Filing context and reporting period
The supplied filing is Immudyne, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018—not a LifeMD, Inc. filing. The company reported that, following the sale of its legacy yeast beta-glucan manufacturing business, it operated an online direct-marketing business. It marketed hair-care products and launched an immune-support supplement in Q1; management intended to launch four more products in 2018.
Financial performance and condition
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Net sales from continuing operations | $1.606 million | $167,899 |
| Gross profit / margin | $1.251 million / 78% | $79,726 / 47% |
| Operating expenses | $1.530 million | $481,519 |
| Operating loss | $(279,314) | $(401,793) |
| Loss from continuing operations | $(285,764) | $(1.099) million |
| Net income (loss), including discontinued operations | $639,974 | $(1.073) million |
| Net income (loss) attributable to Immudyne | $627,277 | $(1.045) million |
| Cash and current assets | $229,828 / $1.206 million | Cash: $141,379 at Dec. 31, 2017 |
| Current liabilities / working capital | $318,402 / $887,126 | $640,971 / $622,839 at Dec. 31, 2017 |
| Cash from operating activities | $65,928 total; $(105,148) from continuing operations | $(473,256) total; $(358,870) from continuing operations |
| Notes payable | $0 at March 31 | $167,479 at Dec. 31, 2017 |
Sales rose about 857% year over year, which management attributed principally to the hair-care product launch and online marketing. Cost of sales increased, but fell to 22% of sales from 53%, with management citing vendor volume discounts. Marketing expense rose to $897,164 from $10,800. Interest expense declined to $6,450 from $649,357, in part reflecting the prior-year debt and debt-discount costs.
Material changes and unusual items
The company sold the net assets of its legacy beta-glucan business to an entity formed by former CEO Mark McLaughlin for stated consideration of $1.0 million: 2 million company shares valued at $460,000, $190,000 cash, a further $200,000 due within 120 days, and waiver of a $150,000 severance claim. The sale generated a reported gain of $744,752. Discontinued operations contributed $925,738 of Q1 net income, including operating income of $180,987 and the sale gain; therefore, the quarter’s consolidated profit did not reflect profitable continuing operations.
The company repaid $167,479 of notes payable during the quarter, including related-party working-capital loans. It entered a license agreement for the PURPUREX product line, with a 13% royalty on gross receipts and two $50,000 payments due at specified anniversaries. It also issued 500,000 restricted shares to consultants, valued at $120,000, and 100,000 warrants in connection with a product-rights agreement.
Outlook, risks, and controls
Management stated that sales growth and/or new financing would be needed to meet 2018 operating and capital needs. The filing says the company began seeking debt and equity financing in March and warns that financing may not be available promptly or on acceptable terms; equity could dilute shareholders and debt could add repayment obligations and restrictive covenants. The filing identifies negative cash flow from continuing operations, an accumulated deficit of approximately $10.3 million, and substantial doubt about the company’s ability to continue as a going concern. It provides no quantified revenue or earnings guidance.
Disclosure controls and procedures were deemed ineffective. Reported material weaknesses included inadequate segregation of duties and risk assessment, insufficient written accounting and reporting procedures, inadequate computer-system security and disaster recovery, and no written whistleblower policy. Management said remediation was underway and identified inventory controls as an additional deficiency. Management reported no material change in internal control over financial reporting during the quarter. The filing reported no known legal proceeding expected to have a material adverse effect and no material change to previously disclosed risk factors.
Key facts for investors to verify
- Confirm the issuer: this source is an Immudyne, Inc. 10-Q, notwithstanding the request metadata naming LifeMD, Inc.
- Verify the legacy-business sale proceeds, collection of the $200,000 receivable due June 12, 2018, and the calculation and cash impact of the $744,752 gain.
- Assess whether continuing-business sales and cash generation can support operations, or whether additional financing will be required.
- Track launch progress and marketing costs for existing and planned products, including the economics of the PURPUREX license.
- Review dilution and potential share issuance from options, warrants, consulting shares, and future capital raising. The filing reports different share figures in its balance-sheet and equity-statement text; reconcile those figures with the 43,257,342 shares reported outstanding on May 15, 2018.
- Monitor remediation of the disclosed control weaknesses and the going-concern uncertainty.