Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant on June 30, 2017 based on a closing price of $0.30 was $12,197,389.
This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) regarding our company that include, but are
not limited to, projections of earnings, revenue or other financial items; statements of the plans, strategies and objectives
of management for future operations; statements concerning proposed new products, services or developments; statements regarding
future economic conditions or performance; statements of belief; and statements of assumptions underlying any of the foregoing.
These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s
beliefs and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,”
“plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,”
“estimates,” “should,” “may,” “will,” “with a view to” and variations
of these words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are
not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Although
we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found
to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could
cause our actual results to be materially different from our expectations are set forth in “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and other sections
in this report. Other sections of this report include additional factors that could adversely impact our business and financial
performance.
Unless otherwise indicated, information
in this report concerning economic conditions and our industry is based on information from independent industry analysts and
publications, as well as our estimates. Except where otherwise noted, our estimates are derived from publicly available information
released by third party sources, as well as data from our internal research, and are based on such data and our knowledge of our
industry, which we believe to be reasonable. Unless otherwise indicated, none of the independent industry publication market data
cited in this report was prepared on our or our affiliates’ behalf.
The forward-looking statements made in
this report are based only on events or information as of the date on which the statements are made in this report. Except as
required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated
events. You should read this report and the documents we refer to in this report and have filed as exhibits to this report completely
and with the understanding that our actual future results may be materially different from what we expect.
Additional information on the various
risks and uncertainties potentially affecting our operating results are discussed in this report and other documents we file with
the Securities and Exchange Commission (the “SEC”). We undertake no obligation to revise or update publicly any forward-looking
statements for any reason, except as required by law. Given these risks and uncertainties, readers are cautioned not to place
undue reliance on these forward-looking statements.
As used in this report, “Immudyne,”
“Company,” “we,” “our” and similar terms refer to Immudyne, Inc., unless the context indicates
otherwise.
PART I
Item 1. Business
Our Company
We are an internet based direct response
marketing company that in-licenses, acquires or creates innovative and proprietary products that can be sold to consumers around
the world via our technology infrastructure and relationships with agencies, third party marketers, and online advertising platforms
such as Facebook and Google. We currently have two commercial stage products and intend to launch an additional four products in
2018. Our leading product, launched in the second quarter of 2017, is a patented shampoo, conditioner, and leave-in foamer for
thicker, fuller hair. Our second product, launched in the first quarter of 2018, is a nutritional supplement for immune support.
We launched our online direct marketing
business in the fourth quarter of 2015 with the establishment of a partnership with Inate Skincare, LLC (“Inate”).
Our initial intention was to launch a skin care line containing our proprietary ingredients and to market such products directly
to consumers. The Company entered into a limited liability company operating agreement with its joint venture partners with respect
to Inate under the legal name Immudyne PR LLC (“Immudyne PR”). On April 1, 2016, the original operating agreement of
Immudyne PR was amended and restated and we increased our ownership and voting interest in Immudyne PR to 78.16667%.
Divestiture of Yeast Beta Glucan Business
Throughout 2017, we manufactured, distributed
and sold natural immune support products containing our proprietary yeast beta glucans, a group of beta glucans naturally occurring
in the cell walls of yeast that have been shown through testing and analysis to support the immune system. Beta glucans, or β-Glucans,
are a natural extract that are considered to be “biological response modifiers” that support the immune system. The
most common sources of beta glucans are from the cell walls of baker’s yeast, the cellulose in plants, the bran of cereal
grains and certain fungi and bacteria.
In 2017,
our yeast beta glucan
nutraceutical and cosmetic product lines consisted of our natural, premium yeast beta glucans in oral and topical applications.
We offered our yeast beta glucans as natural raw material ingredients in bulk quantities, our “Nutraceutical and Cosmetic
Additives” segment, and finished, consumer products packaged under our brands as well as private label brands, our “Finished
Cosmetic Products” segment, which were marketed directly to consumers.
In the first quarter of 2018 we sold assets
and certain liabilities related to our legacy business that manufactured raw yeast beta glucan. As a result of this divestiture,
we solely operate our online direct marketing business owned by Immudyne PR.
Our Current Products
We currently have 2 commercial stage products
and 2 development stage product in our portfolio. We have several additional products that we intend to in-license in 2018, subject
to negotiations and definitive agreements. Generally, our business model is to license or acquire innovative products that address
large, global unmet needs which can be placed onto our internet based or “online” direct response marketing platform.
All of our products are proprietary and exclusively marketed by Immudyne and our partners. We seek to protect the market position
of our products with intellectual property, trade secrets, trademarks and brand equity.
Shapiro MD
The
Shapiro MD product line is a unique hair care aid developed to help men & women regain thicker, fuller and healthier looking
hair.
Shapiro MD Shampoo & Conditioner are the result of 15 years of research and development by thought-leading dermatologists
Dr. Steven Shapiro and Dr. Michael Borenstein.
The Shapiro MD product line is protected
by two U.S. patents and contains three naturally-occurring dihydrotestosterone (DHT) blocking ingredients. DHT is widely
believed to be the main culprit of balding/hair-loss. Clinical research on the ingredients used in Shapiro MD products has been
published in prominent scientific journals, including US National Library of Medicine National Institutes of Health, International
Journal of Dermatology and European Hair Research Society.
iNR Wellness
iNR Wellness is a daily nutritional supplement
that contains yeast, oat, and mushroom beta glucans. Beta glucans, or β-Glucans, are a natural extract considered to
be “biological response modifiers” that support the immune system. Our three naturally occurring beta glucans have
clinically shown to support the human immune system and are commonly used as an OTC supplement to reduce cholesterol levels, manage
blood glucose levels, and support the immune system.
General scientific research on beta glucan
derived from yeast cell walls has been conducted in recent years by renowned medical laboratories, including Baylor College of
Medicine, U.S. Armed Forces Radiobiology Institute, Stanford University, Southwest Research Institute, and North Carolina State
University. As more studies are conducted on beta glucans, we believe the potential benefits to human health will continue to emerge.
Although the Food and Drug Administration
(“FDA”) has historically endorsed the consumption of oat glucan/dietary fiber as an aid to lower cholesterol, most
of the testing and analysis or scientific research mentioned in this annual report has not been subject to oversight of the FDA
or any comparable regulatory body, and no regulatory body has attested to the efficacy of beta glucans in supporting the immune
system or otherwise treating disease. Further, the marketing of beta glucans is not subject to FDA approval, and we are prohibited
by Federal Trade Commission (“FTC”) and FDA regulations from suggesting in advertisements and product labels that our
products mitigate, treat, cure or prevent a specific disease or class of disease.
Scarology
Scarology is a scar healing topical
solution delivered through a day and night routine. Three essential ingredients work together to achieve dramatic results in appearance
and feel. The product is clinically tested and developed by prominent dermatologists. We expect the Scarology product launch in
the second quarter of 2018.
None of the testing and analysis or scientific
research mentioned in this annual report on Form 10-K has been subject to the oversight of the FDA or any comparable regulatory
body, and no regulatory body has attested to the efficacy of our products. Further, our current products are marketed as cosmetics
and nutritional supplements, and we are prohibited by FTC and FDA regulations from suggesting in advertisements and product labels
that our products mitigate, treat, cure or prevent a specific disease or class of disease.
Sales and Marketing
Our
sales and marketing strategy primarily consists of utilizing our online direct response platform technology to sell the innovative
products that we have licensed, acquired or created. Our priority is to build brand recognition across our product lines and actively
pursue opportunities to market our products and increase sales.
We
leverage the world’s largest social media and online sales platforms such as Google, Facebook and Amazon to capture customers
and market health and wellness products globally. Additionally, we sell our products through our own websites at www.inrwellness.com
and www.shapiromd.com.
Our
expertise in digital marketing allows us to target consumers most likely to purchase our products, serve these consumers an advertisement,
and convert these consumers into customers. We plan to combine this highly scalable paid media business model with other direct
to consumer approaches such as television, radio and influencer marketing. We also intend to sell our products in retail stores
and through physician offices.
Manufacturing
We use third party contractors for the
manufacturing, encapsulation, bottling and labeling of our personal care and nutritional supplement products. These contractors
are certified to produce organic products, subject to regular government inspections, and to the best of our knowledge, comply
with current Good Manufacturing Practices and hold the necessary drug manufacturing licenses and processed food registrations required
by their respective state regulators.
Customers
We sell our products directly to consumers
internationally through online channels. Over 90% of consolidated 2017 sales consisted of customers in the U.S. Penetrating international
markets is a significant opportunity for the Company’s near-term growth.
Our priority is to maximize the long-term
value of each customer through proper pricing strategies, retargeting, customer service and through database management. We have
served over 50,000 customers since implementing direct selling strategies into our business model in 2016.
One customer, M.M.P., accounted for 25%
of net sales during 2017.
Competition
The markets for nutritional supplements
and skin care products are highly competitive, consisting of a large number of manufacturers, distributors and retailers, none
of which dominates the fragmented and diverse market. The Company's competitors include, among others, Guthy Renker LLC, L'Oréal
S.A., Atlantic Coast Media Group, LLC, Hims, Inc. and The Estée Lauder Companies Inc. Some of our competitors are significantly
larger than we are, have a longer operating history, higher visibility and brand recognition, and greater financial resources
than we do.
Intellectual Property
We rely primarily on proprietary trade
secrets and know-how to operate our online direct response marketing platform. We have two U.S. patents relating to our Shapiro
MD products’ method for treatment of hair loss with a combination of natural ingredients.
In order to protect the confidentiality
of our intellectual property, including trade secrets, know-how and other proprietary technical and business information, it is
our policy to limit access to such information to those who require access in order to perform their functions and to enter into
agreements with employees, consultants and vendors to contractually protect such information.
Governmental and Environmental Regulation
Our business and the manufacturing, distribution and sale of
our beta glucan products are regulated in the U.S. primarily by the FDA and the FTC.
The FDA enforces the FDCA and Dietary
Supplement Health and Education Act (“DSHEA”) as they pertain to foods, food ingredients, cosmetics and dietary supplement
production and marketing. Dietary supplements and nutraceuticals are regulated as a category of food, not as drugs. We are not
required to obtain FDA pre-market approval to sell our products in the United States under current laws.
The FDA imposes GMP guidelines to ensure
that dietary supplements are produced in a quality manner, do not contain contaminants or impurities and are accurately labeled.
GMPs include requirements for establishing quality control procedures, designing and constructing manufacturing plants, testing
ingredients and finished products and record keeping and handling of consumer product complaints. The FDA has broad authority
to enforce the provisions of federal law applicable to dietary supplements and cosmetics, including the power to monitor claims
made in product labeling, to seize adulterated or misbranded products or unapproved new drugs, to request product recall, to enjoin
further manufacture or sale of a product, to issue warning letters and to institute criminal proceedings.
Advertising and product claims regarding
the efficacy of products are also regulated by the FTC. The FTC regulates the advertising of dietary supplements and other health-related
products to ensure that any advertising is truthful and not misleading, and that an advertiser maintains adequate substantiation
for all product claims. FTC enforcement actions may result in consent decrees, cease and desist orders, judicial injunctions and
the payment of fines with respect to advertising claims that are found to be unsubstantiated.
Under current U.S. regulations, our products
must comply with certain labeling requirements enforced by the FDA and FTC, but otherwise generally are not required to receive
regulatory approval prior to introduction into the U.S. market. We believe we are in compliance with all material government regulations
applicable to our products.
In addition to the foregoing, our operations
are subject to federal, foreign, state and local government laws and regulations, including those relating to zoning, workplace
safety and accommodations for the disabled, and our relationship with our employees is subject to regulations, including minimum
wage requirements, anti-discrimination laws, overtime, working conditions and citizenship requirements. We currently do not incur
any material costs in connection with our compliance with applicable environmental laws as our manufacturing processes generate
minimal discharge. Furthermore, the cost of maintaining compliance with applicable environmental laws has not, and we believe,
in the future, will not, have a material adverse effect on our business, results of operations and financial condition. We believe
we are in substantial compliance with all material governmental regulations applicable to our operations.
Where You Can Find More Information
Our website address is
www.immudyne.com
.
We do not intend our website address to be an active link or to otherwise incorporate by reference the contents of the website
into this Report. The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission
(the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website
(http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC.
Item 1A. Risk Factors
Our business and an investment in our
securities are subject to a variety of risks. The following risk factors describe the most significant events, facts or circumstances
that could have a material adverse effect upon our business, financial condition, results of operations, ability to implement
our business plan, and the market price for our securities. Many of these events are outside of our control. If any of these risks
actually occurs, our business, financial condition or results of operation may be materially adversely affected. In such case,
the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.
Risks Related to Our Business
The report of our independent registered public accounting
firm contains explanatory language that substantial doubt exists about our ability to continue as a going concern.
The independent auditor’s report
on our financial statements contains explanatory language that substantial doubt exists about our ability to continue as a going
concern as of December 31, 2017. If we are unable to fund operations through our operating business and are unable to obtain sufficient
financing in the near term as required or achieve profitability, then we would, in all likelihood, experience severe liquidity
problems and may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy or undergo liquidation,
the result of which will adversely affect the value of our common shares.
We have generated losses and not
yet achieved positive cash flows, which may adversely affect our liquidity and ability to continue as a going concern.
We cannot assure you that we will be able
to achieve revenue growth, profitability or positive cash flow, on either a quarterly or annual basis, or that profitability, if
achieved, will be sustained. Our ability to meet our long-term business objectives likely will be dependent upon establishing increased
cash flow from operations or securing other sources of financing. If our losses continue, however, our liquidity may be severely
impaired, our stock price may fall and our shareholders may lose all or a significant portion of their investment.
We may not be able to implement
our growth and marketing strategy successfully or on a timely basis or at all.
Our future success depends, in large part,
on our ability to implement our growth strategy of expanding distribution and sales of our product portfolio, attracting new consumers
to our brand and introducing new product lines and product extensions. Our ability to implement this growth strategy depends,
among other things, on our ability to:
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enter
into distribution and other strategic arrangements with other potential distributors of our all-natural raw material products;
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increase our brand
recognition;
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expand and maintain
brand loyalty; and
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research new applications
for existing products and develop new product lines and extensions.
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Our sales and operating results will be
adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately
proves unsuccessful.
Cyber security risks and the failure
to maintain the integrity of data belonging to our Company could expose us to data loss, litigation and liability, and our reputation
could be significantly harmed.
We collect and retain large volumes of
data relating to our business and from our customers for business purposes, including for transactional and promotional purposes,
and our various information technology systems enter, process, summarize and report such data. The integrity and protection of
this data is critical to our business. We are subject to significant security and privacy regulations, as well as requirements
imposed by the credit card industry. Maintaining compliance with these evolving regulations and requirements could be difficult
and may increase our expenses. In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent
release or disclosure of data could result in theft, loss or fraudulent or unlawful use of data relating to our company or our
employees, independent distributors or preferred customers, which could harm our reputation, disrupt our operations, or result
in remedial and other costs, fines or lawsuits.
If we undertake product recalls
or incur liability claims with respect to our products, such recalls or claims could increase our costs and adversely affect our
reputation, business and results of operations.
Our yeast beta glucan nutraceutical products
are designed for human consumption and we face product recalls or liability claims if the use of our products is alleged to have
resulted in injury or death. To date, we have not (i) conducted any product recalls, (ii) received any product liability claims
from third parties, or (iii) received any reports from an end consumer of any adverse effect resulting from our products. A product
recall or liability claim against us could result in increased costs and could adversely affect our reputation with our customers,
which, in turn, could have an adverse effect on our business, financial condition and results of operations.
While we do maintain product liability
insurance coverage we cannot be sure that we will be able to maintain insurance coverage at acceptable costs or in a sufficient
amount, that our insurer will not disclaim coverage as to a future claim or that a product liability claim would not otherwise
adversely affect our business, financial condition and results of operations. The cost of any product liability litigation or
other proceeding, even if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation
of product liability litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
If we lose our President and Chief
Executive Officer, or are unable to attract and retain additional qualified personnel, the quality of our products may decline
and our business may be adversely affected.
We rely heavily on the expertise, experience
and continued services of our President and Chief Executive Officer, Justin Schreiber. Loss of his services could adversely affect
our ability to achieve our business objectives, if we are unable to find a suitable replacement. Mr. Schreiber is an integral
factor in establishing relationships and the continued development of our business depends upon his continued employment. If he
were to resign or retire, we would have to find a suitable replacement who shared his expertise and relationships. Any delay in
finding a suitable replacement would adversely affect the pace at which we are able to successfully grow our business and could
harm our existing business, resulting in a decrease in sales and revenue.
We believe our future success will depend
upon our ability to retain key employees and our ability to attract and retain other skilled personnel and consultants. While
we have been able to find a sufficient number of skilled personnel consistent with our growth to date, we cannot guarantee that
any employee will remain employed by us for any period of time or that we will be able to attract, train or retain qualified personnel
in the future consistent with our growth. Such loss of personnel could have a material adverse effect on our business and company.
Furthermore, we may need to employ additional personnel to expand our business. Qualified employees and consultants in the dietary
supplement industry are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements.
There is no assurance we will be able to attract and retain sufficient numbers of highly skilled employees in the future. The
loss of personnel or our inability to hire or retain sufficient personnel at competitive rates could impair the growth of our
business.
Risk Factors related to Marketing
Our capital requirements will depend
on many factors.
Our capital requirements will depend on
many factors, including:
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the revenues
generated by sales of our products;
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the costs associated
with expanding our sales and marketing efforts, including efforts to hire independent
agents and sales representatives and obtain required regulatory approvals and clearances;
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the expenses
we incur in developing and commercializing our products, including the cost of obtaining
and maintaining regulatory approvals; and
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unanticipated
general and administrative expenses.
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Because of these factors, we may seek
to raise additional capital both to meet our projected operating plans and to fund our longer term strategic objectives. Additional
capital may come from public and private equity or debt offerings, borrowings under lines of credit or other sources. These additional
funds may not be available on favorable terms, or at all. There can be no assurance we will be successful in raising these additional
funds. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience
dilution and the new equity or debt securities we issue may have rights, preferences and privileges senior to those of our existing
stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may
be necessary to relinquish valuable rights to our products or proprietary technologies, or grant licenses on terms that are not
favorable to us. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, obtain the
required regulatory clearances or approvals, execute our business plan, take advantage of future opportunities, or respond to
competitive pressures or unanticipated customer requirements. Any of these events could adversely affect our ability to achieve
our development and commercialization goals, which could have a material and adverse effect on our business, results of operations
and financial condition.
Our future growth and profitability
of our consumer product business will depend in large part upon the effectiveness and efficiency of our marketing efforts and
our ability to select effective markets and media in which to advertise.
Our consumer products business success
depends on our ability to attract and retain customers, which significantly depends on our marketing practices. Our future growth
and profitability will depend in large part upon the effectiveness and efficiency of our marketing efforts, including our ability
to:
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create greater
awareness of our brand;
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identify the
most effective and efficient levels of spending in each market, media and specific media
vehicle;
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determine the
appropriate creative messages and media mix for advertising, marketing and promotional
expenditures;
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effectively
manage marketing costs (including creative and media) to maintain acceptable customer
acquisition costs;
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acquire cost-effective
television advertising;
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select the most
effective markets, media and specific media vehicles in which to advertise; and
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convert consumer
inquiries into actual orders.
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Unfavorable publicity or consumer
perception of our products and any similar products distributed by other companies could have a material adverse effect on our
business.
We believe the nutritional supplement
market is highly dependent upon consumer perception regarding the safety, efficacy and quality of nutritional supplements generally,
as well as of products distributed specifically by us. Consumer perception of our products can be significantly influenced by
scientific research or findings, regulatory investigations, litigation, national media attention and other publicity regarding
the consumption of nutritional supplements. We cannot assure you that future scientific research, findings, regulatory proceedings,
litigation, media attention or other favorable research findings or publicity will be favorable to the nutritional supplement
market or any product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation,
media attention or other publicity that are perceived as less favorable than, or that question, such earlier research
reports,
findings or publicity could have a material adverse effect on the demand for our products and consequently on our business, results
of operations, financial condition and cash flows.
Our dependence upon consumer perceptions
means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity,
if accurate or with merit, could have a material adverse effect on the
demand for our products, the availability and
pricing of our ingredients, and our business, results of operations, financial condition and cash flows. Further, adverse public
reports or other media attention regarding the safety, efficacy and quality of nutritional supplements in general, or our products
specifically, or associating the consumption of nutritional supplements with illness, could have such a material adverse effect. Any
such adverse public reports or other media attention could arise even if the adverse effects associated with such products resulted
from consumers’ failure to consume such products appropriately or as directed and the content of such public reports and
other media attention may be beyond our control.
Many of our competitors are larger
and have greater financial and other resources than we do.
Our products compete and will compete
with other similar products produced by our competitors. These competitive products could be marketed by well-established, successful
companies that possess greater financial, marketing, distributional, personnel and other resources than we possess. Using these
resources, these companies can implement extensive advertising and promotional campaigns, both generally and in response to specific
marketing efforts by competitors, and enter into new markets more rapidly to introduce new products. In certain instances, competitors
with greater financial resources also may be able to enter a market in direct competition with us, offering attractive marketing
tools to encourage the sale of products that compete with our products or present cost features that consumers may find attractive.
We may never develop any additional
products to commercialize.
We have invested a substantial amount
of our time and resources in developing various new products. Commercialization of these products will require additional development,
clinical evaluation, regulatory approval, significant marketing efforts and substantial additional investment before they can
provide us with any revenue. Despite our efforts, these products may not become commercially successful products for a number
of reasons, including but not limited to:
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we may not be
able to obtain regulatory approvals for our products, or the approved indication may
be narrower than we seek;
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our products
may not prove to be safe and effective in clinical trials;
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we may experience
delays in our development program;
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any products
that are approved may not be accepted in the marketplace;
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we may not have
adequate financial or other resources to complete the development or to commence the
commercialization of our products or will not have adequate financial or other resources
to achieve significant commercialization of our products;
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we may not be
able to manufacture any of our products in commercial quantities or at an acceptable
cost;
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rapid technological
change may make our products obsolete;
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we may be unable
to effectively protect our intellectual property rights or we may become subject to claims
that our activities have infringed the intellectual property rights of others; and
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we may be unable
to obtain or defend patent rights for our products.
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If we are unable to maintain sales,
marketing and distribution capabilities or maintain arrangements with third parties to sell, market and distribute our products,
our business may be harmed.
To achieve commercial success for our
products, we must sell our product lines and/or technologies at favorable prices. In addition to being expensive, maintaining
such a sales force is time-consuming. Qualified direct sales personnel with experience in the natural products industry are in
high demand, and there can be no assurance that we will be able to hire or retain an effective direct sales team. Similarly, qualified
independent sales representatives both within and outside the United States are in high demand, and we may not be able to build
an effective network for the distribution of our product through such representatives. There can be no assurance that we will
be able to enter into contracts with representatives on terms acceptable to us. Furthermore, there can be no assurance that we
will be able to build an alternate distribution framework should we attempt to do so.
We may also need to contract with third
parties in order to market our products. To the extent that we enter into arrangements with third parties to perform marketing
and distribution services, our product revenue could be lower and our costs higher than if we directly marketed our products.
Furthermore, to the extent that we enter into co-promotion or other marketing and sales arrangements with other companies, any
revenue received will depend on the skills and efforts of others, and we do not know whether these efforts will be successful.
If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others,
we will not be able to generate product revenue, and may not become profitable.
Risks Related to Our Securities
Our stock price may be volatile
or may decline regardless of our operating performance, and you may lose part or all of your investment.
The market price of our common stock may
fluctuate widely in response to various factors, some of which are beyond our control, including:
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market
conditions or trends in the dietary supplement industry or in the economy as a whole;
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actions
by competitors;
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actual
or anticipated growth rates relative to our competitors;
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the
public’s response to press releases or other public announcements by us or third
parties, including our filings with the SEC;
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economic,
legal and regulatory factors unrelated to our performance;
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any
future guidance we may provide to the public, any changes in such guidance or any difference
between our guidance and actual results;
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changes
in financial estimates or recommendations by any securities analysts who follow our common
stock;
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speculation by the press or investment community
regarding our business;
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|
changes in key personnel; and
|
|
●
|
future sales of our common stock by our officers,
directors and significant shareholders.
|
In addition, the stock markets, including
the over-the-counter markets where we are quoted, have experienced extreme price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many companies. These broad market fluctuations may materially affect
our stock price, regardless of our operating results. Furthermore, the market for our common stock historically has been limited
and we cannot assure you that a larger market will ever be developed or maintained. The price at which investors purchase shares
of our common stock may not be indicative of the price that will prevail in the trading market. Market fluctuations and volatility,
as well as general economic, market and political conditions, could reduce our market price. As a result, these factors may make
it more difficult or impossible for you to sell our common stock for a positive return on your investment. In the past, shareholders
have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation,
we could incur substantial costs and our resources and the attention of management could be diverted from our business.
Future sales of shares of our common
stock, or the perception in the public markets that these sales may occur, may depress our stock price.
The market price of our common stock could
decline significantly as a result of sales of a large number of shares of our common stock. In addition, if our significant shareholders
sell a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Any issuance
of additional common stock by us in the future, or warrants or options to purchase our common stock, if exercised, would result
in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount or a premium to the
then-current trading price of our common stock. Moreover, the perception in the public market that shareholders might sell shares
of our stock or that we could make a significant issuance of additional common stock in the future could depress the market for
our shares. These sales, or the perception that these sales might occur, could depress the market price of our common stock or
make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
We have issued shares of common stock
and warrants and options to purchase shares of our common stock in connection with our private placement and certain employment,
director and consultant agreements. In addition, we issued shares of our common stock, and options and warrants to purchase shares
of our common stock, in financing transactions and pursuant to employment agreements that are deemed to be “restricted securities,”
as that term is defined in Rule 144 promulgated under the Securities Act. From time to time, certain of our shareholders may be
eligible to sell all or some of their restricted shares of common stock by means of ordinary brokerage transactions in the open
market pursuant to Rule 144, subject to certain limitations. The resale pursuant to Rule 144 of shares acquired from us in private
transactions could cause our stock price to decline significantly.
We are an Emerging Growth Company
(“EGC”), and we cannot be certain if the reduced disclosure requirements applicable to Emerging Growth Companies will
make our common stock less attractive to investors.
We are an EGC, as defined in the JOBS
Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies
that are not EGCs. The modified disclosure requirements available to EGCs include reduced disclosure about our executive compensation
and omission of a compensation discussion and analysis, which is also available to us as a smaller reporting company, and an exemption
from the requirement of holding a nonbinding advisory vote on executive compensation and the requirement that shareholders approve
any golden parachute payments not previously approved. In addition, we will not be subject to certain requirements of Section
404 of the Sarbanes-Oxley Act, including the additional testing of our internal control over financial reporting as may occur
when outside auditors attest as to our internal controls over financial reporting, which is also not required of smaller reporting
companies. We could be an emerging growth company for up to five years, although we could lose that status sooner if our revenues
exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of
our common stock exceeds $700 million.
We cannot predict if investors will find our common stock less
attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there
may be a less active trading market for our common stock, and our stock price may be more volatile.
Although the JOBS Act permits an EGC such
as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public
companies, we are choosing to “opt out” of this provision, and, as a result, we will comply with new or revised accounting
standards as required when they are adopted, however do not currently believe that this will have a material effect on the preparation
of our financial statements. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
The application of the “penny
stock” rules could adversely affect the market price of our common stock and increase your transaction costs to sell those
shares.
Our common stock may be subject to the
“penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules apply to issuers whose
common stock does not trade on a national securities exchange and trades at less than $5.00 per share, or that have a tangible
net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized
risk disclosure document prepared by the SEC that contains the following information:
|
●
|
a description of the nature and level of risk
in the market for penny stocks in both public offerings and secondary trading;
|
|
●
|
a description of
the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with
respect to violation to such duties or other requirements of securities laws;
|
|
●
|
a brief, clear,
narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the
significance of the spread between the “bid” and “ask” prices;
|
|
●
|
a toll-free telephone number for inquiries on disciplinary actions;
|
|
●
|
definitions of any
significant terms in the disclosure document or in the conduct of trading in penny stocks; and
|
|
●
|
such other information
and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation.
|
Prior to effecting any transaction in
a penny stock, the broker-dealer also must provide the customer with the following information:
|
●
|
bid and offer quotations
for the penny stock;
|
|
●
|
compensation of
the broker-dealer and our salesperson in the transaction;
|
|
|
|
|
●
|
number of shares
to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market
for such stock; and
|
|
●
|
monthly account
statements showing the market value of each penny stock held in the customer’s account.
|
The penny stock rules further require
that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment
of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks and a signed and dated
copy of a written suitability statement.
Due to the requirements of the penny stock
rules, many broker-dealers have decided not to trade penny stocks. As a result, the number of broker-dealers willing to act as
market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could
have an adverse effect on the market, if any, for our securities. Moreover, if our securities are subject to the penny stock rules,
investors will find it more difficult to dispose of our securities.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our principal executive offices were in
office spaces located in Mount Kisco, New York, but have relocated to 1460 Broadway, New York, NY 10036. We leased a manufacturing
facility with warehouse space consisting of approximately 15,000 square feet in Florence, Kentucky, in the vicinity of the Cincinnati,
Ohio, airport on a month-to-month basis for which we pay $9,050 per month. In addition, Immudyne PR operates in a subleased office
space in Puerto Rico consisting of approximately 1,000 square feet for $4,000 per month.
Starting in February 2018, we opened an
office space in Huntington Beach, California. This office will support staff dedicated to digital marketing, including our Chief
Technology Officer, Stefan Galluppi. We will pay $2,106 for the first twelve months for this space of 1,239 square feet.
We believe that our existing office and
manufacturing facilities are adequate for current and presently foreseeable operations. In general, our properties are well maintained
and are being utilized for their intended purposes. Additional space may be required as we expand our business activities.
We do not foresee any significant difficulties in obtaining additional facilities if deemed necessary.
Item 3. Legal Proceedings
We may become involved in various lawsuits
and legal proceedings arising in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse
result in these or other matters may arise from time to time that may have an adverse effect on our business, financial conditions
or operating results. Future litigation may be necessary to defend ourselves and our customers by determining the scope, enforceability
and validity of third party proprietary rights or to establish our proprietary rights. We are currently not aware of any such
legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial
condition or operating results.
Item 4. Mine Safety Disclosures
Not applicable.
The accompanying notes are an integral
part of these consolidated financial statements
The accompanying notes are an integral
part of these consolidated financial statements
The accompanying notes are an integral
part of these consolidated financial statements
The accompanying notes are an integral
part of these consolidated financial statements
Notes to Consolidated
Financial Statements
December 31, 2017
1.
|
Organization
and Going Concern
|
Immudyne, Inc. (the “Company”)
is a Delaware corporation established to develop, manufacture and sell natural immune support products containing the Company’s
proprietary yeast beta glucans, a group of beta glucans naturally occurring in the cell walls of yeast that have been shown through
testing and analysis to support the immune system. The Company’s products include once a day oral intake tablets and topical
creams and gels for skin application. The Company concentrates its sales and marketing efforts on healthcare professionals, distributors
for its all-natural raw material ingredient products and direct-to-consumer sales.
In 2015, the Company formed
a joint venture domiciled in Puerto Rico, Innate Skincare, LLC (“Innate”). Under the terms of the joint venture agreement,
the Company held a 33.3% equity interest, and a 51% controlling voting interest, in Innate. On January 20, 2016, Innate amended
its limited liability company operating agreement and changed its legal name to Immudyne PR LLC (“Immudyne PR”). On
April 1, 2016, Immudyne PR further amended its operating agreement and restated the Company’s ownership and voting interest
in Immudyne PR increasing its ownership to 78.1667% resulting in a charge to noncontrolling interest and additional paid-in-capital
of $91,612. Immudyne PR was formed to launch a complete skin care regime formulated using strategic ingredients provided by the
Company. In the second quarter of 2017, Immudyne PR expanded their product line and launched their in-licensed patented hair loss
shampoo and conditioner.
The Company has funded operations
in the past through the sales of its products, issuance of common stock and through loans and advances from officers and directors.
The Company’s continued operations are dependent upon obtaining an increase in its sales volume and the continued financial
support from officers and directors or the issuance of additional shares of common stock.
The accompanying financial statements
have been prepared on the basis that the Company will continue as a going concern, which assumes the realization of assets and
the satisfaction of liabilities in the normal course of business. At December 31, 2017, the Company has an accumulated deficit
approximating $10.9 million and has incurred negative cash flows from operations. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Based on the Company's cash
balance at December 31, 2017, and projected cash needs for 2018, management estimates that it will need to increase sales revenue
and/or raise additional capital to cover operating and capital requirements for the 2018 year. Management will need to raise the
additional needed funds through increased sales volume, issuing additional shares of common stock or other equity securities,
or obtaining debt financing. Although management has been successful to date in raising necessary funding, there can be no assurance
that sales revenue will substantially increase or that any required future financing can be successfully completed on a timely
basis, or on terms acceptable to the Company.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies
|
Principles of
Consolidation
The Company evaluates the need
to consolidate affiliates based on standards set forth in ASC 810 Consolidation (“ASC 810”).
The consolidated financial statements
include the accounts of the Company and its majority owned subsidiary, Immudyne PR and variable interest entities (VIE’s)
in which the Company has been determined to be the primary beneficiary. The non- controlling interest in Immudyne PR represents
the 21.833% equity interest held by other members of the joint venture. All significant consolidated transactions and balances
have been eliminated in consolidation.
Variable Interest Entities
The Company follows ASC 810-10-15
guidance with respect to accounting for variable interest entities (each, a “VIE”). These entities do not have sufficient
equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity
investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest
that will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual,
ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting
entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of
variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial
interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities
of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb
losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires
an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances.
As of December 31, 2017 and 2016, the Company consolidated
nine VIEs.
Immudyne PR is the primary beneficiary
of Ace Account Management LLC, Innerwell Skincare LLC, MCD Merchants LLC, One Equity Research LLC, Inate Gems LLC, Retriever Health
Products LLC, Spurs 5, LLC, Salus LLC and Huntley LLC, which are qualified as VIEs. The assets and liabilities and revenues and
expenses of these VIEs included in the financial statements of Immudyne PR and further included in the consolidated financial
statements. The assets and liabilities include balances due from and due to the subsidiaries of Immudyne PR. These inter-company
receivables and payables are eliminated upon consolidation of the VIE with Immudyne PR and Immudyne. No assets were pledged or
given as collateral against any borrowings.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies
|
The Company utilizes third party
entities to provide and increase credit card processing capacity and optimize corresponding rates and fees. A majority of these
entities provide this service as independent contractors in exchange for a one (1%) percent fee of the net revenues processed
and collected by such contractors from sales initiated by the Company. The VIEs consolidated in the Company’s financial
statements are primarily contracted to credit card processing through one or more merchant banks contracted by each VIE. Upon
receipt of funds by each VIE, the collection of receipts less any returns, chargeback and other fees charged by such merchant
bank is transferred to Immudyne PR.
Use of Estimates
The Company prepares its consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America which requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates
required to be made by management include the determination of reserves for accounts receivable, returns and allowances, the accounting
for derivatives, the valuation of inventory and stockholders’ equity based transactions. Actual results could differ from
those estimates.
Derivative Liabilities
Under ASC 815-40-05, Accounting
for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock, in the event the Company
does not have a sufficient number of authorized and unissued shares of common stock to satisfy obligations for stock options,
warrants and other instruments potentially convertible into common stock, the fair value of these instruments should be reported
as a derivative liability. Pursuant to the outstanding option, warrant and convertible debt agreements, there is currently no
effective registration statement covering the shares of common stock underlying these agreements, which are currently subject
to a cashless exercise whereby the holders, at their option, may surrender their options and warrants to the company in exchange
for shares of common stock. The number of shares of common stock into which an option or a warrant would be exchangeable in such
a cashless exercise depends on both the exercise price of the options or warrant and the market price of the common stock, each
at or near the time of exercise. Because the market price is variable, it is possible that the Company could have insufficient
authorized shares to satisfy a cashless exercise. In this scenario, if the Company were unable to obtain shareholder approval
to increase the number of authorized shares, the Company could be obligated to settle such a cashless exercise with cash rather
than by issuing shares of common stock. Further, ASC 815-40-05 requires that the Company record the potential settlement obligation
at each reporting date using the current estimated fair value of these contracts, with any changes in fair value being recorded
through our statement of operations. The Company had reported the potential settlement obligation as a derivative liability. In
the third quarter of 2017, the Company obtained a majority of shareholders’ approval and amended its Articles of Incorporation
to increase the number of shares of its authorized common stock, therefore the derivative liability is no longer applicable.
Sequencing Policy
Under ASC 815-40-35, the Company
has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities
is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares, shares
will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving
the first allocation of authorized but unissued shares, and all future instruments being classified as a derivative liability,
with the exception of instruments related to share-based compensation issued to employees or directors.
Inventory
At December 31, 2017 and December
31, 2016, inventory consisted primarily of cosmetic and nutraceutical additives, and finished cosmetic products. Inventory is
maintained in the Company’s leased Kentucky warehouse and third-party warehouses in Pennsylvania and Louisiana.
Inventory is valued at the lower
of cost or net realizable value with cost determined on a first-in, first-out (“FIFO”) basis. Management compares the
cost of inventory with the net realizable value and an allowance is made for writing down inventory to net realizable, if lower.
At December 31, 2017 and December 31, 2016, the Company recorded an inventory reserve in the amount of $27,500 and $20,000, respectively.
Inventory consists of the following:
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
25,869
|
|
|
$
|
38,460
|
|
|
Finished products
|
|
|
681,292
|
|
|
|
121,810
|
|
|
|
|
$
|
707,161
|
|
|
$
|
160,270
|
|
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies (continued)
|
Revenue Recognition
The Company’s policy is
to record revenue as earned when a firm commitment, indicating sales quantity and price exists, delivery has taken place and collectability
is reasonably assured. The Company generally records sales of nutraceutical and cosmetic additives once the product is shipped
to the customer, and for sales of finished cosmetic products once the customer places the order and the product is simultaneously
shipped, but in limited cases if title does not pass until the product reaches the customer’s delivery site, then recognition
of revenue is deferred until that time. Delivery is considered to have occurred when title and risk of loss have transferred to
the customer. Provisions for discounts, returns, allowances, customer rebates and other adjustments are netted with gross sales.
The Company accounts for such provisions during the same period in which the related revenues are earned. Customer discounts,
returns and rebates in the year ended December 31, 2017 and 2016 approximated $300,000 and $1,926,000, respectively.
There are no formal sales incentives
offered to any of the Company’s customers. Volume discounts may be offered from time to time to customers purchasing large
quantities on a per transaction basis.
Revenue for the year ended December
31, 2017 consists of nutraceutical and cosmetic additives ($1,369,429) and finished cosmetic products ($3,685,277). Revenue for
the year ended December 31, 2016 consisted of nutraceutical and cosmetic additives ($997,964) and finished cosmetic products ($4,240,640).
Accounts receivable
Accounts receivable are carried
at original invoice amount less an estimate made for holdbacks and doubtful receivables based on a review of all outstanding amounts.
Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering
a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts
when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. Recoveries
of accounts receivable previously written off are recorded as income when received. At December 31, 2017 and 2016 the accounts
receivable reserve was approximately $0 and $37,800, respectively. At December 31, 2017 and 2016, the reserve for sales returns
and allowances was approximately $23,200 and $50,500, respectively.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies (continued)
|
Segments
The guidance for disclosures
about segments of an enterprise requires that a public business enterprise report financial and descriptive information about
its operating segments. Generally, financial information is required to be reported on the basis used internally for evaluating
segment performance and resource allocation. The Company manages its operations in two reportable segments for purposes of assessing
performance and making operating decisions. Revenue is generated predominately in the United States, and all significant assets
are held in the United States, or United States territories.
The accounting policies of the
reportable segments are the same as those described in the summary of significant accounting policies. The Company allocates resources
and evaluates the performance of segments based on income or loss from operations, excluding interest, corporate expenses and
other income (expenses).
A summary of the company’s
reportable segments is as follows:
|
Total assets:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
Nutraceutical and Cosmetic Additives
|
|
$
|
440,310
|
|
|
$
|
350,370
|
|
|
Finished Cosmetic Products
|
|
|
834,000
|
|
|
|
446,504
|
|
|
Eliminations
|
|
|
(10,500
|
)
|
|
|
(7,050
|
)
|
|
Total
|
|
$
|
1,263,810
|
|
|
$
|
789,824
|
|
|
|
|
Year
ended
|
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
Net sales by segment:
|
|
|
|
|
|
|
|
Nutraceutical and Cosmetic Additives
|
|
$
|
1,372,879
|
|
|
$
|
1,024,264
|
|
|
Finished Cosmetic Products
|
|
|
3,685,277
|
|
|
|
4,240,640
|
|
|
Eliminations
|
|
|
(3,450
|
)
|
|
|
(26,300
|
)
|
|
Total
|
|
$
|
5,054,706
|
|
|
$
|
5,238,604
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
by segment:
|
|
|
|
|
|
|
|
|
|
Nutraceutical and Cosmetic Additives
|
|
$
|
160,821
|
|
|
$
|
164,286
|
|
|
Finished Cosmetic Products
|
|
|
(36,085
|
)
|
|
|
(388,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated
amounts:
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(1,195,297
|
)
|
|
|
(950,847
|
)
|
|
Other income (expense) –
net
|
|
|
(147,888
|
)
|
|
|
(48,611
|
|
|
Consolidated income (loss)
from operations
|
|
$
|
(1,218,449
|
)
|
|
$
|
(1,223,293
|
)
|
Reclassifications
Certain
reclassifications have been made to conform the prior year’s data to the current presentation. These reclassifications have
no effect on previously reported operations, stockholders’ equity (deficit) or cash flows.
Reclassifications relate
to the segment disclosure,
in which the current (and prior year) asset elimination only
includes the accounts receivables due from Immudyne PR, LLC to Immudyne, Inc. for purchase of inventory. All other inter-company
balances have been excluded from total assets for each reportable segment.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies (continued)
|
Income Taxes
The Company files Corporate
Federal and State tax returns, while Immudyne PR, which was formed as a limited liability company, files a separate tax return
with any tax liabilities or benefits passing through to its members.
The Company records current
and deferred taxes in accordance with Accounting Standards Codification (ASC) 740, “Accounting for Income Taxes.”
This ASC requires recognition of deferred tax assets and liabilities for temporary differences between tax basis of assets and
liabilities and the amounts at which they are carried in the financial statements, based upon the enacted rates in effect for
the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce
deferred tax assets to the amount expected to be realized. The Company periodically assesses the value of its deferred tax asset,
a majority of which has been generated by a history of net operating losses and determines the necessity for a valuation allowance.
ASC 740 also provides a recognition threshold and measurement attribute for the financial statement recognition of a tax position
taken or expected to be taken in a tax return. Using this guidance, a company may recognize the tax benefit from an uncertain
tax position in its financial statements only if it is more likely-than-not (i.e., a likelihood of more than 50%) that the tax
position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The Company’s tax returns
for all years since December 31, 2014, remain open to taxing authorities.
Stock-Based Compensation
The Company follows the provisions
of ASC 718, “Share-Based Payment”. Under this guidance compensation cost generally is recognized at fair value on
the date of the grant and amortized over the respective vesting periods. The fair value of options at the date of grant is estimated
using the Black-Scholes option pricing model. The expected option life is derived from assumed exercise rates based upon historical
exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility
is based upon historical volatility of the Company’s shares using weekly price observations over an observation period that
approximates the expected life of the options. The risk-free rate approximates the U.S. Treasury yield curve rate in effect at
the time of grant for periods similar to the expected option life. Due to limited history of forfeitures, the estimated forfeiture
rate included in the option valuation was zero.
Many of the assumptions require
significant judgment and any changes could have a material impact in the determination of stock-based compensation expense.
Immudyne, Inc.
Notes to Consolidated Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies (continued)
|
Earnings (Loss) Per Share
Basic earnings (loss) per common
share is based on the weighted average number of shares outstanding during each period presented. Warrants and options to purchase
common stock are included as common stock equivalents only when dilutive. Potential common stock equivalents are excluded from
dilutive earnings per share when the effects would be antidilutive.
Common stock equivalents comprising
shares underlying 17,224,919 options and warrants for the year ended December 31, 2017 have not been included in the loss per
share calculations as the effects are anti-dilutive. Common stock equivalents comprising shares underlying 16,302,447 options
and warrants for the year ended December 31, 2016 have not been included in the loss per share calculation as the effects are
anti-dilutive.
Recent Accounting Pronouncements
In May 2017, the FASB issued
ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The new standard provides guidance
about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting
in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 but early adoption
is permitted. The Company is currently evaluating the impact of adopting this guidance.
In August 2016, the FASB issued
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”).
ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice regarding how certain
cash receipts and cash payments are presented in the statement of cash flows. The standard provides guidance on the classification
of the following items: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments, (3)
contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5)
proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investments,
(7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows. The Company is required to
adopt ASU 2016-15 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a
retrospective basis. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating
the impact of adoption of ASU 2016-15.
In March 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “Compensation
– Stock Compensation: Improvements to Employee Share-Based Payment Accounting,” which relates to the accounting for
employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions,
including: (a) income tax consequences; (b) classification flows of awards as either equity or liabilities; and (c) classification
on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. The Company is in the process of evaluating the impact of the adoption of ASU 2016-09
on its consolidated financial statements. The adoption of ASU No. 2016-09 is not expected to have a material impact on the Company's
consolidated financial statements or related disclosures.
In February 2016, the FASB issued
ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02
is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding
lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification
affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to
be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients.
We have reviewed ASC 842 and have determined that it will not have any material effect on our financial statements and related
disclosures.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies (continued)
|
Recent Accounting Pronouncements
(continued)
In May 2014, the FASB issued
Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard (“ASC
606”) provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This Topic defines
a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required
within the revenue recognition process than required under existing GAAP including identifying performance obligations in the
contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price
to each separate performance obligation. The two permitted transition methods under the new standard are the full retrospective
method or the modified retrospective method. The new standard is effective for annual reporting periods beginning after December
15, 2017, and accordingly we are required to adopt this standard effective January 1, 2018, the beginning of our fiscal year.
We have reviewed ASC 606 and have determined that it will not have any material effect on our revenue recognition.
In July 2015, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, “Simplifying
the Measurement of Inventory.” ASU 2015-11 applies to inventory that is measured using first-in, first-out (FIFO) or average
cost. An entity should measure inventory within the scope of ASU 2015-11 at the lower of cost and net realizable value. Net realizable
value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal
and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. The Company adopted ASU 2015-11
in 2017 and it does not have a material effect on the Company's consolidated financial statements or related disclosures.
In August 2014, the FASB issued
ASU 2014-15, "Presentation of Financial Statements-Going Concern". This ASU is intended to define management's responsibility
to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related
footnote disclosures. It is effective for annual periods ending after December 15, 2016, with early adoption permitted. The Company
adopted ASU 2014-15 in 2016 and it does not have a material effect on the Company's consolidated financial statements or related
disclosures.
In May 2017, the FASB issued
ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The new standard provides guidance
about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting
in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 but early adoption
is permitted. The Company is currently evaluating the impact of adopting this guidance.
All other accounting standards
that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material
impact on the consolidated financial statements upon adoption.
Fair Value of Financial
Instruments
The carrying value of the Company’s
financial instruments, including cash, trade accounts receivable, accounts payable and accrued expenses and the face amount of
notes payable approximate fair value for all periods.
Noncontrolling Interests
The Company accounts for its
less than 100% interest in Immudyne PR in accordance with ASC Topic 810, Consolidation, and accordingly the Company presents noncontrolling
interests as a component of equity on its consolidated balance sheet and reports the noncontrolling interest’s share of
the Immudyne PR net loss attributable to noncontrolling interests in the consolidated statement of operations.
Consolidation of Variable Interest Entities
In accordance with ASC 810-10-25-37
and as amended by ASU 2009-17, the Company determines whether any legal entity in which the Company becomes involved is a VIE
and subject to consolidation. The Company conducts an assessment on an ongoing basis for each VIE including (1) the power to direct
activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses
or right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, the Company determined
that nine (9) entities were VIEs and subject to consolidation.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
2.
|
Summary of Significant
Accounting Policies (continued)
|
Concentration of Credit
Risk
The Company grants credit in
the normal course of business to its customers. The Company periodically performs credit analysis and monitors the financial condition
of its customers to reduce credit risk.
The Company monitors its positions
with, and the credit quality of, the financial institutions with which it invests. The Company, at times, maintains balances in
various operating accounts in excess of federally insured limits.
One customer in the nutraceutical
and cosmetic additives division accounted for 25% and 15% of consolidated sales for the years ended December 31, 2017 and 2016,
respectively. This customer accounted for 65% and 11% of accounts receivable at December 31, 2017 and December 31, 2016, respectively.
In the finished cosmetic products
division, two credit card processors accounted for 34.9% and 31.6% of accounts receivable at December 31, 2016. There were no
significant concentrations of accounts receivable in the finished cosmetic products division at December 31, 2017
In November 2015, the Company
borrowed $100,000 from a commercial lender. The loan incurred interest at 11% and with a maturity date of November 1, 2016. In
October 2016, the Company repaid the entire principal balance. Interest expense related to this loan for the years ended December
31, 2017 and 2016 amounted to $0 and $9,479, respectively.
In the third quarter of 2016
the Company commenced an offering pursuant to which it offered 11% subordinated promissory notes in fifty thousand ($50,000) dollar
increments combined with 62,500 shares of the Company’s Common Stock for a maximum offering amount of $200,000 (the “Offering”).
In August and September 2016, the Company sold promissory notes totaling $150,000 to three unrelated individuals. Two of the promissory
notes totaling $100,000 were payable in February 2017 and one promissory note for $50,000 was payable in March 2017. In October
2016, the Company sold promissory notes totaling $50,000 to two unrelated individuals. These promissory notes were payable in
October 2017. In connection with these promissory notes sold, pursuant to the Offering, the Company issued 250,000 shares of common
stock valued at $58,750 which was recorded as a debt discount and were amortized over the term of these notes. Amortization of
the debt discounts for the year ended December 31, 2017 and 2016 was $25,035 and $33,715, respectively. During 2016, the Company
repaid $68,600 of the principal balance; and as a result, the outstanding balances of these notes as of December 31, 2016, were
$131,400. The balance of debt discount related to the subordinated promissory notes is $25,035 at December 31, 2016. During 2017,
the Company repaid $81,420 of the principal balance and converted the remaining balance of $49,980 into 196,000 shares of common
stock and 98,000 warrants, which satisfied the notes in full. The fair market value of the shares and warrants issued upon conversion
was determined to be $179,384, of which $129,404 was included in loss on extinguishment of debt. Interest expense related to these
notes for the year ended December 31, 2017 and 2016, amounted to $1,713 and $5,416, respectively.
In December 2016, the Company
borrowed $100,000 from an officer and issued a convertible promissory note with a maturity date of February 28, 2017. The loan
bore no interest. This note was convertible if not repaid by the maturity date at a conversion price of $0.23 per Unit. Each Unit
shall consist of one share of the Company’s common stock and one three-year common-stock warrant to purchase one-half of
one share of the Company’s common stock with an exercise price of $0.40 per share. In March 2017, the Company repaid the
entire outstanding balance of this note.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
3
.
|
Notes Payable
(continued)
|
In January 2017, the Company
borrowed $200,000 and issued a promissory note with a 5% original issue discount for a total principal amount of $210,000. The
loan incurred 11% interest per annum and matured in various tranches from February 2017 through April 2017. In addition, the Company
issued 217,391 shares of common stock related to this note. In February 2017, the Company repaid $70,000 of the principal balance
of this note. In March 2017, the Company converted the remaining $140,000 of the principal balance of this note and accrued interest
of $2,212 in exchange for 559,179 shares of common stock and 304,348 warrants which satisfied the note in full. The fair market
value of the shares and warrants issued upon conversion was determined to be $566,030, of which $423,818 was included in loss
on extinguishment of debt.
In February 2017, the Company
borrowed $25,000 from an American Express working capital line with 60 days maturity. The interest for this loan is a flat fee
of $250. On April 17, 2017, the Company repaid this loan. In June 2017, the Company borrowed $74,043 from an American Express
working capital line with 90 days maturity. The interest for this loan is a flat fee of $1,111. On August 30, 2017, the Company
repaid this loan. In September 2017, the Company borrowed $77,333 from an American Express working capital line with 90 days maturity.
The interest for this loan is a flat fee of $1,160. In November 2017, $42,479 was drawn from the line of credit and $78,493 was
paid back in December 2017. As of December 31, 2017, there was $42,479 outstanding and approximately $97,000 available borrowings
under the working capital line.
In December 2017, Immudyne PR
received two working capital loans from related parties for $50,000 and $75,000 respectively. The loans accrue at 2% interest
per month and mature in February 2018. Accrued interest relating to the loans were $1,867 as of December 31, 2017.
Interest expense related to
loans from officers, directors and other related individuals amounted to $5,939 and $5,416 for the years ended December 31, 2017
and 2016, respectively.
Total interest expense on notes
payable, inclusive of amortization of debt discount of $81,556 and $33,715, amounted to $100,523 and $48,611 for the years ended
December 31, 2017 and 2016, respectively.
At December 31, 2017, the Company
has approximately $3,343,000 of operating loss carryforwards for federal that may be applied against future taxable income. The
net operating loss carryforwards will begin to expire in the year 2021 if not utilized prior to that date, expiring during various
year through 2037. There is no provision for income taxes because the Company has historically incurred operating losses and maintains
a full valuation allowance against its net deferred tax assets.
The Tax Cuts and Jobs Act (the
“Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 34% to 21%. The most
significant impact of the legislation for the Company was a $242,000 reduction of the value of net deferred tax assets (which
represent future tax benefits) as a result of lowering the U.S. corporate income tax rate from statutory rate of 34% to 21%.
The valuation allowance overall
decreased by approximately $343,000 during the year ended 2017 and increased by approximately $651,000 during the year 2016, and
was approximately $1,238,000 and $1,581,000 at December 31, 2017 and 2016, respectively. The Company has fully reserved the deferred
tax asset resulting from available net operating loss carryforwards.
The tax effect of temporary
differences that gave rise to significant portion of the deferred tax assets were as follows:
|
|
|
December
31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
848,000
|
|
|
$
|
1,344,000
|
|
|
Accounts receivable reserves
|
|
|
-
|
|
|
|
30,000
|
|
|
Inventory reserves
|
|
|
3,000
|
|
|
|
7,000
|
|
|
Stock compensation
|
|
|
387,000
|
|
|
|
200,000
|
|
|
Net deferred tax asset
|
|
|
1,238,000
|
|
|
|
(1,581,000
|
)
|
|
Valuation allowance
|
|
|
(1,238,000
|
)
|
|
|
(1,581,000
|
)
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The net operating loss carryforwards
could be subject to limitation in any given year in the event of a change in ownership as defined by IRC Section 382.
Immudyne, Inc.
Notes to Consolidated Financial Statements
December 31, 2017
Common Stock
On April 1, 2016, the Company
entered into two agreements with two consultants to provide services over a nine- month period in exchange for 2,300,000 shares
of common stock. The Company calculated a fair value of $690,000 based on the market price of the shares on the date of the agreements.
During the third quarter of 2016, the Company and the consultants renegotiated the agreements by extending the service requirement
to December 31, 2017. At December 31, 2017 and December 31, 2016, the unamortized portion of these service agreements are $0 and
$306,667, respectively.
On September 1, 2016, the Company
issued 200,000 shares of common stock for $46,000. In connection with this issuance the Company issued 100,000 warrants with an
exercise price of $0.50 per share. These warrants are fully vested and expire in two years.
In August 2016, the Company
issued 125,000 shares of common stock pursuant to sale of two promissory notes in the Offering.
In September 2016, the Company
issued 62,500 shares of common stock pursuant to the sale of one promissory note in the Offering.
In October 2016, the Company
issued 62,500 shares of common stock pursuant to the sale of two promissory notes in the Offering.
In November 2016, the Company
issued 434,782 shares of common stock pursuant to a conversion of an equity contribution into Immudyne PR by the noncontrolling
interest. In connection with this issuance the Company issued 217,391 warrants with an exercise price of $0.40 per share. These
warrants are fully vested and expire in two years.
In December 2016, the Company
received proceeds of $30,000 from exercises of options at $0.10 per share. The Company issued 300,000 shares of common stock pursuant
to these exercises.
On December 23, 2016, the Company
issued 75,000 shares of common stock for $17,250. In connection with this issuance the Company issued 37,500 warrants with an
exercise price of $0.50 per share. These warrants are fully vested and expire in two years.
During 2016, the Company purchased
325,000 shares of outstanding Company common stock through an exchange for a price per share of $0.23 to $0.29. As of the December
31, 2016, these shares being held by the Company valued at cost is $87,053 and are included in treasury stock in the consolidated
balance sheet.
In January 2017, the Company
issued 1,183,490 shares of common stock pursuant to a conversion of Immudyne PR equity contributions of $272,203 into equity of
Immudyne, Inc. by the noncontrolling interest.
In January 2017, the Company
issued 217,391 shares of common stock in relation to issuance of a $210,000 note payable.
In the first quarter of 2017,
the Company commenced an offering to sell up to 4,000,000 shares of common stock at a price of $0.23 per share and warrants to
purchase up to 2,000,000 shares of common stock exercisable any time prior to the second anniversary of the issuance. The warrants
are paired with the stock on the basis of one warrant for every two shares of stock purchased. During 2017, the Company received
subscriptions in the amount of 2,927,156 shares and issued 1,463,578 warrants and proceeds in the amount of $673,246.
Immudyne, Inc.
Notes to Consolidated Financial Statements
December 31, 2017
5
.
|
Stockholders’
Equity (continued)
|
Common Stock
In March 2017, the Company issued
755,179 shares of common stock for the conversion of the outstanding balance of three notes payable totaling $499,802 (see Note
3).
On April 24, 2017, the Company,
issued 217,390 shares of common stock pursuant to a stock subscription agreement and the Company issued 108,696 warrants with
an exercise price of $0.40 per share for the stated consideration and satisfaction of obligation to pay $50,000 on the 180-day
anniversary of the execution of the Sole and Exclusive License, Royalty, and Advisory Agreement dated September 1, 2016 with Pilaris
Laboratories, LLC.
During the second quarter of
2017 the Company received subscriptions in the amount of 110,000 shares and issued 55,000 warrants and proceeds in the amount
of $25,300.
On June 1, 2017, the Company
entered into an agreement with a consultant to provide services, with a six-month term, and issued 125,000 shares of common stock
as compensation. The shares were valued at $45,000 and the Company is recognizing the expense over the term of the agreement.
For the year ending December 31, 2017, $45,000 has been expensed and included in compensation and related expenses on the consolidated
statement of operations.
In July 2017, the Company and
JLS Ventures entered into a separate three year incentivized second amendment to a Service Agreement effective July 1, 2017. As
compensation, the Company issued 900,000 shares of common stock valued at $432,000. The Company is recognizing the expense over
the term of the agreement. For the year ending December 31, 2017, $72,000 has been expensed and included in compensation and related
expenses on the consolidated statement of operations.
In July 2017, Mark McLaughlin,
the Company’s former President and Chief Executive Officer, exercised 1,500,000 warrants on a cashless basis and was issued
1,140,000 shares of common stock.
In July 2017, Mark McLaughlin
exercised 1,000,000 options on a cashless basis and was issued 800,000 shares of common stock.
In July 2017, Mark McLaughlin
exercised 339,473 options on a cashless basis and was issued 271,579 shares of common stock.
In August 2017, the Company
issued 100,000 shares of common stock valued at $40,000 to Acorn Management Partners L.L.C. (“Acorn”) for financial
advisory, strategic business planning and other investor relation services. The Company is recognizing the expense over the term
of the agreement. For the year ending December 31, 2017, $40,000 has been expensed and included in compensation and related expenses
on the consolidated statement of operations.
In August 2017, the Company
issued 50,000 shares of common stock valued at $20,000 to BV Global Fulfillment, LLC (“BV Global”) for fulfillment
services.
In November 2017, the Company
issued 100,000 shares of common stock valued at $44,000 to an employee as a bonus.
In November 2017, the Company
issued 135,721 shares of common stock pursuant to a conversion of Immudyne PR equity contributions of $31,216 into equity of Immudyne,
Inc. by the noncontrolling interest.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
5
.
|
Stockholders’
Equity (continued)
|
Noncontrolling Interest
On April 1, 2016, the Company
increased its ownership in Immudyne PR from to 78.16667% decreasing the minority interest from 66.7% to 21.83% resulting in a
charge to noncontrolling interest and additional paid-in-capital of $91,612.
In 2016, the net change in loans,
contributions and distributions by other members of Immudyne PR resulted an increase in noncontrolling interests of $63,377. In
2017, the net change in loans, contributions and distributions by other members of Immudyne PR resulted an increase in noncontrolling
interests of $119,894.
During 2017, the Company issued
a total of 1,319,211 shares of common stock and 659,606 warrants pursuant to a conversion of Immudyne PR equity contributions
of $303,418 into equity of Immudyne, Inc. by the noncontrolling interest.
For the years ended December
31, 2017 and 2016, the net income (loss) of Immudyne PR attributed the Company amounted to $(12,488) and (115,749), respectively.
Service-Based Stock Options
In May 2016, the Company issued
175,000 service-based options valued at $40,829 to two consultants at exercise prices of $0.20 per share. The options are fully
vested and expire in 10 years.
In July 2016, the Company issued
50,000 service-based options valued at $12,397 to a consultant with an exercise price of $0.20 per share. The options are fully
vested and expire in 10 years.
In November 2016, the Company
issued 50,000 service-based options valued at $9,980 to a consultant with an exercise price of $0.50 per share. The options are
fully vested and expire in 2 years.
In January 2017, the Company
issued 100,000 service-based options valued at $24,109 to Brunilda McLaughlin as additional compensation in an employment agreement.
These options have an exercise price of $0.40 per shares, are fully vested, and expire in 10 years.
In February 2017, the Company
issued 500,000 service-based options valued at $113,522 to a director with an exercise price of $0.20 per share. The options are
fully vested and expire in 10 years.
In July 2017, the Company issued
75,000 service-based options valued at $20,985 to Brunilda McLaughlin as additional compensation in an employment agreement. These
options have an exercise price of $0.35 per shares, are fully vested, and expire in 10 years.
In July 2017, the Company issued
300,000 service-based options valued at $83,939 to three directors with an exercise price of $0.35 per share. The options are
fully vested and expire in 10 years.
In July 2017, the Company issued
125,000 service-based options valued at $49,219 to a consultant with an exercise price of $0.40 per share. The options are fully
vested and expire in 5 years.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
5
.
|
Stockholders’
Equity (continued)
|
In July 2017, the Company issued
Mark McLaughlin a ten year option to buy 750,000 shares at $0.35 vesting one-third or 250,000 shares upon signing, and 250,000
shares on July 1, 2018 and 250,000 shares on July 1, 2019. Once the options are fully vested, they expire in 10 years. The options
vested at December 31, 2017 are valued at $69,949.
On October 1, 2017, Michael Borenstein
was appointed to our Board of Directors. As a director, Mr. Borenstein received a ten-year, fully-vested option to purchase 100,000
shares of our common stock at a price of $0.35 per share. In addition, Mr. Borenstein received four ten-year options to each purchase
75,000 shares of our common stock at prices of $0.25, $0.25, $0.35, and $0.35 per share, which vest upon the Company earning $4,000,000,
$5,000,000, $6,000,000 and $7,000,000 in earnings before income taxes, respectively.
In October 2017, the Company
entered into a consulting agreement with Mr. Kalkstein and issued him a ten-year option to buy 500,000 shares at $0.40 vesting
30% upon signing, 35% shall vest on the two-year anniversary of this Agreement and 35% shall vest on the three year anniversary
of this Agreement. Once the options are fully vested, they expire in 10 years. The fair value of the options upon issuance was
$199,897 to be recognized as an expense over the three-year term of the agreement. For the year ended December 31, 2017 $16,658
has been recognized as expense.
Accordingly, stock based compensation for the years
ended December 31, 2017 and 2016 included $599,354 and $63,206, respectively, related to such service-based stock options.
A Summary of the outstanding
service-based options are as follows:
|
|
|
Number
of
Options
|
|
|
Balance at December 31, 2015
|
|
|
11,025,273
|
|
|
Exercised
|
|
|
300,000
|
|
|
Expired
|
|
|
50,000
|
|
|
Cancelled
|
|
|
(250,000
|
)
|
|
Issued
|
|
|
275,000
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
10,700,273
|
|
|
Issued
|
|
|
1,600,000
|
|
|
Exercised
|
|
|
(1,339,473
|
)
|
|
Balance at December 31, 2017
|
|
|
10,960,800
|
|
All outstanding options are
exercisable and have a cashless exercise provision, and certain options provide for accelerated vesting provisions and modifications,
as defined, if the Company is sold or acquired. The intrinsic value of options outstanding and exercisable at December 31, 2017
and 2016 amounted to $1,210,342 and $704,794, respectively. The intrinsic value of options exercised for years ending December
31, 2017 and 2016 was $267,895 and $54,000, respectively.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
5
.
|
Stockholders’
Equity (continued)
|
Service-Based Stock Options
(continued)
The significant assumptions used to determine the
fair values of options issued, using a Black-Scholes option-pricing model are as follows:
|
Significant assumptions:
|
|
|
|
|
Risk-free interest rate at grant date
|
|
|
1.49% - 1.98
|
%
|
|
Expected stock price volatility
|
|
|
194% - 217
|
%
|
|
Expected dividend payout
|
|
|
—
|
|
|
Expected option life-years
|
|
|
3 years
|
|
|
Weighted average grant date fair value
|
|
$
|
0.23 - 0.41
|
|
|
Forfeiture rate
|
|
|
0
|
%
|
The following is a summary of
outstanding service-based options at December 31, 2017:
|
Exercise Price
|
|
Number
of
Options
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
|
|
|
|
|
|
|
|
$0.10
|
|
|
40,800
|
|
|
|
1
year
|
|
|
$0.20 - $0.25
|
|
|
8,620,000
|
|
|
|
5
years
|
|
|
$0.35
|
|
|
725,000
|
|
|
|
10
years
|
|
|
$0.40
|
|
|
1,575,000
|
|
|
|
5
years
|
|
|
Total
|
|
|
10,960,800
|
|
|
|
|
|
Performance-Based Stock
Options
Vested
In 2016, the Company granted
performance-based options to purchase 2,925,000 shares of common stock at exercise prices of $0.40. The options expire at various
dates between 2021 and 2026 and are exercisable upon the Company achieving annual sales revenue of $5,000,000. The Company recorded
stock based compensation expense of $120,867 for the year ended December 31, 2016, related to these performance-based options.
During the year ended December 31, 2016, the Company cancelled 287,500 of these service-based options issued to two consultants,
valued at $17,999.
In February 2017, the Company
granted performance-based options to purchase 250,000 shares of common stock at exercise prices of $0.40. The options expire in
2027 and are exercisable upon the Company achieving annual sales revenue of $5,000,000. The options are valued at $55,439. During
2017, the Company met the performance criteria. The Company recorded stock based compensation expense of $55,439 for the year
ended December 31, 2017, related to these performance-based options.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
5
.
|
Stockholders’
Equity (continued)
|
Unvested
The Company granted performance-based
options to purchase 900,000 shares of common stock at exercise price of $0.80. The options expire at various dates between 2021
and 2027 and are exercisable upon the Company achieving annual sales revenue of $10,000,000. During 2017, these unvested options
were cancelled.
In July 2017, the Company granted
performance-based options to purchase 6,000,000 shares of common stock with an exercise prices of $0.35 per share. The options
expire in 10 years and are exercisable upon cash received by Immudyne, Inc. from Immudyne PR between $4,000,000 and $7,000,000.
The aggregate fair value of these performance-based options is $1,688,212.
In the third quarter of 2017,
the Company granted performance-based options to purchase 3,150,000 shares of common stock with an exercise prices of $0.25 and
$0.35 per share. The options expire in 10 years and are exercisable upon the company achieving pre-tax earnings benchmarks between
$4,000,000 and $7,000,000. The aggregate fair value of these performance-based options is $910,146.
In the fourth quarter of 2017,
the Company granted performance-based options to purchase 600,000 shares of common stock with an exercise prices of $0.25 and
$0.35 per share. The options expire in 10 years and are exercisable upon the company achieving pre-tax earnings benchmarks between
$4,000,000 and $7,000,000. The aggregate fair value of these performance-based options is $242,709.
Warrants
The following is a summary of outstanding and exercisable
warrants:
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Year of
Expiration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
1,750,000
|
|
|
|
0.16
|
|
|
|
2016
- 2017
|
|
|
Issued
|
|
|
454,891
|
|
|
|
0.42
|
|
|
|
2018 - 2019
|
|
|
Expired
|
|
|
(250,000
|
)
|
|
|
0.40
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
1,954,981
|
|
|
|
0.19
|
|
|
|
2017
- 2019
|
|
|
Issued
|
|
|
2,634,228
|
|
|
|
0.40
|
|
|
|
2018
- 2020
|
|
|
Exercised
|
|
|
(1,500,000
|
)
|
|
|
0.12
|
|
|
|
2017
|
|
|
Balance at December 31, 2017
|
|
|
3,089,119
|
|
|
|
0.40
|
|
|
|
2018
- 2020
|
|
In September 2016, the Company
issued 100,000 warrants with an exercise price of $0.50 per share, in relation to a sale of common stock. These warrants are fully
vested and expire in two years.
In September 2016, the Company
issued 100,000 warrants with exercise prices between $0.20 and $0.50 per share, for consulting services. These warrants are fully
vested and expire in three years. The fair value of these warrants are $20,585 and is included in compensation and related expenses
in the accompanying statement of operations.
In December 2016, the Company
issued 37,500 warrants with an exercise price of $0.50 per share, in relation to a sale of common stock. These warrants are fully
vested and expire in two years.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
5
.
|
Stockholders’
Equity (continued)
|
In December 2016, the Company
issued 217,391 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock. These warrants
are fully vested and expire in two years.
In January 2017, the Company
issued 591,745 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock for the conversion
of an equity contribution into Immudyne PR by the noncontrolling interest. These warrants are fully vested and expire in two years.
In March 2017, the Company issued
402,348 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock for the conversion of debt.
These warrants are fully vested and expire in two years.
In the first quarter of 2017,
the Company issued 1,408,578 warrants with an exercise price of $0.40 per share, in relation to a sale of common stock. These
warrants are fully vested and expire in two years.
In April 2017, the Company issued
55,000 warrants with an exercise price of $0.40 per share, in relation to a sale of common stock. These warrants are fully vested
and expire in two years.
In April 2017, the Company issued
108,696 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock for conversion of a payable.
These warrants are fully vested and expire in three years.
In November 2017, the Company
issued 67,861 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock for conversion of
an equity contribution into Immudyne PR by the noncontrolling interest. These warrants are fully vested and expire in three years.
Warrants outstanding and exercisable
amounted to 3,089,119 and 1,954,891 at December 31, 2017 and 2016, respectively. The weighted average exercise price of warrants
outstanding at December 31, 2017 and 2016 is $0.40 and $0.19, respectively. The warrants expire at various times between December
2017 and September 2019.
The fair value of options and
warrants granted (or extended) during the years ended December 31, 2017 and 2016, was estimated on the date of grant (or extension)
using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
215
|
%
|
|
|
203
|
%
|
|
Risk free interest rate
|
|
|
1.52
|
%
|
|
|
.88
|
%
|
|
Expected dividend
yield
|
|
|
-
|
|
|
|
-
|
|
|
Expected option term (in years)
|
|
|
3
|
|
|
|
2 - 3
|
|
|
Weighted average
grant date fair value
|
|
$
|
0.32
|
|
|
$
|
0.20
|
|
Under ASC 815-40-05, Accounting
for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock, in the event the Company
does not have a sufficient number of authorized and unissued shares of common stock to satisfy obligations for stock options, warrants
and other instruments potentially convertible into common stock, the fair value of these instruments should be reported as a liability.
Pursuant to the outstanding option, warrant and convertible debt agreements, there is currently no effective registration statement
covering the shares of common stock underlying these agreements, which are currently subject to a cashless exercise whereby the
holders, at their option, may surrender their options and warrants to the company in exchange for shares of common stock. The number
of shares of common stock into which an option or a warrant would be exchangeable in such a cashless exercise depends on both the
exercise price of the options or warrant and the market price of the common stock, each at or near the time of exercise. Because
the market price is variable, it is possible that we could have insufficient authorized shares to satisfy a cashless exercise.
In this scenario, if we were unable to obtain shareholder approval to increase the number of authorized shares, we could be obligated
to settle such a cashless exercise with cash rather than by issuing shares of common stock. Further, ASC 815-40-05 requires that
we record the potential settlement obligation at each reporting date using the current estimated fair value of these contracts,
with any changes in fair value being recorded through our statement of operations. We reported the potential settlement obligation
as a liability until such time as these contracts are exercised or expire or we are otherwise able to modify the agreements to
remove the provisions which require this treatment. On September 21, 2017, the Company filed an amendment to its certificate of
incorporation with the Delaware Secretary of State increasing the number of authorized shares of the Company’s common stock
from 50,000,000 to 100,000,000, which enabled the Company to reclassify the derivative liability.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
The Company measures fair
value and discloses fair value measurements for financial assets and liabilities. Fair value is based on th
e
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable
inputs used to measure fair value into three broad levels, which are described below:
●
|
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
|
|
|
●
|
Level 2: Observable inputs that are based on inputs not quoted on active markets, but corroborated by market data.
|
|
|
●
|
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|
In
determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the
use of
unobservable inputs, to the extent possible, and considers credit risk in its assessment of fair value.
The following
tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December
31, 2017:
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Markets for
|
|
|
|
Other
|
|
|
|
Significant
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Identical
Assets
|
|
|
|
Observable
Inputs
|
|
|
|
Unobservable
Inputs
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
|
Fair value of liability for derivative instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
The following
tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December
31, 2016:
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
Balance at
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
December 31, 2016
|
|
|
Identical
Assets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of liability for derivative instruments
|
|
$
|
192,254
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
192,254
|
|
|
Total
|
|
$
|
192,254
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
192,254
|
|
|
Reclass from APIC to derivatives
|
|
|
132,858
|
|
|
Newly issued securities as derivatives
|
|
|
59,397
|
|
|
Derivative Value 12/31/16
|
|
|
192,254
|
|
|
|
|
|
|
|
|
Settlement upon repayment-convertible debt
|
|
|
(59,397
|
)
|
|
Newly issued securities as derivatives
|
|
|
1,098,703
|
|
|
Reclass from APIC to derivatives
|
|
|
530,138
|
|
|
Change in fair value
|
|
|
48,192
|
|
|
Derivative Value 3/31/17
|
|
|
1,809,890
|
|
|
|
|
|
|
|
|
Newly issued securities as derivatives
|
|
|
67,146
|
|
|
Change in fair value
|
|
|
(922,022
|
)
|
|
Derivative Value 6/30/17
|
|
|
955,014
|
|
|
|
|
|
|
|
|
Newly issued securities as derivatives
|
|
|
49,219
|
|
|
Reclass from APIC to derivatives
|
|
|
115,714
|
|
|
Change in fair value
|
|
|
377,213
|
|
|
Derivative Value 9/21/17
|
|
|
1,497,160
|
|
|
|
|
|
|
|
|
Reclass from liability to equity
|
|
|
(1,497,160
|
)
|
|
Derivative Value 9/30/17
|
|
|
-
|
|
The fair value of derivative
liabilities during the years ended December 31, 2017 and 2016, was estimated using the Black-Scholes option-pricing model with
the following assumptions:
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
125%-214
|
%
|
|
|
130%-217
|
%
|
|
Risk free interest rate
|
|
|
1.24%-2.65
|
%
|
|
|
1.20%-1.47
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Expected life (in years)
|
|
|
2 - 8
|
|
|
|
1 - 3
|
|
The unobservable inputs that had the greatest sensitivity to
change in valuation were stock price volatility and expected life.
Stock Based Compensation
The total stock based compensation
expense related to Service-Based Stock Options, Performance-Based Stock Options and Warrants issued for service amounted to $1,001,679
and $587,991 for the years ended December 31, 2017 and 2016, respectively. Such amounts are included in compensation and related
expenses in the consolidated statement of operations.
Immudyne, Inc.
Notes to Consolidated Financial Statements
December 31, 2017
The Company was subject to a
royalty agreement based upon sales of certain skin care products. The agreement required the Company to pay a royalty based upon
8% of such sales, up to $227,175. During the year ended December 31, 2015 the Company’s sales reached the maximum amount
under which the Company was required to pay a royalty under this agreement. Royalty expense for the years ended December 31, 2017
and 2016 amounted to $-0- in both years. During December 2015, the Company’s President who had a 60% interest in the royalties,
converted royalties payable under the agreement in the amount of $84,868 to 499,225 shares of Company stock at $0.17 cents per
share. Included in accounts payable and accrued expenses at December 31, 2017 and 2016 was $56,579 in regards to this agreement.
The Company is subject to a
royalty agreement based upon sales of certain hair care products. For the year ended December 31, 2017, the Company recognized
$79,360 in royalty expense related to this agreement. As of December 31, 2017, the $14,039 was included in accounts payable and
accrued expenses in regards to this agreement. In addition, the Company shall pay a performance fee in relation to this agreement.
In April 2017, the Company issued 217,390 shares of common stock and 108,696 warrants, pursuant to a subscription agreement, for
the stated consideration and satisfaction of obligation to pay $50,000 of the performance fee (see Note 7).
7
.
|
Commitments and
Contingencies
|
Leases
The Company leases a plant in
Kentucky under an operating lease which expired on May 31, 2016. Management is currently discussing renewal lease options for
the Kentucky plant and is operating on a month-to-month lease arrangement until a final agreement has been accepted. Monthly base
rental payments are approximately $9,000. Our principal executive offices are in office space provided to us by the former President,
Mr. McLaughlin at the rate of $2,000 per month, which includes rents, utilities and other office related expenditures. This arrangement
commenced as of January 1, 2016. In addition, Immudyne PR utilizes office space in Puerto Rico which is subleased from Mr. Schreiber
(President and CEO) and incurs expense of approximately $4,000 a month for this office space. Rent expense for the years ended
December 31, 2017 and 2016, was $162,760 and $139,030, respectively.
Employment and Consulting
Agreements
The Company has entered into
various agreements with officers, directors, employees and consultants that expire in one to five years. The agreements provide
for annual compensation of up to $145,000 and the issuance of stock options, at exercise prices of $0.40 and $0.80, to purchase
4,400,000 shares of common stock issuable upon the Company’s revenue exceeding $5,000,000 and $10,000,000, as defined. In
addition, the agreements provide for bonus compensation to these individuals aggregating up to 15% (with no individual having
more than 5%) of the Company’s pretax income.
In August 2017, the Company
entered into a Professional Service Agreement with Acorn Management Partners L.L.C. (“Acorn”) for financial advisory,
strategic business planning and other investor relation services for one year effective August 8, 2017. During the term of the
Agreement, Acorn shall receive $7,500 cash monthly. As additional compensation, the Company shall issue within five (5) days of
signing 100,000 shares of the Company’s common stock and upon each three (3) month period thereafter during the term of
the Agreement an additional 100,000 shares of the Company’s common stock for a total of 400,000 shares of the Company’s
common stock.
Immudyne, Inc.
Notes to Consolidated Financial Statements
December 31, 2017
7.
|
Commitments and Contingencies (continued)
|
Restricted Stock and Options
The Company has entered into
two agreements on April 1, 2016 with two consultants of Immudyne PR for business development, marketing and sales related services
(the “Consultant Agreements”). The consultants are treated as employees for accounting purposes. Upon signing, each
consultant was issued 1,000,000 restricted shares of Immudyne, Inc. common stock. In addition, each consultant shall receive an
additional 150,000 restricted shares of Immudyne, Inc. common stock for each $500,000 distributed by Immudyne PR to the Company.
For each consultant, the amount of shares to be issued by the Company to the consultants shall be capped at 1,500,000 restricted
shares when Immudyne PR has transferred $5,000,000 to the Company, for a combined capped total of 3,000,000 restricted shares.
For the year ended December 31, 2016, 2,300,000 restricted shares of common stock have been issued related to these agreements.
The Company valued the shares at their grant date for a value of $0.30 per share for a total of $690,000 to be expensed over the
estimated service period. A total of $306,667 was expensed during the year ending December 31, 2017.
In addition, the Consulting
Agreements provided that each consultant shall receive a bonus of an additional 750,000 restricted shares of Immudyne, Inc. common
stock, plus an option to buy 1,000,000 shares of Immudyne, Inc. common stock at $0.20/share (including a cashless exercise feature)
when Immudyne PR has transferred to the Company at each of the following three (3) thresholds: $1,250,000, $2,000,000 and $3,000,000
for a total of 2,250,000 of restricted shares of Immudyne, Inc. common stock and options to purchase up to 3,000,000 shares of
Immudyne, Inc. common stock at $0.20/share. As of December 31, 2017 no bonus shares have been issued and no options have been
granted under this agreement.
Sole and Exclusive License,
Royalty, and Advisory Agreement
On September 1, 2016 Immudyne
PR entered into a sole and exclusive license, royalty and advisory agreement with Pilaris Laboratories, LLC (“Pilaris”)
relating to Pilaris’ PilarisMax shampoo formulation and conditioner. The term of the agreement will be the life of the US
Patent held by Pilaris. As consideration for granting Immudyne PR this license, Pilaris will receive on quarterly basis, 10% of
the net income collected by the licensed products based on the following formula: Net Income = total income – cost of goods
sold – advertising and operating expenses directly related to the marketing of the licensed products. In addition, Immudyne
PR shall pay Pilaris a performance fee of $50,000 on the 180-day anniversary of the agreement and an additional $50,000 performance
fee on the 365-day anniversary of the agreement. For the year ended December 31, 2017, the Company recognized expenses related
to the performance fee in the amount of $100,000. In April 2017, the Company issued 217,390 shares of common stock and 108,696
warrants, pursuant to a subscription agreement, for the stated consideration and satisfaction of obligation to pay $50,000 on
the 180-day anniversary of the execution of this agreement. As of December 31, 2017, the balance in accounts payable and accrued
expenses is $14,039 related to this agreement.
Legal Matters
In the normal course of business
operations, the Company may become involved in various legal matters. At December 31, 2017, the Company’s management does
not believe that there are any potential legal matters that could have an adverse effect on the Company’s financial position.
Immudyne, Inc.
Notes to Consolidated
Financial Statements
December 31, 2017
8
.
|
Related Party
Transactions
|
Legal and business advisory
services were provided to the Company by one of its directors. For the years ended December 31, 2017 and 2016 this director was
compensated $7,500 and $16,145, respectively.
During the years ended December
31, 2017 and 2016, the Company’s former President received $24,000 and $24,000, respectively for reimbursement of home office
expenditures, including rent, utilities and other related expenses for two offices.
Immudyne, Inc. employs the wife
of the former President of the Company Immudyne, Inc. and incurs $3,000 per month as an accountant, plus an annual incentive bonus
award equal to 0.5% of the Company’s pre-tax earnings.
Immudyne PR utilizes BV Global
Fulfillment, owned by the father of Mr. Schreiber, and incurred $286,833 and $19,800 for the years ended December 31, 2017 and
2016, respectively, for these services.
Taggart International Trust
(“Taggart”), a shareholder; provides credit card processing services through one or more merchant banks. Taggart did
not receive any compensation for these services.
JLS Ventures LLC, owned by the
CEO, provides credit card processing services through one or more merchant banks. JLS Ventures LLC did not receive any compensation
for these services.
JSDC, Inc., owned by CEO, provides
credit card processing services through one or more merchant banks. JSDC, Inc. did not receive any compensation for these services.
Immudyne PR utilizes office
space in Puerto Rico which is subleased from Mr. Schreiber (President and CEO) incurs expense of approximately $4,000 a month
for this office space.
In December 2017, Immudyne PR
received two working capital loans from Robert Kalkstein, the Company’s CFO, and from Mr. Schreiber for $50,000 and $75,000,
respectively. The loans accrue at 2% interest per month and mature in February 2018. Accrued interest relating to the loans were
$1,867 as of December 31, 2017.
During 2017, the Company issued
a total of 1,319,211 shares of common stock to Mr. Schreiber pursuant to a conversion of Immudyne PR equity contributions of $303,419
into equity of Immudyne, Inc.
On November 20, 2017, the
Company entered into an agreement (the “
Agreement
”) with JOJ Holdings, LLC (“
JOJ
”).
Pursuant to the terms of the Agreement, Immudyne purchased 2,000,000 shares (post-split from a 2:1 forward split on January
16, 2018) of Blockchain Industries, Inc. (“BCII”) from JOJ. The Agreement was amended on December 8, 2017 and
again on March 9, 2018. In consideration for the purchase, Immudyne agreed to issue one (1) share of Immudyne common stock to
JOJ for every dollar Immudyne realizes from gross proceeds on the sale of shares of BCII purchased pursuant to the Agreement,
up to a total maximum aggregate amount of 5,000,000 shares. The Company has 3 years to sell the shares of BCII and has agreed
not to sell more than 20% of the 30-day average daily trading volume of BCII. Justin Schreiber, the Company’s President
and CEO, is the President and owner of JOJ.
The
transaction was determined not to meet the criteria for recognition as an exchange transaction, therefore no asset or
liability has been recorded in the financial statements.
The Company has evaluated subsequent
events through the date these financial statements were issued.
On January 30, 2018, Mark McLaughlin
resigned as President and CEO, and Justin Schreiber was appointed as the Company’s President and CEO. Additionally, Mr. McLaughlin
agreed to purchase the assets and liabilities of the Immudyne Inc.’s yeast beta glucan manufacturing business for $850,000.
On February 7, 2018, the Company and Mr. McLaughlin entered into an amendment to the asset purchase agreement to amend the purchase
price of the assets, whereby Mr. McLaughlin agreed, through Newco, to purchase the assets of the yeast beta glucan manufacturing
business, for the following: (i) two million (2,000,000) shares of the Company’s common stock payable on February 12, 2018
the Closing Date, (ii) One Hundred and Ninety Thousand Dollars ($190,000) payable on the Closing Date, and (c) Two Hundred Thousand
Dollars ($200,000) payable within 120 days following the Closing Date.