The accompanying notes are an integral part of these consolidated financial statementsCONVERSION LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

The accompanying notes are an integral part of these consolidated financial statements

Immudyne, Inc.(Unaudited)

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS

Nature of Business

Immudyne,Conversion Labs, Inc. (the(“Conversion Labs,” “we,” “us,” “our,” the “Company”) is an internet-based direct response marketing company that in-licenses, acquires and creates innovative and proprietary products that are sold to consumers around the world via our technology infrastructure and relationships with agencies, third party marketers, and online advertising platforms such as Facebook, Google and Amazon. We currently have three commercial stage products including Shapiro MD, a Delaware corporation established to develop, manufacturepatented shampoo, conditioner, and sell naturalleave-in foamer for thicker, fuller hair, iNR Wellness MD, a nutritional supplement for immune support, products containingand PDF Simpli, a PDF conversion software, which was acquired through the Company’s proprietary yeast beta glucans,purchase of 51% of the membership interests of LegalSimpli Software, LLC, a group of beta glucans naturally occurringPuerto Rico limited liability company, which operates a marketing-driven software solutions business.

We launched our online direct marketing business in the cell wallsfourth quarter of yeast that have been shown through testing and analysis to support2015 with the immune system. The Company’s products include onceestablishment of 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, Innatepartnership with Inate Skincare, LLC (“Innate”Inate”). Under the terms of the joint venture agreement, the Company heldOur initial intention was to launch a 33.3% equity interest,skin care line containing our proprietary ingredients and to market such products directly to consumers. We entered into a 51% controlling voting interest, in Innate. On January 20, 2016, Innate amended its limited liability company operating agreement and changed itswith our joint venture partners with respect to Inate under the legal name to Immudyne PR LLC (“Immudyne PR”). On April 1, 2016, the original operating agreement of Immudyne PR furtherwas amended its operating agreement and restated the Company’sand we increased our ownership and voting interest in Immudyne PR increasing its ownership to 78.1667% resulting78.2%.

During 2016, we utilized third party entities to provide and increase credit card processing capacity and optimize corresponding rates and fees through one or more merchant bank accounts held by such entities. Some of the entities contracted to provide these services had been determined to be variable interest entities (“VIEs”) and were consolidated in a charge to noncontrolling interestthe Company’s financial statements. The one (1%) percent fee received by these VIEs was eliminated in consolidation of the net revenues processed and additional paid-in-capital of $91,612. Immudyne PR was formed to launch a complete skin care regime formulated using strategic ingredients providedcollected by such contractors from sales initiated by the Company. InThe remaining entities provided such services as independent contractors, the second quartermajority of which were considered related parties and no fee was paid. Upon receipt of funds by such contractors from their respective merchant banks, the Company required the prompt transfer of funds to Company controlled accounts. The Company reimbursed and/or advanced funds to such contractors for any deficit or charge related to returns, chargeback and other fees charged by such merchant bank. By our year ended December 31, 2017, we ceased processing credit card charges through all VIE merchant accounts. At December 31, 2017, we recorded the merchant reserves from these VIE merchant accounts on our balance sheet as accounts receivable.

As used in these financial statements and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to Conversion Labs, Inc. (formerly known as Immudyne, Inc.) and our majority-owned subsidiaries LegalSimpli Software, LLC, a Puerto Rico limited liability company (“LegalSimpli”), Conversion Labs PR, LLC (formerly Immudyne PR expanded their product lineLLC), a Puerto Rico limited liability company (“Conversion Labs PR”), and launched their in-licensed patented hair loss shampoo and conditioner.Conversion Labs Asia Limited, a Hong Kong company (“Conversion Labs Asia”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.

Acquisition of Membership Interest Purchase Agreement

On May 29, 2018, Immudyne PR acquired 51% of the membership interests (the “Membership Interests”) of LegalSimpli Software, LLC, a Puerto Rico limited liability company (“LegalSimpli”), which operates a marketing-driven software solutions business. In consideration for Immudyne PR’s purchase of the Membership Interests, Immudyne PR paid $150,000 (the “Initial Payment”) to the sellers upon execution of the purchase agreement. Additionally, Immudyne PR agreed to pay up to an additional $200,000 for such Membership Interests.

Going Concern

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 issuancesale of additional shares of common stock.

stock or debt securities. 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 September 30, 2017,2018, the Company hashad an accumulated deficit of approximating $10.7$11.1 million and has incurred negative cash flows from operations. These conditions raise substantial doubt about the Company'sCompany’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'sCompany’s cash balance at September 30, 2017,2018, and projected cash needs for 2017,2018, management estimates that it will need to increase sales revenue and/or raise additional capital to cover operating and capital requirements for the remainder of the 20172018 fiscal 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 StatementsNOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

September 30, 2017

(unaudited)

Principles of Consolidation

The Company evaluates the need to consolidate affiliates based on standards set forth in Accounting Standard CodificationASC 810 Consolidation (“ASC”ASC 810”) 810 Consolidation.

. The consolidated financial statements include the accounts of the Company and its majority owned subsidiary, ImmudyneConversion Labs PR, its 51% owned LegalSimpli and variable interest entities (VIE’s) in which the Company has been determined to be the primary beneficiary. The non-controlling interest in ImmudyneConversion Labs PR represents the 21.8333%21.833% equity interest held by other members of the joint venture. All significant consolidated transactions and balances have been eliminated in consolidation.

Management’s Representation of Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements at December 31, 2017 and 2016 filed in the Company’s Annual Report on Form 10-K with the SEC on April 2, 2018.

Variable Interest Entities

The Company follows ASC 810-10-15 guidance with respect to accounting for VIE’s.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 ofBy our fiscal year ending December 31, 2017, we ceased processing credit card charges through all VIE merchant accounts. At September 30, 20172018 and December 31, 2016,2017, we recorded the Company consolidated nine VIEs.merchant reserves from these VIE merchant accounts on our balance sheet as accounts receivable.

ImmudyneConversion Labs PR asis 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 HuntleySalus LLC, which are qualified as VIEs. The assets and liabilities and revenues and expenses of these VIEs are included in the financial statements of ImmudyneConversion Labs PR and further included in the consolidated financial statements. As of September 30, 2017, the VIEs had assets of $3,096, liabilities of $10,146, revenues of $1,487, and operating expenses of $2,119. As of December 31, 2016, the VIEs had assets of $10,306, liabilities of $5,748. The assets and liabilities include balances due from and due to the subsidiaries of ImmudyneConversion Labs PR. AnyThese inter-company receivables and payables are eliminated upon consolidation of the VIEsVIE with ImmudyneConversion Labs PR and Immudyne, Inc.the Company. No assets were pledged or given as collateral against any borrowings.

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 percent (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 provide credit card processing through one or more merchant banks.banks contracted by each VIE. Upon receipt of funds by each VIE, the collection of receipts less any returns, chargebackschargeback and other fees charged by such merchant bank is transferred to ImmudyneConversion Labs PR.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

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 both of these factors arethe 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 September 30, 20172018 and December 31, 2016,2017, inventory consisted primarily of cosmetic and nutraceutical additives, and finished cosmetic products. Inventory is maintained in the Company’s leased Kentuckya third-party warehouse and third party warehouses in Pennsylvania and Louisiana.Pennsylvania.

Inventory is valued at the lower of cost or marketnet 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 market value,net realizable, if lower. At September 30, 20172018 and December 31, 2016,2017, the Company recorded an inventory reserve in the amount of $20,000. Inventory consists$12,500 and $12,500, respectively. As of September 30, 2018 and December 31, 2017, the following:

Immudyne, Inc.inventory balances were $507,211 and 681,258, respectively.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

Revenue Recognition

The Company records revenue under the adoption of ASC 606 by analyzing exchanges with its customers using a five-step analysis such as 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 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 isshould be deferred until that time.time, however the Company does not have a process to properly record the recognition of revenue if orders are not immediately shipped. 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 approximated $149,000for the three and $1,578,000 innine months ended September 30, 2018, was approximately $133,000 and $353,000, respectively. Customer discounts, returns and rebates for the three and nine months ended September 30, 2017, and 2016, respectively. Customer discounts, returns and rebates approximatedwas approximately $99,000 and $530,000 in the three months ended September 30, 2017 and 2016,$149,000, 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 nine months ended September 30, 2017 consisted of nutraceutical and cosmetic additives ($981,356) and finished cosmetic products ($2,602,258). Revenue for the nine months ended September 30, 2016 consists of nutraceutical and cosmetic additives ($757,961) and finished cosmetic products ($3,494,743).

Revenue for the three months ended September 30, 2017 consisted of nutraceutical and cosmetic additives ($277,463) and finished cosmetic products ($1,774,271). Revenue for the three months ended September 30, 2016 consists of nutraceutical and cosmetic additives ($229,741) and finished cosmetic products ($1,154,688).

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 September 30, 20172018 and December 31, 2016,2017, the accounts receivable reserve was approximately $-0-$0 and $37,800,$0, respectively. As ofAt September 30, 20172018 and December 31, 2016,2017, the reserve for sales returns and allowances was approximately $26,000$33,754 and $50,500,$23,200, respectively.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

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:

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

Income Taxes

The Company files Corporate Federal and State tax returns, while ImmudyneConversion Labs PR and LegalSimpli, which waswere formed as a limited liability corporation, files acompanies, file separate tax returnreturns 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, 2013,2014, remain open to federal and state taxing authorities.

Stock-Based Compensation

The Company follows the provisions of ASC 718, “Share-Based Payment” and ASC 505-50 “Equity-Based Payments to Non-Employees”. 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

September 30, 2017

(unaudited)

Earnings (Loss) Per Share

Basic earnings (loss) per common share is based on the weighted average number of shares outstanding during each period presented. The dilutedWarrants 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 computation includeswhen the effect, if any, of shares thateffects would be issuable upon the exercise of outstanding stock options, warrants, derivative liability and convertible debt, reduced by the number of shares which are assumed to be purchased by the Company from the resulting proceeds at the average market price during the period, when such amounts are dilutive to the earnings per share calculation.antidilutive.

The weighted average number of commonCommon stock equivalents not included in diluted income per share, because the effects are anti-dilutive, was 4,907,700comprising shares underlying 1,886,454 options and warrants for the three and nine months ended September 30, 2017.2018, respectively, have not been included in the income per share calculations as the effects are anti-dilutive.

Common stock equivalents comprising shares underlying 9,335,800 options and warrants for the three and nine months ended September 30, 2017, have not been included in the loss per share calculation as the effects are anti-dilutive. Common stock equivalents comprising shares underlying 12,950,273 options and warrants for the nine months ended September 30, 2016 have not been included in the loss per share calculations 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 ofWe have reviewed ASU 2016-15.2016-15 and have determined that it will not have any material effect on our financial statements and related disclosures.

In February 2016, a pronouncement wasthe FASB issued that creates newASU 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 reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assetscomparability by requiring lessees to recognizerecord right-of-use assets and corresponding lease liabilities on the balance sheet relatedsheet. ASU 2016-02 will continue to the rights and obligations created by thoseclassify leases regardless of whether they are classified as either finance or operating, leases. Consistent with current guidance,classification affecting the pattern of expense recognition measurement, and presentationin the statement of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standardincome. ASU 2016-02 is effective for annual reporting periodsfiscal years beginning after December 15, 2018, including interim periods within that reporting period, with early applicationthose fiscal years. Early adoption is permitted. The new standardASU 2016-02 is required to be applied usingwith a modified retrospective approach. The Company is in the process of evaluating the impact of the new pronouncementapproach 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 its consolidated financial statements. At this time, the adoption of this pronouncement is not expected to have a material impact on the Company’s consolidatedour financial statements orand related disclosures.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

Recent Accounting Pronouncements (continued)

In May 2014, the Financial Accounting Standards Board ("FASB") issued accounting guidance, "Revenue from Contracts with Customers." The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and clarify guidance for multiple-element arrangements. The standard will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. Accordingly, the Company will adopt this standard in the first quarter of fiscal year 2018. The Company does not expect it to have a material effect on the Company's consolidated financial condition, results of operations, and cash flows because the Company’s business focuses on e-commerce retail sales and commercial sales that do not use written contacts, rather the use of implied contracts recognizing the sale when goods are ordered on our e-commerce platform or invoiced, respectively.

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% interestinterests in ImmudyneConversion Labs PR and LegalSimpli 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 ImmudyneConversion Labs PR, and LegalSimpli’s net loss attributable to noncontrolling interests in the consolidated statement of operations.

Immudyne, Inc.Consolidation of Variable Interest Entities

NotesIn 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 Consolidated Financial Statements

September 30, 2017

(unaudited)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 six entities were VIEs and subject to consolidation.

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.

OneAlthough the Company does have some wholesale customers, over 90% of the Company’s sales are to unique customers. Since the Company sells its products to thousands of customers, there is no accounts receivable concentration from customers. However, the Company uses merchant processors to charge customer in the nutraceuticalcredit cards and cosmetic additives division accounted for 13% and 13%does contain concentration risk between credit card processors.

As of consolidated sales for the three-month periods ended September 30, 2017 and 2016, respectively. This customer accounted for 25% and 2%2018, the Company’s accounts receivable had no significant concentration from any one customer.

As of consolidated sales for the nine month periods ended September 30, 2017 and 2016, respectively. This customer also accounted for 36% and 11% of the consolidated accounts receivable at September 30, 2017 and December 31, 2016, respectively.

In the finished cosmetic products division, none of the credit card processors had a significant concentration of accounts receivable at September 30, 2017. In the finished cosmetic products division, two2018, three credit card processors accounted for 35%56%, 22% and 32%20% of accounts receivable.

NOTE 3 – DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE

On January 29, 2018, the Company entered into a Legacy Asset Sale Agreement (the “Asset Sale Agreement”) with Mark McLaughlin (the Company’s former President and Chief Executive Officer) whereby the Company sold the assets of the consolidated accounts receivablelegacy beta glucan business for $850,000. On February 7, 2018, the Company and Mr. McLaughlin entered into an amendment to the Asset Sale Agreement (the “Asset Sale Agreement Amendment”) to amend the purchase price of the assets, whereby Mr. McLaughlin agreed, through a newly formed entity, to purchase the assets and liabilities of the yeast beta glucan manufacturing business, for the following: (i) 2,000,000 shares of the Company’s common stock (valued at December 31, 2016.$0.23 per share or $460,000), payable on February 12, 2018, (the “Closing Date”), (ii) $190,000 payable on the Closing Date, (iii) $200,000 payable within 120 days following the Closing Date, and (iv) the waiver of all rights to any severance payment in the amount of $150,000. The total purchase price per the Asset Sale Agreement Amendment was $1,000,000. The total assets and liabilities transferred in the sale was $255,248, resulting in a gain on sale of $744,752.

Operating results for the three months and nine months ended September 30, 2018, and 2017 for the yeast beta glucan manufacturing business are presented as discontinued operations and the assets and liabilities classified as held for sale are presented separately in the balance sheet.

A breakdown of the discontinued operations is presented as follows:

Acquisition of Membership Interest Purchase Agreement

On May 29, 2018 (the “Closing Date”), Immudyne, PR entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among nine individuals, as sellers and Conversion Labs PR, as buyer (“Buyer”), pursuant to which Buyer acquired from Sellers all of Sellers’ right, title and interest in and to 51% of the membership interests (the “Membership Interests”) of LegalSimpli Software, LLC, a Puerto Rico limited liability company (“LegalSimpli”), which operates a marketing-driven software solutions business.

In November 2015,consideration for Buyer’s purchase of the Company borrowedMembership Interests the Buyer paid $150,000 (the “Initial Payment”) to the Sellers upon execution of the Purchase Agreement. Additionally, Buyer may be obligated to pay up to an additional $200,000 in accordance with the following milestones (the “Milestones”): (i) $100,000 from a commercial lender. The loan incurred interest at 11%to the Sellers on the 90-day anniversary of the Purchase Agreement, so long LegalSimpli’s gross revenue for the preceding 30-day period is equal to or greater than $75,000; and (ii) $100,000 to the Sellers on the 180-day anniversary of the Purchase Agreement, so long as LegalSimpli’s gross revenue for the preceding 30-day period is equal to or greater than $150,000, with a maturityminimum net profit margin of 25% in each instance.

Regardless of whether LegalSimpli achieves either or both of the Milestones, Buyer will retain full ownership of the Membership Interests.

Fair Value of Consideration Transferred and Recording of Assets Acquired

The following table summarizes the acquisition date fair value of November 1, 2016. Interest expense related to this loanthe consideration paid, identifiable assets acquired, and liabilities assumed including an amount for the period ended March 31, 2016 amounted to $3,063. In October 2016, the Company repaid the entire principal balance.intangible assets:

NOTE 5 – NOTES PAYABLE

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 arewere 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 will bewere amortized over the term of these notes. Amortization of the debt discounts for the nine monthsyear ended September 30,December 31, 2017 and 2016 was $25,035. There was no amortization of debt discount during the third quarter of 2017.$25,035 and $33,715, respectively. During 2016, the Company repaid $68,600 of the principal balance. Interest expensebalance; 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 thesethe subordinated promissory notes for the nine months ended 2017 amounted to $131,117.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 notenotes 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 interest expense as loss on settlementextinguishment of debt. Interest expense related to these notes payable.for the nine months ended September 30, 2018 and 2017, amounted to $0 and $131,117, respectively.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

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 incurs no interest. This note is 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.

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 interest expense as loss on settlementextinguishment of notes payable.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. In the first quarter of 2018 the Company repaid this loan. As of September 30, 2018 and December 31, 2017, there were approximately $60,000 available borrowings under thewas $0 and $42,479 outstanding, respectively.

In December 2017, Conversion Labs PR received two working capital line.loans from related parties for in the amounts of $50,000 and $75,000, respectively. The loans accrue at 2% interest per month and mature in February 2018. In February 2018, the Company repaid these loans including all outstanding accrued interest.

In May 2018, the Company borrowed $550,000 and issued convertible notes in connection therewith. These notes have a maturity date of May 28, 2019 and accrue interest at a rate of 12% compounded annually. The conversion price for these notes is $0.23 per share of common stock, subject to adjustment. In the event the average VWAP (as defined) for the consecutive five trading days preceding but not including the six month anniversary of the original issue date of the note is less than the then conversion price in effect on such six month anniversary date, then the conversion price shall be reduced to 80% of the VWAP for the ten trading days following (but not including) such six month anniversary date, subject to further reduction. In addition, the Company issued warrants to purchase up to 2,391,305 shares of common stock with an exercise price of $0.28 per share. The fair value of the warrants was determined to be $533,691 and was recorded as a debt discount to be amortized over the life of the note. For the nine months ended September 30, 2018, amortization of debt discount was $181,309.

Interest expense related to loans from officers, directors and other related individuals amounted to $1,713$4,383 and $313$1,713 for the nine month periodsmonths ended September 30, 20172018 and 2016,2017, respectively. There was no interest expense for the three months ended September 30, 2017 and 2016 related to loans from officers, directors and other related individuals as there were no loans outstanding during the three months ended September 30, 2017.individuals.

Total interest expense on notes payable, inclusive of amortization of debt discount of $181,309 and $81,558, amounted to $650,718$205,192 and $15,805$650,718 for the nine months ended September 30, 2018 and 2017, and 2016, respectively.

Total interest expense on notes payable, inclusive of amortization of debt discount of $134,519 and $0, amounted to $1,111$147,664 and $9,992$1,111 for the three months ended September 30, 20172018 and 2016,2017, respectively.

NOTE 6 – INCOME TAXES

The Company is not expected to have taxable income in 2017 and incurred a loss for the year ended December 31, 2016, and accordingly, no provision for federal income tax has been made in the accompanying financial statements. At September 30, 2017,2018, the Company had availablehas approximately $3,193,000 of operating loss carryforwards for federal that may be applied against future taxable income. The net operating loss carryforwards of approximately $5,032,100,will begin to expire in the year 2021 if not utilized prior to that date, expiring during various years 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.

A summaryThe 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 $419,209 during the nine months ended September 30, 2018. 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 asset using an approximate 34% tax rate isassets were as follows:

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.

The difference between the statutory and the effective tax rate is primarily due to a change in valuation allowance on deferred taxes, as well as a permanent difference from the change in derivative liability. The Company has fully reserved the deferred tax asset resulting from available net operating loss carryforwards.

Immudyne, Inc.NOTE 7 – STOCKHOLDERS’ EQUITY

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

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. For the nine and three months ended September 30, 2017, the Company has recognized expense of $230,000 and $76,667, respectively, in connection with these agreements. For the nine and three months ended September 30, 2016, the Company has recognized expense of $230,000 and $76,667, respectively. As of September 30, 2017 and December 31, 2016, the unamortized portion of these service agreements are $76,667 and $306,667, respectively.

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. During 2017, the Company purchased an additional 190,200 shares of outstanding Company common stock for a price per share of $0.24 to $0.45. As of the September 30, 2017, a total of 515,200 shares are being held by the Company valued at cost is $163,701 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 ImmudyneConversion Labs PR equity contributions of $272,203 into equity of Immudyne, Inc.the Company 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 excisableexercisable any time prior to the secondarysecond anniversary of the issuance. The warrants are paired with the common stock on the basis of one warrant for every two shares of common stock purchased. During the first quarter of 2017, the Company received subscriptions in the amount of 2,817,156for 2,927,156 shares and issued 1,408,5781,463,578 warrants and proceeds in the amountto purchase shares of $647,944.common stock for an aggregate purchase price of $673,246.

In March 2017, the Company issued an aggregate of 755,179 shares of common stock for the conversion of the outstanding balance of three notes payable totaling $499,802 (see Note 3)4).

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. The fair value of the shares and warrants issued were determined to be $131,103, of which $81,103 was included in general and administrative expense as loss on settlement of other payables.

During the second quarter of 2017 the Company received subscriptions infor the amountpurchase of 110,000 shares and issued 55,000 warrants and proceeds in the amountconnection therewith for an aggregate purchase price of $25,300.

On June 1, 2017, the Company entered into an agreement with a consultant to provide services with aover the course of six month term,months 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 three monthsyear ending September 30,December 31, 2017, $22,500$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, an entity owned by the Company’s current Chief Executive Officer, 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 $270,000.$432,000. The Company is recognizing the expense over the term of the agreement. For the nine months ending September 30, 2018 and 2017, $108,000 and $0, respectively, 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, at an exercise price of $0.12 per share, on a cashless basis and was issued 1,140,000 shares of common stock.

In July 2017, Mark McLaughlin exercised 1,000,0001,339,473 options, at an exercise price of $0.10 per share, on a cashless basis and was issued 800,000 shares of common stock.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

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 three monthsyear ending September 30,December 31, 2017, $26,667$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 Conversion Labs PR equity contributions of $31,216 into equity of the Company by the noncontrolling interest.

In February 2018, pursuant to the sale of the Company’s legacy yeast beta glucan assets to the Company’s former CEO, Mr. McLaughlin, 2,000,000 shares of common stock of Mr. McLaughlin’s shares were cancelled. 

In March 2018, the Company issued 500,000 shares of common stock valued at $120,000 to a consultant. In May 2018, the Company amended the agreement with the consultant whereby the Company rescinded the 500,000 shares of common stock and reissued 250,000 shares of common stock. The 250,000 shares of common stock issued on May 14, 2018, were valued at $62,500. The Company is recognizing the expense at the time of issuance.

In May 2018, the Company issued 1,000,000 shares of common stock valued at $230,000 to JLS Ventures, LLC, a company controlled by our CEO, Justin Schreiber, for services. The Company also committed to issue an additional 1,000,000 shares of common stock on January 1, 2019 valued in the aggregate amount of $230,000 if JLS Ventures met the service requirement specified in the agreement. These 2,000,000 shares serve as the compensation for Mr. Schreiber for his services as CEO of the Company. The Company is recognizing the expense for the issuances over the twenty-four month term of the agreement. For the nine months ending September 30, 2018, $172,500 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

In May 2018, the Company issued 200,000 shares of common stock valued at $56,000 to a consultant for services over a three month term. The Company is recognizing the expense at the time of issuance. For the nine months ending September 30, 2018, $56,000 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

Noncontrolling Interest

On April 1, 2016,During 2017, the Company increased its ownership in Immudyneissued a total of 1,319,211 shares of common stock and 659,606 warrants to purchase shares of common stock pursuant to a conversion of Conversion Labs PR to 78.1667% decreasingequity contributions of $303,418 into equity of the minority interest from 66.7% to 21.8333% resulting in a charge toCompany by the noncontrolling interest and additional paid-in-capital of $91,612.interest.

For the nine months ended September 30, 2018 and 2017, the net loss of ImmudyneConversion Labs PR attributed to the noncontrolling interestCompany amounted to $41,752. For the nine months ended September 30, 2016, the net income of Immudyne PR attributed to the noncontrolling interest amounted to $6,439.$23,145 and $68,924, respectively.

For the three months ended September 30, 2018 and 2017, the net incomeloss of ImmudyneConversion Labs PR attributed to the noncontrolling interestCompany amounted to $27,172.$35,842 and $41,194, respectively.

On May 29, 2018, Conversion Labs PR acquired a 51% interest in LegalSimpli, which operates a marketing-driven software solutions business. For the three months ended September 30, 2016,month of June 2018, the net incomeloss of Immudyne PRLegalSimpli was $48,613, of which $5,200 was attributed to the Company. During June 2018, contributions by other members of LegalSimpli resulted an increase in noncontrolling interest amounted to $8,955.interests of $154,000

During the quarter end September 30, 2018, the Company had convertible note holders convert 1,351,094 shares at a conversion price of $0.23 per share, resulting in a decrease to convertible notes of approximately $310,752 during the quarter.

Service-Based Stock Options

In May 2016,January 2017, the Company issued 175,000100,000 service-based options valued at $40,829$24,109 to two consultants atBrunilda McLaughlin, the wife of our CEO during this period, as additional compensation pursuant to an employment agreement. These options have an exercise pricesprice of $0.20$0.40 per share. The optionsshares, 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 priceyears from date 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.grant.

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. TheThese options are fully vested and expire in 10 years.years from date of grant.

In July 2017, the Company issued 75,000 service-based options valued at $30,438$20,985 to Brunilda McLaughlin, the wife of our CEO during this period, 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.years from date of grant.

In July 2017, the Company issued a total of 300,000 service-based options valued at $121,753$83,939 to three directors at 100,000 shares each, with an exercise price of $0.35 per share. TheThese options are fully vested and expire in 10 years. The Company is recognizing the expense over the termyears from date of the agreements. For the three months ending September 30, 2017, $10,146 has been expensed and included in compensation and related expenses on the consolidated statement of operations.grant.

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. TheThese options are fully vested and expire in 5 years.years from date of grant.

In July 2017, the Company issued Mark McLaughlin, the Company’s CEO at the time, a ten year option to buypurchase 750,000 shares of common stock at a price of $0.35 per share, 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 thethese options are fully vested, they expire in 10 years.years from date of grant. The options vested at September 30,December 31, 2017 are valued at $101,461.$69,949. In February 2018, Mr. McLaughlin resigned as CEO, therefore no further options will be vested.

On October 1, 2017, Michael Borenstein was appointed to our Board of Directors. In connection with his appointment, 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, each to 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 reaching $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. Robert Kalkstein, the Company’s Chief Financial Officer, and issued him a ten-year option to purchase 500,000 shares of common stock at a price of $0.40 per share, vesting 30% upon signing, 35% vesting on the two-year anniversary of the agreement and 35% vesting on the three year anniversary of the agreement. 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 nine months ended September 30, 2018 and 2017, $49,974 and $0, respectively, has been recognized as expense. For the three months ended September 30, 2018 and 2017, $16,658 and $0, respectively, has been recognized as expense.

Accordingly, stock basedstock-based compensation expense for the nine months ended September 30, 2018 and 2017 included $204,750 and 2016 included $406,247, and $40,829, respectively, related to such service-based stock options. Stock based

Accordingly, stock-based compensation expense for the three months ended September 30, 2018 and 2017 included $0 and 2016 included $292,725, and $40,829, respectively, related to such service-based stock options.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

A summarySummary of the outstanding service-based options are as follows:

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.therein. The intrinsic value of service based options outstanding and exercisable at September 30, 20172018 and December 31, 20162017 amounted to $2,079,564$160,796 and $704,794,$1,210,342, respectively.

Service-Based Stock Options (continued)

The significant assumptions used to determine the fair values of options issued, in 2017, using thea Black-Scholes option-pricing model are as follows:

The following is a summary of outstanding service-based options at September 30, 2017:2018:

Performance-Based Stock Options

Vested

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.  During the year ended December 31, 2016, the Company cancelled 287,500 of these service-based options issued to two consultants, valued at $12,457.

During 2016, the Company met the performance criteria and accordingly, recorded stock based compensation expense of $165,241 and $513,804 for the three and nine months ended September 30, 2016, respectively.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

Unvested

In February 2017, the Company granted performance-based options to purchase 250,000 shares of common stock at an exercise pricesprice of $0.40. The$0.40 per share. These options expire in 2027 and are exercisable upon the Company achieving annual sales revenue of $5,000,000. TheThese options are valued at $55,439.

During 2017, the Company is expected to meetmet the performance criteria and accordingly, recorded stock based compensation expense of $27,719 for the three and nine months ended September 30, 2017, respectively.criteria.

Unvested

The Company granted performance-based options to purchase 900,000 shares of common stock at an exercise price of $0.80.$0.80 per share. 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. TheThese options expire in 10 years and are exercisable upon cash received by Immudyne, Inc.the Company from ImmudyneConversion Labs PR between $4,000,000 and $7,000,000. The aggregate fair value of these performance-based options is $2,446,739.$1,688,212.

In the third quarter of 2017, the Company granted performance-based options to purchase 3,150,0001,575,000 shares of common stock with an exercise prices of $0.25 and an additional 1,575,000 shares of common stock with an exercise price of $0.35 per share. The options expire 10 years from date of grant 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 300,000 shares of common stock with an exercise prices of $0.25 and an additional 300,000 shares of common stock with an exercise price of $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 $1,284,538.$242,709.

Warrants

The following is a summary of outstanding and exercisable warrants:

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.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

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.

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 to purchase shares of common stock 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 ImmudyneConversion Labs PR by the noncontrolling interest. These warrants are fully vested and expire in two years.

In March 2017, the Company issued 403,348402,348 warrants to purchase shares of common stock 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 to purchase shares of common stock 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 to purchase shares of common stock 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 to purchase shares of common stock 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 to purchase shares of common stock with an exercise price of $0.40 per share, in relation to an issuance of common stock for conversion of an equity contribution into Conversion Labs PR by the noncontrolling interest. These warrants are fully vested and expire in three years.

In March 2018, the Company issued 100,000 warrants to purchase shares of common stock with an exercise price of $0.50 per share, in relation to royalty license agreement. These warrants are fully vested and expire in ten years.

In May 2018, the Company issued 2,391,305 warrants to purchase shares of common stock with an exercise price of $0.28 per share, in relation to an issuance of convertible notes payable. These warrants are fully vested and expire in five years.

Warrants outstanding and exercisable amounted to 5,580,424 and 3,089,119 at September 30, 2018 and December 31, 2017, respectively. The weighted average exercise price of warrants outstanding at September 30, 2018 and December 31, 2017 is $0.35 and $0.40, respectively. The warrants expire at various times between September 2018 and March 2028.

The fair value of options and warrants granted (or extended) during the periodnine months ended September 30, 2018 and 2017, was estimated on the date of grant (or extension) using the Black-Scholes option-pricing model with the following weighted-average assumptions:

AsUnder 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 December 31, 2016, certain of the Company’s stock options, stock warrantsauthorized and convertible debt instruments were accounted for as derivative liabilities due to insufficient authorizedunissued shares of common stock to settle outstanding contracts. At December 31, 2016, the Company estimatedsatisfy 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 warrantsinto 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 embedded conversion featuresthe 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 Black-Scholes option pricing model (“Black-Scholes”)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 be $192,254, based on Level 2 valuation inputs.

modify the agreements to remove the provisions which require this treatment. On September 21, 2017, the Company obtained majority shareholder approval and amendedfiled an amendment to its ArticlesCertificate of Incorporation to increasewith the Delaware Secretary of State increasing the number of authorized shares of its authorizedthe Company’s common stock thereforefrom 50,000,000 to 100,000,000, which enabled the Company to reclassify the derivative liability is no longer applicable.liability.

Stock Based Compensation

The total stock basedstock-based compensation expense related to Service-Based Stock Options, and Performance-Based Stock Options and Warrants issued for service amounted to $142,045$383,470 and $40,829$142,045 for the nine months ended September 30, 2018 and 2017, respectively. Performance-Based Stock Options and 2016, respectively. ForWarrants issued for service amounted to $127,388 and $28,523 for the three months ended September 30, 20172018 and 2016, total stock based compensation amounted to $28,523 and $40,829,2017, respectively. Such amounts are included in compensation and related expenses in the accompanyingconsolidated statement of operations.

Common stock issued for services amounted to $319,313 and $230,000 for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, common stock issued for services amounted to $158,480 and $-0-, respectively. Such amounts are included in compensation and related expenses in the accompanying statement of operations.NOTE 8 – ROYALTIES

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

The Company is subject to a royalty agreement based upon sales of certain hair care products. For the three and nine months ended September 30, 2018 and 2017, the Company recognized $53,206$12,036 and $65,318, respectively, in royalty expense related to this agreement. As of September 30, 2018, $26,357 was included in other current assets and as of December 31, 2017, the $65,318$14,039 was included in accounts payable and accrued expenses in regardsregard 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)8).

LeasesOn March 26, 2018, the Company entered into a license agreement (the “Agreement”) with M.ALPHABET, LLC (“Alphabet”), pursuant to which Alphabet agreed to license its PURPUREX business which consists of methods and compositions developed by Licensor for the treatment of purpura, bruising, post-procedural bruising and traumatic bruising (the “Product Line”). Pursuant to the license granted under the Agreement, Conversion Labs PR obtains an exclusive license to incorporate (i) any intellectual property rights related to the Product Line and (ii) all designs, drawings, formulas, chemical compositions and specifications used or useable in the Product Line into one or more products manufactured, sold, and/or distributed by Alphabet for the treatment of purpura, bruising, post-procedural bruising and traumatic bruising and for all other fields of use or purposes (the “Licensed Product(s)”), and to make, have made, advertise, promote, market, sell, import, export, use, offer to sell and distribute the Licensed Product(s) throughout the world with the exception of China, Hong Kong, Japan, and Australia (the “License”).

The Company leasesshall pay Alphabet a plantroyalty equal to 13% of Gross Receipts (as defined in Kentucky underthe Agreement) realized from the sales of Licensed Products. Further, so long as the Agreement is not previously terminated, the Company, also agreed to pay Alphabet $50,000 on the 120-day anniversary of the Agreement and an operating lease which expiredadditional $50,000 on May 31, 2016. Management is currently discussing renewal lease options for the Kentucky plant and is operating on360-day anniversary of the Agreement.

Upon execution of the Agreement, Alphabet will be granted a month-to-month lease arrangement until a final agreement has been accepted. Monthly base rental payments are approximately $9,000. The Company’s principal executive offices are in office space provided10-year option to us bypurchase 100,000 shares of the Company’s President, Mr. McLaughlin,common stock at an exercise price of $0.50. Further, if Licensed Products have gross receipts of $7,500,000 in any calendar year, the rateCompany will grant Alphabet an option to purchase 100,000 shares of $2,000 per month, which includes rents, utilitiesthe Company’s common stock at an exercise price of $0.50; (ii) if Licensed Products have gross receipts of $10,000,000 in any calendar year, the Company will grant Alphabet an additional option to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.50 and other office related expenditures. This arrangement commenced as(iii) If Licensed Products have gross receipts of January 1, 2016. In addition, Immudyne$20,000,000 in any calendar year, the Company will grant Alphabet an option to purchase 200,000 shares of the Company’s common stock at an exercise price of $0.75. 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Leases

Conversion Labs PR utilizes office space in Puerto Rico which is subleased from JustinMr. Schreiber (President of Immudyne PR)(the Company’s President and CEO) and incurs expense of approximately $4,000 a month for this office space. Rent expense for the nine month periodsmonths ended September 30, 2018 and 2017, was $36,000 and 2016,$36,000, respectively.

The Company started paying $95 per month to WeWork for a mailing address and the ability to lease conference space on-demand at their locations worldwide. The Company incurred $570 of expenses for the nine month period ended September 30, 2018.

In February 2018, the Company entered into a 3-year agreement to lease office space in Huntington Beach, CA beginning on March 2, 2018. The rent is payable on a monthly basis in the amount of $2,106 for the first twelve months, $2,149 for the second twelve months and $2,235 for the third twelve months. A security deposit of $2,235 was $120,161 and $71,606, respectively.paid for this lease. Rent expense for the three month periodsnine months ended September 30, 2018 and 2017, was $16,848 and 2016, was $46,061 and $27,706,$0, 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 a year of 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.

In July 2017, the Company and JLS Ventures, an entity owned by the Company’s current Chief Executive Officer, entered into a 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 nine months ending September 30, 2018 and 2017, $72,000 and $0, respectively, has been expensed and included in compensation and related expenses on the consolidated statement of operations. In May 2018, the Company issued 1,000,000 shares of common stock valued at $230,000 to JLS Ventures, LLC, a company controlled by our CEO, Justin Schreiber, for services. The Company also committed to issue an additional 1,000,000 shares of common stock on January 1, 2019 valued in the aggregate amount of $230,000 if JLS Ventures met the service requirement specified in the agreement. These 2,000,000 shares serve as the compensation for Mr. Schreiber for his services as CEO of the Company. The Company is recognizing the expense for the issuances over the twenty-four month term of the agreement. For the nine months ending September 30, 2018, $172,500 has been expensed and included in compensation and related expenses on the consolidated statement of operations. 

Restricted Stock and Options

The Company has entered into two agreements on April 1, 2016 with two consultants of ImmudyneConversion Labs 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.the Company’s common stock. In addition, each consultant shall receive an additional 150,000 restricted shares of Immudyne, Inc.the Company’s common stock for each $500,000 distributed by ImmudyneConversion Labs PR to the Company. For each consultant, the amount of shares of common stock to be issued by the Company to the consultants shall be capped at 1,500,000 restricted shares of common stock when ImmudyneConversion Labs PR has transferred $5,000,000 to the Company, for a combined capped total of 3,000,000 restricted shares.shares of common stock. For the three and nine monthsyear ended September 30, 2017, -0-December 31, 2016, 2,300,000 restricted shares of common stock have been issued related to these agreements. During 2016, 2,300,000 restricted shares of common stock were issued related to these agreements.the Consultant. The Company valued the shares of common stock 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 ending December 31, 2017.period.

In addition, the ConsultingConsultant Agreements provided that each consultant shall receive a bonus of an additional 750,000 restricted shares of Immudyne, Inc.the Company’s common stock, plus an option to buy 1,000,000 shares of Immudyne, Inc.the Company’s common stock at $0.20/a price of $0.20 per share (including a cashless exercise feature) when ImmudyneConversion Labs 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.the Company’s common stock and options to purchase up to 3,000,000 shares of Immudyne, Inc.the Company’s common stock at $0.20/a price of $0.20 per share. As of September 30, 2017,2018 no bonus shares have been issued, and no options have been granted under these agreements.

Immudyne, Inc.the Consultant Agreement.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)

Sole and Exclusive License, Royalty, and Advisory Agreement

On September 1, 2016 ImmudyneConversion Labs 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 ImmudyneConversion Labs 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, ImmudyneConversion Labs 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 three and nine monthsyear ended September 30,December 31, 2017, the Company recognized expenses related to the performance fee in the amount of $16,667 and $100,000, respectively.$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 September 30, 2018, $26,357 was included in other current assets and as of December 31, 2017, the balance$14,039 was included in accounts payable and accrued expenses is $0 expense relatedin regard to this agreement.

Legal Matters

In the normal course of business operations, the Company may become involved in various legal matters. At September 30, 2017,2018, the Company’s management does not believe that there are any potential legal matters that could have ana material adverse effect on the Company’s financial position.

During 2016,NOTE 10 – PRODUCT DEPOSIT

Many of our vendors require deposits when a purchase order is placed for goods. Our vendors issue a credit memo when sending their final invoice, reducing the amount the Company owes for the deposit amount on file with the vendors. As of September 30, 2018, the Company has $106,700 of products deposit with multiple vendors for the purchase of raw materials for products we sell online.

NOTE 11 – RELATED PARTY TRANSACTIONS

Certain related party transactions were incurred by the legacy business that was sold in February 2018, including reimbursement of home office expenditures to the Company’s former President and CEO, employment of the Company’s former President and CEO’s wife, and legal and business advisory services were provided to the Company by one of itsthe Company’s directors. For the three and nine months ended September 30, 2016 this director was compensated $6,000 and $15,000, respectively. During 2017, legal and business advisory services were provided to the Company by one of its directors. For the three and nine months ended September 30, 2016 this director was compensated $3,000 and $7,500, respectively.

During the nine months ended September 30, 2017 and 2016, the Company’s President received $18,000 and $20,000, respectively for reimbursement of home office expenditures, including rent, utilities and other related expenses for two offices. During the three months ended September 30, 2017 and 2016, the Company’s President received $6,000 and $6,000, respectively for reimbursement of these expenses.

Immudyne, Inc. employs the wife of the President of the Company as an accountant and incurs $3,000 per month, plus an annual incentive bonus award equal to 0.5% of the Company’s pre-tax earnings.

ImmudyneConversion Labs PR utilizes BV Global Fulfillment, owned by the father of Immudyne PR’s President,Mr. Schreiber, the Company’s current Chief Executive Officer, and incurred $138,687$93,045 and $181,244 for the three and nine months ended September 30, 2018 and 2017, respectively, for services. For the three months ended September 30, 2018, the Company has incurred $32,582 and $138,687, respectively, for these services. During the three and nine months ended September 30, 2016, Immudyne PR did not utilize BV Global Fulfillment.

Taggart International Trust (“Taggart”), a shareholder of the Company, 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 a shareholder,our current CEO, provides credit card processing services through one or more merchant banks. JLS Ventures LLC did not receive any compensation for these services. In July 2017, the Company and JLS Ventures, an entity owned by the Company’s current Chief Executive Officer, entered into a 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 nine months ending September 30, 2018 and 2017, $72,000 and $0, respectively, has been expensed and included in compensation and related expenses on the consolidated statement of operations. In May 2018, the Company issued 1,000,000 shares of common stock valued at $230,000 to JLS Ventures, LLC, a company controlled by our CEO, Justin Schreiber, for services. The Company also committed to issue an additional 1,000,000 shares of common stock on January 1, 2019 valued in the aggregate amount of $230,000 if JLS Ventures met the service requirement specified in the agreement. These 2,000,000 shares serve as the compensation for Mr. Schreiber for his services as CEO of the Company. The Company is recognizing the expense for the issuances over the twenty-four month term of the agreement. For the nine months ending September 30, 2018, $172,500 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

JSDC, Inc., owned by a shareholder,our current CEO, provides credit card processing services through one or more merchant banks. JSDC, Inc. did not receive any compensation for these services.

ImmudyneConversion Labs PR utilizes office space in Puerto Rico which is subleased from the President of Immudyne PRMr. Schreiber, our current CEO, and incurs expense of approximately $4,000 a month for this office space.

In December 2017, Conversion Labs PR received two working capital loans from Robert Kalkstein, the Company’s CFO, and from Mr. Schreiber, the Company’s CEO, for $50,000 and $75,000, respectively. These 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. In February 2018, these loans were repaid in full.

During 2017, the Company issued a total of 1,319,211 shares of common stock to Mr. Schreiber pursuant to a conversion of Conversion Labs PR equity contributions of $303,419 into equity of the Company.

On November 20, 2017, the Company entered into an agreement (the “Agreement”) with JOJ Holdings, LLC (“JOJ”). Pursuant to the terms of the Agreement, the Company 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, the Company agreed to issue one (1) share of the Company’s common stock to JOJ for every dollar the Company 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.

NOTE 12 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date these financial statements were issued.

On October 2,25, 2018, the Company’s board of directors unanimously decided to amend warrants with a two-year term issued to warrant holders issued between January 2017 Robert Kalkstein was appointedand March 2017 with an exercise price of $0.40 per share. The Company amended the warrants to provide for an additional three-year term to warrant holders as consideration for them entering into a call agreement with the Chief Financial OfficerCompany, so that when the Company’s common stock trades above or over $0.75 per share for at least ten consecutive days. The Company has repriced the grant date fair value as of Immudyne, Inc. TheSeptember 30, 2018 and recognized additional expense as stock-based compensation of approximately $128,000.

On October 31, 2018, the Company entered into a consultingloan agreement with Mr. Kalkstein, which provides, among other things,a private lender for a$200,000. The Loan agreement requires the one-time fee of $2,750 per month through December 2017, $5,000 per month between January 2018 and March 2018 and $7,500 per month between$30,000 which is due on the maturity date of April 2018 and September 2018. Additionally, Mr. Kalkstein was granted an option to purchase 500,000 shares of the Company’s common stock at $0.40 per share, subject to the approval of the board of directors of the Company and certain vesting requirements set forth in the consulting agreement.1, 2019.

Immudyne, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(unaudited)