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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">As&nbsp;filed&nbsp;with&nbsp;the&nbsp;United&nbsp;States&nbsp;Securities&nbsp;and&nbsp;Exchange&nbsp;Commission&nbsp;on&nbsp;October
18, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <TD STYLE="width: 100%; font-size: 10pt; font-weight: bold; text-align: right; border-bottom: Black 1pt solid">Registration No. 333-</TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

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    <TD STYLE="width: 100%; font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">WASHINGTON, D.C. 20549</TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORM S-1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 24pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Name of Registrant as specified in its
charter)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <TD STYLE="width: 30%; border-bottom: black 1pt solid; font-size: 10pt; font-weight: bold; text-align: center">Delaware</TD>
    <TD STYLE="width: 5%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 30%; border-bottom: black 1pt solid; font-size: 10pt; font-weight: bold; text-align: center">2833</TD>
    <TD STYLE="width: 5%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 30%; border-bottom: black 1pt solid; font-size: 10pt; font-weight: bold; text-align: center">76-0238453</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(State or other jurisdiction</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">of incorporation)</P></TD>
    <TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Primary Standard Industrial</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Classification Code Number)</P></TD>
    <TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(IRS Employer</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Identification No.)</P></TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>50 Spring Meadow Rd.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Mount Kisco, NY 10549</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(914) 244-1777</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Address and telephone number of principal
executive offices and principal place of business)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Mark McLaughlin</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>President</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Immudyne, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>50 Spring Meadow Rd.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Mount Kisco, NY 10549</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(914) 244-1777</B></P>

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    <TD STYLE="width: 100%; font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">(Name address and telephone number of agent for service)</TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><I>Copies to:</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Gerald A. Adler, Esq.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Newman &amp; Morrison LLP</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">44 Wall Street, 20th Floor</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">New York, NY&nbsp;&nbsp;10005</P>

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    <TD STYLE="width: 100%; font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Tel: (212) 248-1001&nbsp;&nbsp;&nbsp;&nbsp;Fax: (212) 232-0386</TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:&nbsp;<FONT STYLE="font-family: Wingdings">
x</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT STYLE="font-family: Wingdings">
&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.&nbsp;<FONT STYLE="font-family: Wingdings"> &uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.&nbsp;<FONT STYLE="font-family: Wingdings"> &uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of &ldquo;large accelerated
filer,&rdquo; &ldquo;accelerated filer,&rdquo; and &ldquo;smaller reporting company&rdquo; in Rule 12b-2 of the Exchange Act. (Check
one):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<TR>
    <TD STYLE="width: 63%; font-size: 10pt"><FONT STYLE="color: black">Large accelerated filer&nbsp;<FONT STYLE="font-family: Wingdings"> &uml;</FONT></FONT></TD>
    <TD STYLE="width: 37%; font-size: 10pt"><FONT STYLE="color: black">Accelerated filer<FONT STYLE="font-family: Wingdings"> &uml;</FONT></FONT></TD></TR>
<TR>
    <TD STYLE="font-size: 10pt"><FONT STYLE="color: black">Non-accelerated filer&nbsp;&nbsp;&nbsp;<FONT STYLE="font-family: Wingdings"> &uml; </FONT>(Do not check if smaller reporting company)</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="color: black">Smaller reporting company<FONT STYLE="font-family: Wingdings"> x</FONT></FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CALCULATION OF REGISTRATION FEE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">Title&nbsp;of&nbsp;each&nbsp;class&nbsp;of&nbsp;securities&nbsp;to&nbsp;be&nbsp;registered</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Amount&nbsp;to&nbsp;be <BR>registered</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Proposed <BR>maximum&nbsp;offering <BR>price&nbsp;per</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Proposed <BR>maximum&nbsp;aggregate <BR>offering&nbsp;price</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Amount&nbsp;of <BR>registration&nbsp;fee</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%">Common Stock, par value $0.01 per share</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">1,828,212</TD><TD STYLE="width: 1%; text-align: left"><SUP>(1)</SUP></TD><TD STYLE="width: 1%"><SUP>&nbsp;</SUP></TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">.17</TD><TD STYLE="width: 1%; text-align: left"><SUP>(2)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">310,796.04</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">42.39</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>This registration statement registers for resale 1,828,212 shares of common stock, par value $0.01 per share, of the registrant
by the selling shareholders which were issued in a series of private placement transactions in 2012. In accordance with Rule 416(a),
there also are being registered hereunder an indeterminate number of shares that may be issued and resold resulting from stock
splits, stock dividends or similar transactions.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration
fee based on the average of the high and low prices reported on the OTC Markets-OTC Pink Current on October 15, 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities
Act of 1933, as amended, or until the registration statement shall become effective on such date as the United States Securities
and Exchange Commission, acting pursuant to said section 8(a), may determine.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: red"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: red"><I>The information in this prospectus is not complete
and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SUBJECT TO COMPLETION,&nbsp;DATED OCTOBER
18, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><img src="tlogo2.jpg"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>1,828,212 Shares of Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling shareholders identified in this prospectus may offer
and sell up to 1,828,212 shares of our common stock&nbsp;issued to investors in a series of private placement transactions in 2012.We
are not selling any shares of our common stock in this offering and will not receive any proceeds from this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling shareholders may offer the shares covered by this
prospectus from time to time at fixed prices, at prevailing market prices at the time of sale, at varying prices or negotiated
prices, in negotiated transactions, or in trading markets for our common stock. We will bear all costs associated with the registration
of the shares covered by this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our common stock currently is quoted on the&nbsp;OTC Markets-OTC
Pink Current under the symbol &ldquo;IMMD.&rdquo; On&nbsp;October 15, 2012, the last reported sale price of our common stock was
$0.17 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are an &ldquo;emerging growth company&rdquo; as defined under
the federal securities laws and are subject to reduced public company reporting requirements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: black"><B><I>Investing in our common stock
involves a high degree of risk. See &ldquo;Risk Factors&rdquo; beginning on page&nbsp;</I></B></FONT><B><I>3<FONT STYLE="color: black">
for a discussion of information that should be considered in connection with an investment in our securities.</FONT></I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The date of this prospectus is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; , 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>TABLE OF CONTENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 90%; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 10%; text-align: right; vertical-align: bottom"><FONT STYLE="color: black">Page</FONT></TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Prospectus Summary</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">1</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Risk Factors</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">3</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Forward-Looking Statements</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">15</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Use of Proceeds</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">16</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Price Range of Common Stock</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">16</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Dividend Policy</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">16</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Management&rsquo;s Discussion and Analysis of Financial Condition</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">17</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Our Business</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">24</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Management</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">29</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Executive Compensation</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">30</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Certain Relationships and Related Party Transactions</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">33</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Security Ownership of Certain Beneficial Owners and Management</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">36</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Selling Shareholders</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">38</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Plan of Distribution</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">38</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Description of Capital Stock</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">40</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Shares Eligible for Future Sale</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">42</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Experts</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">43</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Legal Matters</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">43</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: none">Where You Can Find Additional Information</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">43</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-decoration: none">Index to Financial Statements</TD>
    <TD STYLE="text-decoration: none; text-align: right; vertical-align: bottom">F-1</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">This prospectus is part of a registration statement we filed
with the Securities and Exchange Commission, or the SEC. Under this registration process, the selling shareholders may, from time
to time, offer and sell up to 1,828,212 shares of our common stock, as described in this prospectus, in one or more offerings.
This prospectus provides you with a general description of the securities the selling shareholders may offer. You should read this
prospectus carefully before making an investment decision.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">You may only rely on the information contained in this prospectus
or that we have referred you to. We have not authorized anyone to provide you with additional or different information. This prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the shares of our common stock
offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common
stock in any circumstances or any jurisdiction in which such offer or solicitation is not permitted. You should not assume that
the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus
regardless of the time of delivery of this prospectus or any sale of our common stock. The rules of the SEC may require us to update
this prospectus in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As used in this prospectus, the terms &ldquo;Immudyne,&rdquo;
the &ldquo;Company,&rdquo; &ldquo;we,&rdquo; &ldquo;our&rdquo; and similar terms refer to Immudyne, Inc., unless the context indicates
otherwise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<HR NOSHADE SIZE="1" STYLE="color: Black; width: 100%; margin-top: 3pt; margin-bottom: 3pt">
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PROSPECTUS SUMMARY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The following summary highlights selected information contained
elsewhere in this prospectus and does not contain all of the information you should consider before investing in our securities.
Before deciding to invest in our securities, you should read this entire prospectus, including the discussion of &ldquo;Risk Factors&rdquo;
and our financial statements and the related notes.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We manufacture, distribute and sell natural immune support products.
We have focused for over 20 years on the research and development of immune system enhancing compounds, including the purest, particulate
and soluble beta glucans derived from yeast. Beta glucans are a natural extract that has been clinically shown to support the immune
system. Our core nutraceutical and cosmetic product lines consist of our pure yeast beta glucans as the differentiating component
in oral and topical applications. Our beta glucan products and manufacturing processes are protected by patents and trade secrets,
compliant with current Good Manufacturing Practices, or GMP, and classified as Generally Recognized as Safe, or GRAS, by the U.S.
Food and Drug Administration, or the FDA. Historically, we have sold our products primarily on a word-of-mouth basis through distributors
and our website as standalone product lines, as well as business-to-business as a cosmetic enhancement, dietary supplement or feed
additive for animal use. We believe that we are well positioned to capitalize on our development of proprietary and patented natural
immune support products and can now focus on commercializing sales of these products on a more meaningful, global basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We originally incorporated under the laws of British Columbia,
Canada, in 1987 under the name Anina Resources, Inc. and subsequently changed our name to Immudyne, Inc. and our jurisdiction to
the State of Wyoming by continuance in September 1987. On June 30, 1994, we changed our jurisdiction to Delaware by merger with
and into Immudyne, Inc., a Delaware corporation formed on June 21, 1994.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Our Products</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Beta glucans, or &beta;-Glucans, are a natural extract clinically
shown to be &ldquo;biological response modifiers&rdquo; that support the immune system. The potential benefits of beta glucans
to human health continue to emerge. Independent scientific research has demonstrated that beta glucans provide defense against
bacteria by activating innate immune cells, which fight off infection. In addition, a growing body of scientific literature suggests
that beta glucans have a substantial effect on cancer regression. Healthcare professionals have taken an interest in our immune-support
products as a means of offering alternative or complementary approaches for maintaining a healthy and active lifestyle. The health
benefits of our pure yeast beta glucans have been demonstrated through extensive research and clinical studies, and we are committed
to supporting evidence-based studies that demonstrate the health benefits of our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have developed a proprietary bio-refinement approach to produce
the purest, particulate and soluble beta glucans derived from yeast. Our pure yeast beta glucan is highly-soluble and tasteless,
making it suitable for use in a wide variety of oral and topical applications to support the immune system in humans and animals.
As the U.S. and international markets become more aware of the value of our proprietary products, we believe demand for our pure
beta glucans will increase. Our nutraceutical and cosmetic product lines consist of high-grade beta glucan products for oral and
topical applications as all-natural raw material ingredients in bulk quantities and finished, consumer products packaged under
our brands and private label brands. Historically, we produced other grades of beta glucan products for the animal feeds industry
as a substitute for antibiotics. As of 2011, we began exiting this lower-margin market for feed-additive products. Our sales and
marketing efforts going forward are concentrated on our oral and topical-use products for healthcare professionals, distributors
and direct-to-consumer sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Corporate Information</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our principal executive offices are located at 50 Spring Meadow
Rd., Mount Kisco, NY 10549. Our telephone number is (914) 244-1777. Our website address is www.immudyne.com. <B>The information
contained on or accessible through our website is not part of this prospectus or the registration statement of which this prospectus
is a part, and potential investors should not rely on such information in making a decision to purchase our common stock in this
offering.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B></B></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<HR NOSHADE SIZE="1" STYLE="color: Black; width: 100%; margin-top: 3pt; margin-bottom: 3pt">
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="text-transform: uppercase"><B>The
Offering</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 44%">Common stock offered by selling shareholders</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 55%">Up to 1,828,212 shares</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Common stock to be outstanding after the offering</TD>
    <TD>&nbsp;</TD>
    <TD>28,875,317</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Use of proceeds</TD>
    <TD>&nbsp;</TD>
    <TD>We will not receive any proceeds from the sale of the common stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>OTC Markets-OTC Pink Current Symbol</TD>
    <TD>&nbsp;</TD>
    <TD>IMMD</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Risk Factors</TD>
    <TD>&nbsp;</TD>
    <TD>The purchase of our common stock involves a high degree of risk. You should carefully review and consider the &ldquo;Risk Factors&rdquo; beginning on page 3.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The 1,828,212 shares of our common stock being offered by the
selling shareholders identified in this prospectus, which were acquired by the respective selling shareholders through a private
placement conducted by us. In a series of private placement transactions in June and July 2012, we issued 1,843,428 shares of our
common stock and 3-year warrants to purchase 921,714 shares of our common stock at $0.40 per share to accredited investors at $0.17
per unit for $313,383. All of the shares and warrants were issued to the selling shareholders prior to the filing of the registration
statement of which this prospectus is a part pursuant to exemptions from registration under Section 4(2) of the Securities Act
of 1933, as amended, or the Securities Act, and Regulation D promulgated thereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The number of shares of our common stock outstanding after the
offering is based on 28,875,317 shares of our common stock outstanding as of October 17, 2012, which excludes (i) 3,630,112 shares
of our common stock issuable upon exercise of warrants outstanding as of October 17, 2012, and (ii) stock options outstanding and
exercisable as of October 17, 2012, to purchase 8,952,500 shares of our common stock. The warrants are immediately exercisable
and entitle their holders to purchase up to: (i) 1,500,000 shares of our common stock at $0.15 per share, such warrants expiring
in 2012 and 2013; and (ii) 2,130,112 shares of our common stock at $0.40 per share, such warrants expiring in 2015. The stock options
expire on the tenth anniversary of their grant date and entitle their holders to purchase up to: (i) 1,597,500 shares of our common
stock at $0.07 to $0.10 per share, such options having a weighted-average contractual life remaining of 4 years; (ii) 6,355,000
shares of our common stock at $0.13 to $0.20 per share, such options having a weighted-average contractual life remaining of 10
years; and (iii) 1,000,000 shares of our common stock at $0.40 per share, such options having a weighted-average contractual life
remaining of 10 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our business and an investment in our securities are subject
to a variety of risks. The following risk factors describe the most significant events, facts or circumstances that could have
a material adverse effect upon our business, financial condition, results of operations, ability to implement our business plan
and the market price for our securities. Many of these events are outside of our control. If any of these risks actually occur,
our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price
of our common stock could decline and investors in our common stock could lose all or part of their investment.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks Related to Our Business</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We have generated losses and not yet achieved positive
cash flows, which may adversely affect our liquidity and ability to continue as a going concern.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our net cash used in operating activities was approximately
$79,000 and $7,000 in the six months ended June 30, 2012 and 2011, respectively, and approximately $18,000 and $252,000 in 2011
and 2010, respectively. We cannot assure you that we will be able to achieve revenue growth, profitability or positive cash flow,
on either a quarterly or annual basis, or that profitability, if achieved, will be sustained. Our ability to meet our long-term
business objectives likely will be dependent upon our ability to raise additional financing through public or private equity financings,
establish increasing cash flow from operations or securing other sources of financing. We will need to reduce operating expenses
and increase cash flow to fund current operations if we are not able to fund these operations by raising capital. We have implemented
a new sales and marketing strategy to focus on higher-margin products with what we believe to be greater opportunities for growth
in the U.S. and international markets. In addition, management has instituted cost-cutting measures that we believe should result
in improved efficiencies of our operations going forward. If our losses continue, however, our liquidity may be severely impaired,
our stock price may fall and our shareholders may lose all or a significant portion of their investment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We may not be able to implement our growth and marketing
strategy successfully on a timely basis or at all.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our future success depends, in large part, on our ability to
implement our growth strategy of expanding distribution and sales of our yeast beta glucan-based oral and topical application
products, attracting new consumers to our brand and introducing new product lines and product extensions. Our ability to implement
this growth strategy depends, among other things, on our ability to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>enter into
                                                                                                               distribution and
                                                                                                               other strategic
                                                                                                               arrangements with
                                                                                                               other potential
                                                                                                               distributors of
                                                                                                               our all-natural
                                                                                                               raw material products;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>increase our
                                                                                                               brand recognition;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>expand and
                                                                                                               maintain brand
                                                                                                               loyalty; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>research new applications for existing products and develop new product lines and extensions.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may not be able to successfully implement our growth strategy.
Our sales and operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources
in a growth strategy that ultimately proves unsuccessful.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>If we fail to develop and maintain our brand, our business
could suffer.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We believe that developing and maintaining our brand of the
purest, particulate and soluble beta glucans derived from yeast is critical to our success. The importance of our brand recognition
may become greater as competitors offer more products similar to ours. Our brand-building activities involve increasing awareness
of our brand, creating and maintaining brand loyalty and increasing the availability of our products. If our brand-building activities
are unsuccessful, we may never recover the expenses incurred in connection with these efforts, and we may be unable to implement
our business strategy and increase our future sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We are subject to government regulation of the processing,
formulation, packaging, labeling and advertising of our consumer products, and any failure to comply with such regulations could
require us to repackage, recall or undergo regulatory approval of our products, which would have a material adverse effect on our
business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Under the Federal Food, Drug, and Cosmetic Act, or FDCA, and
Dietary Supplement Health and Education Act, or DSHEA, companies that manufacture and distribute foods, food ingredients, cosmetics
and dietary supplements in the U.S., such as our yeast beta glucan products, are limited in the claims that they are permitted
to make about nutritional support on the product label without the approval of the FDA. Any failure by us to adhere to the labeling
requirements could lead to the FDA requiring that our products be repackaged and relabeled, which would have a material adverse
effect on our business. In addition, advertising and product claims regarding the efficacy of products are also regulated by the
Federal Trade Commission, or the FTC. Companies are responsible for the accuracy and truthfulness of, and must have substantiation
for, any such statements. These claims must be truthful and not misleading. Statements must not claim to diagnose, mitigate, treat,
cure or prevent a specific disease or class of disease. We are able to market our oral and topical application products in reliance
on the self-affirmed GRAS status of our active ingredient, yeast beta glucan. No governmental agency or other third party has made
a determination as to whether or not our products have achieved GRAS status. We make this determination based on independent scientific
opinions that yeast beta glucan is not harmful under its intended conditions of use. If the FDA, another regulatory authority or
other third party denied our self-affirmed GRAS status for our yeast beta glucan products, we could face significant penalties
or be required to undergo the regulatory approval process in order to market our products, and our business, financial condition
and results of operations will be adversely affected. We cannot assure you that in such a situation our yeast beta glucan products
would be approved.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The FDA&rsquo;s current GMPs describe policies and procedures
designed to ensure that dietary supplements are produced in a quality manner, do not contain contaminants or impurities, and are
accurately labeled and cover the manufacturing, packaging, labeling and storing of supplements, with requirements for quality control,
design and construction of manufacturing plants, testing of ingredients and final products, record keeping, and complaints processes.
Those who manufacture, package or store dietary supplements must comply with current GMPs. If we or our suppliers fail to comply
with current GMP procedures, the FDA may take enforcement action against us or our suppliers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The processing, formulation, packaging, labeling and advertising
of our yeast beta glucan products in the U.S. are subject to regulation by the FDA, FTC and other federal agencies, and our activities
are also subject to regulation by various agencies of the states and localities in which our yeast beta glucan products are sold.
Any changes in the current regulatory environment could impose requirements that would limit our ability to market our yeast beta
glucan products and make bringing new products to market more expensive. In addition, the adoption of new regulations or changes
in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and
may adversely affect our business, financial condition and results of operations. While our yeast beta glucan products currently
are categorized as foods, it is possible that the FDA or a state regulatory agency could classify these products as a cosmetic
or a drug. If the products are classified as cosmetics rather than a food, we would be limited to making claims that the products
cleanse and beautify, but we could not make structure or function claims. If our yeast beta glucan products are classified as drugs,
we would not be able to market our products without going through the drug approval process. Either of these events would limit
our ability to market our products effectively and cost-efficiently, and would adversely affect our financial condition and results
of operations. If the FDA or a state regulatory agency viewed the products as cosmetics or drugs, they could claim that the products
are misbranded and require that we repackage and relabel the products and impose civil and criminal penalties on us. Either or
both of these situations could adversely affect our business and operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In the European Union, or the EU, markets, the European Food
Safety Authority, or EFSA, an advisory panel to the European Commission, performs all scientific assessments of health claims on
food and supplement labels. The European Commission will consider the opinions of EFSA in determining whether to include a health
claim on the list of permissible claims. Once published, only health claims for ingredients and products included on the list may
be used in promotional materials for products marketed and sold in the European Union. The marketability of our products may be
limited as we look to expand our sales in the EU if the health claims of our products are not included on the list.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Our products may require clinical trials to establish
efficacy and safety, and if the findings of our trials are challenged or found insufficient to support our health claims, we may
need to perform additional trials before such products can be marketed.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our yeast beta glucan products have undergone or may require
clinical trials to establish our health benefit claims or the safety and efficacy of our products. Clinical trials for new product
uses can require a significant amount of resources and there is no assurance that such trials will be favorable to the claims we
make for our products, or that the cumulative authority established by such trials will be sufficient to support our claims. Moreover,
both the findings and methodology of such trials are subject to challenge by the FDA and various international scientific bodies.
If the findings of our trials are challenged or found to be insufficient to support our claims, additional trials may be required
before our products can be marketed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>If we undertake product recalls or incur liability claims
with respect to our yeast beta glucan products, such recalls or claims could increase our costs and adversely affect our reputation,
business and results of operations.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our yeast beta glucan products are designed for human and animal
consumption and we may face product recalls or liability claims if the use of our products is alleged to have resulted in injury
or death. Yeast beta glucan is classified as a food ingredient and is not subject to pre-market regulatory approval in the U.S.
Our yeast beta glucan products contain ingredients that do not have long histories of human or animal consumption. Previously unknown
adverse reactions resulting from consumption of these ingredients could occur. We may have to undertake various product recalls
or be subject to liability claims, including, among others, that our yeast beta glucan products include inadequate instructions
for use or inadequate warnings concerning possible side effects and interactions with other substances. A product recall or liability
claim against us could result in increased costs and could adversely affect our reputation with our customers, which, in turn,
could have an adverse effect on our business, financial condition and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We currently do not maintain product liability insurance coverage.
Product liability insurance is expensive, is subject to deductibles and coverage limitations, and may not be available to us in
the future. In addition, we cannot be sure that we will be able to obtain or maintain insurance coverage at acceptable costs or
in a sufficient amount, that our insurer will not disclaim coverage as to a future claim or that a product liability claim would
not otherwise adversely affect our business, financial condition and results of operations. The cost of any product liability litigation
or other proceeding, even if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation
of product liability litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
Product liability litigation and other related proceedings may also require significant management attention.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We derive a substantial part of our sales from one major
customer. If we lose this customer or it reduces the amount of business it does with us, or if it fails to meet its obligations
to us, our sales, financial condition and results of operations would be adversely affected.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our largest customer accounted for 77% and 61% of our sales
for the six months ended June 30, 2012 and 2011, respectively, and 53% and 23% of our total sales in 2011 and 2010, respectively.
If we lose this customer or they reduce the amount of business they do with us, our sales and profitability would be adversely
affected. In addition, we are subject to credit risk due to concentration of our trade accounts receivables, and the inability
of our largest customer to meet its obligations to us would adversely affect our financial results. At June 30, 2012, accounts
receivable from our largest customer amounted to 94% of accounts receivable, and at December 31, 2011 and 2010, this customer accounted
for 85% and 86% of accounts receivable, respectively. Although we are making efforts to reduce our dependency on a limited number
of customers, we believe this concentration of sales to one customer will continue in the near future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Many of our other customers buy from us under purchase orders,
and we generally do not have agreements with or commitments from these customers for the purchase of our products. We cannot provide
assurance that our smaller customers will maintain or increase their sales volumes or orders for the products supplied by us or
that we will be able to maintain or add to our existing customer base. Decreases in our customers&rsquo; sales volumes or orders
for products supplied by us may have an adverse effect on our business, financial condition or results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Our yeast beta glucan products face various forms of competition
from other products in the marketplace, which could adversely affect our market share and result in a decrease in our future sales
and earnings.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The pharmaceutical and biotechnology industries are characterized
by intense competition, rapid product development and technological change. Most of the competition that our yeast beta glucan
products face comes from companies that are large, well established and have greater financial, marketing, sales and technological
resources than we have. Our products compete with a range of consumer and nutraceutical products. Our commercial success will depend
on our ability to compete effectively in marketing and product development areas including, but not limited to, sales and branding,
product safety, efficacy, ease-of-use, customer compliance, price, marketing and distribution. There can be no assurance that competitors
will not succeed in developing and marketing products that are more desirable or effective than our products or that would render
our products obsolete and non-competitive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We are subject to risks of doing business internationally
as we attempt to expand our sales through international consulting and distributor relationships.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have entered and anticipate entering into additional international
consulting and distributor agreements for our yeast beta glucan products. As a result, we expect to increase our revenues from
international sales. A number of factors can slow or prevent international sales, or substantially increase the cost of international
sales, and we may encounter certain risks of doing business internationally including the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>increased government regulation of the processing, formulation, packaging, labeling and advertising of our consumer products
for international markets;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>reduced protection and enforcement for our intellectual property rights;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>unexpected changes in, or impositions of, legislative or regulatory requirements that may limit our ability to sell our products
and repatriate funds to the U.S.;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>political and economic instability;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>fluctuations in foreign currency exchange rates;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>difficulties in developing and maintaining distributor relationships in foreign countries;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>difficulties in negotiating acceptable contractual terms and enforcing contractual obligations;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>exposure to liabilities under the U.S. Foreign Corrupt Practices Act;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>potential trade restrictions and exchange controls;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>creditworthiness of foreign distributors, customer uncertainty and difficulty in foreign accounts receivable collection; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the burden of complying with foreign laws.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As we attempt to expand our sales internationally, our exposure
to these risks could result in our inability to attain the anticipated benefits and our business could be adversely impacted. Our
success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our
international operations. However, any of these factors could adversely affect our international operations and, consequently,
our operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>A material disruption at our manufacturing facilities
in Kentucky could result in material delays, quality control issues, increased costs and loss of business opportunities, which
may negatively impact our sales and financial results.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We rely on our manufacturing facilities in Kentucky to operate
our business and produce our yeast beta glucan products. Our manufacturing facilities, or any of our machines within our otherwise
operational facilities, could cease operations or no longer comply with current GMP guidelines unexpectedly due to a number of
events, including prolonged power or equipment failures, disruptions in the transportation infrastructure, and fires, floods or
other catastrophes. If our manufacturing facilities no longer comply with GMP, our products may be deemed adulterated under U.S.
regulations and subject to recall. Furthermore, a significant majority of our raw material product inventory is located in our
Kentucky facility. If any material amount of our inventory were damaged as a result of a material disruption, we would be unable
to meet our contractual obligations. While we seek to operate our manufacturing facilities in compliance with applicable rules
and regulations and take measures to minimize the risks of disruption at our facilities, any such material disruption at our facilities
could prevent us from meeting customer demand, reduce our sales and negatively impact our financial results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>If we lose our key personnel, or are unable to attract
and retain additional qualified personnel, the quality of our services may decline and our business may be adversely affected.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We rely heavily on the expertise, experience and continued services
of our senior management, including our President, Mr. McLaughlin. Loss of his services could adversely affect our ability to achieve
our business objectives. Mr. McLaughlin is an integral factor in establishing relationships. The continued development of our business
depends upon his continued employment. We have entered into an employment agreement with Mr. McLaughlin that includes provisions
for non-competition and confidentiality.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We believe our future success will depend upon our ability to
retain key employees and our ability to attract and retain other skilled personnel and consultants. We cannot guarantee that any
employee will remain employed by us for any period of time or that we will be able to attract, train or retain qualified personnel
in the future. Such loss of personnel could have a material adverse effect on our business and company. Furthermore, we may need
to employ additional personnel to expand our business. Qualified employees and consultants in the dietary supplement industry are
in great demand and may be unavailable in the time frame required to satisfy our customers&rsquo; requirements. There is no assurance
we will be able to attract and retain sufficient numbers of highly skilled employees in the future. The loss of personnel or our
inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Current and future economic and market conditions could
adversely affect demand for our products.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The U.S. economy and the global economy are recovering from
a severe recession. Factors such as uncertainties in consumer spending, a sustained regional and global economic downturn or slow
recovery may reduce the demand for our yeast beta glucan products. Furthermore, challenging economic conditions also may impair
the ability of our customers to pay for our commercial, direct-to-consumer products. Consumer spending for our yeast beta glucan
products generally is considered a discretionary purchase because they are non-prescription nutriceutical supplements and nutricosmetics,
and we may experience a more negative impact on our business due to these conditions than other companies that do not depend on
discretionary spending. If demand for our products declines or our customers are otherwise unable to pay for our products, we may
be required to offer extensive discounts or spend more on marketing than budgeted and our revenues, expense levels and profitability
will be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We may need additional capital to execute our business
plan and fund operations and may not be able to obtain such capital on acceptable terms or at all.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In connection with the development and expansion of our business,
we may incur significant capital and operational expenses. We believe that we can increase our sales and net income by implementing
a growth strategy that focuses on (i) increasing sales of our oral and topical-use products, (ii) diversifying revenues to include
greater direct-to-consumer and healthcare professional sales and (iii) expanding distribution to Europe and Asia. To implement
our growth strategy, we anticipate (i) continuing our exit from lower-margin, feed-additive sales, (ii) increasing our marketing
to healthcare professionals and end consumers, (iii) entering into additional distribution agreements with manufacturers and formulators
in Europe and Asia and (iv) developing our branded product lines.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We will not receive any proceeds from the sale of the shares
of our common stock covered by this prospectus by the selling shareholders. Management anticipates that our existing capital resources,
cash flows from operations and the proceeds from our recent private placement will satisfy the liquidity requirements of our business
for the next 12 months. However, if available funds are not sufficient to meet our plans for expansion or current operating expenses,
our plans include pursuing alternative financing arrangements, including bank loans, advances from our directors and officers or
funds raised through offerings of our equity or debt, if and when we determine such offerings are required. Our ability to obtain
additional capital on acceptable terms or at all is subject to a variety of uncertainties, including: investors&rsquo; perceptions
of, and demand for, companies in our industry; conditions of the U.S. and other capital markets in which we may seek to raise funds;
our future results of operations, financial condition and cash flows; and economic, political and other conditions in the U.S.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">There is no assurance we will be successful in locating a suitable
financing transaction in a timely fashion or at all. In addition, there is no assurance we will obtain the capital we require by
any other means or that our directors and officers who have in the past willingly funded operations through personal advances will
commit to do so in the future. Future financings through equity investments are likely to be dilutive to our existing shareholders.
Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued
securities may include preferences or superior voting rights, be combined with the issuance of warrants or other derivative securities,
or be the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Furthermore,
we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection
with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If we cannot raise additional funds on favorable terms or at
all, we may not be able to carry out all or parts of our strategy to maintain our growth and competitiveness.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We may not be able to protect our proprietary rights adequately,
which could adversely affect our competitive position and reduce the value of our products and brands, and litigation to protect
our intellectual property rights may be costly.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We attempt to strengthen and differentiate our products by developing
new and innovative yeast beta glucan products and manufacturing processes. As a result, our patents, trademarks and other intellectual
property rights are important assets to our business. Our success will depend in part on our ability to obtain and protect our
products, methods, processes and other technologies, to preserve our trade secrets, and to operate without infringing on the proprietary
rights of third parties in the U.S. and other international markets. Despite our efforts, any of the following may reduce the value
of our owned and used intellectual property:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>issued patents and trademarks that we own or have the right to use may not provide us with any competitive advantages;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our efforts to protect our proprietary rights may not be effective in preventing misappropriation of our intellectual property;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our efforts may not prevent the development and design by others of products or technologies similar to or competitive with,
or superior to those we use or develop; or</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order
to continue to offer the contested feature in our products or services.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Policing the unauthorized use of our proprietary technology
can be difficult and expensive. Litigation might be necessary to protect our intellectual property rights, which may be costly
and may divert our management&rsquo;s attention away from our core business. Furthermore, there is no guarantee that litigation
would result in an outcome favorable to us. If we are unable to protect our proprietary rights adequately, it would have a negative
impact on our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We may be subject to claims that we have infringed the
proprietary rights of others, which could require us to obtain a license or otherwise change our manufacturing processes or product
offerings.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Although we do not believe any of our products or manufacturing
processes infringe upon the proprietary rights of others, there is no assurance that infringement or invalidity claims, or claims
for indemnification resulting from infringement claims, will not be asserted or prosecuted against us or that any such assertions
or prosecutions will not have a material adverse effect on our business. Regardless of whether any such claims are valid or can
be asserted successfully, defending against such claims could cause us to incur significant costs and could divert resources away
from our other activities. In addition, assertion of infringement claims could result in injunctions that prevent us from distributing
our products. If any claims or actions are asserted against us, we may seek to obtain a license to the intellectual property rights
that are in dispute. Such a license may not be available on reasonable terms, or at all, which could force us to change our manufacturing
processes or product offerings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We will incur significant costs as a result of our operating
as a public reporting company and our management&rsquo;s requirement to devote substantial time to new compliance initiatives,
which may adversely affect our business and results of operations.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">While we are a public company quoted on the OTC Markets-OTC
Pink Current, our compliance costs prior to the effectiveness of the registration statement of which this prospectus is a part
were not substantial in light of our limited operations and limited public reporting obligations. As a company subject to public
reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we incur increased legal, accounting
and other expenses. The costs of preparing and filing annual, quarterly and current reports and other information with the SEC
and furnishing audited reports to shareholders is time-consuming and costly, and may adversely affect our business and results
of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">It will also be time-consuming, difficult and costly for us
to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act. Our management has limited or no experience operating a company subject to the rules and reporting practices required by the
federal securities laws and applicable to a publicly traded company. Our management currently relies in many instances on the professional
experience and advice of third parties including our attorneys and accountants. We will need to train our current management and
staff and retain additional financial reporting, internal control and other personnel in order to develop and implement appropriate
accounting, internal controls and reporting procedures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>If we fail to establish and maintain an effective system
of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial
results accurately and timely could harm our business and adversely affect the trading price of our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Upon the effectiveness of the registration statement of which
this prospectus is a part, we are required to establish and maintain internal controls over financial reporting and disclosure
controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. Our
management will need to include a report on our internal control over financial reporting and its assessment on whether such internal
controls were effective for the prior fiscal year with our annual reports that we file under the Exchange Act with the SEC following
the effectiveness of the registration statement of which this prospectus is a part. Under current federal securities laws, our
management may conclude that our internal control over financial reporting is not effective.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">However, for as long as we remain an &ldquo;emerging growth
company,&rdquo; or EGC, as defined in the Jumpstart our Business Startups Act of 2012, or JOBS Act, we may, and we intend to, take
advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not
EGCs, including not being required to comply with the auditor attestation requirements concerning management&rsquo;s reports on
effectiveness of internal controls over financial reporting otherwise required under the Sarbanes-Oxley Act and the rules promulgated
by the SEC. We may, and we intend to, take advantage of these reporting exemptions until we are no longer an EGC. We will cease
to be an EGC at the earliest of (A) the last day of the fiscal year in which we have total annual gross revenues of $1,000,000,000
(as indexed for inflation in the manner set forth in the JOBS Act) or more; (B) the last day of the fiscal year in which the fifth
anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities
Act occurs; (C) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible
debt; or (D) the date on which we are deemed to be a &ldquo;large accelerated filer,&rdquo; as defined in Rule 12b-2 under the
Exchange Act or any successor thereto.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Once we cease to be an EGC, as of each fiscal year end thereafter,
our independent registered public accounting firm will be required to evaluate and report on our internal controls over financial
reporting in the event we become an accelerated filer or large accelerated filer. To the extent we find material weaknesses or
other deficiencies in our internal controls, we may determine that we have ineffective internal controls over financial reporting
as of any particular fiscal year end, and we may receive an adverse assessment of our internal controls over financial reporting
from our independent registered public accounting firm. Moreover, any material weaknesses or other deficiencies in our internal
controls may delay the conclusion of an annual audit or a review of our quarterly financial results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our management has limited or no experience operating as a public
reporting company under the Exchange Act or establishing the level of internal control over financial reporting required by the
Sarbanes-Oxley Act. Our management currently relies in many instances on the professional experience and advice of third parties
including our attorneys and accountants. At present, we have started reviewing and instituting internal controls, but it may take
time to implement them fully as a newly public reporting company under the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our management cannot guarantee that our internal controls and
disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations in all control systems,
no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company
have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject
to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or
more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree
of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be detected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Our accounting personnel who are primarily responsible
for the preparation and supervision of the preparation of our financial statements under generally accepted accounting principles
in the U.S. have limited relevant education and training in generally accepted accounting procedures in the U.S., or U.S. GAAP,
and SEC rules and regulations pertaining to financial reporting, which could impact our ability to prepare our financial statements
and convert our books and records to U.S. GAAP.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our management and accounting personnel have limited experience
operating as a public company and establishing the level of internal control and financial reporting expertise required of a public
company in the U.S. Our accounting personnel who have the primary responsibilities of preparing and supervising the preparation
of financial statements in accordance with U.S. GAAP for our reporting under the Exchange Act have limited relevant education and
training in U.S. GAAP and related SEC rules and regulations. As such, they may be unable to identify potential accounting and disclosure
issues that may arise upon the conversion of our books and records to U.S. GAAP, which could affect our ability to prepare our
financial statements in accordance with U.S. GAAP. We have taken steps to ensure that our financial statements are prepared in
accordance with U.S. GAAP, including our hiring of a U.S. GAAP consultant to work with our accounting personnel and management
to convert our books and records to U.S. GAAP and prepare our financial statements. In addition, our annual financial statements
are audited by an independent auditor for compliance with U.S. GAAP and to ensure that all necessary and appropriate adjustments
have been made. Until such time as we hire qualified accounting personnel or train our current accounting personnel with the requisite
U.S. GAAP experience, however, the measures we have taken may not be sufficient to mitigate the foregoing risks associated with
the limited education and training of our accounting personnel in U.S. GAAP and related SEC rules and regulations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks Related to Our Securities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Our stock price may be volatile or may decline regardless
of our operating performance, and you may lose part or all of your investment.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The market price of our common stock may fluctuate widely in
response to various factors, some of which are beyond our control, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>market conditions or trends in the dietary supplement industry or in the economy as a whole;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>actions by competitors;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>actual or anticipated growth rates relative to our competitors;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the public&rsquo;s response to press releases or other public announcements by us or third parties, including our filings with
the SEC;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>economic, legal and regulatory factors unrelated to our performance;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>any future guidance we may provide to the public, any changes in such guidance or any difference between our guidance and actual
results;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>changes in financial estimates or recommendations by any securities analysts who follow our common stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>speculation by the press or investment community regarding our business;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>litigation;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>changes in key personnel; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>future sales of our common stock by our officers, directors and significant shareholders.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In addition, the stock markets, including the over-the-counter
markets in which we are quoted, have experienced extreme price and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many companies. These broad market fluctuations may materially affect our stock price,
regardless of our operating results. Furthermore, the market for our common stock historically has been limited and we cannot assure
you that a larger market will ever be developed or maintained. The price at which investors purchase shares of our common stock
may not be indicative of the price that will prevail in the trading market. Market fluctuations and volatility, as well as general
economic, market and political conditions, could reduce our market price. As a result, these factors may make it more difficult
or impossible for you to sell our common stock for a positive return on your investment. In the past, shareholders have instituted
securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could
incur substantial costs and our resources and the attention of management could be diverted from our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Shares of our common stock lack a significant trading
market, which could make it more difficult for an investor to sell our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Shares of our common stock are not yet eligible for trading
on any national securities exchange. Our common stock currently is quoted in the over-the-counter market on the OTC Markets-OTC
Pink Current. This market tends to be highly illiquid. We anticipate applying for the quotation of our common stock on the OTC
Markets-OTCQB upon the effectiveness of the registration statement of which this prospectus forms a part. We have not yet engaged
a market maker to assist us to apply for quotation on the OTC Markets-OTCQB, however, and there can be no assurance of if and when
we will meet the applicable requirements or such application would be granted. There is no assurance that an active trading market
in our common stock will develop, or if such a market develops, that it will be sustained. In addition, there is a greater chance
for market volatility for securities quoted in the over-the-counter markets as opposed to securities traded on a national exchange.
This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent
administrative supervision of &ldquo;bid&rdquo; and &ldquo;ask&rdquo; quotations and generally lower trading volume. As a result,
an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock,
or to obtain coverage for significant news events concerning us, and our common stock could become substantially less attractive
for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or for other
purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Future sales of shares of our common stock, or the perception
in the public markets that these sales may occur, may depress our stock price.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The market price of our common stock could decline significantly
as a result of sales of a large number of shares of our common stock in the market after this offering. In addition, if our significant
shareholders sell a large number of shares, or if we issue a large number of shares, the market price of our stock could decline.
Any issuance of additional common stock, or warrants or options to purchase our common stock, by us in the future would result
in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount or a premium to the
then-current trading price of our common stock. Moreover, the perception in the public market that shareholders might sell shares
of our stock or that we could make a significant issuance of additional common stock in the future could depress the market for
our shares. These sales, or the perception that these sales might occur, could depress the market price of our common stock or
make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. See &ldquo;Shares
Eligible for Future Sale.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have issued shares of common stock and warrants and options
to purchase shares of our common stock in connection with our private placement and certain employment, director and consultant
agreements. Shares of our common stock that were issued in connection with our private placement will be available for resale without
restriction upon the effectiveness of the registration statement of which this prospectus is a part. In addition, we issued shares
of our common stock, and options and warrants to purchase shares of our common stock, in financing transactions and pursuant to
employment agreements that are deemed to be &ldquo;restricted securities,&rdquo; as that term is defined in Rule 144 promulgated
under the Securities Act. From time to time, certain of our shareholders may be eligible to sell all or some of their restricted
shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, subject to certain
limitations. In general, pursuant to Rule 144, after satisfying a six-month holding period: (i) affiliated shareholders, or shareholders
whose shares are aggregated, may, under certain circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then-outstanding shares of common stock or the average weekly trading volume of the class
during the four calendar weeks prior to such sale and (ii) non-affiliated shareholders may sell without such limitations, in each
case provided we are current in our public reporting obligations. Rule 144 also permits the sale of securities by non-affiliates
that have satisfied a one-year holding period without any limitation or restriction. The resale under this offering or pursuant
to Rule 144 of shares acquired from us in private transactions could cause our stock price to decline significantly.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We could issue additional common stock, which might dilute
the book value of our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our Board of Directors has authority, without action or vote
of our shareholders, to issue all or a part of our authorized but unissued shares. Our amended certificate of incorporation authorizes
the issuance of up to 50,000,000 shares of common stock, par value $0.01 per share. As of October 17, 2012, there were 8,542,071
authorized and unissued shares of our common stock available for future issuance, based on 28,875,317 shares of our common stock
outstanding and our reservation of 3,630,112 shares of our common stock issuable upon exercise of outstanding warrants and 8,952,500
shares of our common stock issuable upon exercise of options outstanding and exercisable. Although we have no commitments as of
the date of this prospectus to issue our securities, we may issue a substantial number of additional shares of our common stock
or debt securities to complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects
a discount or a premium from the then-current trading price of our common stock. In addition, in order to raise capital, we may
need to issue securities that are convertible into or exchangeable for a significant amount of our common stock. These issuances
would dilute your percentage ownership interest, which would have the effect of reducing your influence on matters on which our
shareholders vote, and might dilute the book value of our common stock. You may incur additional dilution if holders of stock options
and warrants, whether currently outstanding or subsequently granted, exercise their options or warrants to purchase shares of our
common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We are an EGC, and we cannot be certain if the reduced
disclosure requirements applicable to EGCs will make our common stock less attractive to investors.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are an EGC, as defined in the JOBS Act, and we may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. We cannot
predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find
our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price
may be more volatile.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Although the JOBS Act permits an EGC such as us to take advantage
of an extended transition period to comply with new or revised accounting standards applicable to public companies, we are choosing
to &ldquo;opt out&rdquo; of this provision, and, as a result, we will comply with new or revised accounting standards as required
when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>The application of the &ldquo;penny stock&rdquo; rules
could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our common stock may be subject to the &ldquo;penny stock&rdquo;
rules adopted under Section 15(g) of the Exchange Act. The penny stock rules apply to issuers whose common stock does not trade
on a national securities exchange and trades at less than $5.00 per share, or that have a tangible net worth of less than $5,000,000
($2,000,000 if the company has been operating for three or more years). The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared
by the SEC that contains the following information:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a description of the broker&rsquo;s or dealer&rsquo;s duties to the customer and of the rights and remedies available to the
customer with respect to violation to such duties or other requirements of securities laws;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a brief, clear, narrative description of a dealer market, including &ldquo;bid&rdquo; and &ldquo;ask&rdquo; prices for penny
stocks and the significance of the spread between the &ldquo;bid&rdquo; and &ldquo;ask&rdquo; prices;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a toll-free telephone number for inquiries on disciplinary actions;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>definitions of any significant terms in the disclosure document or in the conduct of trading in penny stocks; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>such other information and is in such form (including language, type, size and format), as the SEC shall require by rule or
regulation.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Prior to effecting any transaction in a penny stock, the broker-dealer
also must provide the customer with the following information:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>bid and offer quotations for the penny stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>compensation of the broker-dealer and our salesperson in the transaction;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity
of the market for such stock; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>monthly account statements showing the market value of each penny stock held in the customer&rsquo;s account.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The penny stock rules further require that, prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser&rsquo;s written acknowledgment of the receipt of a risk
disclosure statement, a written agreement to transactions involving penny stocks and a signed and dated copy of a written suitability
statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Due to the requirements of the penny stock rules, many broker-dealers
have decided not to trade penny stocks. As a result, the number of broker-dealers willing to act as market makers in such securities
is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market,
if any, for our securities. Moreover, if our securities are subject to the penny stock rules, investors will find it more difficult
to dispose of our securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Our principal shareholder has the ability to exert significant
control in matters requiring a shareholder vote and could delay, deter or prevent a change of control in our company.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of October 17, 2012, Mr. McLaughlin, our President and largest
shareholder, beneficially owned 31% of our outstanding shares of common stock. Mr. McLaughlin exerts significant influence over
us, giving him the ability, among other things, to exercise significant control over the election of all or a majority of the Board
of Directors and to approve significant corporate transactions. Such share ownership and control may also have the effect of delaying
or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination, or discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. This, in turn, could
have a negative effect on the market price of our common stock. It could also prevent our shareholders from realizing a premium
over the market price for their shares of common stock. Without the consent of Mr. McLaughlin, we could be prevented from entering
into potentially beneficial transactions if such transactions conflict with our principal shareholder&rsquo;s interests.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We do not anticipate paying dividends in the foreseeable
future, and, accordingly, any return on investment may be limited to the value of our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We do not anticipate paying cash dividends on our common stock
in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other
business and economic factors affecting it at such time as the Board of Directors may consider relevant. We intend to follow a
policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business.
If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock
price appreciates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Our common stock is not registered under the Exchange
Act and, as a result, we will not be subject to the federal proxy rules and our directors, executive officers and 10% beneficial
holders will not be subject to Section 16 of the Exchange Act. In addition, our reporting obligations under Section 15(d) of the
Exchange Act may be suspended automatically if we have fewer than 300 holders of record on the first day of our fiscal year.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Shares of our common stock are not registered under the Exchange
Act and we do not intend to register our common stock under the Exchange Act for the foreseeable future, provided that, we will
register our common stock under the Exchange Act if we have, after the last day of our fiscal year, holders of record of more than
either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors, in accordance with Section 12(g)
of the Exchange Act, as amended by the JOBS Act. As a result, upon the effectiveness of the registration statement of which this
prospectus forms a part, we will be subject solely to the reporting obligations of Section 15(d) of the Exchange Act so long as
we do not subsequently register under Section 12(g) of the Exchange Act by filing a Form 8-A or another Exchange Act registration
statement. As long as our common stock is not registered under the Exchange Act, we will be required to file only annual, quarterly
and current reports pursuant to Section 15(d) of the Exchange Act, and we will not be subject to Section 14 of the Exchange Act,
which, among other things, prohibits companies that have securities registered under the Exchange Act from soliciting proxies or
consents from shareholders without furnishing to shareholders and filing with the SEC a proxy statement and form of proxy complying
with the proxy rules. In addition, so long as our common shares are not registered under the Exchange Act, our directors, executive
officers and beneficial holders of 10% or more of our outstanding common stock will not be subject to Section 16 of the Exchange
Act. Section 16(a) of the Exchange Act requires directors, executive officers and persons who beneficially own more than 10% of
a registered class of equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership of common stock and other equity securities on Forms 3, 4 and 5, respectively.
Such information about our directors, executive officers and 10% beneficial holders will only be available through this and any
subsequent registration statement or periodic reports we file pursuant to Section 15(d) of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Furthermore, so long as our common stock is not registered under
the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange Act will be automatically suspended if, on
the first day of any fiscal year, other than a fiscal year in which a registration statement under the Securities Act has gone
effective, we have fewer than 300 holders of record. This suspension is automatic and does not require any filing with the SEC.
In such an event, we may cease providing periodic reports and current or periodic information, including operational and financial
information. As of October 17, 2012, we had 327 holders of record.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Certain provisions of our corporate governance documents
and Delaware law could discourage, delay or prevent a merger or acquisition at a premium price.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our amended certificate of incorporation and bylaws contain
provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors. These include
provisions that:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide that our Board of Directors is expressly authorized to adopt, amend or repeal our bylaws;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide our Board of Directors with the sole power to set the size of our Board of Directors and fill vacancies; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide that special meetings of shareholders may be called only by our Board of Directors, Chairman of the Board of Directors,
upon written notice of demand by our President or upon written notice of demand by the holders of at least 25% of the shares of
our common stock outstanding and entitled to vote.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">These and other provisions of our amended certificate of incorporation
and bylaws could delay, defer or prevent us from experiencing a change of control or changes in our Board of Directors and management
and may adversely affect our shareholders&rsquo; voting and other rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations
with a shareholder owning 15% or more of such corporation&rsquo;s outstanding voting stock for a period of three years following
the date on which such shareholder became an &ldquo;interested&rdquo; shareholder. In order for us to consummate a business combination
with an &ldquo;interested&rdquo; shareholder within three years of the date on which the shareholder became &ldquo;interested,&rdquo;
either (1) the business combination or the transaction that resulted in the shareholder becoming &ldquo;interested&rdquo; must
be approved by our board of directors prior to the date the shareholder became &ldquo;interested,&rdquo; (2) the &ldquo;interested&rdquo;
shareholder must own at least 85% of our outstanding voting stock at the time the transaction commences (excluding voting stock
owned by directors who are also officers and certain employee stock plans) or (3) the business combination must be approved by
our board of directors and authorized by at least two-thirds of our shareholders (excluding the &ldquo;interested&rdquo; shareholder).
This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial
to our shareholders. Any delay or prevention of a change of control transaction or changes in our board of directors and management
could deter potential acquirers or prevent the completion of a transaction in which our shareholders could receive a substantial
premium over the then-current market price for their shares of our common stock. See &ldquo;Description of Capital Stock&mdash;Delaware
Anti-Takeover Statute&rdquo; and &ldquo;Description of Capital Stock&mdash;Anti-Takeover Effects of Certain Provisions of our Amended
Certificate of Incorporation and Bylaws.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORWARD-LOOKING STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act regarding our company that include, but are not
limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives
of management for future operations; any statements concerning proposed new products, services or developments; any statements
regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any
of the foregoing. These forward-looking statements are based on our current expectations, estimates and projections about our industry,
management&rsquo;s beliefs and certain assumptions made by us. Words such as &ldquo;anticipates,&rdquo; &ldquo;expects,&rdquo;
&ldquo;intends,&rdquo; &ldquo;plans,&rdquo; &ldquo;predicts,&rdquo; &ldquo;potential,&rdquo; &ldquo;believes,&rdquo; &ldquo;seeks,&rdquo;
&ldquo;hopes,&rdquo; &ldquo;estimates,&rdquo; &ldquo;should,&rdquo; &ldquo;may,&rdquo; &ldquo;will,&rdquo; &ldquo;with a view to&rdquo;
and variations of these words or similar expressions are intended to identify forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult
to predict. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations
may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and
factors that could cause our actual results to be materially different from our expectations are generally set forth in &ldquo;Risk
Factors,&rdquo; &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations,&rdquo; &ldquo;Our
Business&rdquo; and other sections in this prospectus. Other sections of this prospectus include additional factors that could
adversely impact our business and financial performance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Unless otherwise indicated, information in this prospectus concerning
economic conditions and our industry is based on information from independent industry analysts and publications, as well as our
estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third party
sources, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe
to be reasonable. Unless otherwise indicated, none of the independent industry publication market data cited in this prospectus
was prepared on our or our affiliates&rsquo; behalf.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The forward-looking statements made in this prospectus relate
only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You
should read this prospectus and the documents we refer to in this prospectus and have filed as exhibits to this prospectus completely
and with the understanding that our actual future results may be materially different from what we expect.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>USE OF PROCEEDS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We will not receive any proceeds from the sale of the shares
of our common stock covered by this prospectus by the selling shareholders.&nbsp;We have agreed to bear the expenses, other than
any underwriting discounts or commissions or agent&rsquo;s commissions, in connection with the registration of the common stock
being offered hereby by the selling shareholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PRICE RANGE OF COMMON STOCK</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our common stock is qualified for quotation on the OTC Markets-OTC
Pink Current under the symbol &ldquo;IMMD.&rdquo; The following table sets forth the range of the high and low bid prices per share
of our common stock for each quarter (or portion thereof) as reported in the over-the-counter markets. These quotations represent
interdealer prices, without retail markup, markdown or commission, and may not represent actual transactions. There currently is
no liquid trading market for our common stock. There can be no assurance that a significant active trading market in our common
stock will develop, or if such a market develops, that it will be sustained.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">High</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Low</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">High</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Low</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">High</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Low</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 34%; text-align: left">First Quarter (through March 31)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">0.22</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">0.15</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">0.30</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">0.19</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">0.23</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">0.14</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Second Quarter (through June 30)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.23</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.14</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.18</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.12</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Third Quarter (through September 30)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.28</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.15</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.16</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Fourth Quarter (through December 31)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.17</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.17</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.22</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.13</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.33</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.18</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1)&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reflects bid prices per share through October 15, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As soon as practicable following the effectiveness of the registration
statement of which this prospectus is a part, and assuming we satisfy all necessary requirements, we intend to apply to have our
common stock qualified for quotation on the OTC Markets-OTCQB, although we cannot be certain that we will be able to engage a market
maker to assist us in our application or that our application for quotation will be approved.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DIVIDEND POLICY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have not paid and do not expect to declare or pay any cash
dividends on our common stock in the foreseeable future. We currently expect to retain all future earnings for use in the operation
and expansion of our business. The declaration and payment of any cash dividends in the future will be determined by our Board
of Directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall
financial condition and contractual restrictions, if any.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>



<P STYLE="margin: 0"></P>
<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>AND RESULTS OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Safe Harbor Declaration</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The comments made throughout this prospectus should be read
in conjunction with our financial statements and the notes thereto, and other financial information appearing elsewhere in this
prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain certain
forward-looking information. When used in this discussion, the words &ldquo;believes,&rdquo; &ldquo;anticipates,&rdquo; &ldquo;expects&rdquo;
and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from projected results, due to a number of factors beyond our control. We
do not undertake to publicly update or revise any of these forward-looking statements, even if experience or future changes show
that the indicated results or events will not be realized. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Readers also are urged to carefully review and consider our discussions regarding
the various factors that affect the company&rsquo;s business, which are described in this section and elsewhere in this prospectus.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We manufacture, distribute and sell natural immune support products.
We have focused for over 20 years on the research and development of immune system enhancing compounds, including the purest, particulate
and soluble beta glucans derived from yeast. Beta glucans are a natural extract that has been clinically shown to support the immune
system. Our core nutraceutical and cosmetic product lines consist of pure yeast beta glucans in oral and topical applications.
Our beta glucan products and manufacturing processes are protected by patents and trade secrets, compliant with current GMPs and
classified as GRAS by the FDA. Historically, we have sold our products primarily on a word-of-mouth basis through distributors
and our website as standalone product lines, as well as business-to-business as dietary supplement and a cosmetic enhancement,
and as a feed-additive for animal use. As of 2011, we began exiting this lower-margin market for feed-additive products. Our sales
and marketing efforts going forward are concentrated on our oral and topical-use products for healthcare professionals, distributors
and direct-to-consumer sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We originally incorporated under the laws of British Columbia,
Canada, in 1987 under the name Anina Resources, Inc. and subsequently changed our name to Immudyne, Inc. and our jurisdiction to
the State of Wyoming by continuance in September 1987. On June 30, 1994, we changed our jurisdiction to Delaware by merger with
and into Immudyne, Inc., a Delaware corporation formed on June 21, 1994.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Significant factors that we believe could affect our operating
results are (i) marketing and advertising expenses; (ii) protection of our intellectual property rights; and (iii) imposition of
more stringent government regulations of our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our marketing strategy is to promote sales of our oral and topical-use
products, which constitute our core business as we shift from low-margin, feed-additive product sales. We believe that we are well
positioned to capitalize on our development of proprietary and patented products and can now focus on commercializing sales on
a more meaningful, global basis. We expect that a significant component of our selling, general and administration expenses going
forward will consist of marketing and advertising expenses to increase our sales. The primary components of our marketing and advertising
expenses may include online sales promotions through our website, trade advertising, direct marketing to nutraceutical companies
and industry associations, consumer research and search engine and digital advertising. We expect our selling, general and administrative
expenses to increase in absolute dollars as we incur increased costs related to our marketing strategy and growth of our business.
These costs, along with the additional costs resulting from our operations as a public reporting company, could impact our future
operating profitability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We historically have expended a significant amount of our funds
on research and development of patents, trade secrets and proprietary products. We rely on the patent and trademark protection
laws in the U.S. to protect our intellectual property and maintain our competitive position in the marketplace. For several years,
we were involved in complex litigation regarding patents and licenses critical to our products. In 2010, we prevailed on all major
legal matters and reached a favorable settlement. If additional litigation becomes necessary to protect our intellectual property
rights, such litigation may be costly, divert our management&rsquo;s attention away from our core business and have a negative
impact on our operations. Furthermore, there is no guarantee that litigation would result in an outcome favorable to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our manufacturing processes are compliant in the U.S. with current
cGMPs and our yeast beta glucan products are all natural and designated GRAS under current FDA regulations. Future government regulations
may prevent or delay the introduction or require the reformulation of our products. Some agencies, such as the FDA, could require
us to remove a particular product from the market, delay or prevent the import of raw materials for the manufacture of our products
or otherwise disrupt the marketing of our products. Any such government actions could result in additional costs to us, including
reduced growth prospects, lost sales from products that we are required to remove from the market and potential product liability
litigation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Results of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Comparison of Six Months Ended June 30, 2012 and 2011</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth the results of our operations
for the six months ended June 30, 2012 and 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">2012</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">2011</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">$</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">% of Sales</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">$</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">% of Sales</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%">Sales</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">406,102</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">406,140</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Cost of sales</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">95,781</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">24</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">99,501</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">24</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Gross profit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">310,321</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">76</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">306,639</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">76</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Operating expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(555,685</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">(134</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(827,910</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">(204</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Loss from operations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(245,364</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(57</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(521,271</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(128</TD><TD STYLE="text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Other income, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21,629</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">64,053</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Income tax income</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8,600</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">2</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8,600</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">2</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Net loss</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(215,135</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">(50</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)%</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(448,618</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">(110</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Sales for the six months ended June 30, 2012, were $0.41 million,
which was no change compared to the six months ended June 30, 2011. Sales remained the same in the first half of 2012 and 2011
as we exited the lower-margin market for feed-additive products in favor of concentrating on our oral and topical &ndash;use products
for healthcare professionals, distributors and direct-to-consumer sales, which we anticipate will constitute our core business
going forward. Sales of our oral and topical-use products consisted of 99% our sales in the six months ended June 30, 2012 whereas
sales of our animal feed additive products consisted of 20% and 62% for the 2011 and 2010 fiscal years, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Cost of sales consists primarily of material costs, labor costs
and related overhead directly attributable to the production of our products. Total cost of sales decreased slightly by 4% to $95,781
for the six months ended June 30, 2012, compared to $99,501 for the six months end June 30, 2011, which was within our expectations.
The decrease in cost of sales as a percentage of sales in the first half of 2012 compared to the first half of 2011 resulted primarily
from the shift in our market concentration.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gross profit increased 1% to $310,321 for the six months ended
June 30, 2012, compared to $306,639 for the six months ended June 30, 2011. Our gross profit margin remained 76% in both the first
half of 2012 and 2011 as our mix of products consisted primarily of our higher-margin oral and topical-use products and nominal
sales of our lower-margin feed-additive products. Management believes that our gross profit margin will stabilize at approximately
76% as we expand our oral and topical-use product lines and sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Operating expenses, consisting of general and administration
expense and stock compensation expense, decreased 34% to $0.56 million for the six months ended June 30, 2012, from $0.83 million
for the six months ended June 30, 2011. General and administration expense increased 15% to $0.50 million in the 2012 period due
primarily to increasing accounting, auditing and legal expenses incurred as result of management&rsquo;s decision to become a public
company. Management has instituted cost-cutting measures that we believe should result in improved efficiencies of our operations
going forward. Stock compensation expense was $0.05 million in the 2012 period compared to $0.40 million in the 2011 period as
we granted options to our directors, executive officer, employees and consultants in 2011 pursuant to (i) a new director agreement,
and (ii) employment agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Other income was $21,629 for the six months ended June 30, 2012,
compared with other expense of $64,053 for the six months ended June 30, 2011, a decrease of $42,424. The decrease in other income
was from decreased proceeds from litigation settlement, decreased interest expense and receipt of a one-time customer signing fee
in the 2011 period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our net loss for the six months ended June 30, 2012, was $0.22
million compared to a net loss of $0.45 million for the six months ended June 30, 2011, a decrease of $0.25 million or 55%. Net
loss as a percentage of sales was 50% in the 2012 period compared to net loss as a percentage of sales of 110% in the 2011 period.
This decrease in net loss was attributable primarily to decreased stock compensation expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Comparison of Years Ended December 31, 2011 and 2010</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth the results of our operations
for the years ended December 31, 2011 and 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">2011</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">2010</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">$</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">% of Sales</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">$</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD><TD STYLE="font-weight: bold; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; font-style: italic; text-align: center; border-bottom: Black 1pt solid">% of Sales</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; font-style: italic">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%">Sales</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">743,828</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">1,271,975</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Cost of sales</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">241,264</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">32</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">426,107</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">33</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Gross profit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">502,564</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">68</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">845,868</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">67</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Operating expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,078,931</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">(145</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,170,436</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">(92</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Loss from operations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(576,367</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(77</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(324,568</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(26</TD><TD STYLE="text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Other income (expenses), net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(56,238</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(10,073</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1</TD><TD STYLE="text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Income tax income</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">17,200</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">2</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">17,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">1</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Net loss</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(502,929</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">(68</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)%</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(317,641</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">(25</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Sales in 2011 were $0.74 million, a decrease of 42% from $1.27
million in 2010. The decrease in sales resulted primarily from a decline in feed-additive sales and change in sales and marketing
strategy. We changed focus in 2011 to concentrate our sales and marketing efforts on promoting our oral and topical-use products,
which we anticipate will constitute our core business going forward. Sales of our oral and topical-use products increased 25% to
$0.60 million in 2011 compared to 2010, and consisted of 80% and 38% of our sales in 2011 and 2010, respectively. Sales of our
lower-margin feed-additive products consisted of 20% and 62% of our sales in 2011 and 2010, respectively. We anticipate further
decreased sales of our feed-additive products as a percentage of our overall sales as we continue to change our product focus toward
oral and topical-use products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Cost of sales consists primarily of material costs, labor costs
and related overhead directly attributable to the production of our products. Total cost of sales decreased 43% to $0.24 million
in 2011 compared to $0.43 million in 2010 due primarily to decreased sales. The decrease in cost of sales as a percentage of sales
in the first half of 2012 compared to the first half of 2011 resulted primarily from the shift in our market concentration.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gross profit decreased 41% to $0.50 million in 2011 compared
to $0.85 million in 2010. Our gross profit margin increased to 68% in 2011 compared to 67% in 2010. The increase in gross profit
margin from 2010 to 2011 resulted primarily from our change in sales from lower-margin feed-additive products to higher-margin
oral and topical-use products. Management believes that our gross profit margin will stabilize at approximately 76% as we expand
our oral and topical-use product lines and sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Operating expenses consisted of general and administrative expenses
and stock compensation expense. Operating expenses decreased 8% to $1.08 million in 2011 from $1.17 million in 2010. General and
administration expense decreased 42% to $0.68 million due primarily to management instituting cost-cutting measures. Stock compensation
expense was $0.40 million in 2011 compared to $0 in 2010 as we granted options to our directors, executive officer, employees and
consultants in 2011 pursuant to a new director and employment agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Other income was $56,238 in 2011 compared with other expense
of $10,073 in 2010, an increase of $66,311. The increase in other income was from increased proceeds from litigation settlement
and one-time customer signing fee and decreased interest expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our net loss for 2011 was $0.50 million compared to net loss
of $0.32 million in 2010, an increase of $0.19 million or 58%. Net loss as a percentage of sales was 68% in 2011 compared to net
loss as a percentage of sales of 25% in 2010. This decrease in net income was attributable to decreased sales and increased stock
compensation expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Liquidity and Capital Resources</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our principal demands for liquidity are to increase sales, purchase
inventory and for sales distribution and general corporate purposes. We have limited operating capital and intend to meet our liquidity
requirements, including purchase of raw materials and the expansion of our business, primarily through cash flow provided by operations.
Historically, we also have funded operations through loans and advances from our directors and officers and offerings of equity
securities. In 2011 and 2010, we raised $193,500 and $34,000, respectively, through sales of our common stock in private placements.
In the six months ended June 30, 2012, we raised $310,796 through sales of our common stock in private placements. In 2011, we
satisfied $214,000 in notes payable through exercises of warrants and options. In the six months ended June 30, 2012, we satisfied
$311,443 in notes payable through exercises of options and issuances of common stock in connection with the private placements.
We may seek additional financing in the form of loans from banks or our directors and officers, or funds raised through future
offerings of our equity or debt, if and when we determine such offerings are required. Any future issuance of equity securities
could cause dilution to our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause
us to be subject to restrictive operating and financial covenants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Comparison of Six Months Ended June 30, 2012 and 2011</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We had net working capital of $193,994 at June 30, 2012, an
increase of $609,781 from net working capital deficit of $415,787 at June 30, 2011. The ratio of current assets to current liabilities
was 2-to-1 at June 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following is a summary of cash provided by or used in each
of the indicated types of activities during the six months ended June 30, 2012 and 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cash provided by (used in):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 76%; text-align: left">Operating activities</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(78,785</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(6,715</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Financing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">292,567</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">76,935</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Net cash flow used in operating activities was $78,785 for the
six months ended June 30, 2012, compared to net cash flow used in operating activities of $6,715 for the 2011 period. The increase
in net cash outflow in operating activities was attributable primarily to our shifting our focus to marketing our oral and topical-use
products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Net cash flow provided by financing activities was $0.29 million
for the six months ended June 30, 2012, compared to net cash flow of $0.08 million for the 2011 period. In 2012 period, we received
$310,796 from private placement sales of our common stock and $32,500 for the exercise of options offset by $50,729 in repayment
of notes payable. In the 2011 period, we received $176,000 from private placement sales of our common stock offset by $58,065 in
repayment of notes payable and $41,000 in cash overdraft.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of June 30, 2012, we had accounts receivable of $126,361.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Comparison of Years Ended December 31, 2011 and 2010</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We had net working capital deficit of $432,854 at December 31,
2011, a decrease of $329,074 net working capital deficit of $761,928 at December 31, 2010. The ratio of current assets to current
liabilities was .3-to-1 at December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following is a summary of cash provided by or used in each
of the indicated types of activities during the years ended December 31, 2011 and 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cash provided by (used in):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 76%; text-align: left">Operating activities</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(17,686</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(252,371</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Financing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,188</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,994</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Net cash flow used in operating activities was $0.02 million
in 2011 compared to net cash flow used in operating activities of $0.25 million in 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Net cash flow provided by financing activities was $51,188 in
2011 compared to net cash flow of $46,994 in 2010. In 2011, we received $193,500 from private placement sales of our common stock
and $75,000 in notes payable offset by $176,312 in repayment of notes payable. In 2010, we received $34,000 from private placement
sales of our common stock and $90,474 in notes payable offset by $118,480 in repayment of notes payable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of December 31, 2011, we had accounts receivable of $36,357.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Private Placements</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In a series of private placement transactions in the six months
ended June 30, 2012, we issued 1,828,212 shares of our common stock and 3-year warrants to purchase 914,106 shares of our common
stock at $0.40 per share to accredited investors at $0.17 per unit for $310,796.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In a series of private placement transactions in 2011, we issued
(i) 621,053 shares of our common stock at $0.2286 per share for $142,000 and (ii) 302,941 shares of our common stock and 3-year
warrants to purchase 151,500 shares of our common stock at $0.40 per share to accredited investors at $0.17 per unit for $51,500.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In a series of private placement transactions in 2010, we issued
200,000 shares of our common stock and 3-year warrants to purchase 100,000 shares of our common stock at $0.40 per share to accredited
investors at $0.17 per unit for $34,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Indebtedness</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">From time to time, our directors, officers and other related
individuals have made short-term advances to us for our operating needs. During the six months ended June 30, 2012, notes payable
due to officer and other related individuals totaling $50,729 were repaid and the balance of notes payable and amounts due to officer,
aggregating $311,443, were converted to common stock. Interest expense on notes payable amounted to $3,371 for the six months ended
June 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are subject to a royalty agreement pursuant to which we are
required to pay a monthly royalty of 8% on all sales of certain skin care products up to $227,175. At June 30, 2012, we included
$97,000 in accounts payable and accrued expenses relating to this royalty agreement, with the remaining commitment under the royalty
agreement at approximately $130,000. Our President, Mr. McLaughlin, has a 60% interest in the royalties paid under the agreement
and has voluntarily deferred payments due without interest until we have the financial wherewithal to pay such royalties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Legal Matters</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In November 2009, we entered into a settlement agreement to
resolve all aspects of litigation relating to a patent suit. As part of that settlement agreement in 2009, we received $440,000
as reimbursement for litigation costs. In addition, we were awarded $200,000 in eight installments of $25,000 every six months
beginning on January 15, 2011, in return for an exclusive patent license. The term of the license agreement is consistent with
the term of the $25,000 semi-annual payments. The $25,000 installments are being recorded as revenue only upon receipt of the funds.
At June 30, 2012, $100,000 remained to be paid to us under this agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Off-Balance Sheet Arrangements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">There are no off-balance sheet arrangements between us and any
other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to
shareholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have not entered into any financial guarantees or other commitments
to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to
our shares and classified as stockholders&rsquo; equity or that are not reflected in our consolidated financial statements. Furthermore,
we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Critical Accounting Policies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">While our significant accounting policies are described more
fully in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and analysis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Basis of Presentation and Use of Estimates</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles in the U.S., or U.S. GAAP. In preparing financial statements in conformity
with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Significant estimates required by management include the valuation of inventory and stockholders&rsquo;
equity-based transactions. Actual results could differ from those estimates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Inventory</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Inventory is valued at the lower of cost or market value with
cost determined on a first-in, first-out basis. Management compares the cost of inventory with the net realizable value and an
allowance is made for writing down their inventories to market value, if lower.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Revenue Recognition</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our revenue recognition 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.
We generally record sales once the product is shipped to the customer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Stock-based Compensation</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Stock-based employee compensation arrangements are accounted
for using the intrinsic value method. Compensation cost generally is recognized at fair value on the date of grant and amortized
over the respective vesting periods.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Company utilizes the Black-Scholes option-pricing model
for determining the estimated fair value of awards. Key inputs and assumptions include the expected term of the option, stock price
volatility, risk-free interest rate, dividend yield, stock price and exercise price. Many of the assumptions require significant
judgment and any changes could have a material impact in the determination of stock-based compensation expense. The Company estimates
forfeitures when recognizing compensation expense and adjusts forfeiture estimates over the vesting period based on actual or anticipated
forfeitures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>New Accounting Pronouncements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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 financial statements upon
adoption.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>OUR BUSINESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Our Company</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We manufacture, distribute and sell natural immune support products.
We have focused for over 20 years on the research and development of immune system enhancing compounds, including the purest, particulate
and soluble beta glucans derived from yeast. Beta glucans are a natural extract that has been clinically shown to support the immune
system. Our core nutraceutical and cosmetic product lines consist of our pure yeast beta glucans as the differentiating component
in oral and topical applications. Our beta glucan products and manufacturing processes are protected by patents and trade secrets,
compliant with current GMPs and classified as GRAS by the FDA. Historically, we have sold our products primarily on a word-of-mouth
basis through distributors and our website as standalone product lines, as well as business-to-business as a cosmetic enhancement,
dietary supplement or feed additive for animal use. We believe that we are well positioned to capitalize on our development of
proprietary and patented natural immune support products and can now focus on commercializing sales of these products on a more
meaningful, global basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We originally incorporated under the laws of British Columbia,
Canada, in 1987 under the name Anina Resources, Inc. and subsequently changed our name to Immudyne, Inc. and our jurisdiction to
the State of Wyoming by continuance in September 1987. On June 30, 1994, we changed our jurisdiction to Delaware by merger with
and into Immudyne, Inc., a Delaware corporation formed on June 21, 1994.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Our Products</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have developed a proprietary bio-refinement approach to produce
the purest, particulate and soluble beta glucans derived from yeast. Our pure yeast beta glucan is highly-soluble and tasteless,
making it suitable for use in a wide variety of oral and topical applications to support the immune system in humans and animals.
We believe that the benefits of our yeast beta glucans can be obtained through multiple sources as dietary supplements and nuticosmetics
because they are approved food products and classified as GRAS by the FDA. As the U.S. and international markets become more aware
of the value of our proprietary products, we believe demand for our pure beta glucans will increase materially. Our nutraceutical
and cosmetic product lines consist of high-grade beta glucan products for oral and topical applications as all-natural raw material
ingredients in bulk quantities and finished, consumer products packaged under our brands and private label brands. Historically,
we produced other grades of beta glucan products for the animal feeds industry as a substitute for antibiotics. As of 2011, we
began exiting this lower-margin market for feed-additive products. Our sales and marketing efforts going forward are concentrated
on our oral and topical-use products for healthcare professionals, distributors and direct-to-consumer sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Beta Glucans</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Beta glucans, or &beta;-Glucans, are a natural extract clinically
shown to be &ldquo;biological response modifiers&rdquo; that support the immune system. The potential benefits of beta glucans
to human health continue to emerge. Independent scientific research has demonstrated that beta glucans provide defense against
bacteria by activating innate immune cells, which fight off infection. In addition, a growing body of scientific literature suggests
that beta glucans have a substantial effect on cancer regression. The most common sources of beta glucans are derived from the
cell walls of baker&rsquo;s yeast, the cellulose in plants, the bran of cereal grains and certain fungi and bacteria. The differences
between beta glucan chemical structures are significant in regards to solubility and overall biological activity. Beta glucans
derived from mushrooms and cereals do not appear to have the same effects on human health as beta glucans derived from yeast. Yeast
beta glucans are notable for their ability to modulate the immune system, and research has shown that insoluble (1,3/1,6) yeast
beta glucan, like that used in our products, has greater biological activity than that of soluble (1,3/1,4) yeast beta glucan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We derive our high-grade beta glucan from yeast cell walls using
proprietary processes in our manufacturing facilities. Our pure beta-1,3/1,6-D glucan is 95% pure, free of yeast by-product and
endotoxins, and demonstrates reliability in terms of both stability and biological response. We believe that our pure yeast beta
glucan is the purest yeast beta glucan available currently and that we are one of the first manufacturers to market liquid beta-1,3/1,6-D
glucan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Healthcare professionals have taken an interest in our immune-support
products as a means of offering alternative or complementary approaches for maintaining a healthy and active lifestyle. The health
benefits of our pure yeast beta glucans have been demonstrated through extensive research and clinical studies, and we are committed
to supporting evidence-based studies that demonstrate the health benefits of our products. Scientific research on our pure beta-1,3/1,6-D
glucan derived from yeast cell walls has been conducted in recent years by renowned medical laboratories, including Baylor College
of Medicine, U.S. Armed Forces Radiobiology Institute, Stanford University, Southwest Research Institute, Case Western Reserve
University, University of Arkansas, North Carolina State University, University of Bern, Switzerland, and the China Agricultural
University, China. Through several consulting physicians, we have relationships with medical institutions and practicing physicians
who conduct clinical trials and beta work for our products. In two clinical trials reviewed in an article published in the Japanese
Journal Society Terminal Systemic Diseases in 2000, participants ingesting our pure yeast beta glucan showed a decreased reoccurance
of cancer in cancer remission patients and increased survival rates in terminally-ill cancer patients. In addition, female study
participants testing the effect of our pure yeast beta glucan in topical applications saw a significant reduction in the number
and intensity of skin wrinkles over the eight-week study. We presented the results of these and other trials demonstrating the
clinical proof of efficacy of our products at the BIO-Europe global biotechnology conference in November 2010 and World Immune
Regulator Meeting in Davos, Switzerland, in March 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Yeast Beta Glucan Product Lines</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our nutraceutical and cosmetic product lines consist of our
all-natural, premium yeast beta glucans in oral and topical applications clinically shown to support the immune system. Neutraceuticals
are plant-derived products, such as our yeast beta glucans, with pharmaceutical-like properties that have biologically-therapeutic
effects in humans and animals in addition to the basic nutritional value found in foods. Our yeast beta glucan products are classified
as GRAS by the FDA and designed to help support the body&rsquo;s immune system response and defense. We offer our yeast beta glucans
as all-natural raw material ingredients in bulk quantities and finished, consumer products packaged under our brands and private
label brands.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I><img src="tpg30.jpg"></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our MacroForce Plus once-daily oral capsules and Skin Care
Essentials line of rejuvenating serums and creams.</I></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our principal, branded nutraceutical and cosmetic products for
our pure yeast beta glucans are the MacroForce line of once-daily oral capsules and Skin Care Essentials line of rejuvenating serums
and creams. Our MacroForce line of once-daily oral capsules are dietary supplements containing proprietary combinations of our
pure yeast beta glucan to aid in immune system function and help the body&rsquo;s vital ability to heal and maintain itself. Our
Skin Care Essentials Rejuvenating Serum and Rejuvenating Cream topical applications consist of our patented yeast-derived beta
glucan and other natural ingredients to help enhance the skin&rsquo;s immune system response and defense, promoting skin renewal
and repair of sun and environmental damage. We believe we are one of the first manufacturers to market liquid beta-1,3/1,6-D glucan
as a topical application in our Skin Care Essentials line of serums and creams and as an all-natural raw material ingredient.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Sales and Marketing</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our sales and marketing strategy is to build brand recognition
of our products as the purest, particulate and soluble beta glucans derived from yeast. Historically, we have sold our products
primarily on a word-of-mouth basis through distributors and our website as standalone product lines, as well as business-to-business
as a cosmetic enhancement, dietary supplement or feed additive for animal use. We have shifted our sales focus to concentrate on
our nutraceutical and cosmetic product lines and began exiting the lower-margin feed-additive lines as of 2011. We believe that
we are well positioned to capitalize on our development of proprietary and patented products and can now focus on commercializing
sales of these products on a more meaningful, global basis. Our principal products are consumables that can generate a stream of
repeat sales with the same end customers over an extended period, providing significant lifetime value for each customer gained.
To reach these customers, we anticipate that our marketing strategy will include online sales promotions through our website, expansion
of our affiliate sales program, trade advertising, consumer research and search engine and digital advertising. In addition, we
intend to build our brand recognition with healthcare professionals through clinical trials and providing practitioners and clinics
with education and support. We believe that the recommendation of our products by healthcare professionals to their patients provides
the best possible endorsement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We also market our products by presenting at international biotechnology
and alternative medicine conferences and through nutraceutical industry associations and tradeshows. In March 2012, we presented
the outcome of our cancer studies at the World Immune Regulator Meeting in Davos, Switzerland. The special focus of the meeting
was on innate and adaptive immune response and the role of tissues in immune regulation. In November 2010, we presented the results
of clinical trials demonstrating the efficacy of our pure yeast beta glucan in terminally ill cancer patients and cancer remission
patients at the BIO-Europe biotechnology partnership conference in Munich, Germany.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Manufacturing and Sourcing</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Over the past 20 years, we have focused on the research and
development of immune system enhancing compounds, including the purest, particulate and soluble beta glucans derived from yeast.
Our beta glucan products and manufacturing processes are protected by registered and pending patents and trade secrets. Our highly
trained and experienced staff produces consistently high-grade, particulate and reliable beta glucan, including the raw materials
for our nutraceutical and cosmetic product lines, in our Kentucky-based production plant. Our manufacturing facilities and practices
are compliant with published current Good Manufacturing Practices established by the FDA for dietary supplements. For certain of
our packaged consumer goods, such as the MacroForce product line, we use third party contractors for encapsulation, bottling and
labeling. These contractors are subject to regular government inspections, comply with current GMPs and hold the necessary drug
manufacturing licenses and processed food registrations required by their respective state regulators. Such packaging services
are readily available from multiple sources.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The raw materials necessary to manufacture beta glucans in our
Kentucky plant, principally consisting of baker&rsquo;s yeast, are common and readily available. Our principal suppliers are the
Lesaffre Group and Brenntag Group. We hold our suppliers to strict quality and delivery specifications as part of our GMP compliance
and quality control procedures, including quality assurance of raw materials used in the production of our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Customers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We sell our products direct to consumers and to pharmaceutical,
nutraceutical and consumer product companies in the U.S. and international markets. Sales through distributors and business-to-business
typically are made pursuant to supplier agreements executed in the ordinary course of business with individual orders made on standard
purchase orders. We focus on establishing and growing long-term relationships with our customers, and we believe that the majority
of our customers view us as a strategic long-term supplier and value the quality of our beta glucan products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As we seek to expand our U.S. and global sales, our marketing
concentrates on our nutraceutical and cosmetic product lines as a raw material ingredient available in bulk quantities and finished,
consumer products packaged under our brands and private label brands. We anticipate that our customer mix will change accordingly
to include more sales through distributors and our affiliate program, and direct sales to consumers. We encourage nutriceutical
and nutricosmetic manufacturers and formulators purchasing our beta glucans as all-natural raw material ingredients to identify
and promote our brand in their products. As our principal products are consumables that typically generate repeat sales streams
with the same end customers over an extended period, we historically have not experienced seasonality of sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Sales of our oral and topical-use products consisted of 99%
and of our sales for the first two quarters of 2012, and consisted of 80% and 38% of our sales in 2011 and 2010, respectively.
Sales of our animal feed additive products consisted of 1% of our sales for the first two quarters of 2012 and, 20% and 62% of
our sales in 2011 and 2010, respectively. We anticipate further decreased sales of our feed-additive products for animals as a
percentage of our overall sales as we change our product focus to our oral and topical-use products. Our largest customer, MMP,
Inc., accounted for 77% and 61% of our sales for the six months ended June 30, 2012 and 2011, respectively, and 53% and 23% of
our total sales in 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Competition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The markets for nutritional supplements and skin care products
are highly competitive, consisting of a large number of manufacturers, distributors and retailers, none of which dominates the
fragmented and diverse markets. We compete for sales direct to consumers, through our affiliate program, through distributors and
business-to-business in North America, Asia and Europe. Although we believe that our pure yeast beta glucan is the purest yeast
beta glucan available on the market currently, and that we are one of the first manufacturers to market liquid beta-1,3/1,6-D glucan,
we compete with other companies manufacturing beta glucans from yeast and other sources, as well as companies producing other food
ingredients and nutritional supplements for human use and as feed additives. Many end consumers may consider such products to be
a replacement for the products we manufacture and distribute. Many of our competitors have greater marketing, research and capital
resources than us, and may be able to offer their products at lower costs because of their greater purchasing power or lower cost
of raw materials and manufacturing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We anticipate expanding our global sales on a more meaningful
basis as part of our new marketing strategy focusing on our nutraceutical and cosmetic product lines. We believe that we are well
positioned to capitalize on our development of proprietary and patented products to compete in the immune support markets. We anticipate
competing in these markets on the basis of quality, our proprietary manufacturing processes, clinical data and effective marketing
campaigns promoting the benefits of our natural immune support products. There are no assurances that our products will be able
to compete in these markets, however, or that our new marketing strategy will be successful.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Intellectual Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We rely on the patent and trademark protection laws in the U.S.
to protect our intellectual property and maintain our competitive position in the marketplace. We have four registered patents
in the U.S. with expiration dates ranging from 2013 to 2028. Additionally, we currently have one patent application filed in the
U.S. and pending formal review and a second provisional patent application pending, and we intend to apply for additional patents
in the future as new products, uses and manufacturing processes are developed. We maintain trademarks registered in the U.S. for
our business name and related to our product brands. In addition, we have registered and maintain internet domain names related
to our business, including &ldquo;immudyne.com.&rdquo; Collectively, the patents, trademarks and domain names that we hold are
of material importance to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Research and Development</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our expertise for many years has been in the development of
efficient, stable and cost-effective production systems for beta glucan products derived from yeast, though we have not incurred
any research and development expenses to date. We may increase future investments in research and development and clinical trials
to establish the scientific basis for health claims of our existing products and to develop new products and applications based
on our growth and available capital.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Governmental and Environmental Regulation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our business and the manufacturing, distribution and sale of
our beta glucan products are regulated in the U.S. primarily by the FDA and the FTC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The FDA enforces the FDCA and DSHEA as they pertain to foods,
food ingredients, cosmetics and dietary supplement production and marketing. Dietary supplements and nutraceuticals are regulated
as a category of food, not as drugs. The FDA classifies &ldquo;Yeast extract (Bakers)&rdquo; as GRAS, which substances by definition
are not food additives. Most GRAS substances have no quantitative restrictions as to use, although their use must conform to current
GMPs. The FDA promulgates GMP guidelines to ensure that dietary supplements are produced in a quality manner, do not contain contaminants
or impurities and are accurately labeled. GMPs include requirements for establishing quality control procedures, designing and
constructing manufacturing plants, testing ingredients and finished products and record keeping and handling of consumer product
complaints. The FDA has broad authority to enforce the provisions of federal law applicable to dietary supplements and cosmetics,
including the power to monitor claims made in product labeling, to seize adulterated or misbranded products or unapproved new drugs,
to request product recall, to enjoin further manufacture or sale of a product, to issue warning letters and to institute criminal
proceedings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Advertising and product claims regarding the efficacy of products
are also regulated by the FTC. The FTC regulates the advertising of dietary supplements and other health-related products to ensure
that any advertising is truthful and not misleading, and that an advertiser maintains adequate substantiation for all product claims.
FTC enforcement actions may result in consent decrees, cease and desist orders, judicial injunctions and the payment of fines with
respect to advertising claims that are found to be unsubstantiated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our yeast beta glucan is classified as GRAS by the FDA and our
oral and topical-use product lines containing our yeast beta glucan are marketed as dietary supplements and cosmetics, respectively.
Under current U.S. regulations, our products must comply with certain labeling requirements enforced by the FDA and FTC, but otherwise
generally are not required to receive regulatory approval prior to introduction into the U.S. market. We believe we are in compliance
with all material government regulations applicable to our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In the EU markets, the EFSA, an advisory panel to the European
Commission, performs all scientific assessments of health claims on food and supplement labels. The European Commission will consider
the opinions of EFSA in determining whether to include a health claim on list of permissible claims. Once published, only health
claims for ingredients and products included on the list may be used in promotional materials for products marketed and sold in
the European Union. The marketability of our products may be limited as we look to expand our sales in the EU if the health claims
of our products are not included on the list.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In addition to the foregoing, our operations are subject to
federal, foreign, state and local government laws and regulations, including those relating to zoning, workplace safety and accommodations
for the disabled, and our relationship with our employees is subject to regulations, including minimum wage requirements, anti-discrimination
laws, overtime, working conditions and citizenship requirements. We currently do not incur any material costs in connection with
our compliance with applicable environmental laws as our manufacturing processes generate minimal discharge. Furthermore, the cost
of maintaining compliance with applicable environmental laws has not, and we believe, in the future, will not, have a material
adverse effect on our business, results of operations and financial condition. We believe we are in substantial compliance with
all material governmental regulations applicable to our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Employees</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of June 30, 2012, we had 3 full-time employees and 11 part-time
employees and consultants worldwide. We outsource many of our research, product development and marketing activities to consultants
who provide services to us on a project basis. We believe that relations with our employees are satisfactory. We have no collective
bargaining agreements with our employees. All full-time employees and our officers and directors are eligible to participate in
our group health and dental insurance plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our principal executive offices are in office space provided
at no cost to us by our President in Mount Kisco, New York. We lease a manufacturing facility with warehouse space consisting of
approximately 15,000 square feet in Florence, Kentucky, in the vicinity of the Cincinnati, Ohio, airport. We believe that our existing
office and manufacturing facilities are adequate for current and presently foreseeable operations. In general, our properties are
well maintained and being utilized for their intended purposes. See Notes 3 and 8 to our financial statements contained herein,
which disclose amounts invested in lease agreements and furnishings and equipment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Legal Proceedings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may become involved in various lawsuits and legal proceedings
arising in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other
matters may arise from time to time that may have an adverse effect on our business, financial conditions or operating results.
We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material
adverse effect on our business, financial condition or operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Executive Officer and Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth the names of our directors, executive
officer and certain significant employees and their ages, positions and biographical information as of the date of this prospectus.
Our executive officer is appointed by, and serves at the discretion of, our Board of Directors. Dr. Bruzzese, our Chairman, is
the son-in-law of Mr. Agostini, one of our directors. There are no other family relationships among our directors or executive
officer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 37%; border-bottom: windowtext 1pt solid; font-weight: bold">Name</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 56%; border-bottom: windowtext 1pt solid; font-weight: bold">Position</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 5%; border-bottom: windowtext 1pt solid; font-weight: bold">Age</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Anthony G. Bruzzese, M.D.</TD>
    <TD>&nbsp;</TD>
    <TD>Chairman</TD>
    <TD>&nbsp;</TD>
    <TD>57</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Mark McLaughlin</TD>
    <TD>&nbsp;</TD>
    <TD>President, Chief Executive Officer and Director</TD>
    <TD>&nbsp;</TD>
    <TD>55</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Dominic J. Agostini</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>83</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>John R. Strawn, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>52</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Anthony G. Bruzzese, M.D., Chairman</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Dr. Bruzzese has served as Chairman of our Board of Directors
since April 2004. He is a practicing radiologist in Warwick, Rhode Island, certified by both the American Board of Internal Medicine
and the American Board of Radiology. Since 1997, Dr. Bruzzese has served as a principal at Toll Gate Radiology, Inc., providing
patients with comprehensive diagnostic imaging services. Dr. Bruzzese also has served on the medical staffs at Roger Williams Medical
Center since 2008 and Landmark Medical Center since 2011. He previously served on the medical staff at Kent County Memorial Hospital
in Rhode Island from 1997 to 2005. Dr. Bruzzese has served as a Fellow, Councilor and Alternate Councilor to the American College
of Radiology on behalf of the Rhode Island Radiology Society. Dr. Bruzzese received his Bachelor of Science and Doctor of Medicine
from Brown University. <FONT STYLE="color: black">Dr. Bruzzese is the son-in-law of Mr. Agostini, one of our directors. </FONT>Dr.
Bruzzese brings to the Board of Directors over 20 years of experience in medical practice. The Board of Directors believes that
Dr. Bruzzese&rsquo;s knowledge of internal medicine and life sciences will assist us in our future growth and expansion plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Mark McLaughlin, President, Chief Executive Officer and
Director</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Mr. McLaughlin has served as our President and member of the
Board of Directors since March 2004 and Chief Executive Officer since April 2011. Mr. McLaughlin brings extensive knowledge about
raising capital, marketing, business and corporate development, and of our operations and long-term strategy to the Board of Directors.
In addition, Mr. McLaughlin played an integral role in successfully prosecuting several intellectual property violations in our
favor. Since 1994, he has served as President of McLaughlin International, Inc., or MII, a management consulting firm controlled
by Mr. McLaughlin. Previously, Mr. McLaughlin served as Senior Vice President at Oppenheimer &amp; Co. from 1990 to 1992 and Lehman
Brothers from 1981 to 1990. Mr. McLaughlin graduated from the College of the Holy Cross. The Board of Directors believes that Mr.
McLaughlin&rsquo;s leadership and extensive knowledge about us is essential to our future growth.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Dominic J. Agostini, Director</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Mr. Agostini has served as a member of our Board of Directors
since February 2001. Mr. Agostini brings to the Board of Directors a long and successful business career with extensive experience
at the senior management level. Mr. Agostini currently is a director, officer and one-third owner of A. B. Smithfield Associates,
which operates a retail shopping center in Rhode Island. Mr. Agostini previously served as Senior Manager of Business Development
for the Gilbane Building Company until 1993, and prior to such position, he served as Chief Operating Officer of International
Processing Systems and Executive Vice President of ICM Corporation. Mr. Agostini received a Bachelor of Science in Business Administration
from Bryant University. Mr. Agostini is the father-in-law of Dr. Bruzzese, our Chairman.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>John R. Strawn, Jr., Director</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Mr. Strawn has served as a member of our Board of Directors
since July 2011. Mr. Strawn brings to the Board of Directors over 25 years of legal experience, including extensive knowledge of
our intellectual property portfolio. His practice focuses on complex commercial litigation. Mr. Strawn has successfully represented
the company for over 10 years, including in a dispute over the ownership and licensing of multiple patents. After prevailing in
a jury trial that was upheld on appeal in 2009, the matter was settled on favorable terms for the company. In 2010, Mr. Strawn
became a founding partner of Strawn Pickens LLP in Houston, Texas. Prior to founding Strawn Pickens, Mr. Strawn was the Co-Managing
Partner of Cruse Scott Henderson &amp; Allen LLP, a law firm based in Houston, Texas, since 1992. Mr. Strawn received his Juris
Doctor from the University of Texas Law School and his bachelor&rsquo;s degree from Dartmouth College.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Involvement in certain legal proceedings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">During the past ten years, none of our directors or executive
officer has been:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that time;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses);</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating
to an alleged violation of a federal or state securities or commodities law or regulation, law or regulation respecting financial
institutions or insurance companies, law or regulation prohibiting mail or wire fraud or fraud in connection with any business
entity; or</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization,
any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its
members or persons associated with a member.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">None of our directors, executive officer or affiliates, or any
control person or beneficial owner of 5% or more of our common stock, or any associate of such persons, is an adverse party in
any material proceeding to, or has a material interest adverse to, the company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Corporate Governance</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our Board of Directors currently is comprised of four directors,
Dr. Bruzzese and Messrs. McLaughlin, Agostini and Strawn. While we are not subject to any director independence requirements because
of our quotation on the OTC Markets-OTC Pink Current, we have adopted the NASDAQ listed company standards for the purposes of determining
director independence. Under these standards, the Board of Directors has determined that Dr. Bruzzese and Mr. Agostini qualify
as independent directors. In determining the independence of our directors, the Board of Directors considered all transactions
in which we and any director had any interest, including those discussed under &ldquo;Certain Relationships and Related Transactions&rdquo;
beginning on page 34 of this prospectus. The Board of Directors currently has no separately designated standing committees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>EXECUTIVE COMPENSATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As a &ldquo;smaller reporting company,&rdquo; we have elected
to follow the scaled disclosure requirements for smaller reporting companies with respect to the disclosures required by Item 402
of Regulation S-K. Under such scaled disclosure, we are not required to provide a Compensation Discussion and Analysis, Compensation
Committee Report and certain other tabular and narrative disclosures relating to executive compensation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Executive Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth information concerning the compensation
of our principal executive officer for the year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Summary Compensation
Table&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 31%; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 10%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 10%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 10%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 10%; font-weight: bold; text-align: center">Non-Equity</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 10%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 10%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Option</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Incentive Plan</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">All Other</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold">Name and Principal</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Year</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Salary</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Awards</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Compensation</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Compensation</TD>
    <TD NOWRAP STYLE="vertical-align: top; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; font-weight: bold; text-align: center">Total</TD>
    <TD>&nbsp;</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold">Position</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center">($)</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: black"><B>($)<SUP>(1)</SUP></B></FONT></TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center">($)</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">($)</TD>
    <TD NOWRAP STYLE="vertical-align: top; border-bottom: black 1pt solid; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center">($)</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Mark McLaughlin</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">President, Chief Executive Officer and Director<SUP>(2)</SUP></P></TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">2011</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">120,000</TD>
    <TD STYLE="vertical-align: bottom; text-align: right"><SUP>(3)</SUP></TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">131,900&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">-</TD>
    <TD STYLE="vertical-align: bottom; text-align: right"><SUP>(4)</SUP></TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">10,682</TD>
    <TD STYLE="vertical-align: bottom; text-align: right"><SUP>(5)</SUP></TD>
    <TD STYLE="vertical-align: bottom; text-align: right">262,582</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Amounts shown reflect aggregate grant date fair value and, where applicable, incremental fair value as of modification date,
of awards and do not reflect whether the recipient actually has realized a financial benefit from such grant, such as by exercising
the options or selling the stock. A discussion of the assumptions used in calculating the award values may be found in Note 2 to
our financial statements contained herein.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Mr. McLaughlin receives no compensation for serving as a member of our Board of Directors.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>In June 2012, we issued to Mr. McLaughlin 588,236 shares of our common stock and 3-year warrants to purchase 294,118 shares
of our common stock at $0.40 per share at $0.17 per unit in satisfaction of $100,000 of deferred salary accrued in 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(4)</TD><TD>Under his employment agreement entered into on April 20, 2011, as amended, Mr. McLaughlin earns an annual incentive bonus award
consisting of 5% of our pre-tax earnings payable each semi-annual fiscal year. We did not have any pre-tax earnings in 2011 and
no incentive bonus was earned or awarded.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in"><FONT STYLE="color: black">(5)</FONT></TD><TD><FONT STYLE="color: black">On May 22, 2012, the Board of Directors authorized a one-year extension of the
                                                                                             expiration                                                                                              date for warrants
                                                                                             held by Mr. McLaughlin to purchase 1.5 million shares of our common stock at $0.12 per share that were to
                                                                                             expire in 2011.</FONT> <FONT STYLE="color: black">These warrants with such one-year extension of the expiration date had an
                                                                                             incremental fair value of $10,682 as of May 22, 2012.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth information concerning the outstanding
equity awards held by our principal executive officer at December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="21" NOWRAP STYLE="font-weight: bold; text-align: center">Outstanding Equity Awards at Fiscal Year-End for 2011</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="18" NOWRAP STYLE="font-weight: bold; text-align: center">Option Awards</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number of</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number of</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number of</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Securities</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Securities</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Securities</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Underlying</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Underlying</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Underlying</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Unexercised</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Unexercised</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Unexercised</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Option</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Option</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Options</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Options</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Options</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Expiration</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">Name</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(#)&nbsp;Exercisable</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(#)&nbsp;Unexercisable</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(#)&nbsp;Unearned</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Date</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%">Mark McLaughlin<SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">1,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">0.10</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">03/01/2018</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,700,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">04/20/2021</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">04/20/2021</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500,000</TD><TD STYLE="text-align: left"><SUP>(2)</SUP></TD><TD><SUP>&nbsp;</SUP></TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">04/20/2021</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500,000</TD><TD STYLE="text-align: left"><SUP>(3)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.80</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">04/20/2021</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>All options held by Mr. McLaughlin are fully vested from grant date and exercisable on a cashless basis.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Options become earned and exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration
date.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Options become earned and exercisable upon our achieving $10 million in revenues in any fiscal year prior to the expiration
date.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Employment Agreement</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On April 20, 2011, we entered into a five-year employment agreement,
with Mr. McLaughlin as our President and Chief Executive Officer, which was amended on October 12, 2012, under which he will be
compensated at $134,400 per annum. As of June 30, 2012, all prior compensation due to Mr. McLaughlin has been satisfied either
through cash payments or stock issuances. In addition to his base salary, Mr. McLaughlin will earn an annual incentive bonus award
consisting of 5% of our pre-tax earnings payable each semi-annual fiscal year. We also granted to Mr. McLaughlin under his employment
agreement, as amended, 10-year, fully-vested options to purchase an aggregate of 3.3 million shares of our common stock, such options
consisting of the right to purchase: (i) 1.7 million shares of our common stock at $0.20 per share; (ii) 0.5 million shares of
our common stock at $0.40 per share; (iii) 0.5 million shares of our common stock at $0.40 per share upon our achieving $5 million
in revenues in any fiscal year prior to the expiration date; and (iv) 0.5 million shares of our common stock at $0.80 per share
upon our achieving $10 million in revenues in any fiscal year prior to the expiration date. If at any time prior to the expiration
date of the options we merge into or are acquired by another company, any outstanding options granted under Mr. McLaughlin&rsquo;s
employment agreement will become immediately exercisable on the business day immediately preceding the merger or acquisition at
$0.40 per share or the preceding average 30-day market price of our common stock prior to the announcement of such merger or acquisition,
whichever price is lower.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Prior to our entering into this employment agreement, we compensated
Mr. McLaughlin for his services as our President at $10,000 per month. From time to time he voluntarily deferred this compensation
without interest.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our employment agreement with Mr. McLaughlin contains provisions
prohibiting competition by him following his employment with us. Mr. McLaughlin&rsquo;s employment agreement specifies the conditions
under which the agreement may be terminated and stipulates that he shall not be entitled to severance payments upon termination.
Mr. McLaughlin is entitled to retain any options granted under his employment agreement and that remain outstanding at the time
his employment agreement is terminated, however. <FONT STYLE="color: black">We do not have any other existing arrangements providing
for payments or benefits in connection with the resignation, severance, retirement or other termination of Mr. McLaughlin, or a
change in control of the company or a change in his responsibilities following a change in control. We currently do not have any
defined pension plan for Mr. McLaughlin. We currently do not have any nonqualified defined contribution or other plan that provides
for the deferral of compensation for Mr. McLaughlin nor do we currently intend to establish any such plan. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Compensation of Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth information concerning the compensation
of our directors for the year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="21" NOWRAP STYLE="font-weight: bold; text-align: center">Director Compensation for 2011</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Fees&nbsp;Earned&nbsp;or <BR> Paid&nbsp;in&nbsp;Cash</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Option<BR>
Awards</TD><TD NOWRAP STYLE="font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Non-Equity <BR> Incentive <BR> Plan <BR> Compensation</TD><TD NOWRAP STYLE="font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">All Other<BR>
Compensation</TD><TD NOWRAP STYLE="font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Total</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">Name</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="color: black"><B>($)<SUP>(1)</SUP></B></FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: black; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 35%; text-align: left">Anthony G. Bruzzese, M.D.</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">37,520</TD><TD STYLE="width: 1%; text-align: left"><SUP>(2)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left"><SUP>(3)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">735</TD><TD STYLE="width: 1%; text-align: left"><SUP>(4)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">38,255</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Dominic J. Agostini</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,750</TD><TD STYLE="text-align: left"><SUP>(5)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,591</TD><TD STYLE="text-align: left"><SUP>(6)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">24,341</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">John R. Strawn, Jr.</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">85,000</TD><TD STYLE="text-align: left"><SUP>(7)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left"><SUP>(8)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">85,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Amounts shown reflect aggregate grant date fair value and, where applicable, incremental fair value as of modification date,
of awards and do not reflect whether the recipient actually has realized a financial benefit from such grant, such as by exercising
the options or selling the stock. A discussion of the assumptions used in calculating the award values may be found in Note 2 to
our financial statements contained herein.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>As of December 31, 2011, Dr. Bruzzese held fully-vested options to purchase an aggregate of 1,310,000 shares of our common
stock, such options consisting of the right to purchase: (i) 500,000 shares of our common stock at $0.20 per share with an expiration
date of December 31, 2012; (ii) 560,000 shares of our common stock at $0.20 per share with an expiration date of April 20, 2021;
and (iii) 250,000 shares of our common stock at $0.40 per share with an expiration date of April 20, 2021, such options to become
exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration date. Each such option held by
Dr. Bruzzese is exercisable on a cashless basis.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: -0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Under his director&rsquo;s agreement effective as of April 20, 2011, Dr. Bruzzese earns an annual incentive bonus award consisting
of 1% of our pre-tax earnings payable each semi-annual fiscal year. We did not have any pre-tax earnings in 2011 and no incentive
bonus was earned or awarded.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in"><FONT STYLE="color: black">(4)</FONT></TD><TD><FONT STYLE="color: black">On June 14, 2011, the Board of Directors authorized a one-year extension of the expiration date
for fully-vested options held by Dr. Bruzzese to purchase 500,000 shares of our common stock at $0.10 per share that were to expire
in 2011.</FONT> These options with such one-year extension of the expiration date had an incremental fair value of $735 as of June
14, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(5)</TD><TD>As of December 31, 2011, Mr. Agostini held fully-vested options to purchase an aggregate of 1,375,000 shares of our common
stock, such options consisting of the right to purchase: (i) 1,000,000 shares of our common stock at $0.10 per share with an expiration
date of December 31, 2012; (ii) 250,000 shares of our common stock at $0.20 per share with an expiration date of April 20, 2021;
and (iii) 125,000 shares of our common stock at $0.40 per share with an expiration date of April 20, 2021, such options to become
exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration date. Each such option held by
Mr. Agostini is exercisable on a cashless basis.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in"><FONT STYLE="color: black">(6)</FONT></TD><TD><FONT STYLE="color: black">On June 14, 2011, the Board of Directors authorized a one-year extension of the expiration date
for fully-vested options held by Mr. Agostini to purchase 1,000,000 shares of our common stock at $0.10 per share that were to
expire in 2011.</FONT> These options with such one-year extension of the expiration date had an incremental fair value of $7,591
as of June 14, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(7)</TD><TD>As of December 31, 2011, Mr. Strawn held fully-vested options to purchase an aggregate of 2,000,000 shares of our common stock,
such options consisting of the right to purchase: (i) 1,000,000 shares of our common stock at $0.20 per share with an expiration
date of July 1, 2021; (ii) 500,000 shares of our common stock at $0.40 per share with an expiration date of July 1, 2021; and (iii)
500,000 shares of our common stock at $0.40 per share with an expiration date of July 1, 2021, such options to become exercisable
upon our achieving $5 million in revenues in any fiscal year prior to the expiration date. Each such option held by Mr. Strawn
is exercisable on a cashless basis.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(8)</TD><TD>Under his director&rsquo;s agreement effective as of July 1, 2011, Mr. Strawn earns an annual incentive bonus award consisting
of 3% of our pre-tax earnings payable each semi-annual fiscal year. We did not have any pre-tax earnings in 2011 and no incentive
bonus was earned or awarded.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Board of Directors may determine remuneration to be paid
to the directors with interested members refraining from voting. Our independent directors each have entered into two-year director&rsquo;s
agreements with us, pursuant to which they will receive annual cash compensation of an amount to be negotiated and agreed upon
when we have the financial wherewithal to pay such compensation for their service. In addition to their base compensation, Dr.
Bruzzese and Mr. Strawn each will earn an annual incentive bonus award consisting of 1% and 3%, respectively, of our pre-tax earnings
payable each semi-annual fiscal year. We also made grants of 10-year, fully-vested options to purchase 810,000, 375,000 and 2,000,000
shares of our common stock as described in the footnotes to the above table to Dr. Bruzzese, Mr. Agostini and Mr. Strawn, respectively,
pursuant to their director&rsquo;s agreements effective as of April 20, 2011, April 20, 2011, and July 1, 2011, respectively. If
at any time prior to the expiration date of the options we merge into or are acquired by another company, any outstanding options
granted under the directors&rsquo; agreements will become immediately exercisable on the business day immediately preceding the
merger or acquisition at $0.40 per share or the preceding average 30-day market price of our common stock prior to the announcement
of such merger or acquisition, whichever price is lower. We do not compensate our non-independent director, Mr. McLaughlin, for
serving as our director. All directors are eligible to receive reimbursement of expenses incurred with respect to attendance at
board meetings, which is not included in the above table. We do not maintain a medical, dental or retirement benefits plan specifically
for our directors, but all directors are eligible to participate in our employee group health and dental insurance plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In addition to the executive officer and director compensation
arrangements discussed in &ldquo;Executive Compensation&rdquo; beginning on page 31, the following describes transactions since
January 1, 2009, to which we have been a participant, in which the amount involved in the transaction exceeds the lesser of $120,000
or 1% of the average of our total assets at year end and in which any of our directors, executive officer or holders of more than
5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had
or will have a direct or indirect material interest.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Royalty Agreement</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are subject to a royalty agreement pursuant to which we are
required to pay a monthly royalty of 8% on all sales of certain skin care products up to $227,175. Mr. McLaughlin, our President,
has a 60% interest in the royalties paid under the agreement, or $136,305. Royalties earned and expensed in each of 2009, 2010,
2011 were approximately $24,000 per year and $25,000 during the first two quarters of 2012. We made a royalty payment of approximately
$16,061 on August 13, 2012. As of October 17, 2012, the remaining commitment under
the royalty agreement is approximately $113,939. Mr. McLaughlin customarily defers without interest payments due under the royalty
agreement until we have the financial wherewithal to pay such royalties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Indebtedness to our President and Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">From time to time, Mr. McLaughlin, our President, has made short-term
advances to us for our operating needs. These advances bear interest at 5% per annum, are unsecured and have no fixed terms of
repayment. Since 2009, the largest aggregate amount of principal outstanding was $222,574.38. In each of 2009, 2010 and 2011, principal
paid was 27,045.74, 13,408, and $64,116.85, and interest paid was $2,954.26, $6,591.26, and 4,883.15, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In April 2011, in satisfaction of $140,000 advance payable,
Mr. McLaughlin exercised 1,500,000 options, 1,000,000 options of which were exercised at $0.10 per share, and 500,000 of which
were exercised at $0.08 per share. In the first two quarters of 2012, principal paid was $41,531.25 and interest paid was $542.75.
As of October 17, 2012, no principal and interest remains outstanding on these advances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In addition, Mr. McLaughlin made an unsecured advance to us
in 2005 for our long-term operating needs bearing interest at 10% and payable monthly from date of advance. Since 2009, the largest
aggregate amount of principal outstanding on this advance was $123,119. In each of 2009, 2010 and 2011, principal paid was $34,774,
$35,066 and $42,381, and interest paid was $10,747, $6,662 and $3,139, respectively. As of the pay-off date in February 2012, principal
and interest paid in 2012 was $10,898 and $482, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In the past, Mr. McLaughlin has voluntarily deferred receipt
of his salary as our President until such time as we have the financial wherewithal to pay such salary, but there can be no assurance
that Mr. McLaughlin will continue this practice. In months where our cash flow does not permit us to pay his monthly compensation,
the amount owed Mr. McLaughlin is accrued without interest. In 2011, the largest amount of accrued salary was $100,000. In June
2012 and in connection with our private placement, we issued to Mr. McLaughlin 588,236 shares of our common stock and 3-year warrants
to purchase 294,118 shares of our common stock at $0.40 per share at $0.17 per unit in satisfaction of $100,000 of deferred salary
accrued in 2011. As of October 17, 2012, no accrued salary required to be paid remains outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">From time to time, Dr. Bruzzese, our Chairman, has made advances
to us for our operating needs. These advances bore interest at 5% per annum, were unsecured and had no fixed terms of repayment.
Since 2009, the largest aggregate amount of principal outstanding was $32,500. In 2009, 2010 and 2011, no principal was paid and
interest paid was $875, $875 and $875, respectively. In 2012, interest paid was $218.76. In June 2012 and in connection with our
private placement, we issued to Dr. Bruzzese 191,176 shares of our common stock and 3-year warrants to purchase 95,588 shares of
our common stock at $0.40 per share at $0.17 per unit in satisfaction of the $32,500 principal outstanding due him.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">From time to time, Mr. Agostini, a member of our Board of Directors,
has made advances to us for our operating needs. These advances bore interest at 5% per annum, were unsecured and had no fixed
terms of repayment. Since 2009, the largest aggregate amount of principal outstanding was $17,500. In each of 2009, 2010 and 2011,
no principal was paid and interest paid was $875 for each year. In 2012, interest paid was $292. In April 2012, Mr. Agostini exercised
options to purchase 500,000 shares of our common stock at $0.10 per share, with payment consisting of $32,500 in cash and satisfaction
of the $17,500 in principal outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Common Stock Issuances</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In April 2011, Mr. McLaughlin, our President, exercised stock
options for 1,500,000 shares, in satisfaction of $140,000 due to Mr. McLaughlin, 1,000,000 options of which were exercised at $0.10
per share, and 500,000 of which were exercised at $0.08 per share. Of the options exercised, 500,000 were exercised at $0.08 per
share and 1,000,000 were exercised at $0.10 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In July 2011, we issued to Dr. Bruzzese, our Chairman, 72,941
shares of our common stock and 3-year warrants to purchase 36.470 shares of our common stock at $0.40 per share at $0.17 per unit
for $12,400 in connection with our private placement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2012, we issued to Mr. McLaughlin, our President, 588,236
shares of our common stock and 3-year warrants to purchase 294,118 shares of our common stock at $0.40 per share at $0.17 per unit
in satisfaction of $100,000 of deferred salary accrued in 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2012, we issued to Dr. Bruzzese, our Chairman, 191,176
shares of our common stock and 3-year warrants to purchase 95,588 shares of our common stock at $0.40 per share at $0.17 per unit
in satisfaction of $32,500 due to Dr. Bruzzese. In addition, in July 2012, we issued to Dr. Bruzzese 15,216 shares of our common
stock and 3-year warrants to purchase 7,608 shares of our common stock at $0.40 per share at $0.17 per unit for $2,587 in connection
with our private placement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2012, we issued to Mr. Agostini, a member of our Board
of Directors, 500,000 shares of our common stock upon his exercise of stock options at $0.10 per share for $50,000, consisting
of $32,500 in cash and satisfaction of $17,500 due to him.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2012, in connection with our private placement, we issued
949,663 shares of our common stock and 3-year warrants to purchase 474,831 shares of our common stock at $0.40 per share to Lane
Deyoe in satisfaction of a $0.16 million note payable. Following this issuance, Mr. Deyoe beneficially owns more than 5% of our
common stock outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Common Stock Retirement and Option Cancelations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On June 13, 2011, Arun K. Bahl, then a beneficial owner of more
than 5% of our common stock, returned options to purchase 3 million shares of our common stock to us for cancelation. The options
returned for cancelation consisted of (i) options to purchase 1 million shares of our common stock at $0.07 per share with expiration
in January 2015, (ii) options to purchase 1 million shares of our common stock at $0.08 per share with expiration in March 2017,
and (iii) options to purchase 1 million shares of our common stock at $0.10 per share with expiration in March 2018.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In September 2011, we retired an additional 1.14 million shares
of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Equity Awards and Employment Agreements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On April 20, 2011, we entered into a five-year employment agreement
with Mr. McLaughlin as our President and Chief Executive Officer, which was amended on October 12, 2012, under which he will be
compensated at $134,400 per annum. In the past, Mr. McLaughlin has voluntarily deferred receipt of his salary as our President
until such time as we have the financial wherewithal to pay such salary, but there can be no assurance that Mr. McLaughlin will
continue this practice. As of June 30, 2012, all prior compensation due to Mr. McLaughlin has been satisfied either through cash
payments or stock issuances. The employment agreement was entered into between us and McLaughlin International, Inc., a management
consulting firm solely controlled by Mr. McLaughlin and through which he had historically provided us with consulting services.
Effective as of October 12, 2012, we amended this employment agreement to be between us and Mr. McLaughlin directly as he dedicates
all of his business time to his position as our executive officer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In 2011, we entered into two-year director&rsquo;s agreements
with our non-employee directors pursuant to which we granted stock options to such directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2011, the Board of Directors authorized the extension
of the expiration date by one year of certain warrants and options held by Dr. Bruzzese and Messrs. McLaughlin and Agostini that
were to expire in 2011. The incremental fair value of the extended warrant held by Mr. McLaughlin, our President, as of June 14,
2011, was $10,682. The incremental fair value of the extended options held by Dr. Bruzzese, our Chairman, and Mr. Agostini, a member
of our Board of Directors, as of June 14, 2011, were $735 and $7,591, respectively. In May 2012, the Board of Directors again authorized
the extension of the expiration date by one year of certain warrants and options held by Dr. Bruzzese and Messrs. McLaughlin and
Agostini that were to expire in 2012. The incremental fair value of the extended warrant held by Mr. McLaughlin as of May 22, 2012,
was $18,106. The incremental fair value of the extended options held by Dr. Bruzzese and Mr. Agostini as of May 22, 2012, were
$9.289 and $4,085, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">For a description of these director and employment agreements
and equity awards, see &ldquo;Executive Compensation&rdquo; beginning on page 31.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Employment Arrangements with an Immediate Family Member of
our President</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Brunilda McLaughlin, the wife of Mr. McLaughlin, our President,
provides bookkeeping services for us. Mrs. McLaughlin was compensated for these services at $2,000 per month during 2009, 2010
and the first four months of 2011. In April 2011, we entered into a two-year employment agreement, as amended, with Mrs. McLaughlin
doing business as McLaughlin International, Inc., a management consulting firm solely controlled by Mr. McLaughlin, under which
we would compensate her for her services with (a) cash compensation of $2,000 per month; (b) 10-year, fully-vested options with
cashless exercise rights to purchase 200,000 shares of our common stock at $0.20 per share; (c) 10-year, fully-vested options with
cashless exercise rights to purchase 100,000 shares of our common stock at $0.40 per share, such options to become exercisable
upon our achieving $5 million in revenues in any fiscal year prior to the expiration date; and (d) an annual incentive bonus award
amounting to 0.5% of our pre-tax earnings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Legal Services</B> <B>Provided by Director</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Strawn Pickens LLP, a law firm co-founded by one of our directors,
Mr. Strawn, performs legal services on our behalf on an hourly-fee basis in the ordinary course and has a contingency fee arrangement
with us in a suit with former officers of the company and their affiliated entities. In June 2012, we issued Strawn Pickens LLP
400,000 shares of our common stock and 3-year warrants to purchase 200,000 shares of our common stock at $0.40 per share in satisfaction
of approximately $68,000 in legal services. In 2011, Cruse Scott Henderson &amp; Allen LLP received $225,000 as payment for accrued
legal services, $200,000 of which was paid by an investor in the Company in exchange for warrants to purchase 2,400,000 share of
common stock held by Cruse Scott, 1,136,842 shares of which were subsequently retired. Mr. Strawn served as Co-Managing Partner
until January 2010 and during the period in which Cruse Scott Henderson &amp; Allen LLP represented the company and accrued legal
services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Office Space Provided by our President</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our principal executive offices are in office space provided
at no cost to us by our President, Mr. McLaughlin.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following sets forth information as of October 17, 2012,
regarding the number of shares of our common stock beneficially owned by (i) each person that we know beneficially owns more than
5% of our outstanding common stock, (ii) each of our directors and named executive officer and (iii) all of our directors and named
executive officer as a group.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The amounts and percentages of our common stock beneficially
owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities. Under the SEC rules,
a person is deemed to be a &ldquo;beneficial owner&rdquo; of a security if that person has or shares &ldquo;voting power,&rdquo;
which includes the power to vote or to direct the voting of such security, or &ldquo;investment power,&rdquo; which includes the
power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities
of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant
or other right. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may
be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise indicated,
each of the shareholders named in the table below, or his or her family members, has sole voting and investment power with respect
to such shares of our common stock. Except as otherwise indicated, the address of each of the shareholders listed below is: c/o
Immudyne, Inc., 50 Spring Meadow Rd., Mount Kisco, NY 10549.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of October 17, 2012, there were 28,875,317 shares of our
common stock issued and outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid">Name of beneficial owner</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number of shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Percent of class</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-style: italic">5% Shareholders</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 76%; text-align: left">Lane Deyoe <BR>11997 N. Lake Dr. <BR>Boynton Beach, FL 33436</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">2,359,494</TD><TD STYLE="width: 1%; text-align: left"><SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">8.04</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-style: italic; text-align: left">Directors and named executive officer</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Mark McLaughlin</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,885,664</TD><TD STYLE="text-align: left"><SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">30.77</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Anthony G. Bruzzese, M.D.</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,099,999</TD><TD STYLE="text-align: left"><SUP>(3)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.98</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Dominic J. Agostini</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,393,500</TD><TD STYLE="text-align: left"><SUP>(4)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.70</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">John R. Strawn, Jr.</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right">2,110,000</TD><TD STYLE="color: black; text-align: left"><SUP>(5)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.90</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Directors and named executive officer as a group (4 persons)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,413,870</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">49.35</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Consists of 195,000 shares and presently-exercisable warrants to purchase 474,831 shares held of record by the Deyoe Family
Limited Partnership over which Mr. Deyoe has sole voting and dispositive power.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD><FONT STYLE="color: black">Consists of 588,236 shares held of record by McLaughlin International, Inc., presently-exercisable
warrants to purchase 1,500,000 shares, presently-exercisable warrants to purchase 294,118 shares held of record by McLaughlin International,
Inc. and presently-exercisable options to purchase 3,300,000 shares. Mr. McLaughlin has sole voting and dispositive power over
all shares and warrants held of record by McLaughlin International, Inc.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD><FONT STYLE="color: black">Consists of 115,000 shares held jointly with Dr. Bruzzese&rsquo;s spouse, presently-exercisable
warrants to purchase 169,666 shares and presently-exercisable options to purchase 1,060,000 shares.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(4)</TD><TD><FONT STYLE="color: black">Consists of 143,500 shares held of record by or jointly with Mr. Agostini&rsquo;s deceased spouse
over which he has sole voting and dispositive power and presently-exercisable options to purchase 750,000 shares.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(5)</TD><TD>Consists of 400,000 shares and presently-exercisable warrants to purchase 200,000 shares held of record by Strawn Pickens LLP
over which Mr. Strawn has shared voting and dispositive power, and presently-exercisable options to purchase 1,500,000 shares.</TD></TR></TABLE>



<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<P STYLE="margin: 0"></P>
<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SELLING SHAREHOLDERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The 1,828,212 shares of our common stock included in this prospectus
were issued to the selling shareholders pursuant to exemptions from registration under Section 4(2) of the Securities Act and Regulation
D promulgated thereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth the names of the selling shareholders,
the number of shares of our common stock beneficially owned by each of the selling shareholders as of October 17, 2012, the number
of shares of our common stock being offered by the selling shareholders and the number and percentage of shares of our common stock
to be beneficially owned by each of the selling shareholders after the offering, assuming all of the offered shares are sold by
the selling shareholders. The percentages of shares of our common stock to be beneficially owned by the selling shareholders are
based upon 28,875,317 shares of our common stock outstanding as of October 17, 2012. The shares being offered hereby are being
registered to permit public secondary trading, and the selling shareholders named below, or their respective successors, including
transferees, may from time to time sell or otherwise dispose of, pursuant to this prospectus, all, some or none of their shares
of our common stock being registered hereby. See &ldquo;Plan of Distribution&rdquo; on page 40. All information with respect to
share ownership has been furnished by the selling shareholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">Beneficial Ownership <BR>Before Offering</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">Shares of <BR>
Common Stock<BR>
 Included in<BR>
 Prospectus</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center">Beneficial Ownership<BR> After Offering</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid">Name</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Total</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Percentage*</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; color: black; text-align: left"><FONT STYLE="color: black">Berdon Ventures LLC<SUP>(1)</SUP></FONT></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">660,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">440,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">220,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Burstein, David</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">180,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">120,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">60,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: black; text-align: left"><FONT STYLE="color: black">Cynergy Emerging Growth LLC<SUP>(2)</SUP></FONT></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">882,354</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">588,236</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">294,118</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Dweck, Isaac</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">88,235</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">58,823</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,412</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Kibler, Austin</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">30,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Neman, Shahriyar</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">220,588</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">147,059</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">73,529</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Pismen, Leonid</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">88,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">58,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Schwartz, Brendon</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">352,941</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">235,294</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">117,647</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: black; padding-bottom: 1pt"><FONT STYLE="color: black">Tungsten 74 LLC(<SUP>3)</SUP></FONT></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">525,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">150,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">375,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">1.3</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; padding-bottom: 2.5pt">Total</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">3,042,318</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">1,828,212</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">1,214,106</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">*&#9;Less than 1%, unless otherwise specified.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Rick Berdon has sole voting and dispositive power with respect to the shares of our common stock beneficially owned by Berdon
Ventures LLC.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Patrick Adams has sole voting and dispositive power with respect to the shares of our common stock beneficially owned by Cynergy
Emerging Growth LLC.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Viacheslav Kriventsov has sole voting and dispositive power with respect to the shares of our common stock beneficially owned
by Tungsten 74 LLC.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">None of the selling shareholders, other than those identified
by disclosure above, has, or within the past three years has had, any position, office or material relationship with us or with
any of our predecessors or affiliates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PLAN OF DISTRIBUTION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling shareholders identified in this prospectus may offer
and sell up to 1,828,212 shares of our common stock, which we issued them. The selling shareholders may sell all or a portion of
their shares of our common stock through public or private transactions at prevailing market prices or at privately negotiated
prices.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">All of the shares of our common stock were issued previously
in private transactions completed prior to the filing of the registration statement of which this prospectus is a part.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling shareholders may sell all or a portion of the shares
of our common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of our common stock are sold through underwriters or broker-dealers, the selling shareholders
will be responsible for underwriting discounts or commissions or agent&rsquo;s commissions. The shares of our common stock may
be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>On any national securities exchange or quotation service on which the shares may be listed or quoted at the time of sale;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In the over-the-counter markets;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In transactions otherwise than on these exchanges or systems or in the over-the-counter markets;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Through the writing of options, whether such options are listed on an options exchange or otherwise;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>An exchange distribution in accordance with the rules of the applicable exchange;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Privately negotiated transactions;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Short sales;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Sales pursuant to Rule 144;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per
share;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>A combination of any such methods of sale; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Any other method permitted pursuant to applicable law.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If the selling shareholders effect such transactions by selling
shares of our common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from the selling shareholders or commissions from purchasers
of the shares of our common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions
or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions
involved). In connection with sales of the shares of our common stock or otherwise, the selling shareholders may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales of the shares of our common stock in the course of hedging
in positions they assume. The selling shareholders may also sell shares of our common stock short and deliver shares of our common
stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales.
The selling shareholders may also loan or pledge shares of our common stock to broker-dealers that in turn may sell such shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling shareholders may pledge or grant a security interest
in some or all of the common stock owned by them and, if they default in the performance of their secured obligations, the pledgees
or secured parties may offer and sell the shares of our common stock from time to time pursuant to this prospectus or any amendment
to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of
selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.
The selling shareholders also may transfer and donate the shares of our common stock in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling shareholders and any broker-dealer participating
in the distribution of the shares of our common stock may be deemed to be &ldquo;underwriters&rdquo; within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of our common stock
is made, a prospectus supplement, if required, will be distributed that will set forth the aggregate amount of shares of our common
stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling shareholders and any discounts, commissions or concessions
allowed or re-allowed or paid to broker-dealers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Under the securities laws of some states, the shares of our
common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the
shares of our common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">There can be no assurance that any selling shareholder will
sell any or all of the shares of our common stock registered pursuant to the registration statement of which this prospectus is
a part.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling shareholders and any other person participating
in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of
our common stock by the selling shareholders and any other participating person. Regulation M may also restrict the ability of
any person engaged in the distribution of the shares of our common stock to engage in market-making activities with respect to
the shares of our common stock. All of the foregoing may affect the marketability of the shares of our common stock and the ability
of any person or entity to engage in market-making activities with respect to the shares of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have agreed to pay all expenses of the registration of the
shares of our common stock covered by this prospectus including, without limitation, SEC filing fees and expenses of compliance
with state securities or &ldquo;blue sky&rdquo; laws; provided, however, that a selling shareholder will pay all underwriting discounts
and selling commissions, if any. We may be indemnified by the selling shareholders against civil liabilities, including liabilities
under the Securities Act, that may arise from any written information furnished to us by the selling shareholders specifically
for use in this prospectus, or we may be entitled to contribution.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Once sold under the registration statement of which this prospectus
is a part, the shares of our common stock will be freely tradable in the hands of persons other than our affiliates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DESCRIPTION OF CAPITAL STOCK</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following discussion is a summary of the terms of our capital
stock, our amended certificate of incorporation and our bylaws, as well as certain applicable provisions of Delaware law. Forms
of our amended certificate of incorporation and bylaws have been incorporated by reference as exhibits to the registration statement
of which this prospectus is a part.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our authorized capital stock consists of 50,000,000 shares of
common stock, par value $0.01 per share. On February 1, 2001, we increased the number of authorized shares of our common stock
from 25,000,000 to 50,000,000 shares, par value $0.01 per share. We have no other authorized class of capital stock. As of October
17, 2012, there were issued and outstanding (a) 28,875,317 shares of our common stock; (b) options to purchase 14,927,500 shares
of our common stock, of which (i) options to purchase 8,952,500 shares of our common stock were exercisable at prices ranging from
$0.07 to $0.40 per share and (ii) options to purchase 4,775,000 shares of our common stock become exercisable at prices of $0.40
and $0.80 upon our revenues exceeding $5 million and $10 million, respectively; and (c) warrants to purchase 3,630,112 shares of
our common stock at prices ranging from $0.15 to $0.40 per share. The warrants are immediately exercisable and entitle their holders
to purchase up to: (i) 1,715,000 shares of our common stock at $0.15 per share, such warrants expiring in 2012 and 2013; and (ii)
2,030,112 shares of our common stock at $0.40 per share, such warrants expiring in 2015.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">All shares of our common stock outstanding to 327 holders of
record are fully paid and non-assessable. The number of record holders of our common stock does not include beneficial owners of
our common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries. Holders of our common stock
are entitled to the following rights:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Voting Rights</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Holders of our common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. The affirmative vote of a plurality of shares of our common
stock present in person or by proxy will decide the election of any directors. Holders of our common stock do not have cumulative
voting rights in the election of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Dividend Rights</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Holders of our common stock are entitled to receive ratably
any dividend declared by our Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Rights upon Liquidation</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In the event of a liquidation, dissolution or winding up of
the company, holders of our common stock are entitled to share ratably in the assets remaining after payment of liabilities in
accordance with their respective rights and interest.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Other Rights and Preferences</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Holders of our common stock have no preemptive, conversion or
redemption rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Listing</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our common stock is quoted on the OTC Markets-OTC Pink Current
under the symbol &ldquo;IMMD.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Transfer Agent and Registrar</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The transfer agent and registrar for our common stock is Computershare
Limited, 250 Royall St., Canton, MA 02021; telephone (781) 575-2000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Delaware Anti-Takeover Statute</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are subject to Section 203 of the Delaware General Corporation
Law, an anti-takeover statute that provides that if a person acquires 15% or more of the voting stock of a Delaware corporation,
such person becomes an &ldquo;interested shareholder&rdquo; and may not engage in certain &ldquo;business combinations&rdquo; with
the corporation for a period of three years from the time such person acquired 15% or more of the corporation&rsquo;s voting stock,
unless (1) the board of directors approves the acquisition of stock or the merger transaction before the time that the person becomes
an interested shareholder, (2) the interested shareholder owns at least 85% of the outstanding voting stock of the corporation
at the time the merger transaction commences (excluding voting stock owned by directors who are also officers and certain employee
stock plans) or (3) the merger transaction is approved by the board of directors and by the affirmative vote at a meeting, not
by written consent, of shareholders of two-thirds of the holders of the outstanding voting stock that is not owned by the interested
shareholder. The applicability of this provision to us is expected to have an anti-takeover effect with respect to transactions
not approved in advance by our Board of Directors, including discouraging attempts that might result in a premium over the market
price for your shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Anti-Takeover Effects of Certain Provisions of Our Amended
Certificate of Incorporation and Bylaws</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our amended certificate of incorporation and bylaws contain
provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors. These include
provisions that:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide that our Board of Directors is expressly authorized to adopt, amend or repeal our bylaws;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide our Board of Directors with the sole power to set the size of our Board of Directors and fill vacancies; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide that special meetings of shareholders may be called only by our Board of Directors, Chairman of the Board of Directors,
upon written notice of demand by our President or upon written notice of demand by the holders of at least 25% of the shares of
our common stock outstanding and entitled to vote.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">These provisions may make it more difficult for shareholders
to take specific corporate actions and could have the effect of delaying or preventing a change in control of our company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SHARES ELIGIBLE FOR FUTURE SALE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Upon completion of this offering, we will have 28,875,317 shares
of our common stock issued and outstanding, representing approximately 58% of the 50,000,000 authorized shares of our common stock,
par value $0.01. The number of shares of our common stock outstanding after this offering is based on 28,875,317 shares of our
common stock outstanding as of October 17, 2012, which excludes <FONT STYLE="color: black">12,582,612 shares of our common stock
issuable upon exercise of warrants and options outstanding</FONT>. All of the 1,828,212, shares of our common stock sold pursuant
to this offering will be freely transferable without restriction or further registration under the Securities Act. Sales of substantial
amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. Our common
stock currently is not eligible for trading on any national securities exchange, and is quoted on the OTC Markets-OTC Pink Current
and trades in the over-counter-markets. The market for our common stock historically has been limited and we cannot assure you
that a larger market will ever be developed or maintained.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are not aware of any plans by any significant shareholder
to dispose of significant numbers of shares of our common stock. We cannot assure you, however, that one or more existing shareholders
will not dispose of significant numbers of shares of our common stock. No prediction can be made as to the effect, if any, that
future sales of our common stock, or the availability of our common stock for future sale, will have on the market price of our
common stock prevailing from time to time. Sales of substantial amounts of our common stock in the public market, or the perception
that future sales may occur, could materially and adversely affect the prevailing market price of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Rule 144</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In general, under Rule 144 promulgated under the Securities
Act, an affiliate who beneficially owns shares that were purchased from us, or any affiliate, at least six months previously, is
entitled to sell within any 3-month period beginning 90 days after the date of this prospectus, a number of shares that does not
exceed the greater of 1% of our then-outstanding shares of common stock, which equals approximately 30,264 shares immediately after
this offering, or the average weekly trading volume of our common stock on the OTC Markets-OTC Pink Current during the four calendar
weeks preceding the filing of a notice of the sale with the SEC. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public information about us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Following this offering, a person that is not an affiliate of
ours at the time of, or at any time during the three months preceding, a sale and who has beneficially owned restricted securities
within the meaning of Rule 144 for at least six months, may sell shares subject only to the availability of current public information
about us, and any such person who has beneficially owned restricted shares of our common stock for at least one year may sell shares
without restriction.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are unable to estimate the number of shares that will be
sold under Rule 144 because this will depend on the market price for our common stock, the personal circumstances of the shareholder
and other factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Rule 701</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In general, under Rule 701 promulgated under the Securities
Act, any of our employees, directors, officers, consultants or advisors who purchased shares from us in connection with a compensatory
stock or option plan or other written agreement before the effective date of the registration statement of which this prospectus
is a part is entitled to resell such shares 90 days after such effective date in reliance on Rule 144 without having to comply
with the holding period requirements or other restrictions contained in Rule 701.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold
by persons other than affiliates, as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period requirement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>EXPERTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The audited financial statements of Immudyne, Inc. for the years
ended December 31, 2011 and 2010, were audited by PKF O&rsquo;Connor Davies, a division of O&rsquo;Connor Davies, LLP, independent
registered public accounting firm, as set forth in its report thereon appearing herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and auditing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>LEGAL MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The validity of our common stock offered hereby will be passed
upon for us by Newman &amp; Morrison LLP, New York, New York.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>WHERE YOU CAN FIND ADDITIONAL INFORMATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">This prospectus is part of a registration statement on Form
S-1 we have filed with the SEC. We have not included in this prospectus all of the information contained in the registration statement
and you should refer to our registration statement and its exhibits for further information.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Upon the effectiveness of the registration statement of which
this prospectus is a part, we will be required to file annual, quarterly and current reports and other information under the Exchange
Act with the SEC. You may read and copy any materials we file with the SEC at the SEC&rsquo;s Public Reference Room at 100 F Street,
NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information about the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also available to the public from
commercial document retrieval services and at the website maintained by the SEC at www.sec.gov. Copies of our annual report, including
audited financial statements, are available on request by writing to Immudyne, Inc., 50 Spring Meadow Rd., Mount Kisco, NY 10549,
Attn: Investor Relations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our website address is www.immudyne.com. <B>The information
contained on or accessible through our website is not part of this prospectus or the registration statement of which this prospectus
is a part, and potential investors should not rely on such information in making a decision to purchase our common stock in this
offering.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Index to Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 90%">&nbsp;</TD>
    <TD STYLE="width: 10%; text-align: center; border-bottom: Black 1pt solid">Page</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Report of Independent Registered Public Accounting Firm</TD>
    <TD STYLE="text-align: center">F-2</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Balance Sheet as of June 30, 2012 (Unaudited), and December 31, 2011 and 2010</TD>
    <TD STYLE="text-align: center">F-3</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Statement of Operations for the six months ended June 30, 2012 and 2011 (Unaudited), and the years ended December 31, 2011 and 2010</TD>
    <TD STYLE="text-align: center">F-4</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Statement of Stockholders&rsquo; Equity (Deficit) for the six months ended
    June 30, 2012 (Unaudited), and the years ended December 31, 2011 and 2010</TD>
    <TD STYLE="text-align: center">F-5</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Statement of Cash Flows for the six months ended June 30, 2012 and 2011 (Unaudited), and the years ended December 31, 2011 and 2010</TD>
    <TD STYLE="text-align: center">F-6</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Notes to Financial Statements</TD>
    <TD STYLE="text-align: center">F-7</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Board of Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Immudyne, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have audited the accompanying balance
sheet of Immudyne, Inc. as of December 31, 2011 and 2010, and the related statements of operations, stockholders&rsquo; equity
(deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company&rsquo;s management.
Our responsibility is to express an opinion on these financial statements based on our audits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&rsquo;s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Immudyne, Inc. as of December 31, 2011 and
2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 30%; border-bottom: windowtext 1pt solid">/s/ PKF O&rsquo;Connor Davies</TD>
    <TD STYLE="width: 70%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>A Division of O&rsquo;Connor Davies, LLP</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>New York, NY</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>October 17, 2012</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>BALANCE SHEET</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; padding-bottom: 1pt">June 30</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">December 31</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">(Unaudited)</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">ASSETS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left; text-indent: 17.1pt">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">247,284</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">33,502</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -9pt; padding-left: 26.1pt">Trade accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">126,361</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36,357</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">80,325</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 17.1pt">Inventory</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">36,233</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">58,800</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">105,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1in">Total current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">409,878</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">128,659</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">185,325</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Furnishings and equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">186,327</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">214,671</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">271,360</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 1in">Total assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">596,205</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">343,330</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">456,685</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: center">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Current liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 17.1pt">Cash overdraft</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">41,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 17.1pt">Accounts payable and accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">215,884</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">199,341</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">333,755</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 17.1pt">Due to officer</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 17.1pt">Current portion of notes payable</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">262,172</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">562,498</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1in">Total current liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">215,884</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">561,513</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">947,253</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred tax liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">56,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">64,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">82,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Notes payable, net of current portion</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">14,986</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 71.1pt">Total liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">272,084</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">626,313</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,044,239</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stockholders&rsquo; equity(deficit)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -9pt; padding-left: 26pt">Common stock, $0.01 par value; 50,000,000 shares     authorized,
    28,981,317, 24,729,030 and 20,053,194 shares issued and outstanding in 2012, 2011 and 2010, respectively</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">289,813</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,290</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,532</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 18.45pt">Additional paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,599,393</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,871,510</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,110,768</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 18.45pt">Treasury stock,505,000 shares in 2011 and 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(51,833</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(51,833</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 18.45pt">Accumulated (deficit)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(7,565,085</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(7,349,950</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,847,021</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1in">Total stockholders&rsquo; equity(deficit)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">324,121</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(282,983</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(587,554</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 1in">Total liabilities and stockholders&rsquo; equity ( deficit)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">596,205</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">343,330</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">456,685</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">See notes to financial statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>STATEMENT OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Six Months Ended <BR>June 30</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Year Ended <BR>December 31</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">(Unaudited)</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">(Unaudited)</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; text-align: left">Sales</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">406,102</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">406,140</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">743,828</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1,271,975</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cost of sales</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">95,781</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">99,501</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">241,264</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">426,107</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1in">Gross profit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">310,321</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">306,639</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">502,564</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">845,868</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(507,185</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(427,910</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(678,931</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,170,436</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Stock compensation expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(48,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(400,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(400,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1in">Operating (loss)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(245,364</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(521,271</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(576,367</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(324,568</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from litigation settlement</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 17.1pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">License fee</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 17.1pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -0.9pt">Interest (expense)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,371</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(13,447</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(21,262</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(35,073</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1in">Net (loss) before taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(223,735</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(457,218</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(520,129</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(334,641</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deferred income tax benefit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8,600</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8,600</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">17,200</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">17,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 71.1pt">Net (loss)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(215,135</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(448,618</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(502,929</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(317,641</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Basic and diluted (loss) per share</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.01</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.02</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.02</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.02</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Average number of common shares outstanding</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">26,146,460</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">22,908,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">22,391,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">19,958,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">See notes to financial statements</P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>STATEMENT OF STOCKHOLDERS&rsquo;
EQUITY (DEFICIT)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">Additional</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Common Stock</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; padding-bottom: 1pt">Paid-in</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; padding-bottom: 1pt">Accumulated</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; padding-bottom: 1pt">Treasury</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Capital</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">(Deficit)</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Stock</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Total</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 28%; text-align: left">Balance at December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">19,863,194</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">198,632</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">6,065,768</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(6,529,380</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(51,833</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(316,813</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stock issued for services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Retirement of stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(60,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(600</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">600</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Stock warrants issued in connection with financing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net (loss)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(317,641</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(317,641</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Balance at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,053,194</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,532</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,110,768</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,847,021</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(51,833</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(587,554</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of common shares</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">923,994</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,239</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">184,261</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">193,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Restricted stock issued to advisor and consultant</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">375,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,750</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,750</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of stock options</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">400,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">400,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cashless exercise of warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,273,684</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22,737</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(22,737</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Retirement of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,136,842</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(11,368</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11,368</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Warrants exercised with notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">740,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">66,600</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">74,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Options exercised with notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,500,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">125,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net (loss)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(502,929</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(502,929</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Balance at December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">24,729,030</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,290</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,871,510</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(7,349,950</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(51,833</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(282,983</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,828,212</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18,282</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">292,514</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">310,796</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Issuance of common stock for notes and other payables</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,729,075</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,291</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">276,652</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">293,943</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Issuance of common stock for services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">700,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">119,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of stock options</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Extension of option and warrant expiration dates</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Options exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">325,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Options exercised with &nbsp;&nbsp;notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">175,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,750</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,750</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Retirement of treasury stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(505,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,050</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(46,783</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,833</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net (loss)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(215,135</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(215,135</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Balance at June 30, 2012 (unaudited)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">28,981,317</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">289,813</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,599,393</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(7,565,085</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">324,121</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">See notes to financial statements&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>STATEMENT OF CASH FLOWS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Six Months Ended <BR>June 30</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Year Ended <BR>December 31</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">(Unaudited)</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">(Unaudited)</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cash flows from operating activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 52%; text-align: left; text-indent: 17.1pt">Net (loss)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(215,135</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(448,618</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(502,929</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(317,641</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.35in">Adjustments to reconcile net (loss) to net cash (used) by operating activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Depreciation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,344</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,345</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">56,689</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">56,598</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Deferred tax benefit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(8,600</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(8,600</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(17,200</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(17,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Stock compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">48,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">400,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">400,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Common stock issued for services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">119,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Financing costs, warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 17.1pt">Changes in assets and liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Trade accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(90,004</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,201</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">43,968</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">94,561</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Inventory</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22,567</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,788</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(55,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 35.1pt">Accounts payable and accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,543</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,571</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(134,414</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(36,789</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 35.1pt">Due to officer</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">90,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 35.1pt; padding-left: 0.12in">Net Cash (Used) by Operating Activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(78,785</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,715</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(17,686</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(252,371</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Cash flows from financing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 17.1pt">Cash overdraft</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(41,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(41,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 17.1pt">Issuance of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">343,296</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">176,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">193,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 17.1pt">Increase in notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">75,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">90,474</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 17.1pt">Repayment of note payable</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(50,729</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(58,065</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(176,312</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(118,480</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 35.1pt; padding-left: 0.12in">Net Cash Provided by Financing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">292,567</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">76,935</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">51,188</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">46,994</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Net increase (decrease) in cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">213,782</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70,220</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33,502</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(205,377</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cash at beginning of the period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">33,502</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">205,377</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Cash at end of the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">247,284</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">70,220</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">33,502</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Supplemental schedule of non-cash investing and financing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 17.1pt">Cash paid during the year for interest</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,371</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">13,447</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">21,262</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">35,073</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 17.1pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.35in">Notes payable and other payables used to exercise options and warrants</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">311,443</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">214,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">214,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">See notes to financial statements</P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-transform: uppercase"><B>Notes to Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 1 - Organization</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Immudyne, Inc. (the &ldquo;Company&rdquo;)
is a Delaware corporation established to develop, manufacture and sell natural products. The Company has developed a proprietary
bio-refinement approach to produce the purest, particulate and soluble beta glucans derived from yeast. The Company&rsquo;s core
nutraceutical and cosmetic product lines consist of its pure yeast beta glucans in oral and topical applications to support the
immune system. 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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&rsquo;s continued operations are dependent upon obtaining an increase in its sales volume and the continued financial support
from officers and directors or the issuance of additional shares of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Unaudited Interim Financial Information</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying balance sheet as of June
30, 2012, the statements of operations and cash flows for the six months ended June 30, 2012 and 2011, and the statement of stockholders&rsquo;
equity for the six months ended June 30, 2012, are unaudited. In the opinion of management, such information includes all adjustments
consisting of normal recurring adjustments necessary for a fair presentation of this interim information when read in conjunction
with the audited financial statements and notes hereto. Results for the six months ended June 30, 2012, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2012, or for any other period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 2 - Summary of significant
accounting policies</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Basis of Presentation and Use
of Estimates</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company prepares its 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 valuation of stockholders&rsquo; equity based transactions. Actual results could differ from those estimates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Inventory</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At June 30, 2012, inventory consisted primarily
of nutraceutical and cosmetic products. At December 31, 2011 and 2010, inventory also included animal feed product, a product line
the Company began exiting in 2011. Inventory is maintained in the Company&rsquo;s warehouse as well as in other locations held
both by independent third parties and related parties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Inventory is valued at the lower of cost
or market with cost determined on a first-in, first-out (&ldquo;FIFO&rdquo;) basis. Management compares the cost of inventory
with the net realizable value and an allowance is made for writing down their inventories to market value, if lower. Inventory
consists of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">June 30</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; padding-bottom: 1pt">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">December 31</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">(Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 41%; text-align: left; text-indent: 1.8pt">Raw materials</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 20%; text-align: right">20,452</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">37,720</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">77,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Finished products</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,781</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">21,080</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">28,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 1.8pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">36,233</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">58,800</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">105,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Included in inventory at December 31, 2011
and 2010 is $10,661 and $62,645 respectively, for products related to animal feed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Furnishings and equipment</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Furnishings and equipment are stated at
cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from three
to ten years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Revenue recognition</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;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 once the product is shipped to the customer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Revenue for the six months ended June 30,
2012, and for the years ended December 31, 2011 and 2010, are summarized as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: justify">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">2012</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: justify">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">(Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%; text-align: justify">Animal feed</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">5,690</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">148,507</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">794,194</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify; padding-bottom: 1pt">Nutraceutical and cosmetic</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">400,412</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">595,321</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">477,781</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify; padding-bottom: 2.5pt; text-indent: 26.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">406,102</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">743,828</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,271,975</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company records customer signing fees
as revenue upon receipt and when no future obligation exists.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Segments</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 as a single segment 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.</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Income taxes</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company records current and deferred
taxes in accordance with Accounting Standards Codification (ASC) 740, &ldquo;Accounting for Income Taxes.&rdquo; 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s tax returns for all
years since December 31, 2009, remain open to most taxing authorities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Stock-based compensation</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Stock-based employee compensation arrangements are accounted
for using the intrinsic value method. Compensation cost generally is recognized at fair value on the date of the grant and amortized
over the respective vesting periods.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company utilizes the Black-Scholes
option-pricing model for determining the estimated fair value of awards. Key inputs and assumptions include the expected term of
the option, stock price volatility, risk-free interest rate, dividend yield, stock price and exercise price. Many of the assumptions
require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense.
The Company estimates forfeitures when recognizing compensation expense and adjusts forfeiture estimates over the vesting period
based on actual or anticipated forfeitures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Earnings (loss) per share</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Basic earnings (loss) per common share
is based on the weighted average number of shares outstanding during each period presented. Warrants and options to purchase common
stock are included as common stock equivalents only when dilutive. Potential common stock equivalents are excluded from dilutive
earnings per share when the effects would be antidilutive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Common stock equivalents comprising 13,582,612,
11,057,500 and 13,432,323 shares underlying options and warrants at June 30, 2012, and December 31, 2011 and 2010, respectively,
have not been included in the loss per share calculation as the effects are anti-dilutive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Recent accounting pronouncements</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 financial
statements upon adoption.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Fair value of financial instruments</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">FASB ASC Topic 820, Fair Value Measurements
and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. FASB ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes the following
three levels of inputs that may be used to measure fair value:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Level 1&mdash;Unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Level 2&mdash;Observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Level 3&mdash;Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The carrying value of the Company&rsquo;s
financial instruments, including cash, accounts receivable and accounts payable approximate fair value for all periods. The fair
value of notes payable at December 31, 2011 and 2010, is an approximation of their fair value as all such notes were either repaid
or converted to equity in 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Concentration of credit risk</U></P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: none">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the six month periods ended June 30,
2012 and 2011, one customer comprised 77% and 61% of sales, respectively. This customer accounted for 53% and 23% of sales for
the years ended December 31, 2011 and 2010, respectively. At June 30, 2012, this customer accounted for 94% of accounts receivable,
and at December 31, 2011 and 2010, this customer accounted for 85% and 86% of accounts receivable, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 3 - Furnishings and equipment</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Furnishings and equipment consisted of
the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">June 30</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; padding-bottom: 1pt">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">December 31</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">(Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; text-align: left; text-indent: 1.8pt">Furnishings and equipment, at cost</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">679,291</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">679,291</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">679,291</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Accumulated depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">492,964</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">464,620</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">407,931</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 1.8pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">186,327</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">214,671</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">271,360</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation expense amounted to approximately
$28,000 for each of the six months ended June 30, 2012 and 2011, respectively. Depreciation expense amounted to approximately $56,000
for each of the years ended December 31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 4 - Notes payable</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Notes payable are due to officers, directors
and other related individuals. Certain notes are payable on demand while repayment of others is based on scheduled monthly payments.
Interest rates vary from 0% to 10%. A summary of notes payable activity is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 65%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 77%; text-align: left; text-indent: 1.8pt">Balance at December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 20%; text-align: right">605,490</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Borrowing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">90,474</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Repayment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(118,480</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Balance at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">577,484</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Borrowing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">75,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Repayment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(176,312</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Notes payable used to exercise options and warrants</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(214,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Balance at December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">262,172</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Repayment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(50,729</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Issuance of common stock for notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(193,943</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Notes payable used to exercise options</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(17,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 1.8pt">Balance at June 30, 2012</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Interest expense on notes payable amounted
to $3,371 and $13,447 for the six months ended June 30, 2012 and 2011, respectively, and $21,262 and $35,073 for the years ended
December 31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 5 - Income taxes</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company incurred a loss in the six
months ended June 30, 2012, and years ended December 31, 2011 and 2010. Accordingly, no provision for federal income tax has been
made in the accompanying financial statements. At December 31, 2011, the Company had available net operating loss carryforwards
of approximately $2,500,000, expiring during various years through 2031.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the deferred tax asset using
an approximate 34% tax rate is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 65%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">June 30</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; padding-bottom: 1pt">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">December 31</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">(Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; text-align: left; text-indent: 1.8pt">Net operating loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">920,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">870,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">850,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Valuation allowance</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(920,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(870,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(850,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 53.1pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The deferred tax liability of $56,200,
$64,800 and $82,000 at June 30, 2012, December 31, 2011 and December 31, 2010, respectively, results from the difference in the
carrying amount of furnishings and equipment between financial reporting and income tax reporting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The deferred tax benefit included in the
statement of operations represents the change in the deferred tax liability at each balance sheet date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The difference between the statutory and
the effective tax rate is primarily due to a change in valuation allowance on deferred taxes, as the Company has fully reserved
the deferred tax asset resulting from available net operating loss carryforwards.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 6 - Stockholders&rsquo; equity</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the six months ended June 30, 2012,
the Company raised $310,796 in a common stock offering at $0.17 per share. In addition, $293,943 of notes and other payables were
converted into common stock under the same terms as the common stock offering. Each two shares of restricted stock issued included
a three-year warrant for one share exercisable at $0.40. The Company raised an additional $32,500 and satisfied notes payable in
the amount of $17,500 through the exercise of 500,000 options. The Company issued 700,000 common shares for services valued at
$119,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2012, the Company extended the expiration
date of 1,000,000 options and 1,500,000 warrants one year from 2012 to 2013. As a result of this transaction, the Company recorded
a charge to stock-based compensation expense of $31,500 during the six months ended June 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2011, the Company raised $193,500
through the issuance of 923,994 shares of restricted stock, and retired 1,136,842 of common stock. In addition, $214,000 of notes
payable were satisfied through the exercise of 740,000 warrants and 1,500,000 options. Also during 2011, the Company issued 375,000
shares to an advisor and consultant and further issued 2,273,684 shares of common stock for the cashless exercise of 2,400,000
warrants with an exercise price of $0.01.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2011, the Company extended the expiration
date of 1,500,000 options and 1,500,000 warrants one year from 2011 to 2012. The Company computed the fair value of this extension
agreement and determined that such amount was not material.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2010, the Company raised $34,000
through the issuance of 200,000 shares of restricted stock at $0.17 per share. In addition, 60,000 shares were retired during 2010.
The Company issued 50,000 common shares in 2010 for consulting services valued at $8,500.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Service-based stock options</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2010, the Company issued 150,000
options to consultants with an exercise price of $0.20. The options vested immediately and expire in 10 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2011, the Company issued 6,260,000
service-based options to various employees and consultants. The options, which vested immediately, were issued at exercise prices
of $0.20 and $0.40 and expire in 10 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2012, the Company issued 1,000,000
options to a consultant at an exercise price of $0.20 per share that expire in 10 years. The options vest fully in June 2013. During
June 2012 the Company also issued 200,000 options to employees with an exercise price of $0.20. These options expire in 10 years
and vest semi-annually over 2 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the outstanding service-based
stock options are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Number of <BR>Options</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 77%; text-align: left; text-indent: 1.8pt">Balance at December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 20%; text-align: right">7,672,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Granted</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">150,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Balance at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,822,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,260,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Cancelled</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,000,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,500,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(240,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Balance at December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,342,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(500,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(90,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 1.8pt">Balance at June 30, 2012</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">9,952,500</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Options exercisable at December 31, 2011,
and June 30, 2012, amounted to 9,342,500 and 8,752,500, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All outstanding options have a
cashless exercise provision and certain options provide for accelerated vesting provisions and modifications, as defined, if
the company is sold or acquired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The intrinsic value of options outstanding
and exercisable amounted to $163,300 and $121,700 at December&nbsp;31, 2011, and June 30, 2012, respectively. The intrinsic value
of options exercised in 2011 and 2012 amounted to $115,000 and $35,000, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following is a summary of outstanding
service-based options at June 30, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Exercise Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number of<BR> Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Remaining <BR>Contractual Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 44%; text-align: center">$0.07 - $0.10</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 25%; text-align: right">1,597,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: center">&nbsp;</TD><TD STYLE="width: 25%; text-align: center">4 years</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">$0.13 - $0.20</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,355,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">10 years</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: center; padding-bottom: 1pt">$0.40</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,000,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: center">10 years</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 39.35pt; padding-left: 0.36in">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">9,952,500</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All of the options issued through December
31, 2011, are fully vested. The 1,200,000 options issued in 2012 vest over one and two year periods through June 2014. The fair
value of the 1,200,000 options issued in 2012 is $83,000, of which $17,000 has been expensed as of June 30, 2012, and $66,000 remained
unearned, and will be expensed over the next 24 months.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in"><U>Performance-based
stock options</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of June 30, 2012 the Company granted
performance-based options to purchase 4,025,000 shares of common stock at exercise prices of $0.40 and $0.80. The options expire
in 10 years and are exercisable upon the Company achieving annual sales revenue of $5,000,000 and $10,000,000. The fair value of
these performance-based options aggregated $138,000 and will be expensed over the implicit service period commencing once management
believes the performance criteria will be met. Accordingly, at June 30, 2012, the unearned compensation for performance based options
is $138,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Warrants</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following is a summary of outstanding
and exercisable warrants:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number of <BR>Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Year<BR> of <BR>Expiration</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 46%; text-align: left; text-indent: 1.8pt">Balance at December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">5,569,823</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">0.12</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">2011 - 2017</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Granted</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">40,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.10</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">2020</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Balance at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,609,823</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.12</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2011 - 2020</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,140,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.03</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2011</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(754,823</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">2011</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Balance at December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,715,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2012 - 2013</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,030,112</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2015</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 1.8pt">Expired</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(115,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">2012</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 1.8pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: 1.8pt">Balance at June 30, 2012</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,630,112</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">0.28</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">2013 - 2015</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">In connection with the issuance of common
stock in 2012, the Company granted warrants to acquire 2,030,112 shares of common stock at $0.40 per share. These warrants are
immediately exercisable and expire in 10 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of options and warrants
granted (or extended) during the years ended December 31, 2011 and 2010, and six months ended June 30, 2012, was estimated on the
date of grant (or extension) using the Black-Scholes option-pricing model with the following weighted-average assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: justify">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%; text-align: justify">Expected volatility</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">50</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">50</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">50</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Risk free interest rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Expected dividend yield</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Expected option term (in years)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.5 - 5</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1 - 5</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Weighted average grant date fair value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.06</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.06</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.08</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 7 - Royalties</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company is subject to a royalty agreement
based upon sales of certain skin care products. The agreement requires the Company to pay a royalty based upon 8% of such sales,
up to $227,175. Royalty expense for the six months ended June 30, 2012, approximated $25,000 and royalty expense amounted to approximately
$24,000 for each of the years ended December 31, 2011 and 2010, respectively. The remaining commitment at June 30, 2012, is approximately
$130,000. The Company&rsquo;s President has a 60% interest in the royalties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 8 - Commitments and contingencies</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-align: justify; text-indent: -1.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Leases</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company leases a plant in Kentucky
under an operating lease which expires May 31, 2013. Monthly base rental payments approximate $3,300. Rent and related expenses
for the six months ended June 30, 2012 and 2011, was $31,431 and $31,158, respectively. Rent expense for the years ended December
31, 2011 and 2010, was $61,544 and $73,345, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Employment and consulting agreements</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has entered into various agreements
with officers, directors, employees and consultants that expire in one to five years. The agreements provide for the issuance of
stock options, at exercise prices of $0.40 and $0.80, underlying 4,625,000 shares of common stock issuable upon the Company&rsquo;s
revenue exceeding $5,000,000 and $10,000,000, as defined. Of this amount, 4,025,000 options were issued through June 30, 2012 and
600,000 were issued in September 2012. The agreements provide for annual compensation of $120,000 for the Company&rsquo;s President,
and annual compensation for other officers, directors, employees and consultants in amounts ranging from $5,000 per month to amounts
to be determined by the Board of Directors. In addition, the agreements provide for bonus compensation to these individuals aggregating
11.5 percent of the Company&rsquo;s pretax income.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Legal matters</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the normal course of business operations
the Company may become involved in various legal matters. At June 30, 2012, the Company&rsquo;s management does not believe that
there are any potential legal matters that could have an adverse effect on the Company&rsquo;s financial position.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In November 2009, the Company entered into
a settlement agreement to resolve all aspects of litigation relating to a patent suit. As part of that settlement agreement, the
Company received $440,000 as reimbursement for litigation costs. The Company also was awarded $200,000 in eight installments of
$25,000 every six months beginning on January 15, 2011, in return for an exclusive patent license. The term of the license agreement
is consistent with the term of the $25,000 semiannual payments. The $25,000 installments are being recorded as revenue only upon
receipt of the funds. As of June 30, 2012, $100,000 remained to be paid to the Company under this agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Note 9 &ndash; Related party transactions</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">One of the Company&rsquo;s directors also
provides legal services and was compensated through the issuance common stock. During the six months ended June 30, 2012 the Company
issued 400,000 shares valued at $68,000 in connection with services provided.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-align: justify; text-indent: -1.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.15pt"><U>Note 10 - Subsequent
events</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.15pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.15pt">The Company has evaluated
subsequent events through the date these financial statements were issued and has determined that there are no subsequent events
or transactions requiring recognition or disclosure in the financial statements, other than as disclosed herein.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.15pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.15pt">During September 2012,
the Company entered into two consulting agreements with terms of 3 years. Under the terms of these agreements, the Company issued
200,000 options at an exercise price of $.20 per share that expire in 10 years. In addition the agreement calls for performance
based options to purchase 600 shares of common stock at exercise prices of $.40 and $.80 exercisable upon the Company achieving
annual sales revenues of $5,000,000 and $10,000,000 as defined.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.15pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.15pt">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><img src="tlogo2.jpg"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IMMUDYNE, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>1,828,212 SHARES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>COMMON STOCK</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PART II</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INFORMATION NOT REQUIRED IN PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 13. Other Expenses of Issuance and Distribution</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table sets forth the costs and expenses that payable
by us in connection with the offering described in the prospectus that is part of this registration statement. All amounts, other
than the SEC Registration Fee, are estimates. Although we will not receive any of the proceeds from the sale of the shares of our
common stock being registered in this registration statement, we agreed to bear the costs and expenses of the registration of such
shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; text-align: left">SEC Registration Fee</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">42</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Printing Fees and Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounting Fees and Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Legal Fees and Expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">40,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">92,042</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 14. Indemnification of Directors and Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Section 102(b)(7) of the Delaware General Corporation Law permits
a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director&rsquo;s duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper
personal benefit. Our amended certificate of incorporation provides that, to the maximum extent permitted by law, no director shall
be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Section 145 of the Delaware General Corporation Law provides
that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including
attorneys&rsquo; fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection
with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such
person being or having been a director, officer, employee or agent to the corporation. The Delaware General Corporation Law provides
that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise. Our bylaws provide for indemnification by us of our directors, officers
and employees to the fullest extent permitted by the Delaware General Corporation Law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Insofar as indemnification for liabilities arising under the
Securities Act may be provided for directors, officers, employees, agents or persons controlling an issuer pursuant to the foregoing
provisions, the opinion of the SEC is that such indemnification is against public policy as expressed in the Securities Act, and
is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us
in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection
with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">No pending material litigation or proceeding involving our directors,
executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending
or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 15. Recent Sales of Unregistered Securities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In a series of private placement transactions in 2009, we issued
150,000 shares of our common stock and 3-year warrants to purchase 75,000 shares of our common stock at $0.40 per share to accredited
investors at $0.17 per unit for $25,500 in transactions exempt from registration under Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In a series of private placement transactions in 2010, we issued
200,000 shares of our common stock and 3-year warrants to purchase 100,000 shares of our common stock at $0.40 per share to accredited
investors at $0.17 per unit for $34,000 in transactions exempt from registration under Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In March 2010, we issued 187,500 shares of our common stock
to JFS Investments, Inc. for consulting services valued at $31,875 pursuant to exemptions from registration under Section 4(2)
of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In March 2010, we issued 187,500 shares of our common stock,
consisting of 37,500 shares to Garden State Securities and 75,000 shares each to Ernest Pelligrino and Daniel Walsh, principals
of Garden State Securities, for investment banking advice valued at $31,875 pursuant to exemptions from registration under Section
4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In April 2010, we issued 50,000 shares of our common stock to
Sven Rohmann, M.D., PhD, currently our Chief Medical Officer, for consulting services valued at $8,500 pursuant to exemptions from
registration under Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In March 2011, we issued 621,053 shares of our common stock
to Platinum Partners Liquid Opportunity Master Fund LP at $0.2286 per share for $142,000 in a transaction exempt from registration
under Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In March 2011, we issued 740,000 shares of our common stock
to a non-affiliate note holder upon his exercise of warrants to purchase 740,000 shares of our common stock at $0.10 per share
in satisfaction of $74,000 in outstanding notes payable. We originally issued the warrants exercised, to the note holder, in consideration
of the financing in 2009 and 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In March 2011, we issued 2,273,737 shares of our common stock
to a warrant holder for the net cashless exercise of warrants to purchase 2,400,000 shares of our common stock at $0.10 per share.
We originally issued the warrants exercised in a transaction exempt from registration under Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In April 2011, Mr. McLaughlin, our president, exercised options
to purchase 1,500,000 shares of our common stock in satisfaction of $140,000 due to Mr. McLaughlin. Of the options exercised,
500,000 were exercised at $0.08 per share and 1,000,000 were exercised at $0.10 per share. We originally issued the options exercised
to Mr. McLaughlin under an employment agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In July 2011, we issued 302,941 shares of our common stock and
3-year warrants to purchase 151,500 shares of our common stock at $0.40 per share to accredited investors and Dr. Bruzzese, our
Chairman, at $0.17 per unit for $51,500 in transactions exempt from registration under Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In 2011, we granted non-plan, 10-year options to our directors,
officers, certain employees and consultants under their respective director&rsquo;s, employment and consulting agreements, such
options consisting of the right to purchase, in the aggregate: (i) 5,610,000 shares of our common stock at $0.20 per share; (ii)
1,000,000 shares of our common stock at $0.40 per share; (iii) 3,175,000 shares of our common stock at $0.40 per share, such options
to become exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration date; and (iv) 1,500,000
shares of our common stock at $0.80 per share, such options to become exercisable upon our achieving $10 million in revenues in
any fiscal year prior to the expiration date. The issuance of these options was exempt from registration under Section 4(2) of
the Securities Act in reliance on Rule 701 of the Securities Act pursuant to compensatory benefit plans approved by our Board of
Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2012, we issued 500,000 shares of our common stock to
Mr. Agostini, a member of our Board of Directors, upon his exercise of stock options at $0.10 per share for $50,000, consisting
of $32,500 in cash and satisfaction of $17,500 due to him.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In a series of private placement transactions in June and July
2012, we issued 1,843,428 shares of our common stock and 3-year warrants to purchase 921,714 shares of our common stock at $0.40
per share to accredited investors at $0.17 per unit for $313,383. Concurrently with this private placement, we issued 1,729,075
shares of our common stock and 3-year warrants, having the same terms and conditions as the warrants issued in the private placement,
to purchase 864,537 shares of our common stock to Mr. McLaughlin, our President, Dr. Bruzzese, our Chairman, and a non-affiliate
note holder in satisfaction of $100,000 due to Mr. McLaughlin, $32,500 due to Dr. Bruzzese and $161,443 note payable. The issuances
of our common stock were made pursuant to exemptions from registration under Section 4(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2012, we issued Strawn Pickens LLP, a law firm co-founded
by Mr. Strawn, a member of our Board of Directors, 400,000 shares of our common stock and 3-year warrants to purchase 200,000 shares
of our common stock at $0.40 per share at $0.17 per unit in satisfaction of approximately $68,000 in legal services accrued since
2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In June 2012, we issued 300,000 shares of our common stock to
Tungsten 74 LLC for consulting services valued at $51,000 pursuant to exemptions from registration under Section 4(2) of the Securities
Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">All certificates representing the securities issued in the transactions
described in this Item 15 included appropriate legends setting forth that the securities had not been offered or sold pursuant
to a registration statement and describing the applicable restrictions on transfer of the securities. There were no underwriters
or placement agents employed and no commissions were paid in connection with any of the transactions set forth in this Item 15.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 16. Exhibits and Financial Statement Schedules</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The information required by this item is set forth on the exhibit
index that follows the signature page of this registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 17. Undertakings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The undersigned registrant hereby undertakes:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1)&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(i)</TD><TD>To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(ii)</TD><TD>To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(iii)</TD><TD>To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(2)&#9;&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(3)&#9;&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the termination of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(4)&#9;&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(5)&#9;&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SIGNATURES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Mount Kisco, State of New York, on the date indicated below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 48%">&nbsp;</TD>
    <TD STYLE="width: 5%">&nbsp;</TD>
    <TD STYLE="width: 47%; border-bottom: windowtext 1pt solid; font-weight: bold">IMMUDYNE, INC.</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>(Registrant)</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>Date: October 18, 2012</TD>
    <TD>By:</TD>
    <TD STYLE="border-bottom: black 1pt solid">/s/ Mark McLaughlin</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Mark McLaughlin</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Executive Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>(Principal Executive Officer)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>POWER OF ATTORNEY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Mark McLaughlin his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all instruments
that such attorney may deem necessary or advisable under the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in connection with this registration statement on Form S-1 and any and all
amendments thereto, and any other documents in connection therewith, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following persons in the capacities and on the dates indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 29%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Signature</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 50%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Title</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 19%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Date</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid">/s/ Anthony G. Bruzzese, M.D.</TD>
    <TD>&nbsp;</TD>
    <TD>Chairman</TD>
    <TD>&nbsp;</TD>
    <TD>October 18, 2012</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>Anthony G. Bruzzese, M.D.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: windowtext 1pt solid">/s/ Mark McLaughlin</TD>
    <TD>&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">President, Chief Executive Officer and Director</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(Principal Executive, Financial and Accounting Officer)</P></TD>
    <TD>&nbsp;</TD>
    <TD>October 18, 2012</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>Mark McLaughlin</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: windowtext 1pt solid">/s/ Dominic J. Agostini</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>October 18, 2012</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>Dominic J. Agostini</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid">/s/ John R. Strawn, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>October 18, 2012</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>John R. Strawn, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="text-transform: uppercase"><B>Exhibit
Index</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10%; border-bottom: windowtext 1pt solid; text-align: left">Exhibit No.</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 89%; border-bottom: windowtext 1pt solid">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.1</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Incorporation of Immudyne, Inc.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.2</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment of Certificate of Incorporation of Immudyne, Inc.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.3</TD>
    <TD>&nbsp;</TD>
    <TD>Bylaws of Immudyne, Inc. as currently in effect</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.1</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Subscription Agreement</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>5.1&dagger;</TD>
    <TD>&nbsp;</TD>
    <TD>Opinion of Newman &amp; Morrison LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.1</TD>
    <TD>&nbsp;</TD>
    <TD>Written Description of Royalty Agreement between Immudyne, Inc. and Mark McLaughlin</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.2#</TD>
    <TD>&nbsp;</TD>
    <TD>Employment Agreement, as amended, between Immudyne, Inc. and Mark McLaughlin, effective as of October 12, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.3#</TD>
    <TD>&nbsp;</TD>
    <TD>Director Agreement between Immudyne, Inc. and Anthony Bruzzese M.D., dated as of April 20, 2011</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.4#</TD>
    <TD>&nbsp;</TD>
    <TD>Director Agreement between Immudyne, Inc. and Dominic Agostini, dated as of April 20, 2011</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.5#</TD>
    <TD>&nbsp;</TD>
    <TD>Director and Legal Services Agreement between Immudyne, Inc. and John R. Strawn, dated as of April 20, 2011</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.1&dagger;</TD>
    <TD>&nbsp;</TD>
    <TD>Consent of Newman &amp; Morrison LLP (Included in Exhibit 5.1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.2&dagger;</TD>
    <TD>&nbsp;</TD>
    <TD>Consent of PKF O&rsquo;Connor Davies</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>24.1&dagger;</TD>
    <TD>&nbsp;</TD>
    <TD>Power of Attorney (Included on the Signature Page of this Registration Statement on Form S-1)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">#&#9;Indicates management contract or compensatory plan, contract
or arrangement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&dagger;&#9;Filed herewith.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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[{"type": "S-1", "sequence": "1", "filename": "v325879_s1.htm", "description": "FORM S-1", "secsgml_size_bytes": 671980}]
{"company-data": {"conformed-name": "Immudyne, Inc.", "cik": "0000948320", "irs-number": "760238453", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-184487", "film-number": "121150709"}, "business-address": {"street1": "50 SPRING MEADOW ROAD", "city": "MT. KISCO", "state": "NY", "zip": "10549", "phone": "(914) 244-1777"}, "mail-address": {"street1": "50 SPRING MEADOW ROAD", "city": "MT. KISCO", "state": "NY", "zip": "10549"}, "former-company": {"former-conformed-name": "IMMUDYNE INC", "date-changed": "19950720"}}
As filed with the United States Securities and Exchange Commission on October
18, 2012
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
IMMUDYNE, INC.
(Name of Registrant as specified in its
charter)
Delaware
2833
76-0238453
(State or other jurisdiction
of incorporation)
(Primary Standard Industrial
Classification Code Number)
(IRS Employer
Identification No.)
50 Spring Meadow Rd.
Mount Kisco, NY 10549
(914) 244-1777
(Address and telephone number of principal
executive offices and principal place of business)
Mark McLaughlin
President
Immudyne, Inc.
50 Spring Meadow Rd.
Mount Kisco, NY 10549
(914) 244-1777
(Name address and telephone number of agent for service)
Copies to:
Gerald A. Adler, Esq.
Newman & Morrison LLP
44 Wall Street, 20th Floor
New York, NY  10005
Tel: (212) 248-1001    Fax: (212) 232-0386
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:
x
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if smaller reporting company)
Smaller reporting company
x
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
Amount to be
registered
Proposed
maximum offering
price per
Proposed
maximum aggregate
offering price
Amount of
registration fee
Common Stock, par value $0.01 per share
1,828,212
(1)
$
.17
(2)
$
310,796.04
$
42.39
(1)
This registration statement registers for resale 1,828,212 shares of common stock, par value $0.01 per share, of the registrant
by the selling shareholders which were issued in a series of private placement transactions in 2012. In accordance with Rule 416(a),
there also are being registered hereunder an indeterminate number of shares that may be issued and resold resulting from stock
splits, stock dividends or similar transactions.
(2)
Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration
fee based on the average of the high and low prices reported on the OTC Markets-OTC Pink Current on October 15, 2012.
The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities
Act of 1933, as amended, or until the registration statement shall become effective on such date as the United States Securities
and Exchange Commission, acting pursuant to said section 8(a), may determine.
The information in this prospectus is not complete
and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER
18, 2012
IMMUDYNE, INC.
1,828,212 Shares of Common Stock
The selling shareholders identified in this prospectus may offer
and sell up to 1,828,212 shares of our common stock issued to investors in a series of private placement transactions in 2012.We
are not selling any shares of our common stock in this offering and will not receive any proceeds from this offering.
The selling shareholders may offer the shares covered by this
prospectus from time to time at fixed prices, at prevailing market prices at the time of sale, at varying prices or negotiated
prices, in negotiated transactions, or in trading markets for our common stock. We will bear all costs associated with the registration
of the shares covered by this prospectus.
Our common stock currently is quoted on the OTC Markets-OTC
Pink Current under the symbol "IMMD." On October 15, 2012, the last reported sale price of our common stock was
$0.17 per share.
We are an "emerging growth company" as defined under
the federal securities laws and are subject to reduced public company reporting requirements.
Investing in our common stock
involves a high degree of risk. See "Risk Factors" beginning on page
3
for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this prospectus is             , 2012.
TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
3
Forward-Looking Statements
15
Use of Proceeds
16
Price Range of Common Stock
16
Dividend Policy
16
Management's Discussion and Analysis of Financial Condition
17
Our Business
24
Management
29
Executive Compensation
30
Certain Relationships and Related Party Transactions
33
Security Ownership of Certain Beneficial Owners and Management
36
Selling Shareholders
38
Plan of Distribution
38
Description of Capital Stock
40
Shares Eligible for Future Sale
42
Experts
43
Legal Matters
43
Where You Can Find Additional Information
43
Index to Financial Statements
F-1
This prospectus is part of a registration statement we filed
with the Securities and Exchange Commission, or the SEC. Under this registration process, the selling shareholders may, from time
to time, offer and sell up to 1,828,212 shares of our common stock, as described in this prospectus, in one or more offerings.
This prospectus provides you with a general description of the securities the selling shareholders may offer. You should read this
prospectus carefully before making an investment decision.
You may only rely on the information contained in this prospectus
or that we have referred you to. We have not authorized anyone to provide you with additional or different information. This prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the shares of our common stock
offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common
stock in any circumstances or any jurisdiction in which such offer or solicitation is not permitted. You should not assume that
the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus
regardless of the time of delivery of this prospectus or any sale of our common stock. The rules of the SEC may require us to update
this prospectus in the future.
As used in this prospectus, the terms "Immudyne,"
the "Company," "we," "our" and similar terms refer to Immudyne, Inc., unless the context indicates
otherwise.
i
PROSPECTUS SUMMARY
The following summary highlights selected information contained
elsewhere in this prospectus and does not contain all of the information you should consider before investing in our securities.
Before deciding to invest in our securities, you should read this entire prospectus, including the discussion of "Risk Factors"
and our financial statements and the related notes.
We manufacture, distribute and sell natural immune support products.
We have focused for over 20 years on the research and development of immune system enhancing compounds, including the purest, particulate
and soluble beta glucans derived from yeast. Beta glucans are a natural extract that has been clinically shown to support the immune
system. Our core nutraceutical and cosmetic product lines consist of our pure yeast beta glucans as the differentiating component
in oral and topical applications. Our beta glucan products and manufacturing processes are protected by patents and trade secrets,
compliant with current Good Manufacturing Practices, or GMP, and classified as Generally Recognized as Safe, or GRAS, by the U.S.
Food and Drug Administration, or the FDA. Historically, we have sold our products primarily on a word-of-mouth basis through distributors
and our website as standalone product lines, as well as business-to-business as a cosmetic enhancement, dietary supplement or feed
additive for animal use. We believe that we are well positioned to capitalize on our development of proprietary and patented natural
immune support products and can now focus on commercializing sales of these products on a more meaningful, global basis.
We originally incorporated under the laws of British Columbia,
Canada, in 1987 under the name Anina Resources, Inc. and subsequently changed our name to Immudyne, Inc. and our jurisdiction to
the State of Wyoming by continuance in September 1987. On June 30, 1994, we changed our jurisdiction to Delaware by merger with
and into Immudyne, Inc., a Delaware corporation formed on June 21, 1994.
Our Products
Beta glucans, or β-Glucans, are a natural extract clinically
shown to be "biological response modifiers" that support the immune system. The potential benefits of beta glucans
to human health continue to emerge. Independent scientific research has demonstrated that beta glucans provide defense against
bacteria by activating innate immune cells, which fight off infection. In addition, a growing body of scientific literature suggests
that beta glucans have a substantial effect on cancer regression. Healthcare professionals have taken an interest in our immune-support
products as a means of offering alternative or complementary approaches for maintaining a healthy and active lifestyle. The health
benefits of our pure yeast beta glucans have been demonstrated through extensive research and clinical studies, and we are committed
to supporting evidence-based studies that demonstrate the health benefits of our products.
We have developed a proprietary bio-refinement approach to produce
the purest, particulate and soluble beta glucans derived from yeast. Our pure yeast beta glucan is highly-soluble and tasteless,
making it suitable for use in a wide variety of oral and topical applications to support the immune system in humans and animals.
As the U.S. and international markets become more aware of the value of our proprietary products, we believe demand for our pure
beta glucans will increase. Our nutraceutical and cosmetic product lines consist of high-grade beta glucan products for oral and
topical applications as all-natural raw material ingredients in bulk quantities and finished, consumer products packaged under
our brands and private label brands. Historically, we produced other grades of beta glucan products for the animal feeds industry
as a substitute for antibiotics. As of 2011, we began exiting this lower-margin market for feed-additive products. Our sales and
marketing efforts going forward are concentrated on our oral and topical-use products for healthcare professionals, distributors
and direct-to-consumer sales.
Corporate Information
Our principal executive offices are located at 50 Spring Meadow
Rd., Mount Kisco, NY 10549. Our telephone number is (914) 244-1777. Our website address is www.immudyne.com.
The information
contained on or accessible through our website is not part of this prospectus or the registration statement of which this prospectus
is a part, and potential investors should not rely on such information in making a decision to purchase our common stock in this
offering.
1
The
Offering
Common stock offered by selling shareholders
Up to 1,828,212 shares
Common stock to be outstanding after the offering
28,875,317
Use of proceeds
We will not receive any proceeds from the sale of the common stock.
OTC Markets-OTC Pink Current Symbol
IMMD
Risk Factors
The purchase of our common stock involves a high degree of risk. You should carefully review and consider the "Risk Factors" beginning on page 3.
The 1,828,212 shares of our common stock being offered by the
selling shareholders identified in this prospectus, which were acquired by the respective selling shareholders through a private
placement conducted by us. In a series of private placement transactions in June and July 2012, we issued 1,843,428 shares of our
common stock and 3-year warrants to purchase 921,714 shares of our common stock at $0.40 per share to accredited investors at $0.17
per unit for $313,383. All of the shares and warrants were issued to the selling shareholders prior to the filing of the registration
statement of which this prospectus is a part pursuant to exemptions from registration under Section 4(2) of the Securities Act
of 1933, as amended, or the Securities Act, and Regulation D promulgated thereunder.
The number of shares of our common stock outstanding after the
offering is based on 28,875,317 shares of our common stock outstanding as of October 17, 2012, which excludes (i) 3,630,112 shares
of our common stock issuable upon exercise of warrants outstanding as of October 17, 2012, and (ii) stock options outstanding and
exercisable as of October 17, 2012, to purchase 8,952,500 shares of our common stock. The warrants are immediately exercisable
and entitle their holders to purchase up to: (i) 1,500,000 shares of our common stock at $0.15 per share, such warrants expiring
in 2012 and 2013; and (ii) 2,130,112 shares of our common stock at $0.40 per share, such warrants expiring in 2015. The stock options
expire on the tenth anniversary of their grant date and entitle their holders to purchase up to: (i) 1,597,500 shares of our common
stock at $0.07 to $0.10 per share, such options having a weighted-average contractual life remaining of 4 years; (ii) 6,355,000
shares of our common stock at $0.13 to $0.20 per share, such options having a weighted-average contractual life remaining of 10
years; and (iii) 1,000,000 shares of our common stock at $0.40 per share, such options having a weighted-average contractual life
remaining of 10 years.
2
RISK FACTORS
Our business and an investment in our securities are subject
to a variety of risks. The following risk factors describe the most significant events, facts or circumstances that could have
a material adverse effect upon our business, financial condition, results of operations, ability to implement our business plan
and the market price for our securities. Many of these events are outside of our control. If any of these risks actually occur,
our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price
of our common stock could decline and investors in our common stock could lose all or part of their investment.
Risks Related to Our Business
We have generated losses and not yet achieved positive
cash flows, which may adversely affect our liquidity and ability to continue as a going concern.
Our net cash used in operating activities was approximately
$79,000 and $7,000 in the six months ended June 30, 2012 and 2011, respectively, and approximately $18,000 and $252,000 in 2011
and 2010, respectively. We cannot assure you that we will be able to achieve revenue growth, profitability or positive cash flow,
on either a quarterly or annual basis, or that profitability, if achieved, will be sustained. Our ability to meet our long-term
business objectives likely will be dependent upon our ability to raise additional financing through public or private equity financings,
establish increasing cash flow from operations or securing other sources of financing. We will need to reduce operating expenses
and increase cash flow to fund current operations if we are not able to fund these operations by raising capital. We have implemented
a new sales and marketing strategy to focus on higher-margin products with what we believe to be greater opportunities for growth
in the U.S. and international markets. In addition, management has instituted cost-cutting measures that we believe should result
in improved efficiencies of our operations going forward. If our losses continue, however, our liquidity may be severely impaired,
our stock price may fall and our shareholders may lose all or a significant portion of their investment.
We may not be able to implement our growth and marketing
strategy successfully on a timely basis or at all.
Our future success depends, in large part, on our ability to
implement our growth strategy of expanding distribution and sales of our yeast beta glucan-based oral and topical application
products, attracting new consumers to our brand and introducing new product lines and product extensions. Our ability to implement
this growth strategy depends, among other things, on our ability to:
·
enter into
                                                                                                               distribution and
                                                                                                               other strategic
                                                                                                               arrangements with
                                                                                                               other potential
                                                                                                               distributors of
                                                                                                               our all-natural
                                                                                                               raw material products;
·
increase our
                                                                                                               brand recognition;
·
expand and
                                                                                                               maintain brand
                                                                                                               loyalty; and
·
research new applications for existing products and develop new product lines and extensions.
We may not be able to successfully implement our growth strategy.
Our sales and operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources
in a growth strategy that ultimately proves unsuccessful.
If we fail to develop and maintain our brand, our business
could suffer.
We believe that developing and maintaining our brand of the
purest, particulate and soluble beta glucans derived from yeast is critical to our success. The importance of our brand recognition
may become greater as competitors offer more products similar to ours. Our brand-building activities involve increasing awareness
of our brand, creating and maintaining brand loyalty and increasing the availability of our products. If our brand-building activities
are unsuccessful, we may never recover the expenses incurred in connection with these efforts, and we may be unable to implement
our business strategy and increase our future sales.
We are subject to government regulation of the processing,
formulation, packaging, labeling and advertising of our consumer products, and any failure to comply with such regulations could
require us to repackage, recall or undergo regulatory approval of our products, which would have a material adverse effect on our
business.
3
Under the Federal Food, Drug, and Cosmetic Act, or FDCA, and
Dietary Supplement Health and Education Act, or DSHEA, companies that manufacture and distribute foods, food ingredients, cosmetics
and dietary supplements in the U.S., such as our yeast beta glucan products, are limited in the claims that they are permitted
to make about nutritional support on the product label without the approval of the FDA. Any failure by us to adhere to the labeling
requirements could lead to the FDA requiring that our products be repackaged and relabeled, which would have a material adverse
effect on our business. In addition, advertising and product claims regarding the efficacy of products are also regulated by the
Federal Trade Commission, or the FTC. Companies are responsible for the accuracy and truthfulness of, and must have substantiation
for, any such statements. These claims must be truthful and not misleading. Statements must not claim to diagnose, mitigate, treat,
cure or prevent a specific disease or class of disease. We are able to market our oral and topical application products in reliance
on the self-affirmed GRAS status of our active ingredient, yeast beta glucan. No governmental agency or other third party has made
a determination as to whether or not our products have achieved GRAS status. We make this determination based on independent scientific
opinions that yeast beta glucan is not harmful under its intended conditions of use. If the FDA, another regulatory authority or
other third party denied our self-affirmed GRAS status for our yeast beta glucan products, we could face significant penalties
or be required to undergo the regulatory approval process in order to market our products, and our business, financial condition
and results of operations will be adversely affected. We cannot assure you that in such a situation our yeast beta glucan products
would be approved.
The FDA's current GMPs describe policies and procedures
designed to ensure that dietary supplements are produced in a quality manner, do not contain contaminants or impurities, and are
accurately labeled and cover the manufacturing, packaging, labeling and storing of supplements, with requirements for quality control,
design and construction of manufacturing plants, testing of ingredients and final products, record keeping, and complaints processes.
Those who manufacture, package or store dietary supplements must comply with current GMPs. If we or our suppliers fail to comply
with current GMP procedures, the FDA may take enforcement action against us or our suppliers.
The processing, formulation, packaging, labeling and advertising
of our yeast beta glucan products in the U.S. are subject to regulation by the FDA, FTC and other federal agencies, and our activities
are also subject to regulation by various agencies of the states and localities in which our yeast beta glucan products are sold.
Any changes in the current regulatory environment could impose requirements that would limit our ability to market our yeast beta
glucan products and make bringing new products to market more expensive. In addition, the adoption of new regulations or changes
in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and
may adversely affect our business, financial condition and results of operations. While our yeast beta glucan products currently
are categorized as foods, it is possible that the FDA or a state regulatory agency could classify these products as a cosmetic
or a drug. If the products are classified as cosmetics rather than a food, we would be limited to making claims that the products
cleanse and beautify, but we could not make structure or function claims. If our yeast beta glucan products are classified as drugs,
we would not be able to market our products without going through the drug approval process. Either of these events would limit
our ability to market our products effectively and cost-efficiently, and would adversely affect our financial condition and results
of operations. If the FDA or a state regulatory agency viewed the products as cosmetics or drugs, they could claim that the products
are misbranded and require that we repackage and relabel the products and impose civil and criminal penalties on us. Either or
both of these situations could adversely affect our business and operations.
In the European Union, or the EU, markets, the European Food
Safety Authority, or EFSA, an advisory panel to the European Commission, performs all scientific assessments of health claims on
food and supplement labels. The European Commission will consider the opinions of EFSA in determining whether to include a health
claim on the list of permissible claims. Once published, only health claims for ingredients and products included on the list may
be used in promotional materials for products marketed and sold in the European Union. The marketability of our products may be
limited as we look to expand our sales in the EU if the health claims of our products are not included on the list.
Our products may require clinical trials to establish
efficacy and safety, and if the findings of our trials are challenged or found insufficient to support our health claims, we may
need to perform additional trials before such products can be marketed.
4
Our yeast beta glucan products have undergone or may require
clinical trials to establish our health benefit claims or the safety and efficacy of our products. Clinical trials for new product
uses can require a significant amount of resources and there is no assurance that such trials will be favorable to the claims we
make for our products, or that the cumulative authority established by such trials will be sufficient to support our claims. Moreover,
both the findings and methodology of such trials are subject to challenge by the FDA and various international scientific bodies.
If the findings of our trials are challenged or found to be insufficient to support our claims, additional trials may be required
before our products can be marketed.
If we undertake product recalls or incur liability claims
with respect to our yeast beta glucan products, such recalls or claims could increase our costs and adversely affect our reputation,
business and results of operations.
Our yeast beta glucan products are designed for human and animal
consumption and we may face product recalls or liability claims if the use of our products is alleged to have resulted in injury
or death. Yeast beta glucan is classified as a food ingredient and is not subject to pre-market regulatory approval in the U.S.
Our yeast beta glucan products contain ingredients that do not have long histories of human or animal consumption. Previously unknown
adverse reactions resulting from consumption of these ingredients could occur. We may have to undertake various product recalls
or be subject to liability claims, including, among others, that our yeast beta glucan products include inadequate instructions
for use or inadequate warnings concerning possible side effects and interactions with other substances. A product recall or liability
claim against us could result in increased costs and could adversely affect our reputation with our customers, which, in turn,
could have an adverse effect on our business, financial condition and results of operations.
We currently do not maintain product liability insurance coverage.
Product liability insurance is expensive, is subject to deductibles and coverage limitations, and may not be available to us in
the future. In addition, we cannot be sure that we will be able to obtain or maintain insurance coverage at acceptable costs or
in a sufficient amount, that our insurer will not disclaim coverage as to a future claim or that a product liability claim would
not otherwise adversely affect our business, financial condition and results of operations. The cost of any product liability litigation
or other proceeding, even if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation
of product liability litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
Product liability litigation and other related proceedings may also require significant management attention.
We derive a substantial part of our sales from one major
customer. If we lose this customer or it reduces the amount of business it does with us, or if it fails to meet its obligations
to us, our sales, financial condition and results of operations would be adversely affected.
Our largest customer accounted for 77% and 61% of our sales
for the six months ended June 30, 2012 and 2011, respectively, and 53% and 23% of our total sales in 2011 and 2010, respectively.
If we lose this customer or they reduce the amount of business they do with us, our sales and profitability would be adversely
affected. In addition, we are subject to credit risk due to concentration of our trade accounts receivables, and the inability
of our largest customer to meet its obligations to us would adversely affect our financial results. At June 30, 2012, accounts
receivable from our largest customer amounted to 94% of accounts receivable, and at December 31, 2011 and 2010, this customer accounted
for 85% and 86% of accounts receivable, respectively. Although we are making efforts to reduce our dependency on a limited number
of customers, we believe this concentration of sales to one customer will continue in the near future.
Many of our other customers buy from us under purchase orders,
and we generally do not have agreements with or commitments from these customers for the purchase of our products. We cannot provide
assurance that our smaller customers will maintain or increase their sales volumes or orders for the products supplied by us or
that we will be able to maintain or add to our existing customer base. Decreases in our customers' sales volumes or orders
for products supplied by us may have an adverse effect on our business, financial condition or results of operations.
Our yeast beta glucan products face various forms of competition
from other products in the marketplace, which could adversely affect our market share and result in a decrease in our future sales
and earnings.
5
The pharmaceutical and biotechnology industries are characterized
by intense competition, rapid product development and technological change. Most of the competition that our yeast beta glucan
products face comes from companies that are large, well established and have greater financial, marketing, sales and technological
resources than we have. Our products compete with a range of consumer and nutraceutical products. Our commercial success will depend
on our ability to compete effectively in marketing and product development areas including, but not limited to, sales and branding,
product safety, efficacy, ease-of-use, customer compliance, price, marketing and distribution. There can be no assurance that competitors
will not succeed in developing and marketing products that are more desirable or effective than our products or that would render
our products obsolete and non-competitive.
We are subject to risks of doing business internationally
as we attempt to expand our sales through international consulting and distributor relationships.
We have entered and anticipate entering into additional international
consulting and distributor agreements for our yeast beta glucan products. As a result, we expect to increase our revenues from
international sales. A number of factors can slow or prevent international sales, or substantially increase the cost of international
sales, and we may encounter certain risks of doing business internationally including the following:
·
increased government regulation of the processing, formulation, packaging, labeling and advertising of our consumer products
for international markets;
·
reduced protection and enforcement for our intellectual property rights;
·
unexpected changes in, or impositions of, legislative or regulatory requirements that may limit our ability to sell our products
and repatriate funds to the U.S.;
·
political and economic instability;
·
fluctuations in foreign currency exchange rates;
·
difficulties in developing and maintaining distributor relationships in foreign countries;
·
difficulties in negotiating acceptable contractual terms and enforcing contractual obligations;
·
exposure to liabilities under the U.S. Foreign Corrupt Practices Act;
·
potential trade restrictions and exchange controls;
·
creditworthiness of foreign distributors, customer uncertainty and difficulty in foreign accounts receivable collection; and
·
the burden of complying with foreign laws.
As we attempt to expand our sales internationally, our exposure
to these risks could result in our inability to attain the anticipated benefits and our business could be adversely impacted. Our
success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our
international operations. However, any of these factors could adversely affect our international operations and, consequently,
our operating results.
A material disruption at our manufacturing facilities
in Kentucky could result in material delays, quality control issues, increased costs and loss of business opportunities, which
may negatively impact our sales and financial results.
We rely on our manufacturing facilities in Kentucky to operate
our business and produce our yeast beta glucan products. Our manufacturing facilities, or any of our machines within our otherwise
operational facilities, could cease operations or no longer comply with current GMP guidelines unexpectedly due to a number of
events, including prolonged power or equipment failures, disruptions in the transportation infrastructure, and fires, floods or
other catastrophes. If our manufacturing facilities no longer comply with GMP, our products may be deemed adulterated under U.S.
regulations and subject to recall. Furthermore, a significant majority of our raw material product inventory is located in our
Kentucky facility. If any material amount of our inventory were damaged as a result of a material disruption, we would be unable
to meet our contractual obligations. While we seek to operate our manufacturing facilities in compliance with applicable rules
and regulations and take measures to minimize the risks of disruption at our facilities, any such material disruption at our facilities
could prevent us from meeting customer demand, reduce our sales and negatively impact our financial results.
If we lose our key personnel, or are unable to attract
and retain additional qualified personnel, the quality of our services may decline and our business may be adversely affected.
6
We rely heavily on the expertise, experience and continued services
of our senior management, including our President, Mr. McLaughlin. Loss of his services could adversely affect our ability to achieve
our business objectives. Mr. McLaughlin is an integral factor in establishing relationships. The continued development of our business
depends upon his continued employment. We have entered into an employment agreement with Mr. McLaughlin that includes provisions
for non-competition and confidentiality.
We believe our future success will depend upon our ability to
retain key employees and our ability to attract and retain other skilled personnel and consultants. We cannot guarantee that any
employee will remain employed by us for any period of time or that we will be able to attract, train or retain qualified personnel
in the future. Such loss of personnel could have a material adverse effect on our business and company. Furthermore, we may need
to employ additional personnel to expand our business. Qualified employees and consultants in the dietary supplement industry are
in great demand and may be unavailable in the time frame required to satisfy our customers' requirements. There is no assurance
we will be able to attract and retain sufficient numbers of highly skilled employees in the future. The loss of personnel or our
inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business.
Current and future economic and market conditions could
adversely affect demand for our products.
The U.S. economy and the global economy are recovering from
a severe recession. Factors such as uncertainties in consumer spending, a sustained regional and global economic downturn or slow
recovery may reduce the demand for our yeast beta glucan products. Furthermore, challenging economic conditions also may impair
the ability of our customers to pay for our commercial, direct-to-consumer products. Consumer spending for our yeast beta glucan
products generally is considered a discretionary purchase because they are non-prescription nutriceutical supplements and nutricosmetics,
and we may experience a more negative impact on our business due to these conditions than other companies that do not depend on
discretionary spending. If demand for our products declines or our customers are otherwise unable to pay for our products, we may
be required to offer extensive discounts or spend more on marketing than budgeted and our revenues, expense levels and profitability
will be adversely affected.
We may need additional capital to execute our business
plan and fund operations and may not be able to obtain such capital on acceptable terms or at all.
In connection with the development and expansion of our business,
we may incur significant capital and operational expenses. We believe that we can increase our sales and net income by implementing
a growth strategy that focuses on (i) increasing sales of our oral and topical-use products, (ii) diversifying revenues to include
greater direct-to-consumer and healthcare professional sales and (iii) expanding distribution to Europe and Asia. To implement
our growth strategy, we anticipate (i) continuing our exit from lower-margin, feed-additive sales, (ii) increasing our marketing
to healthcare professionals and end consumers, (iii) entering into additional distribution agreements with manufacturers and formulators
in Europe and Asia and (iv) developing our branded product lines.
We will not receive any proceeds from the sale of the shares
of our common stock covered by this prospectus by the selling shareholders. Management anticipates that our existing capital resources,
cash flows from operations and the proceeds from our recent private placement will satisfy the liquidity requirements of our business
for the next 12 months. However, if available funds are not sufficient to meet our plans for expansion or current operating expenses,
our plans include pursuing alternative financing arrangements, including bank loans, advances from our directors and officers or
funds raised through offerings of our equity or debt, if and when we determine such offerings are required. Our ability to obtain
additional capital on acceptable terms or at all is subject to a variety of uncertainties, including: investors' perceptions
of, and demand for, companies in our industry; conditions of the U.S. and other capital markets in which we may seek to raise funds;
our future results of operations, financial condition and cash flows; and economic, political and other conditions in the U.S.
7
There is no assurance we will be successful in locating a suitable
financing transaction in a timely fashion or at all. In addition, there is no assurance we will obtain the capital we require by
any other means or that our directors and officers who have in the past willingly funded operations through personal advances will
commit to do so in the future. Future financings through equity investments are likely to be dilutive to our existing shareholders.
Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued
securities may include preferences or superior voting rights, be combined with the issuance of warrants or other derivative securities,
or be the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Furthermore,
we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection
with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.
If we cannot raise additional funds on favorable terms or at
all, we may not be able to carry out all or parts of our strategy to maintain our growth and competitiveness.
We may not be able to protect our proprietary rights adequately,
which could adversely affect our competitive position and reduce the value of our products and brands, and litigation to protect
our intellectual property rights may be costly.
We attempt to strengthen and differentiate our products by developing
new and innovative yeast beta glucan products and manufacturing processes. As a result, our patents, trademarks and other intellectual
property rights are important assets to our business. Our success will depend in part on our ability to obtain and protect our
products, methods, processes and other technologies, to preserve our trade secrets, and to operate without infringing on the proprietary
rights of third parties in the U.S. and other international markets. Despite our efforts, any of the following may reduce the value
of our owned and used intellectual property:
·
issued patents and trademarks that we own or have the right to use may not provide us with any competitive advantages;
·
our efforts to protect our proprietary rights may not be effective in preventing misappropriation of our intellectual property;
·
our efforts may not prevent the development and design by others of products or technologies similar to or competitive with,
or superior to those we use or develop; or
·
another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order
to continue to offer the contested feature in our products or services.
Policing the unauthorized use of our proprietary technology
can be difficult and expensive. Litigation might be necessary to protect our intellectual property rights, which may be costly
and may divert our management's attention away from our core business. Furthermore, there is no guarantee that litigation
would result in an outcome favorable to us. If we are unable to protect our proprietary rights adequately, it would have a negative
impact on our operations.
We may be subject to claims that we have infringed the
proprietary rights of others, which could require us to obtain a license or otherwise change our manufacturing processes or product
offerings.
Although we do not believe any of our products or manufacturing
processes infringe upon the proprietary rights of others, there is no assurance that infringement or invalidity claims, or claims
for indemnification resulting from infringement claims, will not be asserted or prosecuted against us or that any such assertions
or prosecutions will not have a material adverse effect on our business. Regardless of whether any such claims are valid or can
be asserted successfully, defending against such claims could cause us to incur significant costs and could divert resources away
from our other activities. In addition, assertion of infringement claims could result in injunctions that prevent us from distributing
our products. If any claims or actions are asserted against us, we may seek to obtain a license to the intellectual property rights
that are in dispute. Such a license may not be available on reasonable terms, or at all, which could force us to change our manufacturing
processes or product offerings.
We will incur significant costs as a result of our operating
as a public reporting company and our management's requirement to devote substantial time to new compliance initiatives,
which may adversely affect our business and results of operations.
8
While we are a public company quoted on the OTC Markets-OTC
Pink Current, our compliance costs prior to the effectiveness of the registration statement of which this prospectus is a part
were not substantial in light of our limited operations and limited public reporting obligations. As a company subject to public
reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we incur increased legal, accounting
and other expenses. The costs of preparing and filing annual, quarterly and current reports and other information with the SEC
and furnishing audited reports to shareholders is time-consuming and costly, and may adversely affect our business and results
of operations.
It will also be time-consuming, difficult and costly for us
to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act. Our management has limited or no experience operating a company subject to the rules and reporting practices required by the
federal securities laws and applicable to a publicly traded company. Our management currently relies in many instances on the professional
experience and advice of third parties including our attorneys and accountants. We will need to train our current management and
staff and retain additional financial reporting, internal control and other personnel in order to develop and implement appropriate
accounting, internal controls and reporting procedures.
If we fail to establish and maintain an effective system
of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial
results accurately and timely could harm our business and adversely affect the trading price of our common stock.
Upon the effectiveness of the registration statement of which
this prospectus is a part, we are required to establish and maintain internal controls over financial reporting and disclosure
controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. Our
management will need to include a report on our internal control over financial reporting and its assessment on whether such internal
controls were effective for the prior fiscal year with our annual reports that we file under the Exchange Act with the SEC following
the effectiveness of the registration statement of which this prospectus is a part. Under current federal securities laws, our
management may conclude that our internal control over financial reporting is not effective.
However, for as long as we remain an "emerging growth
company," or EGC, as defined in the Jumpstart our Business Startups Act of 2012, or JOBS Act, we may, and we intend to, take
advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not
EGCs, including not being required to comply with the auditor attestation requirements concerning management's reports on
effectiveness of internal controls over financial reporting otherwise required under the Sarbanes-Oxley Act and the rules promulgated
by the SEC. We may, and we intend to, take advantage of these reporting exemptions until we are no longer an EGC. We will cease
to be an EGC at the earliest of (A) the last day of the fiscal year in which we have total annual gross revenues of $1,000,000,000
(as indexed for inflation in the manner set forth in the JOBS Act) or more; (B) the last day of the fiscal year in which the fifth
anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities
Act occurs; (C) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible
debt; or (D) the date on which we are deemed to be a "large accelerated filer," as defined in Rule 12b-2 under the
Exchange Act or any successor thereto.
Once we cease to be an EGC, as of each fiscal year end thereafter,
our independent registered public accounting firm will be required to evaluate and report on our internal controls over financial
reporting in the event we become an accelerated filer or large accelerated filer. To the extent we find material weaknesses or
other deficiencies in our internal controls, we may determine that we have ineffective internal controls over financial reporting
as of any particular fiscal year end, and we may receive an adverse assessment of our internal controls over financial reporting
from our independent registered public accounting firm. Moreover, any material weaknesses or other deficiencies in our internal
controls may delay the conclusion of an annual audit or a review of our quarterly financial results.
Our management has limited or no experience operating as a public
reporting company under the Exchange Act or establishing the level of internal control over financial reporting required by the
Sarbanes-Oxley Act. Our management currently relies in many instances on the professional experience and advice of third parties
including our attorneys and accountants. At present, we have started reviewing and instituting internal controls, but it may take
time to implement them fully as a newly public reporting company under the Exchange Act.
9
Our management cannot guarantee that our internal controls and
disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations in all control systems,
no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company
have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject
to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or
more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree
of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be detected.
Our accounting personnel who are primarily responsible
for the preparation and supervision of the preparation of our financial statements under generally accepted accounting principles
in the U.S. have limited relevant education and training in generally accepted accounting procedures in the U.S., or U.S. GAAP,
and SEC rules and regulations pertaining to financial reporting, which could impact our ability to prepare our financial statements
and convert our books and records to U.S. GAAP.
Our management and accounting personnel have limited experience
operating as a public company and establishing the level of internal control and financial reporting expertise required of a public
company in the U.S. Our accounting personnel who have the primary responsibilities of preparing and supervising the preparation
of financial statements in accordance with U.S. GAAP for our reporting under the Exchange Act have limited relevant education and
training in U.S. GAAP and related SEC rules and regulations. As such, they may be unable to identify potential accounting and disclosure
issues that may arise upon the conversion of our books and records to U.S. GAAP, which could affect our ability to prepare our
financial statements in accordance with U.S. GAAP. We have taken steps to ensure that our financial statements are prepared in
accordance with U.S. GAAP, including our hiring of a U.S. GAAP consultant to work with our accounting personnel and management
to convert our books and records to U.S. GAAP and prepare our financial statements. In addition, our annual financial statements
are audited by an independent auditor for compliance with U.S. GAAP and to ensure that all necessary and appropriate adjustments
have been made. Until such time as we hire qualified accounting personnel or train our current accounting personnel with the requisite
U.S. GAAP experience, however, the measures we have taken may not be sufficient to mitigate the foregoing risks associated with
the limited education and training of our accounting personnel in U.S. GAAP and related SEC rules and regulations.
Risks Related to Our Securities
Our stock price may be volatile or may decline regardless
of our operating performance, and you may lose part or all of your investment.
The market price of our common stock may fluctuate widely in
response to various factors, some of which are beyond our control, including:
·
market conditions or trends in the dietary supplement industry or in the economy as a whole;
·
actions by competitors;
·
actual or anticipated growth rates relative to our competitors;
·
the public's response to press releases or other public announcements by us or third parties, including our filings with
the SEC;
·
economic, legal and regulatory factors unrelated to our performance;
·
any future guidance we may provide to the public, any changes in such guidance or any difference between our guidance and actual
results;
·
changes in financial estimates or recommendations by any securities analysts who follow our common stock;
·
speculation by the press or investment community regarding our business;
·
litigation;
·
changes in key personnel; and
·
future sales of our common stock by our officers, directors and significant shareholders.
10
In addition, the stock markets, including the over-the-counter
markets in which we are quoted, have experienced extreme price and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many companies. These broad market fluctuations may materially affect our stock price,
regardless of our operating results. Furthermore, the market for our common stock historically has been limited and we cannot assure
you that a larger market will ever be developed or maintained. The price at which investors purchase shares of our common stock
may not be indicative of the price that will prevail in the trading market. Market fluctuations and volatility, as well as general
economic, market and political conditions, could reduce our market price. As a result, these factors may make it more difficult
or impossible for you to sell our common stock for a positive return on your investment. In the past, shareholders have instituted
securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could
incur substantial costs and our resources and the attention of management could be diverted from our business.
Shares of our common stock lack a significant trading
market, which could make it more difficult for an investor to sell our common stock.
Shares of our common stock are not yet eligible for trading
on any national securities exchange. Our common stock currently is quoted in the over-the-counter market on the OTC Markets-OTC
Pink Current. This market tends to be highly illiquid. We anticipate applying for the quotation of our common stock on the OTC
Markets-OTCQB upon the effectiveness of the registration statement of which this prospectus forms a part. We have not yet engaged
a market maker to assist us to apply for quotation on the OTC Markets-OTCQB, however, and there can be no assurance of if and when
we will meet the applicable requirements or such application would be granted. There is no assurance that an active trading market
in our common stock will develop, or if such a market develops, that it will be sustained. In addition, there is a greater chance
for market volatility for securities quoted in the over-the-counter markets as opposed to securities traded on a national exchange.
This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent
administrative supervision of "bid" and "ask" quotations and generally lower trading volume. As a result,
an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock,
or to obtain coverage for significant news events concerning us, and our common stock could become substantially less attractive
for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or for other
purposes.
Future sales of shares of our common stock, or the perception
in the public markets that these sales may occur, may depress our stock price.
The market price of our common stock could decline significantly
as a result of sales of a large number of shares of our common stock in the market after this offering. In addition, if our significant
shareholders sell a large number of shares, or if we issue a large number of shares, the market price of our stock could decline.
Any issuance of additional common stock, or warrants or options to purchase our common stock, by us in the future would result
in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount or a premium to the
then-current trading price of our common stock. Moreover, the perception in the public market that shareholders might sell shares
of our stock or that we could make a significant issuance of additional common stock in the future could depress the market for
our shares. These sales, or the perception that these sales might occur, could depress the market price of our common stock or
make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. See "Shares
Eligible for Future Sale."
We have issued shares of common stock and warrants and options
to purchase shares of our common stock in connection with our private placement and certain employment, director and consultant
agreements. Shares of our common stock that were issued in connection with our private placement will be available for resale without
restriction upon the effectiveness of the registration statement of which this prospectus is a part. In addition, we issued shares
of our common stock, and options and warrants to purchase shares of our common stock, in financing transactions and pursuant to
employment agreements that are deemed to be "restricted securities," as that term is defined in Rule 144 promulgated
under the Securities Act. From time to time, certain of our shareholders may be eligible to sell all or some of their restricted
shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, subject to certain
limitations. In general, pursuant to Rule 144, after satisfying a six-month holding period: (i) affiliated shareholders, or shareholders
whose shares are aggregated, may, under certain circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then-outstanding shares of common stock or the average weekly trading volume of the class
during the four calendar weeks prior to such sale and (ii) non-affiliated shareholders may sell without such limitations, in each
case provided we are current in our public reporting obligations. Rule 144 also permits the sale of securities by non-affiliates
that have satisfied a one-year holding period without any limitation or restriction. The resale under this offering or pursuant
to Rule 144 of shares acquired from us in private transactions could cause our stock price to decline significantly.
11
We could issue additional common stock, which might dilute
the book value of our common stock.
Our Board of Directors has authority, without action or vote
of our shareholders, to issue all or a part of our authorized but unissued shares. Our amended certificate of incorporation authorizes
the issuance of up to 50,000,000 shares of common stock, par value $0.01 per share. As of October 17, 2012, there were 8,542,071
authorized and unissued shares of our common stock available for future issuance, based on 28,875,317 shares of our common stock
outstanding and our reservation of 3,630,112 shares of our common stock issuable upon exercise of outstanding warrants and 8,952,500
shares of our common stock issuable upon exercise of options outstanding and exercisable. Although we have no commitments as of
the date of this prospectus to issue our securities, we may issue a substantial number of additional shares of our common stock
or debt securities to complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects
a discount or a premium from the then-current trading price of our common stock. In addition, in order to raise capital, we may
need to issue securities that are convertible into or exchangeable for a significant amount of our common stock. These issuances
would dilute your percentage ownership interest, which would have the effect of reducing your influence on matters on which our
shareholders vote, and might dilute the book value of our common stock. You may incur additional dilution if holders of stock options
and warrants, whether currently outstanding or subsequently granted, exercise their options or warrants to purchase shares of our
common stock.
We are an EGC, and we cannot be certain if the reduced
disclosure requirements applicable to EGCs will make our common stock less attractive to investors.
We are an EGC, as defined in the JOBS Act, and we may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. We cannot
predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find
our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price
may be more volatile.
Although the JOBS Act permits an EGC such as us to take advantage
of an extended transition period to comply with new or revised accounting standards applicable to public companies, we are choosing
to "opt out" of this provision, and, as a result, we will comply with new or revised accounting standards as required
when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
The application of the "penny stock" rules
could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.
Our common stock may be subject to the "penny stock"
rules adopted under Section 15(g) of the Exchange Act. The penny stock rules apply to issuers whose common stock does not trade
on a national securities exchange and trades at less than $5.00 per share, or that have a tangible net worth of less than $5,000,000
($2,000,000 if the company has been operating for three or more years). The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared
by the SEC that contains the following information:
·
a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
·
a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the
customer with respect to violation to such duties or other requirements of securities laws;
·
a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny
stocks and the significance of the spread between the "bid" and "ask" prices;
·
a toll-free telephone number for inquiries on disciplinary actions;
12
·
definitions of any significant terms in the disclosure document or in the conduct of trading in penny stocks; and
·
such other information and is in such form (including language, type, size and format), as the SEC shall require by rule or
regulation.
Prior to effecting any transaction in a penny stock, the broker-dealer
also must provide the customer with the following information:
·
bid and offer quotations for the penny stock;
·
compensation of the broker-dealer and our salesperson in the transaction;
·
number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity
of the market for such stock; and
·
monthly account statements showing the market value of each penny stock held in the customer's account.
The penny stock rules further require that, prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk
disclosure statement, a written agreement to transactions involving penny stocks and a signed and dated copy of a written suitability
statement.
Due to the requirements of the penny stock rules, many broker-dealers
have decided not to trade penny stocks. As a result, the number of broker-dealers willing to act as market makers in such securities
is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market,
if any, for our securities. Moreover, if our securities are subject to the penny stock rules, investors will find it more difficult
to dispose of our securities.
Our principal shareholder has the ability to exert significant
control in matters requiring a shareholder vote and could delay, deter or prevent a change of control in our company.
As of October 17, 2012, Mr. McLaughlin, our President and largest
shareholder, beneficially owned 31% of our outstanding shares of common stock. Mr. McLaughlin exerts significant influence over
us, giving him the ability, among other things, to exercise significant control over the election of all or a majority of the Board
of Directors and to approve significant corporate transactions. Such share ownership and control may also have the effect of delaying
or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination, or discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. This, in turn, could
have a negative effect on the market price of our common stock. It could also prevent our shareholders from realizing a premium
over the market price for their shares of common stock. Without the consent of Mr. McLaughlin, we could be prevented from entering
into potentially beneficial transactions if such transactions conflict with our principal shareholder's interests.
We do not anticipate paying dividends in the foreseeable
future, and, accordingly, any return on investment may be limited to the value of our common stock.
We do not anticipate paying cash dividends on our common stock
in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other
business and economic factors affecting it at such time as the Board of Directors may consider relevant. We intend to follow a
policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business.
If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock
price appreciates.
Our common stock is not registered under the Exchange
Act and, as a result, we will not be subject to the federal proxy rules and our directors, executive officers and 10% beneficial
holders will not be subject to Section 16 of the Exchange Act. In addition, our reporting obligations under Section 15(d) of the
Exchange Act may be suspended automatically if we have fewer than 300 holders of record on the first day of our fiscal year.
13
Shares of our common stock are not registered under the Exchange
Act and we do not intend to register our common stock under the Exchange Act for the foreseeable future, provided that, we will
register our common stock under the Exchange Act if we have, after the last day of our fiscal year, holders of record of more than
either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors, in accordance with Section 12(g)
of the Exchange Act, as amended by the JOBS Act. As a result, upon the effectiveness of the registration statement of which this
prospectus forms a part, we will be subject solely to the reporting obligations of Section 15(d) of the Exchange Act so long as
we do not subsequently register under Section 12(g) of the Exchange Act by filing a Form 8-A or another Exchange Act registration
statement. As long as our common stock is not registered under the Exchange Act, we will be required to file only annual, quarterly
and current reports pursuant to Section 15(d) of the Exchange Act, and we will not be subject to Section 14 of the Exchange Act,
which, among other things, prohibits companies that have securities registered under the Exchange Act from soliciting proxies or
consents from shareholders without furnishing to shareholders and filing with the SEC a proxy statement and form of proxy complying
with the proxy rules. In addition, so long as our common shares are not registered under the Exchange Act, our directors, executive
officers and beneficial holders of 10% or more of our outstanding common stock will not be subject to Section 16 of the Exchange
Act. Section 16(a) of the Exchange Act requires directors, executive officers and persons who beneficially own more than 10% of
a registered class of equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership of common stock and other equity securities on Forms 3, 4 and 5, respectively.
Such information about our directors, executive officers and 10% beneficial holders will only be available through this and any
subsequent registration statement or periodic reports we file pursuant to Section 15(d) of the Exchange Act.
Furthermore, so long as our common stock is not registered under
the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange Act will be automatically suspended if, on
the first day of any fiscal year, other than a fiscal year in which a registration statement under the Securities Act has gone
effective, we have fewer than 300 holders of record. This suspension is automatic and does not require any filing with the SEC.
In such an event, we may cease providing periodic reports and current or periodic information, including operational and financial
information. As of October 17, 2012, we had 327 holders of record.
Certain provisions of our corporate governance documents
and Delaware law could discourage, delay or prevent a merger or acquisition at a premium price.
Our amended certificate of incorporation and bylaws contain
provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors. These include
provisions that:
·
provide that our Board of Directors is expressly authorized to adopt, amend or repeal our bylaws;
·
provide our Board of Directors with the sole power to set the size of our Board of Directors and fill vacancies; and
·
provide that special meetings of shareholders may be called only by our Board of Directors, Chairman of the Board of Directors,
upon written notice of demand by our President or upon written notice of demand by the holders of at least 25% of the shares of
our common stock outstanding and entitled to vote.
These and other provisions of our amended certificate of incorporation
and bylaws could delay, defer or prevent us from experiencing a change of control or changes in our Board of Directors and management
and may adversely affect our shareholders' voting and other rights.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations
with a shareholder owning 15% or more of such corporation's outstanding voting stock for a period of three years following
the date on which such shareholder became an "interested" shareholder. In order for us to consummate a business combination
with an "interested" shareholder within three years of the date on which the shareholder became "interested,"
either (1) the business combination or the transaction that resulted in the shareholder becoming "interested" must
be approved by our board of directors prior to the date the shareholder became "interested," (2) the "interested"
shareholder must own at least 85% of our outstanding voting stock at the time the transaction commences (excluding voting stock
owned by directors who are also officers and certain employee stock plans) or (3) the business combination must be approved by
our board of directors and authorized by at least two-thirds of our shareholders (excluding the "interested" shareholder).
This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial
to our shareholders. Any delay or prevention of a change of control transaction or changes in our board of directors and management
could deter potential acquirers or prevent the completion of a transaction in which our shareholders could receive a substantial
premium over the then-current market price for their shares of our common stock. See "Description of Capital Stock—Delaware
Anti-Takeover Statute" and "Description of Capital Stock—Anti-Takeover Effects of Certain Provisions of our Amended
Certificate of Incorporation and Bylaws."
14
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act regarding our company that include, but are not
limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives
of management for future operations; any statements concerning proposed new products, services or developments; any statements
regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any
of the foregoing. These forward-looking statements are based on our current expectations, estimates and projections about our industry,
management's beliefs and certain assumptions made by us. Words such as "anticipates," "expects,"
"intends," "plans," "predicts," "potential," "believes," "seeks,"
"hopes," "estimates," "should," "may," "will," "with a view to"
and variations of these words or similar expressions are intended to identify forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult
to predict. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations
may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and
factors that could cause our actual results to be materially different from our expectations are generally set forth in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our
Business" and other sections in this prospectus. Other sections of this prospectus include additional factors that could
adversely impact our business and financial performance.
Unless otherwise indicated, information in this prospectus concerning
economic conditions and our industry is based on information from independent industry analysts and publications, as well as our
estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third party
sources, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe
to be reasonable. Unless otherwise indicated, none of the independent industry publication market data cited in this prospectus
was prepared on our or our affiliates' behalf.
The forward-looking statements made in this prospectus relate
only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You
should read this prospectus and the documents we refer to in this prospectus and have filed as exhibits to this prospectus completely
and with the understanding that our actual future results may be materially different from what we expect.
15
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares
of our common stock covered by this prospectus by the selling shareholders. We have agreed to bear the expenses, other than
any underwriting discounts or commissions or agent's commissions, in connection with the registration of the common stock
being offered hereby by the selling shareholders.
PRICE RANGE OF COMMON STOCK
Our common stock is qualified for quotation on the OTC Markets-OTC
Pink Current under the symbol "IMMD." The following table sets forth the range of the high and low bid prices per share
of our common stock for each quarter (or portion thereof) as reported in the over-the-counter markets. These quotations represent
interdealer prices, without retail markup, markdown or commission, and may not represent actual transactions. There currently is
no liquid trading market for our common stock. There can be no assurance that a significant active trading market in our common
stock will develop, or if such a market develops, that it will be sustained.
2012
2011
2010
High
Low
High
Low
High
Low
First Quarter (through March 31)
$
0.22
$
0.15
$
0.30
$
0.19
$
0.23
$
0.14
Second Quarter (through June 30)
0.20
0.16
0.23
0.14
0.18
0.12
Third Quarter (through September 30)
0.20
0.16
0.28
0.15
0.40
0.16
Fourth Quarter (through December 31)
0.17
0.17
0.22
0.13
0.33
0.18
(1)	        Reflects bid prices per share through October 15, 2012.
As soon as practicable following the effectiveness of the registration
statement of which this prospectus is a part, and assuming we satisfy all necessary requirements, we intend to apply to have our
common stock qualified for quotation on the OTC Markets-OTCQB, although we cannot be certain that we will be able to engage a market
maker to assist us in our application or that our application for quotation will be approved.
DIVIDEND POLICY
We have not paid and do not expect to declare or pay any cash
dividends on our common stock in the foreseeable future. We currently expect to retain all future earnings for use in the operation
and expansion of our business. The declaration and payment of any cash dividends in the future will be determined by our Board
of Directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall
financial condition and contractual restrictions, if any.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Safe Harbor Declaration
The comments made throughout this prospectus should be read
in conjunction with our financial statements and the notes thereto, and other financial information appearing elsewhere in this
prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain certain
forward-looking information. When used in this discussion, the words "believes," "anticipates," "expects"
and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from projected results, due to a number of factors beyond our control. We
do not undertake to publicly update or revise any of these forward-looking statements, even if experience or future changes show
that the indicated results or events will not be realized. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Readers also are urged to carefully review and consider our discussions regarding
the various factors that affect the company's business, which are described in this section and elsewhere in this prospectus.
Overview
We manufacture, distribute and sell natural immune support products.
We have focused for over 20 years on the research and development of immune system enhancing compounds, including the purest, particulate
and soluble beta glucans derived from yeast. Beta glucans are a natural extract that has been clinically shown to support the immune
system. Our core nutraceutical and cosmetic product lines consist of pure yeast beta glucans in oral and topical applications.
Our beta glucan products and manufacturing processes are protected by patents and trade secrets, compliant with current GMPs and
classified as GRAS by the FDA. Historically, we have sold our products primarily on a word-of-mouth basis through distributors
and our website as standalone product lines, as well as business-to-business as dietary supplement and a cosmetic enhancement,
and as a feed-additive for animal use. As of 2011, we began exiting this lower-margin market for feed-additive products. Our sales
and marketing efforts going forward are concentrated on our oral and topical-use products for healthcare professionals, distributors
and direct-to-consumer sales.
We originally incorporated under the laws of British Columbia,
Canada, in 1987 under the name Anina Resources, Inc. and subsequently changed our name to Immudyne, Inc. and our jurisdiction to
the State of Wyoming by continuance in September 1987. On June 30, 1994, we changed our jurisdiction to Delaware by merger with
and into Immudyne, Inc., a Delaware corporation formed on June 21, 1994.
Significant factors that we believe could affect our operating
results are (i) marketing and advertising expenses; (ii) protection of our intellectual property rights; and (iii) imposition of
more stringent government regulations of our products.
Our marketing strategy is to promote sales of our oral and topical-use
products, which constitute our core business as we shift from low-margin, feed-additive product sales. We believe that we are well
positioned to capitalize on our development of proprietary and patented products and can now focus on commercializing sales on
a more meaningful, global basis. We expect that a significant component of our selling, general and administration expenses going
forward will consist of marketing and advertising expenses to increase our sales. The primary components of our marketing and advertising
expenses may include online sales promotions through our website, trade advertising, direct marketing to nutraceutical companies
and industry associations, consumer research and search engine and digital advertising. We expect our selling, general and administrative
expenses to increase in absolute dollars as we incur increased costs related to our marketing strategy and growth of our business.
These costs, along with the additional costs resulting from our operations as a public reporting company, could impact our future
operating profitability.
We historically have expended a significant amount of our funds
on research and development of patents, trade secrets and proprietary products. We rely on the patent and trademark protection
laws in the U.S. to protect our intellectual property and maintain our competitive position in the marketplace. For several years,
we were involved in complex litigation regarding patents and licenses critical to our products. In 2010, we prevailed on all major
legal matters and reached a favorable settlement. If additional litigation becomes necessary to protect our intellectual property
rights, such litigation may be costly, divert our management's attention away from our core business and have a negative
impact on our operations. Furthermore, there is no guarantee that litigation would result in an outcome favorable to us.
17
Our manufacturing processes are compliant in the U.S. with current
cGMPs and our yeast beta glucan products are all natural and designated GRAS under current FDA regulations. Future government regulations
may prevent or delay the introduction or require the reformulation of our products. Some agencies, such as the FDA, could require
us to remove a particular product from the market, delay or prevent the import of raw materials for the manufacture of our products
or otherwise disrupt the marketing of our products. Any such government actions could result in additional costs to us, including
reduced growth prospects, lost sales from products that we are required to remove from the market and potential product liability
litigation.
Results of Operations
Comparison of Six Months Ended June 30, 2012 and 2011
The following table sets forth the results of our operations
for the six months ended June 30, 2012 and 2011:
2012
2011
$
% of Sales
$
% of Sales
Sales
406,102
406,140
Cost of sales
95,781
24
%
99,501
24
%
Gross profit
310,321
76
%
306,639
76
%
Operating expenses
(555,685
)
(134
)%
(827,910
)
(204
)%
Loss from operations
(245,364
)
(57
)%
(521,271
)
(128
)%
Other income, net
21,629
5
%
64,053
16
%
Income tax income
8,600
2
%
8,600
2
%
Net loss
(215,135
)
(50
)%
(448,618
)
(110
)%
Sales for the six months ended June 30, 2012, were $0.41 million,
which was no change compared to the six months ended June 30, 2011. Sales remained the same in the first half of 2012 and 2011
as we exited the lower-margin market for feed-additive products in favor of concentrating on our oral and topical –use products
for healthcare professionals, distributors and direct-to-consumer sales, which we anticipate will constitute our core business
going forward. Sales of our oral and topical-use products consisted of 99% our sales in the six months ended June 30, 2012 whereas
sales of our animal feed additive products consisted of 20% and 62% for the 2011 and 2010 fiscal years, respectively.
Cost of sales consists primarily of material costs, labor costs
and related overhead directly attributable to the production of our products. Total cost of sales decreased slightly by 4% to $95,781
for the six months ended June 30, 2012, compared to $99,501 for the six months end June 30, 2011, which was within our expectations.
The decrease in cost of sales as a percentage of sales in the first half of 2012 compared to the first half of 2011 resulted primarily
from the shift in our market concentration.
Gross profit increased 1% to $310,321 for the six months ended
June 30, 2012, compared to $306,639 for the six months ended June 30, 2011. Our gross profit margin remained 76% in both the first
half of 2012 and 2011 as our mix of products consisted primarily of our higher-margin oral and topical-use products and nominal
sales of our lower-margin feed-additive products. Management believes that our gross profit margin will stabilize at approximately
76% as we expand our oral and topical-use product lines and sales.
18
Operating expenses, consisting of general and administration
expense and stock compensation expense, decreased 34% to $0.56 million for the six months ended June 30, 2012, from $0.83 million
for the six months ended June 30, 2011. General and administration expense increased 15% to $0.50 million in the 2012 period due
primarily to increasing accounting, auditing and legal expenses incurred as result of management's decision to become a public
company. Management has instituted cost-cutting measures that we believe should result in improved efficiencies of our operations
going forward. Stock compensation expense was $0.05 million in the 2012 period compared to $0.40 million in the 2011 period as
we granted options to our directors, executive officer, employees and consultants in 2011 pursuant to (i) a new director agreement,
and (ii) employment agreements.
Other income was $21,629 for the six months ended June 30, 2012,
compared with other expense of $64,053 for the six months ended June 30, 2011, a decrease of $42,424. The decrease in other income
was from decreased proceeds from litigation settlement, decreased interest expense and receipt of a one-time customer signing fee
in the 2011 period.
Our net loss for the six months ended June 30, 2012, was $0.22
million compared to a net loss of $0.45 million for the six months ended June 30, 2011, a decrease of $0.25 million or 55%. Net
loss as a percentage of sales was 50% in the 2012 period compared to net loss as a percentage of sales of 110% in the 2011 period.
This decrease in net loss was attributable primarily to decreased stock compensation expense.
Comparison of Years Ended December 31, 2011 and 2010
The following table sets forth the results of our operations
for the years ended December 31, 2011 and 2010:
2011
2010
$
% of Sales
$
% of Sales
Sales
743,828
1,271,975
Cost of sales
241,264
32
%
426,107
33
%
Gross profit
502,564
68
%
845,868
67
%
Operating expenses
(1,078,931
)
(145
)%
(1,170,436
)
(92
)%
Loss from operations
(576,367
)
(77
)%
(324,568
)
(26
)%
Other income (expenses), net
(56,238
)
8
%
(10,073
)
(1
)%
Income tax income
17,200
2
%
17,000
1
%
Net loss
(502,929
)
(68
)%
(317,641
)
(25
)%
Sales in 2011 were $0.74 million, a decrease of 42% from $1.27
million in 2010. The decrease in sales resulted primarily from a decline in feed-additive sales and change in sales and marketing
strategy. We changed focus in 2011 to concentrate our sales and marketing efforts on promoting our oral and topical-use products,
which we anticipate will constitute our core business going forward. Sales of our oral and topical-use products increased 25% to
$0.60 million in 2011 compared to 2010, and consisted of 80% and 38% of our sales in 2011 and 2010, respectively. Sales of our
lower-margin feed-additive products consisted of 20% and 62% of our sales in 2011 and 2010, respectively. We anticipate further
decreased sales of our feed-additive products as a percentage of our overall sales as we continue to change our product focus toward
oral and topical-use products.
Cost of sales consists primarily of material costs, labor costs
and related overhead directly attributable to the production of our products. Total cost of sales decreased 43% to $0.24 million
in 2011 compared to $0.43 million in 2010 due primarily to decreased sales. The decrease in cost of sales as a percentage of sales
in the first half of 2012 compared to the first half of 2011 resulted primarily from the shift in our market concentration.
Gross profit decreased 41% to $0.50 million in 2011 compared
to $0.85 million in 2010. Our gross profit margin increased to 68% in 2011 compared to 67% in 2010. The increase in gross profit
margin from 2010 to 2011 resulted primarily from our change in sales from lower-margin feed-additive products to higher-margin
oral and topical-use products. Management believes that our gross profit margin will stabilize at approximately 76% as we expand
our oral and topical-use product lines and sales.
19
Operating expenses consisted of general and administrative expenses
and stock compensation expense. Operating expenses decreased 8% to $1.08 million in 2011 from $1.17 million in 2010. General and
administration expense decreased 42% to $0.68 million due primarily to management instituting cost-cutting measures. Stock compensation
expense was $0.40 million in 2011 compared to $0 in 2010 as we granted options to our directors, executive officer, employees and
consultants in 2011 pursuant to a new director and employment agreements.
Other income was $56,238 in 2011 compared with other expense
of $10,073 in 2010, an increase of $66,311. The increase in other income was from increased proceeds from litigation settlement
and one-time customer signing fee and decreased interest expense.
Our net loss for 2011 was $0.50 million compared to net loss
of $0.32 million in 2010, an increase of $0.19 million or 58%. Net loss as a percentage of sales was 68% in 2011 compared to net
loss as a percentage of sales of 25% in 2010. This decrease in net income was attributable to decreased sales and increased stock
compensation expense.
Liquidity and Capital Resources
Our principal demands for liquidity are to increase sales, purchase
inventory and for sales distribution and general corporate purposes. We have limited operating capital and intend to meet our liquidity
requirements, including purchase of raw materials and the expansion of our business, primarily through cash flow provided by operations.
Historically, we also have funded operations through loans and advances from our directors and officers and offerings of equity
securities. In 2011 and 2010, we raised $193,500 and $34,000, respectively, through sales of our common stock in private placements.
In the six months ended June 30, 2012, we raised $310,796 through sales of our common stock in private placements. In 2011, we
satisfied $214,000 in notes payable through exercises of warrants and options. In the six months ended June 30, 2012, we satisfied
$311,443 in notes payable through exercises of options and issuances of common stock in connection with the private placements.
We may seek additional financing in the form of loans from banks or our directors and officers, or funds raised through future
offerings of our equity or debt, if and when we determine such offerings are required. Any future issuance of equity securities
could cause dilution to our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause
us to be subject to restrictive operating and financial covenants.
Comparison of Six Months Ended June 30, 2012 and 2011
We had net working capital of $193,994 at June 30, 2012, an
increase of $609,781 from net working capital deficit of $415,787 at June 30, 2011. The ratio of current assets to current liabilities
was 2-to-1 at June 30, 2012.
The following is a summary of cash provided by or used in each
of the indicated types of activities during the six months ended June 30, 2012 and 2011:
2012
2011
Cash provided by (used in):
Operating activities
$
(78,785
)
$
(6,715
)
Financing activities
292,567
76,935
Net cash flow used in operating activities was $78,785 for the
six months ended June 30, 2012, compared to net cash flow used in operating activities of $6,715 for the 2011 period. The increase
in net cash outflow in operating activities was attributable primarily to our shifting our focus to marketing our oral and topical-use
products.
Net cash flow provided by financing activities was $0.29 million
for the six months ended June 30, 2012, compared to net cash flow of $0.08 million for the 2011 period. In 2012 period, we received
$310,796 from private placement sales of our common stock and $32,500 for the exercise of options offset by $50,729 in repayment
of notes payable. In the 2011 period, we received $176,000 from private placement sales of our common stock offset by $58,065 in
repayment of notes payable and $41,000 in cash overdraft.
As of June 30, 2012, we had accounts receivable of $126,361.
20
Comparison of Years Ended December 31, 2011 and 2010
We had net working capital deficit of $432,854 at December 31,
2011, a decrease of $329,074 net working capital deficit of $761,928 at December 31, 2010. The ratio of current assets to current
liabilities was .3-to-1 at December 31, 2011.
The following is a summary of cash provided by or used in each
of the indicated types of activities during the years ended December 31, 2011 and 2010:
2011
2010
Cash provided by (used in):
Operating activities
$
(17,686
)
$
(252,371
)
Financing activities
51,188
46,994
Net cash flow used in operating activities was $0.02 million
in 2011 compared to net cash flow used in operating activities of $0.25 million in 2010.
Net cash flow provided by financing activities was $51,188 in
2011 compared to net cash flow of $46,994 in 2010. In 2011, we received $193,500 from private placement sales of our common stock
and $75,000 in notes payable offset by $176,312 in repayment of notes payable. In 2010, we received $34,000 from private placement
sales of our common stock and $90,474 in notes payable offset by $118,480 in repayment of notes payable.
As of December 31, 2011, we had accounts receivable of $36,357.
Private Placements
In a series of private placement transactions in the six months
ended June 30, 2012, we issued 1,828,212 shares of our common stock and 3-year warrants to purchase 914,106 shares of our common
stock at $0.40 per share to accredited investors at $0.17 per unit for $310,796.
In a series of private placement transactions in 2011, we issued
(i) 621,053 shares of our common stock at $0.2286 per share for $142,000 and (ii) 302,941 shares of our common stock and 3-year
warrants to purchase 151,500 shares of our common stock at $0.40 per share to accredited investors at $0.17 per unit for $51,500.
In a series of private placement transactions in 2010, we issued
200,000 shares of our common stock and 3-year warrants to purchase 100,000 shares of our common stock at $0.40 per share to accredited
investors at $0.17 per unit for $34,000.
Indebtedness
From time to time, our directors, officers and other related
individuals have made short-term advances to us for our operating needs. During the six months ended June 30, 2012, notes payable
due to officer and other related individuals totaling $50,729 were repaid and the balance of notes payable and amounts due to officer,
aggregating $311,443, were converted to common stock. Interest expense on notes payable amounted to $3,371 for the six months ended
June 30, 2012.
We are subject to a royalty agreement pursuant to which we are
required to pay a monthly royalty of 8% on all sales of certain skin care products up to $227,175. At June 30, 2012, we included
$97,000 in accounts payable and accrued expenses relating to this royalty agreement, with the remaining commitment under the royalty
agreement at approximately $130,000. Our President, Mr. McLaughlin, has a 60% interest in the royalties paid under the agreement
and has voluntarily deferred payments due without interest until we have the financial wherewithal to pay such royalties.
21
Legal Matters
In November 2009, we entered into a settlement agreement to
resolve all aspects of litigation relating to a patent suit. As part of that settlement agreement in 2009, we received $440,000
as reimbursement for litigation costs. In addition, we were awarded $200,000 in eight installments of $25,000 every six months
beginning on January 15, 2011, in return for an exclusive patent license. The term of the license agreement is consistent with
the term of the $25,000 semi-annual payments. The $25,000 installments are being recorded as revenue only upon receipt of the funds.
At June 30, 2012, $100,000 remained to be paid to us under this agreement.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements between us and any
other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to
shareholders.
We have not entered into any financial guarantees or other commitments
to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to
our shares and classified as stockholders' equity or that are not reflected in our consolidated financial statements. Furthermore,
we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Critical Accounting Policies
While our significant accounting policies are described more
fully in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and analysis.
Basis of Presentation and Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles in the U.S., or U.S. GAAP. In preparing financial statements in conformity
with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Significant estimates required by management include the valuation of inventory and stockholders'
equity-based transactions. Actual results could differ from those estimates.
Inventory
Inventory is valued at the lower of cost or market value with
cost determined on a first-in, first-out basis. Management compares the cost of inventory with the net realizable value and an
allowance is made for writing down their inventories to market value, if lower.
Revenue Recognition
Our revenue recognition 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.
We generally record sales once the product is shipped to the customer.
Stock-based Compensation
Stock-based employee compensation arrangements are accounted
for using the intrinsic value method. Compensation cost generally is recognized at fair value on the date of grant and amortized
over the respective vesting periods.
The Company utilizes the Black-Scholes option-pricing model
for determining the estimated fair value of awards. Key inputs and assumptions include the expected term of the option, stock price
volatility, risk-free interest rate, dividend yield, stock price and exercise price. Many of the assumptions require significant
judgment and any changes could have a material impact in the determination of stock-based compensation expense. The Company estimates
forfeitures when recognizing compensation expense and adjusts forfeiture estimates over the vesting period based on actual or anticipated
forfeitures.
22
New Accounting Pronouncements
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 financial statements upon
adoption.
23
OUR BUSINESS
Our Company
We manufacture, distribute and sell natural immune support products.
We have focused for over 20 years on the research and development of immune system enhancing compounds, including the purest, particulate
and soluble beta glucans derived from yeast. Beta glucans are a natural extract that has been clinically shown to support the immune
system. Our core nutraceutical and cosmetic product lines consist of our pure yeast beta glucans as the differentiating component
in oral and topical applications. Our beta glucan products and manufacturing processes are protected by patents and trade secrets,
compliant with current GMPs and classified as GRAS by the FDA. Historically, we have sold our products primarily on a word-of-mouth
basis through distributors and our website as standalone product lines, as well as business-to-business as a cosmetic enhancement,
dietary supplement or feed additive for animal use. We believe that we are well positioned to capitalize on our development of
proprietary and patented natural immune support products and can now focus on commercializing sales of these products on a more
meaningful, global basis.
We originally incorporated under the laws of British Columbia,
Canada, in 1987 under the name Anina Resources, Inc. and subsequently changed our name to Immudyne, Inc. and our jurisdiction to
the State of Wyoming by continuance in September 1987. On June 30, 1994, we changed our jurisdiction to Delaware by merger with
and into Immudyne, Inc., a Delaware corporation formed on June 21, 1994.
Our Products
We have developed a proprietary bio-refinement approach to produce
the purest, particulate and soluble beta glucans derived from yeast. Our pure yeast beta glucan is highly-soluble and tasteless,
making it suitable for use in a wide variety of oral and topical applications to support the immune system in humans and animals.
We believe that the benefits of our yeast beta glucans can be obtained through multiple sources as dietary supplements and nuticosmetics
because they are approved food products and classified as GRAS by the FDA. As the U.S. and international markets become more aware
of the value of our proprietary products, we believe demand for our pure beta glucans will increase materially. Our nutraceutical
and cosmetic product lines consist of high-grade beta glucan products for oral and topical applications as all-natural raw material
ingredients in bulk quantities and finished, consumer products packaged under our brands and private label brands. Historically,
we produced other grades of beta glucan products for the animal feeds industry as a substitute for antibiotics. As of 2011, we
began exiting this lower-margin market for feed-additive products. Our sales and marketing efforts going forward are concentrated
on our oral and topical-use products for healthcare professionals, distributors and direct-to-consumer sales.
Beta Glucans
Beta glucans, or β-Glucans, are a natural extract clinically
shown to be "biological response modifiers" that support the immune system. The potential benefits of beta glucans
to human health continue to emerge. Independent scientific research has demonstrated that beta glucans provide defense against
bacteria by activating innate immune cells, which fight off infection. In addition, a growing body of scientific literature suggests
that beta glucans have a substantial effect on cancer regression. The most common sources of beta glucans are derived from the
cell walls of baker's yeast, the cellulose in plants, the bran of cereal grains and certain fungi and bacteria. The differences
between beta glucan chemical structures are significant in regards to solubility and overall biological activity. Beta glucans
derived from mushrooms and cereals do not appear to have the same effects on human health as beta glucans derived from yeast. Yeast
beta glucans are notable for their ability to modulate the immune system, and research has shown that insoluble (1,3/1,6) yeast
beta glucan, like that used in our products, has greater biological activity than that of soluble (1,3/1,4) yeast beta glucan.
We derive our high-grade beta glucan from yeast cell walls using
proprietary processes in our manufacturing facilities. Our pure beta-1,3/1,6-D glucan is 95% pure, free of yeast by-product and
endotoxins, and demonstrates reliability in terms of both stability and biological response. We believe that our pure yeast beta
glucan is the purest yeast beta glucan available currently and that we are one of the first manufacturers to market liquid beta-1,3/1,6-D
glucan.
24
Healthcare professionals have taken an interest in our immune-support
products as a means of offering alternative or complementary approaches for maintaining a healthy and active lifestyle. The health
benefits of our pure yeast beta glucans have been demonstrated through extensive research and clinical studies, and we are committed
to supporting evidence-based studies that demonstrate the health benefits of our products. Scientific research on our pure beta-1,3/1,6-D
glucan derived from yeast cell walls has been conducted in recent years by renowned medical laboratories, including Baylor College
of Medicine, U.S. Armed Forces Radiobiology Institute, Stanford University, Southwest Research Institute, Case Western Reserve
University, University of Arkansas, North Carolina State University, University of Bern, Switzerland, and the China Agricultural
University, China. Through several consulting physicians, we have relationships with medical institutions and practicing physicians
who conduct clinical trials and beta work for our products. In two clinical trials reviewed in an article published in the Japanese
Journal Society Terminal Systemic Diseases in 2000, participants ingesting our pure yeast beta glucan showed a decreased reoccurance
of cancer in cancer remission patients and increased survival rates in terminally-ill cancer patients. In addition, female study
participants testing the effect of our pure yeast beta glucan in topical applications saw a significant reduction in the number
and intensity of skin wrinkles over the eight-week study. We presented the results of these and other trials demonstrating the
clinical proof of efficacy of our products at the BIO-Europe global biotechnology conference in November 2010 and World Immune
Regulator Meeting in Davos, Switzerland, in March 2012.
Yeast Beta Glucan Product Lines
Our nutraceutical and cosmetic product lines consist of our
all-natural, premium yeast beta glucans in oral and topical applications clinically shown to support the immune system. Neutraceuticals
are plant-derived products, such as our yeast beta glucans, with pharmaceutical-like properties that have biologically-therapeutic
effects in humans and animals in addition to the basic nutritional value found in foods. Our yeast beta glucan products are classified
as GRAS by the FDA and designed to help support the body's immune system response and defense. We offer our yeast beta glucans
as all-natural raw material ingredients in bulk quantities and finished, consumer products packaged under our brands and private
label brands.
Our MacroForce Plus once-daily oral capsules and Skin Care
Essentials line of rejuvenating serums and creams.
Our principal, branded nutraceutical and cosmetic products for
our pure yeast beta glucans are the MacroForce line of once-daily oral capsules and Skin Care Essentials line of rejuvenating serums
and creams. Our MacroForce line of once-daily oral capsules are dietary supplements containing proprietary combinations of our
pure yeast beta glucan to aid in immune system function and help the body's vital ability to heal and maintain itself. Our
Skin Care Essentials Rejuvenating Serum and Rejuvenating Cream topical applications consist of our patented yeast-derived beta
glucan and other natural ingredients to help enhance the skin's immune system response and defense, promoting skin renewal
and repair of sun and environmental damage. We believe we are one of the first manufacturers to market liquid beta-1,3/1,6-D glucan
as a topical application in our Skin Care Essentials line of serums and creams and as an all-natural raw material ingredient.
Sales and Marketing
Our sales and marketing strategy is to build brand recognition
of our products as the purest, particulate and soluble beta glucans derived from yeast. Historically, we have sold our products
primarily on a word-of-mouth basis through distributors and our website as standalone product lines, as well as business-to-business
as a cosmetic enhancement, dietary supplement or feed additive for animal use. We have shifted our sales focus to concentrate on
our nutraceutical and cosmetic product lines and began exiting the lower-margin feed-additive lines as of 2011. We believe that
we are well positioned to capitalize on our development of proprietary and patented products and can now focus on commercializing
sales of these products on a more meaningful, global basis. Our principal products are consumables that can generate a stream of
repeat sales with the same end customers over an extended period, providing significant lifetime value for each customer gained.
To reach these customers, we anticipate that our marketing strategy will include online sales promotions through our website, expansion
of our affiliate sales program, trade advertising, consumer research and search engine and digital advertising. In addition, we
intend to build our brand recognition with healthcare professionals through clinical trials and providing practitioners and clinics
with education and support. We believe that the recommendation of our products by healthcare professionals to their patients provides
the best possible endorsement.
25
We also market our products by presenting at international biotechnology
and alternative medicine conferences and through nutraceutical industry associations and tradeshows. In March 2012, we presented
the outcome of our cancer studies at the World Immune Regulator Meeting in Davos, Switzerland. The special focus of the meeting
was on innate and adaptive immune response and the role of tissues in immune regulation. In November 2010, we presented the results
of clinical trials demonstrating the efficacy of our pure yeast beta glucan in terminally ill cancer patients and cancer remission
patients at the BIO-Europe biotechnology partnership conference in Munich, Germany.
Manufacturing and Sourcing
Over the past 20 years, we have focused on the research and
development of immune system enhancing compounds, including the purest, particulate and soluble beta glucans derived from yeast.
Our beta glucan products and manufacturing processes are protected by registered and pending patents and trade secrets. Our highly
trained and experienced staff produces consistently high-grade, particulate and reliable beta glucan, including the raw materials
for our nutraceutical and cosmetic product lines, in our Kentucky-based production plant. Our manufacturing facilities and practices
are compliant with published current Good Manufacturing Practices established by the FDA for dietary supplements. For certain of
our packaged consumer goods, such as the MacroForce product line, we use third party contractors for encapsulation, bottling and
labeling. These contractors are subject to regular government inspections, comply with current GMPs and hold the necessary drug
manufacturing licenses and processed food registrations required by their respective state regulators. Such packaging services
are readily available from multiple sources.
The raw materials necessary to manufacture beta glucans in our
Kentucky plant, principally consisting of baker's yeast, are common and readily available. Our principal suppliers are the
Lesaffre Group and Brenntag Group. We hold our suppliers to strict quality and delivery specifications as part of our GMP compliance
and quality control procedures, including quality assurance of raw materials used in the production of our products.
Customers
We sell our products direct to consumers and to pharmaceutical,
nutraceutical and consumer product companies in the U.S. and international markets. Sales through distributors and business-to-business
typically are made pursuant to supplier agreements executed in the ordinary course of business with individual orders made on standard
purchase orders. We focus on establishing and growing long-term relationships with our customers, and we believe that the majority
of our customers view us as a strategic long-term supplier and value the quality of our beta glucan products.
As we seek to expand our U.S. and global sales, our marketing
concentrates on our nutraceutical and cosmetic product lines as a raw material ingredient available in bulk quantities and finished,
consumer products packaged under our brands and private label brands. We anticipate that our customer mix will change accordingly
to include more sales through distributors and our affiliate program, and direct sales to consumers. We encourage nutriceutical
and nutricosmetic manufacturers and formulators purchasing our beta glucans as all-natural raw material ingredients to identify
and promote our brand in their products. As our principal products are consumables that typically generate repeat sales streams
with the same end customers over an extended period, we historically have not experienced seasonality of sales.
Sales of our oral and topical-use products consisted of 99%
and of our sales for the first two quarters of 2012, and consisted of 80% and 38% of our sales in 2011 and 2010, respectively.
Sales of our animal feed additive products consisted of 1% of our sales for the first two quarters of 2012 and, 20% and 62% of
our sales in 2011 and 2010, respectively. We anticipate further decreased sales of our feed-additive products for animals as a
percentage of our overall sales as we change our product focus to our oral and topical-use products. Our largest customer, MMP,
Inc., accounted for 77% and 61% of our sales for the six months ended June 30, 2012 and 2011, respectively, and 53% and 23% of
our total sales in 2011 and 2010, respectively.
26
Competition
The markets for nutritional supplements and skin care products
are highly competitive, consisting of a large number of manufacturers, distributors and retailers, none of which dominates the
fragmented and diverse markets. We compete for sales direct to consumers, through our affiliate program, through distributors and
business-to-business in North America, Asia and Europe. Although we believe that our pure yeast beta glucan is the purest yeast
beta glucan available on the market currently, and that we are one of the first manufacturers to market liquid beta-1,3/1,6-D glucan,
we compete with other companies manufacturing beta glucans from yeast and other sources, as well as companies producing other food
ingredients and nutritional supplements for human use and as feed additives. Many end consumers may consider such products to be
a replacement for the products we manufacture and distribute. Many of our competitors have greater marketing, research and capital
resources than us, and may be able to offer their products at lower costs because of their greater purchasing power or lower cost
of raw materials and manufacturing.
We anticipate expanding our global sales on a more meaningful
basis as part of our new marketing strategy focusing on our nutraceutical and cosmetic product lines. We believe that we are well
positioned to capitalize on our development of proprietary and patented products to compete in the immune support markets. We anticipate
competing in these markets on the basis of quality, our proprietary manufacturing processes, clinical data and effective marketing
campaigns promoting the benefits of our natural immune support products. There are no assurances that our products will be able
to compete in these markets, however, or that our new marketing strategy will be successful.
Intellectual Property
We rely on the patent and trademark protection laws in the U.S.
to protect our intellectual property and maintain our competitive position in the marketplace. We have four registered patents
in the U.S. with expiration dates ranging from 2013 to 2028. Additionally, we currently have one patent application filed in the
U.S. and pending formal review and a second provisional patent application pending, and we intend to apply for additional patents
in the future as new products, uses and manufacturing processes are developed. We maintain trademarks registered in the U.S. for
our business name and related to our product brands. In addition, we have registered and maintain internet domain names related
to our business, including "immudyne.com." Collectively, the patents, trademarks and domain names that we hold are
of material importance to us.
Research and Development
Our expertise for many years has been in the development of
efficient, stable and cost-effective production systems for beta glucan products derived from yeast, though we have not incurred
any research and development expenses to date. We may increase future investments in research and development and clinical trials
to establish the scientific basis for health claims of our existing products and to develop new products and applications based
on our growth and available capital.
Governmental and Environmental Regulation
Our business and the manufacturing, distribution and sale of
our beta glucan products are regulated in the U.S. primarily by the FDA and the FTC.
The FDA enforces the FDCA and DSHEA as they pertain to foods,
food ingredients, cosmetics and dietary supplement production and marketing. Dietary supplements and nutraceuticals are regulated
as a category of food, not as drugs. The FDA classifies "Yeast extract (Bakers)" as GRAS, which substances by definition
are not food additives. Most GRAS substances have no quantitative restrictions as to use, although their use must conform to current
GMPs. The FDA promulgates GMP guidelines to ensure that dietary supplements are produced in a quality manner, do not contain contaminants
or impurities and are accurately labeled. GMPs include requirements for establishing quality control procedures, designing and
constructing manufacturing plants, testing ingredients and finished products and record keeping and handling of consumer product
complaints. The FDA has broad authority to enforce the provisions of federal law applicable to dietary supplements and cosmetics,
including the power to monitor claims made in product labeling, to seize adulterated or misbranded products or unapproved new drugs,
to request product recall, to enjoin further manufacture or sale of a product, to issue warning letters and to institute criminal
proceedings.
27
Advertising and product claims regarding the efficacy of products
are also regulated by the FTC. The FTC regulates the advertising of dietary supplements and other health-related products to ensure
that any advertising is truthful and not misleading, and that an advertiser maintains adequate substantiation for all product claims.
FTC enforcement actions may result in consent decrees, cease and desist orders, judicial injunctions and the payment of fines with
respect to advertising claims that are found to be unsubstantiated.
Our yeast beta glucan is classified as GRAS by the FDA and our
oral and topical-use product lines containing our yeast beta glucan are marketed as dietary supplements and cosmetics, respectively.
Under current U.S. regulations, our products must comply with certain labeling requirements enforced by the FDA and FTC, but otherwise
generally are not required to receive regulatory approval prior to introduction into the U.S. market. We believe we are in compliance
with all material government regulations applicable to our products.
In the EU markets, the EFSA, an advisory panel to the European
Commission, performs all scientific assessments of health claims on food and supplement labels. The European Commission will consider
the opinions of EFSA in determining whether to include a health claim on list of permissible claims. Once published, only health
claims for ingredients and products included on the list may be used in promotional materials for products marketed and sold in
the European Union. The marketability of our products may be limited as we look to expand our sales in the EU if the health claims
of our products are not included on the list.
In addition to the foregoing, our operations are subject to
federal, foreign, state and local government laws and regulations, including those relating to zoning, workplace safety and accommodations
for the disabled, and our relationship with our employees is subject to regulations, including minimum wage requirements, anti-discrimination
laws, overtime, working conditions and citizenship requirements. We currently do not incur any material costs in connection with
our compliance with applicable environmental laws as our manufacturing processes generate minimal discharge. Furthermore, the cost
of maintaining compliance with applicable environmental laws has not, and we believe, in the future, will not, have a material
adverse effect on our business, results of operations and financial condition. We believe we are in substantial compliance with
all material governmental regulations applicable to our operations.
Employees
As of June 30, 2012, we had 3 full-time employees and 11 part-time
employees and consultants worldwide. We outsource many of our research, product development and marketing activities to consultants
who provide services to us on a project basis. We believe that relations with our employees are satisfactory. We have no collective
bargaining agreements with our employees. All full-time employees and our officers and directors are eligible to participate in
our group health and dental insurance plans.
Property
Our principal executive offices are in office space provided
at no cost to us by our President in Mount Kisco, New York. We lease a manufacturing facility with warehouse space consisting of
approximately 15,000 square feet in Florence, Kentucky, in the vicinity of the Cincinnati, Ohio, airport. We believe that our existing
office and manufacturing facilities are adequate for current and presently foreseeable operations. In general, our properties are
well maintained and being utilized for their intended purposes. See Notes 3 and 8 to our financial statements contained herein,
which disclose amounts invested in lease agreements and furnishings and equipment.
Legal Proceedings
We may become involved in various lawsuits and legal proceedings
arising in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other
matters may arise from time to time that may have an adverse effect on our business, financial conditions or operating results.
We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material
adverse effect on our business, financial condition or operating results.
28
MANAGEMENT
Executive Officer and Directors
The following table sets forth the names of our directors, executive
officer and certain significant employees and their ages, positions and biographical information as of the date of this prospectus.
Our executive officer is appointed by, and serves at the discretion of, our Board of Directors. Dr. Bruzzese, our Chairman, is
the son-in-law of Mr. Agostini, one of our directors. There are no other family relationships among our directors or executive
officer.
Name
Position
Age
Anthony G. Bruzzese, M.D.
Chairman
57
Mark McLaughlin
President, Chief Executive Officer and Director
55
Dominic J. Agostini
Director
83
John R. Strawn, Jr.
Director
52
Anthony G. Bruzzese, M.D., Chairman
Dr. Bruzzese has served as Chairman of our Board of Directors
since April 2004. He is a practicing radiologist in Warwick, Rhode Island, certified by both the American Board of Internal Medicine
and the American Board of Radiology. Since 1997, Dr. Bruzzese has served as a principal at Toll Gate Radiology, Inc., providing
patients with comprehensive diagnostic imaging services. Dr. Bruzzese also has served on the medical staffs at Roger Williams Medical
Center since 2008 and Landmark Medical Center since 2011. He previously served on the medical staff at Kent County Memorial Hospital
in Rhode Island from 1997 to 2005. Dr. Bruzzese has served as a Fellow, Councilor and Alternate Councilor to the American College
of Radiology on behalf of the Rhode Island Radiology Society. Dr. Bruzzese received his Bachelor of Science and Doctor of Medicine
from Brown University.
Dr. Bruzzese is the son-in-law of Mr. Agostini, one of our directors.
Dr.
Bruzzese brings to the Board of Directors over 20 years of experience in medical practice. The Board of Directors believes that
Dr. Bruzzese's knowledge of internal medicine and life sciences will assist us in our future growth and expansion plans.
Mark McLaughlin, President, Chief Executive Officer and
Director
Mr. McLaughlin has served as our President and member of the
Board of Directors since March 2004 and Chief Executive Officer since April 2011. Mr. McLaughlin brings extensive knowledge about
raising capital, marketing, business and corporate development, and of our operations and long-term strategy to the Board of Directors.
In addition, Mr. McLaughlin played an integral role in successfully prosecuting several intellectual property violations in our
favor. Since 1994, he has served as President of McLaughlin International, Inc., or MII, a management consulting firm controlled
by Mr. McLaughlin. Previously, Mr. McLaughlin served as Senior Vice President at Oppenheimer & Co. from 1990 to 1992 and Lehman
Brothers from 1981 to 1990. Mr. McLaughlin graduated from the College of the Holy Cross. The Board of Directors believes that Mr.
McLaughlin's leadership and extensive knowledge about us is essential to our future growth.
Dominic J. Agostini, Director
Mr. Agostini has served as a member of our Board of Directors
since February 2001. Mr. Agostini brings to the Board of Directors a long and successful business career with extensive experience
at the senior management level. Mr. Agostini currently is a director, officer and one-third owner of A. B. Smithfield Associates,
which operates a retail shopping center in Rhode Island. Mr. Agostini previously served as Senior Manager of Business Development
for the Gilbane Building Company until 1993, and prior to such position, he served as Chief Operating Officer of International
Processing Systems and Executive Vice President of ICM Corporation. Mr. Agostini received a Bachelor of Science in Business Administration
from Bryant University. Mr. Agostini is the father-in-law of Dr. Bruzzese, our Chairman.
29
John R. Strawn, Jr., Director
Mr. Strawn has served as a member of our Board of Directors
since July 2011. Mr. Strawn brings to the Board of Directors over 25 years of legal experience, including extensive knowledge of
our intellectual property portfolio. His practice focuses on complex commercial litigation. Mr. Strawn has successfully represented
the company for over 10 years, including in a dispute over the ownership and licensing of multiple patents. After prevailing in
a jury trial that was upheld on appeal in 2009, the matter was settled on favorable terms for the company. In 2010, Mr. Strawn
became a founding partner of Strawn Pickens LLP in Houston, Texas. Prior to founding Strawn Pickens, Mr. Strawn was the Co-Managing
Partner of Cruse Scott Henderson & Allen LLP, a law firm based in Houston, Texas, since 1992. Mr. Strawn received his Juris
Doctor from the University of Texas Law School and his bachelor's degree from Dartmouth College.
Involvement in certain legal proceedings
During the past ten years, none of our directors or executive
officer has been:
·
the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that time;
·
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses);
·
subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities;
·
found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated;
·
subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating
to an alleged violation of a federal or state securities or commodities law or regulation, law or regulation respecting financial
institutions or insurance companies, law or regulation prohibiting mail or wire fraud or fraud in connection with any business
entity; or
·
subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization,
any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its
members or persons associated with a member.
None of our directors, executive officer or affiliates, or any
control person or beneficial owner of 5% or more of our common stock, or any associate of such persons, is an adverse party in
any material proceeding to, or has a material interest adverse to, the company.
Corporate Governance
Our Board of Directors currently is comprised of four directors,
Dr. Bruzzese and Messrs. McLaughlin, Agostini and Strawn. While we are not subject to any director independence requirements because
of our quotation on the OTC Markets-OTC Pink Current, we have adopted the NASDAQ listed company standards for the purposes of determining
director independence. Under these standards, the Board of Directors has determined that Dr. Bruzzese and Mr. Agostini qualify
as independent directors. In determining the independence of our directors, the Board of Directors considered all transactions
in which we and any director had any interest, including those discussed under "Certain Relationships and Related Transactions"
beginning on page 34 of this prospectus. The Board of Directors currently has no separately designated standing committees.
EXECUTIVE COMPENSATION
As a "smaller reporting company," we have elected
to follow the scaled disclosure requirements for smaller reporting companies with respect to the disclosures required by Item 402
of Regulation S-K. Under such scaled disclosure, we are not required to provide a Compensation Discussion and Analysis, Compensation
Committee Report and certain other tabular and narrative disclosures relating to executive compensation.
30
Executive Compensation
The following table sets forth information concerning the compensation
of our principal executive officer for the year ended December 31, 2011.
Summary Compensation
Table
Non-Equity
Option
Incentive Plan
All Other
Name and Principal
Year
Salary
Awards
Compensation
Compensation
Total
Position
($)
($)
(1)
($)
($)
($)
Mark McLaughlin
President, Chief Executive Officer and Director
(2)
2011
120,000
(3)
131,900
-
(4)
10,682
(5)
262,582
(1)
Amounts shown reflect aggregate grant date fair value and, where applicable, incremental fair value as of modification date,
of awards and do not reflect whether the recipient actually has realized a financial benefit from such grant, such as by exercising
the options or selling the stock. A discussion of the assumptions used in calculating the award values may be found in Note 2 to
our financial statements contained herein.
(2)
Mr. McLaughlin receives no compensation for serving as a member of our Board of Directors.
(3)
In June 2012, we issued to Mr. McLaughlin 588,236 shares of our common stock and 3-year warrants to purchase 294,118 shares
of our common stock at $0.40 per share at $0.17 per unit in satisfaction of $100,000 of deferred salary accrued in 2011.
(4)
Under his employment agreement entered into on April 20, 2011, as amended, Mr. McLaughlin earns an annual incentive bonus award
consisting of 5% of our pre-tax earnings payable each semi-annual fiscal year. We did not have any pre-tax earnings in 2011 and
no incentive bonus was earned or awarded.
(5)
On May 22, 2012, the Board of Directors authorized a one-year extension of the
                                                                                             expiration                                                                                              date for warrants
                                                                                             held by Mr. McLaughlin to purchase 1.5 million shares of our common stock at $0.12 per share that were to
                                                                                             expire in 2011.
These warrants with such one-year extension of the expiration date had an
                                                                                             incremental fair value of $10,682 as of May 22, 2012.
The following table sets forth information concerning the outstanding
equity awards held by our principal executive officer at December 31, 2011.
Outstanding Equity Awards at Fiscal Year-End for 2011
Option Awards
Number of
Number of
Number of
Securities
Securities
Securities
Underlying
Underlying
Underlying
Unexercised
Unexercised
Unexercised
Option
Option
Options
Options
Options
Exercise
Expiration
Name
(#) Exercisable
(#) Unexercisable
(#) Unearned
Price ($)
Date
Mark McLaughlin
(1)
1,000,000
-
-
0.10
03/01/2018
1,700,000
-
-
0.20
04/20/2021
500,000
-
-
0.40
04/20/2021
-
-
500,000
(2)
0.40
04/20/2021
-
-
500,000
(3)
0.80
04/20/2021
(1)
All options held by Mr. McLaughlin are fully vested from grant date and exercisable on a cashless basis.
(2)
Options become earned and exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration
date.
(3)
Options become earned and exercisable upon our achieving $10 million in revenues in any fiscal year prior to the expiration
date.
31
Employment Agreement
On April 20, 2011, we entered into a five-year employment agreement,
with Mr. McLaughlin as our President and Chief Executive Officer, which was amended on October 12, 2012, under which he will be
compensated at $134,400 per annum. As of June 30, 2012, all prior compensation due to Mr. McLaughlin has been satisfied either
through cash payments or stock issuances. In addition to his base salary, Mr. McLaughlin will earn an annual incentive bonus award
consisting of 5% of our pre-tax earnings payable each semi-annual fiscal year. We also granted to Mr. McLaughlin under his employment
agreement, as amended, 10-year, fully-vested options to purchase an aggregate of 3.3 million shares of our common stock, such options
consisting of the right to purchase: (i) 1.7 million shares of our common stock at $0.20 per share; (ii) 0.5 million shares of
our common stock at $0.40 per share; (iii) 0.5 million shares of our common stock at $0.40 per share upon our achieving $5 million
in revenues in any fiscal year prior to the expiration date; and (iv) 0.5 million shares of our common stock at $0.80 per share
upon our achieving $10 million in revenues in any fiscal year prior to the expiration date. If at any time prior to the expiration
date of the options we merge into or are acquired by another company, any outstanding options granted under Mr. McLaughlin's
employment agreement will become immediately exercisable on the business day immediately preceding the merger or acquisition at
$0.40 per share or the preceding average 30-day market price of our common stock prior to the announcement of such merger or acquisition,
whichever price is lower.
Prior to our entering into this employment agreement, we compensated
Mr. McLaughlin for his services as our President at $10,000 per month. From time to time he voluntarily deferred this compensation
without interest.
Our employment agreement with Mr. McLaughlin contains provisions
prohibiting competition by him following his employment with us. Mr. McLaughlin's employment agreement specifies the conditions
under which the agreement may be terminated and stipulates that he shall not be entitled to severance payments upon termination.
Mr. McLaughlin is entitled to retain any options granted under his employment agreement and that remain outstanding at the time
his employment agreement is terminated, however.
We do not have any other existing arrangements providing
for payments or benefits in connection with the resignation, severance, retirement or other termination of Mr. McLaughlin, or a
change in control of the company or a change in his responsibilities following a change in control. We currently do not have any
defined pension plan for Mr. McLaughlin. We currently do not have any nonqualified defined contribution or other plan that provides
for the deferral of compensation for Mr. McLaughlin nor do we currently intend to establish any such plan.
Compensation of Directors
The following table sets forth information concerning the compensation
of our directors for the year ended December 31, 2011.
Director Compensation for 2011
Fees Earned or
Paid in Cash
Option
Awards
Non-Equity
Incentive
Plan
Compensation
All Other
Compensation
Total
Name
($)
($)
(1)
($)
($)
($)
Anthony G. Bruzzese, M.D.
-
37,520
(2)
-
(3)
735
(4)
38,255
Dominic J. Agostini
-
16,750
(5)
-
7,591
(6)
24,341
John R. Strawn, Jr.
-
85,000
(7)
-
(8)
-
85,000
(1)
Amounts shown reflect aggregate grant date fair value and, where applicable, incremental fair value as of modification date,
of awards and do not reflect whether the recipient actually has realized a financial benefit from such grant, such as by exercising
the options or selling the stock. A discussion of the assumptions used in calculating the award values may be found in Note 2 to
our financial statements contained herein.
(2)
As of December 31, 2011, Dr. Bruzzese held fully-vested options to purchase an aggregate of 1,310,000 shares of our common
stock, such options consisting of the right to purchase: (i) 500,000 shares of our common stock at $0.20 per share with an expiration
date of December 31, 2012; (ii) 560,000 shares of our common stock at $0.20 per share with an expiration date of April 20, 2021;
and (iii) 250,000 shares of our common stock at $0.40 per share with an expiration date of April 20, 2021, such options to become
exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration date. Each such option held by
Dr. Bruzzese is exercisable on a cashless basis.
32
(3)
Under his director's agreement effective as of April 20, 2011, Dr. Bruzzese earns an annual incentive bonus award consisting
of 1% of our pre-tax earnings payable each semi-annual fiscal year. We did not have any pre-tax earnings in 2011 and no incentive
bonus was earned or awarded.
(4)
On June 14, 2011, the Board of Directors authorized a one-year extension of the expiration date
for fully-vested options held by Dr. Bruzzese to purchase 500,000 shares of our common stock at $0.10 per share that were to expire
in 2011.
These options with such one-year extension of the expiration date had an incremental fair value of $735 as of June
14, 2011.
(5)
As of December 31, 2011, Mr. Agostini held fully-vested options to purchase an aggregate of 1,375,000 shares of our common
stock, such options consisting of the right to purchase: (i) 1,000,000 shares of our common stock at $0.10 per share with an expiration
date of December 31, 2012; (ii) 250,000 shares of our common stock at $0.20 per share with an expiration date of April 20, 2021;
and (iii) 125,000 shares of our common stock at $0.40 per share with an expiration date of April 20, 2021, such options to become
exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration date. Each such option held by
Mr. Agostini is exercisable on a cashless basis.
(6)
On June 14, 2011, the Board of Directors authorized a one-year extension of the expiration date
for fully-vested options held by Mr. Agostini to purchase 1,000,000 shares of our common stock at $0.10 per share that were to
expire in 2011.
These options with such one-year extension of the expiration date had an incremental fair value of $7,591
as of June 14, 2011.
(7)
As of December 31, 2011, Mr. Strawn held fully-vested options to purchase an aggregate of 2,000,000 shares of our common stock,
such options consisting of the right to purchase: (i) 1,000,000 shares of our common stock at $0.20 per share with an expiration
date of July 1, 2021; (ii) 500,000 shares of our common stock at $0.40 per share with an expiration date of July 1, 2021; and (iii)
500,000 shares of our common stock at $0.40 per share with an expiration date of July 1, 2021, such options to become exercisable
upon our achieving $5 million in revenues in any fiscal year prior to the expiration date. Each such option held by Mr. Strawn
is exercisable on a cashless basis.
(8)
Under his director's agreement effective as of July 1, 2011, Mr. Strawn earns an annual incentive bonus award consisting
of 3% of our pre-tax earnings payable each semi-annual fiscal year. We did not have any pre-tax earnings in 2011 and no incentive
bonus was earned or awarded.
The Board of Directors may determine remuneration to be paid
to the directors with interested members refraining from voting. Our independent directors each have entered into two-year director's
agreements with us, pursuant to which they will receive annual cash compensation of an amount to be negotiated and agreed upon
when we have the financial wherewithal to pay such compensation for their service. In addition to their base compensation, Dr.
Bruzzese and Mr. Strawn each will earn an annual incentive bonus award consisting of 1% and 3%, respectively, of our pre-tax earnings
payable each semi-annual fiscal year. We also made grants of 10-year, fully-vested options to purchase 810,000, 375,000 and 2,000,000
shares of our common stock as described in the footnotes to the above table to Dr. Bruzzese, Mr. Agostini and Mr. Strawn, respectively,
pursuant to their director's agreements effective as of April 20, 2011, April 20, 2011, and July 1, 2011, respectively. If
at any time prior to the expiration date of the options we merge into or are acquired by another company, any outstanding options
granted under the directors' agreements will become immediately exercisable on the business day immediately preceding the
merger or acquisition at $0.40 per share or the preceding average 30-day market price of our common stock prior to the announcement
of such merger or acquisition, whichever price is lower. We do not compensate our non-independent director, Mr. McLaughlin, for
serving as our director. All directors are eligible to receive reimbursement of expenses incurred with respect to attendance at
board meetings, which is not included in the above table. We do not maintain a medical, dental or retirement benefits plan specifically
for our directors, but all directors are eligible to participate in our employee group health and dental insurance plans.
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
In addition to the executive officer and director compensation
arrangements discussed in "Executive Compensation" beginning on page 31, the following describes transactions since
January 1, 2009, to which we have been a participant, in which the amount involved in the transaction exceeds the lesser of $120,000
or 1% of the average of our total assets at year end and in which any of our directors, executive officer or holders of more than
5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had
or will have a direct or indirect material interest.
33
Royalty Agreement
We are subject to a royalty agreement pursuant to which we are
required to pay a monthly royalty of 8% on all sales of certain skin care products up to $227,175. Mr. McLaughlin, our President,
has a 60% interest in the royalties paid under the agreement, or $136,305. Royalties earned and expensed in each of 2009, 2010,
2011 were approximately $24,000 per year and $25,000 during the first two quarters of 2012. We made a royalty payment of approximately
$16,061 on August 13, 2012. As of October 17, 2012, the remaining commitment under
the royalty agreement is approximately $113,939. Mr. McLaughlin customarily defers without interest payments due under the royalty
agreement until we have the financial wherewithal to pay such royalties.
Indebtedness to our President and Directors
From time to time, Mr. McLaughlin, our President, has made short-term
advances to us for our operating needs. These advances bear interest at 5% per annum, are unsecured and have no fixed terms of
repayment. Since 2009, the largest aggregate amount of principal outstanding was $222,574.38. In each of 2009, 2010 and 2011, principal
paid was 27,045.74, 13,408, and $64,116.85, and interest paid was $2,954.26, $6,591.26, and 4,883.15, respectively.
In April 2011, in satisfaction of $140,000 advance payable,
Mr. McLaughlin exercised 1,500,000 options, 1,000,000 options of which were exercised at $0.10 per share, and 500,000 of which
were exercised at $0.08 per share. In the first two quarters of 2012, principal paid was $41,531.25 and interest paid was $542.75.
As of October 17, 2012, no principal and interest remains outstanding on these advances.
In addition, Mr. McLaughlin made an unsecured advance to us
in 2005 for our long-term operating needs bearing interest at 10% and payable monthly from date of advance. Since 2009, the largest
aggregate amount of principal outstanding on this advance was $123,119. In each of 2009, 2010 and 2011, principal paid was $34,774,
$35,066 and $42,381, and interest paid was $10,747, $6,662 and $3,139, respectively. As of the pay-off date in February 2012, principal
and interest paid in 2012 was $10,898 and $482, respectively.
In the past, Mr. McLaughlin has voluntarily deferred receipt
of his salary as our President until such time as we have the financial wherewithal to pay such salary, but there can be no assurance
that Mr. McLaughlin will continue this practice. In months where our cash flow does not permit us to pay his monthly compensation,
the amount owed Mr. McLaughlin is accrued without interest. In 2011, the largest amount of accrued salary was $100,000. In June
2012 and in connection with our private placement, we issued to Mr. McLaughlin 588,236 shares of our common stock and 3-year warrants
to purchase 294,118 shares of our common stock at $0.40 per share at $0.17 per unit in satisfaction of $100,000 of deferred salary
accrued in 2011. As of October 17, 2012, no accrued salary required to be paid remains outstanding.
From time to time, Dr. Bruzzese, our Chairman, has made advances
to us for our operating needs. These advances bore interest at 5% per annum, were unsecured and had no fixed terms of repayment.
Since 2009, the largest aggregate amount of principal outstanding was $32,500. In 2009, 2010 and 2011, no principal was paid and
interest paid was $875, $875 and $875, respectively. In 2012, interest paid was $218.76. In June 2012 and in connection with our
private placement, we issued to Dr. Bruzzese 191,176 shares of our common stock and 3-year warrants to purchase 95,588 shares of
our common stock at $0.40 per share at $0.17 per unit in satisfaction of the $32,500 principal outstanding due him.
From time to time, Mr. Agostini, a member of our Board of Directors,
has made advances to us for our operating needs. These advances bore interest at 5% per annum, were unsecured and had no fixed
terms of repayment. Since 2009, the largest aggregate amount of principal outstanding was $17,500. In each of 2009, 2010 and 2011,
no principal was paid and interest paid was $875 for each year. In 2012, interest paid was $292. In April 2012, Mr. Agostini exercised
options to purchase 500,000 shares of our common stock at $0.10 per share, with payment consisting of $32,500 in cash and satisfaction
of the $17,500 in principal outstanding.
34
Common Stock Issuances
In April 2011, Mr. McLaughlin, our President, exercised stock
options for 1,500,000 shares, in satisfaction of $140,000 due to Mr. McLaughlin, 1,000,000 options of which were exercised at $0.10
per share, and 500,000 of which were exercised at $0.08 per share. Of the options exercised, 500,000 were exercised at $0.08 per
share and 1,000,000 were exercised at $0.10 per share.
In July 2011, we issued to Dr. Bruzzese, our Chairman, 72,941
shares of our common stock and 3-year warrants to purchase 36.470 shares of our common stock at $0.40 per share at $0.17 per unit
for $12,400 in connection with our private placement.
In June 2012, we issued to Mr. McLaughlin, our President, 588,236
shares of our common stock and 3-year warrants to purchase 294,118 shares of our common stock at $0.40 per share at $0.17 per unit
in satisfaction of $100,000 of deferred salary accrued in 2011.
In June 2012, we issued to Dr. Bruzzese, our Chairman, 191,176
shares of our common stock and 3-year warrants to purchase 95,588 shares of our common stock at $0.40 per share at $0.17 per unit
in satisfaction of $32,500 due to Dr. Bruzzese. In addition, in July 2012, we issued to Dr. Bruzzese 15,216 shares of our common
stock and 3-year warrants to purchase 7,608 shares of our common stock at $0.40 per share at $0.17 per unit for $2,587 in connection
with our private placement.
In June 2012, we issued to Mr. Agostini, a member of our Board
of Directors, 500,000 shares of our common stock upon his exercise of stock options at $0.10 per share for $50,000, consisting
of $32,500 in cash and satisfaction of $17,500 due to him.
In June 2012, in connection with our private placement, we issued
949,663 shares of our common stock and 3-year warrants to purchase 474,831 shares of our common stock at $0.40 per share to Lane
Deyoe in satisfaction of a $0.16 million note payable. Following this issuance, Mr. Deyoe beneficially owns more than 5% of our
common stock outstanding.
Common Stock Retirement and Option Cancelations
On June 13, 2011, Arun K. Bahl, then a beneficial owner of more
than 5% of our common stock, returned options to purchase 3 million shares of our common stock to us for cancelation. The options
returned for cancelation consisted of (i) options to purchase 1 million shares of our common stock at $0.07 per share with expiration
in January 2015, (ii) options to purchase 1 million shares of our common stock at $0.08 per share with expiration in March 2017,
and (iii) options to purchase 1 million shares of our common stock at $0.10 per share with expiration in March 2018.
In September 2011, we retired an additional 1.14 million shares
of our common stock.
Equity Awards and Employment Agreements
On April 20, 2011, we entered into a five-year employment agreement
with Mr. McLaughlin as our President and Chief Executive Officer, which was amended on October 12, 2012, under which he will be
compensated at $134,400 per annum. In the past, Mr. McLaughlin has voluntarily deferred receipt of his salary as our President
until such time as we have the financial wherewithal to pay such salary, but there can be no assurance that Mr. McLaughlin will
continue this practice. As of June 30, 2012, all prior compensation due to Mr. McLaughlin has been satisfied either through cash
payments or stock issuances. The employment agreement was entered into between us and McLaughlin International, Inc., a management
consulting firm solely controlled by Mr. McLaughlin and through which he had historically provided us with consulting services.
Effective as of October 12, 2012, we amended this employment agreement to be between us and Mr. McLaughlin directly as he dedicates
all of his business time to his position as our executive officer.
In 2011, we entered into two-year director's agreements
with our non-employee directors pursuant to which we granted stock options to such directors.
35
In June 2011, the Board of Directors authorized the extension
of the expiration date by one year of certain warrants and options held by Dr. Bruzzese and Messrs. McLaughlin and Agostini that
were to expire in 2011. The incremental fair value of the extended warrant held by Mr. McLaughlin, our President, as of June 14,
2011, was $10,682. The incremental fair value of the extended options held by Dr. Bruzzese, our Chairman, and Mr. Agostini, a member
of our Board of Directors, as of June 14, 2011, were $735 and $7,591, respectively. In May 2012, the Board of Directors again authorized
the extension of the expiration date by one year of certain warrants and options held by Dr. Bruzzese and Messrs. McLaughlin and
Agostini that were to expire in 2012. The incremental fair value of the extended warrant held by Mr. McLaughlin as of May 22, 2012,
was $18,106. The incremental fair value of the extended options held by Dr. Bruzzese and Mr. Agostini as of May 22, 2012, were
$9.289 and $4,085, respectively.
For a description of these director and employment agreements
and equity awards, see "Executive Compensation" beginning on page 31.
Employment Arrangements with an Immediate Family Member of
our President
Brunilda McLaughlin, the wife of Mr. McLaughlin, our President,
provides bookkeeping services for us. Mrs. McLaughlin was compensated for these services at $2,000 per month during 2009, 2010
and the first four months of 2011. In April 2011, we entered into a two-year employment agreement, as amended, with Mrs. McLaughlin
doing business as McLaughlin International, Inc., a management consulting firm solely controlled by Mr. McLaughlin, under which
we would compensate her for her services with (a) cash compensation of $2,000 per month; (b) 10-year, fully-vested options with
cashless exercise rights to purchase 200,000 shares of our common stock at $0.20 per share; (c) 10-year, fully-vested options with
cashless exercise rights to purchase 100,000 shares of our common stock at $0.40 per share, such options to become exercisable
upon our achieving $5 million in revenues in any fiscal year prior to the expiration date; and (d) an annual incentive bonus award
amounting to 0.5% of our pre-tax earnings.
Legal Services
Provided by Director
Strawn Pickens LLP, a law firm co-founded by one of our directors,
Mr. Strawn, performs legal services on our behalf on an hourly-fee basis in the ordinary course and has a contingency fee arrangement
with us in a suit with former officers of the company and their affiliated entities. In June 2012, we issued Strawn Pickens LLP
400,000 shares of our common stock and 3-year warrants to purchase 200,000 shares of our common stock at $0.40 per share in satisfaction
of approximately $68,000 in legal services. In 2011, Cruse Scott Henderson & Allen LLP received $225,000 as payment for accrued
legal services, $200,000 of which was paid by an investor in the Company in exchange for warrants to purchase 2,400,000 share of
common stock held by Cruse Scott, 1,136,842 shares of which were subsequently retired. Mr. Strawn served as Co-Managing Partner
until January 2010 and during the period in which Cruse Scott Henderson & Allen LLP represented the company and accrued legal
services.
Office Space Provided by our President
Our principal executive offices are in office space provided
at no cost to us by our President, Mr. McLaughlin.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following sets forth information as of October 17, 2012,
regarding the number of shares of our common stock beneficially owned by (i) each person that we know beneficially owns more than
5% of our outstanding common stock, (ii) each of our directors and named executive officer and (iii) all of our directors and named
executive officer as a group.
The amounts and percentages of our common stock beneficially
owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities. Under the SEC rules,
a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or "investment power," which includes the
power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities
of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant
or other right. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may
be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise indicated,
each of the shareholders named in the table below, or his or her family members, has sole voting and investment power with respect
to such shares of our common stock. Except as otherwise indicated, the address of each of the shareholders listed below is: c/o
Immudyne, Inc., 50 Spring Meadow Rd., Mount Kisco, NY 10549.
36
As of October 17, 2012, there were 28,875,317 shares of our
common stock issued and outstanding.
Name of beneficial owner
Number of shares
Percent of class
5% Shareholders
Lane Deyoe
11997 N. Lake Dr.
Boynton Beach, FL 33436
2,359,494
(1)
8.04
%
Directors and named executive officer
Mark McLaughlin
8,885,664
(2)
30.77
%
Anthony G. Bruzzese, M.D.
2,099,999
(3)
6.98
%
Dominic J. Agostini
1,393,500
(4)
4.70
%
John R. Strawn, Jr.
2,110,000
(5)
6.90
%
Directors and named executive officer as a group (4 persons)
12,413,870
49.35
%
(1)
Consists of 195,000 shares and presently-exercisable warrants to purchase 474,831 shares held of record by the Deyoe Family
Limited Partnership over which Mr. Deyoe has sole voting and dispositive power.
(2)
Consists of 588,236 shares held of record by McLaughlin International, Inc., presently-exercisable
warrants to purchase 1,500,000 shares, presently-exercisable warrants to purchase 294,118 shares held of record by McLaughlin International,
Inc. and presently-exercisable options to purchase 3,300,000 shares. Mr. McLaughlin has sole voting and dispositive power over
all shares and warrants held of record by McLaughlin International, Inc.
(3)
Consists of 115,000 shares held jointly with Dr. Bruzzese's spouse, presently-exercisable
warrants to purchase 169,666 shares and presently-exercisable options to purchase 1,060,000 shares.
(4)
Consists of 143,500 shares held of record by or jointly with Mr. Agostini's deceased spouse
over which he has sole voting and dispositive power and presently-exercisable options to purchase 750,000 shares.
(5)
Consists of 400,000 shares and presently-exercisable warrants to purchase 200,000 shares held of record by Strawn Pickens LLP
over which Mr. Strawn has shared voting and dispositive power, and presently-exercisable options to purchase 1,500,000 shares.
37
SELLING SHAREHOLDERS
The 1,828,212 shares of our common stock included in this prospectus
were issued to the selling shareholders pursuant to exemptions from registration under Section 4(2) of the Securities Act and Regulation
D promulgated thereunder.
The following table sets forth the names of the selling shareholders,
the number of shares of our common stock beneficially owned by each of the selling shareholders as of October 17, 2012, the number
of shares of our common stock being offered by the selling shareholders and the number and percentage of shares of our common stock
to be beneficially owned by each of the selling shareholders after the offering, assuming all of the offered shares are sold by
the selling shareholders. The percentages of shares of our common stock to be beneficially owned by the selling shareholders are
based upon 28,875,317 shares of our common stock outstanding as of October 17, 2012. The shares being offered hereby are being
registered to permit public secondary trading, and the selling shareholders named below, or their respective successors, including
transferees, may from time to time sell or otherwise dispose of, pursuant to this prospectus, all, some or none of their shares
of our common stock being registered hereby. See "Plan of Distribution" on page 40. All information with respect to
share ownership has been furnished by the selling shareholders.
Beneficial Ownership
Before Offering
Shares of
Common Stock
Included in
Prospectus
Beneficial Ownership
After Offering
Name
Total
Number
Percentage*
Berdon Ventures LLC
(1)
660,000
440,000
220,000
Burstein, David
180,000
120,000
60,000
Cynergy Emerging Growth LLC
(2)
882,354
588,236
294,118
Dweck, Isaac
88,235
58,823
29,412
Kibler, Austin
45,000
30,000
15,000
Neman, Shahriyar
220,588
147,059
73,529
Pismen, Leonid
88,200
58,800
29,400
Schwartz, Brendon
352,941
235,294
117,647
Tungsten 74 LLC(
3)
525,000
150,000
375,000
1.3
%
Total
3,042,318
1,828,212
1,214,106
*	Less than 1%, unless otherwise specified.
(1)
Rick Berdon has sole voting and dispositive power with respect to the shares of our common stock beneficially owned by Berdon
Ventures LLC.
(2)
Patrick Adams has sole voting and dispositive power with respect to the shares of our common stock beneficially owned by Cynergy
Emerging Growth LLC.
(3)
Viacheslav Kriventsov has sole voting and dispositive power with respect to the shares of our common stock beneficially owned
by Tungsten 74 LLC.
None of the selling shareholders, other than those identified
by disclosure above, has, or within the past three years has had, any position, office or material relationship with us or with
any of our predecessors or affiliates.
PLAN OF DISTRIBUTION
The selling shareholders identified in this prospectus may offer
and sell up to 1,828,212 shares of our common stock, which we issued them. The selling shareholders may sell all or a portion of
their shares of our common stock through public or private transactions at prevailing market prices or at privately negotiated
prices.
All of the shares of our common stock were issued previously
in private transactions completed prior to the filing of the registration statement of which this prospectus is a part.
38
The selling shareholders may sell all or a portion of the shares
of our common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of our common stock are sold through underwriters or broker-dealers, the selling shareholders
will be responsible for underwriting discounts or commissions or agent's commissions. The shares of our common stock may
be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions:
·
On any national securities exchange or quotation service on which the shares may be listed or quoted at the time of sale;
·
In the over-the-counter markets;
·
In transactions otherwise than on these exchanges or systems or in the over-the-counter markets;
·
Through the writing of options, whether such options are listed on an options exchange or otherwise;
·
Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·
Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
·
Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·
An exchange distribution in accordance with the rules of the applicable exchange;
·
Privately negotiated transactions;
·
Short sales;
·
Sales pursuant to Rule 144;
·
Broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per
share;
·
A combination of any such methods of sale; and
·
Any other method permitted pursuant to applicable law.
If the selling shareholders effect such transactions by selling
shares of our common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may
receive commissions in the form of discounts, concessions or commissions from the selling shareholders or commissions from purchasers
of the shares of our common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions
or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions
involved). In connection with sales of the shares of our common stock or otherwise, the selling shareholders may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales of the shares of our common stock in the course of hedging
in positions they assume. The selling shareholders may also sell shares of our common stock short and deliver shares of our common
stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales.
The selling shareholders may also loan or pledge shares of our common stock to broker-dealers that in turn may sell such shares.
The selling shareholders may pledge or grant a security interest
in some or all of the common stock owned by them and, if they default in the performance of their secured obligations, the pledgees
or secured parties may offer and sell the shares of our common stock from time to time pursuant to this prospectus or any amendment
to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of
selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.
The selling shareholders also may transfer and donate the shares of our common stock in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling shareholders and any broker-dealer participating
in the distribution of the shares of our common stock may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of our common stock
is made, a prospectus supplement, if required, will be distributed that will set forth the aggregate amount of shares of our common
stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling shareholders and any discounts, commissions or concessions
allowed or re-allowed or paid to broker-dealers.
39
Under the securities laws of some states, the shares of our
common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the
shares of our common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
There can be no assurance that any selling shareholder will
sell any or all of the shares of our common stock registered pursuant to the registration statement of which this prospectus is
a part.
The selling shareholders and any other person participating
in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of
our common stock by the selling shareholders and any other participating person. Regulation M may also restrict the ability of
any person engaged in the distribution of the shares of our common stock to engage in market-making activities with respect to
the shares of our common stock. All of the foregoing may affect the marketability of the shares of our common stock and the ability
of any person or entity to engage in market-making activities with respect to the shares of our common stock.
We have agreed to pay all expenses of the registration of the
shares of our common stock covered by this prospectus including, without limitation, SEC filing fees and expenses of compliance
with state securities or "blue sky" laws; provided, however, that a selling shareholder will pay all underwriting discounts
and selling commissions, if any. We may be indemnified by the selling shareholders against civil liabilities, including liabilities
under the Securities Act, that may arise from any written information furnished to us by the selling shareholders specifically
for use in this prospectus, or we may be entitled to contribution.
Once sold under the registration statement of which this prospectus
is a part, the shares of our common stock will be freely tradable in the hands of persons other than our affiliates.
DESCRIPTION OF CAPITAL STOCK
The following discussion is a summary of the terms of our capital
stock, our amended certificate of incorporation and our bylaws, as well as certain applicable provisions of Delaware law. Forms
of our amended certificate of incorporation and bylaws have been incorporated by reference as exhibits to the registration statement
of which this prospectus is a part.
Common Stock
Our authorized capital stock consists of 50,000,000 shares of
common stock, par value $0.01 per share. On February 1, 2001, we increased the number of authorized shares of our common stock
from 25,000,000 to 50,000,000 shares, par value $0.01 per share. We have no other authorized class of capital stock. As of October
17, 2012, there were issued and outstanding (a) 28,875,317 shares of our common stock; (b) options to purchase 14,927,500 shares
of our common stock, of which (i) options to purchase 8,952,500 shares of our common stock were exercisable at prices ranging from
$0.07 to $0.40 per share and (ii) options to purchase 4,775,000 shares of our common stock become exercisable at prices of $0.40
and $0.80 upon our revenues exceeding $5 million and $10 million, respectively; and (c) warrants to purchase 3,630,112 shares of
our common stock at prices ranging from $0.15 to $0.40 per share. The warrants are immediately exercisable and entitle their holders
to purchase up to: (i) 1,715,000 shares of our common stock at $0.15 per share, such warrants expiring in 2012 and 2013; and (ii)
2,030,112 shares of our common stock at $0.40 per share, such warrants expiring in 2015.
All shares of our common stock outstanding to 327 holders of
record are fully paid and non-assessable. The number of record holders of our common stock does not include beneficial owners of
our common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries. Holders of our common stock
are entitled to the following rights:
40
Voting Rights
Holders of our common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. The affirmative vote of a plurality of shares of our common
stock present in person or by proxy will decide the election of any directors. Holders of our common stock do not have cumulative
voting rights in the election of directors.
Dividend Rights
Holders of our common stock are entitled to receive ratably
any dividend declared by our Board of Directors.
Rights upon Liquidation
In the event of a liquidation, dissolution or winding up of
the company, holders of our common stock are entitled to share ratably in the assets remaining after payment of liabilities in
accordance with their respective rights and interest.
Other Rights and Preferences
Holders of our common stock have no preemptive, conversion or
redemption rights.
Listing
Our common stock is quoted on the OTC Markets-OTC Pink Current
under the symbol "IMMD."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare
Limited, 250 Royall St., Canton, MA 02021; telephone (781) 575-2000.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation
Law, an anti-takeover statute that provides that if a person acquires 15% or more of the voting stock of a Delaware corporation,
such person becomes an "interested shareholder" and may not engage in certain "business combinations" with
the corporation for a period of three years from the time such person acquired 15% or more of the corporation's voting stock,
unless (1) the board of directors approves the acquisition of stock or the merger transaction before the time that the person becomes
an interested shareholder, (2) the interested shareholder owns at least 85% of the outstanding voting stock of the corporation
at the time the merger transaction commences (excluding voting stock owned by directors who are also officers and certain employee
stock plans) or (3) the merger transaction is approved by the board of directors and by the affirmative vote at a meeting, not
by written consent, of shareholders of two-thirds of the holders of the outstanding voting stock that is not owned by the interested
shareholder. The applicability of this provision to us is expected to have an anti-takeover effect with respect to transactions
not approved in advance by our Board of Directors, including discouraging attempts that might result in a premium over the market
price for your shares.
Anti-Takeover Effects of Certain Provisions of Our Amended
Certificate of Incorporation and Bylaws
Our amended certificate of incorporation and bylaws contain
provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors. These include
provisions that:
·
provide that our Board of Directors is expressly authorized to adopt, amend or repeal our bylaws;
·
provide our Board of Directors with the sole power to set the size of our Board of Directors and fill vacancies; and
·
provide that special meetings of shareholders may be called only by our Board of Directors, Chairman of the Board of Directors,
upon written notice of demand by our President or upon written notice of demand by the holders of at least 25% of the shares of
our common stock outstanding and entitled to vote.
41
These provisions may make it more difficult for shareholders
to take specific corporate actions and could have the effect of delaying or preventing a change in control of our company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 28,875,317 shares
of our common stock issued and outstanding, representing approximately 58% of the 50,000,000 authorized shares of our common stock,
par value $0.01. The number of shares of our common stock outstanding after this offering is based on 28,875,317 shares of our
common stock outstanding as of October 17, 2012, which excludes
12,582,612 shares of our common stock
issuable upon exercise of warrants and options outstanding
. All of the 1,828,212, shares of our common stock sold pursuant
to this offering will be freely transferable without restriction or further registration under the Securities Act. Sales of substantial
amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. Our common
stock currently is not eligible for trading on any national securities exchange, and is quoted on the OTC Markets-OTC Pink Current
and trades in the over-counter-markets. The market for our common stock historically has been limited and we cannot assure you
that a larger market will ever be developed or maintained.
We are not aware of any plans by any significant shareholder
to dispose of significant numbers of shares of our common stock. We cannot assure you, however, that one or more existing shareholders
will not dispose of significant numbers of shares of our common stock. No prediction can be made as to the effect, if any, that
future sales of our common stock, or the availability of our common stock for future sale, will have on the market price of our
common stock prevailing from time to time. Sales of substantial amounts of our common stock in the public market, or the perception
that future sales may occur, could materially and adversely affect the prevailing market price of our common stock.
Rule 144
In general, under Rule 144 promulgated under the Securities
Act, an affiliate who beneficially owns shares that were purchased from us, or any affiliate, at least six months previously, is
entitled to sell within any 3-month period beginning 90 days after the date of this prospectus, a number of shares that does not
exceed the greater of 1% of our then-outstanding shares of common stock, which equals approximately 30,264 shares immediately after
this offering, or the average weekly trading volume of our common stock on the OTC Markets-OTC Pink Current during the four calendar
weeks preceding the filing of a notice of the sale with the SEC. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public information about us.
Following this offering, a person that is not an affiliate of
ours at the time of, or at any time during the three months preceding, a sale and who has beneficially owned restricted securities
within the meaning of Rule 144 for at least six months, may sell shares subject only to the availability of current public information
about us, and any such person who has beneficially owned restricted shares of our common stock for at least one year may sell shares
without restriction.
We are unable to estimate the number of shares that will be
sold under Rule 144 because this will depend on the market price for our common stock, the personal circumstances of the shareholder
and other factors.
Rule 701
In general, under Rule 701 promulgated under the Securities
Act, any of our employees, directors, officers, consultants or advisors who purchased shares from us in connection with a compensatory
stock or option plan or other written agreement before the effective date of the registration statement of which this prospectus
is a part is entitled to resell such shares 90 days after such effective date in reliance on Rule 144 without having to comply
with the holding period requirements or other restrictions contained in Rule 701.
Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold
by persons other than affiliates, as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period requirement.
42
EXPERTS
The audited financial statements of Immudyne, Inc. for the years
ended December 31, 2011 and 2010, were audited by PKF O'Connor Davies, a division of O'Connor Davies, LLP, independent
registered public accounting firm, as set forth in its report thereon appearing herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed
upon for us by Newman & Morrison LLP, New York, New York.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form
S-1 we have filed with the SEC. We have not included in this prospectus all of the information contained in the registration statement
and you should refer to our registration statement and its exhibits for further information.
Upon the effectiveness of the registration statement of which
this prospectus is a part, we will be required to file annual, quarterly and current reports and other information under the Exchange
Act with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street,
NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information about the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also available to the public from
commercial document retrieval services and at the website maintained by the SEC at www.sec.gov. Copies of our annual report, including
audited financial statements, are available on request by writing to Immudyne, Inc., 50 Spring Meadow Rd., Mount Kisco, NY 10549,
Attn: Investor Relations.
Our website address is www.immudyne.com.
The information
contained on or accessible through our website is not part of this prospectus or the registration statement of which this prospectus
is a part, and potential investors should not rely on such information in making a decision to purchase our common stock in this
offering.
43
IMMUDYNE, INC.
Index to Financial Statements
Page
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheet as of June 30, 2012 (Unaudited), and December 31, 2011 and 2010
F-3
Statement of Operations for the six months ended June 30, 2012 and 2011 (Unaudited), and the years ended December 31, 2011 and 2010
F-4
Statement of Stockholders' Equity (Deficit) for the six months ended
    June 30, 2012 (Unaudited), and the years ended December 31, 2011 and 2010
F-5
Statement of Cash Flows for the six months ended June 30, 2012 and 2011 (Unaudited), and the years ended December 31, 2011 and 2010
F-6
Notes to Financial Statements
F-7
F-
1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors
Immudyne, Inc.
We have audited the accompanying balance
sheet of Immudyne, Inc. as of December 31, 2011 and 2010, and the related statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Immudyne, Inc. as of December 31, 2011 and
2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ PKF O'Connor Davies
A Division of O'Connor Davies, LLP
New York, NY
October 17, 2012
F-
2
IMMUDYNE, INC.
BALANCE SHEET
June 30
December 31
2012
2011
2010
(Unaudited)
ASSETS
Current assets
Cash
$
247,284
$
33,502
$
-
Trade accounts receivable
126,361
36,357
80,325
Inventory
36,233
58,800
105,000
Total current assets
409,878
128,659
185,325
Furnishings and equipment
186,327
214,671
271,360
Total assets
$
596,205
$
343,330
$
456,685
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Cash overdraft
$
-
$
-
$
41,000
Accounts payable and accrued expenses
215,884
199,341
333,755
Due to officer
-
100,000
10,000
Current portion of notes payable
-
262,172
562,498
Total current liabilities
215,884
561,513
947,253
Deferred tax liability
56,200
64,800
82,000
Notes payable, net of current portion
-
-
14,986
Total liabilities
272,084
626,313
1,044,239
Stockholders' equity(deficit)
Common stock, $0.01 par value; 50,000,000 shares     authorized,
    28,981,317, 24,729,030 and 20,053,194 shares issued and outstanding in 2012, 2011 and 2010, respectively
289,813
247,290
200,532
Additional paid-in capital
7,599,393
6,871,510
6,110,768
Treasury stock,505,000 shares in 2011 and 2010
-
(51,833
)
(51,833
)
Accumulated (deficit)
(7,565,085
)
(7,349,950
)
(6,847,021
)
Total stockholders' equity(deficit)
324,121
(282,983
)
(587,554
)
Total liabilities and stockholders' equity ( deficit)
$
596,205
$
343,330
$
456,685
See notes to financial statements
F-
3
IMMUDYNE, INC.
STATEMENT OF OPERATIONS
Six Months Ended
June 30
Year Ended
December 31
2012
2011
2011
2010
(Unaudited)
(Unaudited)
Sales
$
406,102
$
406,140
$
743,828
$
1,271,975
Cost of sales
95,781
99,501
241,264
426,107
Gross profit
310,321
306,639
502,564
845,868
General and administrative expenses
(507,185
)
(427,910
)
(678,931
)
(1,170,436
)
Stock compensation expense
(48,500
)
(400,000
)
(400,000
)
-
Operating (loss)
(245,364
)
(521,271
)
(576,367
)
(324,568
)
Proceeds from litigation settlement
25,000
50,000
50,000
25,000
License fee
-
27,500
27,500
-
Interest (expense)
(3,371
)
(13,447
)
(21,262
)
(35,073
)
Net (loss) before taxes
(223,735
)
(457,218
)
(520,129
)
(334,641
)
Deferred income tax benefit
8,600
8,600
17,200
17,000
Net (loss)
$
(215,135
)
$
(448,618
)
$
(502,929
)
$
(317,641
)
Basic and diluted (loss) per share
$
(0.01
)
$
(0.02
)
$
(0.02
)
$
(0.02
)
Average number of common shares outstanding
26,146,460
22,908,000
22,391,000
19,958,000
See notes to financial statements
F-
4
IMMUDYNE, INC.
STATEMENT OF STOCKHOLDERS'
EQUITY (DEFICIT)
Additional
Common Stock
Paid-in
Accumulated
Treasury
Shares
Amount
Capital
(Deficit)
Stock
Total
Balance at December 31, 2009
19,863,194
$
198,632
$
6,065,768
$
(6,529,380
)
$
(51,833
)
$
(316,813
)
Stock issued for services
50,000
500
8,000
-
-
8,500
Issuance of common stock
200,000
2,000
32,000
-
-
34,000
Retirement of stock
(60,000
)
(600
)
600
-
-
-
Stock warrants issued in connection with financing
-
-
4,400
-
-
4,400
Net (loss)
-
-
-
(317,641
)
-
(317,641
)
Balance at December 31, 2010
20,053,194
200,532
6,110,768
(6,847,021
)
(51,833
)
(587,554
)
Issuance of common shares
923,994
9,239
184,261
-
-
193,500
Restricted stock issued to advisor and consultant
375,000
3,750
(3,750
)
-
-
-
Issuance of stock options
-
-
400,000
-
-
400,000
Cashless exercise of warrants
2,273,684
22,737
(22,737
)
-
-
-
Retirement of common stock
(1,136,842
)
(11,368
)
11,368
-
-
-
Warrants exercised with notes payable
740,000
7,400
66,600
-
-
74,000
Options exercised with notes payable
1,500,000
15,000
125,000
-
-
140,000
Net (loss)
-
-
-
(502,929
)
-
(502,929
)
Balance at December 31, 2011
24,729,030
247,290
6,871,510
(7,349,950
)
(51,833
)
(282,983
)
Issuance of common stock
1,828,212
18,282
292,514
-
-
310,796
Issuance of common stock for notes and other payables
1,729,075
17,291
276,652
-
-
293,943
Issuance of common stock for services
700,000
7,000
112,000
-
-
119,000
Issuance of stock options
-
-
17,000
-
-
17,000
Extension of option and warrant expiration dates
-
-
31,500
-
-
31,500
Options exercised
325,000
3,250
29,250
-
-
32,500
Options exercised with   notes payable
175,000
1,750
15,750
-
-
17,500
Retirement of treasury stock
(505,000
)
(5,050
)
(46,783
)
-
51,833
-
Net (loss)
-
-
-
(215,135
)
-
(215,135
)
Balance at June 30, 2012 (unaudited)
28,981,317
$
289,813
$
7,599,393
$
(7,565,085
)
$
-
$
324,121
See notes to financial statements
F-
5
IMMUDYNE, INC.
STATEMENT OF CASH FLOWS
Six Months Ended
June 30
Year Ended
December 31
2012
2011
2011
2010
(Unaudited)
(Unaudited)
Cash flows from operating activities
Net (loss)
$
(215,135
)
$
(448,618
)
$
(502,929
)
$
(317,641
)
Adjustments to reconcile net (loss) to net cash (used) by operating activities
Depreciation
28,344
28,345
56,689
56,598
Deferred tax benefit
(8,600
)
(8,600
)
(17,200
)
(17,000
)
Stock compensation expense
48,500
400,000
400,000
-
Common stock issued for services
119,000
-
-
8,500
Financing costs, warrants
-
-
4,400
Changes in assets and liabilities
Trade accounts receivable
(90,004
)
(16,201
)
43,968
94,561
Inventory
22,567
28,788
46,200
(55,000
)
Accounts payable and accrued expenses
16,543
9,571
(134,414
)
(36,789
)
Due to officer
-
-
90,000
10,000
Net Cash (Used) by Operating Activities
(78,785
)
(6,715
)
(17,686
)
(252,371
)
Cash flows from financing activities
Cash overdraft
-
(41,000
)
(41,000
)
41,000
Issuance of common stock
343,296
176,000
193,500
34,000
Increase in notes payable
-
-
75,000
90,474
Repayment of note payable
(50,729
)
(58,065
)
(176,312
)
(118,480
)
Net Cash Provided by Financing activities
292,567
76,935
51,188
46,994
Net increase (decrease) in cash
213,782
70,220
33,502
(205,377
)
Cash at beginning of the period
33,502
-
-
205,377
Cash at end of the period
$
247,284
$
70,220
$
33,502
$
-
Supplemental schedule of non-cash investing and financing activities
Cash paid during the year for interest
$
3,371
$
13,447
$
21,262
$
35,073
Notes payable and other payables used to exercise options and warrants
$
311,443
$
214,000
$
214,000
See notes to financial statements
F-
6
IMMUDYNE, INC.
Notes to Financial Statements
Note 1 - Organization
Immudyne, Inc. (the "Company")
is a Delaware corporation established to develop, manufacture and sell natural products. The Company has developed a proprietary
bio-refinement approach to produce the purest, particulate and soluble beta glucans derived from yeast. The Company's core
nutraceutical and cosmetic product lines consist of its pure yeast beta glucans in oral and topical applications to support the
immune system. 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.
The Company has funded operations in the
past through the sales of its products, issuance of common stock and through loans and advances from officers and directors. The
Company's continued operations are dependent upon obtaining an increase in its sales volume and the continued financial support
from officers and directors or the issuance of additional shares of common stock.
Unaudited Interim Financial Information
The accompanying balance sheet as of June
30, 2012, the statements of operations and cash flows for the six months ended June 30, 2012 and 2011, and the statement of stockholders'
equity for the six months ended June 30, 2012, are unaudited. In the opinion of management, such information includes all adjustments
consisting of normal recurring adjustments necessary for a fair presentation of this interim information when read in conjunction
with the audited financial statements and notes hereto. Results for the six months ended June 30, 2012, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2012, or for any other period.
Note 2 - Summary of significant
accounting policies
Basis of Presentation and Use
of Estimates
The Company prepares its 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 valuation of stockholders' equity based transactions. Actual results could differ from those estimates.
Inventory
At June 30, 2012, inventory consisted primarily
of nutraceutical and cosmetic products. At December 31, 2011 and 2010, inventory also included animal feed product, a product line
the Company began exiting in 2011. Inventory is maintained in the Company's warehouse as well as in other locations held
both by independent third parties and related parties.
Inventory is valued at the lower of cost
or market 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 their inventories to market value, if lower. Inventory
consists of the following:
June 30
2012
December 31
(Unaudited)
2011
2010
Raw materials
$
20,452
$
37,720
$
77,000
Finished products
15,781
21,080
28,000
$
36,233
$
58,800
$
105,000
Included in inventory at December 31, 2011
and 2010 is $10,661 and $62,645 respectively, for products related to animal feed.
F-
7
Furnishings and equipment
Furnishings and equipment are stated at
cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from three
to ten years.
Revenue recognition
The Company's policy is to record
revenue as earned when a firm commitment, indicating sales quantity and price exists, delivery has taken place and collectability
is reasonably assured. The Company generally records sales once the product is shipped to the customer.
Revenue for the six months ended June 30,
2012, and for the years ended December 31, 2011 and 2010, are summarized as follows:
2012
(Unaudited)
2011
2010
Animal feed
$
5,690
$
148,507
$
794,194
Nutraceutical and cosmetic
400,412
595,321
477,781
Total
$
406,102
$
743,828
$
1,271,975
The Company records customer signing fees
as revenue upon receipt and when no future obligation exists.
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 as a single segment 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.
Income taxes
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, 2009, remain open to most taxing authorities.
Stock-based compensation
Stock-based employee compensation arrangements are accounted
for using the intrinsic value method. Compensation cost generally is recognized at fair value on the date of the grant and amortized
over the respective vesting periods.
The Company utilizes the Black-Scholes
option-pricing model for determining the estimated fair value of awards. Key inputs and assumptions include the expected term of
the option, stock price volatility, risk-free interest rate, dividend yield, stock price and exercise price. Many of the assumptions
require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense.
The Company estimates forfeitures when recognizing compensation expense and adjusts forfeiture estimates over the vesting period
based on actual or anticipated forfeitures.
F-
8
Earnings (loss) per share
Basic earnings (loss) per common share
is based on the weighted average number of shares outstanding during each period presented. Warrants and options to purchase common
stock are included as common stock equivalents only when dilutive. Potential common stock equivalents are excluded from dilutive
earnings per share when the effects would be antidilutive.
Common stock equivalents comprising 13,582,612,
11,057,500 and 13,432,323 shares underlying options and warrants at June 30, 2012, and December 31, 2011 and 2010, respectively,
have not been included in the loss per share calculation as the effects are anti-dilutive.
Recent accounting pronouncements
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 financial
statements upon adoption.
Fair value of financial instruments
FASB ASC Topic 820, Fair Value Measurements
and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. FASB ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes the following
three levels of inputs that may be used to measure fair value:
Level 1—Unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2—Observable inputs
other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level 3—Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying value of the Company's
financial instruments, including cash, accounts receivable and accounts payable approximate fair value for all periods. The fair
value of notes payable at December 31, 2011 and 2010, is an approximation of their fair value as all such notes were either repaid
or converted to equity in 2012.
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.
For the six month periods ended June 30,
2012 and 2011, one customer comprised 77% and 61% of sales, respectively. This customer accounted for 53% and 23% of sales for
the years ended December 31, 2011 and 2010, respectively. At June 30, 2012, this customer accounted for 94% of accounts receivable,
and at December 31, 2011 and 2010, this customer accounted for 85% and 86% of accounts receivable, respectively.
F-
9
Note 3 - Furnishings and equipment
Furnishings and equipment consisted of
the following:
June 30
2012
December 31
(Unaudited)
2011
2010
Furnishings and equipment, at cost
$
679,291
$
679,291
$
679,291
Accumulated depreciation
492,964
464,620
407,931
$
186,327
$
214,671
$
271,360
Depreciation expense amounted to approximately
$28,000 for each of the six months ended June 30, 2012 and 2011, respectively. Depreciation expense amounted to approximately $56,000
for each of the years ended December 31, 2011 and 2010, respectively.
Note 4 - Notes payable
Notes payable are due to officers, directors
and other related individuals. Certain notes are payable on demand while repayment of others is based on scheduled monthly payments.
Interest rates vary from 0% to 10%. A summary of notes payable activity is as follows:
Balance at December 31, 2009
$
605,490
Borrowing
90,474
Repayment
(118,480
)
Balance at December 31, 2010
577,484
Borrowing
75,000
Repayment
(176,312
)
Notes payable used to exercise options and warrants
(214,000
)
Balance at December 31, 2011
262,172
Repayment
(50,729
)
Issuance of common stock for notes payable
(193,943
)
Notes payable used to exercise options
(17,500
)
Balance at June 30, 2012
$
-
Interest expense on notes payable amounted
to $3,371 and $13,447 for the six months ended June 30, 2012 and 2011, respectively, and $21,262 and $35,073 for the years ended
December 31, 2011 and 2010, respectively.
Note 5 - Income taxes
The Company incurred a loss in the six
months ended June 30, 2012, and years ended December 31, 2011 and 2010. Accordingly, no provision for federal income tax has been
made in the accompanying financial statements. At December 31, 2011, the Company had available net operating loss carryforwards
of approximately $2,500,000, expiring during various years through 2031.
A summary of the deferred tax asset using
an approximate 34% tax rate is as follows:
June 30
2012
December 31
(Unaudited)
2011
2010
Net operating loss
$
920,000
$
870,000
$
850,000
Valuation allowance
(920,000
)
(870,000
)
(850,000
)
Total
$
-
$
-
$
-
F-
10
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 deferred tax liability of $56,200,
$64,800 and $82,000 at June 30, 2012, December 31, 2011 and December 31, 2010, respectively, results from the difference in the
carrying amount of furnishings and equipment between financial reporting and income tax reporting.
The deferred tax benefit included in the
statement of operations represents the change in the deferred tax liability at each balance sheet date.
The difference between the statutory and
the effective tax rate is primarily due to a change in valuation allowance on deferred taxes, as the Company has fully reserved
the deferred tax asset resulting from available net operating loss carryforwards.
Note 6 - Stockholders' equity
During the six months ended June 30, 2012,
the Company raised $310,796 in a common stock offering at $0.17 per share. In addition, $293,943 of notes and other payables were
converted into common stock under the same terms as the common stock offering. Each two shares of restricted stock issued included
a three-year warrant for one share exercisable at $0.40. The Company raised an additional $32,500 and satisfied notes payable in
the amount of $17,500 through the exercise of 500,000 options. The Company issued 700,000 common shares for services valued at
$119,000.
During 2012, the Company extended the expiration
date of 1,000,000 options and 1,500,000 warrants one year from 2012 to 2013. As a result of this transaction, the Company recorded
a charge to stock-based compensation expense of $31,500 during the six months ended June 30, 2012.
During 2011, the Company raised $193,500
through the issuance of 923,994 shares of restricted stock, and retired 1,136,842 of common stock. In addition, $214,000 of notes
payable were satisfied through the exercise of 740,000 warrants and 1,500,000 options. Also during 2011, the Company issued 375,000
shares to an advisor and consultant and further issued 2,273,684 shares of common stock for the cashless exercise of 2,400,000
warrants with an exercise price of $0.01.
During 2011, the Company extended the expiration
date of 1,500,000 options and 1,500,000 warrants one year from 2011 to 2012. The Company computed the fair value of this extension
agreement and determined that such amount was not material.
During 2010, the Company raised $34,000
through the issuance of 200,000 shares of restricted stock at $0.17 per share. In addition, 60,000 shares were retired during 2010.
The Company issued 50,000 common shares in 2010 for consulting services valued at $8,500.
Service-based stock options
During 2010, the Company issued 150,000
options to consultants with an exercise price of $0.20. The options vested immediately and expire in 10 years.
During 2011, the Company issued 6,260,000
service-based options to various employees and consultants. The options, which vested immediately, were issued at exercise prices
of $0.20 and $0.40 and expire in 10 years.
During 2012, the Company issued 1,000,000
options to a consultant at an exercise price of $0.20 per share that expire in 10 years. The options vest fully in June 2013. During
June 2012 the Company also issued 200,000 options to employees with an exercise price of $0.20. These options expire in 10 years
and vest semi-annually over 2 years.
F-
11
A summary of the outstanding service-based
stock options are as follows:
Number of
Options
Balance at December 31, 2009
7,672,500
Granted
150,000
Balance at December 31, 2010
7,822,500
Granted
6,260,000
Cancelled
(3,000,000
)
Exercised
(1,500,000
)
Expired
(240,000
)
Balance at December 31, 2011
9,342,500
Granted
1,200,000
Exercised
(500,000
)
Expired
(90,000
)
Balance at June 30, 2012
9,952,500
Options exercisable at December 31, 2011,
and June 30, 2012, amounted to 9,342,500 and 8,752,500, respectively.
All outstanding options have a
cashless exercise provision and certain options provide for accelerated vesting provisions and modifications, as defined, if
the company is sold or acquired.
The intrinsic value of options outstanding
and exercisable amounted to $163,300 and $121,700 at December 31, 2011, and June 30, 2012, respectively. The intrinsic value
of options exercised in 2011 and 2012 amounted to $115,000 and $35,000, respectively.
The following is a summary of outstanding
service-based options at June 30, 2012:
Exercise Price
Number of
Options
Weighted
Average
Remaining
Contractual Life
$0.07 - $0.10
$
1,597,500
4 years
$0.13 - $0.20
7,355,000
10 years
$0.40
1,000,000
10 years
Total
$
9,952,500
All of the options issued through December
31, 2011, are fully vested. The 1,200,000 options issued in 2012 vest over one and two year periods through June 2014. The fair
value of the 1,200,000 options issued in 2012 is $83,000, of which $17,000 has been expensed as of June 30, 2012, and $66,000 remained
unearned, and will be expensed over the next 24 months.
Performance-based
stock options
As of June 30, 2012 the Company granted
performance-based options to purchase 4,025,000 shares of common stock at exercise prices of $0.40 and $0.80. The options expire
in 10 years and are exercisable upon the Company achieving annual sales revenue of $5,000,000 and $10,000,000. The fair value of
these performance-based options aggregated $138,000 and will be expensed over the implicit service period commencing once management
believes the performance criteria will be met. Accordingly, at June 30, 2012, the unearned compensation for performance based options
is $138,000.
F-
12
Warrants
The following is a summary of outstanding
and exercisable warrants:
Number of
Shares
Weighted
Average
Exercise
Price
Year
of
Expiration
Balance at December 31, 2009
5,569,823
$
0.12
2011 - 2017
Granted
40,000
0.10
2020
Balance at December 31, 2010
5,609,823
0.12
2011 - 2020
Exercised
(3,140,000
)
0.03
2011
Expired
(754,823
)
0.40
2011
Balance at December 31, 2011
1,715,000
0.16
2012 - 2013
Granted
2,030,112
0.40
2015
Expired
(115,000
)
0.40
2012
Balance at June 30, 2012
3,630,112
0.28
2013 - 2015
In connection with the issuance of common
stock in 2012, the Company granted warrants to acquire 2,030,112 shares of common stock at $0.40 per share. These warrants are
immediately exercisable and expire in 10 years.
The fair value of options and warrants
granted (or extended) during the years ended December 31, 2011 and 2010, and six months ended June 30, 2012, was estimated on the
date of grant (or extension) using the Black-Scholes option-pricing model with the following weighted-average assumptions:
2012
2011
2010
Expected volatility
50
%
50
%
50
%
Risk free interest rate
2
%
1
%
3
%
Expected dividend yield
-
-
-
Expected option term (in years)
1.5 - 5
5
1 - 5
Weighted average grant date fair value
$
0.06
$
0.06
$
0.08
Note 7 - Royalties
The Company is subject to a royalty agreement
based upon sales of certain skin care products. The agreement requires the Company to pay a royalty based upon 8% of such sales,
up to $227,175. Royalty expense for the six months ended June 30, 2012, approximated $25,000 and royalty expense amounted to approximately
$24,000 for each of the years ended December 31, 2011 and 2010, respectively. The remaining commitment at June 30, 2012, is approximately
$130,000. The Company's President has a 60% interest in the royalties.
Note 8 - Commitments and contingencies
Leases
The Company leases a plant in Kentucky
under an operating lease which expires May 31, 2013. Monthly base rental payments approximate $3,300. Rent and related expenses
for the six months ended June 30, 2012 and 2011, was $31,431 and $31,158, respectively. Rent expense for the years ended December
31, 2011 and 2010, was $61,544 and $73,345, 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 the issuance of
stock options, at exercise prices of $0.40 and $0.80, underlying 4,625,000 shares of common stock issuable upon the Company's
revenue exceeding $5,000,000 and $10,000,000, as defined. Of this amount, 4,025,000 options were issued through June 30, 2012 and
600,000 were issued in September 2012. The agreements provide for annual compensation of $120,000 for the Company's President,
and annual compensation for other officers, directors, employees and consultants in amounts ranging from $5,000 per month to amounts
to be determined by the Board of Directors. In addition, the agreements provide for bonus compensation to these individuals aggregating
11.5 percent of the Company's pretax income.
F-
13
Legal matters
In the normal course of business operations
the Company may become involved in various legal matters. At June 30, 2012, the Company's management does not believe that
there are any potential legal matters that could have an adverse effect on the Company's financial position.
In November 2009, the Company entered into
a settlement agreement to resolve all aspects of litigation relating to a patent suit. As part of that settlement agreement, the
Company received $440,000 as reimbursement for litigation costs. The Company also was awarded $200,000 in eight installments of
$25,000 every six months beginning on January 15, 2011, in return for an exclusive patent license. The term of the license agreement
is consistent with the term of the $25,000 semiannual payments. The $25,000 installments are being recorded as revenue only upon
receipt of the funds. As of June 30, 2012, $100,000 remained to be paid to the Company under this agreement.
Note 9 – Related party transactions
One of the Company's directors also
provides legal services and was compensated through the issuance common stock. During the six months ended June 30, 2012 the Company
issued 400,000 shares valued at $68,000 in connection with services provided.
Note 10 - Subsequent
events
The Company has evaluated
subsequent events through the date these financial statements were issued and has determined that there are no subsequent events
or transactions requiring recognition or disclosure in the financial statements, other than as disclosed herein.
During September 2012,
the Company entered into two consulting agreements with terms of 3 years. Under the terms of these agreements, the Company issued
200,000 options at an exercise price of $.20 per share that expire in 10 years. In addition the agreement calls for performance
based options to purchase 600 shares of common stock at exercise prices of $.40 and $.80 exercisable upon the Company achieving
annual sales revenues of $5,000,000 and $10,000,000 as defined.
F-
14
IMMUDYNE, INC.
1,828,212 SHARES
COMMON STOCK
PROSPECTUS
,
2012
44
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses that payable
by us in connection with the offering described in the prospectus that is part of this registration statement. All amounts, other
than the SEC Registration Fee, are estimates. Although we will not receive any of the proceeds from the sale of the shares of our
common stock being registered in this registration statement, we agreed to bear the costs and expenses of the registration of such
shares.
SEC Registration Fee
$
42
Printing Fees and Expenses
2,000
Accounting Fees and Expenses
50,000
Legal Fees and Expenses
40,000
Total
$
92,042
Item 14. Indemnification of Directors and Officers
Section 102(b)(7) of the Delaware General Corporation Law permits
a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper
personal benefit. Our amended certificate of incorporation provides that, to the maximum extent permitted by law, no director shall
be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as director.
Section 145 of the Delaware General Corporation Law provides
that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection
with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such
person being or having been a director, officer, employee or agent to the corporation. The Delaware General Corporation Law provides
that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise. Our bylaws provide for indemnification by us of our directors, officers
and employees to the fullest extent permitted by the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the
Securities Act may be provided for directors, officers, employees, agents or persons controlling an issuer pursuant to the foregoing
provisions, the opinion of the SEC is that such indemnification is against public policy as expressed in the Securities Act, and
is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us
in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection
with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.
No pending material litigation or proceeding involving our directors,
executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending
or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.
45
Item 15. Recent Sales of Unregistered Securities
In a series of private placement transactions in 2009, we issued
150,000 shares of our common stock and 3-year warrants to purchase 75,000 shares of our common stock at $0.40 per share to accredited
investors at $0.17 per unit for $25,500 in transactions exempt from registration under Section 4(2) of the Securities Act.
In a series of private placement transactions in 2010, we issued
200,000 shares of our common stock and 3-year warrants to purchase 100,000 shares of our common stock at $0.40 per share to accredited
investors at $0.17 per unit for $34,000 in transactions exempt from registration under Section 4(2) of the Securities Act.
In March 2010, we issued 187,500 shares of our common stock
to JFS Investments, Inc. for consulting services valued at $31,875 pursuant to exemptions from registration under Section 4(2)
of the Securities Act.
In March 2010, we issued 187,500 shares of our common stock,
consisting of 37,500 shares to Garden State Securities and 75,000 shares each to Ernest Pelligrino and Daniel Walsh, principals
of Garden State Securities, for investment banking advice valued at $31,875 pursuant to exemptions from registration under Section
4(2) of the Securities Act.
In April 2010, we issued 50,000 shares of our common stock to
Sven Rohmann, M.D., PhD, currently our Chief Medical Officer, for consulting services valued at $8,500 pursuant to exemptions from
registration under Section 4(2) of the Securities Act.
In March 2011, we issued 621,053 shares of our common stock
to Platinum Partners Liquid Opportunity Master Fund LP at $0.2286 per share for $142,000 in a transaction exempt from registration
under Section 4(2) of the Securities Act.
In March 2011, we issued 740,000 shares of our common stock
to a non-affiliate note holder upon his exercise of warrants to purchase 740,000 shares of our common stock at $0.10 per share
in satisfaction of $74,000 in outstanding notes payable. We originally issued the warrants exercised, to the note holder, in consideration
of the financing in 2009 and 2010.
In March 2011, we issued 2,273,737 shares of our common stock
to a warrant holder for the net cashless exercise of warrants to purchase 2,400,000 shares of our common stock at $0.10 per share.
We originally issued the warrants exercised in a transaction exempt from registration under Section 4(2) of the Securities Act.
In April 2011, Mr. McLaughlin, our president, exercised options
to purchase 1,500,000 shares of our common stock in satisfaction of $140,000 due to Mr. McLaughlin. Of the options exercised,
500,000 were exercised at $0.08 per share and 1,000,000 were exercised at $0.10 per share. We originally issued the options exercised
to Mr. McLaughlin under an employment agreement.
In July 2011, we issued 302,941 shares of our common stock and
3-year warrants to purchase 151,500 shares of our common stock at $0.40 per share to accredited investors and Dr. Bruzzese, our
Chairman, at $0.17 per unit for $51,500 in transactions exempt from registration under Section 4(2) of the Securities Act.
In 2011, we granted non-plan, 10-year options to our directors,
officers, certain employees and consultants under their respective director's, employment and consulting agreements, such
options consisting of the right to purchase, in the aggregate: (i) 5,610,000 shares of our common stock at $0.20 per share; (ii)
1,000,000 shares of our common stock at $0.40 per share; (iii) 3,175,000 shares of our common stock at $0.40 per share, such options
to become exercisable upon our achieving $5 million in revenues in any fiscal year prior to the expiration date; and (iv) 1,500,000
shares of our common stock at $0.80 per share, such options to become exercisable upon our achieving $10 million in revenues in
any fiscal year prior to the expiration date. The issuance of these options was exempt from registration under Section 4(2) of
the Securities Act in reliance on Rule 701 of the Securities Act pursuant to compensatory benefit plans approved by our Board of
Directors.
In June 2012, we issued 500,000 shares of our common stock to
Mr. Agostini, a member of our Board of Directors, upon his exercise of stock options at $0.10 per share for $50,000, consisting
of $32,500 in cash and satisfaction of $17,500 due to him.
46
In a series of private placement transactions in June and July
2012, we issued 1,843,428 shares of our common stock and 3-year warrants to purchase 921,714 shares of our common stock at $0.40
per share to accredited investors at $0.17 per unit for $313,383. Concurrently with this private placement, we issued 1,729,075
shares of our common stock and 3-year warrants, having the same terms and conditions as the warrants issued in the private placement,
to purchase 864,537 shares of our common stock to Mr. McLaughlin, our President, Dr. Bruzzese, our Chairman, and a non-affiliate
note holder in satisfaction of $100,000 due to Mr. McLaughlin, $32,500 due to Dr. Bruzzese and $161,443 note payable. The issuances
of our common stock were made pursuant to exemptions from registration under Section 4(2) of the Securities Act.
In June 2012, we issued Strawn Pickens LLP, a law firm co-founded
by Mr. Strawn, a member of our Board of Directors, 400,000 shares of our common stock and 3-year warrants to purchase 200,000 shares
of our common stock at $0.40 per share at $0.17 per unit in satisfaction of approximately $68,000 in legal services accrued since
2011.
In June 2012, we issued 300,000 shares of our common stock to
Tungsten 74 LLC for consulting services valued at $51,000 pursuant to exemptions from registration under Section 4(2) of the Securities
Act.
All certificates representing the securities issued in the transactions
described in this Item 15 included appropriate legends setting forth that the securities had not been offered or sold pursuant
to a registration statement and describing the applicable restrictions on transfer of the securities. There were no underwriters
or placement agents employed and no commissions were paid in connection with any of the transactions set forth in this Item 15.
Item 16. Exhibits and Financial Statement Schedules
The information required by this item is set forth on the exhibit
index that follows the signature page of this registration statement.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1)	          To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement;
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2)		         That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3)		         To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)		         That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
47
(5)		         Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Mount Kisco, State of New York, on the date indicated below.
IMMUDYNE, INC.
(Registrant)
Date: October 18, 2012
By:
/s/ Mark McLaughlin
Mark McLaughlin
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Mark McLaughlin his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all instruments
that such attorney may deem necessary or advisable under the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in connection with this registration statement on Form S-1 and any and all
amendments thereto, and any other documents in connection therewith, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Anthony G. Bruzzese, M.D.
Chairman
October 18, 2012
Anthony G. Bruzzese, M.D.
/s/ Mark McLaughlin
President, Chief Executive Officer and Director
(Principal Executive, Financial and Accounting Officer)
October 18, 2012
Mark McLaughlin
/s/ Dominic J. Agostini
Director
October 18, 2012
Dominic J. Agostini
/s/ John R. Strawn, Jr.
Director
October 18, 2012
John R. Strawn, Jr.
49
Exhibit
Index
Exhibit No.
Description
3.1
Certificate of Incorporation of Immudyne, Inc.
3.2
Certificate of Amendment of Certificate of Incorporation of Immudyne, Inc.
3.3
Bylaws of Immudyne, Inc. as currently in effect
4.1
Form of Subscription Agreement
5.1†
Opinion of Newman & Morrison LLP
10.1
Written Description of Royalty Agreement between Immudyne, Inc. and Mark McLaughlin
10.2#
Employment Agreement, as amended, between Immudyne, Inc. and Mark McLaughlin, effective as of October 12, 2012
10.3#
Director Agreement between Immudyne, Inc. and Anthony Bruzzese M.D., dated as of April 20, 2011
10.4#
Director Agreement between Immudyne, Inc. and Dominic Agostini, dated as of April 20, 2011
10.5#
Director and Legal Services Agreement between Immudyne, Inc. and John R. Strawn, dated as of April 20, 2011
23.1†
Consent of Newman & Morrison LLP (Included in Exhibit 5.1)
23.2†
Consent of PKF O'Connor Davies
24.1†
Power of Attorney (Included on the Signature Page of this Registration Statement on Form S-1)
#	Indicates management contract or compensatory plan, contract
or arrangement.
†	Filed herewith.
50