%, which management attributed primarily to greater demand for topical products from its largest customer. Nine-month sales fell 14.4%, reflecting weaker demand in the first half and failure to execute plans to generate new business. For the nine months, cost of sales rose 7.2% while gross margin declined 6.9 percentage points. Operating expenses increased 2.8%; management cited higher compensation, including stock-based payments to consultants, partly offset by lower general and administrative expenses. The nine-month net loss increased 61.0% year over year.
Third-quarter other income included a $25,000 patent-license installment; the final installment under that agreement was received in the quarter. Nine-month other income also included $7,877 from writing off an old account payable. The filing reports a $12,900 deferred tax benefit for the nine-month period.
Cash, liquidity and debt
- At September 30, 2014, cash was $90,004, down from $155,056 at December 31, 2013. Total current assets were $255,491 and current liabilities were $326,344, producing negative working capital of $70,853 and a current ratio of approximately 0.8.
- For the nine months, reported operating cash flow was positive $7,948, compared with cash used of approximately $112,000 in 2013. The 2014 figure benefited from collection of $132,000 in legal-settlement proceeds; operating results remained loss-making. Investing cash outflow was $100,000 for the investment in Adiuvo Investment S.A. Financing cash inflow was $27,000. Cash decreased by $65,052 overall.
- Notes payable totaled $67,200: $17,200 owed to officers and directors at 5% interest, payable on demand, and a $50,000 investor loan at 7% due November 14, 2014. Management said it planned to repay the investor loan and seek further financing. Accounts payable and accrued expenses were $259,144.
- The company reported an accumulated deficit of approximately $8.4 million and stockholders’ deficit of $30,361. Management and the financial statements state that substantial doubt exists about the company’s ability to continue as a going concern. Additional funding is needed for operations and capital requirements through 2014 and 2015, with no assurance it can be raised on acceptable terms or on time.
Outlook, risks and notable items
- Management plans to increase sales through marketing oral and topical products to healthcare professionals, distributors and direct consumers. It expects marketing and other selling, general and administrative costs to rise as that strategy is pursued. It disclosed no quantified revenue or earnings guidance.
- The company announced an agreement with the Sedona Institute for Age Management to conduct a clinical study of a potential new application of its beta-glucan products; results were expected after completion.
- Customer concentration is substantial: one customer represented 71% of third-quarter sales and 82% of nine-month sales, and 99% of accounts receivable at September 30, 2014. Management said it did not foresee collection difficulties, but concentration creates customer and credit risk.
- The company’s President had a 60% interest in royalties payable under an 8% royalty agreement covering certain skin-care sales. Accrued amounts under the agreement were $124,000, and approximately $29,000 of the royalty commitment remained. The President had deferred payments until the company could afford them.
- Management identified risks including limited operating capital, dependence on additional financing or support from officers and directors, potential shareholder dilution or debt covenants, intellectual-property protection, regulation, and staffing. The filing also reports that disclosure controls were ineffective, citing inadequate segregation of duties, written accounting and reporting procedures, computer security and disaster recovery, and a whistleblower policy. Remediation was dependent in part on available funds.
- During the nine months, the company issued 625,000 restricted shares for consultant services valued at $80,500 and granted options, including 300,000 performance-based options and 250,000 director options. Options and warrants represented substantial potential dilution; the filing excluded equivalents from loss per share as antidilutive.
Important facts for investors to verify
- Confirm the issuer: the provided document names Immudyne, Inc., while the request metadata names LifeMD, Inc.
- Assess whether the company secured financing after filing, repaid the $50,000 loan due November 14, 2014, and obtained adequate funding for 2015.
- Verify the sustainability of the third-quarter sales increase and the largest customer’s purchasing and payment patterns, given the high sales and receivables concentration.
- Review the accounting and disclosure-control weaknesses and whether management implemented the stated remediation plans.
- Check the filing’s period and cash-flow details against the original exhibits: the MD&A labels one comparison as ending June 30, 2013 although the financial statements use September 30, and the filing gives slightly different 2013 operating-cash-flow figures in different sections.